Robert Bob Koopman started his career by teaching international trade in the Economics Department at Georgetown University, in Washington DC. After that, he was working for Economic Research Service of USDA, USITC Office of Economics, and the United States International Trade Commission. Robert Koopman, photo by Philipp Naderer Now Mr. Koopman serves as the Chief Economist and Director of the Economic Research and Statistics Division at the World Trade Organization (WTO). In this post, Mr. Koopman provides the Secretariat and Member Countries with analysis and information that promotes a deeper understanding of trade and trade-policies’ role in economic growth and development. On October 18th, Mr. Koopman is coming to Room for Discussion to talk about the World Trade Organization, the controversies in the international trade, and the trade war between the USA and China. The World Trade Organization The world is diverse; therefore, communication among countries is complex. The WTO is the only global international organization dealing with the rules of trade between nations. The WTO officially commenced on January 1st, 1995 under the Marrakesh Agreement, signed by 124 nations. Today, 164 countries are members. The WTO is a forum for countries to thrash out their differences on trade issues. At the heart of the system — known as the multilateral trading system — lie the WTO agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. The main goal of the WTO is to improve the welfare of the people of the member countries. Although, the fundamental value of WTO is to ensure that trade flows as smoothly, predictably and freely as possible, not everyone agrees that WTO has actually created a “fair playing field” for everyone. For example, in 2012 the American government complained to the WTO that the Chinese government was breaking the rules by restricting the export of rare-earth elements. According to the US, China’s dominance in their global supply creates a certain damage for American manufacturers by pushing up prices of their inputs. After the WTO’s judges sided with the US, the Chinese government dropped the measures. Now, the Trump Administration claims that the WTO’s incomplete rule book makes it incapable of dealing with action of China, therefore the USA must take over and do the job for them. Controversies in trade policy: The anti-globalization movement Nowadays, the world is more controversial than ever. On one side, we have activist organizations supporting the “anti-globalization” movement and fighting for the global justice, on the other side, we see countries following the path of anti-globalization movement and engaging in the activist trade policy. Not all organizations within what is called the anti-globalization movement are against globalization but they indeed often desire a counter-globalization movement. The biggest concern of the activist of counter-globalization movement is that the present type of globalization does not allow the poorer developing nations to exploit their comparative advantage in agriculture due to existing protectionist policies in the richer countries. The real anti-globalization movement, in particular the activist trade policy, usually means that the government policies actively support export industries through subsidies and import barriers. Let’s examine some of the claims of both anti-globalization movement and counter-globalization movements and try to give a critical reply to them. “International trade based on low wages hurts workers in the developing world” The theorem of Stolper-Samuelson imminently discards this argument: free international trade benefits the factor of production that is abundant in the country, but the factor of production that is scarce in the country will lose. While developing nations have abundant low-skilled labor, developed nations have high amounts of high-skilled labor. Applying Stolper-Samuelson theorem to the developing countries: the free trade benefits the factor of production that is abundant in the country such that real wages of low-skilled workers increase or the distribution of income in the developing world tilts in favor of low-skilled labour. Wages of workers in developing nations improve due to trade but workers’ rights are not always well-taken care of. However, is the latter indeed due to globalization? “International trade agreements (e.g. within the WTO) should allow for trade restrictions if products in developing nations are produced without respecting minimum labor standards (freedom to organize within unions, prevention of child labor, respecting safety standards, etc.)” Combating, for instance, child labor via import bans shifts the use of child labor from the exporting sectors to the import-competing and services sectors where import bans in the developed world have no effect. Hence, such bans are not effective in reducing the incidence of child labor: actually the supply of child labour and especially of the so-called worst types of child labour increases. The first-best method to combat the problem of children labour is to directly work on the root problem: low family income, cost of education, etc. “International trade agreements should allow for trade restrictions in order to guarantee environmental standards and to guarantee cultural identity” Such environmental standards can be misused for protectionist purposes rather than to safeguard the environment. Protection of domestic “cultural markets” (e.g., film) against foreign dominance can be justified when referring to sufficiently large positive externalities. But the question remains: How big are the positive externalities and are they economically justified? “The World Trade Organization infringes upon national sovereignty: the issue of legitimacy” The WTO is not a staff-driven, technical and supranational body: it is member-driven. The members have voluntarily agreed upon taking on a code of conduct. “The developed nations’ attitude is asymmetric: they desire more liberalization in goods in which they have a comparative advantage, but they keep on restricting trade in agricultural products in which the developing world has a comparative advantage” This is unmistakably true and it is currently the main reason why the Doha Round is still not finalized. The WTO launched the Doha Development Round during the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an ambitious effort to make globalization more inclusive and help the world’s poor, particularly by slashing barriers and subsidies in farming. The conflict between free trade on industrial goods and services but retention of protectionism on farm subsidies to domestic agricultural sectors (requested by developed countries) and the substantiation of fair trade on agricultural products (requested by developing countries) remain the major obstacles. The future of the Doha Round remains uncertain… The trade war between the USA and China Unless peace breaks out, the American rate will increase to 25% on January 1stFrom September 24th, imports of products which in 2017 were worth $189 billion, including furniture, computers, and car parts, hit with duties of 10%. The Chinese in response put tariffs on $60 billion of American exports. Some have speculated that China could hit back at the USA in a far more significant way: selling a huge chunk of the more than $1 trillion of USA Treasury bonds it holds. The IMF said that disruptions to global trade are threatening growth. It cut its global growth forecasts for 2018 and 2019 by 0.2% to 3.7% and lowered projections for the increase in goods and services trade worldwide. “America first” policy in Asia could result in “America last”The USA and China are in the proper trade war. While The USA raising the duties on Chinese import, China tries to minimize its losses by aggressively expanding into the Indo-Pacific rejoin. The experts say that the Indo-Pacific area is of great strategic importance as it’s the “future of the world’s economy”. The USA would lose the access to commerce in the world’s most populous region as China start dominating commerce and politics there. It is unclear if President Trump and his supporters understand that without the United States within the region an “America first” policy may result in an “America last” policy. What is the future of the Doha Round? How will the trade war between the USA and China unfold? Is the whole world in danger from toxic slipovers of this trade war? Will free trade remain an ideology rather than reality? These and more questions will be posed to Robert Koopman during the Room for Discussion interview on Thursday 18th October. The interview will take place E-hall at Roeterseiland Campus (Universiteit van Amsterdam) at 13:00. Read our next article after the interview!

Our society revolves around the individual. Meritocracy is the keyword, which implies everything you own (or owe) is a product of your actions. We adore entrepreneurs like Bill Gates and Elon Musk because they acquired all their wealth through brilliance and hard work. We look down on people who are indebted or homeless because they obviously made the wrong choices in life. However, the meritocratic view is distorted. Being rich is more often than not the result of inheritance. And even if you only look at ‘self-made’ millionaires, chances are they have just had a lot of luck. That is not to say they are not hard workers, they almost always are. But all those people who are also hard workers but did not get lucky are not known to you, although that group is much bigger. So if you acknowledge that success is largely determined by luck, it makes sense to say that misfortune is determined likewise. Sometimes people fall ill and have to pay large medical bills. They break up or divorce, which can be a big strain on income and wealth. Some people face large expenses due to fires or accidents for which they are not fully insured. This is all bad luck, and it can change a person’s life forever. But, you might ask, that’s not what this article is about. Indeed, the title asks if being poor makes you less intelligent. Recent research does indeed suggest this, which would make the meritocratic view even more harsh for those who are unlucky, as i’ll explain later. The answer of science There have been a number of studies that suggest that being money deprived has a negative effect on your cognitive abilities. This means that when you are occupied with financial problems, the ability to solve your situation, as well as the rest of your thinking, is impaired. In a paper by Shah, Mullainathan and Eldar a closer look is taken at the relationship between bad choices and poverty. It examines the fact that poor people tend to make bad financial choices, like taking payday loans with massive interest rates. The researchers’ explanation is that poor people are preoccupied by short-term decisions. They can’t think of the future because there are pressing expenditures to be made right now without the means to cover them. This explains why poor people tend to borrow more and save less than they should. This paper also describes an experiment in which a group of people is divided into a ‘rich’ and a ‘poor’ group, both being given a budget accordingly. After this, they had to play games that involved their budget. It became clear that the people with lower budgets under-performed. This shows that having money troubles on your mind has an impact on your performance. A different paper by Mani, Mullainathan, Shafir and Zhao goes deeper into the question of whether poverty has a measurable effect on intelligence. For this they conducted two experiments. In the first experiment the researchers divided the group in two samples, both consisting of rich and poor people. Both samples were asked to perform a partial IQ test. However, one of the sample groups had to solve a difficult problem concerning personal finances first. In the sample where rich and poor individuals weren’t asked to perform this task beforehand, the results of the IQ test were similar. However, when both the rich and poor were confronted with the financial problem first, the poor significantly under performed on the IQ test. This shows that in this sample, it was not initial intelligence that compromised decision making, but the reminder to their personal financial strain. The second experiment was conducted in India. Here, a sample of small farmers were surveyed before and after harvesting their crop, sugar canes. Before the harvest, these farmers experienced financial difficulties. They more often had loans and more often had to sell their properties. After the harvest, these problems diminished because their incomes now increased. The researchers then made the farmers perform the same IQ-test as in the aforementioned experiment. They found that the IQ scores of the same farmers was significantly lower before than after the harvest. Financial distress had decreased their IQ score by 13 points! This stands equal to missing a full night of sleep. Sugar cane farmers in India (these farmers were not part of the research.) PHOTO SOURCE: International Labor Organization. Change the debate These recent findings are very important for the debate on poverty and guilt. It shows that poor people are not stupid, but that their circumstances have a big impact on their ability to decide. This explains why people who have become impoverished often struggle to get out of that situation, and are more prone to make bad choices. Their brain, constraint with the stress and short-term orientation that poverty induces, just doesn’t function properly. This brings us back to the discussion on luck at the beginning of this article. A lot of people are simply unlucky and fall into poverty. If their brain starts under-performing as a result, it means they are practically stuck. In this situation, it doesn’t help to judge people or claim that it is their own responsibility to get out of the mess they have created. This is not fair to those who faced bad luck or to anyone who made a mistake, because that is something all of us do. You should not lower benefits or make debt collectors more forceful, since this only puts more stress and strain on poor individuals. It is much more effective to give people proper support. Better treatment would consist of allowing a third party to handle certain financial tasks. This takes a bunch of worries from the person’s mind, which will result in better choices in the future and financial problems being solved earlier. Also, a lot of poverty-related suffering would be solved, which brings major societal benefits. For this, you need more guidance in the ever-more complicated financial world, and more awareness of the financial dangers that can hit anyone.

In 1938, French philosopher Louis Rougier organised the Walter Lippmann Colloquium. This was a conference of intellectuals whose main objective was to come up with a new liberal philosophy in order to replace the failed laissez-faire liberalism and fight the rise of collectivism and socialism. It was at this summit that the term neoliberalism was coined. Among the delegates in attendance was Austrian economist and philosopher Friedrich Hayek. Hayek, though already a distinguished faculty member of the London School of Economics, rose to prominence after the publication of his 1944 book The Road to Serfdom. This book summarised his conception of classical liberalism, and in it he argued that government control of economic decision-making inevitably leads to totalitarianism and the loss of individual freedoms. This rejection of government central-planning stood in stark contrast to the ideas of Keynesian economics, which had become the norm in Western countries in the aftermath of the Great Depression of the 1930s. The Road to Serfdom achieved great popularity in the United States, particularly among economists at the University of Chicago, such as Milton Friedman. An abridged version published by Reader’s Digest in 1945 allowed Hayek’s views to spread beyond academia to the general public. Crucially, it also reached the hands of wealthy people –such as American businessman Harold Luhnow– who saw in Hayek’s condemnation of taxes and regulations a way of increasing their fortune. Backed by these millionaires and their foundations, Hayek founded the Mont Pelerin Society in 1947 as a way of spreading his neoliberal philosophy. His backers also funded the creation of several think-tanks, among them the Heritage Foundation, the Cato Institute and the Adam Smith Institute, and financed academic positions and departments, effectively creating a transatlantic network of academics, businessmen and journalists. Despite this, neoliberalism would remain at the fringes of economic orthodoxy for another thirty years, during which Keynesian economics remained extremely influential. This period, known as the post-war consensus, saw governments developing strong welfare states financed by high taxes for the wealthy (the top marginal income tax rate in the U.S. stood at 90% in 1960). It was generally accepted that governments were needed to provide basic services, regulate markets and mitigate the vices of capitalism, such as recessions and inequality. However, the oil crises and stagflation of the 1970s exposed the flaws of Lord Keynes’ ideas and resulted in Western governments seeking an alternative. Thus, neoliberal ideas entered the mainstream. U.S. President Jimmy Carter and British Prime Minister James Callaghan’s left-leaning governments adopted monetarist policies advocated by Milton Friedman; and while they managed to tame inflation, the recession eventually deepened and this resulted in the Democrat and Labour parties losing the subsequent elections. These events ushered the advent of neoliberalism as the main economic ideology in the West, with U.S. President Ronald Reagan and UK Prime Minister Margaret Thatcher as its most celebrated champions. They gave massive tax cuts to the rich, deregulated industries, privatised public services, decreased social spending and destroyed trade unions. The idea was that these policies would boost investment and competition, thus spurring growth. The profits would eventually “trickle down” from the top and benefit everyone (everyone lucky enough to get a decent job, that is). Gradually, neoliberal policies were imposed on the rest of the world through the International Monetary Fund, the World Bank, the World Trade Organisation and the Maastricht Treaty. So what were the consequences of this shift towards a neoliberal model? Neoliberal policies are at the heart of several of the most pressing issues of our time. Chief among them is growing levels of inequality. In his 2013 book Capital in the Twenty-First Century, French economist Thomas Piketty paints a harrowing picture. Since 1980, inequality in developed countries has exploded and reached levels unseen since before the Great Depression, especially in Anglo-Saxon countries. In the United States, the top 10% have seen their share of national income increase from 35% to 50% in the last four decades (with 18% going to the top percentile). Wealth inequality also stands at absurd levels, as the top percentile owns 70% of total wealth in the US. These figures are not surprising given the diminished power of trade unions and the deregulation of labour markets, which have a direct consequence on wage growth as workers’ bargaining power is eroded. Again in the United States, the bottom 20% of earners have seen their after-tax income increase by 46.1% since 1979. During that same period, the after-tax income of the top 1% increased by a whopping 192.2%. Further, CEO-to-worker pay ratios have increased dramatically. Today, the average CEO of a S&P 500 company earns around 361 times the wage of a median worker. In 1980, the ratio was 42:1. Deregulation of the banking sector has also played a role in increasing inequality. According to David A. Moss, an economic and policy historian at the Harvard Business School, bank failures and financial crises were common until 1933, when regulations were put in place as a result of the Great Depression. After that, bank failures and financial crises virtually disappeared, but resumed after the financial liberalisation process that began in the 1980s. Deregulation allowed financial institutions to invest in more speculative activities and form giant conglomerates that would eventually become “too big to fail”. This process culminated in the Great Recession, the worst financial crisis the world has seen since 1929. Further, there seems to be a correlation between financial crises and growing inequality. Financial crises disproportionately affect the working and middle classes, as job losses are concentrated in so-called “middle-skill” jobs. This effect is exacerbated by the austerity measures that are put in place as a result of the crises and the government bailouts that usually follow. Pension cuts and decreases in welfare, public health and education spending are the norm. Ironically, the cost of these bailouts is borne entirely by the common taxpayer, while banking executives emerge largely unscathed. The global neoliberal apparatus is also partly responsible for the worsening of environmental conditions. While man-made environmental degradation precedes neoliberalism, the adoption of market-and-export-oriented policies by much of the world since the 1980s has certainly exacerbated it. Global greenhouse-gas emissions have increased dramatically, especially in developing countries. Further, as the number and size of multinational companies has grown, so has their influence on global public environmental policy. The International Centre for Investment Dispute Settlement at the World Bank allows foreign private investors to sue sovereign governments whenever they feel laws and regulations –including environmental protections– hurt their profits. For example, in 2009, a Canadian mining firm called Pacific Rim sued the government of El Salvador for 284 million dollars because they would not allow them to open a gold and silver mine, as they lacked proper environmental permits and land ownership rights. Similarly, Houston-based Occidental Petroleum sued the government of Ecuador in 2012 after it cancelled an oil-exploration contract. Ecuador was ordered to pay a record 1.8 billion dollars, an amount roughly equal to the country’s health budget for a year. Most international trade and investment treaties contain a mechanism called “investor-state dispute settlement” that allows investors to challenge governments in a similar manner. The extreme form of competition and individualism behind neoliberal thinking also affects us in more subtle, personal ways. The all-knowing, all-powerful market is a sorting system that determines who has merit and who doesn’t. Thus, if you are poor or unemployed, you are meant to feel unworthy and incompetent. This, along with the lingering effects of the Great Recession and growing inequality, have arguably contributed to the rise of right-wing populism in Western societies, as the many that have been left behind grew tired of the status quo. U.S. President Donald Trump exploited the anger of manufacturing workers, miners and farmers in order to win the 2016 election. Presenting himself as an outsider, he promised to “drain the swamp” and fix the corrupt Washington establishment. Instead, he appointed an investment banker, an Exxon executive and a fossil fuel industry shill to his cabinet. He gave massive tax cuts to the rich and rescinded several regulations regarding the environment, labour, finance, housing, education, health, telecommunications and agriculture. It was also this wave of discontent that got Marine LePen, a far-right candidate, to the second round of the French presidential elections last year. However, “centrist” Emmanuel Macron ended up winning the elections, under the guise of being an anti-establishment outsider. Ironically, since his term started, he too has given tax cuts to corporations, cut public spending on healthcare and housing, and done away with workers’ protections. Voter disaffection also played a role in the Brexit referendum and the election victories of several far-right parties all over Europe, such as the AfD in Germany, the Law and Justice Party in Poland, the Austrian Freedom Party and the Five Star Movement in Italy. At the same time, mainstream left-wing parties such as the Socialist Party in France and the Labour Party in the Netherlands have seen substantial drops in support. Clearly, the left has failed to inspire voters disillusioned by the neoliberal policies of the past four decades; and now the working and middle classes are unwittingly voting against their own interests. If we are ever to live in a world that works for everyone, it needs to come up with a viable alternative that is economically and environmentally sustainable.

Europe in Crisis: As part of their 10-year anniversary, Room for Discussion have reserved the month of October to debating institutions in crisis. This week, they invited Neelie Kroes to talk about the current state of the European Union and some of its pressing problems. As a follow-up to our Sunday article, here are some of the thoughts and opinions that the former European Commissioner has shared during the interview. Starting off with some advice It would be hard to start an article without acknowledging the important role Neelie Kroes has had in female European politics. Whilst joking about her grand-daughter calling her the “President of Europe, because of the red nail polish”, Ms. Kroes highlighted how important it is for women to take any opportunity that comes to them. She further stressed that this is exactly what she did when decided to do when offered the opportunity to represent the Netherlands in the Competition Committee. “When somebody comes to you with a good enough reason for you to do it, you accept”, she said, while reckoning that competition was not exactly her strong suit, given her background in the ministry of Transportation. This comes into direct touch to the “risk avoiding” she believes many female politicians exhibit. She tells women that taking an opportunity, even if you do not feel 100% ready, is the best way to develop yourself and break the glass ceiling. Populism in Europe and the 6 Founding Fathers The discussion about rising populism began with her stressing the leap of faith taken after World War II by the “Six European Fathers”. She spoke about the courage it took to unite countries that had been at war with each other since the beginning of the modern era. She strongly sees the European Union as “the best option we have right now”, but she believes that there are key differences between the member states. “We have to educate them” and “rules should be both accepted and followed” were reoccurring themes when she talked about rising populism in the former communist block. Recalling a rather unpleasant meeting with Orban she sees the raising of populism as “unfit for the EU”. She further goes to recommend transparency when communicating ideas and transparency about the political aims of the party as the only solution to avoid long-term instability. “It is a must that politicians explain why they are doing things”, she stressed when discussing the impact social media has had on the transfer of ideas and political messages. She truly believes that the “one phrase idea” spread on Twitter is fundamental to the citizens and that some politicians should choose their words more carefully. “Immigration right now, it’s just the drop”. As an advocate for the fight against climate change and the Paris Agreement, Neelie Kroes sees the immigration problem Europe is facing as the tip of the iceberg. She believes that unless action is taken, we will experience much bigger immigration waves from Africa due to climate change. “People will be moving North” she claimed, informing that it is better to look at all the problems from a “long-term” perspective and that this particular strategy would be a great determinant in maintaining stability within Europe. When asked about strategies for the awakening of traditional parties, Ms. Kroes was quick to add that reformation is needed. Bureaucracy, lack of continuity between cabinets and a time lag situation until the establishment of trust are some of the factors she mentioned are to blame for the inner slowness of the EU. However, she did not offer any solutions to those problems. Europe in the Digital Era “Technology is a unifier” and “Europe needs to catch up” are in a few words the message Neelie Kroes wanted to put forward. With our five minutes after the interview, Rostra’s treasurer Joos Akkerman and myself made sure to follow-up about some points that we believed were rather overlooked because of the lack of time. As such, we were particularly interested in data collection whilst respecting state sovereignty. Ms. Kroes told us that a “privacy policy is already in place” and there is room for rules that will for sure be implemented in the future. She assured us the EU has the capability of providing a safe environment for data, but did not particularly explain how a centralized database will be a non-subject for nations that seem to be increasingly interested about protecting their national interests. Our other question was focused mostly on the catching up of the states of Eastern Europe and how can we achieve the much-wanted transparency in those fragile democracies. She met our question with observations about the way representatives from those countries act within the European forum. “They accept it in Brussels, but then they go home and do completely the opposite and complain”. Conclusion and thoughts Speaking in the manner of a true politician, it is clearly seen that Ms. Kroes is optimistic when it comes to the future of Europe. However, she is aware of the changes that have to be done to ensure stability. Balanced, but leaving some of our burning questions unanswered, she reflected upon her time in Brussels with great respect for the principles of the institution. Personally, we were looking forward to a more clear action plan when it comes to European intervention in the states with rising populism. However, there is one thing I tend to agree with when it comes to the actions of politicians. Looking at Romanian politics, saying one thing and doing another has become rather customary. This appears to happen at both national and international levels. Therefore, transparency and clear principles are indeed the ways to go. But like some Hungarian people nicely highlighted from the audience, it is way harder to impose your principles on somebody else than one might think. Without coming with a clear action plan and structure, transparency is just a nice word that fits with everything.

I decided to study economics when I was sixteen years old. Back then I did not know much about the subject, and although I am already in the second year of my bachelors, I must admit that I still know very little about it. Sure, now I understand terms like inflation, monopoly, and depreciation. But the truth is, most of the questions that drove me to study this subject have remained tragically unanswered. One of these questions is: Why are some countries rich and others poor? Although it might seem like a simple question no one has actually managed to provide a complete answer to this issue. Nonetheless, in the following text, I intend to take you, the reader, through some of the theories that in my opinion, manage to explain best the origins -or thereof lack- of wealth. Let us begin then. What’s the impact of geography on wealth? The previous map displays the level of GDP per capita around the globe, in 2016. If we look closely, it is possible to notice a pattern. As you can see, countries in the northern and southernmost parts of the globe seem to be more prosperous than those within the tropics. This is not a coincidence, the geographical location of a country is immensely related to its economic development. This difference could already be seen during the colonization period, as colonies located in temperate regions such as Argentina or Chile performed better than their tropical counterparts, even though they were managed by the same empire. And, albeit it is possible to find some temperate economies that are not as rich or developed as others, most of the time there is a concrete explanation to their situation, such as years under communism or geographical isolation. But why this? Let’s start with food production. While one might think that the harsh winters that come with temperate weather create a disadvantage for the countries that have to endure them, in reality, data has proven that periods of cold temperatures kill off bacteria and pests that would be even more disadvantageous for farmers, than a few months without crops. Because tropical countries lack these periods, they are more prone to the devastation brought by both plant and human diseases since warmer temperatures also attract more ticks and mosquitoes. Besides this, the soil in the tropic is much more fragile than that in temperate areas. In fact, most of the nutrients in a tropical forest are actually above ground, and the nutrients that make it into the soil tend to be washed away by rainfall. On the contrary, winter frost increases the buildup of organic compounds and provide richer topsoils to temperate areas, thus increasing their agricultural productivity. And then there is also the fact that tropical ecosystems have immense biodiversity, which means that they oppose the monoculture system that characterizes food production in the northern or southern-most regions. What about natural resources? Well, when it comes to natural resources the story gets even trickier. Intuitive logic tells us that countries with large oil, gold, and any other mineral reserves should be the most prosperous. But instead, the current situation is quite the opposite. In fact, countries with an abundance of natural wealth tend to grow the slowest. Why is this the case? For starters, natural resources reduce the incentive to innovate; it has been seen that resource-rich countries lack entrepreneurship. This can be attributed to the fact that humans are risk-averse, therefore, we tend to go for the safest available option. In this case, working in an available industry might seem much more attractive than diverging and creating a new business. And this adds up to the fact that countries with plenty of resources have fewer incentives to develop their people, given that it is more attractive to invest in a project that gives you short-term profits, such as an oil refinery, than education where you only see long-term results. Besides this, there is also the renown “Dutch Disease”, a paradoxical situation in which seemingly good news, such as the discovery of natural reserves, can actually harm the economy. The logic behind this is that when countries export too much of a certain resource, their currency appreciates to the extent that exports in their other industries become uncompetitive, and as a result, they become increasingly dependent on one single resource. This dependency then delves into another issue, since the price of commodities such as oil and gas tends to be extremely volatile. Finally, institutions. Here, we need to take a look at the past, as this theory states that the political and economic control of developing countries during the period of European settlement had long-lasting effects in the economy that persist to the present day. The argument behind this statement is that, back then, countries could be assigned two types of governmental institutions, either an extractive  government for countries that were only meant to supply the empires with certain commodities or inclusive institutions for those that were supposed to become a “second Europe”. The problem with extractive institutions is that they allow a small group of people to control all the resources of the state at the expense of the rest of the population, being designed to “extract resources from the many by the few”. Meanwhile “inclusive” institutions work in such a way that many people are included and taking into account in the process of governing. In the book “Why nations fail” the authors, Daron Acemoglu, and James Robinson, provide a great example of this situation. Take the two towns of Nogales Arizona, located in the US and Nogales Sonora, located in Mexico. Besides having the same name, they also share almost the same people, culture and geography. But Nogales Arizona is noticeably richer than Nogales Sonora. Evidently, this case cannot be explained by any of the two previous theories covered in this article. And of course, the same can be said for places like North and South Korea. Of course, like in any other economic theory, there has to be some exceptions to these findings. Take Singapore, a tropical country that has an immense richness despite being located just north of the equator. Or Norway, that despite getting 20% of its revenues from oil and gas production anticipated the problem that came with being too dependent on a single export, and solved the dependency dilemma by creating a giant sovereign wealth fund currently worth about $800 billion that allows them to have a steady level of spending even when oil or gas prices drop. All in all, there is a vast number of explanations for this issue. Some other factors important to mention include premature deindustrialization and modernization theories. And sure, we cannot entirely blame the tropics or its natural resources for poverty, but they undoubtedly play an important role in the economic development of countries.

By definition, authoritarianism is  “the enforcement or advocacy of strict obedience to authority at the expense of personal freedom.” I consider this definition particularly incomplete. The definition misses the most important part at the end: “for a certain reason“. Mao Zedong explicitly stated “Political power grows out of the barrel of a gun. Our principle is that the Party commands the gun, and the gun must never be allowed to command the Party”. But even if he formed and ruled the People’s Republic of China with this mentality, people embraced him. In the end, he was the biggest national hero, the savior of the Chinese Nation. When Louis XIV shouted out: “ I am the state”, he certainly didn’t face any uprising or such. After all, he led France to its Golden Age, he was their “Golden King”. He is still regarded as the most successful leader France has ever seen. Yes, the world has changed since then, the French Revolution came to pass, democracy has become the status quo and as time passed, we forgot something: authoritarianism has not always been regarded as the worst regime for a country, depending on the consequence or the need. What this definition overlooks is the fact that people exchange their personal freedom for several reasons. Citizens of the USA exchanged their personal freedom for security when they accepted the Patriot Act, signed right after 9/11. On March 2018, the People’s Republic of China exchanged their personal freedom by passing a bill that gives autocratic leader Xi Jinping a “life-long term limit”. In exchange, he vowed to make China the biggest economy in the world. Yugoslavians exchanged their freedom to keep Yugoslavia United by supporting Tito. Even Fidel Castro was authoritarian but most Cubans would give their lives for him. Coming back today, we all know the turmoil Trump caused after the Cambridge Analytica Scandal, when the citizens of the USA learned that their Facebook data was exploited in favor of Trump’s presidential campaign. Many describe Trump as a “lunatic” who turns the world upside-down for no reason. However, that is not the case. It is clear from the elections that US citizens indeed demanded such a ruler. Think about it, what if the chaos Trump causes actually revolves around the fact that he did not give Americans something valuable enough to exchange their freedom with? What Trump proposed to US citizens was that “as a result of the new economic order that was formed in the wake of 2008 Financial Crisis, the US private sector moved their production facilities to countries with cheap labor such as China, Mexico and recently, India. So the US working-class was left unemployed and their share in the economic pie has diminished. Moreover, these companies have been exploiting tremendous amounts of USA capital, technology and resources inside the borders of those countries”. As every authoritarian regime needs an enemy, Trump needed it too. Remember the country along which he wants to build a wall? Or the country that Trump keeps putting tariffs on? It is not a coincidence that those two countries are the same ones where the US private sector has moved their production for cheap labor to the most. Since the crisis, US exports 55% more in total and China became the country that the US has the biggest trade deficit with. Currently, The USA owes $1.17 trillion in total to China, the greatest amount of USA debt held by a foreign country. Mexico now contains the production facilities of the largest US companies like Ford, Caterpillar, Nucos and General Motors within its border. This is also the main reason he draws an anti-globalist perspective by taking protectionist trade measures like tariffs to make imports from China unprofitable and thus incentivize domestic production instead. By basing his presidential campaign on populist promises that would supposedly benefit blue-collar and middle-class Americans, he got the majority. While Trump draws huge public criticism, GDP of the US grew by 4.1% in his first year (1% caused by the private sector only), the fastest growth since 2014. Also the USA is witnessing its second longest period of economic growth since World War II and Wall Street has already set a record for its “longest bull run in history”. Even if this doesn’t translate into high approval ratings, critics believe that, if sustainable, his economic success will eventually play a huge factor in his re-election in 2020. According to the Human Rights Foundation’s research, the citizens of 94 countries are ruled under non-democratic regimes, making 53% of the world currently controlled under autocrats. Autocratic governments keep getting bailed out by the World Bank and there is no distinctive initiative taken by the UN towards monitoring those governments, so they are not regarded as a threat to democracy or the increasing socio-economic inequality. Turning back to some authoritarian regimes around the world, China has 20% of the world’s population but only 3.3% lies within the poverty line. They are the “world’s factory” and even cheap labor is no longer the case for China as income per capita is increasing considerably year by year. This economic miracle will make China the biggest economy in the world by 2030 and potentially, the most influential one. Saudi Arabia’s forecasted GDP growth is 1.8% for 2018 and for non-oil sectors, 2.3% which is a promising sign of how the Saudi Arabian absolute monarch is on the right path to make the country less oil-dependent. The government ruled by the Saudi Prince foresees that the diversification and growth of the economy will reach its peak by the end of “Vision2030”.  Turkish president Recep Tayyip Erdogan has been ruling Turkey since 2002 and reached outstanding GDP growth and GDP per capita records compared to previously unstable governments. On top of those, parallel to the rise of inequality around the world, populist parties (mostly with authoritarian views) are on the rise in even full-democracy European countries. Yes, there is a lot of unsatisfactory examples like Maduro in Venezuela, Kim Jong Un in North Korea, poor African countries ruled by dictators or the current economic situation of Turkey under Erdogan. Since authoritarianism often turns a blind eye on an independent judiciary system and democracy, trust in the economy diminishes inevitably year by year and at the end, especially developing countries cannot refinance the foreign debt used by foreign investors leaving the country year by year. But looking at the big picture, years after the status quo of democracy, the world finally seems to reconsider that authoritarianism is not a bad idea again as people are becoming more and more willing to exchange their personal freedom for its “economic perks”. Security can also be the reason as global arms threat reaches the highest point since Cold War Era looking at the rise of global armament triggered by North Korea. Some questions still demand an answer at this point, such as “Isn’t the non-democratic authoritarianism trend in contrast with rising individuality and increasing awareness of privacy?”. After the 2008 Financial Crisis hit all over the world as much as the USA, globalization has begun to be questioned. But what about the inevitable rise of technology and inter-connectedness between nations and people, legalization of drugs around the world and the upcoming Generation Z which values personal freedom and “being global” more than ever? This certainly doesn’t match the idea of rising absolutism. While talking about the perks of authoritarianism throughout the article, let’s not forget the quote from Antoine de Saint-Exupéry: “A totalitarian regime may indeed fulfill our tangible needs. But we are not some kind of herb animals being fed by its owner. Respect for humanity! Respect for humanity! If such respect is rooted in the human heart, humanity will eventually establish a social, political, or economic system that reflects itself.”

Neelie Kroes is, in short, a woman of power. Born in 1941 in Rotterdam, she is a Dutch and European politician for the liberal VVD party. Being said to have broken every glass ceiling, she was former European Commissioner for Competition and Digital Agenda (2004-2014), first female underminister at the Ministry of Transport, Public Works and Water Management (1977-1981) and the Minister at the same ministry (1982-1989). A model for female emancipation in the 1960s and a person that was never afraid to go after the tech giants, Neelie Kroes has put her stamp on European and World Politics. Now she is coming to Room for Discussion (3rd of October, 13:00) to review the tense situation within the EU and show some insight into what could be done to overcome the division that is now more present than ever. Europe’s Domino Effect The European Union has not had the most terrific two years. With Brexit, rising populism and increasing Europhobia, there is a clear uncertainty to what the future holds. The recent developments in Poland and Hungary being a reference point toward the direction in which most of the former communist countries are heading. Even without stating a right radical agenda, some parties are employing legislative changes that are aimed towards less civil liberty and more control. This happens especially in countries with a newly developed and fragile democratic system. The triggering of Article 7 against Hungary and Poland further stresses the turning point at which we have come. It is important to keep in mind that the people themselves brought the populist parties to power. Starting from a divided left and the frightening appeal of populism there are different views on why the radical-right has soared in popularity recently. People seem to be more pessimistic about unity than ever before. When asked about the feelings towards the migration and the future of the EU, citizens of all ages are taken aback. Considering this, it is normal to wonder about the future of the European Union and how we can deal with the rising radicalism. How will the opposition respond in order to come back to a much-wanted balance? What can the EU do without crossing the boundaries of national sovereignty? The sovereignty situation is particularly delicate. It was one of the most used arguments for Brexit in 2016, and people seem affected by it greatly. With less than six months left until a possible goodbye to the UK, will the EU recover from the hit or will the combination of mistrust and populism result in a domino effect? A united market is more important than many realize in the race for data collection and artificial intelligence, and unfortunately, the EU is falling behind. Can we surpass US and China? The US and China have one big thing in common: a large market. With this comes an incredible amount of data. So incredible that by 2030, China will hold 30% of the world’s available data. Both of the powerhouses are pumping billions of dollars in new technologies to collect better data and employ some of the most brilliant minds. The EU however, is not. The slow movement of funds for technological research and the increased bureaucracy have kept the tech progress in EU at a still compared to the other economic powers.  But can the EU catch up with what America and China have been doing for quite some time? Unfortunately, the EU already has a precedent of failed projects when wanting to keep up with economic and technological developments. The ambiguity of the Human Brain Project is one of the most famous. The €1billion project has not yet stated any discovery, but seems to go on even without having stated a clear future agenda. A recent Economist article advocates for inclusion rather than rivalry in the tech industry. And frankly, we couldn’t agree more. Why not create a prepared space for already developed AI to evolve and thrive rather than be adverse to it coming from another nation. Regulation involving AI seems to be a rather urgent matter, that neither China nor the US, seem to look forward to. However, a problem arises. AI has not yet been viewed as a groundbreaking technology to improve economic growth and human advancement, but rather as a matter of national security. To be more direct, AI weapons that should be used as a defense mechanism for your own countries borders, which complicates the situation quite a bit for the EU. What to ask Mrs. Kroes is an advocate of a liberal market and an integrated EU that understands that cooperation beats competing. She was particularly involved in bringing substantial investments for the 4G network in the Union and believes that technology is at the basis of unification. Here are a few of the questions that we are particularly excited to get some insight on. Should we allow foreign firms in the European market or help the development of local ones? How is the current division in Europe going to affect the integration of the AI market? Is the EU stable enough to get over the tumultuous period? Is nationalism just a phase or will we face a domino effect EU-exit? Tune in on Monday 8th in the E-hall at 13:00 to get some important insight into what the future of the EU looks like. Do not forget to tune in for our follow-up article on the discussion on Wednesday.

On Wednesday October 3rd, you maybe had the chance to attend Carles Puigdemont’s interview held by Room for Discussion. Talking with the two interviewers, he explained that it was undoubtedly difficult to live away from his native country and his family, but he made one thing clear: he still feels at home in Belgium, because for him, Europe is home. The implications of Catalonia’s independence with Europe have been highly discussed since last year. In this article, we will analyse Puigdemont’s interview and the situation of Catalonia and Europe. The interview “I have always believed in the independence of Catalonia, but I have also worked with the idea that Spain can be Catalonia’s state if the country accepts Catalonia’s identity”. What Catalonia is demanding to the Spanish government, Mr. Puigdemont explained, is the right to ask, the right to explain their project, and the right to be independent. In a debate like this, he continues, no one is ever completely right, that is just a part of democracy. But no solution can be reached if Spain does not agree to talk. He argues that the Central government’s response to the Catalan aim to reach a solution had resulted in people going to jail without trial. At present, with Pedro Sanchez’s neww government, the climate has changed in politics, but the politicians, he argues, are still the same. Puigdemont has been traveling around some key European countries since he left Spain last year. His aim? “I must explain the risk”. He clearly stated that he is not worried about the lack of support he faced for the Catalan referendum – “I believe in Europe” – but he is disappointed about the silence that other countries showed about the violation of fundamental rights in Catalonia. The former president rejects the idea of the union of Spain, seen as a religion – “all borders are artificial” – but rather believes in a politically unified Europe. A more federal Europe, he explains, will recognise more diversity, its own diversity. If living in small states makes European citizens better off, then, why not consider it? But for now, the situation does not seem to have changed much, and an agreement with Spain has not yet been reached. Thus, when the Room for Discussion interviewers asked him if he will ever be able to go back to Spain, his answer was: “To Spain, I don’t know, but to Catalonia yes.” The cost of independence Puigdemont has titled his new book The Catalan Crisis, an opportunity for Europe. The implications of this separatist movement will certainly have an impact on Europe, but what about the impact on Catalonia? Catalonia already has some features that give the region certain autonomy – their own parliament, police, flag, and control over some of their public services such as health and education. However, the costs of being an independent state are not to be underestimated; border control, defence, a central bank, inland revenue. These are just a few of all the added expenses that the state would have to face since they would not be covered by the Spanish central government anymore. Plus, it is not clear still how international companies established in the region as part of Spain would react to the formation of a new government. Catalonia already saw the negative impacts in their economy after the referendum last year (more than 3000 companies moved their headquarters away from the region). However, Puigdemont made it clear that Catalonia is still comparatively powerful in its economy inside Spain. But we should ask ourselves, is this enough to bear the costs of independence? We must not forget that Catalonia had a public debt of €77 billion in 2017, which accounted for  34,5% of Catalonia’s GDP. Of this amount, €54 billion are owed to the Spanish government. But returning to the central question of our article, what are the implications when it comes to Europe? Around two-thirds of Catalonia’s foreign exports go to the EU. If it seceded from Spain, the region would need to reapply to become a member – a petition that would require all EU members to agree, including Spain. The question of currency arises as well; theoretically, Catalonia would lose access to the Central European Bank and to the eurozone, and to get access back they would need to meet certain requirements. In practice, we cannot predict what will happen. Puigdemont made it clear – they do not want to exit the European Union. But this is the first time that a member of the Eurozone has declared independence aiming to rejoin as a new country. European Commission President Jean-Claude Juncker stated that he won’t back up the Catalan Independence, fearing that other secessionist movements within the EU may follow the same path. “I wouldn’t like a European Union in 15 years that consists of some 90 states.” For more information about Europe’s current situation and implications, make sure not to miss Room for Discussion’s next interview: Former European Commissioner Neelie Kroes will be at Roeterseiland campus on Monday 8th of October (and yes, Rostra will be there to make sure we can inform you all!).

In 2017, the world’s biggest and most-expensive proxy fight took place at Procter & Gamble. Mr. Peltz, whose hedge fund (Trian) is a shareholder in Procter & Gamble, was trying to obtain a seat in the board in order to influence the company’s strategy. There are estimates that the board spent over $35 million defending itself against the hedge fund’s attacks. In March 2018, GKN (a British multinational automotive company) lost its battle to stay independent from Melrose, an activist hedge fund that is known for its asset-stripping strategy. Shareholder activism is on the rise again and hedge funds are re-entering the game. Hedge funds Nowadays, there are around 9000 hedge funds operating worldwide. In total, these funds have approximately $3.6 trillion of assets under the management. This is a huge amount of money, which even exceeds the 2017 GDP of Germany ($3.7 trillion) and United Kingdom ($2.6 trillion). Around 5% of the hedge funds employ activist strategies. In order to be allowed to invest in a hedge fund, you need to be eligible by law and make a minimum investment of $250,000 to $1 million. This is however not the biggest obstacle to invest nowadays, simply because some funds are no longer accepting new clients. So if you get to be an investor, you are promised to have an unbelievably high return of 15-25% each year. The basic idea behind hedge funds is investment pooling. Investors buy shares in these funds, which then are invested in the pooled assets on their behalf. The standard investment textbook usually talks about three categories of strategies used by the funds. Directional strategies are bets that one sector will outperform other sectors of the market. Nondirectional strategies are usually designed to exploit temporary misalignments in security valuations which are constructed to be market neutral, or hedged with respect to the direction of the market. The last strategy is statistical arbitrage. It uses quantitative and often automated trading systems that seek out many temporary and modest misalignments in prices among securities. There is a countless number of statistical arbitrage strategies as the algorithms differ among the funds. The typical example can be pairs trading. The strategy pairs up stocks based on an analysis of either fundamental similarities or market exposures. After finding similar stocks the profit is simply made by selling more expensive and buying cheaper one, therefore, achieving market neutrality. Data mining takes a special place in statistical arbitrage as it refers to sorting through huge amounts of historical data to uncover systematic patterns in returns that can be exploited by traders. We would expect that the most profits are made from statistical arbitrage strategies as we are living in the 21st century of technology and innovations. But even with current technologies it is hard to believe that hedge funds can persistently overperform the market and deliver those high returns. We should be careful trusting high numbers. The returns stated by the funds are usually the internal rates of returns since inception. This specific method is commonly used to make the returns seem higher. The hedge funds made fortunes during the dot-com bubble and the discounting of those profits to the present times drives up the IRR significantly making funds looking profitable now while in fact, those are returns made 15 years ago. “The competition drives profits down” that’s what we were taught and it makes sense to expect that while the market is booming new hedge funds will be popping, tightening the completion, and driving returns down. But it seems not to be the case as the funds are now doing better than ever. Market efficiency hypothesis tells us that the price of the stock is reflecting all publicly available information and is rapidly adjusting to the news. Therefore, the profit opportunities vanish fast unless you possess the private information or even create it. It seems that the hedge funds found a way to do so by getting inside the company and engaging in shareholders’ activism. Their game plan is as follows: they are buying a significant stake in the company and trying to get into the board of directors to influence decisions. World biggest proxy fight: Procter & Gamble (2017) In February 2017 Mr. Peltz, the CEO of Trian Partners (a multi-billion-dollar investment management firm) paid $3.5 billion for a 1.5% stake in P&G consumer goods group. Since that time he was trying to get into the board of directors “to bring changes and modernize the company.” Mr. Peltz biggest concern about P&G is that is it slow, closed-minded and too focused on its big brands. Millennials are attacking an old-fashion way of production by focusing on sustainability, exclusiveness, and customized products. Small companies are using the e-commerce to bypass traditional retailers and sell directly to consumers. Consequently, the industry observers that small companies are growing three times faster than their larger counterparts. Mr. Peltz also noted that the P&G culture is also not helping it to innovate because there is no pride in working on small brands in the basement of the buildings. It’s still really cool to work on Tide. Mr. Peltz wants to simplify P&G’s corporate structure from 10 business units to 3. To make his vision being implemented, Mr. Peltz entered the biggest and most expensive proxy battle ever. The fight for a sit in the board between Mr. Peltz and Mr. Taylor (CEO of P&G) resembled a political contest. Weeks before the P&G’s shareholder meeting carefully crafted videos, lengthy white papers, mass mailings were sent and tens of thousands of phone calls were made urging shareholders to vote blue (P&G) or white (Trian). And the strategy succeeded as in October 2017 400 shareholders showed up to the meeting. Although, not everything went as Mr. Peltz was expected because he lost to Mr. Taylor who spent at least $35 million furiously fighting to prevent him taking sit in the board. However, taking into account all valid points made by Mr, Peltz about the weaknesses of the company, wasn’t it logical to give him a sit in the board to modernize and make the company better? The concern is that today Mr. Peltz stopped of demanding more extreme measures, like a change of leadership or spin-offs but what can he proposes tomorrow?! And even more importantly is Mr. Peltz really thinking about bringing gains to all company’s stakeholders or is he concerned only about profits of Trian Partners investors? GKN hostile takeover (2018) Let’s have a look on similar actions by the hedge fund. GKN (a British multinational automotive and aerospace components company) was not doing so great for past 5 years and, frankly, the overall situation in the British aircraft industry is not very optimistic. GKN along with both Rolls-Royce, the next-biggest, and Cobham have issued five profit warnings each in recent years. The latter two are specializing to survive while GKN was offered £8.1 billion by Melrose in January 2018. Melrose is known for buying up struggling engineering firms, streamlining their operations and selling them on for profit a few years later. It wants to repeat this trick at GKN. GKN lost its battle to stay independent as Melrose won the backing of 52% of GKN shareholders in March 2018. ADS Group Limited (trade organization representing the aerospace, defense, security and space industries in the United Kingdom) was concerned about losing GKN as it is an important part of the UK industrial landscape. Mr. Everitt (the CEO) stressed that “it is important that its owners continue to invest for the long-term and support high-value jobs both directly and throughout its UK supply chain.” Melrose’s announced strategy in which it proclaimed to keep the company together “to improve all of the businesses in GKN, only realizing their value once they have reached full potential.” Judging from Melrose’s actions it did not take long for GKN “to reach its full potential” as already in June of the same year Melrose announced £1.5 billion sale of Powder Metallurgy arm (one of its most valuable divisions) as soon as this autumn. So let’s make some conclusions based on the facts. The hedge funds are doing whatever it takes to make profits: engaging in the hostile takeovers, spending millions in the proxy fights, and making promises they never anticipated to fulfill. Looking at this fast, especially the last one, there are no doubts why the CEOs and the board are trying to keep the hedge fund away from the decision making.

Carles Puigdemont Journalist and politician, Carles Puigdemont i Casamajó became president of the Government of Catalonia in 2016. His term was a relatively short one by leaving his charge in 2017, when he was dismissed by the Spanish Central Government after an unilateral declaration of Independence. Nowadays, he lives in Belgium, being sought by Spain on charges of “rebellion” and “sedition”. But how has history placed Puigdemont ahead of this adverse events? History background Where did this sense and desire for independence began for Catalonia? It is difficult to determine. Many historians agree that the War of Spanish Succession (1701-1714) was key for Catalan secessionists. When the Spanish King died in 1700 without a further heir, a war among the strongest European powers began to succeed the Spanish throne. The Spanish population became thus divided between advocates of the Austrian Habsburgs and advocates of the French Bourbons, leaving Catalonia as a supporter of the Habsburg family, since they ensured a greater decentralisation and therefore greater autonomy for each region. The war ended with the victory of the Bourbon Family, which meant the beginning of an absolutist centralised system in Spain and thus, the prohibition of the Catalan constitution and language. With the industrialisation of the 19th century in Europe, Catalonia experienced a significant economical and industrial growth, which enhanced the Catalan culture, but it was not until 1932 that Catalonia retrieved its institutions and created its “Estatut d’Autonomia” (statute of autonomy). However, this Estatut along with the Catalan language was forbidden during the 40 years of Franco’s dictatorship in Spain, until its end in 1975. With the adoption of a democratic system in the country, the desire of independence and self-determination has been growing throughout the years, flourishing especially with the economic crisis of 2008, the high debts of Catalonia and the perceptual fallacy from many Catalans that Catalonia contributes more to  Spain than it benefits from it. The “procés” (process) is a set of events that have been developed from 2012 until present day in this Catalonia, aiming to achieve the region’s right to self-determination and independence from Spain. The Catalan Independence Desire Catalonia’s independence desire has expanded more remarkably in the last 10 years. In fact, in 2006, only around 15% of the population in Catalonia wanted independence. Why has this changed? Some experts point out that this desire was first fuelled with the crisis and the significant economic cutbacks from the Spanish Central Government (due to Catalonia’s high debts). But there have also been a few important political events that contributed. In 2010, a decision was made by the Spanish Constitutional Court to withdraw the new freedoms that Catalans had regained in 2006. This event enhanced the local resentment and separatism among Catalan population and in July 2010, 425.000 people went on strike in the streets of Barcelona. Later in 2014, an informal vote on independence was called, with 80% of votes in favour of the independence and a turnout of 40%. While polls showed that a big part of Catalonia’s population, in favour or against independence, wanted a legal and binding referendum, the Central Spanish government answer was a negative one. The main argument? Spanish Constitution does not allow the division of the country, and therefore aiming to do so is illegal. October 1st: Referendum Despite the Spanish Central Government’s refusal to call for a referendum, the non-binding voting still took place, organised by the Catalan govern. In response, the National Police was in charge of preventing such referendum from happening, and chaos took over the streets of Catalonia. This time, a 43% turnout was determined by the organisers of the referendum, but the vote in favor of independence reached 90%. Note that the voting was not controlled, and some pro-independentists voted more than once at different ballots. Later on October 27th, during a plenary session, the govern held a vote regarding the Catalan Declaration of Independence and obtained the majority of votes. Puigdemont declared the independence, but was dismissed a few hours later by the then Spanish president, Mariano Rajoy. By following the acts stated as illegal under the Spanish Constitution, the Central Government took over Catalonia and dismissed the Catalonian Parliament. New elections were held in December 21st. The events ended with the pro-independent politicians dismissed, in jail or exiled. According to some experts, this has been the strongest political crisis that Spain has faced since democracy was restored in 1975. At present, Puigdemont, who is now living in Belgium, is currently still travelling around Europe. On Wednesday October 3rd, he will attend an interview held by Room for Discussion at Roeterseiland Campus (Universiteit van Amsterdam). Don’t forget to read our next article after the interview for a further analysis on the case! Released on Saturday 6th October.

Land ahoy! La Pinta has found land ahead. It’s 1492 and Christopher Colombus, the explorer in charge of finding new routes that would direct the Spanish towards India, could not believe his eyes. It was not India that he was seeing, but unknown, tropical and yet undiscovered land… The black sheep, the lonely Island, the tiny-communist country, the land of Castro, the rum paradise, Ché Guevara’s second home. Cuba is a nation like no other. From the man who sold it to the US, to the man who always said No to that same country. Cuba’s peculiar history becomes evident in its economy. It was used as a massive US Casino, but also as a USSR war pawn. It was at the verge of triggering a third world war and it was the target of more than one hundred CIA failed attacks. Cuba is known to represent Latin American history. According to research made by D. Acemoglu and James A. Robinson, Latin America has been shaped by historical patterns. Most countries have gone through similar historical processes that have yielded comparable results. Cuba has experienced every one of these patterns. Starting with its conquest, followed by its independence, its struggle to find an appropriate political order, the uneven wars against every major power with interest in the country, and the mobility of revolutions with the placement of a dictator. “So what is the history of Cuba, if not the history of all Latin America? And what is the history of Latin America if not the history of Africa, Asia and Oceania?” (Unknown, 1968). Cuba’s position lies 169 kilometers south of the United States. It guards the Gulf of Mexico and it acts as a massive gateway from the Atlantic Ocean to Central America. Its location could not be more favorable if geography wasn’t a reason for armed conflict. Cuba’s geographical position turned into a curse when it became one of the last Spanish colonies in the Americas. Under the leadership of Jose Martí, Cuba sought independence in 1895 (almost one hundred years after the first Latin American country, Haiti, became independent). By 1895 the Spanish Empire held only four remaining colonies. Due to the large trade routes from The Caribbean to Spain, they could not afford to lose Cuba. The United States, in turn, had a plan for the Island regarding its own ongoing project; the Panama Canal. Cuba was the perfect spot to hold a military base that would protect the Canal while managing Caribbean waters, hence their need for a Cuba Libre. As a result of an increase in business trade between the United States and Cuba, American interests in the island escalated densely. Their desire to control Cuba became unbearable and in 1898, the US had intervened in the war of independence by providing Cuba with military aid to accelerate the war. Under the excuse of a Spanish attack against the USS Maine (a US ship), the United States sent troops to the Island and by 1902 the Spanish Empire had lost its last remaining colonies: Puerto Rico, Cuba, The Philippines and Guam. After the independence was consolidated, the Island rapidly progressed economically. Under US control and despite its miniature size, Cuba became the fifth largest economy in the hemisphere. Its largest industries were sugar cane and tourism, with the United States as their main consumer. By 1950 Cuba’s GDP was the same size as that of Italy. The US had secured its investments in the Island by implementing the Platt Amendment. Among other clauses, this amendment prohibited the Cuban Government from allowing foreign powers to use the island for military purposes. The US reserved the right to intervene in Cuba in order to preserve “a government adequate for the protection of life”. The amendment also served as a base for the perpetual lease by the United States of Guantanamo Bay. So few would say that Cuba was indeed Libre. Cuba’s tourism was massively favored by its proximity with the United States. Hotels and casinos were the leaders of the industry with US corporations as the main investors. The streets of Havana were packed with opulent tourists displaying their wealth. Restaurants over the Camellón (walking pathway along the sea in Havana) were exclusively for foreigners as they were the only ones able to afford their prices. These businesses aimed to the tourist sector were also owned by outsiders, leaving the local population with no gains from external investments. Cuba was no longer theirs (again). The Island was quickly turned into an American fantasy. More than one celebrity described it as a “Las Vegas of today”. Streets overcrowded with North American tourists in search of a vicious holiday that would usually involve rum, casinos, drugs and high amounts of prostitutes. Its low costs, ideal climate conditions and an enormous debauchery, turned Cuba into the most attractive US destination. From Lucky Luciano to Frank Sinatra. Due to its flexible laws against wealthy foreigners and its proximity to the US, Cuba became a residential paradise for the Italian Mafia. Havana turned into the center of Italo-American mafias operations. Fulgencio Batista, the president in turn, had close ties to various illegal organizations operating in Cuba. Corruption was escalating heavily. The Havana Conference, one of the most important meetings among mafia leaders ever held, was hosted by Batista himself. Under the excuse of a Frank Sinatra concert, the meeting was held amongst the most relevant leaders of family-mafia businesses in Havana to discuss future operations and investments in Cuba and New York. After being exiled from the US, Lucky Luciano, the then leader of Cosa Nostra, had recently returned from Italy to Havana, “to be closer to the United States”. Paradise for some, hell for others. While American tourists and Italian mafias enjoyed the excess offered by the Island, national residents struggled to survive. One third of the population lived under poverty, around 90% had no access to electricity, only 2% had access to basic aliments such as meat and eggs and 43% of them were analphabets. Cuba was going through a major unequal epoch. The list goes on and on, local residents were not allowed into hotels and casinos unless they worked there, unemployment hit levels never seen before. Society demanded a change. When discontent arose from within the population, a young and recent lawyer graduate stood out as one of the leaders of the uprisings. His last name was Castro and he would later become the maximum leader of Cuba (for the rest of his life). The Cuban Revolution After a few rebellions, Fidel Castro was exiled to Mexico, where he met 27-year-old Ernesto Che Guevara. They gathered a fleet of revolutionaries and sailed to Cuba from Mexican coasts using a small yacht named Granma. After surviving the initial attack, Castro took over Cuba’s government in 1956, three years after their initial landing. Castro threw former president Fulgencio Batista, along with American corporations and gangster mobs, off the Island. Several protests and acts of violence predicted the inevitable fall of Batista’s regime, but most gangster Mobs seemed oblivious to the fact that their stakes in the Island were at risk. A few weeks later, the Mafia lost most of its assets to the Cuban Revolution. In January 1959 the revolutionary rebels entered Havana. Under the leadership of Fidel Castro, Ernesto Ché Guevara and Camilo Cienfuegos, they sacked every object and building that resembled North American capitalism. Most hotels and casinos were appropriated immediately. The Italian Mafia’s dream of a touristic Cuba where the Mob controlled the underground economy, was being rapidly destroyed. As T.J. English describes in Havana Nocturne: How the Mob Owned Cuba and Then Lost It to the Revolution, “The greatest indignity of all was saved for the Riviera Hotel. In an act of revolutionary audacity, campesinos brought into the city a truckload of pigs and set them loose in the lobby of the hotel and casino, squealing, tracking mud across the floors, shitting and peeing all over”. The Cuba of Castro The man who outlasted nine US presidents. The man who ended up at the centre of the most dangerous moment in the Cold War. The man who holds the record for the longest speech at the United Nations. The man who turned a small Caribbean island into the centre of world politics. Fidel Castro rapidly began with the transition in government. He emphasized on educational and healthcare programs that would benefit the entire population. Castro’s administration expropriated foreign conglomerates and reused the gains for the functioning of the economy. The US in turn, was furious about their loss and decided to use its massive military and intelligence power to recover the Island. However, by this time the Cold War had begun and the US was no longer the only world power with an interest in Cuba. The antagonism between Cuba and the United States raised eyebrows at the other side of the world. By following the saying “the enemy of my enemy is my friend”, the Union of Soviet Socialist Republics offered its economic and military help. The process of a new communist Cuba had begun under the supervision of the USSR. The Island was now considered an issue of the highest priority to the United States. The number of CIA attacks against Cuba and Fidel Castro himself is still uncertain, but they were by far more than against any other political leader. By 1962 Cuba had convinced the USSR to place nuclear missiles on the Island in order to avoid a future invasion. After a period of negotiations between John F. Kennedy and Nikita Khrushchev, an agreement was reached. The USSR would retrieve its ballistic missiles from the Island under the condition that the US retired its bombs from Italy and Turkey. This moment is considered the closest the Cold War came to turn into a massive nuclear war. In 1990 the Soviet Union collapsed and Cuba’s economy has not recovered ever since. The loss of its major economic partner brought Cuba to a North-American embargo that prevented it from trading with not only the US, but also with some of Latin American countries that decided to turn their back on it in order to align their interests with those of the United States. Ever since then, Cuba has struggled to find an order for its population. The Communist Party still governs the country but with a more flexible regime. Cubans are now allowed to leave the Island with no other prerequisite than a passport. Private property is becoming more common among citizens and private businesses are beginning to flourish. Cuba Today Along the narrow streets of Old Havana, there’s a 1980 Russian LADA passing by. After inhaling the excess of smoke left by the car, the colorful buildings become visible and the energy becomes evident. The Cohiba cigar tastes better and the heat stops being a hassle. There’s a sense of happiness, bliss, joy.       * Salsa plays on the background *. Cuba has suffered the struggle of experimenting several forms of government within short periods of time. Changing from absolute monarchy to North American capitalism and from capitalism to communism. They seem to not adapt to any political order. Throughout its history, there have been several uprisings with similar results. One rebellion brings down a leader, only to put up a new one that would soon fall as a result of a new riot. The cycle goes on and on. However, there are some bright sides in this lack of organization. Cuba is currently considered among the countries with the best and most accessible healthcare systems in the world. Their HIV rate is the lowest in Latin America, and youth pregnancy is an issue of the past. Their educational institutions have also obtained terrific results internationally, but the surprising characteristic is the easy access to these institutions. Cuba boasts one of the highest literacy rates in the world. Most of its adult population holds a university degree, even when they do not practice their specific area of expertise. So if you ever visit Havana, don’t be surprised if your taxi driver holds a PhD in biochemistry while being fluent in Russian, English and French. Cuba’s athletes are also known to excel. The Island is among the three best countries in the Central America and Caribbean medal chart. Second to fifth on the entire continent and among the top fifteen on the globe. Athletes’ success from economically developed countries comes as no surprise, but an isolated island that has suffered the fist of several riots, political shifts and severe social inequality surely deserves respect when they get these amounts of medals  Not to mention its miniature population (11.5 million) relative to some of the most athletic-advanced economies. Cuba’s tourism industry is thriving again. After years of economic decay, investments in the Island are skyrocketing. Construction is back in place and foreign investments are filling the Island with hotels, restaurants and touristic spots not only aimed to foreigners, but also focused on the local population. In March 11th, 2018 the Cuban Communist Party held presidential elections for the first time in the party’s history. The winner was Miguel Diaz Canel, former Vice President of the Council of State. He became the first president to govern the Island after a member of the Castro family. Cuba has shown the world how resilient a country can be. Its sovereignty has been left untouched ever since Fidel Castro secured the government. This tiny, Caribbean Island put European and North American imperialism to shame by saying No every time the country’s sovereignty was threatened. It should serve as an example on how a country can determine its own faith without any foreign power intervening in its internal affairs. For this, and many other reasons, Cuban history is worth noticing. For this, for its history, its land and its people…Siempre Cuba. Author contact: alfonso.garza@outlook.com

It is true, the idea that Economics must be a science plagues the minds of mankind. Many professionals and academics around the globe, among others, are trying to prove the validity and importance of existing economic models, theories or predictions. They also try to come up with other models, new ways of explaining “economic reality”, which besides their increased difficulty (because no one is interested in reading trivial representations of ideas that they have already heard of or are already “knowledgeable” in) do not bring much to the table. Thus, if there is nothing spectacular for others to see, why even bother? That is, if you do not come up with a new complicated model (that is probably minor in terms of relevance), you’d better stay home. However, Nassim Thaleb showed in one of his books, The Black Swan, that complicated macroeconomic models, for instance, are no better at predicting the future than are taxi drivers! In yet another attempt to illustrate this idea, investment advisers were asked to select a number of stocks that they think will perform well throughout the year. They also asked an orangutan to do the same. It turned out that the latter outperformed the much-praised experts. However, above all else, economists attempt to convince themselves and, most importantly, other earthlings that what they are doing HAS to be a science. As for now, it appears they have been successful. But why exactly is this harsh controversy such a hotly debated topic? Why is it so important to justify that Economics is a science, rather than a special type of art, for instance? Probably for much the same reason that you cannot allow a blindfolded driver to transport people in a car along a snowy mountain winding road. That is, masses cannot stand the idea of randomness. They can’t imagine their lives as mostly random sequences of events that occur because of factors that are outside their knowledge or power. Thus, there has to be an authority to “guide” them along the way. It is in human nature to seek connections and come up with coherent explanations that explain from human behaviour to…wars! Nowadays, the beginning of WW2 is described by most historians as a normal, natural consequence, given the “escalating crises” and “unstable situation” of that period, among others. However, Niall Ferguson has shown that in reality, the situation was quite different. He did this by emphasizing the steady price of the imperial bonds, which should have changed in anticipation of the “obvious” imminence of war. (During wartime, governments will run large budget deficits in order to fund their expenses which in turn will increase the chance that they default on their payment obligations. Since investors expect this, they start selling their bonds, hence the decrease in price). Yet there were no changes in the prices of bonds, which means that the war took a big part of the world by surprise, unlike what the backward-looking historians were led to believe. To continue with the previous idea about our general blindness, the passengers would not even think about setting foot in the vehicle, had they known the state of the driver and the incredibly high chance of a disaster. But what if they do not know? What if they are also blindfolded? Well, then, they are probably going to be in a lot of trouble. It might be possible that the driver is somehow able to keep the car from crashing on a straight, empty boulevard with no stop lights, but as soon as she encounters the difficult mountain road, the catastrophe is imminent. Now think about our economy. On the “straight boulevards” everything goes more or less as planned, blindfolded people drive quite well, models work (almost) perfectly, and no one really cares about the “little” imperfections that occur or about the errors in the different types of predictions. After all, we can’t have everything! Had the world been similar to what Nassim Thaleb called Mediocristan, where roads are usually straight and large deviations rarely occur (and also have a small impact), such inaccuracies would not have mattered a great deal. However, things differ in reality, or Extremistan, as Thaleb addressed it. The roads are winding, snowy and dangerous; wild fluctuations with high impacts DO occur and usually the impact of rare events is high. Unfortunately, because the world is mostly run with methods from Mediocristan, when a rare, high impactful event actually happens, that is, when one of the variables from our non-linear “equation” changes with an amount that existing models cannot possibly sustain or predict, the outcome will be disastrous. There is yet another important problem that occurs. Because we have only driven on a certain path and we have only seen a particular pattern for a large enough number of times, we start thinking that this is all there is to it, sunny, straight boulevards! The more time we spend under ideal or even normal conditions, the more our minds perceive the probability of something bad happening in the future as unreasonably low, since we expect that particular sequence of events to always happen. We will all be quite surprised when we get to the unstable, snowy road where we cannot control our car anymore. In the good times, however, a number of economists and others working in similar fields are praised for their sound models, win countless awards, and some even earn gigantic bonuses. Suddenly, a crisis occurs. After a short-lasting shock, most economists come back to their senses. The denouement was crystal clear, it was inevitable. They then go on ranting about how obvious the crisis was and then proceed with the much-needed explanations. They find a lot of causal relations: too many subprime loans, financial derivatives that nobody understood, high leverage or AAA bonds that were actually junk. All too obvious. How could you have not foreseen the crash? Finding causes apparently works much like a potion healing the economists’ wounds. Even so, these scattered rationalizations are but a drop in the ocean. In some cases (the world economy, for example) it is quite tedious, if not impossible to fully analyse and assign precise causes to certain outcomes, since a major event could virtually be determined by an infinity of causes. This is called The Butterfly Effect, and in essence it emphasizes how minor, linear elements can affect complex systems in a non-linear way. In such an instance, there has to be an entity that pretends it is on the case and that the situation is under control (such as a central bank) in order to confer masses a psychological feeling of ease. A sizeable problem here is that more often than not, they do not acknowledge that one simply cannot predict and explain certain facts (and so is not in control). Despite that, they still act as if they really were in control, which usually leads to more harm than good. What is also bothering is that a lot of forecasts concern the long term. Unfortunately, the further that particular point in time that is targeted by a particular prediction is or the longer the timeframe, the higher the probability of monstrous deviations from the initial estimate, given that we are part of a non-linear complex system, and even very small changes in the many variables of the “equation” can heavily influence the outcome. Humans are, however, blinded by predictions and probabilities. Allow me to illustrate one variation of Hume’s induction problem: the pig is bought and fed every day for a long period of time before being cut for his meat. While, throughout this period, the butcher feeds the pig very well in anticipation of obtaining the greatest value out of him, the pig begins to think that having such a life is a privilege. The more days passing, the stronger, happier and fulfilled the pig feels. He “considers” that the probability of being cut is lower with every passing day, since the custom of being fed has already inhabited his oblivious mind, when in fact it is the complete opposite. The pig is blinded by probabilities too. The judgement day comes and he is slaughtered by the butcher, at the particular point in the pig’s life where he was the most solid he has ever been and when it was regarded (from the pig’s point of view) that the probability of being executed was the lowest. There was absolutely no indication that the pig would be cut, if you were to ask him, according to past behaviour of the butcher. Yet, it happened. Not to mention, this anecdote has plenty of applications in real-life. This story has an important implication: while some (most) of us are pigs, completely blinded by our own ignorance and insensitivity, there are some butchers who profit from the pigs’ misinterpretation of reality. Now, this does not mean that being a butcher is always acceptable and moral. For instance, right before the financial collapse of 2008, “butchers” were selling financial derivatives to their clients, while describing them as intrinsically valuable and good investments. In fact, they were betting on the price of those products going down, behind their client’s backs of course. I feel like morality is quite an important attribute in the world of Economics and should not cross certain lines. Although corporations officially admit its importance, this still remains nothing but a utopic expectation. Thus, do not be a butcher at all costs!