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The loss of constitutional protection

GIS statement by Prince Michael of Liechtenstein

In an atmosphere of panic over the Covid-19 crisis, European governments are enacting more and more open-ended measures that are often of dubious utility for containing the pandemic but severely restrict personal freedom, privacy and entrepreneurship. Alarmingly, citizens’ rights enshrined in constitutions are being set aside.

The governments’ approach toward citizens has been shockingly paternalistic; they treat the population like misbehaving children (source: GIS)

As the Covid-19 pandemic spread across the globe, harsh measures were gradually introduced. Governments have begun to limit individual rights and privacy. The media and politicians, as well as some virologists and medical professionals, have stirred up panic. Those who question the necessity of taking drastic steps are intolerantly marginalized and branded as either idiots or radicals.

The success of Western democracies is based on the guarantee of freedom and human rights. The United States Declaration of Independence and constitution provide citizens with unalienable rights that include liberty and the pursuit of happiness (which is not guaranteed, as it is defined individually), as well as privacy and property rights. The constitution’s objective was to protect the individual from the state. Tolerance and freedom of opinion were also protected.

Stealing freedoms

Property rights have since become restricted because of ever-expanding regulations and excessive taxation. The high tax burden is not solely a result of the governments’ tendency to overspend. Leftist ideologies and populist slogans demanding “more equality” also play a role in raising taxes. 

Waves of regulations are steadily narrowing the boundaries of individual activity and increasing the state’s power over citizens. Unfortunately, this is a global phenomenon.

In 1998, the so-called great eavesdropping law (grosse Lauschangriff) was passed in Germany. It allowed security agencies to plant surveillance devices in suspects’ homes without approval from a judge. The measure was highly contested at the time. In 2014, the European Parliament enacted a directive requiring telecommunication and internet providers to retain all communication data for two years and make it available to law enforcement agencies upon request. Every EU citizen is now treated as a suspect. The Court of Justice of the European Union considered the directive to be “a wide-ranging and particularly serious interference with the fundamental rights to the respect for private life and to the protection of personal data, without that interference being limited to what is strictly necessary.” The EU Parliament was supposed to amend the directive but has failed to do so, and it remains in force. 

In many cases, the measures enacted to contain Covid-19 encroach upon personal rights. Such extraordinary circumstances can require restrictions, but they should have a clear expiry date. Many of the present guidelines appear unjustified. And there has been no reliance on individual responsibility. The governments’ approach toward citizens has been shockingly paternalistic; they treat the population like misbehaving children …

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The loss of constitutional protection


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Annotating the Paris Agreement

Essay by Henrique Schneider*

This article was first published at TheMarketForIdeas.com. It explains in broad strokes the content of the Paris Agreement and the Decision by which it was adopted. It, then, annotates them and complements the annotations by asking further questions. This article serves as institutional memory – it has been written by an active negotiator of the Agreement. It will be especially useful to judge the direction the Agreement will implement in comparison to the discussions at its adoption. The implementation of the Agreement starts in 2020 – but is delayed because of the global pandemic.

“The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. Additionally, the Agreement aims to strengthen the ability of countries to deal with the impacts of climate change. To reach these ambitious goals, appropriate financial flows, a new technology framework and an enhanced capacity building framework will be put in place, thus supporting action by developing countries and the most vulnerable countries, in line with their own national objectives. The Agreement also provides for enhanced transparency of action and support through a more robust transparency framework.”

While this official definition of the Paris Agreement and its contents is concise, let it not be forgotten that in 2020, even 5 years after its adoption, the whole framework to the Agreement has not been fully negotiated yet. True: only one article remains to be set up, article 6, or the items of international cooperation. But this delay shows that, while the Agreement may be concise, its interpretation is open-textured. It is, therefore, useful to annotate the Agreement – and also ask questions about it – from the perspective of an agent who negotiated the Agreement itself and parts of its implementation …

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*Henrique Schneider is a professor of economics at the Nordkademie University of Applied Sciences in Elmshorn, Germany and chief economist of the Swiss Federation of Small and Medium Sized Enterprises in Bern, Switzerland.

Gestärkt aus der CoronaKrise – möglicherweise

Essay von Henrique Schneider, Redakteur ASMZ*

China ist zumindest wirtschaftlich gestärkt aus der Corona-Krise herausgekommen. Wer dem Reich der Mitte eine Strategie unterstellt, liegt nicht falsch. Die Strategie heisst: Krisenbewältigung.

Düster tönte es noch im Mai 2020: Chinas Aussenhandel brach im Vergleich zum Vormonat um 9,3% ein. Die Exporte der grössten Handelsnation der Welt gingen in US-Dollar gerechnet um 3,3% zurück. Die Importe sackten sogar um 16,7% im Vergleich zum Vorjahreszeitraum ab. Insbesondere der Handelsstreit mit den USA machte sich bemerkbar. Die beiden grössten Volkswirtschaften liegen nun schon seit zwei Jahren in einem Handelskrieg mit gegenseitig verhängten Sonderzöllen.

Im Mai gingen Chinas Exporte in die USA um 14,3% zurück, während die Importe aus den USA um 7,6 % abnahmen. Drei Monate später, im August, schien das Bild schon ganz anders. Die Exporte aus dem Reich der Mitte nahmen um 7,2% zu, die Importe um 1,4%. Die ursprüngliche Prognose für den Aussenhandel sah eigentlich negative Veränderungszahlen vor. Doch die Realität entwickelte sich anders: besser …

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Gestärkt aus der Corona-Krise – möglicherweise (PDF)

*Henrique Schneiders Essay erschien erstmals in der Schweizerischen Allgemeinen Militärzeitschrift, Ausgabe 10/2020

Hardy Bouillon: “Gerechtes Glück”

Hardy Bouillon Gerechtes GlückNeu erschienen in unserer ECAEF-Buchreihe: Hardy Bouillon* “Gerechtes Glück”

Das Buch “Gerechtes Glück” ist zum einen eine Taxonomie der Theorien sozialer Gerechtigkeit – so der Untertitel – und zum anderen eine Rehabilitierung der Philanthropie.

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Worum geht es?

“Gerechtes Glück” ist eine Untersuchung zu einer virulenten Theorie im Schnittfeld von Glücksökonomie und Gerechtigkeitsphilosophie, die der Autor wie folgt auf den Punkt bringt. „Materielle Ressourcen, die eine Person hat, aber nicht zur weiteren Steigerung des eigenen Glücks nutzen kann, sollten nicht nur aus Gründen sozialer Gerechtigkeit, sondern dürfen auch aus Gründen der formalen Gerechtigkeit umverteilt werden, weil sie das Glück des Nehmers mehren, ohne das Glück des Gebers zu schmälern.“

Aus Sicht von Bouillon ist die These vom gerechten Glück falsch. Um dies zu zeigen, entwickelt er eine Taxonomie der Theorien sozialer Gerechtigkeit und zeigt die Unzulänglichkeiten auf, die hinter der These vom gerechten Glück stecken. Aber er lässt es nicht bei einer Kritik bewenden, sondern zeigt auch, auf welche Weise die These vom gerechten Glück zu retten ist, nämlich durch die Rehabilitierung der Philanthropie. Sie, die Philanthropie, ist für Bouillon die einzige bekannte Form, die das Glück des Nehmers mehren kann, ohne das des Gebers zu schmälern.

Zum Inhalt des Buches

Der Autor fasst sein Buch wie folgt zusammen: Um die These vom gerechten Glück angemessen diskutieren zu können, wurde die Abhandlung in drei Kapitel unterteilt. Das erste beleuchtet das Verhältnis von Glück und Gerechtigkeit, soweit es den Zielen der Studie zuträglich zu sein schien. Zu diesem Zweck wurde eine Definition von Glück entwickelt, welche die Möglichkeit materiell bedingten Glücks einräumt, ohne den flüchtigen Charakter des Glücks zu leugnen. Anschließend wurden zwei Grundannahmen diskutiert, die wesentliche Bestandteile der These vom gerechten Glück sind. Gemeint ist die Vorstellung vom abnehmenden Grenznutzen des Einkommens oder Geldes und die Idee, gerechtes materielles Glück stehe unter dem Vorbehalt, dass dasselbe auch verdient sein müsse.

Unverdientes Glück, so die Idee weiter, berge eine Ungerechtigkeit, die es durch Umverteilung zu korrigieren gelte. Die kritische Diskussion der beiden Thesen ergab, dass keine von ihnen haltbar ist, aber jede erklären hilft, warum die spontane Verteilung materiellen Glücks Gegenstand der Theorien sozialer Gerechtigkeit ist.

Sie, die Theorien sozialer Gerechtigkeit, stehen im Fokus des zweiten Kapitels, das mit der Entwicklung einer Taxonomie beginnt. Mittels der generierten taxonomischen Kriterien wurden die einschlägigen Theorien sozialer Gerechtigkeit sortiert und vor allem hinsichtlich der Frage diskutiert, ob sie dazu geeignet seien, die These vom gerechten Glück zu stützen. Geeignet in diesem Sinne wäre eine Theorie sozialer Gerechtigkeit dann, wenn sie einen Typus der Gerechtigkeit entwickelte, der mit der formalen Gerechtigkeit kompatibel wäre. Es zeigte sich im Verlauf der kritischen Erörterung, dass keine der einschlägigen Theorien sozialer Gerechtigkeit diesem Anforderungsprofil genügt bzw. mit der Idee formaler Gerechtigkeit in Einklang zu bringen ist. Dieses Ergebnis gilt für alle Varianten sozialer Gerechtigkeit; für solche, die als Komplementär, Korrektiv oder Kompensation vermeintlich unzureichender formaler Gerechtigkeit auftreten. Und es gilt auch dann, wenn eine der Varianten nur vermeintlich soziale, in Wirklichkeit aber formale Ungerechtigkeit moniert.

Das Scheitern der Theorien sozialer Gerechtigkeit im o.g. Sinne hat viele Ursachen. Im Rahmen des rawlsschen Ansatzes hätte der Nachweis gelingen müssen, dass nur die Redistribution der spontanen Verteilung materiellen Glücks, nicht aber die Beibehaltung rational begründbar ist. Im Erfolgsfall hätte dies die Vereinbarkeit formaler und spontaner Gerechtigkeit bedeuten können. Doch weder Rawls noch seinen Adepten ist dieser Nachweis gelungen. Die aktuellen Theorien sozialer Gerechtigkeit verzichten entweder vollends auf derlei Kompatibilitätsbemühungen oder rekurrieren auf Zusatzannahmen, die – wie wir sahen – der Kritik ebenfalls nicht standhalten. Sie gründen ihre Haltung insbesondere auf dem, was sich als Wasserscheide zwischen Befürwortern und Kritikern der sozialen Gerechtigkeit erweist. Gemeint ist die These von der Rechtfertigungsbedürftigkeit aller Diskriminierungen. Umverteilungskritiker können ihr entgegenhalten, dass nicht Diskriminierungen per se rechtfertigungsbedürftig seien, sondern die Allgemeinverbindlichkeit von Diskriminierungen.

Die Kritik an der staatlichen Umverteilung führte uns zu Kapitel 3. Wenn gerechtes Glück nicht im Zuge staatlicher Umverteilung erzielt werden kann, wie dann? Gibt es eine Umverteilung, die dem Nehmer Glück bringen kann, ohne dem Geber Glück zu nehmen? Unsere Analyse führte zu dem Schluss, dass es sie gibt, und zwar in Gestalt der Philanthropie. Indem der Philanthrop gibt, kann er sowohl fremdes Glück erwirken als auch eigenes erfahren. Die Bedingungen, unter denen dieses Ziel verfolgt werden kann, haben wir erörtert und dabei Proportionalitätsprobleme aufgezeigt, die entstehen, wenn man ein angemessenes Philanthropieverständnis generieren will.
Danach haben wir die wichtigsten Einwände diskutiert, die gegen die Philanthropie vorgebracht werden, darunter den Unterversorgungseinwand und den Diskriminierungseinwand. Beide erweisen sich als nicht haltbar. Eingehendere Betrachtungen haben wir vor allem dem ersten Einwand geschenkt sowie dessen irriger Annahme, die Hauptursache der Unterversorgung sei ein klassisches Gefangenendilemma. Es zeigte sich, dass der Unterversorgungseinwand lediglich für Krisensituationen eine gewisse Berechtigung hat. Ansonsten sprechen neben der einschlägigen Literatur zum Spenderverhalten und Spendenaufkommen auch die von uns vorgelegten historischen, ökonomietheoretischen und motivationalen Argumente gegen den Unterversorgungseinwand und für bessere steuerliche und rechtliche Bedingungen von Geld-, Sach- und Zeitspenden. In diesem Sinne brechen sie eine Lanze für die Philanthropie.


*Hardy Bouillon studierte Philosophie und Kunstgeschichte in Albuquerque, Oxford und Trier, wo er heute als Außerplanmäßiger Professor lehrt. Gastprofessuren führten ihn nach Duisburg-Essen, Frankfurt, Prag, Salzburg, Wien und Zagreb. Zu seinen wichtigsten Publikationen zählen Ordnung, Evolution und Erkenntnis (1991),  Freiheit, Liberalismus und Wohlfahrtsstaat (1997), Wirtschaft, Ethik und Gerechtigkeit (2010) und Wählerische Selektionen (2018). Bouillon gab zudem zahlreiche Sammelbände heraus, stellte Breviere zu Popper und Kant zusammen und verfasste viele Artikel in führenden Zeitungen, wie etwa FAZ oder NZZ. Seit 2017 ist Bouillon auch Fellow an der Liechtenstein Academy.

Surprising Surge of Productivity during Covid-19 Crisis

by Henrique Schneider

Around the world, productivity growth has been slowing. In developed economies, productivity has risen by less than 1 percent annually for several years. Suddenly, in the first two quarters of 2020, amid the Covid-19 crisis, it surged. Surprisingly, most developed economies witnessed an increase in productivity by more than 10 percent; some by more than 20 percent.

In 2015, the Organisation for Economic Co-operation and Development (OECD) wrote that “Productivity is the ultimate engine of growth in the global economy. Raising productivity is therefore a fundamental challenge for countries going forward.” Yet its 2019 Compendium of Productivity Indicators showed that productivity had continued to decelerate throughout the past decade. But what exactly is productivity, and why does it matter?

In economic theory, productivity is commonly defined as the ratio between the output volume and the input volume. In other words, it measures how efficiently production inputs, such as labor and capital, are being used in an economy to produce a given level of output, such as gross domestic product (GDP).

There are different measures of productivity and the choice between them depends either on the purpose of the productivity measurement and the availability of data. One of the most widely used measures of productivity is GDP per hour worked. For the purposes of this report, we will use only this metric.

Explanations for the drop

Productivity not only reflects an economy’s efficiency. The changes in labor productivity approximate how well individuals are doing. Where the changes are positive and high, individuals are paid better, if the changes are low or negative, usually there is some degradation of wage levels. Productivity, therefore, is not only an indicator of economic competitiveness, but also of individual welfare. Seen in that light, the OECD’s 2019 report is troublesome news.

It reveals that, in line with previous releases, the average productivity growth per year continues to decelerate. Countries such as the United States, Germany, Austria and Switzerland were able to increase their productivity by less than 1 percent annually; France by 1.1 percent.

The OECD makes a direct connection between the lack of productivity growth and the labor market: In France, Germany and the United Kingdom, the three sectors with the largest employment gains between 2010 and 2017 accounted for a third of total job creation but paid below-average wages. In Belgium, Finland, Italy and Spain, industries with above-average labor productivity levels saw net job losses.

Economists have been developing theories for the continuous decline of productivity growth in developed economies. The most relevant are these, though they should all be taken with a grain of salt:

Economics measures productivity incorrectly; GDP does not capture all value added, for example of the service and digital sectors
Low productivity is here to stay; recent investments in digitization push labor productivity down because they make capital the main driver of increasing productivity
Low productivity is a temporary phenomenon; digitization needs time to unravel its productive capacity on labor
Low productivity affects services more than industrial goods because there is less free trade in services than in industrial goods. For example, services do not migrate easily, fewer international treaties push free trade in services, and services tend to be personalized
Productivity has been weakening while regulations have been strengthening; regulation decreases productivity
There is an increasing divide between highly productive sectors, companies and people, and those that are not highly productive (the majority)

Enter: Covid

Then, there is the current economic crisis, triggered by the coronavirus. In the first two quarters of 2020, most economies fell into a recession prompted by measures to counter the outbreak of Covid-19. The number of hours worked also decreased. People were laid off, put on furlough or given part-time positions. However, the reduction of hours worked (input) was disproportionately large compared to the decrease in GDP (output), which results in a higher productivity, or a larger GDP per hour worked.

The above graph shows the productivity surge measured as the change in GDP in local currency per hour worked. The yellow dot shows the average change in productivity between 2010 and 2018 in percent. The blue dot shows the change in productivity during the coronavirus crisis in the first two quarters of 2020. During the Covid-19 crisis and in comparison to the decade before, there was an explosion in productivity.

Between 2010 and 2018, productivity in Switzerland rose by 0.7 percent annually. In Austria the increase was 0.8 percent in Germany 0.9 percent. France recorded one of the highest values with 1.1 percent and the U.S. one of the worst with 0.5 percent. During the coronavirus crisis, the figures changed. Between the fourth quarter of 2019 and the second quarter of 2020, Switzerland increased its GDP per hour worked by more than 25 percent. Austria even managed to break the 28 percent mark. Germany increased productivity by 12 percent, France by 11 percent, and the U.S. by 10 percent.

Several factors make assessing this short-term surge of productivity difficult. First, most of the data is either preliminary or based on estimates. Second, as mentioned earlier, GDP is not only formed by labor, but also by capital – it would be an exaggeration to attribute the entire surge to labor productivity. Third, the data for the pre-coronavirus period is on a yearly basis, while the data for the Covid-19 crisis is only for two quarters. Despite all these caveats, the trend is interesting. And it is clear: labor productivity surged during the crisis.

Explaining this trend depends on which of the above theories one chooses to believe. Combining them, four explanations come to mind, from which scenarios can be drawn. Two of these scenarios are optimistic and two pessimistic. None are mutually exclusive.

Scenarios

First, at least in the short-run, deregulation and digitization boosted productivity in unparalleled ways. During the crisis, most countries allowed for some flexibility in their rigid labor laws. Employees could work remotely, could determine their own working hours and could adapt their hours worked to the amount of work. At the same time, companies were more open to incorporate technology such as video-conferencing or remote access into their employees’ work processes. The question is now whether regulators and the private sector are willing to continue deregulation and digitization. If they do, productivity will continue increasing – most probably not at the same rate as during the crisis, but at least at a much higher rate than between 2010-2018.

Second, reengineering of the work processes, more communication and management by objectives or by exception led to the surge of productivity. Because of the measures taken to counter the pandemic, many work-related processes had to be rethought. People were prevented from interacting with each other in the same intensity as before the crisis, and management had to take a more hands-off approach.

At the same time, coordinating peoples’ tasks (notably in the service industry), working in shifts and working remotely, became crucial. The combination of rationalizing processes, better thought-through coordination and focus on self-directed work led to the productivity increase.

In this explanation, technology and deregulation do not play a role. They might have helped but the reason for the surge lies in the management of work-processes. If businesses continue along this path – applying an industrial logic to the service sector – productivity can grow, even if there is no deregulation or no digitization.

Third, the surge in productivity happened due to a selection process in the labor market. Less productive members of the labor force were the first to lose their jobs or be put into part-time work. This naturally led to an increase in efficiency. As soon as these less productive workers return, productivity will dip again.

Finally, the surge of productivity is the fruit of the wrong measurement. It only happened because the metrics do not take outside forces into account. In this case, the outside factors involved higher probabilities of depression or other psychological effects on the people not working or working less, more stress for people working with increased flexibility or remotely, or the loss of social contact at work. Some of these factors will persist even as people return to their work routines. So, what at first seems like a surge in productivity is actually an even larger loss than before the crisis.

Conclusion

In developed economies, labor productivity has been weakening. This amounts both to a loss of competitiveness and to less welfare for the individuals working. During the first two quarters of 2020, labor productivity rose to unprecedented levels. While caution about the precise measurement is warranted, the trend is established. Economics, however, has difficulty explaining why this surge happened and what the path forward should be.

Nevertheless, a combination of deregulation, digitization and optimization of business processes, especially in the service sector, helps raise productivity. The real surprise is that while all this may be common sense for a businessperson, it comes as a revelation to many professional economists.


*Henrique Schneider is a professor of economics at the Nordkademie University of Applied Sciences in Elmshorn, Germany and chief economist of the Swiss Federation of Small and Medium Sized Enterprises in Bern, Switzerland.