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Posts Tagged ‘inequality

Cities are the future

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MinasRuines

Photo by Marcia Valle

Brazil is a fascinating country to travel to as a South African. It is vibrant, slightly chaotic and mesmerizing all in one, and, beyond the airports and major tourist areas, quite a challenge for someone with no knowledge of Portuguese. I was invited to a rural university town in the state of Minas Gerais in May to deliver a series of talks. From the airport in Belo Horizonte my driver, hell bent on showing off his Grand Prix skills, took me on a five-hour rollercoaster ride through the hilly countryside. What was formerly a coffee and sugar plantations (and mining) region, were now mostly vacant, most of the land reclaimed by veld and forests. The language barrier prevented me from inquiring in detail what was happening, but from what I could gather, his answer was simple: People are moving to the cities. They want better lives.

Rapid migration to cities is a global phenomenon. People ‘vote with their feet’ for better economic opportunities, and in South Africa, as in Brazil, they vote for the bright lights of the cities. Poverty in South Africa is largely a rural phenomenon. Yes, townships on the periphery of cities house many poor residents, but these residents have better lives than those in the former homelands many of them come from. The search for a better life for them and their children is why they moved in the first place.

Those of us with a romantic view of life in the countryside may think that this flood to the cities can be reversed by, for example, policies that would expand land access or improve rural living standards. But lack of land is not the reason people migrate to cities in large numbers, not in South Africa and also not in Europe, China or Brazil. In several European countries, rural areas have been abandoned, taken over by forests (and returning wildlife). The European policy-makers have done their best to prevent this, by offering expensive agricultural subsidies to its farmers (at the cost of farmers in Latin America, India and Africa), but this has just slowed the inevitable. Farms are now being bought up by rich city-folk that want weekend getaways – cities are what creates wealth, the countryside is for spending it. In China, because of the disastrous policies of Mao, land was equally divided amongst the citizens. Yet with the onset of modern economic growth in China since the 1980s, millions of families have relocated to the cities, first to fill jobs in low-skilled, labour-intensive sectors, but as the economy has grown and wages have increased, to more skill-intensive sectors. Their children will attain much higher living standards than their parents and grandparents could ever dream of. Despite a history of severe inequality, the story is no different in Brazil. Rich and poor move to cities, because that is where their living standards are most likely to improve.

Trying to slow down urbanization is futile; in fact, it is likely to do more harm than good. Cities are where people prosper: they have access to employment opportunities, better schools and clinics, electricity, water and sanitation and access to a greater variety of social institutions and entertainment, like churches and sport clubs. But because cities are so attractive, that also results in higher levels of inequality, as new poor migrants from the countryside continually fill the gaps left by those that were formerly poor but have worked their way up. Inequality in cities should thus be interpreted with caution: it is a consequence, rather than a break, on progress. The poor care less about the Gini coefficient and much more about the possibility of social mobility – the possibility to escape poverty.

Evidence of how migrants’ living standards improve is provided in a new paper by Ivan Turok and Justin Visagie. They track rural migrants to South African cities between 2008 and 2014. Before their move to the city, 80% of these migrants were living below the poverty line. Six years later, they results show, ‘the level of income poverty for these migrants (now living in an urban environment) had more than halved to below 35%. Meanwhile, the poverty level for individuals who remained in the countryside stayed very high at 70%.’

It is for this reason that some economists are proposing a somewhat contentious poverty-alleviating policy: subsidies to help those in rural areas to migrate to cities. A new paper by David Lagakos, Ahmed Mobarak and Michael Waugh use an experimental programme of migration subsidies in Bangladesh to calculate the effect on migrant welfare. They find that for the poorest households, the welfare gains from migration subsidies are higher than unconditional cash transfers or a rural workfare program costing the same total amount. ‘This suggests that conditional migration transfers may be a useful way to raise the welfare of poor rural households in the developing world.’

The influx of migrants are and will continue to be difficult for cities, already suffering backlogs and scarce resources, to manage. But there are ways to support them. National and provincial governments can do more to give cities control over land and infrastructure they own, like Metrorail. Greater private sector involvement can speed the provision of basic services, notably in housing and internet connections. Political competition, like what has happened in Johannesburg, Pretoria and Port Elizabeth, will help to push out bureaucratic incompetence (and corruption) and promote service delivery.

Urbanisation is the key to future prosperity, in South Africa, Brazil and elsewhere. Any policy to keep people in rural areas amounts to a policy to keep them poor. While city governments are battling to tackle existing infrastructure backlogs, they should recognise that they offer the best hope for people to escape poverty.

**An edited version of this article originally appeared in the 7 June edition of finweek.

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Written by Johan Fourie

June 30, 2018 at 06:54

One policy to rule them all

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LotR

The holy grail for development economists is to identify an affordable policy intervention that will help the poorest escape poverty. We know that living a longer and better life is correlated with many things: higher income from having a job, living in a house with clean water and sanitation, and access to better schools and health facilities, to name a few. But the trouble comes when we try to write policy to improve these things: which investment, given limited resources and political constraints, will most benefit children from poor households? And why?

A new paper* published in the American Economic Review last month by a team of economists and psychologists offers an answer. It uses a longitudinal unconditional cash transfer programme – the Great Smoky Mountains Study in North Carolina – to examine how a cash boost for parents affected children’s outcomes. Children from 11 counties were interviewed annually from age 9 until the age of 16. Their parents were interviewed at the same time. One subsection of these children are American Indians. These American Indian families began to receive, five years after the first survey, direct cash transfers from the Eastern Band of Cherokee Indians tribal government as a result of a new casino that came into operation. The cash transfers were provided to all adult citizens of the tribe, regardless of their employment conditions, marital status, or the presence of young children. This is basically equivalent to a universal Basic Income Grant, a policy that is gaining popularity in academic circles.

Because the surveys were initially undertaken for the purpose of collecting information about behavioural and mental health, the authors have a lot of information about the children’s emotional and behavioural well-being at their disposal. Most importantly, the surveys began before the introduction of the unconditional cash transfer, so they can compare the mental health conditions of children in households who receive the transfer to those in households who never received it. This ‘natural experiment’ is the closest thing economists get to a laboratory experiment.

The results are remarkable. They show that the increase in unconditional household income improves child personality traits, emotional well-being and behavioural health. Because of the unique nature of their data, they can demonstrate that these improvements are for the same child using the same measures over time. The formation of positive personality traits, like conscientiousness (individuals who do your duties diligently and thoroughly) and agreeableness (individuals who are kind, sympathetic and cooperative), is ‘crucial in determining long-term socioeconomic standing and may also have strong effects on long-term health, educational attainment, and economic outcomes’. We know from earlier research that mental health conditions, such as attention deficit disorder, are more likely to affect poorer children. The authors concur: ‘We find that the children that start out with the most severe personality or behavioral deficits are the ones who exhibit the greatest improvements.’ A universal cash injection, like a Basic Income Grant, is likely to have the largest impact on children from the poorest households, improving personality traits and health outcomes even during their teenage years.

Such improvements in personality will have large repercussions in adulthood. A large literature now shows that such traits are strong predictors of finding a job, living in a good neighbourhood and living a longer and healthier life.

Most remarkably, because the surveys also included questions about parental health, the authors could discuss potential mechanisms through which additional household income affects child personality traits. They find that the unconditional cash transfers resulted in ‘an improvement in parental mental health, the relationship between parents, and the relationship between the parents and children in the treated households’. A Basic Income Grant may improve long-run child outcomes via the improvement in parental behaviors, stress-reduction, and improvements in decision making in the household.

A Big Income Grant is an expensive policy. A back of the envelope calculation reveals that, with 56 million South Africans, a Basic Income Grant of R758 per month – what is classified as the lower-bound poverty line by StatsSA – will require R509.4 billion annually. This is a lot of money, but not impossible to find. We already spend R193.4 million on social protection, and another R66 million on social security. We pay R180 million on debt servicing, which can be drastically reduced if we sell government-owned assets and repay our debt. A Basic Income Grant will also help reduce the reliance on free government services, such as fee-free schools, and increase VAT income as consumption increases.

A Basic Income Grant not only eliminates extreme poverty with the stroke of a pen, but as the Great Smoky Mountains Study show, it can drastically improve the emotional well-being and behavioural health of both children and parents in our poorest communities, with massive implications for their futures and that of South Africa. If we are serious about addressing the stark inequalities in our country, inequalities that ultimately help explain societal challenges like hopelessness, desperation, crime, violence, and even populism, then a Basic Income Grant is a policy we can no longer afford to ignore.

*Akee, Randall, William Copeland, E. Jane Costello, and Emilia Simeonova. 2018. “How Does Household Income Affect Child Personality Traits and Behaviors?” American Economic Review108 (3): 775-827.

**An edited version of this article originally appeared in the 10 May edition of finweek.

Written by Johan Fourie

June 19, 2018 at 08:15

How social status drives our consumption – and inequality

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louis-vuitton

A couple of years ago I attended a focus group for Finweek. The magazine was rebranding and it had invited a diversity of people to comment on the content it should offer. The conversation turned to investment options for young professionals: should young people invest their monthly savings in a new property, or stocks, or something else? The facilitator asked the thoughts of a young woman that had been quiet for most of the meeting. Her answer, and its consequences for many young South Africans like her, stunned me: I invest in expensive clothes, because I have to signal to a potential husband that I am wealthy. In other words: I buy brand names, because I want to improve my social status.

Economists have known since Adam Smith already that people buy luxury goods not only for the value they derive from consuming it, but because these goods offer something else: social status. Conspicuous consumption, as economist Thorstein Veblen coined our affinity for status goods, has helped explain economic phenomenon like our excessive expenditure on weddings or the difference between black and white incomes in America.

However, so far economists have struggled to differentiate between our affinity for nice things (in economics jargon: our unobserved consumption utility) and our affinity for the status that those nice things signal. In other words, I might buy a Ferrari not only because I really like fast and furious cars (consumption utility), but also because I want to signal to the everyone else that I am rich (status).

A team of five economists, in a new NBER Working Paper, has now found a way to test the importance of social status. They worked with a large Indonesian bank that distribute credit cards to clients. (Indonesia is a great place for a test like this, because it is in developing economies, as Veblen theorized, where you are most likely to see conspicuous consumption. Also, Indonesia has 74 million middle-class consumers, expected to double by 2020.) They used platinum credit cards, which come with a number of benefits like a higher credit limit and discounts on luxury purchases and is typically sold to high-income individuals, in their experiment.

How do they show that social status matter? They randomly offered a fancy-looking platinum and standard-looking credit card to their customers at the same price and with the same benefits. If customers only cared about the utility of the new card (like the benefits on offer), there should be no difference in the take-up of the fancy-looking or standard-looking card. And yet, there is a 7 percentage point difference: 21% purchased the fancier card versus only 14% for the standard card. The mere fact that the fancy-looking card was associated with a higher status meant that people purchased it.

Perhaps it is not that surprising that people purchase something because it conveys an additional status element, but what is surprising about the experiment is that poorer individuals bought more of the fancy-looking card. The rich, in contrast, showed no difference in demand for the fancy or standard card. The authors ascribe this finding to the fact that “richer individuals already have ways to signal their income, while the platinum credit cards are a more powerful signaling tool for those with comparatively lower incomes”. This also explains the behaviour of the young woman in our focus group; she was more limited in her ability to show social status and thus had to resort to clothing.

In a second experiment, the authors then look at how the customers use their cards. Consistent with their theory, they find that the customers that bought the fancy-looking card (remember: it had the same privileges as the standard-looking card) used the card more often in social settings, such as spending in restaurants, bars and clubs, where the card is more visible to others. Here, too, there is somewhat of a surprise: the use of this card comes at a cost, because in 48% of the cases the customers have another card that would have given them discounts on those purchases. In other words, they chose to ignore the discount just so that they can use the fancy-looking card that gives them social status! If this is true for credit cards where there is a limited audience (only your buddies who joined you for dinner can see you paying with a fancy-looking card), imagine what people are willing to forego for luxury products with a larger audience, like clothes and cars.

The authors conduct several other experiments, all of which support the authors’ theory that social status matter in explaining our consumption behaviour. We do not only buy luxury goods because they provide us with utility; we buy them because they signal something about our social status. And because poorer individuals tend to have fewer ways of signaling social status than richer ones, they are the most eager to grasp at opportunities for showcasing their status. (That is why direct marketing is never aimed at the wealthiest individuals!)

Such findings have implications for the distribution of wealth. The choice for a young person between investing your meager savings in stocks or a new car may not only depend on the financial returns they can get, but also the psychological returns they might get from purchasing a luxury good. If poorer individuals tend to buy more luxury goods to earn social status, like the young woman in the Finweek focus group, while the rich invest in assets that yield positive financial returns (because they already have assets that give them social status), the only logical conclusion is a widening wealth gap. There is little any policy, like a purported wealth tax, can do to prevent that instinctive human yearning for status.

*An edited version of this first appeared in Finweek magazine of 15 June 2017.

Written by Johan Fourie

July 12, 2017 at 11:02

We are shopping less, but buying more

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CheckersMini

One of the things I realised soon after marriage, is that my wife and I share different strategies when it comes to grocery shopping. I like to stock up, buying bulk on the cheap, while she prefers to visit the store more frequently, acquiring only what is necessary for the next few days. This of course means that we never run out of canned beans, but often out of milk.

Such choices are at the heart of economics. Understanding how, why and when a buyer chooses a product or service is often the difference between a thriving and failing business. That is why every successful firm, from banks to health insurance to mobile communications companies, spend considerable resources these days analysing ‘Big Data’ to understand and ‘nudge’ the behaviour of their customers.

Even general retail, a sector often caricatured as unaffected by technological change, now has to adjust to the new technological possibilities, like sensing technologies that track the movement of customers as they browse a store. Not only can technology help retailers to optimise store lay-out, but, with a little leap of the imagination, they can have advertising that can recommend new products when a new customer walks past based on the content of their previous purchases, of their existing basket or of the purchases of their friends that is connected to them on social media. (Imagine buying shampoo, and being prompted: Your friend, Herman, purchased Organics in this store five days ago.) And then there is a plethora of other technologies that are likely to revolutionise the shopper’s experience, from mobile payments (in South Africa: wiCode or SnapScan), to digital receipts (another South African upstart: Pocketslip), to online shopping.

There is no doubt that these new technologies will shape the way we make decisions about what, how and where to buy our groceries, but technology is not the only thing that affects our spending behaviour. A new NBER Working Paper by three authors affiliated to US universities, identifies an interesting trend in the US over the last four decades: the rise of spending inequality, or a widening gap between how much different households spend when they go shopping.

We usually measure inequality by comparing peoples’ incomes. But presumably we are also interested in how people spend their incomes: are there huge differences between how much some households spend vis-à-vis others, and do these differences change over time? In fact, it seems like this is indeed the case: the difference in household spending patterns in the US seem to be on the increase. Some families seem to be spending a lot more than others.

One suggestion for the rise in income inequality is the impact of technology. But this is where the authors find an interesting result: the reason for the rise in spending inequality, they argue, is not because of growing differences in consumption caused by greater levels of income inequality (i.e. the rich still consume more than the poor, but this gap is not increasing), but instead because Americans go shopping less frequently. They explain it as follows: if a household starts buying groceries once a month instead of once a week, their consumption may not change (they stockpile to smooth their consumption), but the measured spending inequality will change because some households in surveys will appear as if they spend a lot, while others will appear as if they spend nothing. This difference was less dramatic when households went shopping every week, and so it appears as if inequality is on the rise.

Using various datasets, the authors find two distinct trends to support this theory: first, the number of shopping trips that Americans make has been steadily falling since 1980. In contrast, the average expenditure per trip has been steadily rising. Americans are making fewer, but larger, shopping trips on average. Second, the quantity of goods Americans buy have been rising, while the amount of time spent shopping has declined. All of this, the authors conclude, points to higher levels of stockpiling by Americans.

What explains this changing behaviour? Surprisingly, it is not technology innovation, which is often considered the source of most disruption. Instead, the authors show, the increasing stockpiling is a result of the emergence of warehouse stores, like Costco, that sell larger quantities of goods at lower unit prices. “As these stores have expanded throughout the country since the 1980s, it has become easier for households to stock up in ways that were not feasible in the past, consistent with the decreased frequency of shopping that we observe.”

Technological improvements like mobile payments, digital receipts and online shopping is aimed at reducing transaction costs, making it easier and cheaper for consumers to do their grocery shopping. Such lower costs should result in a higher frequency of shopping. And yet, the trends, at least for the US, point in exactly the opposite direction: fewer visits to the supermarket, with consumers preferring to buy in bulk and on the cheap.

Perhaps South African consumers behave differently. Perhaps the digital revolution will reverse these trends quickly; once your fridge can order canned beans automatically from the local supermarket when supplies run low, we won’t need to buy in bulk. But any retailer worth their salt would do well to be aware that the promise of technology can often overshadow deeper forces pulling in the other direction. Technology reduces transaction costs, but the benefits of buying bulk seem to outweigh the costs. Now to convince my wife.

*An edited version of this first appeared in Finweek magazine of 18 May.

Written by Johan Fourie

June 13, 2017 at 05:48

Can South Africa’s empirically-minded public intellectuals please stand up?

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BigBangTheory

Much has been said about South Africa’s economic situation in recent months. Even more has been written about the underlying ills that explain everything from protests at universities to the persistent poverty in the former homelands. This piece by Raymond Suttner, a principled intellectual who paid a heavy price – seven years in jail – for his political activities during apartheid, perhaps best exemplifies the tomes of op-ed pieces trying to make sense of the situation.

And then Dan de Kadt*, an MIT student in Political Science, wrote the following on Facebook in response to the Suttner piece:

In my opinion this is the type of article we need fewer of in South Africa. Not because Raymond Suttner is fundamentally “wrong”, but because this article is a platitudinous summary of what we already know. And somehow it even gets the summary wrong, by being deeply non-empirical.

1) Pretty much everyone who is not a racist bigot (e.g. all those white folks posting on “White Genocide” groups or commenting on News24) knows that South Africa is still living through the legacies of Apartheid – political, sociological, economic, geographic, etc. The structural challenges facing people in South Africa clearly cut along race lines, and the consequences of that are deeply troubling. Egregious inequality, limited inter-generational mobility, social violence, state violence, etc, all following racial lines. It is anecdotally obvious, and empirically obvious too, if you bother to look at actual data.

But understand that the racist bigots aren’t going to change their opinions because of the nth article stating these facts, no matter how well written or persuasive it is. Trying to convince Apartheid dinosaurs is a fruitless (and actually unnecessary) enterprise.

2) While the above claims are undeniable, they are also stylized – they are generalizations and simplifications. As Suttner points out, a lot of progress has been made since 1994. But then he turns around and says things like “Black people’s life opportunities are little different from that of their parents.” On average, that’s simply false for any reasonable definition of “little different”. And it’s obviously false if you just look at the (slow, but real) emergence of the black middle class, a group that tends to be young and upwardly mobile. There’s ample census and labour force data that backs this up – for black South Africans there is better inter-generational mobility now than before, and income and wealth are slowly (far too slowly) being redistributed to the emerging urban black middle class.

The same is true of many many things in post-1994 South Africa. Electricity, water, sewerage, refuse collection access? Virtually non-existent for black South Africans in 1994, much more existent now. If you actually bother to look for it, we have the data needed to examine where the country is failing and where it is not, where Apartheid persists, and where it does not. That is what we need from our public intellectuals, rather than endless repetitive platitudes about how “things are essentially the same”.

3) The failure to recognize this subtler empirical reality means that Suttner fails to capture emergent intra-race class cleavages. There are indeed many young black South Africans whose opportunities/lives are as limited/horrifying as their parents’ were. But these are, for the most part, not students at universities (certainly not UCT). They are, for the most part, not the people participating in RMF or FMF. They are the children of some 17 million exclusively black (read almost half) South Africans who are still forced to live in, essentially, Apartheid-era Bantustans, the only parts of the country where service provision is systematically worse now than it was in 1996. They are the children who eagerly went to school in grade 1 only to find their teacher absent 3/5 days a week. They are that young man on the trash heap while Gareth and Dali walk by laughing. An entirely contrary reading of the RMF/FMF movement is that it is an expression of the emergent black middle class, and its ignoring of (not to say dislike of, or indifference to) the plight of those who remain “below” them. Free university? For whom, the 5%?

4) What this country needs is intellectuals who write articles that explain how to FIX the legacies we’ve inherited. Suttner gives us a brief paragraph about how “we could have done better” on NSFAS because “other places have”. Like where!? Tell us!? That’s valuable f*cking information! Problems in the education system limit black South Africans prospects? No sh*t! Now, please tell us how you think we should fix it, or at least start a debate about how to fix it, preferably one based on actual evidence.

There are so many brilliant minds in this country, and so many brilliant ideas worldwide about how to address the kinds of problems we face. Our problems are not unique. But all we deserve, it seems, is yet another article from a celebrated public intellectual telling us what’s wrong (and with little empirical evidence to back it up, to boot).

Diagnosing the ills of South Africa in broad strokes is, to be honest, extremely straightforward. Apartheid makes it so. What we need are bright minds and public intellectuals leading empirically grounded debates about policy and about how to fix the problems we (smart/not-bigoted people) know exist.

Yes, yes, and yes! First, this is why South Africa’s best and brightest students should study fields (and equip themselves with tools) that will allow them to address these serious questions. Second, we need to expect more of our public intellectuals. A research paper or policy document or even an op-ed cannot simply be a few bundled ideas and theories without empirical proof. Third, there is way too much emphasis in South Africa on who says something, rather than what is being said. Science should be anonymous. Regardless of the nationality, gender or religion of the scientists, if results are falsifiable and repeatable, then they are all that matters. This is not entirely the case in the social sciences, because the real world is not a laboratory. But empirically-grounded research where social scientists analyse large data sets of household earnings, voter behaviour or race relations, for example, depend less on who is doing the research and more on what is being done. To use one example: we don’t care about the nationality, gender or religious orientation of the researcher who showed that less than 9% of South Africans use state-sponsored public transport (trains and buses) to get to work. Instead, we care about what this finding tells us about the inefficient transport system in South Africa, and the policies that could best fix it. I accept that not all research is quantitative, and that not everything can be reflected in numbers. (I’m an economic historian; sometimes numbers just don’t exist.) But what we should be cautious of is opinion (i.e. arguments not grounded in empirics). The ease of publication these days means that opinion often gets more attention than it deserves.

Dan’s last sentence is therefore indeed very important, so let me repeat it: What we need are bright minds and public intellectuals leading empirically grounded debates about policy and about how to fix the problems we know exist.

Can South Africa’s empirically-minded public intellectuals please stand up?

*I asked Dan’s permission to quote him. I tried to cut, but it was all just very good, and very valid. Thanks Dan.

Discrimination on the job market

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Interviews

Job market discrimination has been at the centre of the last few months’ furore about the lack of transformation at universities across South Africa. On the one hand, those appealing for faster transformation believe, I surmise, that black candidates are not hired or promoted because of discrimination by the panels making the appointments. In contrast, those citing practical difficulties of hiring black staff believe, I surmise again, that the constraint rather lies with a shortage of black candidates.

I suspect both these premises are true. To solve the second – i.e. to increase the supply of black candidates – is a time and resource-intensive process that universities have neglected for too long but which the events of the last few months have certainly hastened. Perhaps that is the topic of a future blog post. Instead, I’ll focus on the former: discrimination at the hiring and promotion level. If this is indeed happening, and I think there is some evidence to suggest that it is, what can be done to forestall such discrimination and speed the much-needed transformation of universities? I should note that discrimination in the workplace may be overt through an undisguised preference for a specific race or gender. When and where this happens, there should be immediate action through the correct channels. But my suspicion is that it more commonly manifests unconsciously – a preference for the culturally familiar (“he went to the same school as I did”, or “she speaks the same language”) which reduces transaction and decision-making costs. Discrimination is then borne through a rational desire to hire the best candidate in a world of asymmetric information.

This type of discrimination was most famously demonstrated by Claudia Goldin and Cecilia Rouse in a 2000 American Economic Review paper. They showed that a change in the auditioning procedures of symphony orchestras – adopting a ‘blind’ assessment with a screen to conceal the candidate’s identity from the jury – increases the probability that a woman will be hired. Because conductors are often male and orchestras male-dominated, male musicians were considered (by the judges, also male) to be better than their female counterparts. Anonymous assessment (playing the violin behind a screen so that the candidate’s gender could not be seen) reduced the bias and meant that more females joined the orchestra.

There is a long history of studies showing similar biases for race. In the US, studies have repeatedly found that résumés with traditional white names are substantially more likely to lead to job interviews than identical résumés with distinctively black names. Roland Fryer and Steven Levitt have found that these effects, though, are not causal for later life outcomes: “we find no compelling evidence of a causal impact of Black names on a wide range of life outcomes after controlling for background characteristics”. Instead, black names better predict life outcomes for the parents than the children.

But given the evidence that people discriminate on race or gender, how does one mitigate the possibilities of such (unconscious) discrimination? Of course, it would help to have more diverse appointment and promotion panels, but given the much-highlighted current racial profile of staff, this will either not be feasible or it would impose heavy costs on black staff who now would have their days filled by sitting on appointment and promotion committees. Another option is to have anonymous résumés and promotion applications. Anonymous résumés or CVs would, theoretically, allow all candidates to be judged according to the exact same criteria, with the top five chosen for the interview process. It is difficult to imagine how to conduct anonymous interviews, but it is not entirely impossible: technology may allow each interviewer and interviewee to create a digital avatar, with the conversation through a Skype session and a mechanical voice transformer. It sounds silly, but it may be the only way to rid the selection committee of any biases (good or bad) they may have towards the candidate. Similarly, promotion applications could be done anonymously, with theoretically only the best candidates making the grade.

So why aren’t we seeing more of this? Well, a new paper just published in the American Economic Journal: Applied Economics suggests we should be cautious. The authors

evaluate an experimental program in which the French public employment service anonymized résumés for firms that were hiring. Firms were free to participate or not; participating firms were then randomly assigned to receive either anonymous résumés or name-bearing ones. [They] find that participating firms become less likely to interview and hire minority candidates when receiving anonymous résumés.

They ascribe their surprising results to two things: 1) self-selection into the voluntary programme and, 2) anonymization prevents the attenuation of negative signals when the candidate belongs to a minority. The latter may be most revealing for South Africa: it simply means that making things anonymous makes it harder for the adjudicators to account for the poorer performance of some candidates at a younger age. Here’s one example: the high school marks of a black South African who attended a poor school may be lower than a white South African who attended a better school, despite the two of them having the same capabilities. An anonymous panel – where school names are removed – would not allow adjudicators to see the high school marks in the context of a poor-performing school. (Education economists in South Africa know that a 80% math score for a kid in a poor school is a much stronger signal than a 80% math score for a kid in a wealthy school.) Instead, anonymous procedures do not factor in past inequalities. Anonymization perpetuates past inequalities; everyone is treated equally but unfairly.

The French government, having hoped that the system would lead to greater representation of minorities, actually abandoned the system as soon as the results became known. It just shows again that what might sound plausible in theory is not always the policy reality. The equal treatment that anonymity provides does not result in equal opportunity. That’s why policy evaluation is so important, and why addressing inequality so difficult.

Written by Johan Fourie

June 29, 2015 at 07:09

How Zuma’s words disempower black South Africans

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Who wears South Africa's diamonds? Source: BBC

Diamonds (and colonialism) are forever. Source: BBC

Black South Africans have suffered a lot over the last two centuries. I am an economic historian and, together with some of my students, have recently begun a project which hopes to quantify the material inequalities between black and white South Africans over the last 200 years. It is not easy, because the colonial records have often ignored the black experience. And yet, there are clues everywhere. From early nineteenth-century government payrolls (where black translators earned one-tenthousandth of what the white governor earned) to mid-twentieth century cadaver heights (where blacks are significantly shorter in height than their white compatriots).

All this evidence points to the incredible material injury of black South Africans. And this is to say nothing of the psychological scars and social strife that has accompanied this material hurt.

This suffering is much longer than the colonial experiences of many other Africans on the continent. Although Van Riebeeck already arrived in 1652 and first contact with the isiXhosa’s at the infamous Fish River was more than a century later, this was still much earlier than the colonial experiences of other African countries, which started around the end of the nineteenth century. True, many countries across Africa suffered the vulgarities of the slave trade, most pronounced during the seventeenth and eighteenth centuries. But South Africa’s colonisation, I would argue, was worse, with Europeans subjugating complex agricultural societies to material inferiority by taking their lands, stealing their cattle and, above all, exploiting the minerals that they had claim to. (Is it not ironic that the Queen of England still wears Africa’s most prized diamond?)

When and where black societies adjusted to the new reality of colonialism – proverbially pulling themselves up by their shoelaces – they were punished, either through higher head and hut taxes to ensure that they remain docile labourers, or through more sinister (but also more effective) policies, like building a railroad circumventing the black areas, excluding blacks from the vote despite their immense contribution (to both sides) during the Second South Africa War, or, most infamously, by providing rubbish education (with the 1953 Bantu Education Act). For two centuries, at least until 1994, whites did their best to discourage, disrupt and, when those two did not work, destroy, African innovation and entrepreneurship.

All this changed in the new South Africa, for although blacks were (and many remain) at a serious disadvantage, there was no one to now stand in their way. And so, we witness the rise of the black middle class and the black diamonds. Sandton today is perhaps the epitome of this black entrepreneurial class; confident, successful, prosperous. South Africa has moved from a nation of between-group inequality (i.e. white vs black inequality) to a nation of within-group inequality. As an example, if all of South Africa’s whites were to leave the country tomorrow, the Gini coefficient (the measure social scientists use to quantify the inequalities of a country) would remain exactly the same. Over the last two decades, millions of black South Africans have escaped poverty and moved into the middle class; some studies estimate that this group is now close to 5 million people, larger than the total white population. And yes, whites have prospered too, despite their complaining and moaning about everything from BEE to racial quotas in the Springbok team. None of this hurt them (on aggregate), and the only things that do hurt – violent crime, corruption, blackouts – hurt black South Africans even more.

But the post-1994 South Africa is not a narrative about a minority group that represents less than 10% of South Africans. Instead, it is a story of a people rising up from the depths of economic and social deprivation. It is a remarkable story of courage, determination, and perseverance and triumph-against-all-odds. Black South Africans have claimed their birth right and begun to overturn centuries of injustice. They have had to skill up, build up collateral, educate the next generation, all with relatively little support from a government that first had to steer a sinking ship through shallow waters. And more: they have had to reconcile with racists, so magnanimous a step that we forget it is called a miracle.

And yet, when Jacob Zuma blamed apartheid for Eskom’s blackouts and when he branded Jan van Riebeeck the scapegoat for the country’s high levels of inequality, he changed the narrative again. Suddenly, South Africa was not a country where black South Africans had the agency to affect their own destiny, but one where whites had (again) the starring role. This tiny minority, Zuma implied, was the lead actor in the South African story; his statements suggest that black South Africans are, at best, supporting characters, much like in the days before 1994. While whites are up in arms at being blamed for everything, they are happy to be part of the conversation again, happy to be listened to, happy to have their say. (For, really, why should South Africans otherwise care about the opinions of a former presidential secretary?)

Zuma does this, I would argue, because it gives him legitimacy (much like Bob Mugabe gets legitimacy by blaming the whites in Zimbabwe, now less than 1% of the population). But Zuma is wrong. While this may still be a country home to millions of whites, it is certainly not a country about them. By blaming whites, Zuma is denying black South Africans the right to take ownership of their own future.

Written by Johan Fourie

February 3, 2015 at 10:43