Category Archives: Institutions

Singing for Hitler – Choirs, Clubs and the Third Reich

Bowling for Fascism: Social Capital and the rise of the Nazi Party in Weimar Germany, 1919-33

Shanker Satyanath (NYU), Nico Voigtlander (UCLA) and Hans-Joachim Voth (Zurich)

URL: econpapers.repec.org/paper/zureconwp/147.htm

Abstract:

Social capital typically leads to positive political and economic outcomes. A growing literature also emphasizes the potentially “dark side” of social capital. This paper examines the role of social capital in the downfall of democracy in interwar Germany. We analyse Nazi Party entry in a cross-section of cities. Dense networks of civic associations such as bowling clubs, choirs, and animal breeders facilitated the Nazi Party’s rise. Towns with one standard deviation higher association density saw at least one-third faster entry. All types of associations – veteran associations and non-military clubs, “bridging” and “bonding” associations – positively predict NS Party entry. These results suggest that social capital aided the rise of the Nazi movement that ultimately destroyed Germany’s first democracy. We also show that the effects of social capital depended on the institutional context – in Prussia, where democratic institutions were stronger, the link between party entry and association density was markedly weaker.

Reviewed by Ronan McGarry (final-year BSc Economics student, Queen’s University Belfast)

This NBER working paper was distributed by NEP-HIS-2013-07-15. The authors seek to clarify and quantify the role that social capital played in the rise of the Nazi Party and the ensuing downfall of the democratic Weimar Republic. In order to do so, econometric analysis of the link between local clubs/societies and Nazi party membership is conducted. The authors also seek to add to the current literature on the ‘dark side’ of social capital (Putnam 1995).

The literature on positive and negative outcomes as a result of high levels of social capital is conflicting. In his 1995 essay ‘Bowling Alone’, Robert Putnam wrote that communities with high levels of social capital ‘promote participatory democracy’. However, Riley (2005) would refute this and point to society-rich Northern Italy – which turned fascist in the 1930s. Furthermore, Chambers & Kopstein (2001) point out that after the collapse of the USSR, Serbs began ethnically cleansing their Balkan neighbours, even though Serbia had fairly intense levels of social capital. This paper turns its attention to Weimar Germany in an effort to shed more light on the topic.

It must be noted that the authors were not the first to tackle Weimar Germany’s fall in terms of social capital. However, they are the first to have done so econometrically. Berman (1997) showed that ‘a robust civil society helped scuttle the twentieth century’s most critical democratic experiment, Weimar Germany’ explaining that the ‘high levels of association served to fragment rather than unite German society.’ This paper builds on Berman’s conclusion by comparing numerically the rates of civic association intensity in German towns and cities against the rate of Nazi Party membership uptake; whilst controlling for various other political and socio-economic variables.

The authors collected data on 111 German towns and cities in modern-day Germany. One problem here is that Weimar Germany’s eastern border was much further to the east than modern-day Germany’s. This means that missing from this dataset are cities like Breslau (now Wroclaw, Poland) and Konigsberg (now Kaliningrad, Russia). Both of these cities were very Nazi-friendly – the Nazis received 44% of Breslau’s vote in 1932 (Davies & Moorhouse, 2011) and 54% of Konigsberg’s in 1933 (Jasinski, 1994) and so their exclusion from the dataset is disappointing in terms of accuracy.

Missing from the authors' dataset are cities like Breslau, Koningberg and Danzig.

Missing from the authors’ dataset are cities like Breslau, Koningberg and Danzig.

Following this, the authors begin the presentation of their findings with an interesting comparison of two similar towns – Kleve and Coburg. Both were similar in size, but with large differences in the presence of associations. Coburg was far denser in terms of civic society – with a rate of 2.99 associations per 1000 inhabitants, compared to Kleve’s 0.89 per 1000. Then, as their hypothesis predicts, Coburg saw an ‘80% greater uptake’ (p. 15) in Nazi Party membership than Kleve between 1919 and 1933.

However, whilst this serves to broadly illustrate the authors’ point, I find this comparison disingenuous in that in picking Coburg, they happen to select one of the most Nazi-friendly cities in Germany to make their point. Indeed, Coburg’s city hall was the first in Germany to fly the Nazi flag. My point is that by picking a town in Bavaria (the home province of the Nazis) and comparing it to a town in the far north, they are ignoring potential geographical concerns. Indeed, if the authors had of compared Kleve with Hamburg (another Northern city with a similar Association Density to Coburg’s), then they would have found their results running the wrong way, as Hamburg has a higher Association Density but a lower Nazi Party entry rate!

Nazi Party Entry Rate against Association Density of towns, with Hamburg, Kleve and Coburg highlighted.

Nazi Party Entry Rate against Association Density of towns, with Hamburg, Kleve and Coburg highlighted.

The authors then present their numerical findings. They announce that ‘association density strongly and significantly predicts higher entry rates into the NSDAP’, with ‘the per capita entry rate increasing by 0.4 standard deviations for every standard deviation increase in association density’ (p.16), results which support Chambers & Kopstein (2001) and Riley’s (2005).

Following this, the authors make an effort to quantify the differences between Putnam’s (1995) ‘bonding’ (exclusive groups such as Gentleman’s Clubs) and ‘bridging’ (inclusive groups such as choirs or bowling clubs) social capital in terms of their effects on Nazi membership uptake. Putnam believed bonding social capital to have adverse effects, with bridging social capital fulfilling the opposite role. However, the authors find bridging capital to have ‘positive, significant and quantitatively meaningful coefficients, which are similar in magnitude to those for bonding capital’ (p.21) – suggesting that both types of associations were ‘important pathways’ in terms of Nazi party membership.

German youth choir, and example of bridging capital. The sign translates to 'We sing for Adolf Hitler'.

German youth choir, and example of bridging capital. The sign translates to ‘We sing for Adolf Hitler’.

One final important contribution this paper makes is in terms of investigating the evidence that social capital can develop a ‘dark side’ (Putnam, 1995) and actually undermine a functioning democracy – which the authors claim is ‘missing’ from current literature. To do so, they examine the state of Prussia, which was more ‘pro-democracy’ and was ‘governed more competently’ (p.22). What they find is that before the gradual weakening of Prussian democracy in 1930, the relationship between party entry and association entry in Prussia was ‘systematically weaker’ (p.23) than the rest of Germany. What this shows is that a ‘functional, strong, democratic government’ (p.24) can help prevent social capital showing its ‘dark side.’

To conclude, this paper offers an interesting insight into an area of social capital literature which had not been studied econometrically before. Whilst it is indeed disappointing that the authors could not include important eastern European cities that are no longer a part of Germany, they do make a fair point that massive war damage in these cities led to the loss of many public records and as such, makes it impossible to gather data. On a positive note, the presentation of Prussia as a case in which social capital can suddenly change from a democracy-supporting vehicle to one which undermines democracy completely is welcomed, and suggests that the manner in which social capital operates is heavily dependent on the ‘wider institutional context’. In terms of future study into the ‘dark side’ of social capital, it might be interesting to apply these econometric methods to the rise of other fascist parties, such as the Golden Dawn in Greece, or further study on fascist – building on Riley’s 2005 work.

Bibliography

Berman, S. (1997). Civil society and the collapse of the Weimar Republic.World politics49, 401-429.

Chambers, S., & Kopstein, J. (2001). Bad civil society. Political Theory, 837-865.

Davies, N., & Moorhouse, R. (2011). Microcosm: a portrait of a central European city. Random House.

Jasiński, J. (1994). A history of Konigsberg: sketches of the thirteenth to twentieth centuries. (Historia Królewca: szkice z XIII-XX stulecia) Książnica, Poland.

Putnam, R. D. (1995). Bowling alone: America’s declining social capital. Journal of democracy6(1), 65-78.

Riley, D. (2005). Civic associations and authoritarian regimes in interwar Europe: Italy and Spain in comparative perspective. American Sociological Review70(2), 288-310.

Satyanath, S., Voigtländer, N., & Voth, H. J. (2013). Bowling for fascism: Social capital and the rise of the Nazi Party in Weimar Germany, 1919-33 (No. w19201). National Bureau of Economic Research.

 

(Spoiler Alert) Game of Science: Higher life expectancy does not cause Economic Growth

Disease and Development: A Reply to Bloom, Canning, and Fink

By Daron Acemoglu and Simon Johnson (both MIT)

URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:20064&r=his

Abstract

Bloom, Canning, and Fink (2014) argue that the results in Acemoglu and Johnson (2006, 2007) are not robust because initial level of life expectancy (in 1940) should be included in our regressions of changes in GDP per capita on changes in life expectancy. We assess their claims controlling for potential lagged effects of initial life expectancy using data from 1900, employing a nonlinear estimator suggested by their framework, and using information from microeconomic estimates on the effects of improving health. There is no evidence for a positive effect of life expectancy on GDP per capita in this important historical episode.

Reviewed by Sebastian Fleitas

 “The game of science is, in principle, without end.   He who decides one day that scientific statements do not call for any further test, and that they can be regarded as finally verified, retires from the game.” 

The Logic of Scientific Discovery, Karl Popper, 1934.

Bill Gates' Infographics

Bill Gates’s Infographic.

Not a long time ago, on April 25, Bill Gates posted an infographic on his blog revealing which is the world’s deadliest animal. Sharks, bugs, snakes and many very scary animals are not even close. The mosquito has the first place by far. They carry terrible diseases, including malaria, which kills more than 600,000 people every year. This infographic is just a reminder of how important it is to improve health around the world. Better health conditions could make millions of people live longer and better lives. But will these better health conditions (and a longer life expectancy) actually cause economic growth? Cross-country regression studies show a strong correlation between measures of health and both the level of economic development and recent economic growth. But, as we know, correlation does not imply causation.

What Acemoglu and Johnson (AJ hereafter) do in their 2014 paper (NEP-HIS 2014-05-17) is just to play the Game of Science. AJ (2007) argue that life expectancy does not cause economic growth and that previous studies had not established a causal effect of health and disease environments on economic growth. Since countries suffering from short life expectancy are also disadvantaged in other ways that are correlated with their poor health outcomes, previous macro studies may be capturing the negative effects of these other unobservable disadvantages. To address this identification problem, AJ (2007) used an instrument for the life expectancy: medical advances that occur at the health frontier, interacted with variation in the prevalence of diseases across the world, used together to construct a predicted mortality variable. The adoption of new medical practices is clearly endogenous, but the authors argue that the technology at the frontier is potentially exogenous. Since there was variation across countries in the prevalence of different diseases, the timing of new medicine advances has a different effect on the predicted mortality for different countries. In other words, the predicted mortality variable satisfies the requirements of a good instrument: it is correlated with the life expectancy in the country, but it is arguably not correlated with other unobservables that determine growth that may be changing at the same time in a country.

Dr. Jonas Salk and Dr. Albert Sabin developed two different polio vaccines that have pretty much  almost eradicated polio from the world.

Dr. Jonas Salk and Dr. Albert Sabin developed two different polio vaccines that have pretty much almost eradicated polio from the world.

Bloom et al. (2013, hereafter BCF) disagree with AJ’s strategy and conclusions. In their paper, which earlier appeared as an NBER working paper, they argue that the problem with AJ’s instrument is that it assumes the predicted mortality to be exogenous and not affected by contemporaneous income shocks. In other words, it implies that the initial mortality rate in 1940 should be unaffected by income levels in 1940, which is difficult to believe. As BCF explain very clearly, the “natural experiment” constructed by AJ is flawed. The “treatment group” that received large health gains from technological innovations is fundamentally different from the “control group” that received low health gains, since the “treatment group” had lower life expectancy initially. Therefore, if initial conditions are important for subsequent economic growth, the results will be biased if these initial conditions in 1940 are not considered. BCF included the level of life expectancy in their econometric specifications (a “partial adjustment model”) and they concluded that exogenous improvements in health due to technical advances associated with the epidemiological transition appear to have increased income levels.

In their reply to the reply, Acemoglu and Johnson (2014) address by different means the concern raised by BCF about their original work. First, in order to capture the long-run effects of the initial life expectancy, they include the level of life expectancy in 1900 interacted with time dummies in their decadal panel data set (which runs from 1940). Second, they estimate the “partial adjustment model” of BCF via non linear GMM, since the linear estimation of BCF’s specification will lead to a great deal of multicollinearity and the standard errors become very large. Finally, they use microeconomic estimates from another paper to calculate potential macroeconomic effects of current life expectancy on future growth and examine the implications of their baseline results. AJ conclude that all these approaches confirm that their main results are robust. There is no evidence that increases in life expectancy after 1940 had a positive effect on GDP per capita growth.

There are three issues in this Game of Science that I would like to comment on. First, the intent to quantify the contribution of health to economic growth is extremely relevant for both scientific and policy-related motivations. The general conclusion of the debate, at this stage of the game, is that health conditions were not a factor that shaped the differences in GDP per capita during the second half of the 20th century. Even more generally, the evidence casts doubts on the views that health has a first-order impact on economic growth. With this in mind, it is important to recognize the limitations in the study, especially to extract conclusions for today’s effect of health on economic growth. This is recognized by AJ, who warn that international epidemiological transition was a one-time event and that the diseases that take many lives in the poorer parts of the world today are not the same as those 60 years ago. Despite these considerations, it is important to notice that no author in this debate has questioned the crucial role of improving health conditions to save and improve the lives of millions of people.

Correlation and Causation

Correlation versus Causation

Second, it is important to highlight that the main contribution of AJ is that they provide a sound way to address the problem of endogeneity in order to answer this important question. It is not the first time that Acemoglu and Johnson find a way to design a natural experiment to address some fundamental development questions by using exogenous variation in a country-level panel data setting. In another famous paper, Acemoglu, Johnson and Robinson (2001, AJR hereafter) address the problem of endogeneity that raises in the study of the linkages between income and institutions with the famous instrument of mortality rates of European settlers in different colonies. In both occasions Acemoglu and co-author(s) show us in practice the nuts and bolts of economists’ empirical work, that is, to address the endogeneity concerns by doing good research designs and by finding exogenous sources of variation.

Finally, I see this debate as a privileged example of Popper´s quote. In this short reply to BCF, AJ (2014) present further tests for their results in AJ (2007), overcoming the important point that BCF raise. This is a fair game; both articles are forthcoming in the Journal of Political Economy and the database and programs for AJ papers can be downloaded from Daron Acemoglu’s webpage at MIT. Even more, this is not the first time these authors play the game in the same way. A similar, and also very illustrative debate about AJR (2001) and David Albouy’s critiques can be found in the American Economic Review, or in the NBER working paper. In both debates, Acemoglu and co-author(s) present more evidence on their results that are robust to additional tests, but in both episodes we gain from the debate. We just need to recall that our knowledge is always limited by the evidence we have at the moment, and that this evidence will change over time. After all, in the Game of Science, just like in another famous game, you do not know how it is going to end, even if you read all the books that have been published on the topic.

The institutional co-evolution of proto-multinationals

The Formative Years of the Modern Corporation: The Dutch East India Company VOC, 1602-1623

By Oscar Gelderblom (University of Utrecht), Abe de Jong (Erasmus University Rotterdam) & Joost Jonker (Universities of Amsterdam and Utrecht)

URL: http://ideas.repec.org/p/ems/eureri/32952.html

Abstract

With their legal personhood, permanent capital with transferable shares, separation of ownership and management, and limited liability for both shareholders and managers, the Dutch East India Company (VOC) and subsequently the English East India Company (EIC) are generally considered a major institutional breakthrough. Our analysis of the business operations and notably the financial policy of the VOC during the company’s first two decades in existence shows that its corporate form owed less to foresight than to constant piecemeal engineering to remedy original design flaws brought to light by prolonged exposure to the strains of the Asian trade. Moreover, the crucial feature of limited liability for managers was not, as previously thought, part and parcel of that design, but emerged only after a long period of experimenting with various, sometimes very ingenious, solutions to the company’s financial bottlenecks.

Reviewed by Stephanie Decker

The Dutch East India company may be among the best researched businesses of all time, but it is testament to its importance as a proto-multinational and the quality of its archive that research on this firm continues to inform contemporary research debates. The working paper by Gelderblom, De Jong & Jonker (NEP-HIS 2014-01-17), which has since been published in the Journal of Economic History, is interesting as it deals with the early years of the VOC (Vereenigde Oostindische Compagnie), and presents both a historical narrative as well as some distinctive challenges to previous assumptions. Their paper has to be seen as both an interesting contribution to other researches on the VOC, as well as some more general debates.

The continued interest in this very old company is due to a variety of reasons. Even a short sweep of recent work that relates to the VOC shows a remarkable breadth of themes. Wim van Lent has compared management policies of the VOC with its competitor, the English East India company, to understand some problems of its organizational evolution (Sgourev & Van Lent, 2011). This comparison is so intriguing not just because of the Dutch-English colonial competition during this time period, but also because the two East India companies were organized very differently, and almost provide a naturally occurring counterfactual for each other in a laboratory that tests organizational effectiveness at long distance.

As both firms date back to the seventeenth century, and were among the first well-documented examples of how organizations dealt with the challenges of managing across vast distances, their corporate histories are of great importance in and of themselves. Both provide organizational solutions to some of the perennial problems of multinationals, which struggled with poor communication and oversight of operations, especially the difficulties of enforcing control and monitoring the trustworthiness of its agents.

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Gelderblom et al. discuss the attitudes and conflicts within the Dutch Republic over the control of the VOC, the world’s first modern corporation

But despite all of these similarities to the multinationals of later stages, the East India companies were also fundamental different, and creations of their own time. The companies, especially the VOC, often took on roles that made them quasi-governmental bodies. As a result, they were involved in some of the day-to-day issues of governance of empire, which made these archives particularly rich. Thus they have been researched beyond the narrow confines of business history, and the particular insights that can be gained from those files have been discussed in great detail by Ann Laura Stoler (2009), a well-known postcolonial historian of gender and empire. The conduct of business often involved the company in political and personal issues well beyond what one would usually expect to see in a business archive, which offers rich contextual insights into the time period and its attitudes.

It is in this regard that the paper by Gelderblom et al. is interesting, as it discusses the attitudes and conflicts within the Netherlands over the control and financing of the VOC, and the exact rights and obligations of its directors. The paper takes core historical values such as contextualization and contingency (O’Sullivan & Graham, 2010) seriously, and paints a rich picture of the time period and some of the characters that influenced the decision-making within and beyond the VOC. The importance of these issues lies in more conceptual debates about the evolution of limited liability in the West (as opposed to other commercially vibrant areas such as the Middle East). Gelderblom et al.’s analytically structured narrative (Rowlinson, Hassard & Decker, 2014) highlights that although the VOC possessed some important legal features that we commonly associate with modern corporations, others developed only during its first years of operations in response to external pressures.
Consequently, having acquired two key features of the modern corporation (the split between ownership and management and transferable shares) from the outset, the VOC obtained three more (a permanent capital, limited liability for directors and by extension legal personhood) step-by-step over a period of some twenty years. Thus the five features did not come as a package, as a coherent logical set.

Their narrative shows how most of these pressures reflected financial constraints, as the large-scale trading activities in conjunction with military expeditions were a far larger undertaking than anything that had hitherto been financed on the Amsterdam money markets. This is an important contribution, and their short discussion in the conclusion quite sensitively highlights that some assumptions about the superiority of the Western institutional frameworks, such as argued for by Kuran (2010), are perhaps too ethnocentric to fully understand not just the different evolution of institutions in other cultures, but can also blind researchers to the historically contingent development of the legal frameworks that we now take for granted.

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Gelderblom et al. hide much of their contribution in their paper’s appendix

In light of the above, it is noticeable that the actual narrative takes up the largest part of the paper, and that it is only at particularly important junctures that the historiographical literature is challenged, while the framing in the introduction and conclusion is more heavily conceptual. These insights that can only be developed from a careful, in-depth historical investigation perhaps deserve better highlighting. This extends to the title, which does not quite do justice to the large themes that inform the historical narrative. Finally, it is only in the appendix that it becomes clear for readers not familiar with the nature of the VOC archive that this early period that the paper deals with is indeed not as well-researched as the later period, especially in terms of its financial performance. All of this adds up to another interesting angle of research on the VOC, which as a company and an organizational archive is clearly a case of great importance for the history of business and its institutional developments.

References:

  • Kuran, T. 2010. The Long Divergence: How Islamic Law Held Back the Middle East. Princeton: Princeton University Press.
  • O’Sullivan, M., & Graham, M. B. W. 2010. Guest Editors’ introduction: Moving Forward by Looking Backward: Business History and Management Studies. Journal of Management Studies, forthcoming.
  • Rowlinson, M., Hassard, J., & Decker, S. 2014. Research Strategies for Organizational History: A Dialogue between Historical Theory and Organization Theory. Academy of Management Review, 39(3).
  • Sgourev, S. V., & van Lent, W. 2011. The Right Amount of Wrong? Private Trade and Public Interest at the VOC European Group of Organization Studies. Gothenburg, Sweden.
  • Stoler, A. L. 2009. Along the Archival Grain: Epistemic Anxieties and Colonial Common Sense. Princeton: Princeton University Press.

Constructing Contemporary (Mexican Banking) History

Bank Nationalisation, Privatisation, Crisis and Financial Rescue: Using Testimonials to Write Contemporary Mexican Banking History

By Enrique Cárdenas (Centro de Estudios Espinosa Yglesias)

Abstract – The Mexican banking system has experienced a large number of transformations during the last 30 years. Although important regulatory changes were introduced in the 1970s, all but a couple of the commercial banks were nationalized in 1982, consolidated into 18 institutions and these were re-privatized in 1992. Shortly after, a balance of payments crisis in 1995 (i.e. Tequila effect) led the government to mount a financial rescue of the banking system which, in turn, resulted in foreign capital controlling all but a couple of institutions. Each and every one of these events was highly disruptive for Mexico’s productive capacity and society as a whole as their consequences have had long lasting effects on politics, regulation and supervision of the financial sector as well as polarising society. Not surprisingly the contemporary narrative accompanying these events has been highly controversial and full of conflicting accounts, with competing versions of events resulting in a long list of misconceptions and “urban legends”.

URL (Podcast: 07 April 2014, 1 hr and 38 min)

Review by Bernardo Bátiz-Lazo

This entry departs from our usual as it fails to discuss a specific paper circulated by NEP-HIS. Instead I comment and reflect on a public lecture, that is, another common medium we use to communicate our research. The lecture build around two multi volume books and three DVD’s, and was delivered by Enrique Cárdenas (Executive Director of Centro de Estudios Espinosa Yglesias or CEEY) at Bangor Business School’s London campus on 2014-04-07. The actual publications are available, by the way, in hard copy from CEEY’s book store and in electronic version from Amazon.com.mx, as well as following the links to videos below and the link to the full podcast of the presentation above.

The chief aim of this project is to offer new evidence on the process of nationalisation (1982) and privatisation (1991-1992) of Mexican commercial banks. These two episodes of contemporary financial history had important rippling effect on Mexican society, politics and macroeconomic performance. They also had global consequences, first, as they mark the start of the so-called “International Debt Crisis” after Mexico informed of a payment moratorium of sovereign debt in August 1982. Secondly, the ratification of Robert Rubin as the 70th US Treasury Secretary (1995-1999) together with Ernesto Zedillo taking office as 54th President of Mexico (1994-2000), led to a political power vacuum and impasse in economic policy making between the Autumn of 1994 and early Winter of 1995. Known in the vernacular as the “Tequila Crisis”, in December 1994 Mexico devalued its currency and this led to instability in international foreign exchange markets and accelerated the exit of portfolio investments from a number of other countries (most notably Argentina and Brazil). By this point in time, Mexicans had fought hard during negotiations with the US and Canada to keep the banking system out of the North American Free Trade Agreement (NAFTA). But this exception was lost in the aftermath of the “Tequila Crisis” while the subsequent bailout of the newly privatised banks represented a precedent missed by US and British regulators of what would happen, on a much bigger scale, during the 2007-9 financial debacle.

José López-Portillo y Pacheco (Last presidential address to the Nation, 1982; The president broke into tears after announcing the nationalisation of the banks).  Courtesy of Centro de Estudios Espinosa Yglesias

José López-Portillo y Pacheco (1920-2004) (Last presidential address to the Nation, 1982; The president brakes into tears). Courtesy of Centro de Estudios Espinosa Yglesias

Cárdenas’ analytical framework is based on Stephen Haber’s ideas of co-dependence between political and financial spheres. Cardenas’ evidence-based approach is certainly welcomed. But more so as he tackles head on with the issue of periodicity and method. Specifically whether and how to write accurate and meaningful economic history using of oral sources in the recent past. Revisiting and unpacking method and methodology are topics not far from current debates in business history, as has been portrayed in previous posting in the NEP-HIS blog (click here); the forthcoming panel on oral histories and World War I at theEuropean Association for Banking and Financial History (EABH) meeting in Rüschlikon, Switzerland; recent and forthcoming publications in refereed journal articles by Stephanie Decker and colleagues (see full references below); and JoAnne Yates’s contribution to the edited book by Bucheli and Wadhwani (2014) (as well as their panel on the latter publication during the recent World Business History Conference in Frankfurt). Indeed, one of Cárdenas’ and CEEY trustees’ chief motivations to engage in this research was to listen to what major players had to say while they were still alive.

Cárdenas was not limited to oral sources. He endeavoured to gather surviving but uncatalogued documents as well as the construction and reconstruction of statistical data series to complement historical analysis. Actors were of the highest standing in society including former Presidents, Mexican and foreign Treasury ministers, senior staff at multinational financial bodies, past and present senior bank executives, regulators, economic academic advisors, etc. To deal with historians mistrust of recollection and potential bias, Cárdenas sent in advance a questionnaire split in two sections: one aimed at enabling a 360 degree perspective on key moments; and the second, made out of questions tailored to the participant’s office and status during the event. All participants were informed of who else would take part of the discussions but none were shown others’ responses until all were collected and ready for publication. The risk of being “outed” thus resulted in only a handful of contradictions as participants preferred to declined answering “painful” topics than stretching the “truth”. Meetings were recorded, transcribed, and compared against statistical data. The latter would either strengthen the participant’s argument or was returned to him with further queries. Several iterations resulted in each participant embracing full ownership of individual texts and thus effectively becoming an author of his entry. It’s this process of iterations and guided discussion to which Cárdenas refers to as “testimonials”.

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As mentioned, the result of the CEEY’s sponsored research by Cárdenas was two multi book volumes and three documentary videos all of which, as illustrated by the links below to trailers and video documentaries below, have been edited but have no narrators. All views are expressed by the main actors “so that viewers can draw their own conclusions” said Cárdenas during his lecture. By publishing a large number inconclusive outputs based on “testimonials” the CEEY, and Cádernas as his Executive Director, aim to offer a new empirical source for others to include in their own analytical work and come to their own conclusions. Indeed, CEEY’s publications also include a number single author monographs and the commissioning of edited collections by academic authors who have used the testimonials as part of their evidentiary repertoire.

But does Cárdenas have any conclusions of his own? For one, he believes the effort to generate and document events through testimonials and new statistical material results in a much more balanced approach to assess the limited options President López-Portillo had at the end of his term in office. For starters in 1981 he was to nominate on his successor ahead of elections (“el dedazo”). The events that followed were to become the beginning of the end for the one party rule that characterised Mexico during most of the 20th century. At this point in time, Mexico had experienced four record years of strong economic growth. Never seen before and never to be seen since. Its oil production was doubling each year but its international debt was skyrocketing (particularly that of short-term maturity in 1981-2).

But as international oil prices begin to drop, Mexico followed an erratic behaviour (reducing and then raising its oil price) while oil revenues generated 35% of fiscal income and 75% of exports. Moreover, prices for other Mexican exports also fell while a practically fixed-rate parity with the US dollar meant a strongly overvalued peso. A devaluation was followed by a massive increase in salaries. And in the midst of political jockeying and an accelerating worsening of public finance, the President (a lawyer by training) was, according to Cárdenas, to receive conflicting and contradicting information (Cárdenas calls it “deceiving”) on the actual size of the public deficit (which was to double from 7% of GDP in 1981 to 14% of GDP in 1982) as well as the merits of defending the Mexican peso vs US dollar exchange rate (which he publicly claim to “defend like a dog [would defend his master]“.

2014-04-07 13.42.25

This conclusion sheds a significant amount of light on the decisions of late former President López-Portillo. As much as also help to better understand the end of some otherwise promising political careers. The narrative of actors bring fresh light to understand the break up between Mexican political and business elites, which eventually results in the end of the one party rule in the presidential election of 2000. It also helps to explain the break up of the rule of law during the next 15 to 20 years in Mexico as well as the loss of the moral authority of its government.

Cárdenas and CEEY have certainly produced a piece that will resist the test of time. They offer a unique effort in creating contemporary financial history while building from oral sources, privileged access to main actors and in this process, developing an interesting method to deal with concerns around potential bias. Given the passion that the topics of nationalisation and privatisation still generate amongst Mexicans and scholars of modern day Mexico, it is understandable that the analysis has emphasised idiosyncratic elements of these events. But somehow links with wider issues have been lost. For one, nationalisation or sequestration of assets (whether of local or foreign ownership) characterised the “short” 20th century. Nationalisation is one side of the coin. The other is public deficit reduction through the sale of government assets. Indeed, the privatisation of Mexican banks between 1991 and 1992 enabled to finance about half of the reduction of Mexican sovereign debt (though the massive rescue that followed practically annulled that reduction). Mexicans were not inmune to Thatcherism to the same extent that a reduction of the state in economic activity (whether real or not) was and is part and parcel of the “second” globalisation.

In summary and in Enrique Cárdenas own words: “Writing current (economic) history is not only possible, but highly desirable!”. We welcome his contributions to enhance empirical evidence around such important events as well as offering a way to systematically deal with oral sources.

Videos

The President’s Decision (1982) – Trailer (with English subtitles)

The President’s Decision (1982) – Full length (in Spanish)

From Nationalisation to Privatisation of Mexican Banks (1982-1991) – Trailer (with English subtitles)

Privatization of Mexican Banks (The President’s Decision Ex Post: Bank Privatization [Tequila effect – 1991-1995] – Trailer (with English subtitles)

References

Yates, J. (2014) “Understanding Historical Methods in Organizational Studies” in M. Bucheli and R. D. Wadhwani (eds.) Organizations in Time : History, Theory, Methods Oxford: Oxford University Press, pp. 265-283.

Decker, S. (forthcoming) “Solid Intentions: An Archival Ethnography of Corporate Architecture and Organizational Remembering”, Organization.

Decker (2013) “The Silence of the Archives: Postcolonialism and Business History”, Management and Organisational History 8(2): 155-173.

Rowlinson, M. Hassard, J. and Decker, S. (forthcoming) “Research Strategies for Organizational History: A Dialogue between Organization Theory and Historical Theory”, Academy of Management Review.

Note: with special thanks for helpful comments to Sergio Negrete (ITESO) and Gustavo del Angel (CIDE).

Does educational stratification put toffs at the top?

Social mobility at the top: Why are elites self-reproducing?

by Elise S. Brezis (Azrieli Center for Economic Policy, Israel) & Joël Hellier (EQUIPPE, Univ. de Lille, Bar-Ilan University, Israel and LEMNA, Univ. de Nantes, France)

URL: http://EconPapers.repec.org/RePEc:inq:inqwps:ecineq2013-312

This paper proposes an explanation for the decrease in social mobility that has occurred in the last two decades in number of advanced economies, as well as for the divergence in mobility dynamics across countries. Within an intergenerational framework, we show that a two-tier higher education system with standard and elite universities generates social stratification, high social immobility and self-reproduction of the elite. Moreover, we show that the higher the relative funding for elite universities, the higher the elite self-reproduction, and the lower social mobility. We also analyse the impacts of changes in the weight of the elite and of the middle class upon social mobility. Our findings provide theoretical bases for the inverted-U profile of social mobility experienced in several countries since World War II and to the ‘Great Gatsby Curve’ relating social mobility to inequality.

Reviewed by Mark J Crowley

This paper was circulated by NEP-HIS on 2014-01-10, and was of particular interest to me, primarily since I spent my formative years attending primary and secondary school in an area of the South Wales valleys prioritised by the European Union for what was then termed as ‘Objective One funding’ in recognition of its lack of social inclusion and opportunity – a position precipitated by the closure of the coalmines in the 1980s, which deprived thousands of their livelihoods. It stored up numerous social problems for the future, primarily owing to the absence of a cogent plan to replace and maintain the community’s employment following the completion of the area’s pit closures in the late 1980s, but was exacerbated, following the removal of these employment opportunities, by the deeply-embedded mindset of the coalfield communities vis-à-vis academic and/or cultural education, symptomatic of that seen in the movie ‘Billy Elliot’ (2000). Although disliked, inequality was largely accepted almost as a fait-accompli. For the Conservative Party of the 1980s, as Peter Dorey has argued, it was regarded as inherently necessary and positive in contemporary Thatcherite political thought (Dorey, 2010).Economic inequality became deeply clear from the 1908s in Britain

Summary

Citing the fact that society has been ‘constructed’ since medieval times, enforcing people’s ‘place’, whether it be as a member of the Feudal society or as a designated member of a particular ‘social class’, scholars have traditionally argued that inequalities have primarily been enforced according the socially-assigned opportunities during childhood. In the UK, the frequent use of the vernacular such as ‘toff’ and ‘poshboy’ by those of the opposition Labour Party (despite many of them, too, having received an elite education) in response to the perception of the British government’s inability to connect with the grassroots, picks up on the main concerns of this paper, that being that the current social and educational construct in many advanced European economies helps to perpetuate the development of an elite social class who, despite forming the smallest percentage of the nation’s overall population, receive the greatest power and highest chances of success.

This paper claims that the stratification of universities according to ‘elite’ and ‘secondary’ categories propagates an inequality that helps nurture the protection and development of an ‘elite’ through better resources afforded to those universities according to their finances and staffing. The transition of graduates to a higher social class, facilitated by their better education, and affording them with the skills maybe not available to their parents to secure a middle-class, white collar job enforces, at least superficially, the so-called ‘New right’ rhetoric of an ‘upwardly mobile’ society, but one which is fundamentally and inherently contradictory.

The methods used by the authors to convey their point are very persuasive.  The use of the intergenerational earnings elasticity model, with the use of gender and parental income as the variable helps to demonstrate the extent of the ‘elite construction’ which is the main theme of this paper, and is used as a method to measure intergenerational social mobility. Their findings suggest a constant increase in intergenerational social mobility in the countries where the so-called ‘dual’ (i.e. elite and secondary) education exists, namely France, the UK and the USA, but are contrasted with Nordic countries that do not have this system to show that such a trend does not exist here.  However, they are also keen to emphasise that a range of factors could have contributed to these changes, with sociological factors after the Second World War being cited as a major example of changes to the demographic of society in the post-1945 period, such as the number of blue collar workers entering the elite class in the USA during the 1960s being double that of countries such as Britain, France and Germany, although after the 1980s, the extent of their social mobility was severely decreasing. (Brezis & Hellier, 2013:6)

Yet the authors believe that the growth of tertiary education is possibly one of the largest reasons to explain this shift, with this form of education accounting for 60% of students in the present period, compared with 10% in the post-war period, representing an increase of 525% in enrolment to the ‘non-elitist colleges’ in the USA between 1959-2008, and an increase of 250% in elite colleges for the same period.  (Brezis & Hellier, 2013: 7)  Coupled with this of course is the fact that elite universities (Ivy League), particularly in the USA, have become more selective in their recruitment, recruiting only those with the highest grades and thus creating a small student body, and in turn spending treble the money per head  compared to secondary universities.  On the other hand,  recruitment to secondary universities has increased, largely, according to what the authors believe to be a more lenient admissions policy, but one that has led to a larger student body, and less money per head being spent on students.( Brezis & Hellier, 2013, 8)

However, the authors are also keen to correlate educational attainment with family background.  Citing the fact that at its highest, children of upper class families were 40 times more likely to enter an elite educational institution compared to those from lower social classes clearly demonstrates this class divide, and that, to a large extent, this divide is possibly ever-increasing.  (Brezis & Hellier, 2013, 8)

Using the idea that a two-tier education system prevailing in many advanced economies could be considered as a major source pertaining to rising inequality and reduced social mobility, this paper asserts that stratification of universities has also affected the level of spending per head on students, and thus influenced their educational opportunities and attainment. Declaring that the so-called ‘elite universities’ tend to recruit students from the higher social classes, it implicitly suggests that those from the lower social orders are disadvantaged at the recruitment stage, despite possessing requisite, identical and in some cases better evidence of academic attainment. Although the latter issue remains controversial, the authors have certainly identified a phenomenon that the universities concerned attempt to rebuff, and policymakers try to ‘level out’, but one that remains virtually impossible to eradicate, especially in view of the fact that many of the elite universities are in receipt of significant funds from rich benefactors, many of whom are alumni.

Those with the most power in society have appeared to be in the minority - a position influenced by growing affluence in the higher classes

Critique

The authors have engaged in a very deep analysis of the social class and its impact on entry into elite universities, and have also clearly shown the divergence between social class and educational attainment at university level. Drawing on a large range of quantitative methods and materials, this research clearly attests to the ‘Gatsby Curve’ pertaining to social mobility and inequality, demonstrating that this is relevant across several nations in developed economies.

To further amplify the impact of this research, perhaps the authors could consider exploring the difficulties faced by universities today in terms of marketing themselves to students? In the UK, and also in the US, this has become especially pertinent over recent years, and has, superficially at least, made the distinction of ‘elite universities’ more blurred, particularly in view of the spike in tuition fees implemented in the UK by the Conservative-Liberal coalition. Tied with these was the option for universities to level fees within a prescribed range, leaving many universities, even those considered among the ‘secondary’ level, to charge higher fees to avoid enforcing, or indeed accepting a position both statistically and in the public mind, as a lower-level institution. In fact, this position does raise deeper questions concerning the definition of ‘elite’ institutions. Is it based on its historical tradition, research output (as is often used as the arbiter of much government funding), student satisfaction, quality of teaching, or student attainment after graduation?

Additionally, in an age where having staff whose capabilities extend beyond the traditional realms of research and teaching has become ever-more necessary in view of the growing commercialisation of universities in the twenty-first century, with its leaders becoming more financially-savvy, and turning more towards international outreach to attract large external funding, perhaps the authors could explore whether they think the growing commercialisation of universities has deepened the class divide, thus forcing many away from pursuing a university education on the grounds of cost, or whether the growing competition among educational institutions, much of which now has a strong business-orientated approach, especially with the creation, in some universities, of the position of ‘Chief Executive’, will work to level out the ubiquitous class divide.

References

Dorey, Peter (2010) British Conservatism : The Philosophy and Politics of Inequality , London : I.B. Tauris.

David Cameron and Boris Johnson in the livery of the Oxford University Bullingdon Club (crica 1986)

David Cameron and Boris Johnson in the livery of the Oxford University Bullingdon Club (crica 1986)