Better Plays for Better Lives: Romeo and Juliet

So wise so young, they say, do never live long
So wise so young, they say, do never live long

Today we publish the next article of a summer series in which Kimberley Botwright of the OECD Public Affairs and Communications Directorate looks at OECD work through a Shakespearean lens.

Before there was punk, there was Shakespeare, and his Romeo. Communication between generations has never been fluid. At the start of the play, Romeo is a brooding, isolated teenager, and his parents are at a loss about what to do with him; “Could we but learn from whence his sorrows grow / We would as willingly give cure as know.” Worse, Romeo is part of a brawling, bawdy gang-orientated youth culture. The overall context of the play appears to be one of society in crisis, parents can no longer control their children, whilst the presiding Prince of Verona has trouble maintaining law and order; “On pain of torture, from those bloody hands / Throw your mistempered weapons to the ground.”

Although emerging unrest continues to feature in our modern world, unlike Romeo’s father Old Montague, we can have a good guess at what ails today’s youth. OECD labour data indicate a 16.3% average OECD unemployment rate among 15-24 year olds in 2012, rising to 55.3% for Greece and 53.2% for Spain. Both these last figures have continued to climb into 2013. By way of comparison, in 2012 average unemployment rates (15-64 year olds) were 8.2% for OECD countries, 24.5% for Greece and 25.2% for Spain. Then there’s the NEET group (Not in Education Employment or Training); in 2012 12.9% of OECD 15-24 year olds fitted into this category. These individuals run the highest risk of long-term exclusion from the labour market. Youth in OECD key partner countries also suffered into 2012, with a 51.5% youth unemployment rate in South Africa and 14.8% in Russia.

Ok, ok, you say, but why all the fuss about youth unemployment? They’re young and fit, they’ll bounce back! After all, “Care keeps his watch in every old man’s eye” in contrast to the “unbruisèd youth with unstuffed brain.” Maybe not however, as the OECD Employment Outlook 2013 warns; “Youth need to be actively supported to avoid long-term “scarring” effects as a result of prolonged unemployment and low-income spells early in their careers.” This significantly affects society as whole, as individual scarring generates collective long-term, structural unemployment problems due to a loss of human capital and vital skills.

Furthermore, at OECD Forum 2013 Ian Hickie, Professor of Psychiatry at The University of Sydney, explained why scarring is particularly detrimental for young people. Rapid changes take place in the brain between the ages of 15-25, and participation has positive effects on these changes, while exclusion has negative ones. OECD Secretary General Angel Gurría reminds us that exclusion from the job market often leads to exclusion elsewhere; “Youth unemployment often means material hardship, dire future prospects and delaying vital steps into adulthood, such as leaving home, building relationships or starting a family.” Romeo himself does not fit into his friend Mercutio’s description of “lovers’ brains” that “dream of love”, but instead speaks with dread of a bleak future; “For my mind misgives / Some consequence yet hanging in the stars.”

What “cure” then for this crisis or is it to be governed by the “stars”?  The OECD Action Plan for Youth is designed to leverage OECD work on education, skills and youth-related employment policies, in order contribute to national and international youth unemployment reduction efforts. It calls for a two-pronged approach; tackle the current crisis, but also address structural problems, in order to ensure better outcomes for youth in the future.

Elements to aid the first objective include boosting job creation, addressing demand-side barriers to the employment of low-skilled youth, and encouraging employers to continue or expand quality apprenticeships. Examples of policy action would be stronger incentives for employers to hire new workers, with lower social security contributions where appropriate. Elements for the second objective include strengthening the role and status of Vocational Education and Training (VET), as well as matching education with employers’ demand for skills; “The co-existence of young unemployed or under-employed graduates, with employers who say they cannot find the people with the skills they need, suggests that there is scope to better link education systems with the world of work.”

On education policy design and investment, OECD Special Advisor on Education Policy Andreas Schleicher notes, “Our education today, is our economy tomorrow, so we are going to pay a price.” Romeo is “The only son” of the House of Montague. Likewise, Juliet is the only offspring of the House of Capulet, as Old Capulet makes clear: “Earth hath swallowed all my hopes but she: / She’s the hopeful lady of my earth.” Their passing away points towards something stronger than death: the end of hope, the onset of sterility and the destruction of all of tomorrow’s promise (“No future”, as the punks said). By the end of the play, the better part of Verona’s youth lie dead – Mercutio, Tybalt, Paris, Juliet and her Romeo. The Prince bitterly declares, “All are punish’d”; for without the youth, society will pay a very high price indeed. But the death of the young in Verona also finally paves way for reconciliation in society. The play embodies the concept of creative destruction, an old order dying and a new one emerging, often with violent side effects; “The earth that’s nature’s mother is her tomb / What is her burying grave, that is her womb.”

Fortunately for us today, “High youth unemployment is not inevitable, even during an economic crisis; it is the product of the interaction between economic context and particular policies. What matters more are the choices countries make in how to allocate…spending and the policies they design to improve the efficiency and relevance of the education they provide.”

There are choices to be made because ultimately, “we cannot afford this waste.”

Post Script

A glooming peace this morning with it brings;
The sun for sorrow will not show his head
Go hence, to have more talk of these sad things;
Some shall be pardon’d, and some punished:
For never was a story of more woe
Than this of Juliet and her Romeo.

Useful links

Give youth a chance by Monika Kosinska, Secretary-General European Public Health Alliance, at OECD Forum 2013

OECD educationtoday blog

Development in Asia Demands Huge Sacrifices

Click to download
Click to download

In today’s post, Christian Goebel, Professor of Chinese Studies at the University of Vienna talks to Rosa Gosch of Sustainable Governance Indicators (SGI) about a new study he co-authored for the Bertelsmann FoundationAssessing Pathways to Sustainable Growth – Need for Reform and Governance Capacities in Asia

Professor Goebel, why are some Asian nations successful while others fail?

First, we must define success. In our analysis of development in China, Indonesia, Singapore, Malaysia, India, South Korea, Vietnam and Japan, we comprehend success not only as economic growth in terms of per capita income, as is often the case. Social development, gender equality, equal access to education, environmental policies and the quality of democracy are equally important. We found that the Asian countries started with economic development, then moved into the social and environmental realm and finally, in some cases, into democratic development. How did they do this? Most governments first developed their executive capacity and only later became more accountable and sometimes more democratic.

Is there a common path for development in Asia?

There isn’t a single recipe for all countries. Development is highly idiosyncratic. Our analysis of Asia, however, shows that countries with strong governments that exhibit high executive capacity tended to be more successful than those with weak executive capacity. The governments of all the countries in our sample first invested in the improvement of executive capacity, and only afterwards in executive accountability and the quality of democracy. With the exception of India, where change has been more decentralized, government has been the main actor in bringing about economic and social change in each case. If there is an Asian model, then it is characterized by a pro-business government that increasingly seeks to govern markets as its executive capacity grows, and which prioritizes social and environmental issues that are beneficial for economic growth over those which are not.

What policy areas did you look at in your study?

We looked at economic policies, which include the transformation from an agrarian economy to a knowledge economy, innovation policies, and social policies like poverty reduction programs and education policies. We also had a close look at issues of gender equality, access to education, and environmental protection. In total, we examined nearly 150 different indicators for every country.

You group the countries in your study into four categories: long-standing democracies (India, Japan), young democracies (South Korea, Indonesia), one-party autocracies (China, Vietnam), and “electoral autocracies” (Malaysia, Singapore). Did regime type affect the performance of the countries?

No, at the aggregate level it didn’t. We didn’t find that democracies are doing better than non-democracies, for example. One of the most successful countries according to the SGI is Singapore, which is not a democracy. China is another example that is developing fast without being democratic. On the other hand, we have India and Indonesia, where development is less impressive despite them being democracies. So it’s not really the presence of democracy but the quality of democracy that matters for development. However, increasing the quality of democracy is very difficult because this requires knowledge, skills and financial resources. High quality of democracy and high executive capacity seem to feed into each other.

So, contrary to the situation in the OECD, policy performance and quality of democracy aren’t correlated in Asia?

That’s true. But that doesn’t mean that democracy doesn’t matter. We arrived at this conclusion because Singapore performs better than Japan, and China better than Indonesia. In the OECD, only democracies were analyzed, and high quality democracies perform better than low quality democracies. The same is true in Asia. Here, however, we have autocracies with high executive capacity, and they perform better than democracies with low executive capacity. This means that democratic quality can help you fine-tune the system only if you have the fundamentals in place.

In which policy areas did the Asian countries perform particularly well?

Nearly all countries did very well in the development of per capita income, poverty reduction, access to education, and access to social welfare. Most children in Asia are today able to access basic education, and the number of years of education has also increased. The gap between boys and girls in access to education has decreased, so there is more gender equality, especially at primary and secondary school level. Interestingly, South Korea – run by a female president today – is among those nations where girls and women don’t have equal access to university education.

Which other shortcomings did you come across?

The developmental models pursued in Asia demand huge sacrifices, notably in the form of inequality and environmental destruction. About half of the countries in our sample are highly unequal; the gains from economic growth are not distributed equally. China, Singapore and Malaysia, for example, have for a long time been very unequal societies with Gini coefficients above 0.45. And the developmental achievements are made at high environmental costs. Moreover, even the established democracies display serious deficits in democratic quality, especially in dimensions such as government accountability, media freedom and even civil rights.

What does your study tell us about future development in Asia?

Our explanations lead us to think about how countries develop and what kind of strategies can be chosen. It is very likely that some of the countries have learned from Japan and from each other. A report like ours should not be taken to say: This is how the world functions. We have discovered regularities, but these are not laws of nature. It should lead us to think: Are these actually good developments? Are there alternatives? We call these developments successful, but the price people pay in terms of social dislocation or environmental pollution can be huge.

What surprised you the most when examining governance in Asia?

We didn’t expect Indonesia to stay democratic, that Indonesians would keep embracing democracy the way they do. The fundamentals are not very good: executive capacity is low, corruption high, rule of law not very strong, and the country is just recovering from the second crisis that affected its economy very severely. Despite this, the country is holding on to democracy. Indonesia has the largest Muslim population in the world. That tells you something about the alleged incompatibility of Islam and democracy – even when democracy is under stress.

Useful links

OECD work on public governance

Professor Dani Rodrik of Harvard University discusses Asian growth models here

Better Plays for Better Lives: The Merchant of Venice

Giddy Fortune’s furious fickle wheel
Giddy Fortune’s furious fickle wheel

Today we publish the second of a summer series in which Kimberley Botwright of the OECD Public Affairs and Communications Directorate looks at OECD work through a Shakespearean lens.

Sixteenth century Venice was a global centre of merchant capitalism, and The Merchant of Venice offers an excellent examination of  human behaviour and its effects on financial markets. The point of this article is not to dwell on the appalling anti-Semitism of the period, but rather on the story of the hapless eponymous character and his reckless friend.

With the majority of his wealth at sea, Antonio uses credit to leverage capital to lend to his friend Bassanio (“Try what my credit can in Venice do”). Bassanio requires funding to seduce the wealthy heiress Portia. On Bassanio’s behalf, Antonio borrows 3,000 ducats for a three-month period from Shylock, who offers a 0% interest rate but takes the promise of one pound (around half a kilo) of Antonio’s flesh as collateral.

By Act 3, the audience discovers that Antonio’s ships have sunk, leading to a catastrophic devaluation of his net worth. To redeem his losses, he must pay the gruesome corporeal price under the terms of a notarized contract:

“Hath all his ventures failed? What, not one hit?  From Tripolis, from Mexico and England, / From Lisbon, Barbary and India? And not one vessel scape the dreadful touch of merchant-marring rocks?”

Antonio is significantly over-leveraged and he overconfidently manages risk, based on an uncritical acceptance of the present.  If only he’d read the OECD’s Future Global Shocks: Improving Risk Governance! He would have learned that disruptive events, such as a cargo ship sinking, can destabilise critical supply systems and have far-reaching economic effects.

He might also have learnt something about financial crises: “Arguably, financial crises both occur more frequently and produce more severe monetary damage than other types of risks described. There is a concern that the tools for risk analysis have not worked as well.” It goes on to emphasise that financial crises involve human, non-malicious choices and their re-occurrence should encourage us to search for new approaches to economic challenges and models “that use data on how agents actually behave.”

Bassanio provides an illustration of the erratic behaviour of individuals in financial markets. His justification for borrowing money from Antonio is based on the logic that if one shoots and loses an arrow, one should promptly shoot another in the same direction, in order to find out where the first went – not the most rational of approaches, seeing as it is very likely your second arrow will go the same way as the first. In short, Bassanio throws good money after bad.

Since the financial crisis, traditional economic models have become increasingly criticised for being blind to herd behaviour, network effects or information asymmetries and irrational action. Agent-based models (ABM) provide an alternative modelling approach. They focus on possible interactions between agents according to certain behaviour rules, running millions of simulations to approximate the millions of potential interactions between actors, gaining a better insight into possible outcomes of the complex system. In complex systems such as debt markets or financial institutions, shocks can be caused by external pressures (ships sinking) or internal (erratic individuals).  It is therefore important to understand these systems at both the macro and micro-level.

Another important human aspect of financial systems is trust and expectations. Towards the end of the play, Antonio is dragged to court, with Shylock demanding his pound of flesh. While the presiding Duke of Venice initially proposes that Shylock might assume certain losses and forgive part of Antonio’s debt, “Forgive a moiety of the principal, / Glancing an eye of pity on his losses”, this raises deep concerns:

“It must not be; there is no power in Venice
Can alter a decree established.
‘Twill be recorded for a precedent,
And many an error by the same example
Will rush into the state. It cannot be.”

A major fall-out of the financial crisis was the possible creation of “moral hazard”, the expectation, or guarantee, that public authorities will bail out uninsured and unsecured creditors of systemically important bank debt. When such guarantees are perceived, behaviour incentives may be distorted.

As two OECD papers on implicit guarantees and banking in a challenging environment make clear, solutions for our modern day financial dilemmas lie in internationally coordinated responses. For example, the first paper suggests that an effective cross-border EU bank failure resolution network would lower the value (and danger) of implicit sovereign guarantees. The second notes that as banks deleverage and assets become renationalised, a European Banking Union would sever the link between weak sovereigns and weak banks.

But knowing what to do and doing it are two different things, as the quick-witted heiress Portia reminds us; “If to do were as easy as to know what were good to do…”

Further reading:

OECD work on financial markets

OECD Journal: Financial Market Trends

Economic models used by the OECD