Is Global Capitalism Increasing Poverty?

A few days ago on Twitter, Nathan Robinson made the claim that global capitalism wasn’t reducing poverty. In fact, it appears that poverty, using the threshold of $10/day (rather than the usual lower numbers) has increased from 1981 to 2017:

While there were a lot of critical responses to him on Twitter, he’s not wrong about the data: in 2017, there were 1.3 billion more people living on less than $10 per day (we’re going to assume in this post that the underlying data is basically correct, and correctly adjusted for inflation and purchasing power). It’s also true that at lower thresholds, such as $1.90 and $3.20, the absolute number of poor people has declined. And as a proportion of the world population, fewer people are under $10 per day. But in absolute terms there are more people under $10 per day. And not just a few: over a billion! There are also a lot more people above $10/day in the world than in 1981 (1.7 billion more!), but I agree that we should be concerned if there are more poor people too.

So how should we think about these numbers? Here’s what I think is the fundamental problem with Robinson’s claim: he asserts that the entire world has experienced something called “global capitalism” during this time period. But there has been considerable variation in the extent to which countries have experienced something we would call “capitalism,” and the degree to which it has increased in the past 40 years (I wrote a series of Tweets on this too).

The easiest way to see this is to break down that 1.3 billion people into different countries. Where were the biggest increases? Also, did any countries experience decreases in poverty? (Spoiler alert: YES!)

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Soccer has become a Tragedy of the Commons

Players are breaking down breaking down, which may not be of any particular interest to you, but it seems odd considering that modern nutrition and sports medicine has NBA and NFL players competing at later ages than previously considered possible. I’ll go farther and suggest there is a growing sense in soccer that outfield players (i.e. not goalies) are peaking earlier, particularly in the physically demanding English Premier League. What is happening in soccer that isn’t happening in other sports?

A professional soccer players runs about 6 miles (10 km) a game. They do so in a series of sprints and stops, all while humans with deadly pistons for legs kick at them repeatedly. Even without getting into the costs of repeatedly of striking the ball (and sometimes other craniums) with your skull, it is hard to overstate the cumulative toll on soccer players and their bodies.

Over the course of the 2020-21 English Premier league season, Pierre Emil-Hojbjerg played 53 games for his club and 12 games for the Danish national team. Son Heung-Min has flown 140,000 miles over the past 3 years to play for his club and the South Korean national team. The most prominent coaches in the world are adamant that their players are being asked to do too much. So, if we know that the players are breaking down, some of the most prominent figures in the sport think they know why they are breaking down, and the players are highly compensated employees who are themselves highly valued assets for their contracting clubs, why hasn’t this problem already been fixed? In two words: property rights.

Professional footballers have become a common pool resource. And if there is one thing we know about commons is that they often suffer a tragic outcome. See what I did there?

Long story short, the “Tragedy of the Commons” occurs when property rights to a good are either lacking entirely (i.e. fishing rights in the Atlantic Ocean) or incomplete (i.e. irrigation systems, professional soccer players). While it would be everyone’s interest to limit total usage to maintain the long-run sustainability of the resource in question, without property rights any individual has incentive to claim as large a portion of the resource as possible in the short run (i.e. catch as many fish as much as possible, use a player as much as possible), even if that means the resource in question is destroyed, preventing future use.

The English Football Association pays it’s national team players about 2,000 pounds per match played. When you consider that nearly all of it’s players earn in excess of 100k pounds per week from their club teams, it’s a pittance. How does the English FA get these players so cheap? Partly because they are paying the players in honor and prestige and glory and even more honor, partly because of the stigma and shame that would be levied against them if they refused the social obligation to play for their country. It’s a pretty amazing racket for FIFA (International) and UEFA (European) associations, through which 100s of millions of dollars/pounds are funneled while paying pennies to the players.

For a top player, each year is filled with final and qualifying matches for international tournaments (World Cup, European Championships, Confederations Cup, the League of Nations,…), two or three different league tournaments, and 38 games of regular league play. On top of this are the international “friendlies” that are played whenever the players might actually enjoy a break. As if designed to prove my point, FIFA has proposed having the World Cup every 2 years (instead of 4), which would only increase the load. If this sounds ridiculous, consider it from FIFA’s point of view. As far as they are concerned, player bodies are the lowest cost input in their enterprise. They don’t value the players because they don’t have to.

We shouldn’t let the clubs off the hook completely, either. Yes, they have contracts with the players, which makes them an resource that should be valued accordingly. But that assumes that the managers of a team’s resources have time horizon’s aligned with the team and it’s players, which is often very much not the case. Coaches last less than 3 years on average. Sporting Directors come and go. Even ownership can find itself looking to add short-term shine to a club so they can sell it today, even at the expense of it’s long term value. Don’t be shocked when a coach who needs to win this year to keep his or her job runs their players into the ground. What do they care about preserving their star forward’s rapidly decaying ankles if they can’t count on being around to benefit from their long term value? Hell, it’s more likely the coach will be playing against those ankles in 5 years!

At some point clubs will begin to push back – they simply have too much capital invested in these players, and international tournaments are imposing too much risk on them as franchises. But don’t expect this problem to be solved quickly or easily. The Tragedy of the Commons is an economic cliché for a reason, doubly so when one side stands to lose a lot from the (re) establishment of property rights. Fortunately in this case, there are two parties that stand to benefit from a better property rights: players and their employers. The only side that stands to lose are the wasteful grifters of FIFA and the individual national team associations, and all they have on their side is nationalist pride and populist indifference to professional athlete health….

Oh no.

Spontaneous Emergence of Property Rights in the Classroom

Last week I posted about Bart Wilson’s talk on his new book “The Property Species” and promised to share a class demonstration about the emergence of property rights in the classroom. But first let me tell you why I did this demonstration.

When I was a student I hated assignments that go through the motions of learning, but provide no learing. Building a paper maché volcano, while fun for some, teaches little about volcanic eruptions. Shaking and opening a soda bottle (pop?) is more instructive: it’s the fall in pressure as the bottle is opened that leads to the rapid release of the gas disolved in the liquid, the same thing happens to magma. And while being able to algebraically solve for the equilibrium price given supply and demand functions is a very necessary evil (to a point), it teaches little about the process of competition and price formation.

This is why I was reluctant to having my first Intro to Economics class write their own version of “I pencil”, quite a few years ago. Driving the point of how largely anonymous exchange and specialization, coordinated peacefully through property, prices, and profits and loss makes the modern world possible is very important. But how much can you really learn about this by watching and transcribing an episode of “How It’s Made”? For most students, not much at all. Partly in dread of reading and grading 80 versions of “I whiteboard marker”, or “I toothbrush”, and partly following my conscience I decided to throw in a twist.

The twist may seem evil and arbitrary at first. Students still had to choose a good and write their own version of “I _____” , but if two students wrote about the same good I would divide their grade by 2. If three students wrote about the same good I would divide their grade by 3 and so on. I did not give any additional prompts about how they should sort out potential conflicts or coordinate amongst themselves. These were just the rules of the assignment.

Without this seemingly arbitrary grading rule, goods to write about were not scarce. By changing the grading rules, goods to write about became scarce. While there are many more goods to write about than students, certain goods stand out in the mind, and extra effort must be devoted in thinking up a new good, and finding out if someone had already looked around their room and chosen the same good. Now students also had to coordinate amongst themselves or run the risk of a fairly severe penalty to their grade.

As expected, I have never had to enforce the the harsh grading penalties (anecdotal, I know). Students always find a way to coordinate and establish property rights over suddenly scarce goods. The point of the assignment was no longer about I pencil, but about the emergence of property rights and social coordination (and hopefully a little bit about I pencil as well). I didn’t act as a central authority that imposed and enforced property rights. I merely changed the incentives and constraints, hoping that the costs of coordinating and setting up agreements was smaller than the costs of not doing this.

When they turned in their assignment, we discussed how they had actually coordinated. Over the years I have seen multiple ingenious mechanisms. From class forums using the university platform, to a simple spreadsheet circulated amongst the students via email or WhatsApp. In the good old times before the pandemic they would sometimes meet after class and sort it out in person. Sometimes they created a common pool of goods and one of their classmates is chosen to distribute them among their peers. Leaders emerge to fill various roles from dispute resolution to registering claims. How this person is chosen also varies from class to class. Some students volunteer, others have it thrust upon themselves. The use of a homesteading rule is fairly common, first to choose gets the good in cases where there are multiple claims. In class we discuss why they use this rule, rather than last to choose gets the good, and the problems this alternative would entail.

I have only had one instance of a strong and contested dispute among “property owners”. That semester students had to not only write but present their work. Two groups (that semester “I _____” was a group assignment) wanted to do a good they thought would be amusing to present in class. I’ll leave it up to your imagination what good students in their late teens and early twenties might find to be amusing to present in class. The two groups of students underwent a rather complicated dispute resolution system with the rest of the class playing the role of arbiters of the multiple claims to the same good. Neither group wanted to budge, but one group ended up ceding the rights in the end.

What I like about this little classroom demonstration is that it makes it easier to teach the emergence of institutions as the products of human action but not human design. Order without design is a difficult concept to grasp, but maybe even more importantly it is a concept that is difficult to accept. But after this demonstration, not anymore, students experience the emergence of property rights. An added bonus is that in this case scarcity is clearly a product of the relation between their minds and how they relate to the world, not about objective quantities of goods.

Property rights emerge through their coordination but are not centrally imposed. They coordinate because a change in the environment turned a previously free good, the subject of their short “I ____” essay, into a scarce (economic) good. As you can probably tell Harold Demsetz is one of my favorite economists of all time. After the barrier of disbelief is breached, we can easily talk about the spontaneous emergence of money, cover a little about how property rights emerged in whaling on the high seas, and the spontaneous origin of law (very useful for future law students usually educated in the positivist tradition, as is the norm in Ecuador).

I later learned of the fish game (I am not an experimentalist). But, no disrespect intended, it seems a little contrived. I still like my assignment better. While the goldfish game teaches the tragedy of the commons, the “I _____” assignment teaches how the tragedy can be solved without a centralized authority by having students solve if for themselves and come to grips with the real limitations and problems they faced, albeit on a much smaller scale. I am still hoping for an experimentalist that thinks something serious can be made out of my little classroom demonstration.