Political Rebound Effects As Stumbling Blocks for Socio-Ecological Transition

American Journal of Business, Economics and Management 2018; 6(1): 7-15 http://www.openscienceonline.com/journal/ajbem ISSN: 2381-4462 (Print); ISSN: 2381-4470 (Online) Political Rebound Effects as Stumbling Blocks for Socio-ecological Transition Karl Aiginger Vienna University of Economics and Business and Policy Crossover Center, Vienna, Europe Email address To cite this article Karl Aiginger. Political Rebound Effects as Stumbling Blocks for Socio-ecological Transition. American Journal of Business, Economics and Management. Vol. 6, No. 1, 2018, pp. 7-15. Received: December 16, 2016; Accepted: February 4, 2017; Published: April 27, 2018 Abstract While the extent to which management and owner interests in firms can diverge has been extensively researched, the discrepancy between the preferences of citizens and governmental response to these (or lack thereof) remains under- researched. It may lead to disruptive changes and the unexpected rise of populism that calls for new elites or a return to old values or both. The article begins with the fact that a clear majority of citizens dislike increasing inequality and would like governments to prevent climate catastrophes, ranging from droughts to global warming. Nevertheless, neither green parties nor parties that favour redistribution have been successful in most countries. Documentary policy analysis yields to explanations for this, which are probably interconnected: “political rebound effects” and the fear that inefficient governments might not solve the core problems while increasing the already high tax burden. These hypotheses can hopefully help focus the assessment of uprising populist movements and provide the basis for more empirical research. OLD to be deleted: While it is intensively researched how far interests between management and owners in firms can diverge, the discussion why differences between the preferences of citizens will not be implemented by governments even in the very long run is under researched. These differences then may lead to disruptive changes and the unexpected success of populism calling for new elites or to the return to old values or both. The article starts from the fact that a clear majority of citizens dislike rising inequality and would like governments to prevent climate catastrophes from droughts to global warming. Nevertheless neither green parties nor parties favouring redistribution are successful in most countries. Documentary policy analysis leads to two explanations which will probably work together: first by “political rebound effects” and secondly by the fear that inefficient governments may not solve the prime problems but only increase the already high tax burden. These hypotheses hopefully help to focus the assessment of uprising populist movements and are open to more empirical research. Keywords Policy Inefficiency, Governance Problems, Rebound Effects, Social Constructivism, Populism warranted at slow pace and with persistent backlashes. We 1. Introduction and Outline underpin the necessity for change by recalling a policy agenda presented by Kenneth Arrow 2 calling for more Many people share the belief that the current socio equality, less pollution and more financial stability or by economic system − albeit better than any alternatives applied referring to the WWW for Europe project 3. Then we ask in reality so far − has serious flaws. While people want less why citizens in the US but to some extent also in Europe inequality (and poverty) and more stability (from climate to seem consistently to vote against their own interests e.g. in financial system), inequality is persistent and chances to limit questions of income equality. One reason for this may be that global warming are fading away. Even if progress is made in more equality is often connected with a bigger government. these fields 1 the economic policy is going into the direction 2 Arrow 2004 1 COP 21, 2015 3 Aiginger 2016 8 Karl Aiginger: Political Rebound Effects as Stumbling Blocks for Socio-ecological Transition The public sector however is costly and outrageous Hypothesis 1 originates indirectly from Kenneth Arrow. It inefficient, so that the benefits of more equality are feared to stated that in democracies it is possible that be over-compensated by higher taxes. As alternative rationale people - repeating and even in the long run - vote against for the inability of the society to pursue an agenda socially their own interests4. Even if a rather large majority of an and individually beneficial we propose "political rebound electorate wants less dispersion of income, no political party effects". Rebound effects are known in ecological science; if may pursue this as its defining goals; or the party explicitly policy goes into one direction for some times, the benefits of or implicitly favouring redistribution, may lose elections. the policy decreases and the costs increase making the Furthermore even if the majority wants to curb emissions, pursuit of the goal less attractive. This rebound is parties in favour of stricter policies may not exist or not win; exacerbated by lobbying effects for the status quo and and even if the majority wants a stable financial system this inefficiency of governments. We complement the paper with may be no policy issue or the party preventing regulation some success lines (e.g. that absolute poverty is decreasing may succeed. and ecological awareness is rising – albeit slowly and Hypothesis 2 is to some degree complementary. erratically). Finally we report about a European research Governments in principle are commissioned by voters to project addressing the necessity of transition to a new social support long term goals, but are inefficient to support these and ecological model which at the same time would increase goals in a consistent policy. Governments fail to reach their European dynamics. We analyse the feasibility of this change own goals (or those commissioned by the voters. This and report stumbling blocks for this welfare increasing happens despite a share of government in economic activity strategy, which also would be an alternative to the policy to of 50% in Europe and 40% in the US. We present seven be expected by the new US President Donald Trump. examples of government inefficiencies which may lead to a "political rebound effect". The two hypotheses − albeit coming from very different 2. The Knowledge About the angles of the socioeconomic research − may work together. Necessity for Change People do not vote in their own interest since they know about long-run government inefficiency. They may be afraid To demonstrate the knowledge of the necessity for radical that inefficient government interventions would raise taxes so change we recall three points of a policy agenda Kenneth strongly that the positive net gain of redistribution or Arrow presented in 2002 on a conference at Stanford ecological sustainability is overcompensated by a larger tax University to an audience of economists from the US, Europe burden. and Japan, as well as experts from OECD, US government and the European commission. Three main points he addressed were increasing dispersion 3. Conundrum 1: The Majority Votes of income (specifically concentration at the top) global Against Own Economic Interests warming (with a critique of the absence of a national wide policy in the US and some applause for grass route "...Tax policy could mitigate the trend towards inequality. movements in California and New England), deregulation of Nevertheless this topic is not in the political agenda... The financial markets (with a critique of the repeal of the Glass- pressure to repeal the estate tax is especially indicative... the Steagall Act and the warning that misreporting and estate tax should be one of the most popular taxes manipulation will be revealed only if the companies failed as imaginable. It touches only two percent of the in the Great Depression in the thirties of the last century). population...."5. More than a decade after Kenneth Arrow emphasized these To put this into another perspective: How can it happen points we have to register that (i) the dispersion of income that the median income in the US has been declining since has further increased within most countries, (ii) greenhouse the seventies while GDP per capita has more than doubled emissions are rising to an extent that it has become very (+112%, real terms); yet there is no revolt in the direction of improbable to limit global warming to two degrees, and (iii) a party calling for limits of income dispersion. On the there was the "Great Recession" of 2008 exactly triggered by contrary tax reductions for rich people were enacted by US an instable financial system, including manipulation and government, and the Tea Party increasingly influences the misreporting. political agenda. And the poverty rate has further increased in The question arises why economic policy despite of the US (from 12% to 15%), since Kenneth Arrow presented warnings by one of the best known economist did not pursue his agenda. The same holds for the Gini measure of a policy limiting inequality, curbing pollution and stabilizing the financial system. Out of the many answers possible I 4 Opinion survey show that even in the US the majority of the population wants a want to concentrate on two hypotheses, where the first has lower dispersion of income. been raised already by Arrow and the second reflects my own 5 Kenneth Arrow (2004, p. 208), Kenneth Arrow (2004, p. 208). He adds another example: "The fact that the interests of a very small group can get a majority even policy analysis (as an economist in favour of a pro active if it is at the costs of a broad majority has a parallel in agriculture. The political policy approach but deeply disappointed by the inefficiency power of farmers is inversely proportional to the relative size of the population, as of government interventions). far as I can see, a rather interesting generalization for which I know no explanation". American Journal of Business, Economics and Management 2018; 6(1): 7-15 9 inequality.

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