INTERVIEW: Richard Blundell

Who will be the next winner of the Nobel Prize in economics? One answer is that it might be a modest and quietly spoken professor who sits in an eyrie-like office, high above the busy Euston Road in central London.

Earlier this year, Richard Blundell was awarded the Nemmers Economics Prize, second in prestige only to the Nobel. Seven of the past 11 Nemmers winners have gone on to win a Nobel. And Blundell has been widely tipped in recent years for the profession’s big gong itself.

There’s something of a paradox about the career of Blundell, a professor of economics at University College London (UCL). While he’s extremely influential within the economics community – with his dense econometric papers  notching up tens of thousands of citations from peers – he has little public profile.

And yet he spends a very large share of his time grappling not only with complex econometrics but with highly newsworthy public policy issues as director of research at the Institute for Fiscal Studies (IFS).  “My holy grail is getting the tax and benefits system right,” he cheerfully confesses when we meet.

John Van Reenen, one of Blundell's former PHD students (and now a distinguished economist in his own right at the Massachusetts Institute of Technology), argues that one of Blundell's major contributions has been to use econometric techniques and micro-economic data to analyse and improve public policy. He singles out the example of Labour's 1999 New Deal for Young People, which Blundell's research showed was having a big positive effect.

"His approach to econometrics is always as a tool to help understand the data and [policy] questions – not simply an end in itself," says Van Reenen. Another pre-occupation for Blundell is the economic impact of inequality, something Jeremy Corbyn forced to the top of the agenda at this year’s general election.

“Economists are often accused of not worrying about inequality – it’s just unbelievably untrue,” Blundell says, plainly frustrated by some of the recent attacks on the profession as a handmaiden of tax-cutting, welfare-slashing, political ideologues.

And while the IFS tends to avoid talking about political power, Blundell makes no bones about the fact that one of the major challenges presented by the high share of income flowing to the super-rich is indeed political.  “If the top 1 per cent are in command of 20 per cent of income, which influences the kind of products you can produce, it also has political influence,” he says.

 “There’s some inevitability that very high amounts of wealth in a few hands means that they’re incredibly powerful. It can be for the good. Bill Gates does good. But there are probably as many that don’t.”

Blundell is also concerned with the welfare of the other end of the income distribution, what he describes as “the bottom 20 to 25 per cent”. 

And here Blundell is also, somewhat uncharacteristically for an IFS man, happy to wade into political waters, laying into George Osborne’s plan in 2015 (which Theresa May’s Government has still not ditched) to slash tax credits and present a higher minimum wage as a form of compensation.

“The minimum wage doesn’t really replace other types of in-work support because it doesn’t bring family incomes to the level we want in reducing poverty,” he says. “They go hand in hand in my view. I don’t like this idea that the minimum wage is a substitute for tax credits. If we end up going down that route that’s a very poor policy to take.”

But Blundell, in keeping with the IFS ethos, is resolutely non-partisan. He suggests the Labour leadership is backwards-looking when it comes to tackling inequality.

“I think the problem in the policy debate – whether it’s Brexit or Corbyn – is the kind of romantic vision of the past. Britain in the 1970s, where we had the lowest level of inequality, even if that was a good time, which I very much doubt – you just can’t replicate that.”

Instead of trying to turn the clock back through high personal marginal income tax rates, he wants governments and competition authorities to be much more proactive in breaking up firms that have too much market power. He also wants the practice of governments taxing wealth at a lower rate than income – not least through low and patchy capital gains levies – to be put to an end.

 “We should try and tax all sources of income at a reasonable marginal rate – and there’s no question that we don’t do that. A lot of the reason is the lack of co-ordination across jurisdictions.”

 “That’s one of the reasons I’m depressed about the way things are moving. I’d like to see more [international] co-ordination [on tax]. Europe’s a great vehicle for that,” he continues, warming to his theme.

Brexit clearly weighs heavily on Blundell. “I wish [the vote] had never happened,” he admits, stressing the adverse impact the rupture is likely to have on the higher education sector by cutting off EU funding flows and disrupting research networks. 

 “One of the great benefits of the internationalisation of the economy and of academia is that I have colleagues from all over the world – a lot from Europe,” he says. “We operate Europe-wide, you don’t even think about it. We’re extremely worried about how that’s going to develop.”

Blundell cuts a more youthful figure than his 65 years, which may have something to do with his five miles of daily cycling between his Gospel Oak home and his Euston office. Though he admits that the London traffic can be “a little disturbing” he thinks the environment for cyclists is actually improving. “It’s probably safer than it’s ever been, but there are a lot more cyclists,” he says, taking a suitably statistics-driven approach to the subject.

He’s still enthusiastic about his work, pointing to the new research opportunities presented by the “big data” revolution and what he sees as the swing towards his kind of empirical economics. “I’m certainly not planning on stopping! It's a very exciting time. There are more challenges for empirical economics than I’ve ever known so it’s wonderful. All the young economists want to do empirical economics,” he says, a note of satisfaction in his voice.

Nor is he concerned about the relevance of the subject, with Brexit, inequality, nationalisation, the minimum wage, and welfare cuts all jostling for position at the top of the news agenda.

“You need an economics degree to understand the news,” he jokes.

This article appeared in The Independent on 17/08/17

A 'left-wing Brexit' is a dangerous delusion

If Labour supporters want a glimpse of what Jeremy Corbyn's 2017 general election manifesto would look like in practice, they don't have to dream. They simply need to cross the Channel.

In France, they will discover university tuition funded by the taxpayer. In Portugal and Slovakia, they will see domestic energy consumers who benefit from regulatory price caps. In Germany, they can witness an extensive network of publicly-owned local savings banks. In Spain, the Netherlands, Belgium and Austria, they can marvel at train companies in public hands. In Luxembourg and Belgium, they will see no zero hour contracts. In Sweden and Denmark, they will discover that the state raises around half of national income in tax.

But this can't be happening, can it? This social democratic nirvana can't exist. It must be our imagination playing tricks. Because as two advocates of "Lexit" inform us: "Any attempt to create a different kind of economy from inside the EU has been forestalled through powerful legal impediments embodied in the treaties."

According to Corbyn supporters Joe Guinan and Thomas Hanna, "the thrust of European economic policy has been to extend the market through liberalisation, privatisation, and flexibilisation, sub-ordinating employment and social protection to low inflation, debt reduction and competitiveness". What we have here is a delusion - and an extremely dangerous one in the context of the finely-balanced UK politics of Brexit.

The reality is that the EU is no impediment to either the survival of the institutions of social democracy - nor their extension in Britain. We've had a clear demonstration of this only recently. In 2014, the population of the city of Hamburg voted to return their power grid from private companies to municipal hands. Yet, strangely, the neo-liberal jackboots of Brussels failed to crush the move.

It is fair to say that Brussels has a bias against monopoly - and a good thing, too. But it is certainly not opposed to public ownership. Indeed, a clause in the European treaty explicitly states that EU law must remain neutral on the question. The impediment that EU law imposes is that public providers have to be treated on equal footing as privatised ones. On state aid, the requirement is that subsidies to a sector must be available to all operators, public and private alike.

The Lexit case is embarrassingly flimsy. Guinan and Hanna extol the possibilities for a flowering of "community-owned firms" in the UK post-Brexit. But one can find co-operatives all over Europe, where they boast 123 million members. The pair rail against what they call the "commodified migrant labour" under the EU's freedom of movement laws, ignoring the fact that hundreds of thousands of Britons have freely chosen to work in Europe.

There are legitimate concerns about the operation of the EU's "posted workers" directive, and Corbyn himself has aired them. But it's a travesty to suggest that there is no possibility for reform in this specific area. No less a figure than the new French President, Emmanuel Macron, has put curbing "social dumping" high on his agenda.

Guinan and Hanna scoff at the "icy smooth-frictionless" of the single market. They seem not to realise that it is this regulatory harmonisation that has helped to lift the UK growth rate considerably since the 1970s, boosting the livelihoods of millions of working class Britons. It is this single market that supports millions of good jobs in manufacturing.

The authors talk about a post-Brexit Britain finally being free to stand up to "extractive" multinationals. But who fined Google and Microsoft billions of dollars of revenue for anti-competitive behaviour? Who has ordered Apple to repay € 13bn (£ 12bn) in avoided corporation tax? It was the European Commission.

Why do Rupert Murdoch's right-wing UK newspapers ceaselessly attack the EU? As Peter Mandelson once put it to my fellow Independent columnist Matthew Norman: "What you have to understand is that no single government is strong enough to stand up to him. Europe, on the other hand…" 

The Shadow Chancellor, John McDonnell, burbled last November of the "enormous opportunities" of Brexit and claimed that those who wanted a second referendum were "on the side of certain corporate elites". This suggests he has been seduced by the kind of nonsense espoused by Guinan and Hanna.

The EU is, of course, imperfect. And the mishandling of the Eurozone crisis has been a disgrace. But the idea that Europe is some kind of right-wing "neoliberal project" can only represent a combination of wilful ignorance and ideologically induced blindness. We hear endless noise about the things Jeremy Corbyn has and hasn't said about Venezuela - a country thousands of miles away. We should be more concerned about what he (and too many of those around him) seem not to know about the economy and institutions of our nearest European neighbours."

History makes fools of generalisers, stereotype-peddlers and cultural determinists

“Lazy and utterly indifferent to the passage of time.”

That was a description of the Japanese from an American missionary in 1903. And, as the economist Ha-Joon Chang has documented, these character traits were frequently offered at the time as the reason the Japanese were not as rich as Westerners.

China had a cultural problem too in Western eyes. Max Weber, the German scholar, argued in 1915 that Confucianism made the Chinese unable to embrace “rational entrepreneurial capitalism”. And that was why China had failed to industrialise.

Go back to the late 18th century and one can find Thomas Malthus asserting that population growth reflected a lack of moral restraint among the “lower classes”. While the higher ranks limited their family size in order not to dissipate their wealth among larger numbers of heirs, the dissolute poor, apparently, couldn’t manage this. And that was why national populations would inevitably explode until famine and disease brought them under control again.

History makes fools of such generalisers, stereotype-peddlers and cultural determinists. But history keeps manufacturing fools.

A Google engineer has blown up a storm in Silicon Valley by claiming in an internal memo that sexism is overblown as an explanation for the male dominance in the technology giant’s workplace.

“The distribution of preferences and abilities of men and women differ in part due to biological causes and these differences may explain why we don’t see equal representation of women in tech and leadership,” he told colleagues.

Which is reminiscent of what Kevin Myers wrote in his infamous The Sunday Times column last month explaining the gender pay gap among BBC stars: “Men usually work harder, get sick less frequently [and] tend to be more ambitious.”

If you want a fancier-sounding variant of the same prejudice try Lawrence Summers. The former president of Harvard suggested in 2005 that “issues of intrinsic aptitude”, rather than sexual bias, were the real reason for the underrepresentation of women in academic science.

As support for this hypothesis, Summers offered the rigorously scientific anecdote of once giving his toddler daughter two trucks to play and witnessing her name them “daddy truck” and “baby truck”.

These are all, of course, displays of unscientific sexism, if not misogyny. Yet one can also find in them a flawed, but common, approach to analysing economic and social phenomenon: a focus on supposedly fixed cultural or biological group traits as an explanation of outcomes and a neglect of social institutions, or the systems of behaviour and relationship patterns found in a society.

Social institutions and psychological biases can provide an adequate explanation for economic inequalities of gender and ethnicity and a lack of social mobility without requiring any spurious hypothesising about permanent gender or cultural traits.

So, for instance, social expectations create “herding” effects. If a majority of girls tend to go into humanities rather than sciences, other girls will often make choices in line with their peer group. Similarly, experience of discrimination can enhance “risk aversion” among ethnic minorities. Why apply for that particular job if you suspect, based on experience, your foreign-sounding name will inevitably lead to rejection?

In a similar vein, why apply for an elite university if no one else from your state school has ever gone there and it seems to be full of clever posh children from private schools? And what if an organisation is dominated by people from a certain social background? Is it not likely that its managers, faced with a marginal hiring decision, would be more inclined to choose someone similar to them?

None of these dynamics require any conscious discrimination (although such bigoted behaviour has hardly been eradicated either). 

And, of course, these patterns of behaviour and assumptions tend to reinforce each other, creating stubborn equilibriums. Stubborn, but not unmovable.

The irony of that 1903 missionary’s observation about Japan is that the country was already well on the way to industrialisation. No one thinks of the Japanese as lazy today. Quite the opposite.

China is, by some measures, now the world’s largest economy. A Confucian heritage wasn’t quite the economic obstacle it seemed. No sensible person today thinks, as Malthus did, that feckless poor people require famine to keep their numbers in check.

Traits are often the consequence of a situation, rather than a cause of it. And what might appear like a permanent state of affairs, so permanent that it lulls people into believing it must reflect something biological, can shift quicker than people expect.

We may one day look back on today’s bloviating about female traits with the same mix of bafflement and derision as we now look back on those historical complaints about the lazy Japanese.

This article was published in The Independent on 8/8/17