Populism versus Constitutional Democracy

What is the difference between a conservative and a reactionary? A conservative knows when she has lost.

A conservative respects the status quo for the sake of stability. The reactionary rebels against it. Unfortunately, it is the reactionary impulse within Brexit that now threatens to hem in the liberties of British citizens, and threaten the rights of foreign residents, for a long time to come. A looser but productive relationship that Britain could have had with the European Union was lost, first at Maastricht in 1992, then again at Lisbon in 2007. A conservative recognizes this loss and adapts her politics to the new landscape. The reactionary tries to reconstruct those lost pasts in vain as the chaotic debates in Britain and the increasingly disappointing outcome illustrates.

Does this mean that referendums are bad? Do they only embolden radicals and reactionaries? It depends. If referendums are used to rubberstamp the decisions of a party in power, or as a way of deferring political judgement, then they are useless at best, dangerous at worst. By contrast, if they are part of the fabric of a democracy, and act as a real veto on constitutional change, rather than a populist rallying point, then they can be enormously valuable. They act as an additional check on the political establishment that might be irrationally fixated on some new governance structure. It ensures that every major change carries with it some level of majority support.

Ten years ago, I wrote a monograph Total Recall: How direct democracy can improve Britain. I advocated supplementing representative democracy with a norm or statutory requirement for referendums on constitutional issues and new local initiative powers. I focused on direct democracy in US states that mean that US state elections often involve both voting for representatives and on propositions. Referendums are required for state constitutional changes. In some states, citizens can initiate new legislation through propositions.

There are parallel constitutional requirements in force in parts of Europe, particularly in Switzerland, Norway and Ireland. It is hardly a coincidence that direct democratic mechanisms have slowed down European integration wherever they have had statutory rather than merely advisory force. Ireland had to go to the polls several times to get the ‘right’ answer but at least this meant that a majority of Irish eventually accepted the new EU arrangements. By contrast, Switzerland and Norway, against the wishes of their political establishments, took European integration only so far before settling with generous trade relations and much more limited political integration. The cost-benefit calculus of their arrangements are up for debate, but few would deny their legitimacy. Britain’s future position, by contrast, may turn out to look much worse and all because its people never had the chance to say ‘no’ until long after the facts on the ground changed.

It’s the ability to say ‘no’ that’s important, with the implication that the status quo must still be a viable option. A people cannot be legislators. Mass votes can’t add up to complex judgements to inform actionable law. Hence the Brexit referendum for leaving the EU for an unknown alternative was bound to lead to chaos which, in the long run, may undermine the legitimacy of representative government, let alone popular democracy, rather than strengthen it. There is no status quo ante to return to.

At the time I was writing Total Recall, the spirits of referendums never voted on haunted British politics. Referendums were promised on adopting the Euro and the European Constitution. Both were abandoned when the Government realized they would almost certainly lose. So we stayed out of the Euro but signed what became the Lisbon Treaty. This turned out to be a deadly combination that eventually led to Brexit. The Euro is quite badly managed as an economic scheme. As a political mechanism, however, it binds members of the Euro much closer together. Leaving the European Union, as Britain is doing, is perilous and costly. Leaving the Eurozone would be even more difficult as it would involve establishing a new currency from scratch. If New Labour had been serious about putting Britain in a federal united states of Europe, it should have gone all in with the Euro from the beginning.

So Brexit could have been avoided but not by ignoring majority sentiments. If British referendums were constitutionally mandated rather than the random outcome of internal (in this case, Conservative) party politics; if referendums were required to change the status quo rather than a mechanism for a belligerent minority to relitigate past losses, then, like Switzerland and Norway, we would be in a much better position now.

Will our political leaders learn this lesson for the future? That I doubt.

On Robert Allen’s defense of the High-Wage Economy hypothesis

The high-wage economy thesis is a topic I have blogged about many times before as I think it is an important debate among economists and economic historians (see notably here and here, see also this contribution of mine to the Journal of Interdisciplinary History). For those unfamiliar with this thesis, here is a simple summary of the idea advanced by Robert Allen: high wages relative to capital units was a key force in the industrialization of Britain and thus it explains why the Industrial Revolution was British before if was anything else.

As I have explained in the aforementioned blog posts, I am unsure of where I stand regarding this idea. I tend to be skeptical, but I have stated the evidence needed to convince me of the opposite. In the past year or so, there has been an avalanche of articles on the topic including this article by Humphries and Weisdorf, a follow-up working paper by the same authors, another paper by Judy Stephenson and a working paper by Stephenson (bis). Today, Robert Allen replies to his critics in this working paper.

I find that some of the points are convincing, however I must take issue with a particular point that falls into my ballpark as Allen mentions my work on wages in France (the aforementioned article in Journal of Interdisciplinary History). In my research, I pointed out that Allen’s computations underestimated wages outside Paris. With the correct computations, the rest of France does not appear as poor relative to England as Allen suggests. Allen concedes this point but then goes to state the following:

Geloso (2018) has pointed out that the Strasbourg unskilled wage series for 1702-64 is low in comparison to that of comparable towns, and workers may have received food, which has not been taken into account.  This is a perceptive point, but its implications are limited. The most important use I make of the Strasbourg evidence is in calculating the ratio of the wage to the user cost of capital. If the Strasbourg wage in this calculation is raised to that of neighbouring towns, the wage-capital cost ratio does rise but only by a small degree. The reason for this somewhat surprising result is that the wage is also an argument in the formula for the user cost of capital–building workers have to build the machines and the mills that house them–so the denominator of the ratio increases as well as the numerator, although to a lesser extend.

This is a incorrect characterization of my argument. First, I did not state that wages in Strasbourg did not account for in-kind payment. I stated that in-kind payment was evidence that the wages did not pertain to Strasbourg! The wages from the primary sources were for a city some 70 km away from Strasbourg, they did not concern unskilled workers and they included large in-kind compensation. To correct for this problem, I compared agricultural wages in England with those around Strasbourg that had been collected by Auguste Hanauer. What I found was the the lowest wages in farming were equal to 74% of farm wages in Southern England (as opposed to 64% with Allen’s stated wages). While I did not report this in the article because I had doubts, it is worth pointing out that the high bound of farm wages in Strasbourg is above the level reported for Southern England (which acts a proxy for England – see table 2 in my paper). As Strasbourg is a proxy for living standards outside Paris, my finding suggests a much smaller gap in living standards. It also entails a much more important change in the cost of capital to labor (wages are in the range of 50% above those suggested by Allen and sometimes they are higher by more than 100% which would mean a halving of the relative cost of capital! These are not peanuts to be thrown on the sidewalk!

Second, I ought to point out the nature of my argument. I was not trying to prove/disprove the high-wage hypothesis. My point was much more modest. The mirror of the question as to why the industrial revolution was British is why it was not French. France had a large population offering large returns to scale (in both economic and political organizations) and an array of navigable rivers that facilitated internal trade. It also key pockets of Lancashire-like industrialization such as Normandy (for textile) and Mulhouse (the French Manchester). As such, it is an entirely reasonable endeavor to try to situate living standards in France relative to Britain. If France was massively poorer than England, then Allen has a greater likelihood of being correct. If it was closer to an equal footing (I do not believe that anyone places France above England in circa 1750), then Allen’s critics have a greater likelihood of being correct.* However, regardless of the answer, the data does not infirm/confirm the high-wage hypothesis. It merely situates relative likelihood. As I point out that wages were quite above those postulated by Allen, I am merely stating the extent of the reasonableness of being skeptical of the high-wage hypothesis.

Finally, it is worth pointing out that the work of Leonardo Ridolfi is absent from Allen’s reply. The latter’s work is very important as it echoes (in a much richer manner) my point that wages outside Paris were not as low as cited by Allen.**

*As I assume a greater equality of capital returns across both countries, the smaller the wage gap, the smaller the relative differences in capital/labor costs ratios.
** Ridolfi shows France had incomes equal to 64% of English incomes circa 1700. However, I am skeptical of this figure. This is because, while I trust the index produced by Ridolfi, I am unconvinced about the benchmark year to convert the index into international dollars.

In memory of Christie Davies: defender of the right to joke

ChristieDavies

As we approach the end of 2017, I remember this year’s sad passing of Christie Davies. Davies was a rare academic beast: a classical liberal sociologist. Despite representing a minority perspective in his discipline, he was able to thrive and leave a mark that will continue to influence scholars for generations.

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