Football (soccer) and Capitalism

Not The Economist's field of expertise

The World Cup is about to start. The Economist has run a piece suggesting that "the World Cup [is] the fulfillment of some of our most cherished values." And yes the cherished values are essentially free trade, the raison d'être for the creation of the magazine (that has a problem of self-image and refers to itself as a newspaper), and more generally laissez-faire capitalism, of which the publication is one of the most important cheerleaders.

There are many of these, pardon the directness, garbage pieces that suggest that football (soccer for the gringos) explains the working of capitalism (see, for example, this popular book). And, yes, the most obvious explanation for the confusion is that football does not explain the market or globalization, or how the world works, or any other way of expressing modern capitalism. It's the other way round, capitalism explains football.

In the magazine's view, the reasons for why football explains economic success is that it is somewhat like a decentralized market, and provides, like an invisible hand, when not curtailed by State intervention, one would guess, for the best to win. A no less Darwinian (or Spencerian) survival of the fittest than often advocated for economies. In their words:

Football can also teach countries how to spot and hone human capital. The best performers not only have systems for finding gifted children, but also ways of spotting late developers who failed to make the first cut. Their academies turn out intelligent, creative players rather than dribbling automatons. Then, if they are clever, they drop their best footballers into a competitive market.

The idea is that in places where there are free market like mechanisms to find the best players you end up with the best teams that go on to win the World Cup. There are too many problems with this view, both with the view of how the economy and capitalism work, but also about football. I will tackle just a few.

Think about the notion that markets select the winners, which are the best players, as an analogy of markets selecting the best firms, the best economic practices. Development is just a question of open and free (unregulated) markets. Yet, the actual record for that is thin at best. It is well known now that even the English experience that led to the Industrial Revolution (IR) in the 19th century was far from being a laissez-faire story. Not only the boom was related to a huge increase in the size of public debt, and the financing of a vast Fiscal-Military State, but also the size of the bureaucracy increased significantly.

"British bureaucracy doubled in size during the 18th century. At the beginning of the century, state employees were estimated at 12,000, a number that had grown to 16,267 by 1797, and 24,598 by 1815," according to Roger Morriss. In other words, the state size doubled during the IR. Markets themselves require a significant amount of regulation. And here the example used by Ha-Joon Chang regarding child labor is always illustrative. Note that during the IR children were exploited working long hours in inhuman conditions (Hamilton suggested in his Report on Manufactures the positive effects of factories, since they would put idle children and women to work). Eventually, after a lot of social pressure (Marx and Engel's Manifesto demands the abolition of child labor) the freedom of firms to hire free willing children was curtailed. Markets are by definition a set of norms and regulations, and the very notion of a completely unregulated market is a bit of a ruse.

Now let's think about football. What country has won the most, you ask. Brazil, with 5 wins in 1958, 1962, 1970, 1994 and 2002, and 2 final losses in 1950 and 1998. Note that Brazil is not a developed country. Nor the US, or Sweden (advanced economies, even if very disimilar in many ways) have ever won a (male) World Cup. The link between development, and the quality of the football played is not particularly strong. Also, I might add, World Cups are tournaments, with elimination games, subjected to chance and luck, and not championships in which every team plays against the other, and the winner is the one that won more points overall. Hungary in 1954, the Netherlands in 1974, Brazil in 1982, and Argentina in 2014 (that's my view, some might have different candidates) were, arguably, the best teams, but did not win the World Cup.

The Economist tries to suggest that authoritarian regimes, with more closed societies, and one would assume markets, would do worse in the World Cup. They do say that "dictatorships are rubbish at football." And they note that Argentina in 1978, under General Videla, was the last time a country ruled by a dictatorship has won. The list should also include Italy in 1934 and 1938 under Mussolini, and Brazil in 1970 under General Medici. The argument is a bit hollow. Brazil, again, has won with both dictatorships and democratic governments (and so did Argentina in 1986 with Maradona and the return of democracy, which sadly doesn't win games). In all fairness, football has nothing to say about capitalism or why nations fail (or not).

The development of capitalism, on the other hand, does say quite a bit about football. Football, or the rules set by the British in Victorian times, that have changed little, I might add, emerged during the first era of globalization. The game spread with the spread of English manufacturing products, and the trade routes. Teams often appeared in ports, like Boca and River in Buenos Aires, or Santos in Brazil. Also, the elites in developing countries copied not only the patterns of consumption of the wealthy in developed economies, but also their hobbies, and football spread to the posh clubs of developing countries. In that high class environment, black players were often discriminated. In Rio de Janeiro followers of Fluminense still are referred to as 'pó de arroz' (baby powder), since players of African descent tried to camouflage the color of their skin to be able to play (Vasco da Gama was the first team to field black players, in the 1920s).

Football developed in places connected by trade with the British, and where patterns of consumption were being imitated, which explains why some parts of Latin America were early developers. Arguably, in many parts of Asia and Africa, income levels were too low for the patterns of consumption of the British upper classes to spread. Or in the United States the patterns of consumption followed their own trajectories, since at this point, the US was becoming the center of global consumption and imposing its own patterns of consumption on the globe. Accident, and history play a role. But it says a lot that the American version of football did not take off as the British one, meaning that institutions are path-dependent. By the way, that path-dependency also explains why more or less the same national teams keep winning. Tradition is a very strong predictor of who would win the cup. Kids don't play football (soccer) in the US, since their sports icons are in other fields.

By the 1920s football started to professionalize, and the markets, cherished by The Economist, for ball players became relevant. The professionalization of sports started in the 1920s, but the crisis of of capitalism in the 1930s, reduced the impetus of free market forces. Teams were not all powerful, and given the structure of clubs in many countries, football was not yet a business like the others. The backlash against capitalism meant that sports, and football were used by nationalist and populist (mostly right wing) regimes to promote national pride. Hitler, that was invested in the success of the Olympic Games in Berlin in 1936, wanted to win the World Cup in France in 1938, but Mussolini's Italy thwarted his plans.

It is with the end of World War II and the victory of the allies, and the with the rise of American hegemony, that football slowly becomes a business like any other. The fundamental impulse for the changes came after the collapse of Bretton Woods, and the Neoliberal turn in the global economy. Increasing market integration and financial deregulation, facilitated the rise of modern football. Clubs became business, with the rise of the European super leagues, imitating the US market. Note that this is the period of the rise of American football (with the creation of the Super Bowl in 1967) and the professionalization of tennis (the 1970s). Even the US tried to develop a market in the 1970s, with Pelé joining the New York Cosmos.

Players were bought and sold in markets, and still are. In the early times, rarely a player would become even moderately wealthy. Several players that would put to shame even the great of these days ended in poverty (Mané Garrincha comes to mind). Very few players are unionized, and most of them do not make the huge amounts of a Messi or a Neymar. Not only, free markets are not a solution for the wealth of nations, but the free market model for football has been detrimental for players and for the sport. Something similar could be said about other sports (I'm thinking about the NBA finals, and the overwhelming dominance of the Warriors). At any rate, The Economist should stick closer to their field of expertise.

PS: I'll probably blog a bit more about football during the World Cup.

Material well being and morality

Wall Street Journal's logic. They say:

"In the Americas 'thousands of persons are led to travel north in search of a better life for themselves and for their loved ones, in search of greater opportunities,' the pope said. 'Is this not what we want for our own children? We must not be taken aback by their numbers, but rather view them as persons, seeing their faces and listening to their stories, trying to respond as best we can to their situation. To respond in a way which is always humane, just and fraternal.'

The pope’s call to a common humanity is much-needed, but to our ears the most striking word in that passage is 'north.' Here is the Latin American pope acknowledging that the migrants are moving north to the United States, not the other way around. This is the same United States that practices the capitalist economics the pope has excoriated on so many other occasions. There must be something moral to free-market economics if it creates so much opportunity that attracts so many of the world’s poor."

Hmm. Interesting take. There is something material about the US economy for sure.  How they confuse material well-being with morality is another issue. Beyond the confusion between the ideology of free-market and the economic system actually in place in the US, I think it's safe to say that one can understand why immigrants move North, while at the same time believe that there are better alternatives to the US version of capitalism. There is something striking in the WSJ piece indeed, but it isn't the word north.

PS: Their editorial reminded me of Joan Robinson, who said (Economic Philosophy, p. 45) that "as we see nowadays in South-East Asia or the Caribbean [and one could add Middle East or Latin America], the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all."

If markets voted...

As I noted yesterday, the Wall Street Journal and The Economist long for a time in which markets, or people with means, voted, not the people in general. From the February 1, 1933 New York Times (p. 29).

If it is not clear, it says: “The Boerse recovered today from its weakness when it learned of Adolf Hitler’s appointment, an outright boom extending over the greater part of stocks." Markets are always right, aren't they?

Want 'free trade'? Open the medical and drug industry to competition

By Dean Baker:

Free trade is like apple pie, everyone is supposed to like it. Economists have written thousands of books and articles showing how everyone can gain from reducing trade barriers. While there is much merit to this argument, little of it applies to the trade pacts that are sold as "free-trade" agreements. These deals are about structuring trade to redistribute income upward. In addition these agreements also provide a mechanism for over-riding the democratic process in the countries that are parties to the deals. They are a tool whereby corporate interests can block health, safety, and environmental regulations that might otherwise be implemented by democratically elected officials. This is the story with both the Trans-Pacific Partnership (TPP) now being negotiated by General Electric, Merck and other major corporations who have been invited to the table, as well as the EU-US trade agreement.

See rest here.

New Book From Monthly Review Press: 'Capitalist Globalization - Consequences, Resistance, and Alternatives'

Globalization, surely one of the most used and abused buzzwords of recent decades, describes a phenomenon that is typically considered to be a neutral and inevitable expansion of market forces across the planet. Nearly all economists, politicians, business leaders, and mainstream journalists view globalization as the natural result of economic development, and a beneficial one at that. But, as noted economist Martin Hart-Landsberg argues, this perception does not match the reality of globalization. The rise of transnational corporations and their global production chains was the result of intentional and political acts, decisions made at the highest levels of power. Their aim—to increase profits by seeking the cheapest sources of labor and raw materials—was facilitated through policy-making at the national and international levels, and was largely successful. But workers in every nation have paid the costs, in the form of increased inequality and poverty, the destruction of social welfare provisions and labor unions, and an erratic global economy prone to bubbles, busts, and crises.

Read rest here.
Other books by Hart-Landsberg, see here

Krugman on Friedman, Austrians, and Paradise Lost

I was a bit busy this week and did not weigh in on Krugman's latest incursion (and here too) on the history of economic ideas. He correctly dismisses Conservative economists in pre-Keynesian times, and particularly Hayek (and Austrians), who suggested that recessions and depressions were useful, as not relevant. And also, notes Friedman was more sophisticated. He also notes correctly (as was pointed out here before), that Friedman used when he was forced to present a complete model and ISLM with a Phillips Curve, that was not very different from the more Keynesian versions of the model done by the Neoclassical Synthesis authors.

He is more positive about Friedman because:

"He [Friedman] was willing to give a little ground, and admit that government action was indeed necessary to prevent depressions. But the required government action, he insisted, was of a very narrow kind: all you needed was an appropriately active Federal Reserve... [But Krugman does not ] want to put Friedman on a pedestal... [since] the experience of the past 15 years, first in Japan and now across the Western world, shows that Keynes was right and Friedman was wrong about the ability of unaided monetary policy to fight depressions."

Note that Krugman also notes Friedman's critique of Austrian business cycle theory (see here), which shows that in spite of being marginalist and part of the mainstream, still the extreme laissez faire view makes them part of the fringes  of the profession. In other words, Austrians stand for the mainstream as the Tea Party stands for the more moderate right wing.

Perhaps the most important point in Krugman's reflection on the state of the profession is his confession that he used to consider himself "a free-market Keynesian — basically, a believer in Samuelson’s synthesis. But [he is] far less sure of that position than [he] used to be." Good enough. Note, however, that what he means by a 'free market' Keynesian is a peculiar mix.

The Neoclassical Synthesis, was based on Hicks ISLM and Modigliani's fixed wages. The fundamental idea is that with wage flexibility the system would lead to full employment, a proposition that Keynes denied in the General Theory. In addition, the capital debates have shown, and Samuelson admitted in 1966, two years before Friedman re-introduced the Wicksellian notion of a natural rate, that the neoclassical parable in which substitution led to full employment of factors of production does not hold.

So, beyond the ideological stance (which made more sense at the time of the Old Neoclassical Synthesis, during the Cold War) Free Market Keynesianism was always kind of a misnomer. Remember that Keynes in 1926 suggested that Liberalism (in the traditional European sense of Laissez Faire) was dead.