Interview with Gaël Giraud, AFD head economist, with Tancrède Voituriez (Iddri) and Emmanuelle Cathelineau (Afd)
Interview with Gaël Giraud, AFD head economist, with Tancrède Voituriez (Iddri) and Emmanuelle Cathelineau (Afd)
The SDG on inequality requires that the countries endorsing it produce policies to increase the incomes of the 40 % poorest . What does this change?
Gaël Giraud: Focusing on the incomes of the poorest 40% stems from a hybrid point of view somewhere between the fight against poverty and the fight against inequality – the middle of the ford between the bank you come from (poverty) and the bank the international community is going towards (inequality). This compromise is nevertheless supported by an empirical observation: in a large number of our statistics, the aggregation operation of "averaging" often neglects the "lowest" 40% of the pyramid, those who may have a fate which is radically different from the rest of the population. For example, in almost all countries, the "lowest" 40-50% of the pyramid does not own assets. Focusing on this 40% isn’t actually all that new and GDP constructions had already been applied to the 40%. It’s a way of recognizing the existence of a sort of implicit statistical law which means that this 40-50% often have a fate which is different from the point of view of quality from the rest of the population. All the work carried out over more than 15 years by a number of economists including James Galbraith, who was initiated well before Piketty’s teams, actually conveys the excellent idea according to which we should look at the most privileged 1%, and even the one in a thousand, to capture the precise evolution of income and asset inequality at the top of the social pyramid. In the early 20th century, Vilfredo Pareto had already been surprised by the fact that incomes were always distributed according to power law. When we observe that 20% of the population owns 80% of wealth it is probably the effect that physicists, after the Dane Bak, called self-organised criticality. Power laws appear very much everywhere: in earthquakes, avalanches, black holes, brain pulses, genetic evolution, the disappearance of species, the size of cities, the distribution of assets, etc. In physics, biology and chemistry, there is now consensus on the existence of this almost universal phenomenon and it is hardly surprising that we can find similar properties in large socio-economic aggregates. Benoît Mandelbrot, for example, highlighted power laws in the volatility of stock trading prices. To the best of my knowledge, nobody has yet developed a self-organised criticality model of stock prices or income distribution. At AFD we are working on this because, at more or less regular intervals, there are big financial crashes which would appear to corroborate this hypothesis. It’s like the dissipation of geothermal energy under the Earth’s crust: there are lots of little earthquakes (like in Taipei, for example), few medium-strength earthquakes, and luckily huge earthquakes are very rare (Gutenberg-Richter law). This means that focusing on the poorest 40% is important: the fate of populations is not distributed continuously but by batches of individuals, and for a certain number of criteria (including assets), 40% would appear to be the average size of the first cluster.
How does this measure change AFD’s mandate?
Gaël Giraud: Up until now, the international community had not really identified inequality as a development goal. It concentrated on poverty, with considerable problems of definition, threshold, etc. The approach using the poorest 40 % makes us look more closely at inequality, on which an enormous work of methodology was carried out by the Briton Tony Atkinson. To my way of thinking, this evolution must become part of a wider context which is the raised awareness, including in academic circles, to the harmful nature, for all, even for the wealthiest, of inequality. It isn’t just a problem of morality. Work by Pickett and Wilkinson in The spirit level shows that even the wealthiest get ill if they are living in a society which is too unequal.
Income is actually only one aspect of the issue: cultural inequality, for example, is decisive. Inequalities of integration in social networks are also fundamental. We worked with Thomas Roca (AFD) and Cécile Renouard (Essec) on an indicator of relational capacity which shows how the inequalities of integration into social networks can be dramatic in a certain number of countries where we intervene. Imagine a widow in a village in the Niger delta. This woman is no longer socialized; her children abandon her and she is ostracised by the village. In some areas, she may even be accused of being a witch and she will be killed because she represents one more mouth to feed and provides nothing. Even though she is not necessarily poor in the sense that she has maybe more than 2-3 $US per day, she is living in a form of poverty which is just as penalising because she has access to nothing. Inequalities, in the same way as poverty, should be seen as multidimensional realities.
What means do we have to correct this? Is income inequality reduction a legitimate goal for AFD?
Gaël Giraud: Now that AFD has jurisdiction on governance1, this is of course part of our mandate. We have the legitimacy to talk to public administrations in the Global south about their tax redistribution policies and make proposals. And this we will do. We are in the process of finishing work on optimum taxation that AFD will soon be able to offer administrations of the Global South (and also the North…).
« Taxation is always ex-post redistribution. It arrives too late, so to say, because it always has to justify its intervention on an initial order of things that the most privileged (generally speaking, they are also those who contribute the most tax-wise) often tend to consider as “normal”. The redistribution of primary income is linked to the social pact, to the governance of businesses, etc. It is important to intervene on the primary distribution of income even if it is much easier to simply change the tax code. This means entering into the way in which businesses distribute their salaries, the governance of the chieftaincy of a village… But, basically, it’s much more important, and that’s where the question of commons comes in. A whole series of resources might be destined, if it was so decided, to be managed as commons: natural resources, of course, but also work or money. Inequality only increases from the moment when the privatisation of a certain number of assets provides income. And that is where the origin of the forms of inequality which are contrary to social justice is mainly to be found. Experience shows that market competition alone cannot help to erode these incomes, very much to the contrary.
What is your position in the debate on correction methods? Are you in favour of using equality of opportunity and the tax instrument on the lines of Bourguignon, Milanovic and Piketty? Or do you place yourself more among the structuralists in the same way as ECLAC which wants to intervene on the governance of businesses and the distribution of production factors?
Gaël Giraud: Even though we cannot leave taxation to one side, I think that we cannot get away from the second position. The structuring of commons, if we take it seriously, goes a long way. Let’s take the universal basic income. This can be interpreted as a means of decommoditizing work because, from the moment I have a universal minimum existence income which is not conditioned to my activity, if I go out to work, I am no long the total servant of a mercantile relationship. A quota of gratuitousness in work can therefore be honoured. But we need to check that we are capable of financing a universal income of this kind, and this calls for macroeconomic closure. As far as I know, this possibility has not been demonstrated to date. We can reason in a similar way for currency: all local currencies, in the same way as the sardex in Sardinia for example, or complementary currencies which are being invented in Latin America using the mobile phone network, make up a way of enabling a territory or a population to reclaim the power to create currency. Most of the time, this makes it possible to make up for the shortcomings of a banking sector paralysed by its dubious debts, as is currently the case in Vietnam, and recreate social links where they are being ripped apart, like in Greece. It is easy to understand that these reforms will be considerable ones.
And is the idea of « commonization » making headway? What are the markers of this evolution?
Gaël Giraud: Commons are certainly among the most resilient institutions with regards to the ecological shocks we will experience in years to come. Climate disruption and the fact that the ecological footprint of humanity is, currently, much higher than Gaia’s load capacity is already triggering considerable damage. I’ve just got back from Vietnam where the Mekong delta and the Danang coast are highly vulnerable to rising water levels (Vietnam is the fifth most exposed country in the world to warming, after the small island Countries). Already the rice-growing areas, which are precious because the delta is Vietnam’s rice granary, are flooded. This leads to the salinization of water sources that the populations draw from (particularly during a drought such as the one the country has just been through) which is added to scarcer river flow caused both by the melting of Himalayan glaciers and the withdrawals from Chinese dams upstream. In the first six months of 2016, the country’s growth, instead of the 6.5% forecasted by the government in Hanoi, was only 5.5%, the difference being due to climate impact. How is the country going to adapt? The simulations we have carried out at AFD on the Gemmes macro-economic model show that there is a real danger that what Vietnam is experiencing currently will become the rule for the whole planet, at any rate if we continue on our current trajectory of emission. Negative growth could even be imposed on a large number of countries. How is the world going to adapt?
Biology makes the distinction between two types of selection of species: r selection and K selection. In a highly volatile environment, r selection wins, because it favours very adaptable small organisms. Typically, a meteorite can wipe out the dinosaurs – big and not highly adaptable organisms – whereas insects and small mammals survived the Ice Age which hit the planet 65 million years ago extremely well. On the other hand, K selection favours big organisms. When an environment is extremely stable, these big organisms benefit from economies of scale and, as they develop, they become predators (or at least indirect ones). Let’s take the example of the big trees in a forest. Because they prevent light from reaching the undergrowth, they prevent it from developing until a drought sets off a forest fire which devastates the biggest trees and allows the undergrowth to recover. The three post-war decades saw great administrations emerge within an environment which had been stabilized by the Cold War. This was the era of big vertical businesses built on the state model and which have been specifically analysed by Luc Boltanski. This model has already changed since the 1980s. A number of observers argue that, in view of the geological shocks that we will experience due to the climate or the destruction of ecosystems, as currently in Vietnam, r selection will once again have the upper hand. Communities organized in common promise to be much more resilient than big bureaucracies (private or public), which are not very flexible. Contrary to SMEs, they often innovate more. The future is for start-ups, not bureaucracy. This is exactly what happened after the fall of the Western Roman Empire (essentially due to the paltry management of natural resources and specifically mining), as Joseph Tainter understands it: weren’t the Middle Ages the return to much smaller decentralised structures, and where commons had a prevailing place? Where several currencies co-existed on the same territory, like the local currencies of today?
For biologists and ecologists, the key word is not "green growth" but resilience. So the question we must ask now is: which are tomorrow’s resilient institutions? Of course we could anticipate an extremely violent reaction to the attempts at very rapid privatisation of what there is left to privatize (this is what can be seen, for example, in the countries of Southern Europe subjected to budgetary austerity, and particularly in Greece and Spain). We could call this the Titanic syndrome: part of the elite, in the Global North and South, has understood that the « world » liner is heading straight for the iceberg but chooses not to undertake the task of diverting it from its trajectory; it says to itself, however unconsciously: « I will guarantee access to my lifeboat, i.e., I will guarantee my own access to energy, drinking water, cultivation and all the resources that my tribe and I will need ». This is what is made possible by the privatisation of assets for the smallest number of people. For years, we have seen incredibly rich city centres in Brazil surrounded by a sea of filthy destitution, the favelas. In the long term, however, this geographical split will be hardly sustainable: it will probably end up like Detroit or Homs today. Detroit, an urban territory bigger than the richest American metropolises, and which was once the industrial pride of Michigan, is now a field of ruins where a few rare communities survive. For different reasons, the same goes (even though the Syrian crisis stemmed in part from the 2007-2010 droughts) for the martyr city of Homs. In both cases, the surviving populations have had to learn how to pool the few resources they were left with.
Which countries address this?
Gaël Giraud: Latin America is very open to these issues, particularly Bolivia and Ecuador, and this is evidently very much linked to the governments which control these countries. To my way of thinking, a large number of urban agro-ecological experiments in Latin America are going in this direction. We can also give the very practical example of fish-farming in the forest region of Guinea. AFD supports peasant-farmers for the montage and management of fish farms for tilapia and other fish, in ponds in the middle of the rainforest, near Nzérékoré. Toma peasant-farmers, for example, suffer from a chronic lack of protein because the sea is too far away. And because they are in the forest they can’t breed livestock. Fish-farming is therefore an excellent solution; especially in a country which is still not food self-sufficient. But without electricity, and therefore no refrigerators, the fish must be eaten on the day it is caught, so there has to be very efficient coordination between the women who sell the fish in the town market, and the fisherman who catches his fish in the pond in the forest — and above all, they have to agree on a selling price. When they explained how they managed, without knowing it, the groups who manage all this were telling us about a common, where the common resource is none other than fish.
Another example, in the region of Prey Nup in Cambodia, a rice-farming area which was flooded by the ocean. The floods were extremely destructive, in the same way as in neighbouring Vietnam today, because even when the sea withdraws, the salt it contains destroys the soil. The country was therefore obliged to build polders which inspired the magnificent novel by Marguerite Duras, Barrage contre le Pacifique (The Sea Wall). The major issue was that of reorganising the peasant-farmers behind their dyke, so that they could once again cultivate rice. Actually, they reorganised themselves as a common, even though, as they of course have not read Elinor Ostrom, they do not have the vocabulary for this type of institution. (Actually, as the Danang case shows, the issue of adapting to climate change is much more complex than the older example of Cambodia: the rise in the waters caused by global warming is accompanied by a disruption of the phenomena of planetary convection between the Equator and the poles. This means that ocean currents are modified, etc. But just building polders is not sufficient as it is highly possible that in twenty years’ time, currents or wave direction will have changed and everything will have to be done all over again…)
We can also mention DNDI - Drugs for Neglected Diseases Initiative - a network of initiatives based in Geneva, which grouped together to build a drug-supply chain, from research on the molecule to the distribution of drugs in the Global South. This enables the sale of cheap drugs to fight against diseases which do not interest the conventional pharmaceutical industry due to the lack of a profitable market in the Global South. DNDI works exactly in the same way as a common on an international scale. It is neither a private company, nor a Government, nor an NGO, it’s something else, a hybrid institution, and it works very well! For it to work, it needs an unheard-of alchemy between private initiative, the public regulatory framework, the militancy of NGOs…
Yet another problem, this time in Bolivia: La Paz has an enormous water supply problem. A few decades ago, it was a flourishing area at an altitude of 4000 metres, with glaciers feeding the ecosystem. The glaciers have melted, and now, there’s only a desert where the inhabitants have to draw water from underground water sources. It is important to be extremely careful about how this water is used, as was shown by the Cochabamba episode. Currently, there are cooperatives which do this. The institutional system may seem more classical but in reality it manages this water which has become as precious as a common.
IS AFD going to have to build agendas to identify commons – what is the common in a given location, what should a common be? - Or is this the responsibility of the populations, the interested parties, with AFD only being there to support their management?
Gaël Giraud: It rather depends on where you are. You have to understand that the Government has a fundamental role to play in a world of commons. Some commoners believe that we can do away with the government — this is the case of Pierre Dardot and Christian Laval, who are sometimes tempted to benefit from the “return to commons” we are seeing almost everywhere to do away with the congenital enemy they think they can see in the Government. Despite the fact that we agree with a considerable part of their analyses, we believe on the contrary that the government has a mission which first and foremost consists of exercising its regalian rights, of course, but also of creating the conditions which would make it possible for commons to emerge within civil society. It is far from true, as Proudhon believed that a community is capable, all the time and everywhere, of spontaneously acting on its own initiative to create a common from scratch. If there is no environment, and specifically a legal one, to favour this moment of establishment, it can be very difficult. It is the Government’s work to create and regulate this environment. At AFD, in our public policies dialogue with the Global South, within the framework of the jurisdiction that we have just received on governance, it is part of our mandate to support Governments in planning these conditions of possibility, but also to directly help civil societies (village communities, NGOs, local authorities, businesses, digital communities, etc.) to build and manage the commons they will have adopted, commons which do not already exist, by nature, the political decision of a group to make such and such a private, public or common resource. Moreover, the community sometimes sets itself up in the same movement in which it created a common: see certain women’s associations in India, which have formed to manage a seed bank …
As I said before, the commons approach is a fundamental change. It at last challenges the great implicit programme of the Scottish Enlightenment which, in the 18th century, spread the idea that if everyone had the same rights, inequality would become natural because it would be endogenous to the free functioning of markets. Everyone has the same right to the resource, but de facto does not have the same effective access as it is delivered by the invisible hand. Hence a distribution of primary wealth which is more and more unequal and that taxation only corrects after the fact and too late. In a world of commons, it is actually more a case of the opposite. What counts is that everyone has the same access to the resource. To the equality of opportunity dear to Antony Giddens, we must prefer genuine equality, an equality which is compatible with differentiated rights. The great question is still, when we want to create the institutions which will manage a common: who will have the right to modify the resource, the right to negotiate these modifications, the right to exclude, etc.? Basically, differentiation occurs at the legal level and not at the level of access per se. And it is this reversal which can put an end to inequalities. In view of building a fairer society.