Regarding Brother Paul and the opportunity cost the monastery supports for having him in charge of the surveillance of the bridge’s toll. First is important to remind the definition of O.C:

Is the benefit foregone from not using a good or resource in its best alternative use. Therefore if there is no better alternative, there is no Opportunity Cost.

But according to Brother Phillip, this isn’t the case. Clearly, one may infer that part of the O.C we are trying to identify, is compounded by the boost in the granary production, given Brother Paul could apply his experience and that he would develop the task with more joy than a younger Brother with more energy, who at the same time could also dedicate himself to someother diligence -where he could be more productive- such as plowing, etc.  

From the individual -Brother Paul’s- perspective, the calculation of the opportunity cost will be different, given that Labor has a negative direct impact on his utility (generates disutility to him). What he will be comparing then, will be how many hours of work he will contribute, keeping in mind he will always want to work less for more compensation. Moreover, the returns he obtains for working is an indirect impact (Benefit). 

One can’t always trust his intuition.

By Laura M. Gonzalez

From Ken Follet’s book “The pillars of the Earth”, I would like to introduce this famous but at the same time regularly bad utilized concept: “The Opportunity Cost”.

Brother Philip (the monk in charge of the Kingsbridge’s Cell), thinks to itself : The brother Paul has dedicated all his life to serve God and the monastery, and now at the end of his path, he had to suffer the pain and the cold of watching the bridge’s toll, only for a few pennies per day. That is not only mean but a completely waste, an old and patient man could develop a more productive task such as taking care of the granary, thus this would represent a greater profit to the monastery.

Try to identify the Opportunity Cost of designating brother Paul to take care of the bridge pass.

By Laura M. Gonzalez

In this harsh times for the world economies, I remembered a book review I’ve written a while ago from GØsta Esping-Andersen, with D.Gallie, A.Hemerijck and J.Myles: Why we need a New Welfare State?.

Why we need a new Welfare State? provides not only a new approach to analyze the citizen’s well-being, life prospects and expectations, but also intends to reinforce the idea of a unified redefinition of the European Social Model. Apart from that, the authors outline realistic solutions to the social risks associated to the modern’s paradigm. They make an individual diagnosis of each national situation, and according to that propose a common starting point -with similar challenges- for all the UE members. In this regard, they submit the Open Coordination method.

Mainly, we could define two kind of goods: Private and Public. The main difference between them is that, the first is characterized by having a high level of subtractability. In short, that means that if someone consumes the good, the quantity available to others is reduced. And excludability, which is that the use of the good is restricted by the producer to those people who are willing to pay the amount they are willing to accept. Thus, those who doesn’t reach this requirement are excluded.

On the other hand, Public Goods are characterized by containing a very low level of subtractibility and excludability. Low subtractability means that a good is available to all consumers at the same time, and consumption by one consumer doesn’t reduce the supply available for another consumer. Low excludability mainly implies that one can’t be easily excluded from consumption. For instance National Security, which is available to all citizens of a country simultaneously, also culture or knowledge are pure Public Goods.

Why is it difficult to know how much to charge you for Public Goods?

According to the definition given above, determining exactly how much you should pay for Public Goods could be very complicated. Why? In the case of private goods, there are different indicators such as costs, markup prices, etc. But trying to apply same rules for Public Goods could be impossible, otherwise how do we know the real cost of National Security, a Mathematical Theorem or a Nation’s culture?, or how can we measure how much of the ozone layer do we consume and how much are we willing to pay for it? In other words, how can we determine Demand for a Pure Public Good?

Of course, for those Public Goods that can be provided under public or private ownership, there exists mechanisms to help to “Reveal Demand” (such as Clark’s tax, Insurances and Veto Power, for a deeper lecture I’d recommend Buchanan) so as to make every consumer to pay according to his “willingness to pay”.

Unfortunately, as many things which are perfect in theory, but could be impracticable when you try to apply them in the reallity, and it’s almost impossible getting an efficient outcome (though, not for that you stop paying for it).

Then, what about those goods that are not supplied either under private or public ownership such as the Ozone layer, gravity or the air we breath?

Simply, this kind of goods, which also we can’t avoid their consumption, are priceless. This is why we don’t have to pay a tax upon the amount of oxygen you consume per day, unless until now.

By Laura M. Gonzalez

Our last post initiated a discussion on Open Innovation and some of its advantages and disadvantages. In this post we are going to talk about another concept called User Innovation (UI).

A few days ago, I read in Consultoría Artesana this post about Radiohead and the recent release of the video of House of Cards on an open format, which means anyone interested could generate her own version. This reminded me that NIN did something similar when opened a remix web site to let his fans to make their own creations of NIN songs in November 27 of 2007. 

So you may wonder how all this connects to UI. To illustrate my point, take an artist as an example, one possible production system could consist of a creator (or a group) isolated working, trying to come up with some original piece of work, something revolutionary because that’s one of the the main characteristics the artist himself and the great public are looking for when they appreciate art. Now say for instance, that the artist prepares an exihbition were he displays an initial idea of a work and lets the audience to customize the piece according to their own tastes. This could be understood as a UI practice.

In more detail, UI could be defined as those improvements originated in end users. The concept it’s simple, in some cases, consumers are those who have better information about the product (innovation-related knowledge), its limitations and what’s more important, they know better than anyone their own needs. This is why users could be a very important source of innovation. Moreover, their incentives to innovate are related to own use as a way of improving their routines at works or when they practice their hobbies. The latter, is one feature of UI that leads to the free revealing of information, because when an end-user develops an innovation she doesn’t have in mind the appropriation of benefits it could yield, but the positive impact that could mean in her daily lives. This way, end-users give their ideas to manufacturers so they could crystallize them into a new or refined product that will satisfy better their needs as consumers. 

Many examples can be found in <the most obvious> Open Source, medical surgery equipment, extreme sporting equipment and as we elucidated before in the music industry. 

Henkel and Von Hippel work on this idea, which can be summarize as follows:

1. Users identify one particular need not cover by commercial sellers until the moment. They develop their own innovations as a complement to manufacturers products.
2. Information asymmetries between firms and users are reduced.
3. Free releasing of the innovation.

In short, UI could be defined as the interaction of users, those more interested in having a product fulfilling all their expectations and needs, with the manufacturers those with the means to produce it to large scale.

Coming back to Radiohead and NIN, we could conclude that this kind of initiatives are always welcome by their fans, always willing to contribute… is just necessary to see the great success those initiatives had. 

I’ll recommend to read the following papers: Welfare implications of user innovation , Democratizing Innovation , The Sources of Innovation. 

Knowledge is owned by no one, but it belongs to everybody 

Knowledge is a Public Good, and so are scientific discoveries based upon previous knowledge that open the door to technological innovations, thus improving our lives (or at least to those who can afford them). In previous posts was explain the nature of Public Goods and some of the problems that arise during the production process. 

If we understand that first we should worry about how to generate those breakthroughs and as a second step how to distribute their benefits among society, we might be interested in new ways of organizing the innovation production (something we already done in CBPP). In particular, this post is a review of what is known as  “Open Innovation” (OI). 

The technological jump given (mainly) in the last century has lead to the democratization of knowledge and information. Nowadays, media rely each time more on communication means that emerged or evolved in the last couple of decades and reach not only faster but cheaper to the public. New technologies are also employed in education and as a tool of academic divulgation. I’m not being too original if I say that today, more than ever in the developed world Knowledge is owned by no one, but it belongs to everybody. 

With the “Open Innovation” concept, Henry Chesbrough remarked the obviquity of the technology that unlocks the access to the masses to a great amount of contains, only available for a minority before, by drastically reducing the time between requesting and obtaining information. 

This framework of knowledge, easy reachable to everyone, gives place to the following situation: if firms want to insure their survival in the market they ought to buy, license and even merge with other companies in order to obtain the “know-how” or the technologies to be able to compete face to face against other firms. In other words, firms can’t blindly trust only on their own R&D, if they want to remain alive they have to apply the popular saying: “if you can’t lick them, join them”. Moreover, from the O.I. point of view, organizations should try to sell the part of internal research not directly applicable to their business model to others that could find it interesting.

Giving a thoroughly thought to Chesbrough’s terminology, this is only labeling already existing interactions between firms. Though, this doesn’t mean we shouldn’t give a deeper analysis to the subject. 

First, it’s important to consider that if he was talking about O.I., there must be some concept referring to “Closed Innovation”. Defining the latter it’s easy, just consider one firm limiting its innovation to that produced by its own R&D department with little influence from outside. 

Second, what are the advantages of the “Open Innovation”? Answering may sound also redundant, but obviously using other people’s discoveries or advances saves the company all the associated expenses involved in the process, among others: risk of the research uncertain outcome, time spent on getting inspiration, creativity and originality of the project, execution, development and implementation. To put it simply, we are talking about a R&D externalization method to avoid the costs described above. 

Apart from that, we should think of the advantage of arriving late. It’s well known that “who hits the first, hits twice” (popular saying, again). But in the technological market, where first trials are hardly successful, a firm could save a lot of money learning from its competitors mistakes and so skipping a market fiasco for instance, due to technical reasons (click here for a couple of examples) or market maturity (remember Newton?). 

Furthermore, acquiring other’s companies developments could be the starting point to create their own. Thereby, they save the base technology R&D and they can invest that money in producing a flashy new invention. Mostly, the O.I. model promotes firms’ cumulative innovation. 

Nonetheless, continuing with the proverbs, “all that glitters is not gold”. Clearly, a firm can’t only opt for implementing O.I. as its innovation strategy, because drawbacks of this can be founded easily. Open Innovation may represent loss of control of the research development. In the case of non-generic or non-base technology this fact might be crucial, since the firm should contemplate the expenses of buying the license and also customizing to its business model. As a result, they should evaluate if they are really saving money hiring external R&D and if they want to position themselves as leader company or not,  which is the case of Apple’s latest hit the iphone and ipod touch, which rely their success on using technology none of the firms in the market was implementing. 

Aside from that, O.I. does not implies firms are saving license, partnership or patent costs, which for instance in the software business may arrive to millionaire amounts. Besides, they will still have to adapt the innovation to their internal structure, what can be translated into: the extra cost of hiring someone to do it for them or the cost of doing the customization by themselves.    

In a nutshell, an as a way of concluding this post, we could say “Open Innovation” is the business model in which the firm determines what external information to bring inside, and what internal information to take outside.

:: Some companies promoting open innovation include Procter & Gamble, Innovation Exchange, NineSigma, InnoCentive, yet2.com, and IBM. ::

En el año 2004 el Banco Central Europeo publica este documento, editado por primera vez en el 2001. Nos situamos en el contexto de los primeros años tras la adopción por parte de la mayoría de los países miembros de la moneda única.
Su objetivo era claro: ser un instrumento que sirva para respaldar sus actuaciones, sobretodo de cara a un público general. Para ello, utiliza la mecánica de proporcionar una perspectiva amplia de la política monetaria haciendo especial hincapié, pero al mismo tiempo con sutileza, en sus fundamentos teóricos.
El capítulo 3, en el cual nos centraremos, explica los principales objetivos de las estrategias trazadas por el BCE, las cuales en su mayoría se basan en la idea de la neutralidad a largo plazo del dinero. Y tienen la finalidad primordial de conseguir la estabilidad en el nivel general de precios, empleando su instrumento “estrella”: el tipo de interés. Entendiendo, que consecuentemente se crea un entorno propicio para el crecimiento económico y bienestar social.

.: Competencias derivadas de los Acuerdos Institucionales (Tratado Constitutivo de la UE)

El BCE se responsabiliza de diseñar la política monetaria común para toda la zona regida por el sistema euro, además posee el monopolio de la emisión de la masa monetaria. Los objetivos de la política deben formularse teniendo en cuenta la visión general de las metas de la política económica, impartidas por las demás instituciones con competencias de actuación en el ámbito europeo. Asegurando así que no se solaparán unas con otras. Y evitando los costes sociales que esto generaría.
La cúpula directiva del BCE se compone por el Consejo de Gobierno integrado los miembro del Consejo Ejecutivo y los gobernadores de los 13 Bancos Centrales de la zona euro. Su finalidad es la de asegurar con sus actuaciones la armonía del nivel general de precios (objetivo de estabilidad). Por lo tanto las estrategias que diseñen deben orientarse a reforzar los elementos que propicien la consecución de dicho objetivo. En este sentido la credibilidad y la perspectiva de futuro de las políticas (considerando el retardo y eventos inesperados), cobran relevancia. Ya que son aspectos que incrementan a la capacidad de acción y su eficiencia.

.: Mecanismo de Transmisión de la Política Monetaria

El proceso de transmisión de la Política Monetaria es el mecanismo por el cual el BCE con sus actuaciones incide en las variables económicas. Las vías que utiliza para efectuar la transmisión principalmente se basan en las intervenciones sobre el tipo de interés oficiales y las subsecuentes reacciones de los agentes ante las mismas.
De esta manera el sistema bancario representa la demanda dinero, denominada Base Monetaria. El BCE al poseer el monopolio de emisión de la misma interpreta la parte de la oferta.

Esto significa que tiene el poder de fijar el precio al cual financia las entidades de créditos (tipo de interés) para que estas puedan atender a sus necesidades de liquidez. El coste de las operaciones entre el BCE y las entidades bancarias, a su vez repercute en el interés de las transacciones entre el sistema bancario y sus clientes.
Está mecánica, por lo tanto, se sustenta en la base del poder de mercado del BCE para la fijación del precio del dinero. De este modo, es uno de los factores clave en la determinación de los tipos de interés a corto plazo que aplican las entidades de crédito.

.:La Neutralidad del Dinero en el Largo Plazo (marco ideológico)

Los agentes se ajustan a las variaciones en la masa monetaria, ya que un cambio en el nivel general de precios en definitiva, se entiende como un cambio en la unidad de medida. En principio, esto no debería repercutir en las variables reales tales como el “real GDP” o el empleo, que se considera vienen determinadas por otros factores como la tecnología, el crecimiento de la población, capacidad de ajuste del marco institucional, etc. Por lo cual, en el horizonte lejano, las actuaciones de política monetaria del BCE no pueden (no deberían) producir efectos sobre ellas.
Como conclusión el fenómeno de la inflación (altamente relacionado con aumento en la circulación de la masa monetaria) es vislumbrado como únicamente de carácter monetario. No obstante otras variables también están involucradas en circunstancias de tendencias inflacionistas, como variaciones de la demanda agregada, cambios tecnológicos, o fuertes fluctuaciones en el precio de las materias primas o recursos energéticos, lo que se denomina “shocks” del lado de la oferta.
Esto significa por lo tanto que en el corto plazo existen perturbaciones sobre las cuales el poder de acción del BCE se ve disminuido.

.: El Objetivo de la Estabilidad de Precios

Intuitivamente podemos deducir que un entorno estable permite minimizar la incertidumbre con la cual los agentes económicos tomar sus decisiones. Simplemente por el hecho de que les proporciona un intervalo de confianza suficientemente amplio para poder predecir el comportamiento de las variables o indicadores económicos que les conciernen. En otras palabras, pueden efectuar una aproximación bastante buena de lo que sucederá mañana.
Esto se traduce en la posibilidad de incrementar su capacidad de ajuste ante variaciones en el nivel general de precios, y eludir situaciones de confusión ante una fluctuación de los precios relativos. Evitando de este modo interpretaciones erróneas, y se garantiza la eficiencia de asignación en materia de consumo e inversión. Asegurando la destinación de recursos para fines más rentables y productivos.
De aquí que se relaciona la estabilidad de precios con el potencial crecimiento económico y el bienestar. Aunque a mi modo de entender, esta relación no está claramente definida, ni es un requisito suficiente para conseguir el bienestar general.
Sin embargo, la contribución de la estabilidad al crecimiento potencial se puede entender más directamente si tenemos en cuenta que la reducción de la incertidumbre presenta ventajas en otros aspectos, como en la disminución de las primas de riesgo que demandan los acreedores a modo de cobertura para protegerse ante una reversión imprevista de la inflación.
A su vez, esto significa que se proveen incentivos para la inversión eficiente (una mayor eficiencia de los mercados de capitales). Dado que perspectivas de estabilidad a mediano o largo plazo, no producen estímulos a los agentes para desviar sus inversiones hacia la acumulación de bienes reales a modo de protección ante la inflación, ya que esta decisión de inversión es menos eficiente que las orientadas hacia los recursos productivos.

Otro argumento utilizado para respaldar el objetivo de estabilidad de precios, se relaciona con la cohesión y estabilidad social. Este argumento se basa en tres aspectos. El primero: la inflación actúa como un impuesto sobre la posesión de dinero líquido disminuyendo el poder adquisitivo del mismo y creando pérdidas irrecuperables de eficiencia.
El segundo: hace referencia al aumento del “riesgo moral” generado por las actuaciones del estado a través de impuestos y subsidios. Estos provocan distorsiones al mantenerse fijos y no reflejan los tipos reales. De este modo, la estabilidad elimina los costes reales(distorsiones) aparejados a la inflación.
Por último, generalmente las peores consecuencias recaen sobre aquellos con menos recursos que no pueden cubrirse ante los costes de la inflación. Esto, junto con lo ya expuesto, apunta a que la estabilidad contribuiría a evitar una arbitraria redistribución de la renta.

En resumen, en base a la evidencia empírica, en el documento se afirma que la estabilidad de precios tiene implicaciones positivas en la consecución de objetivos económicos más amplios, como la mejora del nivel de vida a los ciudadanos o de las perspectivas de crecimientos económico. Por lo que en un entorno estable la actuación de la política monetaria será mucho más eficaz.

.: El papel de las expectativas y la credibilidad

La credibilidad del BCE, como se ha destacado previamente, es un factor crucial para que el funcionamiento del mercado monetario se aproxime lo máximo posible a la eficiencia3. Los agentes forman sus expectativas respecto a los tipos de interés y evolución del mercado, en base a elementos muy diversos, pero sin duda la capacidad del BCE de mantenerse firme en la estrategia que ha trazado es una de las de mayor relevancia.
Esto es decir, que las conjeturas sobre posibles fluctuaciones en los tipos de interés oficiales, influencian las perspectivas del mercado con respecto a los tipos de interés a largo plazo, dado que éstos representan el desarrollo esperado de los tipos a corto.
Sin embargo, hablando de horizontes muy lejanos, como puede ser el caso de la deuda pública, el efecto de la política monetaria se diluye (en relación con la neutralidad a largo plazo), ya que los tipos de interés sujetos al rendimiento de estos títulos dependen de expectativas formadas sobre la evolución del crecimiento económico e inflación en términos de tiempo mucho más amplios.
De lo cual se desprende que bajo estas circunstancias, la política monetaria solo tendrá efectos en el tipo de interés, si (solo si) es capaz de producir un cambio en las expectativas de las variables antes mencionadas.
No obstante los “policy makers” son conscientes de que en el marco de intervención de la política monetaria, existe un grado de incertidumbre originado por la intromisión en escena de variables exógenas, que quedan fuera de su control. Este hecho, como es de esperarse, incrementa la dificultad de medición del impacto de una determinada medida. Asimismo, como consecuencia se produce un efecto de retardo de la política monetaria.

Por lo tanto, cuanto mayor sea la disponibilidad de información sobre aquellas variables que no “dominan”, mayor será su capacidad de previsión y respuesta con respecto a la inflación futura. Esto quiere decir, que cuanto más capaces sean de comprender cuales son los determinantes de los precios, mayor será la probabilidad de que formulen políticas eficaces.
En definitiva, dotar de perspectiva de futuro a las estrategias de política monetaria, puede posibilitar la prevención de una excesiva actuación por parte del Banco Central, resultando esto en un ahorro, tanto de costes de la elaboración de las medidas, como en la pérdida de eficiencia que generada por la intervención.

.: Efectos secundarios

Al influir en los costes de financiación de los agentes económicos, resulta lógico pensar que los cambios en las directrices con referencia al tipo de interés oficial, tienen consecuencias que se reflejan en los tipo de cambio y en el mercado de valores y derivados.
Por un lado, subidas en los tipos de interés, provoca des-incentivos a la inversión y el consumo de las empresas y hogares, ya que les es más rentable el ahorro. Y por otro, las entidades crediticias pueden entender esa situación como un aumento en el riesgo de morosidad de sus deudores. Lo cual implícitamente lleva a la exigencia de coberturas más elevadas, o lo que es lo mismo al incremento de los requisitos para conceder financiación.
A su vez, los agentes poseedores de activos financieros, quedan sujetos a que cambios en las cotizaciones bursátiles les generen “efecto renta”. Éste, evidentemente puede ser favorable o no. Por lógica, dependiendo de si su rentabilidad se ha visto incrementada o no, podrán permitirse aumentar su consumo o no.
Podemos concluir entonces, que la política monetaria tiene implicaciones en el corto plazo sobre la demanda agregada, con origen en las variaciones en el coste de financiación y las garantías exigidas en los prestamos. Los cambios en la demanda interna producidos por estas variables, alteran directamente los precios relativos de los bienes, lo cual al mismo tiempo, tiene consecuencias en las decisiones de los agentes (individuos y empresas) con respecto al mercado de trabajo, haciéndose visibles en variaciones en los salarios. O también en referencia al mercado de bienes intermedios (commodities), materializándose del mismo modo a través de su precio.

El grado de apertura de la economía marcará la importancia de las variaciones en el valor relativo de la divisa de curso legal. Es de esperar, que una apreciación de la moneda repercuta positivamente en los precios de las importaciones, en el caso de bienes de consumo final directamente aumenta el poder adquisitivo de los ciudadanos de productos extranjeros (y disminuye las tensiones inflacionistas). Mientras que la producción interior pierde atractivo “exportador”, es decir los bienes nacionales son más caros a nivel internacional. Lo que también contribuye a disminuir la presión total de la demanda en la economía.

En referencia a los bienes intermedios, es probable que el efecto en la reducción de los precios al consumo pueda hacerse esperar, esto dependerá de la flexibilidad y las características de la estructura productiva del país.

En el caso contrario hemos de entender una depreciación como un catalizador de la competitividad de la producción interna, haciendo a los bienes nacionales más baratos de cara al mercado internacional. Y generando efectos en el sentido contrario de los ya expuestos.

Por lo tanto, cuanto más expuesta se encuentre una economía en cuestión de comercio internacional, cuanto más dependiente del exterior sea su estructura productiva; mayor será el impacto inflacionista de las fluctuaciones en los tipos de cambio.

.: El IAPC, el elemento de control

La dilatada superficie de competencia del BCE, exige que la transmisión a la opinión pública de las decisiones en materia de política monetaria se realice de manera inequívoca y transparente. Este hecho hizo evidente la necesidad del BCE de crear un método sistemático y consistente para el trazado de la política monetaria, es decir la esquematización o estandarización de las decisiones sobre el tipo de interés, mediante el establecimiento de una medida cuantitativa.
De esta manera, el Consejo de Gobierno posee un instrumento uniforme que le permite efectuar el análisis individual y control de las variables relevantes. Al mismo tiempo, esta herramienta sirve como un referente para los agentes partícipes en la economía en la formación de sus expectativas futuras. Y como un medio de control para los ciudadanos, ya que pueden pedir explicaciones a las autoridades ante posibles desviaciones.
El elemento utilizado es el Índice Armonizado de Precios al Consumo (IAPC) ajustado para toda la zona euro. Se ha determinado un intervalo dentro del cual debe situarse con el fin de asegurar la estabilidad de precios en el medio plazo. Su evolución debe ser positiva, pero no superior al 2%. De esta manera, la amplitud del intervalo sirve para cubrir las divergencias entre los diferentes estados miembros. Como pueden ser los diferenciales de inflación estructurales por regiones.

.: Evidencia empírica

Se presentan los resultados de diferentes estudios econométricos que intentan definir, mediante la utilización diferentes técnicas, la relación entre las fluctuaciones del tipo de interés a corto plazo con las variables reales y los precios.
En resumen, todos concluyen en la existencia de la neutralidad a largo plazo de la política monetaria. Aunque su impacto sea provisional sobre la producción; su efecto sobre el nivel de precios es permanente.
Sin embargo es preciso destacar que los estudios reconocen la existencia de los factores inciertos, como principales causantes de los retardos de la política monetaria. Es por eso que el BCE no puede dar por sentado las reacciones de los agentes a sus medidas ni el impacto de sus estrategias. Y tener siempre presente las limitaciones de las mismas.

.: Conclusiones

Los elementos de la política monetaria, al igual que aquellos pertenecientes a la política referida al mercado de trabajo, pueden interpretarse como vías a través de las cuales se desarrolla el modelo europeo planteado en los Tratados de la Unión, tanto en materia social como económica.
Es de esperarse (y deseable) por este motivo, que se observe un alto grado de coherencia entre políticas. Cada elemento ha sido concebido con un fin, y en términos de eficiencia esto significa evitar la intromisión o la superposición de acciones (y sus costes asociados).
Con esto quiero decir que las estrategias del BCE, refuerzan y nutren las justificaciones ideológicas de los objetivos establecidos no sólo en materia monetaria. Evidentemente, si la base teórica fuera diferente, o se encontrase en otro contexto, las metas marcadas tendrían un carácter bastante distinto de los planteados.
Visto desde la hegemonía del enfoque neoliberal, la estabilidad de precios resulta una finalidad lógica, donde la participación pública queda supeditada a favorecer la creación de un entorno de intenso dinamismo basado en una economía de mercado. Según el texto, la estabilidad crea un efecto cascada o dominó, del cual se deriva el crecimiento potencial de la economía y demás variables como el empleo o el bienestar. En cierta forma, estas cuestiones se sobreentienden como consecuencia del buen funcionamiento del mercado.
No obstante, a mi modo de entender, esta relación no es tan explícita o tan directa; ya que hablar de estabilidad de precios, no es hablar necesariamente de cuestiones de distribución de la riqueza, de igualdad de oportunidades, eficiencia productiva, etc.

Por lo tanto, la publicación cumple satisfactoriamente con su misión de ser una fuente de cara al público en general que justifique sus acciones, pero creo que debemos analizar de manera crítica la evidencia empírica que constata su base teórica, y también exigir una ampliación de la perspectiva desde el cual se somete a revisión sus mecanismos y objetivos.

By Laura M. Gonzalez

This text review is based on a John Grahl paper. Grahl does a critical analysis on the EES, and furthermore, provides some grasps of what role it should play, what modifications on its recommendations and on the language used in its guidelines should be done. In order to achieve policies according to the history and tradition of the European Model of Welfare State.

:: Origins and Development of the EES

EES is the European Union’s foremost device that supervises the course of the employment policy and ensures compatibility among the Member States with respect labour market concerns. The EES operates with a system denominated: “Open Method of Co-ordination”. This is a cyclical co-ordination mechanism, which consists on delegating the responsibility of designing and deploying policies to national member states authorities. But, correspondingly, each year the EES makes an individual evaluation at an E.U level and formulate the NAPs -National Action Plans-, outlining its “recommendations for improvements”.
The author’s common denominator focus of critics principally are three. One of those points is the intention of the EES of imposing one unique orthodox perspective to a zone comprised of different social, traditional and economic realities of the European Welfare State Model.
Apart from that, the ambiguous language utilised in the guidelines to provide its “recommendations” and its marked “neoliberal”1 influence, are another controversial issue for Grahl.
The first, is obviously judged for leaving the door open to differing misinterpretations.
The second, corresponds to the adverse comments against the NAIRU doctrine, which address itself to to find the unemployment rate that does not produce an acceleration of the inflation rate. From this outlook, chronic unemployment is considered as a subject of labour supply, not as something regarding demand for good and services. As a consequence, economic measures inspired by this theoretical stream, put the accent on initiatives to enhance labour market participation, rather than on heighten its quality, what is most known as labour market “flexibility”. Indeed, the potential progress upon this ideology depends on the diminishing of the regulations associated to the labour market, and to those schemes intended to make the job-seekers more suitable to the employer’s needs.
In reference to its main competencies, the EES sets the targets for the different variables playing a part in the labour market, both at an individual and a communitarian level.
As it was said before, the author criticises the emphasis on the “active employment measures”, specifically the narrow perspective of the recommendations and strategies, centring fundamentally on the target employment rates established and on the impact of social protection regimes on employment. Therefore, all its efforts are conducted to impose deregulatory policies. Nevertheless, at the same time important questions such as quality of working-life, job security and dialogue among interested social representatives are left aside.

The first stage of the EES strategy had four fundamental pillars: employability, enterprise, adaptability and gender equality. Excepting the last one, the author identifies the first three with the “flexibility objective”.

The “active employment measures” are subject of controversy because it has at the same time two antagonist approximations of the individual and his well-being. One comes from the Nordic countrie’s view of the Welfare State, with a strong sense of interventionism in favour of the unemployed and disadvantaged. Which indeed has distributive notions and follows the aim of broaden the subject’s opportunities.
On the other hand, the perspective of “workfare”, which implies disassembling the institutions traditionally representative of the welfare programmes, decreasing social protection and labour standards, this may include constraining the unemployment benefits over certain sub-groups such as single parents or families with dependent children and relaxing regulation on dismissals among others. The idea behind is that reducing the employer’s risk of hiring would generate a positive effect on “activation”. Despite the assumptions on which this theory backs on, this kind of “activating” policies, have been proved to cause employment to be more unstable, in stead of stimulating participation.

Furthermore, its accentuation on the work experience or training programmes and the social discipline that tries to inflict, may lead people to take a job they would have previously rejected, what it could bring additionally inefficiencies.

Not only that, but also this measures contradict the values and traditions of the European Social Models. Grahl indicates that the EES’s guidelines set undifferentiated “targets” with respect what percentage of unemployed persons should become “active”, but do not state how these “objectives” should be achieved.
In other words, he sees compulsive to change the philosophy from which the “recommendations” and strategies are build and pass from the actual “Labour Market Strategy” to a “Long Term Employment”.

:: A new Direction for the EES

Notwithstanding, in 2002, the EES has submitted into a deep phase of reconsidering its operative methods, what as a result has introduced changes in the design and settlement of objectives. According to this trend, on an attempt to give a more balanced perspective of the employment policy reform, the four pillar based scheme was replaced by ten principles. This changes may be illustrated through the lessening in the number of recommendations and the reshaping of the quantitative targets.
Grahl also recognises some positive signs of this changes in the recommendations to the British governments, which appealed not only to emphasise on the social dialogue, but also to pay attention to the low wages and low productivity levels characteristic of the new jobs of the British economy.
In the overall this connects with the idea of the author of “legitimating” and “democratising” the EES procedures. This mainly consist on stressing the social dialogue, giving the opportunity to different social actors of getting involved in the implementation of labour market policies. And on enhancing quality of working circumstances.
Regardless this symptoms of progresses, the author alerts that NAIRU defenders have found a new approach to back up the same policies. In spite of this days, this doctrine has lost much of its strengths2. Some of its instruments are being recycled for instance as necessary adjustments to a globalise economy, which sets a landscape of new cost-saving technologies and the incorporation to the international labour market of “low qualified labour”(coming from countries with a comparative advantage in it).
This paradigm has yielded as a result, into more pronounced wage differentials and a reduction of minimum employment standards.
Despite of this grounds, the author finds this justifications highly arguable. His idea is that attributing new logic to previous existing unsuccessful policies, do not leave place to a real reformulation of its basis.
Contrary to NAIRU defenders, he considers globalisation as a phenomenon with macroeconomics implications, but mostly associated with demand rather than with supply of inputs. Actually, he claims that there is not empirical evidence that wider wage differentials are related to better employment outcomes.
Therefore, as a result of his critical analysis he devises several suggestions mainly related to procedures and contents.
With respect the last one, following his priors arguments, he asserts that allowing regressive or in-egalitarian interpretations of the EES’s objectives should be removed. That would be feasible only by replacing ambiguous language, and making a more explicit the engagement to high labour standards and advanced social policies.

With reference to procedures, he proposes to take advantage of the experience of those countries which possess a more developed Welfare Models (where labour market policies are deeply assessed upon their individual and social impact), what he denominates “creative emulation”, enabling them to have a bigger influence on the outline of policies.
In order to attain this, it becomes a crucial issue consistency between EU economic and social strategies. The author remarks that until now labour market policies have been in service of negative and regressive doctrines. It becomes obvious that unless there exists coherence, it would not be possible the effective implementation of any policy.
In the same line of speach, he suggests that the EES objectives should be expressed in terms of unemployment reduction instead of employment growth. Even though the targets for keeping low unemployment rates should remain. He also points out that there are several situations in which people may not participate in labour market, such as social, cultural, work-life balance and structural reasons. If this considerations keep unattended, it would be logical to understand that labour market policies are insufficient by themselves to achieve significant outcomes on diminishing unemployment.
The previous reasoning drive us to take as imperative providing incentives to people to choose rationally to participate in the labour market by widening employment opportunities. For instance by deploying efficient rehabilitation programmes not only with the aim of reinsertion, but also by including continuous qualification. In other words promoting life-long learning. Therefore, the objective should be to improve circumstances of the individuals and not to force them to take the first job available.
Reinforcing the subject of “legitimacy”, Grahl gives priority to the participation of social actors as it was said before: “Social Partnership in service of Social Dialogue”. Nonetheless, to achieve that it is mandatory to ensure efficient organisation of workers representation. This clearly aims to involve workers in the appliance of the labour market policies, and in the meantime to increase the probability of attaining coherence between the quantitative targets and work quality.

::Conclusions

I agree with several of the author’s points of view. It seems to me interesting the way he formulates his critics providing empirical evidence and substantial arguments. I am of the same mind as he and consider that there are different understandings, under diverse forms and at different stages of development of the Social Model across Europe.
Because of that I concur with Grahl and believe that the EES should take under consideration that fact.

Over and above that idea, it is time to leave the thought that high labour standards are a burden to successful economic performance. What in other words implies acknowledging that most of the times talking merely in quantitative terms, impede to focus attention on qualitative aspects.
This can only be reached by acquiring a more open position and moving away from the authoritarianism doctrine that has characterised the EES theoretical background. As a consequence it would be possible abandoning the notion that increasing Active Population is only viable sacrificing labour standards.
Altogether what the author says is that it is imperative to design long term policies independently of the activate employment measures layout. Though, it is decisive always keeping in mind the values and tradition of the European Social Model, and aspiring to integrate as much as possible concerned actors in the implementation and design of Employment policies.

Laura M. Gonzalez

:: See original text

:: Why we need a new Welfare State?

Hello people, I am back at last!!

Well I been working on several topics during all this time I’ve been “out of the office”.

Tomorrow I’ll try to reflect this on the following post, the first subject I would like to discuss about Human Development and other mechanisms to measure progress.

Till tomorrow then,

kind regrets!!!

As my <few> faithful and sporadic readers might have guessed already, I will be off “the office” for a while. I am trying to finish my Final Project Dissertation and also sit me for the GRE pretty soon. 

Which, as you may imagine,  is a very demanding job.

I hope, after Christmas Holidays to be back so as to  keep writing on subjects related to Economics, Business and life.

 Wish me luck and see you…