Capital House
December 2016
What really hurts more: Pseudo-democracy or leaving the EU? How does VISA generate revenue? Founding Fathers Haunt Democratic Party
Finance | Business | Economics | Law | Politics
EDITOR'S NOTE. What a month it’s been. This edition of Capital House offers some insight into the events of November 8th, with commentaries on the Electoral College, Trumponomics and ongoing Asian- American relations. Other contributions look at the Royal Prerogative, VISA’s business model, and the value of the Social Sciences. We have attempted to steady the ship on a swelling sea of nebulous, fact-lite journomania. Our values lie in analysis, argument, and evidence - these we have not compromised. We do not pander to sensationalism and are blessed with such a like-minded readership. It is important to be measured, and not be swept along. There is no established orientation at this independent publication; we are a forum for original thought, if you are prepared to defend it. An echochamber serves no purpose, and I encourage any and all contributions to rally before those threats to expression. Remember, these articles serve to stimulate the mind, not the heart.
Stacey
Andrew
Matthias
WILKINSON
HOUSTON
GOLDBECK
Design Lead
Lead Editor
Editor
Important. The Capital House publication aims to educate, share and provoke thought among its readership. It provides an outlet through which students and other stakeholders are able to disseminate ideas for informational, entertainment or educational purposes only. Due to a large authorial base, it is not possible for the editors to guarantee that no error or conflict of interest is manifest in the articles or elsewhere in the publication for that matter. As such Capital House, its contributors and affiliated entities cannot be held liable for any loss incurred as a result of decisions based on the content of the publication contained herein. It is for the reader to conduct their own due diligence and to consult an independent advisor where necessary before making any decisions that may result in loss; financial, legal or otherwise. It is possible that authors maintain private connexion with the subjects of their article, such as in the case of ownership of financial instruments or affiliation with an organisation or other cause. The editorial team makes a concerted effort to ensure that these conflicts of interest are mitigated through pre-publish screening. In the event that an author’s interest is published, the author is requested to disclose the interest at end of the article. Capital House as a publication strives to uphold independence and does not promote one particular partisanship with regards to political, economic or religious matters. This said, the editorial team can make no guarantees that articles are unbiased. The views expressed by article authors are their own and do not express those of Capital House.
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CAPITAL HOUSE | Issue 02 | December 2016
With contirbutions from: Pimkanok Piamjariyakul, June Nabira, James Khumalo, Ogechi Amadi, Matthias Goldbeck, & Nicolai Krogdahl
CONTENTS.
http://www.gjsentinel.com/blogs/images/050812%20men%20arguing%20illustration(1).jpg
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What really hurts more: Pseudo-democracy or leaving the EU?
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How does VISA generate revenue?
6-7
Founding Fathers Haunt Democratic Party
7-8
Will "Good Trump" Prevail?
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How will the results of the US Election "Trump" Asia?
10-11 Is Social Science Suffering from Middle Child Syndrome?
FINANCE | BUSINESS | ECONOMICS | LAW | POLITICS
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What really hurts more: Pseudo-democracy or leaving the EU? On November 3rd, the High Court re-established Parliament’s ‘jurisdiction’ and ruled that the triggering of Article 50 was the duty of Westminster; the government cannot use the royal prerogative as a basis to initiate proceedings without the assent of Parliament. The level of angst and disgruntlement born as a result of this ruling is surprising. Surprising because one of the main advantages championed by the Brexiteers was actually the reinforcement of Parliament’s sovereignty.
"A safe jump, clear of the fire but sadly, landing in the frying pan" Surprising because David Davis referred to the High Court ruling as “unelected judges calling the shots”, which is ironic considering an unelected Theresa May is currently the Prime Minister of the British electorate. Indeed, it would be obtuse to ignore the fact that on 23rd June, the majority of The Cabinet and a large majority of MP’s are said to have voted ‘remain’ in the referendum. This outcome, coupled with whispers of Parliament pushing to block the enactment of Article 50, strikes fear into the likes of May, Farage, and cochairman of the Leave.EU campaign, Arron Banks. The lines are blurry between whether this is a discussion on the supremacy of our parliamentary democracy, or whether, indeed, this truly is ‘Brexit Part II’. If Parliament is successful in blocking the Government’s activation of Article 50 via the royal prerogative, the Remainers (and even some of the Leavers, in hindsight), will find themselves having to accept the fact that a somewhat murky pseudo-democratic era may potentially be the lesser of two evils. A safe jump, clear of the fire but sadly, landing in the frying pan. The Royal Prerogative (RP) is a ‘collection of powers’ belonging on paper to the reigning Monarch, but in reality is wielded by politicians. This happened gradually as the distinction between the Monarchy’s self-interest and stateinterest have become that much clearer. The RP gives politicians the power to take action without the consent or consultation of Parliament. The full breadth of the RP is egregiously difficult to ascertain, resulting in an air of mystery surrounding its use. The difficulty arises from the fact that there is very little recent judicial authority for the use of some powers and for others there aren’t any at all. Interestingly, initial requests for a clarification of the powers encompassed by the RP were denied. It wasn’t until 2003, in a bid for accountability and transparency, that the Commons Public Affairs Committee managed to obtain and publish a list. 4
CAPITAL HOUSE | Issue 02 | December 2016
Ogechi Amadi MA Business Management & Business Law
The ‘collection of powers’ includes, but is not limited to, domestic matters such as the issuing and withdrawal of passports and even the dissolution of Parliament itself, to foreign matters, such as the declaration of war and the forming of treaties. 2008/09 saw the RP undergo reforms that passed certain powers over from the Government to Parliament and increased parliamentary scrutiny. The power to form and deconstruct treaties, as well as what the Government says is sole authority over foreign policy granted by the RP, is their basis for maintaining that the right to trigger Article 50 belongs to them. The argument being, that the invoking of Article 50 will automatically lead to Britain’s exit from the EU, essentially overturning the 1972 European Communities Act. In the landmark case, Lord Chief Justice Lord Thomas made it clear that the ECA 1972 is a matter of domestic not foreign policy, and for that reason, any actions taken pertaining to its dismantlement required prior parliamentary approval. The Government immediately appealed the High Court ruling and the Supreme Court is now due to hear the case on December 7th and will deliver a ruling in January.
http://s3.reutersmedia.net/resources/r/?m=02&
Lawyers further analysed the High Court ruling and agreed that they expect the Supreme Court to concur with the judgement. Furthermore, common law doctrines dictate new prerogative powers cannot be invented. Lord Diplock put it very succinctly, noting, “It is 350 years and a civil war too late for the Queen’s courts to broaden the prerogative”. By contrast, the danger of the Supreme Court overturning this ruling would be to undermine the administration of justice. In reality it wouldn’t be the victory Brexiteers are expecting; instead, it would call into question the strength and validity of the legal system in the UK.
How does VISA generate revenue? Visa International Service Association, or VISA Inc, is a household name globally recognisable by a majority of individuals. Originating as a brainchild program of Bank of America in late-1958, Bank Americard as it was known then, was an innovative universal payment system (consumer credit card) designed to eliminate the need for merchant-specific cards used during a period of time in the United States were Banks incurred major losses from credit cards. The losses were incurred through fraud and unorganised legitimate transactions. The strategy used by banks to get cards to consumers was through mass direct mail of cards to any individual, literally, whether it be children, adults, teenagers, pets, the deceased etc. Dee Hock, the founder of VISA, conceptualised the use of an electronic payment network before the Bank Americard program, which later did come into reality. Through this network, payments become more efficient, cutting transaction times by 1/5th and introducing fraud detection protocols minimised loss. Efficiency of the network prompted major success with financial institutes nationwide )and globally) Bank of America issued the licensing rights of the Bank Americard system. With the rapid progress of Bank Americard, the rights of issuing in the United States were eventually passed on to the National BankAmericard Inc. (NBI), an independent corporation established by issuing banks of the Bank of Americard program in the United States who would manage, develop and promote the system in the mid-1970s. Bank of America retained control of licensing rights internationally up until 1974 when the International BankCard Corporation(IBANCO) was formed to manage the program globally. The two independent entities merged together to create VISA Inc. Stripping VISA down to identify its core revenue generating machine, we can see VISANet to be the bone structure of their revenue streams. VISANet is the world’s largest electronic payments system used by governments, consumers and businesses in 200 countries and handles payment authorisation, clearing and settlement for VISA’s 14,800 financial institutional clients and 2.4 billion Visa-branded cardholders worldwide. The three primary operations that generate revenue for VISA are service, data processing and international transactions revenues. Service revenues are generated through payment volumes by VISA, for providing their financial institutional clients with the support services for the delivery of the Visabranded payment products and solutions. Data processing revenue is generated through the number of transactions processed by VISA, consisting of authorisation, clearing, settlement, network access and other maintenance and
James Khumalo MA Economics & Finance
support services that facilitate transaction and information processing. Lastly, international transactions revenue is generated through cash volume and cross-broader payments, and through cross-currency conversion activities. Moreover, VISA also generates revenue through other activities, such as the licensing fee for the use of VISA- brand, product enhancements, extended account holder protection and concierge services. In relation to payments volume, VISANet is capable of handling $4.8 trillion in payments. VISANet’s average transaction speed is less than a second and the payment system is capable of handling 30,000 simultaneous transactions at any given time and the network is able to deal with 175 currencies. Operating Revenue in $millions
http://investor.visa.com/annual-report-meeting
From the $13,880 million of revenue earned by VISA, 38% came from services, 33% from data processing, 24% was generated through international transactions, whilst 5% came from other activities. To understand the exponential growth of VISA’s revenue, we must understand the statistical overview of their operations globally and where they stand as a player in the payments industry. VISA is both the leader in global transactions on credit and debit card and has 51.8% market share based on the number of cards in circulation. With global shopping seasons such as Black Friday, Cyber Monday and Boxing Day around the corner, retailers are not the only winners during these peak spending periods - payment technology companies such as VISA flourish during these seasons. In addition, political issues such as Brexit weakening the GBP increases international transactions between currency with the pound. Furthermore, cash-bans in India also will boost VISA operations and once enacted will make VISA and other payment technology organisations the obvious winners as transaction volume increases in this region.
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Founding Fathers Haunt Democratic Party As was the case in the 2016 US Presidential election, the candidate receiving the most votes will not necessarily win the contest. This is due to the Electoral College, a peculiar 18th century constitutionally-protected election system. The electoral college is comprised of 538 electors, each entitled to one electoral vote – the number 538 is based on the number of Senators (100) and Representatives in the House of Representatives (438). The individual States and the District of Columbia receive one electoral vote per Senator and one per Representative. The electors are appointed by their respective political parties, and in most of the states the majority winner receives all the State’s electoral votes. The distribution of electors is roughly representative of State populations, but no state receives less than three electors. To win the election, a candidate needs a majority of electoral votes, which is reached by gaining the magical number of 270. In the aftermath of what (at the time of writing) looks close to a landslide victory for Donald Trump with 306 electoral votes, angry liberals have called for the abolition of the Electoral College. Hillary Clinton will probably win the popular vote. The anger is understandable, as this is the second time the Democrats have lost an election despite winning the popular vote in the last five elections – Democrat Al Gore lost the 2000 election to George W. Bush despite winning the popular vote by more than 500,000 votes, in large part due to Bush winning Florida by an extremely narrow margin of 527 votes.
Nicolai Krogdahl MA International Business Management
The Constitution outlines three branches of the federal government – The Executive (The President), the Legislative (Congress), and the Judiciary (The Supreme and Lower Courts). The Electoral College system was written into the constitution to reflect that the President is elected by the ‘unionised’, but sovereign, States. In technical terms, regular Americans do not vote for the president – they vote for electors who distribute the 538 votes that decide the President. The electors are not legally obliged to vote for the candidate winning a State vote, but rarely vote against their constituents. The US is, as the name eloquently states, a union of federated states. It is not a nation-state in the traditional sense. The Founding Fathers feared a few densely populated areas would assume full political control, to the detriment of those less populated, unless the protection of the Electoral College was in place. This map, widely shared after the recent election, provides an overview of US counties. Half the US population is living in the blue areas. The Electoral College system was created to hinder a handful of urban areas gaining control over the less populous, but vastly larger rural areas.
"..the candidate who receives the most votes will not necessarily win" Claims that the Electoral College system is ‘undemocratic’ are justifiable. But liberals forget to mention that the United States never was intended to be a democracy in the sense we tend to think of it - but a republic. Europeans often scoff at Americans’ inability to institute real change, especially in terms of gun laws and health care, but this is due to the work of the Founding Fathers when they constructed the constitution, a legal document unparalleled in its resilience. In fact, the word democracy is given no mention in neither the Declaration of Independence, the Constitution, nor the Bill of Rights. The Founding Fathers acknowledged the importance of democracy, but they intentionally contained it within the Constitution and a republican system, in their words, protecting the Republic from a potentially “tyrannical” government. 6
CAPITAL HOUSE | Issue 02 | December 2016
image source: http://www.businessinsider.com/half-of-the-united-states-lives-in-these- counties-2013-9?IR=T
The following map outlines how counties voted in the 2012 election, where red counties voted Republican, and blue counties voted Democratic. When the maps are compared, it is easy to understand Democrat’s agony over a system they view as grossly unfair, undemocratic and outdated. On the other hand, Republicans are clinging to the Constitution, pointing to the fact that the overwhelming majority of American counties are staunchly Republican.
Will "Good Trump" Prevail? image source: http://www.nytimes.com/2016/10/19/upshot/what-this-2012-map-can-tell-us- about-the-2016-election.html?_r=0
Furthermore, the larger states, (with the notable exception of conservative Texas) tend to vote Democratic, and are unfairly represented in the Electoral College in terms of electoral votes. California receives 55 electoral votes, but according to its population should have roughly 65. This is due to the redistribution of electoral votes, in order to give all States a minimum of three. The Electoral College system is undoubtedly imperfect. Intuitively, it feels wrong that certain votes count more than others. A Republican vote in California is worthless, so is a Democratic vote in Wyoming. As a consequence of the fact that the Electoral College gives ultimate voting powers to states, not to people, one Wyomingite’s vote counts as much as four Californians’ votes. But, when you bear in mind the fact the US is a union of separate and very different States, it makes more sense.
"It is easy to understand Democrat's agony over a system they view as grossly unfair, undemocratic and outdated" Rather than blaming the system for Clinton’s loss, Democrats should root out the infestations in their own party, and find ways to reconnect with the voters they have distanced themselves from to such extents that they voted for Donald Trump, third party candidates or stayed at home. Republicans also need to regain the trust of their voters, which overwhelmingly dismissed the Republican establishment’s candidates and neo-con policies during the primaries, and changing demographics means they must reach out to minority voters if they ever want to win an election after Trump.
To say that many were shocked at the outcome of the US Presidential election would be an understatement. A majority of corporate leaders have no choice but to expect Donald Trump to do a good job governing the largest economy in the world. It is, however, unclear how exactly the President-elect will govern and to what extent he will carry out his farfetched promises on trade and immigration. But initial guesses indicate that Trump might be bad for the global economy on aggregate. In the short term, his actions are more likely to harm countries outwith the US. Following the realisation that Mr Trump would win the election, the Dollar fell against other currencies including the pound, euro, yen and Swiss franc, as investors sought a haven from the uncertainty of Trump’s policies. Gold gained. However, a day later, the dollar started on an upward surge, this is after the somewhat toned-down approach in his first speech as President-elect. Bloomberg optimistically suggested Trump managed to do for bond markets expectations what quantitative easing (QE) failed to achieve. With inflation rates on the rise, have investors perhaps overestimated their expectations of delivery by ‘trumponomics’, of which no one knows the details? The truth is, there is currently very little US fiscal capacity to deliver all those tax cuts while investing in infrastructure spending. Nonetheless, a modest stimulus capacity of some sort must be implemented, and the team President-elect Trump is putting together will surely find a way to push his populist agenda. It is important to note that even though the stimulus is quite uncertain, global markets have already priced-in quite a bit of it. So, how big does the stimulus need to be to make a dent in the economy now? The expected spend, so far, has been quoted from 500 billion to 1 trillion US dollars. It will take a few billion to start the infrastructure ball rolling maybe in two or three years; tax cuts are easier to implement so they’ll probably come first. This is a stimulus of sorts so a moderate impact to the economy will be expected from this. But there’s also the issue of trade restrictions – Trump promised to impose up to 45% tariffs on trade with China and 35% with Mexico. Even if just a fraction of this is enacted, with the current weak global trade condition, this would undo the effect of the stimulus from the glorified tax cuts.
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June Nabira MSc International Banking & Finance
Notwithstanding, if what we now expect of “good Trump” or “Trump-lite” is right, and the former was just rhetoric, then options have to be weighed up again and this may be better for the global economy in the long run. Commodity prices have also gone up due to the talk about infrastructure. The markets seem to be buying so much into this story and somewhat ignoring the talk of global trade. This is in the hope that “good Trump” will abound, and growth-positive, stimulating effects will prevail over the factors believed to be growth-negative like trade and immigration restrictions. But one imagine’s something has to be delivered for the Trump supporters, for the people that voted for him because of his campaign rhetoric. There’s room to believe that the worst aspect of the rather extreme initial platform that was presented will not be implemented. However, it would be surprising if the rhetoric about trade wasn’t ratcheted around to a point where some damage still comes through.
"Could trumponomics put the wider global community at risk of another crisis?" Two weeks after Trump’s victory, shares in Europe plunged following the S&P 500 index drop after a 2-day rally. German bonds fell after it was reported that the European Central Bank (ECB) is looking at ways to lend out more bonds (meaning they are still actively exercising quantitative easing) and avert a market freeze. Italian bonds dropped in accordance to bank shares. Developing market shares and the US dollar have been among the biggest winners with regards to the high probability of a Fed interest rate hike in December. All markets have been affected by this reflation, some negatively, while some more positively. The picture in Europe is a bit more complicated. In the UK, since PM Theresa May announced that Article 50 would be triggered in March 2017, the pound began its decline. It since recovered slightly after it was announced that in order to trigger Article 50, Parliament had to vote it through. The pound’s decline against the US dollar was reawakened on 23rd November when the Chancellor of the Exchequer Philip Hammond announced plans, in tandem with Trump, for spending on affordable housing and infrastructure in the Autumn Statement. Bonds fell as a result, with construction companies rallying at the increase in inflation expectations. 8
CAPITAL HOUSE | Issue 02 | December 2016
Bonds fell as a result, with construction companies rallying at the increase in inflation expectations. Meanwhile in Italy, Banca Monte dei Paschi di Siena SpA, one of the oldest banks in Italy, avoided calamity by their junior bondholders agreeing to swap about a quarter of available bond notes for equity as they take their first steps towards a €5 billion rescue plan. The Trump-effect has reverberated across the globe where there seems to be a surge in the rise of populism. In Europe, the reigns, as it were, have been gripped by the “Brexitiers” and the uncertainty surrounding the Brexit vote still looms – will it be a soft or hard Brexit, or simply a negotiation to remain in the EU as an associate member? Parliament is yet to decide under a Supreme Court order. The most vulnerable European countries are Italy and France where there is more worry in rising bond yields and spreads. They both have a referendum coming up about whether to show a vote of no confidence in the current government, similar to Brexit. In France, of course, there is the risk of Le Pen rising. The current centre-right leader seems to be very harsh on economic policy. It will be interesting to see how markets react to this as they have shown an inversely-related response when compared to the populist effect in the US. Will this mean an end to the EU as we know it? “Frexit” could be next. Trump is passionate about unleashing the might of the private sector in order to revive growth. He is also a populist who thinks the economy is rigged in favour of big business and capitalism. Lastly, he is a protectionist. Trumponomics hence propagates tax cuts, deregulation and infrastructure spending. By one sense, repealing the Dodd-Frank Act that was enacted in 2008 after the global financial crisis, allows bankers the autonomy to apply their craft without bounds. This however, will revive the short-term mindset practised prior 2008 which propagated the formation of the housing bubble and inevitable global crisis that ensued. Could trumponomics put the wider global community at risk of another crisis? The protectionism factor may also be of negative impact to the global economy. Trade wars and rising tariffs could severely disrupt global supply chains. Many economists believe that the dollar has been overpriced and the market will soon correct itself as protectionism and a high dollar are not consistent. Others believe this is dependent on whether President-elect Trump focuses on trade re-negotiations and the tightening of immigration controls as opposed to the neo-Reaganite policy of looser fiscal policy and tighter monetary policy he emphasised during his campaigns. Time will inevitably tell whether trumponomics and the rise of populism will be the new world order.
How will the results of the US Election"Trump" Asia? Not only does Asia take up over a third of the world’s GDP, but it is also home to 60% of humanity and is by far the fastestgrowing section of the global economy. It acts as a global hub for the largest capital goods and infrastructure projects with the widest range of consumer products. With this scale, does the US have that much to do with this fast growing market? Not really. Well, can the result of the US election this year affect Asia? Yes, mainly because the heart of the president-elect’s policy platform is rooted in protectionism.
"Just when the world thought the Chinese economy was stabalising, the president-elect is posing major threats to Asia" A Long History Of Trade Looking at the US-Asia economic relationship last year – the US has as much as half a trillion dollars of trade deficit with Asia, or two thirds of the US’s total trade. This negative trade balance puts the brakes on the country’s economic growth. The import-led ideology does not only completely annihilate import-competing industries but also destroys job creation within the US. Just when the world thought the Chinese economy was stabilising, the president-elect is posing major threats to Asia. Trump’s Agenda In a nutshell, President Trump’s agenda for Asia is to place major draconian tariffs on Chinese goods imported to the US. He branded China a “currency manipulator” and he is not wrong since the Chinese market is big enough that its performance can be seen as a measure of global economic stability. Imposing such tariffs could have bigger effects than just on Chinese exports – it is simply a declaration of (trade) war. Mounting instability and a sluggish flow of trade equate to a reduction in investment and clumsy growth. The currently weak yuan would lead to even faster capital outflows and put significant pressure on the country’s international reserves – simply depleting capital from the sluggish Chinese economic growth. With Asia being the world’s largest manufacturing hub on which most countries in the region are highly export-dependent, the region will face significant risks if trade barriers increase. If the US were to impose such trade restrictions against Chinese goods, this could potentially create the biggest knock-on effect for Asia. In short, Asia is not a long way away from going down the same path as Mexico.
Pimkanok Piamjariyakul MA Economics & Finance
Yes, Trump has the potential to “trump” Asia, but is his presidency the consequence of the US’s weakness? Only time will tell. Trade, Not War Although the world is unsure of how Trump will live up to his promise to steer the course of the US economy by increasing fiscal spending, if it were to happen, this is nothing but imposing positive global growth. It is important for America to plan its next move strategically and focus on trading smart rather than dropping hints regarding military confrontation or idle threats regarding extreme trade restrictions. The result of this election is also deeply worrying for Japan – a very loyal friend of the United States – as during Trump’s presidential campaign he accused Japan of free-riding regarding its security commitment. He also thinks Japan and South Korea should build their own nuclear weapons instead of depending on the United States. Despite the political instability risen during this presidential election when both candidates proposed to change the course of the economy, Asia will not benefit much from accelerated US economic growth as it comes with a significant instability trade-off.
https://geopoliticalfutures.com/wp-content/uploads/2016/11/GettyImages-621870772.jpg
As published on The Market Mogul
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Is Social Science Suffering from Middle Child Syndrome? In an article titled, “Unloved and Sidelined: why are social sciences neglected by politicians?”, the Guardian highlighted a worrying disregard for social science in public policy. Last year’s success rate for research grant applications to the ESRC, the UK’s Economic and Social Research Council, dropped to 10% despite a suggested 45% of total applications qualifying as “likely to make an important contribution or better”. The misery of this funding drought is compounded by a demand for research insights that aid economic growth; an impetus that degrades the unique brand of independent thinking held sacrosanct by universities. Perhaps then, cruelly lodged between STEM’s admirable achievements and the unobtrusive, time-verified discipline of art, the social sciences are suffering from a spell of ‘middle-childism'. Often unheeded, why is it that social scientists have sweated for a role on the big stage in recent years? It may be useful to establish a contextual framework so as to appreciate the fundamental differences between members of the scientific family. Social science consists of a range of loosely related subjects - economics, law, politics, management, etc. – with each attempting in their own way to investigate society and, more specifically, to determine the relationships that form within and between societies. It is distinguished from the natural sciences most notably by the manner through which researchers verify their observations about the world. As Jon Elster describes in his book Explaining Technical Change, it is the duty of physics to provide causal explanations for inorganic, unconscious matter. For example, a falling apple is causally justified by gravitational pull; a natural and lifeless phenomena. The life sciences hold certain causal explanations true in order to make functional theories about organic matter; how do certain features serve to enhance its chances of survival or reproduction? However, it isn’t appropriate to make functional explanations in the social sciences (unless in exceptional conditions) as the unique influence of human consciousness significantly alters the survival strategies employed by humans in comparison with other living organisms. This typically results in patterns of behaviour that are much harder to interpret. The causeand-effect methodology is also frightfully ineffective in the social sciences, besides exceptional conditions in which the actor’s intentionality can be mitigated by observing behaviour en-masse, as is sometimes possible in market theory. The behaviour of a group or person is laced with intention, where intention is the function of the mind’s inner-workings. Interpretations of the mind are normally derived from dialectical and subjective study where it can be highly challenging to arrive at a significant conclusion. 10
CAPITAL HOUSE | Issue 02 | December 2016
This lack of conclusive certainty may be what two researchers from the University of Technology, Sydney, dubbed a “physics envy” held by the social sciences over their hardscience counterparts. ‘Standing conditions’ in the natural sciences allow researchers to isolate independent variables in order to make accurate observations about the world, but in the study of the performance of a business there are myriad variables and social actors involved, including the researcher, such that it becomes extremely difficult to quarantine causeand-effect relationships. Still, we try.
"Is it any wonder that the global community are growing tired with the social sciences as a force for good?" The science of subjects suffers one further problem that the science of objects does not. That is, that the subject is often aware that it is being observed (swiftly overlooking the ‘observer effect’ in quantum physics). As a physicist knows well, the natural laws that govern the refraction of light through a prism are independent of their hypotheses. It makes no manifest difference if the postulations are wrong as the laws are unchanged and the task of explanation is passed over. And yet dissimilarly, a social scientist can hypothesise about the effect that the alteration of light conditions may have on the performance of a workforce, but the very act of observation has the ability to alter the group’s behaviour. This is exactly what the Australian sociologist Elton Mayo observed during the so-called Hawthorne experiments of the 1930s. This two-way interaction is often referred to as the “double hermeneutic”. In short, in social contexts the observed can observe the observer. In these circumstances a self-fulfilling prophecy can occur; a case in which the prediction of an outcome causes, in and of itself, the outcome to occur, and not because of the given reasons (R). To illustrate, a financial commentator forecasts that the price of a certain share will surely decline due to R. On hearing the news, anxious investors sell-off assets in a flurry, bringing down the price and confirming the commentator’s prophecy, irrespective of whether R actually unfolded. Michael Biggs, a sociologist at the University of Oxford, explains that for this to be a self-fulfilling prophecy, the forecaster must be oblivious to the fact that it was their prediction (and not R) that had caused the outcome to transpire.
Matthias Goldbeck MA International Business Management
These methodological hardships are evidenced by the current state of economics, arguably the most authoritative voice among the social sciences. “Economics departments around the world are producing inanity in droves” asserts the former Greek Finance Minister, Yanis Varoufakis. Although later defending the work of scholarly economists, his statement highlights the prevailing issues that the recent turn to positivism and mathematical modelling has encountered when rendering accurate accounts of the future. Yes, it is true that very few economists managed to foresee the devastating 2008 financial crisis. It is true also that economic models of market liberalisation have been copied-and-pasted onto vulnerable developing economies by the IMF with devastating effect. Likewise, it is true to say that the swathes of political and economic theory that justified the Euro currency project proved incapable of bringing about any long-term financial stability. Even the lauded Pareto Improvement principle (wherein an economic action is deemed effective if it advances one person’s conditions without harming another’s) is hardly a godsend if the wealthy become wealthier so long as the poor aren’t poorer. Perhaps if economists had instructed a fairer version of global coalescence then there may be a less vicious case of nationalism permeating the Western World today. Is it any wonder that the global community are growing tired with the social sciences as a force for good?
"The inescapable reality is that any powerful notion for how society should operate, for how we should think, act and interact, is incredibly vulnerable to political preconception and thus liable to ideological simplification, mutation and propagation" Well, au contraire, the social disciplines should reserve positive recognition and patient endorsement. In recent years economists have offered tools to help understand decision making through game theory and psychologists brought to light the burdening influence of cognitive bias, both having radically uprooted people’s assumptions about how humans conduct themselves.
Social science has helped configure shorter NHS waiting times while asymmetrical information theory has offered protection to consumers from fraudulent sellers. And yet despite a long history of valuable discovery, and even after the methodological issues of generating robust knowledge are overcome, the problem of implementation remains. Recommendations for changes to human behaviour and social systems are much harder to administer than a new line of improved drugs. Sometimes the implementation procedure is unclear or loosely defined and, for politicians, the findings don’t provide catchy anecdotal soundbites. Yet, does this make the discovery phase less worthwhile?
http://www.cartoonistgroup.com/subject/The-Social+Science-Comics-and-Cartoons-by-Signe+Wilkinson's+Editorial+Cartoons.php
The inescapable reality is that any powerful notion for how society should operate, for how we should think, act and interact, is incredibly vulnerable to political preconception and thus liable to ideological simplification, mutation and propgation. The frailty of human intentionality looms. Courses of action that emanate from robust scientific analysis which are milder in nature are too easily overlooked altogether. Whatever the solution, the middle-child metaphor is probably unfit. It is crude to personify a diverse group of interconnected sciences as sisterly or brotherly, even when the analogy is forcefully moulded to shape. Nevertheless, mutatis mutandis, the struggles of social science do exist, particularly as funding from the EU shores up. Until the benefits of social enlightenment speak over a fierce economic imperative guided by short-termist leadership, and lest scientific methodology matures, the social science’s dim hum may not grow louder for quite some time.
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In association with Heriot-Watt's Trading & Investment Club (HWUTIC).
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