Discover our research and expertise from racial inequality in sport to the effects of India's caste system, Covid's long shadow to the problems with logic Economics Lancaster University Management School | the place to be All this scratching is making me itch 16Do you believe in the curse? 4Fumbling the ball on racial equality 12 FIFTYFOUR DEGREES
In this issue... 2 | Discover more of Lancaster University Management School’s world-leading research at lancaster.ac.uk/fiftyfour 4 Fumbling the ball on racial equality Professors Rob Simmons and Dave Berri and Dr Alex Farnell examine a history of racial inequality when it comes to being a leader in America’s Game. The long shadow of pandemics Dr Spyridon Lazarakis looks back to the flu pandemic of the early 20th century to see how Covid-19 might play out in the years and decades to come. 8 12 All this scratching is making me itch The CD is dead, long live vinyl. How is it possible for an outdated technology to have reversed its seemingly terminal decline? Renaud Foucart points to the lessons from the vinyl revival for other business sectors. Do you believe in the curse? Natural resources can bring an economic boom to a region or even country, but fdo these economies show slower growth? Anita Schiller investigates. 16 Saving the world – environmentally and financially As the world shifts from fossil fuels, Professor Marwan Izzeldin investigates risks to the economy in a greener future. 20 Economical with opportunity Studying economics delivers one of the biggest pay-offs for graduates. But it remains a male-dominated field; and when women do choose economics they can feel their ideas aren’t respected. 24 28 Highly illogical, Captain We like to think our decisions involve the mechanics of logic and hard evidence, all cogs and wheels. Truth is, the machinery is a mess, unreliable, easily disrupted by the lure of passing emotions, whether we acknowledge them or not. 32 Caste adrift Dr Saurabh Singhal explores how India's caste system creates personal hurdles for lower caste members on their way to educational and employment success.
Professor Hilary Ingham Head of Department of Economics lancaster.ac.uk/lums/economics I am delighted to be able to welcome you to this special edition of Fifty Four Degrees, which showcases the work of my colleagues here in the Department of Economics at Lancaster University Management School. When you look into the volume, you will see topics that dominate the news. These are issues that you might all have come across in your daily lives, and ones that our expert team of researchers in the Department of Economics get to the heart of. The issue of the depletion of the planet and of a greener future for ourselves and our children is never far from the headlines, and you will see that the individual contributions by Marwan Izzeldin and Anita Shiller both tackle this important area. Likewise, inequality remains an important policy concern and Cath Porter shows how Economics remains a maledominated domain – an issue that is very close to home for us. Her work shows how female role models can help to address the imbalance – and I know we have many such examples within our department. Looking across the globe, Saurabh Singhal addresses the caste system in India and its effects on people’s lives and economic prospects event today. Looking at the USA and the National Football League (NFL), Rob Simmons and Alex Furnell, along with Dave Berri from Southern Utah University, also uncover inequality, this time determined by race in the sports arena. Whilst Covid-19 now seems to be perceived as less of a threat, Spyros Lazarakis takes us back to the flu pandemics of the early 20th Century to remind us of the long-lasting effects that pandemics might have, and how that might be replicated in the years ahead. Finally, read what Eyal Winter has to say about the role of rational emotions and why, if the human race had developed in the same manner as the emotion-free Vulcans – anyone remember Mr Spock – we may not have survived at all. To lighten the mood to finish, why not dive into Renaud Foucart's contribution, which looks at the demise of the CD and the resurgence of vinyl. Still have any of those classic albums? Look after them! I hope this gives you a taster of the kind of expertise you can come across here in Lancaster. These experts contribute to a School where we deliver teaching that is academically rigorous and practically relevant – bringing benefits to lectures and seminars. Welcome FIFTY FOUR DEGREES | 3
Fumbling the ball on racial equality 4 |
FIFTY FOUR DEGREES | 5 The National Football League is dominated by black players, and yet key positions on and off the field are predominantly held by white men. Professors Rob Simmons and Dave Berri and Dr Alex Farnell examine a history of racial inequality when it comes to being a leader in America’s Game.
People tend to think of sports as a meritocracy. Teams and players compete, and the best claim victory and all the rewards winning provides. In such a world, there is no room for racism. If the goal is to win, rejecting people who can help you on the basis of race is foolish. Additionally, a racist organisation would learn that refusing to hire the best talent results in consistent losing and misery. The meritocracy story leads some to conclude racism can’t exist in sports. But in reality, sports are not a meritocracy, and racism can most definitely persist. Consider the story of hiring talent in American Football. With more than $15 billion in annual revenues, the National Football League is the biggest professional team sports league in the world, with more than twice the revenues of the English Premier League. Although the NFL does not have the global fanbase enjoyed by the EPL, within the United States it clearly dominates the sports landscape. Given the nature of the NFL, one might think teams would do everything they can to hire the very best decision-makers. The hiring pattern we see, however, suggests a different story. Let’s start with the players. About 70% of NFL players are people of colour. But these players are not equally represented at every position. The quarterback is the primary leader on the offensive side of the ball. Historically black players did not play this position. By 1991, fewer than ten black quarterbacks had participated in as many as 100 plays (about three games) in a single season in the entire history of the NFL. By the end of the 20th century, it looked like things were changing. In the 2000 season, eleven different black quarterbacks reached the 100-play milestone. Nearly 25% of quarterbacks getting significant playing time were black. After 2000, though, progress essentially stopped. Since then, there have been other years where eleven black quarterbacks participated in 100 plays in single season, but the record has never been broken. It remains the case that, in general, at least 75% of the quarterbacks playing in the NFL are white. There is no evidence that white quarterbacks are better than black quarterbacks. Nevertheless, it appears that when it comes to the leader of the offence on the field, NFL team owners prefer white men. We see a similar pattern when it comes to the people leading the quarterback and the other members of the offence from the sideline. The NFL has 32 teams, and therefore 32 offensive coordinators (i.e. the coach in charge of the offence). There are another 32 coaches specifically assigned to coach the team’s quarterbacks. In essence, these two positions are the leaders of the quarterback. Once again, the coordinators and coaches are generally white men. In the history of the NFL, we have never had more than three black quarterback coaches in a single season. We have also never had a season with more than six black offensive coordinators. It is not that teams do not hire black coaches. But these coaches are more often hired to coach running backs and defensive backs, positions that tend to be played by black players. There is also no sign that the NFL is changing how it is hiring its quarterback coaches and offensive coordinators. 6 |
More specifically, there is no statistical relationship between the passage of time and the percentage of black quarterback coaches or offensive coordinators. There simply is no evidence the NFL is making any progress with respect to race and the hiring of the primary decision-makers on the offensive side of the ball. This is damning, as our work demonstrates that, for the transition from offensive coordinator to head coach, there has been an equally skilled supply of black and white coordinators (as demonstrated by their performance records). It is a different story for defensive coaches. In 1992, there were only two black defensive coordinators in the NFL. Thirty years later there were 13. This was an all-time record for the league. Again, about 70% of the league’s players are black, so, the percentage of defensive coordinators who are black still doesn’t match that. Nevertheless, we are seeing more progress with respect to race on the defensive side of the ball. Unfortunately, teams seem to prefer their head coaches to come from the offensive side. Out of 49 coordinators who moved on to head coaching positions from 2012 to 2021, 63% of these were offensive coordinators. As Dante Chinni notes: “…offensive coordinators are often singled out for being creative and inventive…” “Creative” and “inventive” are not the only terms used for white coaches, who are often described as “geniuses”. This is especially true on the offensive side of the ball. In fact, one writer argued that Sean McVay – the white head coach of the 2022 Superbowl champion Los Angeles Rams – was so smart that the word “genius” wasn’t good enough! Black head coaches do not receive these accolades. When it comes to celebrating brilliant decision-makers – whether quarterbacks, offensive coordinators, or head coaches – black individuals are simply not often described with the same words used for white individuals. The difference in perceptions of black and white decision-makers likely drives the results we see with respect to head coaches. The first black head coach in the NFL was Art Shell. Hired by the Los Angeles Raiders in 1989, Shell’s team had a winning record in five of the next six seasons. But after going 9-7 in 1994, Shell was fired. It is quite rare for a coach to be fired with a winning record. Nevertheless, this does seem to happen far more often to black head coaches. After Shell, the NFL did hire more black head coaches. During the 2011 season, 25% of NFL head coaches were black. That mark remains the record. Across the last three seasons, the NFL has never had more than four black head coaches in a single season. Despite this recent record, our research shows the trend across time is still positive. In other words, there is a statistical link between the passage of time and the percentage of black head coaches in the NFL. We can also use the statistical relationship between time and this percentage to predict when the NFL will see racial equality among head coaches. At the NFL’s current pace, we predict 50% of the head coaches in the NFL being black in the year 2099. If you are waiting for 70% of the head coaches in the NFL to be black (i.e. a percentage that matches what we currently see for the players), then you only have to wait until 2150. All of this tells a simple story. The NFL – with teams primarily owned by white males – is not making much progress with respect to the hiring of black individuals in the primary decisionmaking roles. They are happy to hire black individuals as athletes. But when it comes to making decisions, the NFL is far from being a meritocracy. FIFTY FOUR DEGREES | 7 Professor Rob Simmons is an expert in Labour Economics and Sports Economics in the Department of Economics. Professor Dave Berri is a Professor of Economics at Southern Utah University. Dr Alex Farnell is Lecturer in Economics at Maynooth University, Ireland, and a former Lancaster PhD student. The working paper Race and Coaching Hierarchy: An Analysis of Hiring and Firing in the NFL is authored by Dr Alex Farnell, of Maynooth University; Professor Dave Berri, of Southern Utah University; Dr Vincent O’Sullivan, of the University of Limerick; and Professor Rob Simmons, of Lancaster University Management School. r.simmons@lancaster.ac.uk
8 | On top of the health effects, Covid has already had economic impacts on workers the world over. Dr Spyridon Lazarakis’s latest research looks back to the flu pandemic of the early 20th century to see how the Covid-19 pandemic might play out in the years and decades to come – and shows how it can have bearings on inequality. The long shadow of pandemics
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As Covid spread across the globe in the early months of 2020, nations went into lockdown, millions died, and hundreds of millions were infected; people everywhere were made to confront a new way of life. We all grew used to changes in our routines, from wearing facemasks and keeping two metres apart on the rare occasions we were able to leave our home, to sticking medical swabs up our nose and in the back of our throat to see if a cough or a loss of smell was a symptom of Covid-19. The change in routine applied at work as much as in our homes and personal lives. Those who could, shifted from working in offices to bedrooms, kitchens, and garden sheds; others were put on furlough or lost their jobs completely as businesses cut costs or closed. The short-term economic effects were immediate and obvious. In life, there is a tendency to focus on the here and now, on events happening right in front of us. But when it comes to the effects of a pandemic, we cannot look only at the short-term, we must consider the potential impacts in years and decades to come. What might happen a decade down the line from Covid’s emergence? What impacts might there still be on our health? After all, viral descendants of the 1918-19 global flu pandemic were still circulating a century later. Then there are the socioeconomic effects – sickness and an inability to work implies a loss of income and wealth. What might these effects look like two decades later? How will workers at both ends of the economic scale be affected? We have been studying the potential impacts of Covid-19 in the future years, learning from past influenza pandemics how persistent mortality and recurrent outbreak effects can be. PATTERNS FROM HISTORY Historically, the health and socioeconomic effects of pandemics have been shown to act unequally across the population, leading to concerns that the effects of Covid will be worse for the most vulnerable groups in society. Since 2020, I have worked alongside colleagues from the University of Glasgow on a project funded by the Economic and Social Research Council (ESRC) as part of UK Research and Innovations rapid response to Covid-19. We have been looking at the health and wealth inequality implications of Covid in the short- and medium-term. To analyse what might happen in the future, we first need to understand how likely it is for recurrent outbreaks to persist and continue to impact mortality. That is, we must understand whether the direct health implications of the pandemic are only a one-off, or whether they may reappear in the decades that follow. To do this, we looked back at the period following previous influenza pandemics in the UK between 1838 and 2000 – and primarily the 1918-19 influenza pandemic. In studying UK cities, and patterns in the US, we found that the initial waves of influenza pandemics are followed by two decades of high risk of recurrent outbreaks, making the overall impact even greater. 10 |
COUNTING THE COSTS A prolonged increase in mortality risk and, more broadly, in the health risk associated with it, especially when unequally distributed across the population (as is known by existing research on both Covid-19 and previous pandemics), can also contribute to income inequality. Health shocks and worse health at the individual level more generally negatively affect labour market participation and income. At the household level, the most obvious and biggest labour income shock is the death of a working parent. However, even a major illness can also have negative implications because it could affect future labour income potential for their offspring via a negative impact on education resulting from reduced household income and perceived trade-offs regarding education. The implications do not stop here. When we look at risk, we are talking about not just what does happen, but what might happen. If people feel more vulnerable to losing employment, this will affect their actions and choices, even if no jobs are actually lost. This uncertainty is a crucial element of economic decision-making and one response is to accumulate savings. Savings play a crucial role in allowing individuals and households to weather temporary downturns in their economic fortunes. So, if health risk increases, labour income risk will rise too, and this might mean an increase in wealth inequality. In addition, results from relevant literature suggest that health risk and adverse health shocks can directly affect saving behaviour. Firstly, like the response to income risk, people have incentives to save just in case they get severely ill. Secondly, health shocks imply an increase in medical expenditure and a reduction in the potential for savings. However, the rise in health risk usually disproportionally affects those with lower income and wealth. Thus, their income and wealth fall even further. At the same time, those with higher income and wealth increase their savings due to the fear factor. Putting all the above together, income and wealth disparities can increase in the medium-term because of the increase in health risk. A CHANGING WORLD There have been many changes in the 100 years between the 1918 influenza pandemic and the arrival of Covid-19. Now we have improved healthcare and better-equipped hospitals, while governments were able to implement sophisticated test-and-trace programmes and instigate massive lockdowns. The Covid-19 response also demonstrated the speed with which vaccines can be developed. The comparison between Covid and the past influenza pandemics is not about mortality rates, rather it is about the evolution of the pandemic over many years. We cannot know the future, but we can have an idea about how Covid-19 might play out based on what has happened in the past. If we believe that Covid will be like past influenza pandemics, then we can expect outbreaks in the years following the main pandemic waves – and we have seen several recurrences already. Not only did governments respond to the health crisis, but they also worked to lessen Covid’s economic impact through initiatives like furlough programmes and cash transfers. Current data indicates that these policy measures mostly maintained income inequality at the same pre-pandemic levels. However, there was indeed a decline in income and, if Covid-19 follows a trajectory like that of earlier influenza pandemics, we might see a future growth in wealth inequality due to heightened health and income risks. This scenario could occur as those with lower savings (or wealth) have to respond to the reductions in income by reducing their savings substantially. They might even need to borrow, perhaps by using credit cards. On the other hand, those with higher wealth can recover quickly and respond to the increased risk by accumulating more savings. This rise in wealth inequality may have consequences. Due to their inability to take preventative – and potentially expensive – measures to address the increase in health risk, people with lower pre-pandemic incomes and worse health will find themselves even more exposed to increased health risk after the pandemic. At the same time, several large economic shocks have made the recovery post-Covid more challenging. Rapid inflation has outpaced wage growth for many, putting pressure on already strained household budgets; and the large debt burden built up during Covid is putting pressure on governments to cut expenditures at a time when the National Health Service struggles to cope with the legacy of the pandemic. We do not yet know what will happen because of Covid-19, but we can reasonably expect longer-term economic consequences – and the risk is that those who were already worse off will suffer the most. FIFTY FOUR DEGREES | 11 Dr Spyridon Lazarakis is a Lecturer in Macroeconomics, with a research interest in wealth and health inequality. This article draws on ideas from the journal article An extended period of elevated influenza mortality risk follows the main waves of influenza pandemics, published in the journal Social Science & Medicine, and from Pandemic-Induced Wealth and Health Inequality and Risk Exposure, a CESifo Working Paper, authored by Dr Max Schroeder, of the University of Birmingham; Dr Spyridon Lazarakis, of Lancaster University Management School; and Dr Rebecca Mancy and Professor Konstantinos Angelopouos, of the University of Glasgow. s.lazarakis@lancaster.ac.uk
12 | The CD is dead, long live vinyl. How is it possible for an outdated technology to have reversed its seemingly terminal decline? Renaud Foucart points to the lessons from the vinyl revival for other business sectors. All This scratching
FIFTY FOUR DEGREES | 13 is making me itch
14 | The vinyl record market collapsed in the 1980s. More than a billion LPs were sold worldwide in 1981, but by 1989 this figure had fallen by more than half to 450 million; LP sales plummeted further to 17 million in 1997 and three million in 2006. Longcherished collections were being traded in; music retailers were sending their stocks of vinyl records to landfill. The Compact Disc was the perfect replacement for old, scratchy, crackly pieces of plastic, things that involved so much effort to play and were a heavy lump to carry around in any numbers. In 1981, the BBC’s Tomorrow’s World programme demonstrated the durability and quality of this new space age technology by scraping the surface of the disc with a stone. They were easier to use and store, the sound quality was pristine. Fast forward to summer 2019 and figures for vinyl sales show they are close to being the largest source of revenue from physical sales: $224.1 million for the first half of the year, compared with $247.9 million from CDs. Vinyl revenue had grown by more than 25% in the past 12 months, continuing an ongoing trend. What happened? Most of all, technology obviously kept on evolving. In the USA, streaming makes up 80% of all music industry revenues; digital music having delivered much greater advances than the CD in quality, reliability and storage terms. The only reason consumers might still want a CD is because it’s a physical object, something that can still form part of a collection, but this is where it’s suddenly outperformed by vinyl. It’s not a case of nostalgia: vinyl records have cultural kudos as style objects; they furnish a room, they can be seen. There’s also a ritual to playing a vinyl record, placing an object on a turntable, the needle into a groove, that makes for what feels like more of an authentic listening experience. CDs simply stop working with repeated use. The Tomorrow’s World experiment would have quickly ruined the disc. Vinyl takes on character with age, the crackle and hiss, the jumps, are individual to each particular record. Digital may be perfect, but perfection can eventually become soulless and dull. Too much choice, impatient switching between tracks, can reduce the actual enjoyment of the music, to be listening in the moment. RETURN OF THE DINOSAURS Our research has explored the phenomenon of how the emergence of new technologies can serve to only emphasise and magnify the qualities and value of the old. Some of the characteristics of a long-extinct technology may have become relevant again now that the market ‘predator’ (the CD in the case of vinyl) has disappeared, they meet a need that was forgotten in the rush to take advantage of new features and usability. There are important lessons here across sectors and technologies in terms of markets for reviving ‘extinct’ technologies and how the old can complement the new. Many products and technologies disappear because they have nothing useful to bring anymore, there’s nothing about them to miss. But when a new product or technology starts dominating a market, it’s a good idea for strategic planners to look at what existed two or three generations before; what they gave to consumers that may have been lost and forgotten. For example, a similar chain of events to CDs and vinyl has also occurred in the world of photography. Initially digital cameras were the predator replacing analogue, film-based Figures for vinyl sales show they are close to being the largest source of revenue from physical sales: $224.1 million for the first half of the year, compared with $247.9 million from CDs. ʻʻ ʼʼ
cameras; offering vast storage. Sales of single-purpose cameras fell by more than 60% over the last nine years, replaced by increasingly high-quality camera functions in smartphones and other digital devices. People were capturing images for different reasons, not so much as a record of special moments, but as an everyday stream to share via social media. What was being lost was that sense of quality over quantity, the effort to take the best possible photograph; rather than hundreds of instant snaps that no-one will ever look at again. With this in mind, film-based photography is coming back via Kodak’s Ektachrome and Fujifilm’s black and while film product and Instax; not instead of smartphone pics but as a complement. There can be more practical reasons for the return of old technology. The streets of China’s cities were once filled with people on bicycles; these disappeared with the need for faster means of transport; but ongoing urban growth and development and an accompanying congestion means these ultra-modern conurbations are once again seeing waves of bicycles. The nineteenth century mode of transport (so effective in finding ways through the queues, and helping people with their physical wellbeing) is complemented by 21st century tech. Digital infrastructure allows for sharing and rental of bikes as and when they’re needed. The market also isn’t just among those with long memories, consumers who can remember the benefits of the past. Books are a good example. The main users of e-books are older; younger readers want the physical object because they want to be seen reading, and seen reading a particular title or author. There’s a whole other set of associations with a book other than gazing into a screen. And, reading a physical book is felt to be an essential way of taking a break from digital life. This is reflected in sales figures: hardcopy book sales are growing (still 80% of the market and up 8% in the last year), while interest in digital versions continues to slip, down a further 2% in 2018. The evolution of technology, old or new, doesn’t matter. We’re never on a pathway of ‘progress’. There’s always a predominance of human needs. And, these needs change according to context and are affected by fashion. So, while vinyl may have demonstrated its powerful hold on the popular imagination of music listeners, its appeal as a practice, it doesn’t mean it won’t be replaced. There’s no reason there can’t be another object that fulfils the need for display of musical tastes and sense of cool combined with the benefits of digital delivery. Renaud Foucart is a Senior Lecturer in the Department of Economics. Foucart, Renaud, Cheng Wan, and Shidong Wang, 'Innovations and technological comebacks’ was published in the International Journal of Research in Marketing in 2018. FIFTY FOUR DEGREES | 15
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FIFTY FOUR DEGREES | 17 DO YOU BELIEVE IN THE CURSE? Natural resources can bring an economic boom to a region or even country, but for several decades economists have found that in the longer term, these economies show slower growth. With their new research, Anita Schiller and her colleagues show that the so-called Natural Resources Curse might not be as problematic as first thought. Gusher in a Port Arthur, Texas oil well in 1901
When you think of Texas, you think of cowboys, cattle, football (the American version) – and oil. Black gold, Texas Tea – crude oil has been a mainstay of the Texas economy since 1901, when a crude oil geyser erupted from the well at Spindletop, starting the first oil boom. Both oil and gas production have remained an important part of the economy ever since, even through declines in production from the mid-20th century, and typical boom-bust cycles that affect the industry. With production spread across a large geographic area – far beyond the realms of Dallas, JR Ewing and Cliff Barnes – the state provides the perfect environment to look at whether the Natural Resources Curse exists on a localised scale. This phenomenon has emerged in research since the 1990s, with experts consistently finding that resource-dependent economies, such as those in Texas where oil and gas are the main industries, have slower longterm growth than those with more diversified outputs. The belief has been that natural resource-driven economic booms draw resources from non-booming export activities, lead to higher prices of nontradable goods and services – such as personal services, restaurant meals, real estate and hotel accommodation – and contribute to greater regional specialisation, leaving areas more exposed to the effects of a decline in production or prices. The advent of fracking, extracting oil and gas from shale, has seen another boom in production in Texas, with gas outputs climbing steeply by 2005 and oil production by 2009. Crude oil output nearly tripled between 2009 and 2015, with production often in new regions of the state. This provided us with the opportunity to look at how the state’s endowment of natural resources affected the economic growth rate, as there was a rapid increase in petroleum production across many counties in Texas more or less concurrently. Additionally, new regions were able to enter the industry, adding to the traditional areas that had been extracting oil and gas since the beginning. With the oil and gas industries enjoying a boom period, it would be expected that employment would become more specialised across the 125 counties we analysed with oil and/or gas revenues than in the 49 without any production – that workers would leave other industries and concentrate in those that were producing such great revenues, one factor linked to the resource curse. It is reasonable to suppose that increased levels of oil and gas activity would provide evidence of the ingredients for a resource curse through localised impacts in terms of private sector employment and income in the short to medium-term. If labour is attracted to an extractive industry from other local activities by bidding up wages from within a limited labour supply, then incomes will increase. However, there would be employment declines in other areas, and an increased specialisation. If the local labour market does not offer the necessary skills, then labour has to be imported, which should see an increase in both employment and income. But despite the large spikes in oil and gas production, we found no evidence of a mass reallocation of employment towards the booming activity, and no tendency towards increased specialisation. If the labour force is elastic, then there should be an increase in overall employment in the affected counties, but there is no evidence of this either. These results are contrary to the substantial increases in activity and the economic booms clearly evident in these areas, but much of the employment has been undertaken by large, often multinational, firms with headquarters in large metropolitan areas. This might provide some insight into why long-term positive outcomes on local economies are elusive, as outside firms and employment arrive to exploit the opportunity, but do not establish local structures and ownership for their industrial activities. When the period of frenetic activity is over – when prices decline and development slows or stops – they leave with little or no evidence of their having been there. Booms and busts in these industries are essentially an imported employment phenomenon, as localities cannot maintain the required specialised workforce needed for the boom times throughout an entire cycle. A large multinational corporation can more easily do this by taking advantage of the imperfect correlation between booming areas – moving employees around from district to district, county to county, as and when required. As for increases in income, these are felt mainly in those households already in the upper half of the pay scale, while the effects on those lower down are not seen. 18 |
FIFTY FOUR DEGREES | 19 Evidence of this is gleaned from higher average wages, but no change in the median wage. Beyond employment, we saw benefits to residents as per pupil expenditure is higher in school districts with higher levels of oil and gas production, even if overall school finances are not affected as the State takes away the excess income from the industry. Also, property tax bases increase with oil and gas revenues, and the local population sees lower county tax rates as a result. We could find little or no evidence of circumstances emerging over the period of our analysis that the booms would serve as a necessary element for a longer-term resource curse. While there are much wider debates to be had on the environmental impacts, on a purely economic basis, if anything, oil production has a positive effect on local incomes and school finances, and benefits the people living there. Dr Anita Schiller is a Senior Lecturer in Economics, whose research interests include the impacts of natural hazards on societies, the effects of renewable and non-renewable energy policies on local economies, and environmental economics. The paper Do Localities Benefits from Natural Resource Extraction? by Professor Dakshina De Silva, of Lancaster University Management School, Professor Robert McComb, of Texas Tech University, and Dr Anita Schiller is published in The Energy Journal. The paper won the IAEE 2020 Energy Journal Best Paper Award. anita.schiller@lancaster.ac.uk
20 | Sthaeving world environmentally and financially The world is going green. More and more, fossil fuels are being left behind – but there are inherent risk to the economy in the move to a cleaner future. Professor Marwan Izzeldin explains how clear governmental policies, an efficient and quick switch from fossil fuels to new sources of energy, and certainty in planning can help industries, economies and the financial sector as a whole avoid suffering from the switch.
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The environmental and ecological costs of failing to reach net zero are increasingly well-known. The need to rigorously reduce environmental pollution and the global carbon footprint is scientifically undisputed. How this switch occurs from a global society overly-dependent on fossil fuels and their by-products to one with renewable energy at its heart, which does more to remove carbon from the atmosphere than to pump it in, is the subject of global debate. The nature and timescale of these changes will affect how the world of the future looks in terms of the polar icecaps, the rainforests and low-lying coastal areas. But the method, speed and efficiency with which the switch away from fossil fuels is handled will also have a major impact on industries, economies and entire financial systems. Although transformative policies towards a sustainable green economy can bring economic co-benefits, there are trade-offs to be made with such transformations, and if they are not executed prudently, there will be difficulties and negative effects. One such trade-off is ‘asset stranding’, which is becoming an emerging concern in the climate change debate. In its broadest meaning, ‘stranded assets’ describes assets that suffer from unanticipated or premature writeoffs, downward revaluations, or which are converted instead to liabilities. Assets in fossil fuel industries are at risk of losing market value and becoming worthless prior to the end of their economic lifetime as global systems move towards zero-carbon trajectories, with nations around the world aiming to be carbon neutral in the next 30, 20, even 10 years. The stranded assets discussion in this sphere will often focus on fossil fuel industries themselves. But it is not just those companies extracting oil, gas, and coal that are put at risk by this transition. New climate legislation, technological advances, or a shift in demand could all affect other companies that use fossil fuels in their production processes, or are otherwise energy – or carbon – intensive. Transportation, manufacturing, power generation – fossil fuels have an input in almost everything at some point. If these industries are affected by stranded assets, it can have a cascading impact on financial sector stability. This, in turn, can also be particularly restraining for the economies of developed as well as developing countries, which are heavily reliant on this sector. Sovereign debt could be at risk for economies that are climatesensitive through overexposure to the fossil fuel sector – countries with large state-owned resources companies are going to be most at risk in this regard, such as those producing the majority of the world’s crude oil, gas and coal. A PRICE THAT MUST BE PAID In the grander scheme of things, nonadherence to climate change regulations will cause irreversible damage to the planet and, thus, the cost of writing off stranded assets could be seen as a small price to pay for the long-term future of Earth itself. To put things into perspective, it is important to see the direct and indirect costs associated with this transition risk. Rough estimates suggest that if national governments attempt to restrict the rise in global temperatures to 1.5C above pre-industrial levels for the rest of this century, then the direct cost of these stranded assets will be US$900 billion, which is approximately one-third of the current value of all big oil and gas companies worldwide. A loss in their total enterprise value means an equal loss, if not more, to all the financial institutions linked to those companies, and there are many. The banks that would have financed those companies, the insurers that underwrite them and the asset managers who invest in them – will all be affected. Such an impact on these financial institutions can be considered an indirect cost of this transition risk. This can have a cascading effect on other establishments and the overall economy as well, making the situation a double whammy. Feedback loops between the financial system and the macro-economy could further exacerbate these impacts and risks if the transition to net-zero is both slow and non-aggressive. On its own, the shock of the cost of stranded assets to financial institutions and the overall economy resulting from a quick adoption of climate and energy 22 | My colleagues and I considered the performance of emotional labour – that is, the requirement to manage our emotions as a tool of enacting our leadership roles – to explore just how feasible relational transparency might be as a component of authenticity in leadership. ʻʻ ʼʼ
policies or a breakthrough in lowcarbon technology is unlikely to be a source of systemic risk to the larger financial sector. In fact, the risk of stranded assets can be a springboard for better resource planning, diversification and a transition towards more sustainable development. On the other hand, delayed and disorderly mitigation strategies to tackle the transition to net-zero will lead to stranded assets and legal claims. Major technological breakthroughs in the renewable energy sector, which are both cost effective and sustainable, will make way for an increase in stranded assets. Similarly, abrupt policy changes by governments to severely limit cumulative carbon emissions can plunge the profitability of fossil-fuel companies, making it unfeasible for them to operate their assets, which will also result in write-downs. An increase in stranded assets due to legal claims could happen if a legal action is taken against the owners of carbon-emitting assets who are responsible for significant amounts of damage due to climate change. This is because the dangers and risks of global warming were known to the fossil-fuel industry since early 1960s, yet they continued to invest in large-scale fossil-fuel exploitation. A DOUBLE-EDGED SWORD Adopting clear and effective long-term climate and energy policies is crucial to reducing uncertainty for financial institutions. A credible climate change policy framework that provides the necessary long-term certainty to financial institutions will discourage investments in firms holding stranded assets and other high-carbon businesses. At the same time, it will boost investments in cleaner technology and energy saving. Implementing and following a clear-cut policy also helps in reducing uncertainty, which can prevent wasteful capital expenditures by fossil fuel firms, cutting losses for investors and creditors, while reducing market volatility and ensuring market liquidity with regard to high-carbon assets, thus avoiding unnecessary distrust among financial institutions. Finally, macro-prudential policies by central banks and other regulatory bodies can ensure that national financial sectors do not have an excessive exposure to transition risks, helping to prevent the emergence of negative feedback loops that could destabilise the financial system. This could involve reducing the impact of potential shocks to the asset management sector as a whole, for example, even if the risks for many individual investors do not seem excessive. Such prudent measures can be a double-edged sword in making a techno-economic paradigm shift towards the next green wave. FIFTY FOUR DEGREES | 23 Marwan Izzeldin is a Professor of Financial Econometrics in the Department of Economics, and the LUMS Associate Dean International. The article Stranded assets a double edge sword or a double whammy for countries dependent on Fossil Fuel? Was co-authored by Professor Marwan Izzeldin and Dr Momna Saeed, a Research Fellow for the Gulf One Lab for Computational and Economic Research (GOLCER). m.izzeldin@lancaster.ac.uk
24 | ECONOMICAL WITH OPPORTUNITY Studying economics delivers one of the biggest pay-offs for graduates. But it remains a maledominated field; and when women do choose economics they can feel their ideas aren’t respected. Nothing will change until more women enter the profession. Catherine Porter has demonstrated one way it might be done.
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26 | The debate around sexism in economics has turned toxic in the US. A 22-year-old student at the University of California, Alice Wu, analysed message posts at an anonymous chatroom used by economics graduate students (Economics Job Market Rumors), a forum that gives a sense of what economists talk about when they’re ‘off duty’. She tracked words most associated with males and females. With men the words were work-related; but for women it was a litany of terms about physical appearance, many of which were quite offensive. While it’s debatable how representative this evidence might be of the economics community in general, it’s an indication of an undercurrent of discriminatory attitudes that’s also implied by other research. An American Economics Association members survey in 2019 suggested that almost half of female economists had experienced discrimination based on sex (compared to 3% of men) and seven in ten felt their work was not appreciated and respected (compared to four in ten men). Other academic work has shown that female economists have to produce higher quality papers in order to be accepted into the top journals; are less likely to get credit for joint work with men in terms of academic promotion; and when there’s media coverage, a male co-author is the one more likely to be quoted. Having more women and underrepresented minorities in economics matters. As with all areas of work, diversity of perspectives and insights is important for balance, for innovation, for ensuring fairness in society. A survey by the International Monetary Fund (IMF) in 2018 showed that women have different opinions to men on aspects of economic policy including monetary, fiscal and social policy. For example, women tended to support more environmental regulation and stronger employment protection. For gender equality it’s also important that women have the same access to careers in what can be a highly-paid profession. INFLUENCING CHOICES Around a third of economics undergraduates in the UK and US are female. In the US, 13% of academic posts are filled by women, 15% in the UK. Working with a colleague at a US university, we looked at how female role models might have an influence on choices. Unlike the UK, first year undergraduates make their choices after they begin their studies, giving them chance to attend a range of classes, explore different options and interests. Two female undergraduates were asked to pick out the two most inspiring from a list of economics alumni, including both men and women. Those two alumni then came to the university to give talks about their career experiences and how economics has helped them; not focusing on their experience as women specifically, but as successful economists. The audience was naturally randomised, as one half of the year group was selected to attend the talk which was part of their regular lecture programme; meaning we could look at the influence of role models without worrying about ‘self-selection’. We made use of administration records a couple of years after the role model talk took place to look at the numbers of students who chose to attend economics classes, and most importantly, those who decided to take Economics as their ‘major’ option or main degree. We found there was no effect on the choices of male students; but for women it was a different story. There was a significant increase in the numbers of women enrolling onto economics classes, and almost a doubling in the number who majored in Economics to around 14% of the total. The figures showed that the effects of the role models were stronger in the immediate period after the talk and, though they faded a little over time, ʼʼ A survey by the International Monetary Fund (IMF) in 2018 showed that women have different opinions to men on aspects of economic policy. ʻʻ
FIFTY FOUR DEGREES | 27 did affect final choices. More influence appeared to be working on students who were originally planning to follow an Arts route, rather than those already thinking in terms of a business or engineering career. MODELLING ROLES Although small in scale, our field experiment has demonstrated the striking impact that positive role models does have on hearts and minds; in this case, successful, charismatic women talking about their career journey and what doors were opened by studying economics. Decision-making by students is highly subjective, rooted in perceptions made by the prevailing culture, the examples set by parents, family and friends. It’s important for there to be positive interventions that contribute to this environment of influences. The women in our study who opted to major in Economics, for example, now have a greater chance of higher earnings and a career where they can help improve diversity and balance in an arena that affects the lives of whole populations. Because economics is not, as often believed, just a discipline relating to finance. My own area is development economics: the Nobel Prize for which has just been given to a woman (the second ever) and two men who work in this area. Economists have central roles to play in improving education systems, health provision, and reducing poverty and inequality. The approach of using role models has potential for wide application to encourage positive choices and diversity, because of its simplicity and low cost. We’re now looking at results from a project in Somalia, using both male and female role models with young people to encourage more of them to stay in school. Our preliminary results show that female role models have made male students rethink their preconceptions about whether girls can finish their education or have a career. In economics there are several other initiatives aimed at improving diversity in the profession. The American Economic Association has appointed an ombudsperson to receive any complaints about harassment, and the UK’s Royal Economic Society has launched #DiscoverEconomics to broaden the appeal of economics to potential students. Professor Catherine Porter is a Senior Professor in Development Economics. There’s more information on the Royal Economic Society’s #DiscoverEconomics campaign here: bit.ly/RES-DE catherine.porter@lancaster.ac.uk
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We like to think our decisions involve the mechanics of logic and hard evidence, all cogs and wheels. Truth is, the machinery is a mess, unreliable, easily disrupted by the lure of passing emotions, whether we acknowledge them or not. Eyal Winter explains why emotions aren’t a problem for decision making but a gift. For better decisions, we just need to appreciate how our minds work and learn to cultivate our use of emotions. FIFTY FOUR DEGREES | 7 HIGHLY ILLOGICAL, CAPTAIN T e
Decision making tends to be seen as a process in which two separate and opposite mechanisms struggle with the other. The emotional and impulsive mechanism within us tempting us to choose the “wrong” thing while the rational and intellectual mechanism slowly and ploddingly promises to lead us to the right choice. This description, which was also shared by many scientists until a few decades ago, is both simplistic and wrong. Our emotional and intellectual mechanisms work together and sustain each other. Sometimes they cannot be separated at all. In many cases a decision based on emotion or intuition may be much more efficient - and indeed better - than a decision arrived at after thorough and rigorous analysis of all the possible outcomes and implications. The new insights into the role of ‘rational emotions’ have been the result of a quiet revolution over the past two decades in three important research disciplines: brain sciences, behavioral economics and game theory. For example, complementing the theoretical work, there have been experiments into an important hormone called oxytocin - what has been called the ‘love’ or ‘trust’ hormone because of the sense of warmth and safety it’s associated with - and which is particularly active among mothers in the first few months after giving birth. Studies have looked at the role of oxytocin in social situations and found that those with higher oxytocin will trust more often than others, they’re not just making logical choices for their own benefit. Emotions aren’t a leftover from the evolutionary process but an effective and sophisticated tool for balancing and complementing our rational side. In the end, it is the feeling and thinking person who has the advantage, not the person who relies on thought alone. So in business, and in the workplace, it’s important for this need for balance to be reflected in management development and training, and in dayto-day understanding and treatment of colleagues. The ideal employee isn’t a Vulcan, but a feeling and emotional human who takes into account both the benefits and threats of the interplay involved. Why collective bonuses work better than giving rewards to individuals Continental Airlines was on the verge of bankruptcy in the 1990s. A key issue was the number of delayed flights, the “on-time” performance levels, leading to a poor reputation among regular travellers. The CEO introduced a new programme, “Go Forward”, which involved a simple deal: every employee - from the cleaners up to the board - would receive an extra $65 every month that Continental Airlines was in the top five for on-time performance. Staff weren’t working necessarily for the additional money for themselves, but to ensure that their peers didn’t lose out, a communal sense of needing to secure the cash for each other. No one wanted to be the weakest link that held up any aspect of the flight turnaround times. Within a single year, Continental went from a $619 million loss to a $224 million profit. 8 | Star Trek’s Mr. Spock would often give his Enterprise shipmates a look containing both sympathy and superiority whenever he believed they were allowing their emotions to rule over reason. The truth is, though, that if the human race had developed along the lines of the emotion-free Vulcans, our lives would be considerably more difficult, and in all likelihood we would not have survived at all. T A
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