Digital banks and fintechs

Bank transactions by internet and mobile banking have sharply increased since the 2008 global financial crisis. In this digital environment, new technologies – such as advanced analytics and big data, in addition to the use of robotics, artificial intelligence, besides new forms of encryption and biometrics – have been enabling changes in the provision of financial products and services. The current wave of financial innovations is being increasingly oriented to more friendly digital channels through apps in the context of mobile banking strategies that privilege the development of open bank softwares and the interaction with social media.

Indeed, the increasing digitalization of financial transactions is also related to changes in the banks’ competitive environment, where the intense growth of the startups called fintechs, especially since 2010, has revealed a new articulation between finance and technology. Such fintechs are companies organized as digital platforms with business models focused on costumer relationship in the areas of payment systems, insurance, financial consultancy and management, besides virtual coins. The advantages of their business models are low operating expenses, greater operational agility and the ability to generate data for the design of customized financial products and services. As a result of the advance of these new non-bank competitors, big banks have begun to establish collaborative partnerships with selected fintechs in order to produce new technological solutions and to promote the development of a culture of technological entrepreneurship among bank workers.

Taking into account the global changes in the provision of financial products and services, Central Banks have closely followed the recent expansion of fintechs. Indeed, the transformations provoked by these startups in the financial markets have raised a relevant discussion about the impacts of recent technological innovations on the financial regulation agenda- mainly focused on the Basel Accords. The intense advance of fintechs is settling new questions for regulators: How to deal with loan activities that are being performed by means of electronic platforms? How to regulate the fintechs’ activities of consultancy and financial management that are characterized by the collection, treatment and custody of information from users? Which is the scope of the Central Bank and of other financial regulators when considering the surveillance over the fintechs? Moreover, there are legal concerns related to information security practices, legal validity of electronic documents, digital signatures and data storage in the cloud.

As a result of the new competitive digitalized and deregulated environment, the current wave of technological innovations will decisively affect the future of bank workers. Currently, one of the main cost-reducing bank strategies is centered on administrative expenses mainly labour costs that remain tightly controlled by banks in order to improve operational efficiency. In this scenario, technological strategies aimed to increase profitability will foster further organizational innovations and changes in labor relations. Thus, the future impacts on jobs in the financial sector will deepen the power of financial holdings, that is to say, of centralized blocks of financial capital that base their global expansion on the digitalization of products, services and delivey channels .

 

Women at work: global highlights

The roots of gender and poverty studies began with Pearce (1978) who coined the expression ‘feminization of poverty’. Pearce considered female-headed families, excluding poor women who live in male- headed families, based on the argument that the proportion of families headed by women among the poor has been  increasing since the 1950s. In her opinion, women have become poorer because of their gender.

The recent dynamics of the global labour market has reinforced the precariousness of women’s employment and working conditions. Among other issues, the recent global highlights about the participation of women in the labour markets are listed below:

Unemployment: Women are more likely to be unemployed than men, with global unemployment rates of 5.5 per cent for men and 6.2 per cent for women

Informal Work:      In 2015, a total of 586 million women were own-account or contributing family workers. Many working women remain in occupations that are more likely to consist of informal work arrangements

Wage and salaried jobs: Moreover, 52.1 per cent of women and 51.2 per cent of men in the labour market are wage and salaried workers.

Jobs and occupations by economic sectors:  Globally, the services sector has overtaken agriculture as the sector that employs the highest number of women and men. In the period between 1995 and 2015, women are employed in the services sector: since 1995, women’s employment in services has increased from 41.1 per cent to 61.5 per cent.

High-skilled occupations: High-skilled occupations expanded faster for women than for men in emerging economies where there is a gender gap in high-skilled employment in women’s favour.

Part-time jobs: Globally, women represent less than 40 per cent of total  employment, but make up 57 per cent of those working on a part-time basis.

Hours of work: Across the global labour scenario, one fourth of women in employment (25.7 per cent) work more than 48 hours a week, mainly in Eastern , Western and Central Asia, where almost half of  women employed work more than 48 hours a week.

Gender wage gap: Globally, women earn 77 per cent of what men earn.

 

Indeed, although women have been increasing their participation rate in the labor market in the last decades, they worked in more precarious occupations. This situation characterized by precarious jobs, mainly based on short-term contracts, enhances the vulnerability of workers, mainly women, as the financialization of management strategies turns out to be subordinated to economic efficiency targets, that shape employment relations, overwhelmed by longer working hours, job destruction, turnover and outsourcing. Workforce displacement and loss of rights could also be part of the spectrum of management alternatives aimed at cost reduction. In addition to the wage gap, women’s participation is stronger in the services sector where working hours are longer and wages lower.

Besides, unpaid work could also be considered an extra onus on women. In addition to women´s challenges in the labour market, the increasing weight of unpaid work is more likely when women become unemployed and return to their homes and take more responsibility for housework than men, or because the loss of family income makes it impossible to support the remuneration of domestic workers. Gender-differentiated time use patterns are affected by many factors, including:  household composition (age and gender composition of household members); seasonal considerations; regional and geographic factors; availability of infrastructure and social services. But social and cultural norms also play an important role both in defining, and sustaining rigidity in, the gender division of labour.

Building on the United Nations goals, gender equality is required for the erradication of the many dimensions of poverty and to promote sustainable human development. Taking into account a macroeconomic approach to the labour markets, the “vicious circle” of impoverishment could be surmounted if policy makers rethink employment an income policies under a gender approach to the labour markets.

References

Ilo (2016) http://www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/—publ/documents/publication/wcms_457086.pdf

Pearce, Diana (1978). “The feminization of poverty: women, work, and welfare”. Urban and Social Change Review, Special Issue: Women and Work, Vol. 11, No. 1-2, pp. 28–36.

Engaging students in the Law & Economics WEA Conference

The WEA Online Conferences format, designed by Edward Fullbrook and Grazia Ietto-Gillies, makes full use of the digital technologies in the pursuit of the commitments included in the World Economics Association Manifesto: plurality, competence, reality and relevance, diversity, openness, outreach, ethical conduct, and global democracy. The WEA On-line Conferences seek to also engage graduate and undergraduate students considering: (a) the variety of theoretical perspectives; (b) the range of human activities and issues which fall within the broad domain of economics; and (c) the study of the world’s diverse economies.

The current WEA Conference Public Law and Economics: Economic Regulation and Competition Policies  aims to:

(i) discuss how sector regulators and competition authorities are interacting post-crises and how the economic analysis of law can help countries reach better regulation and competition policies;

(ii) contribute with practical and theoretical references on the limits of economic power and forms of state intervention;

(iii) deal with the uncertainties and challenges of the digital economy;

(iv) gather relevant case studies and

(v) identify new trends in Law and Economics that have arisen post-crises.

 

We invite you all  to read the following conference papers at http://lawandeconomics2017.weaconferences.net/papers/ and send your comments

• Predatory Innovation: The Definite Need for Legal Recognition
• Deepening versus Widening the EU: Where to go?
• Should competition authorities care about conglomerate mergers?
• The Efficiency-Growth Dilemma: An Analysis of Regulation’s Impact on Short and Long-Term Development
• Competition Assessment in developing countries: Policy challenges after the global crisis
• Opportunism by Competition Authorities in Ireland, Portugal and Greece in the Wake of Economic Crisis›
• The Internationalization of Merger Review: Extraterritoriality, Conflicts and Convergence
• Structural Change and Protection: Non-Tariff Measures in ASEAN

 

 

The Mathesis Universalis and Neoclassical Economics

As Edward Fullbrook highlights in his recent book Narrative Fixation in Economics, the Cartesian view of human reality has deeply shaped the way Neoclassical Economics theorizes about the economic and social existence (2016, p. 45). Indeed, while emphasizing the relevance of the pure thought of a disembedded human subject,  Neoclassical Economics has reinforced the relevance of the Cartesian method of inquiry  that moved the so called scientific (true) knowledge  out of the general flux of experience.

In the second part of the Discourse of Method, Descartes presented some principles that should be followed in order to acquire knowledge: 1) human beings cannot  admit any ideas that are not absolutely clear; 2) human beings must divide each problem in so many parts as appropriate for its best resolution; 3) human beings should apply deductive reasoning to organize their  thoughts from the simplest to the most complex ones 4) the analytical-synthetic process of reasoning leads to true knowledge.

According to Descartes, the first principle of his method focuses the importance of “never accepting something as true that I clearly don’t know as such” (Discourse of Method, Part II). Indeed, Descartes inspired himself in Geometry as a model of Science. As a result, he considered the postulates of Geometry not only as universal and necessary but also as clear and distinctive ideas related to intellectual intuition. Only these clear and distinctive ideas  are considered to be the pillars of true knowledge.

Based on the second principle, Descartes builds his research method of analysis that isolates the clear and distinctive ideas from the most complex ones. His emphasis on the order of thoughts strengthens the role of Mathematics in the Cartesian method of pure inquiry. Moreover, the third principle of his method leads to a special kind of organization of thoughts. In his own words, the organization of thought should start “with the simplest and easier to gradually rise, as if by means of steps, to the knowledge of the more composed, and assuming an order between the ones that don’t precede naturally each other” (Discourse of Method, Part II).

Departing from the mathematical method of reasoning, Descartes arrives at the notion of order in scientific thought, that is to say, once the human subject knows the simple elements of a problem, he can assume all the consequences that derive from those first ideas considered as absolutely certain. Those first ideas have the characteristics of clarity and distinction. Besides, they are known intuitively and constitute the pillars on which relies true knowledge.

Finally, Descartes reinforced the analytical-synthetic process of reasoning. Following the deductive method of pure inquiry, human knowledge grows throughout a rigorous chain of ideas. As a consequence, new thoughts arise while the human subject applies deductive reasoning so as to create a chain of ideas that links the most simple to the most complex ones. In this attempt, true knowledge can be obtained.

As a matter of fact, the Cartesian method presents the intellectual intuition and the deductive reasoning as crucial elements of the discovery and construction of true knowledge. Moreover, clarity, distinction and order overwhelmed the mathesis universalis that turned out to be considered as the pinnacle of the epistemo-ontological construction of Cartesian thinking.  The mathesis universalis is, according to the Cartesian epistemology, a general method of pure inquiry able to explain everything, regardless of the nature of the objects to be studied.

As E. Gilson (1945) highlighted, the Cartesian method represents an attempt to extend the mathematical method of inquiry to all of human knowledge in the form of the mathesis universalis.  Indeed, this extension is at the center of the a priori foundations of scientific knowledge in Neoclassical Economics.

 

 

 

References

DESCARTES, René.  Discurso do Método. São Paulo: Abril Cultural, 1973.

FULLBROOK, E. Narrative Fixation in Economics, WEA Books, 2016.

WILLIAMS, Bernard. Descartes: The Project Of Pure Enquiry. UK: Penguin, 1978

Realism in Economics

A relevant feature of the current crisis in economic knowledge is the recurrence of the  Ricardian Vice. Joseph A. Schumpeter coined this term in his book History of Economic Analysis when he criticized the habit assigned to Ricardo to represent the economy by a set of simplified assumptions and to use tautologies to develop practical economic solutions. Indeed, Schumpeter rejected the kind of economic thought that mainly favours deductive methods of inquiry – based on mathematical reasoning- because the  habit  known as the Ricardian Vice generates analytical unrealistic results that are irrelevant to solve the real-world economic problems.

Also Keynes warned that the understanding of the economic phenomena demands not only purely deductive reasoning, but also other methods of inquiry along with the  study of other fields of knowledge- such as History and Philosophy. In his own words:

“The study of economics does not seem to require any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.” (Keynes, Collected Writings, vol. X: Essays in Biography)

Today, Schumpeter’s and Keynes’s criticism could be certainly addressed to those economists whose beliefs ultimately privilege the deductive method of inquiry in Economics. Due to these beliefs,  mainstream economists favour the adoption of a nominalist bias. And as a consequence, the trouble is that the dialogue between economic theories and the economic reality turns out to be abandoned not only in academic research but also in the policy making process.

This dialogue is complex and should be considered in any attempt to build realistic economic theories, as Keynes warned. Indeed, the changing environment of real-world markets through time -that is irreversible-  refers to a certain degree of ontological indeterminacy that should be considered in realistic economic theories and in the study of Economics.

Flipped economics classroom

Recent active learning experiences have been associated with “flipped” or “inverted” classroom (Norman and Wills, 2015). Indeed, this method has been receiving increasing attention by professors that search for alternatives to traditional lectures so as to cover some topics of the course content.

By adopting the flipped  classroom in economics instruction, professors out to enhance a larger pre-class involvement of the students not only by reading the selected bibliography but also by watching instructional videos.

Before the class, professors provide instructional short videos (five to fifteen minutes) that cover the main ideas related to a selected topic of the syllabus. The videos generally emphasize theoretical approaches, definitions, formulas and graphs. Recent evidence shows that many professors actually record a narration of the lecture slides and notes.

As students should watch the video before the class, professors can privilege active learning methods during class time. Therefore, the class activities aim to apply the material that was covered in the videos in order to enhance a real-world approach to economics education. These activities- that are supervised and oriented by professors – can include, for instance:

• Presentation, analysis and discussion of real-world problems
• Team–work exercises oriented to solve practice problems followed by class-room discussion of the main results.

Indeed, internet technologies are also affecting the economics classroom. Topics in macroeconomics, microeconomics, international economics, financial economics, among others, can certainly benefit from flipped classrooms since this teaching practice does not mean the replacement of professors with videos.

 

References

Bishop, J. L., & Verleger, M. A. (2013, June). The flipped classroom: A survey of the research. In ASEE National Conference Proceedings, Atlanta, GA.

Honeycutt, B. (2013). Looking for ‘Flippable’ Moments in Your Class. Retrieved from http://www.facultyfocus.com/articles/instructional-design/looking-for-flippable-moments-in-your-class/

Norman, S, & Wills, D. (2015). Flipping your Classroom in Economics Instruction: It’s not all or nothing. Retrieved from http://faculty.washington.edu/normanse/uploads/2/9/8/5/29853431/flipping_your_classroom.pdf

Financialization, austerity and pension funds

By 2020, the largest pools of pension fund assets are projected to remain concentrated in the US and Europe. In North America, pension fund assets reached $19.3 trillion in 2012 and PwC estimates that by 2020, pension fund assets will rise by 5.7 percent a year to achieve over $30 trillion of the $56.5 trillion in total global assets, more than 50 percent of the global total.

Indeed, according to the PwC report, Asset Management 2020: A Brave New World, demographic changes, accelerating urbanization, technological innovations and shifts in economic power are reshaping the asset management environment where pension funds have been playing and  will play an outstanding role in the global saving and investment process.  Three key factors seems to stimulate the global growth in assets: i) changes in government-incentivized or government-mandated retirement plans that will turn out to increase the use of defined contribution (DC) individual plans; ii) faster growth of high-net-worth-individuals in South America, Asia, Africa and Middle East regions up to 2020; iii) the expansion of new sovereign wealth funds.

However, in spite of the pension funds’ power to centralize huge amount of “savings from workers”, in this scenario of financial globalization, workers do not seem to have strong defense against the impacts of the current global scenario on the savings of workers and the flows of workers’ income.

In a context of uncertainty, the pension funds’ portfolio management is based, as Keynes warned, on precarious conventions.  Pension funds are part of a set of interrelated balance sheets and cash flows between the income-producing system (hedge, speculative and Ponzi firms) and the financial structure that affect the valuation of the stock of capital assets, the evolution of credit and the pace of investment. Current pension funds’ performance ultimately relies on the endogenous nature of financial instability.  Throughout the business cycle, when profits decline, as they inevitably do, credit and external sources of funding generally become restricted and the price of assets also fall. This scenario affects the performance of these institutional investors and reduces the value of the stock of workers’ savings in pension funds.

As a matter of fact, the connection between pension funds and speculative finance is one of the contemporary features of the management of the working savings. Continued low interest rates would impact the future profitability of pension funds, particularly in those portfolios where income-fixed assets predominate.

Among other current challenges to the management of pension funds is the evolution of austerity programs. In many countries, austerity programs have also relied on changes in retirement plans. Soon after the global crisis of 2007-2008, many European countries  announced austerity measures that included  changes in retirement age and pension payments. As a result, loss of retirement rights has turned out to become part of the new set of public policies.

Indeed, many governments, under global investors’ pressure, should meet budgetary targets and pursue further structural reforms- also related to age and amount of pension within retirement plans.  In truth, the current era of financialization and austerity – and its impacts on retirement plans and job creation – is certainly affecting day-to-day life of workers and the future of pensions. In other words, it is affecting the flows of workers’ income and the savings of workers.