US Prision

Reading time: 6 minutes

The US has the largest prison population in the world, as well as the largest prison population per capita. The incarceration rate in the US is six times higher than the EU average, while the sentence times are on average three times longer than in the EU.

These statistics came as a consequence of decades of policies and has increased the disparities between the United States and other economically developed countries. According to academic and activist Angela Davis, as mass incarceration has increased, the prison system has shifted from being about criminality towards economic factors.

US’s mass incarceration problem

In June 1971, President Nixon declared officially a “War on Drugs”, stating that drug abuse was the US’ “public enemy number one”. This followed a sharp increase in recreational drug use in the 1960s and marked a key moment in the development of the US Prison System.  Nixon increased the funding of drug-control agencies and proposed strict sentances for drug crimes.

The critical moment, however, came during Reagan’s second term, where a bi-partisan Congress approved the Anti-Drug Abuse Act of 1986. This law substantially increased the number of drug offenses with mandatory minimum sentences. It also penalized disproportionately drugs that were typically associated with the black community, such as crack cocaine, as compared to drugs that were typically associated with white communities such as powder cocaine. The act, for example, mandated a minimum sentence of 5 years without parole for the possession of 5 grams of crack, while the same sentence would only be applied for 500 grams of powdered cocaine.

As expected, following the approval of this Act, there was a sharp increase in drug offense imprisonment, as well as an increase in the racial disproportion of said arrestees. The number of incarcerations for nonviolent drug offenses increased from approximately 50.000 in 1980, to 400.000 in 1997.

Comparison between systems

The European Prison rules are a set of legally non-binding standards drawn up by the Council of Europe. The members of the Council include all countries in continental Europe, except Belarus and Kosovo, and countries are expected to comply with its rules.

The main difference between the American Prison System and the largest European Prison Systems is their general goal. Germany’s Prison Act states, for example, that “the sole aim of incarceration is to enable prisoners to lead a life of social responsibility free of crime upon release”, while the American Prison System focuses on punishing inmates. According to a report commissioned by the U.S. Department of Justice, the prison system has responded to escalating crime rates by enacting highly punitive policies and laws. This has led to great disparity in incarceration rates, the European average in 2018 was 103,2 prisoners per 100.000 people, whereas in the US this number reached 655 prisoners per 100.000 in 2019.

In Europe, prisoners keep their right to vote, are allowed to receive welfare benefits and in some instances get the chance to spend some time away from prison (not uncommon in the Netherlands for prisoners to go home for the weekends). Family visits in the US happen in guarded visiting rooms, the prisoners generally forfeit their right to vote and (in some states) are not allowed to serve as juries.

In the US, little consideration is given to minor offenders, with some States trialling teenagers as young as 16 as adults. In some European countries, those under 21 are trialed in youth courts as to consider developing morals and psychologically or if crimes are considered “typically juvenile”.

Figure 1: Aftermath of a prison riot in California in 2009

The Economics of the American Prison System

The total annual expenditure of the US government on prisons and jails amounts to $84.6 billion, and, after adjusting for inflation, has quadrupled since 1982. There are therefore people with significant economic interests in maintaining mass incarceration. CoreCivic, the US’ second largest private corrections company, is traded at the NYSE and is a component of the S&P600. From 1999 to 2010, CoreCivic spent on average $1.4 million per year on lobbying on a federal and state level. An August 2016 report by the U.S. Department of Justice asserts that privately operated federal facilities are less safe and more punitive than other federal prisons.

Recently, these companies have come under fire and are even facing lawsuits as allegations of forced and underpaid labor came to light. These reports allege that these companies are exploiting people who are in vulnerable situations to reap profits. The hourly pay for inmates working in the US can vary anywhere from $0.09 to $4.90, depending on the State, while four States do not pay inmates any form of salary. This only decreases their chances of success once they are released, as they have little to no savings, and oftentimes are ineligible for government benefit programs like welfare and food stamps.

Former inmates also face significant difficulties when trying to reenter the job market, as they face unemployment rates approximately five times higher than the general US population. This employer discrimination also affects disproportionately people of color and women. Formerly incarcerated black women face hardships finding employment, as their unemployment rate is almost seven times higher, at 43,6%, than the unemployment rate of their general population peers. The racial disproportionality regarding the incarcerated population, as well as the disadvantages they face once out of the Prison System will perpetuates racial inequalities, affecting particularly minority communities.

Figure 2: Prisoners at the Louisiana State Penitentiary working at a farm

The consequences of mass incarceration

The consequences of mass incarceration go far beyond the financial impact, they affect individuals and communities all over the US. A prison sentence oftentimes has the opposite effect of what it is intended to achieve. Instead of being rehabilitated and ready to integrate society, many former prisoners fall into a cycle of crime after their release, due to either being pulled into gang activity within the prison walls, or turning to illegal activities due to financial need. Mandatory sentencing has doomed the lives of people charged with low-level offenses, punishing them for the rest of their lives.

According to a research conducted by the Congressional Research Service, on average, over a five-year period, 76,6% of released inmates will return to prison.

The effect on communities is also extensive, affecting primarily minority communities as these are the ones with the highest incarceration rates, even though they have similar drug usage and drug trafficking rates as white communities. Residents of neighborhoods with high incarceration rates face a disproportionate level of stress, due to a combination of disrupted family and social networks, as well as increased rates of crime and infectious diseases such as HIV. Furthermore, studies have shown that this also takes a toll on mental health, as one study concluded that “The effect of neighborhood-level incarceration on mental health is similar for individuals with and without a history of incarceration.”.

Mass incarceration has had a negative impact on individuals and society, the policy choices of the last 50 years have helped perpetuate racial inequalities in minority communities. One possible way to overcome this issue, would be to transform the American Prison System from a punitive one, into a rehabilitative Prison System, as seen throughout the EU. The question that remains is, when will American lawmakers tackle this issue, ensuring the American Prison System becomes an efficient tool for rehabilitating felons, making them ready to integrate society.


Sources: American Civil Liberties Union, History Channel, Reuters, NPR, sentencingproject.org

Afonso Monteiro

Hugo Canau

Christian Weber

Hidden Risk– A Behavioral Economics perspective on gun control

When we think of behavioral economics, we usually tend to relate it with producer and consumer decisions and the construction of economic models to better understand decision-making. However, its applications goes way beyond that. Throughout this article, we will try to explain how behavioral science can help fight a major issue of modern society: Gun control.

According to the most recent National Firearms Survey, there are approximately 4.6 million children in the United States that live in homes with at least one loaded and unlocked firearm. Despite the strong recommendation of the American Academy of Pediatrics for people to store it safely away from children, studies find that one in three US homes with a child under 18 years old has a firearm, of which 43% are unlocked and loaded. Thus, it is not surprising that firearm-related injury was the leading cause of deaths among children and adolescents in 2017, with the odds of a child being killed by a firearm being 36 times higher in the US than in any other high-income country.

Firearm-related injury was the leading cause of deaths among children and adolescents in 2017

In this article, we will apply behavioral economic theory to identify some of the cognitive biases that may explain the motives that lead millions of people in the US to purchase guns and, more precisely, that lead millions of parents to store firearms within their children reach. The main advantage of analyzing this critical issue is to understand both sides of the debate as to solve some ambiguities about the best way to minimize fear while maximizing personal and public safety. Moreover, it is important to educate legislators about the behavioral economics’ principles that may impact decision-making, so that they can implement strategies to enhance safer firearm storage practices and contribute to injury prevention efforts.

So, how can we explain the overpowering need to own guns in the U.S? Would you ever own a gun? For what purpose? Most people would answer that it is simply a way to protect oneself from someone else that owns a gun. However, this will inevitably result in an economics problem called the Tragedy of the Commons. It means that the individual has an incentive to consume a resource but at the expense of everyone else. One classic example is what would happen if every shepherd allowed their sheep to graze in a common area. If everyone thought that way, then it would result in harmful over consumption, essentially being detrimental to everyone.

To have an even better picture, we can use the study tool Game Theory in order to further analyze this issue. Hypothetically, imagine you were in an ideal world where the rest of the society was gun free, and everyone would feel relatively safe. Now, imagine that your friend has the idea of owning a gun because that will make him feel even safer. His individual payoff will increase but he is not taking into consideration the effect that this will have on others, namely that he is armed, and the rest is not. Hence, he is better off than the rest, leaving others worse off in comparison. In this particular case, it is obvious that the society as a whole is better off when no one owns a gun. However, from the moment that one single individual makes the decision of buying a weapon, everyone else feels that they could now benefit from deviating from the optimal point to society (no guns), leading to a snowball effect, where at the worst-case scenario everyone owns a gun.

Now, let’s imagine that you’re an entrepreneur who despite all the business knowledge, past good grades and amazing ideas, your past 6 attempts at creating a business restaurant have flopped. However, in the seventh attempt you feel it in your heart that this will be the one despite the endless advice to not pursue and stubbornness to admit defeat. What do you know? You failed for the seventh time. So, what happened? This is one of the various scenarios in which some people exhibit the optimism bias.

The optimism bias refers to “our tendency to overestimate our likelihood of experiencing positive events and underestimate our likelihood of experiencing negative effects.” This of course can be quite dangerous depending on the circumstances. Once again, this is one of the many biases that can make us irrational and ignore important information that can either make or break our outcome.

In terms of gun usage, optimism bias can shed light on many of the decisions and thoughts that gun owners make. For example, too much optimism can lead a gun owner to think that despite the various gun related crimes and even domestic accidents, being in those said dangers will never happen to them despite worryingly increasing every day.

In general, we have the tendency to underestimate our likelyhood of experiencing negative effects

Moreover, with the increasing mass shootings and gun violence in the United States, gun owners have become more aware of possible dangers and want to be protected. This leads them to unlocking their firearm and maintaining it loaded for the sake of individual safety and their family, ignoring the threat it may impose on the household members, especially children. So, why does this happen? Behavioral economics can explain this behavior as availability heuristic bias.  This can be defined as the propensity people might have to place more significance on events that are more easily remembered than ones that become harder to imagine. No parent wants to hurt their child but rather protect them, which unfortunately leads to accidents.

Present bias can also be related to these accidents as people have the tendency to give greater importance to events that are closer to the present rather than ones in the future. Individuals might view the immediate risk of gun accidents with children as lower than potential future benefits (protecting them from intruders), and this leads to the mistaken belief about possible advantages in the future against what something may cost today.

In this article we hope to raise awareness to a major issue of modern society, and how alternative methods such as behavioral economics can help explain this many times misinterpreted phenomenon.
Having this said, we also must recognize that firearms have been and will continue to be part of our society, as they have been around for over 650 years and, as of now, there are over 875 million guns in the world.
This begs the question, if firearms are staying, what must change? The simple answer is the usage of those firearms; however, this is easier said than done and first we must understand why we don’t use guns properly.
Throughout this article we try to present the multiple behavioral biases that shed light on the many times perceived “irrational” usage of guns and with this, give the first step to change behaviors: understand what we do and why we do it.


Madalena Andrade

Daniel Calado

Afonso Serrano








Is the Real Estate Market too heated?

Reading time: 6 minutes

Recently, the housing market in the US has been experiencing a major boom quite unlike anything that has been felt in the past 14 years.

According to the National Association of Realtors, demand has been skyrocketing for the past months, with prices hitting all-time highs: median sale prices close to $350,000 and asking prices even higher. This price-frenzy is in large part due to supply being unable to quickly catch up to the unsurmountable demand, with almost 50% of offers under contract just one week after listing. For all involved, this expansion of the real estate business after such a long-lasting stagnation is indeed cause for celebration; however, for those whose memory does not falter, this scenario may seem reminiscent of what the American economy was experiencing prior to the housing bubble burst of mid 2000s that paved the way to the 2008 financial crisis. Thus, this poses the question: are those concerns valid and if so, should we worry that a new crash may be on its way?

What forces have been triggering this spike?

Numerous reasons have been behind the current real estate rally. As we have mentioned, demand has been pressuring a relatively distressed supply in the past months, leading to an increase in prices that is far beyond the levels one would expected in an economic crisis of this dimension.

Starting on the demand side of the equation, experts point out to three different reasons driving this demand mania.

First, by decreasing interest rates as a way to ensure liquidity during 2020, the FED forced mortgage rates to fell considerably during this period, reaching a record low of 2.65% in 2021 (from 3.73% in February 2020). Now, a 1 pp decrease might sound small for non-homebuyers. However, imagine a homebuyer buying a $300.000 house just before the crisis began. In this situation, he would, most likely, be paying up close to $499.000 over a 30-year mortgage agreement. Now, if that buyer had done the same deal in January 2021, he would be paying around $436.000, a discount of more than $60.000 (or 12.5%). This effect has incentivized buyers to look for more expensive houses than before, as it pushed them into the market to lock these mortgage rates before the FED tightens its policies.

Figure 1: 30-year Mortgage Rates in 2020. Source: Freddie Mac

Second, as Millenials are entering the housing market more fearlessly, the largest generation on Earth is now dominating demand, as they are keen to either leave their parents’ or just quit rentals. According to the National Association of Realtors, the median age of first-time homebuyers is now 33, which turns out to be the median age of Millenials. Alongside this, despite some increase in unemployment levels, salaries and overall income were kept stable the past year, as loose fiscal and monetary policies helped mitigate losses in purchasing power.

Combine low interest rates policies with no decreases in disposable income, plus a generation looking to buy their first house, well… you just set up a buying frenzy.

Finally, this pricing boom couldn’t be made possible without a supply shortage. In fact, after several construction companies went bankrupt during the Great Recession, fewer homes were built in the 2010s than in any decade going back to the 1960s. This sluggish construction activity has now been left out in the open in a market where home sellers are seeing double digit offers in the first 24 hours of bidding.

Moreover, with the pandemic causing some uncertainty regarding future paychecks, homeowners have had some reservations regarding the possibility of selling their current house and move to a more expensive one. Besides this, with a contagious disease spreading as fast as COVID-19, people do not want strangers traipsing through their living areas during open houses.

Finally, one recent element causing prices to rise is actually related to its intrinsic cost. Recent commodities shortages have been rising its prices significantly, ultimately increasing building prices and delaying orders. Lumber has been the most recent commodity on the spotlight, with its 3-fold growth in the past year raising housing cost by tens of dollars.

Figure 2: Lumber prices skyrocketed in the past year. Source: Refinitiv

Is history repeating itself?

This resurgence of demand in US real estate and the booming prices currently being practiced have led many to fear that a new crash similar to that of 2007 may be on its way. However, all evidence points out that this current boom is quite the inverse to that of mid 2000s.

For once, the current boom is mostly motivated by an excess of demand over the supply (the reason why prices are being pushed up), whereas prior to the sup-prime crisis the opposite was verified: the market was over-flooding with houses and there were not enough high-rating buyers for them, which led to an opening of the market to low creditworthy buyers (which inevitably was at the root of the problem). Currently, the market is still experiencing a shortage of houses (definitely not enough to meet demand), as construction is still catching up to the slowdown that was prompted by the pandemic.

Moreover, nowadays, the type of buyers is also quite different from that of the previous boom. They are of a higher credit rating and much more willing to put on their own money to buy their house. As a matter of fact, real estate companies are reporting that a lesser amount of the houses is being paid with resort to loans, as customers put more cash up front. This poses a great contrast to the low-credit-rating buyers that dominated the housing market in mid-2000s, most of whom could not afford the houses they were signing contracts to acquire.

Finally, lending rules are much more restrictive, carefully attributing loans only to those with enough credibility to ensure future payments. Back then, risky mortgages were provided to households with a high default risk who had no means of paying for them and only small down payments were required most of the times. Therefore, prior to the financial crisis, the so-called NINJA loans (no income, no jobs, no assets) were the rule, which ended up being the downfall of the market.

All things considered, current circumstances are much different from what was observable in the past.

Is There a Bubble Though? And What Does the Future Hold?

Housing experts claim that the housing market is not yet in a bubble. This is despite home prices being soaring at historical highs across the country. However, some claim that a small price correction can take place.

On the one hand, while the housing market is composed by low inventories, high demand and a risk-averse lending environment, extreme spikes in home prices could result in some prices rolling back soon. Subsequently, in the future, these peaks in prices can disappear as people will return to their normal activities

The future will depend on the pace of new construction, the strength of the economy, the quantity of homeowners willing to sell their houses and overall demand in the market.

When it comes to buyers, people who could afford a home pre-COVID-19, will be, most likely, in good financial positions to buy a home after Covid, as the majority of this people is stable and financially comfortable.

On the contrary, people who lost their job or received low wages, even before the pandemic, could not buy houses, as they usually rent the places they lived in. So, unless there is a recession in the future, the level of demand will, most likely, not change anytime soon, causing housing prices not to decrease as well.


Sources: Better Homes & Gardens, The Wall Street Journal, VOX

Francisco Nunes

Alexandre Bentes

Inês Lindoso

Healthcare Without Borders: Poland’s Abortion Ban and the EU 

Reading time: 6 minutes

On the 22nd of October 2020, the Constitutional Tribunal of Poland ruled that the present law authorising abortions for malformed foetuses was unconstitutional, banning most abortions performed in the country. Poland already had some of the harshest restrictions on abortion in Europe. This has led Polish women to take advantage of the European Union’s freedom of movement and look for safe abortions in other member states. 

Abortion and Conservatism in Poland 

Formalised by the law of 1956, abortion was legal in Poland during the period of state-socialism, when pregnancy termination was possible based on social grounds. Despite the many protests organised by several women’s organisations, new legislation was adopted in 1993 that severely restricted the possibility of having a legal abortion. In particular, according to Article 4a of the new law, termination of pregnancy is possible only in three specific circumstances: 

1. If the pregnancy constitutes a threat to the life or health of the mother. 

2. If the pre-natal examination or other medical reasons point to a high probability of severe and irreversible damage to the foetus or of an incurable life-threatening disease of the child. 

3. If there is a confirmed suspicion that the pregnancy is a result of a criminal act, the termination of pregnancy in this case is allowed, if the woman is less than 12 weeks pregnant. 

Performing an illegal abortion is a criminal offence subject to a fine and/or 10 years imprisonment. 

However, more recently, the governing Law and Justice party has tried to ban abortion as a whole. In March and April of 2016, an initiative to completely ban abortion led to a series of street protests and the mobilisation of women’s organisations. The initiative was eventually voted down. 

Access to contraceptives in Poland is also quite restricted, as in most cases no refunds are available from the National Health Fund and the costs of contraceptives need to be covered privately. Consequently, the use of contraceptives in Poland is one of the lowest in Europe. A recent survey shows that methods such as coitus interruptus or the “natural method” (the so-called “marriage calendar”), which carry no cost, are popular, while modern contraception methods, such as intrauterine devices (IUD), have little use. 

Until 2015, emergency contraception was only available with an adequate prescription. In February 2015, the law was amended so that any person at least 15 years old was free to purchase the pill in a pharmacy, without the need of a prescription. This law was reversed by the current government in March 2016, and again emergency contraception is only available after a prescription. Additionally, pharmacists started to use the so-called “conscience clause” which allows them to refuse sell of contraception in their pharmacies.  

In 2019, a group of MPs from the Law and Justice party referred the abortion law, then in force, to the Constitutional Tribunal. The Tribunal is mostly composed of judges nominated by Law and Justice, after a series of moves by the party to have more control over the judiciary. 

In October 2020, the Constitutional Tribunal ruling banned abortion on the grounds of severe health defects of the foetus – which accounted for 98% of all legal terminations in Poland in 2019. One opinion poll suggested 59% of Poles disagreed with the ruling. Abortion is now only possible when a mother’s health is at risk, or in cases of criminal acts. 

With these restrictions, Polish women are turning to the freedom of movement in the European Union – which means that abortions available in one member state are available to all citizens of the EU. A situation that is not new. 

Freedom of Movement and Medical Tourism 

Until 2018, Ireland also had restrictive laws on abortion. The Eighth Amendment of the Constitution Act 1983 equated the unborn foetus’ life to that of its mother and allowed for abortion only in circumstances where the life of a pregnant woman was at risk. 

Abortion law in Ireland received worldwide attention resulting from the death of Savita Halappanavar, who had been denied an abortion while suffering from a septic miscarriage. This case resulted in the Protection of Life During Pregnancy Act of 2013, which allowed for abortion when the pregnancy endangers a woman’s life, including through the risk of suicide. 

In 2018, this amendment was replaced by the Health Act 2018, which permitted abortion in the first 12 weeks of pregnancy and later in cases of risk to the woman’s life or fatal malformations of the foetus. Abortion services commenced on 1 January 2019. 

Before the Health Act of 2018, women in Ireland seeking abortions often found them abroad, typically in Britain. In 1992, the Attorney General sought to prevent a 13-year-old, who had become pregnant as a result of rape, from obtaining an abortion in England. The Irish Supreme Court ruled in favour of the girl. This case led to the thirteenth and fourteenth amendments to the Irish constitution, legalising women travelling abroad for abortions. 

After the passage of the thirteenth amendment in 1992, the practice became more common. In 2001, an estimated 7.000 women travelled abroad to obtain an abortion. Statistics showed that 4.149 Irish women had abortions in Britain in 2011, and 3.265 did so in 2016. A study found that in 2014 a total of 5.521 women gave Irish addresses to English and Welsh clinics that provided abortion services. In some cases, women travelling do it with the assistance of the Abortion Support Network – a UK-based charity that helps women in countries such as Poland, Malta and (formerly) Ireland to obtain abortions abroad. 

Abortion is also illegal in Malta, where the practice is a criminal offence punishable with 18 months to three years in prison. It is currently the only country in the European Union to ban abortion in all cases. A key argument against the decriminalization of abortion is to preserve Maltese national identity as rooted in conservative politics, Catholic morality, and family values. 

It is estimated that 300-400 women a year travel out of Malta to perform abortions, mostly to the UK (around 60). As a result of the ongoing pandemic and closing of borders, this has become impossible. The Abortion Support Network saw a dramatic increase in calls to its hotline when borders closed in March of last year. 

Abortion Laws in Europe 

Currently, 24 EU member states allow abortion on request – everyone but Poland, Malta, and Finland. In Finland, a woman can have an abortion with a note from two doctors and a social or financial reason to justify her decision. As mentioned, Malta is the only EU country to prohibit abortion in any case. Poland now has, after Malta, the most restrictive abortion law of any EU member state. 

The European Union follows a principle of subsidiarity as laid down in article 5 of the Treaty of the European Union – meaning that decisions are the responsibility of the member states if the intervention of the EU is not necessary. Additionally, under the principle of proportionality (article 5 as well), the EU must only act when it is necessary to achieve the objectives of the treaties. In 2014, both the European Commission and the EU Parliament stated that Member States are free to choose their own abortion legislation since there exists no right to abortion under the treaties of the EU and other international law. Having this in mind, it seems unlikely that the EU will find legal grounds, or even motivation, to impose an EU abortion law without amending the treaties. 

Future 

With the tightening of abortion restrictions in Poland, and the continued growth of conservative and populist movements in the country, Polish women seeking an abortion will probably have no option in the near future but to travel abroad, by their own means or with the support of organisations. This provides a daunting preview into the tightening of other civil liberties in Poland and in other countries. 


Sources

The Economist, Amnesty International UK, ABC News & The Guardian 


Team

Afonso Monteiro

Hugo Canau

João Sande e Castro

Manuel Barbosa


The disproportionate effects of climate change

Reading time: 6 minutes

Nowadays, climate change is more and more discussed to a point where one might think that he/she already knows everything there is to know about it. However, there are still many aspects that we are not aware of. For example, many do not know that pollution itself, be it air, land, or water, causes more than 9 million premature deaths, which put into perspective represents almost 3 times more than deaths caused by AIDS, tuberculosis and malaria all together. Therefore, although climate change and everything that can be included in this topic is very much discussed, to this day, it continues to be a very present and important topic in our lives, and we, as  humanity, still have a long way to go. This article seeks to explore the disproportionate consequences of climate change in the developing world and the role that developed countries must take to help reduce the burden.   

But what is the developing countries’ contribution to climate change?  

Primarily, it is important to take a look at the global carbon emissions and realize that developing nations are responsible for 63% of it. Apart from the fact that China and India alone account for 28% of the global carbon emissions, which corresponds to almost 50% of the developing countries’ emissions, the value is still alarming. Asia, Latin America and Africa are the regions that contribute the most to current carbon emissions due to lack of technology and resources to fight pollution, as their economies are still growing, and this must be considered when deciding what policies and measures to be taken.

Figure 1– Annual total CO2 emissions, by world region  
 

The Paris Agreement indeed acknowledges that the efforts to reduce carbon emissions cannot be the same for developed and developing countries, allowing the less developed ones to emit more carbon until they reach a certain development level that enables them to stop relying on carbon-intensive industries. However, the World Resources Institute shows that it is possible to reduce annual emissions while growing the economy, and the key is to raise the use of renewable resources. This approach looks ideal as it combines decarbonisation with economic growth and poverty reduction, which must remain the priority. Yet, there are still significant barriers preventing developing countries from adopting renewable energies, as many struggle with poor governance, gaps in technical and financial expertise, and lack of resources. The need of implementing specific strategies and policies shaped to each country’s circumstances requires the expertise that only developed countries can provide, reinforcing the importance of a global coordination to shift economies away from carbon-intensive industries.  

The rebound of climate changes   

Besides being the ones that contribute the most to carbon emissions, developing countries are also disproportionately affected by the negative effects of global warming. Observing graph 1, it becomes clear that the developing world has the highest mean exposure to air pollution. According to the World Health Organization, around 98% of people in developing nations live in polluted air areas, while in developed countries the number decreases to 56%.  

Graph 1 – Mean annual exposure (in micrograms per cubic meter) to air pollution  

The vulnerability that defines the less developed countries ends up limiting their ability to prevent and respond to the impacts of climate change. Let’s consider the fast fashion industry to better understand this issue: as to avoid the bans of chemicals that most governments of developed countries set, multinational companies place most of their manufacturing processes in developing countries, where the dependency on the clothing industry does not allow governments to act as a way of prevention. Moreover, these countries are the least able to afford the consequences and it has been shown that climate change can reverse significant development gains.   

Furthermore, one of the main consequences of the high incidence of emissions in developing countries is the increasing number of climate refugees. Although it does not have an official recognition, the term climate refugee is often used to identify people who are forced to leave their homes because of climate change and global warming. It is also common to hear the term environmental refugee, which aggregates not only the effects of climate change, but also natural disasters that may force people to be displaced. The international organisation Red Cross estimates that the number of climate refugees is higher than the number of political refugees, and scientists predict that in 2050 the number of people leaving their homes due to the consequences of global warming might reach 200 million. Since most displaced people move to safer areas within the same country or near the borders, the burden will continue to fall onto the developing world. The scarce resources become even scarcer with the arrival of refugees, which may end up threatening the lives of millions of people.   

The sad reality  

However, as the gap widens between the wealthy and the poor, the unfortunate reality of developing nations is revealed: there is no infrastructure in place to fight climate change. Funds are mismanaged, resources are scarce, and governments have other priorities – feeding their present population, for example. Sadly, the burden of this fight is done through foreign aid.  

Foreign aid has been effective in the past in combating climate change and is an important tool for those most in need. In Africa, there have been repeated efforts to slow down the desertification of the Sahel, a land strip which divides hundreds of millions between the desert and fertile land. On the other hand of the spectrum, preventative measures have also been put in place, such as giving the native population more incentives to adopt more sophisticated farming methods rather than the slash-and-burn one, still used in many African villages today. Michael Hübler, professor at the Leibniz Universitat in Hannover, claims that, in the future, foreign aid will be divided in two branches: short-term emergency needs, and long-term development needs. He argues that foreign aid must be given in equal parts to both societal development and the preservation of the planet’s biodiversity, as only this will foster real growth in the far future.  

Figure 2 – Interdependent dimensions of future foreign aid  

Nevertheless, foreign aid can only last so long. Developed countries have limited amounts of resources that can be used to help other nations in need; developing economies must find a self-sustaining way of fighting climate change. In many cases, foreign help does not account for traditional solutions which have been reliable in the past. For example, in the Pacific Islands, rising sea levels have historically been fought through natural solutions, such as planting more mangroves, a small tree that is more readily sustained in poorer contexts. Foreign aid lacks this nuance. Looking at this from another perspective, as the threat of climate change looms over the world, developed countries will begin focusing retaliatory efforts on themselves rather than developing countries, hence why foreign aid will reach its end date in the near future.  

A change is in order   

It is not known whether humanity will overcome climate change, but the reality is clear: this is the most important issue facing the planet in the 21st century – and, sadly, none will be more affected than those living in developing nations. The consequences will be disastrous if not dealt properly, and we can expect millions of climate refugees flocking to major metropolises in the next 30 years. Poor nations must pollute to grow; developed nations did the same over one hundred years ago – but this is not sustainable. Foreign aid can only do so much to offer alternative methods of growth; sustainable growth may only be achieved in a clean manner by using natural methods, harkening to other times without factories and pollution. It may be hard, but it is possible. 


Sources: The World Bank, Unites Nations, Earth.Org, National Geographic, UNHCR – The UN Refugee Agency, The conversation  

Madalena Andrade

Guilherme Barroca

100 days of Biden: Back to the Future?

Reading time: 7 minutes

Joe Biden has completed 100 days in office, a mark historically known to be thoroughly scrutinized by the American society and a key point to illustrate what the Administration has done so far, and what are their main goals and challenges ahead.

The 100 days mark is known to be a predictor of how well the Administration will perform during the 4-year span, and the first moment of analysis of approval ratings of the President compared to some of his predecessors.

A fast mover

Joe Biden has moved fast and steadily, with the Biden Administration issuing more executive orders than his predecessor Donald Trump. Executive orders include not only executive actions, but also reversals of predecessors’ actions.

Biden has issued 52 executive orders against 39 of Donald Trump and 34 of Barack Obama, in the same time period. Of those 52 executive actions, close to half, 24, have been reversals of orders executed by the Trump’s administration, mainly in the health and immigration sector.

The focus has been on tackling the biggest health crisis the United States has faced: The Coronavirus.

Figure 1: Joe Biden’s Executive Orders (First 100 days), Source: The White House; Graphic: Christopher Hickey, CNN

Immigration policies and equity have been two of the other key components where Joe Biden has invested his time, which can be explained by Donald Trump’s strongly opposing views on the matters.

Vaccination and SARS-CoV-2

Regarding vaccination, the President has set bigger goals as his tenure went forward. The initially set goal of 100 million vaccine shots was substituted by 220 million shots by the end of March, which was seen by many as an unrealistic goal. The truth is, according to official data from US Centers for Disease Control (CDC), the goal has even been surpassed: 235 million vaccine shots have been administered during this period.

The increase has mainly been done through the information campaign that has been led by this Administration, which ensures the safety of the vaccines and its long and short-term benefits for the country. The American Rescue Plan (ARP) also included a strong funding component for vaccination, which cannot be understated in helping the country achieve its targeted goals.

The Administration has also pledged close to $4 billion to COVAX, the main program designed to achieve global vaccination.

Schools have been reopened slowly and the healthcare investment, fueled by the ARP, has reached all-time highs to fight the spread of the virus.

As a result, there has been a strong decrease in cases and deaths all around the country, which reduced the pressure on the American health institutions, as well as on the governors of each state, that were coping with challenges hard to overcome regarding Covid-19 measures.

Figure 2: Covid-19 cases from March 2020 to the 25th of May 2021, Source: CNN/CDC

Immigration: the great challenge ahead

Immigration was a strong topic of discussion during Biden’s campaign, as there was a general uncertainty to how the Democratic president was going to manage the strong stances the previous administration had towards border control and immigration in the country.

The strategy regarding immigration has mainly been to reverse what was done by Donald Trump, as there have been 10 reversals regarding the topic, more than in any other area of action of the Biden’s administration.

One of the key reversals was to the law passed by the previous administration that empowered the U.S authorities to rapidly expel migrant children caught at the border without their parents. The measure, which has been seen to have been crucial to improve the efficiency of the reunification process, has led to a raise in the number of children looking for their families at the borders of the country.

Despite the positive early results, the sheltering of children has been under fire by fellow democrats, as well as the increased strain on healthcare services, who reduced the number of beds destined to migrants by 40% due to the Covid-19 pandemic.

The health situation of these children has been one of the main topics of American politics for the past few months and will certainly be an interesting topic to follow as it unfolds.

Economic Relief and Job Creation

The economic recovery in the United States due to the effects of SARS CoV-2 has generated the biggest stimulus plans the country has ever witnessed. 

The massive relief proposal, the American Rescue Plan, was approved last March and includes strong economic stimulus, such as $1,400 stimulus’ checks and a $15 increase in the federal minimum wage.

Some of the other measures include a federal income tax break and more than $350 billion to states and local governments, the latter being seen as a key turning point in the states’ fight against difficult challenges, such as the renters and child tax credit struggles.

A record number of jobs have been created by the Biden Administration in the first 100 days. More than 1.3 million jobs have been added, a record number that will likely keep rising due to the strong stimulus strategy that has been employed by the Administration.

The American Jobs Plan intends to increase that number. The 22.5 trillion dollars plan is not going to be only focused in traditional infrastructure (roads, railroads, bridges, among others) but also in electric vehicles, R&D, green economy and supply chains, just to name a few. It is important to highlight that bipartisan commitment in this matter is hard and tends to lower the original proposed value of the plan.

Figure 3: Job growth evolution, Source: BBC: Bureau of Labor Statistics

It is also important to state that future economic measures may not have Congress’ easy approval, as the expenditure is already achieving high numbers which may trigger a negative response by the conservative members of the Congress and the House.

Foreign Policy

Although many thought the US-China relationship was going to be the main discussion point of the Biden Administration regarding foreign policy, the President has overcome the topic by putting in place a measure that trumps it: the complete withdrawing of troops from Afghanistan until September 11, which marks the anniversary of the 2001 terrorist attacks, in New York.

The withdrawal of troops from the country was initiated by Barack Obama, and slightly reversed by Donald Trump but is now being fulfilled by Biden, as he looks to only keep in the country the crucial troops for American diplomats’ protection.

The strategy has, however, been thoroughly criticized by the conservative wing of American politics, as it is believed that it will undermine the strength of the United States position in the Middle East.

The Administration has also placed efforts on salvaging the US-Iran nuclear deal, with ongoing talks at a very early stage.

The position on Russia, a long-declared enemy, has also been strong and decisive, with the President expelling Russian diplomats in response to the SolarWinds attack and to the interference in the 2020 US elections. The president went even further accusing Vladimir Putin of being an “assassin” in a BBC’s official interview.

The efforts to restore policies regarding the environment have been headlined by the return to the 2015 Paris climate agreement, even though no plan has yet been underlined to meet the goals of reducing carbon emissions.

In sum, President Biden has been active regarding foreign policy, which was seen as crucial to reverse Donald Trump’s stances on the matter.

Approval Ratings

Joe Biden has shown strong approval ratings, higher than Donald Trump’s 40% but still not matching his democratic counterpart, Barack Obama.

Of the 53% of adults that approve Biden’s first 100 days, 90% are democrats, 61% independents and just 9% republicans.

Coronavirus and the economic recovery seem to be the main booster of Biden’s public perception, as they represent the two main reasons for the approval rating of the 46th President of the United States.

What is further restraining the approval rating are two challenges that strongly lie ahead, as mentioned along the article: border patrol and immigration.

Figure 4: Presidential approval rating, Source: NBC News

In sum, Biden’s first 100 days have been eventful and challenging, due to the lack of unity in the Nation after the incidents at the nation’s Capitol. Many challenges lie ahead, such as bipartisan commitment in key issues, such as the America Jobs Plan, and diplomatic crisis such as Israel, Iran, or the EU. It will be interesting to see how the administration will fare in these matters.


Miguel Ferreira

Miguel holds a Bachelors in Communication Sciences and is a NovaSBE Alumni. He previously worked as an external consultant for Câmara Municipal de Cascais and currently has a role of political consultant at Companhia de Consultadoria e Comunicação do Porto.

In September 2021, he will be integrating EY-Parthenon as a Consultant in the area of Public Policy.

He considers himself an avid reader with interests over public policies and political strategies.

Red Bull: Behind the Notorious Blue Can

Reading Time: 6 minutes

Red Bull is an energetic drink sold by the Austrian Red Bull GmbH in over 170 countries. It was introduced in the market in 1987 and, since then, it has achieved the selling landmark of 7.5 billion cans in a year, achieving market leader status with a market share of 43% in the energy drink market. You have probably heard “Red Bull gives you wings”, which has become one of the world’s most recognizable slogans.  

The brand was created by the Austrian entrepreneur Dietrich Mateschitz with Chaleo Yoovidhya, a Thai businessman who created the original Thailand Red Bull drink. With a slight modification to westernize the original energy drink, Dietrich led the company to worldwide success.  

In the more than 30 years since its inception, Red Bull has kept its essence as an energy drink, selling the same idea which sold in the beginning, despite some variations in taste and special editions. In fact, Red Bull remained very loyal to its strategy, only amplifying to a greater audience. It is a very loyal brand, associated with radical sports, such as Formula 1, Surf and Snowboarding. Furthermore, it also sponsors a lot of athletes and YouTube personalities. It is a brand associated with a healthy and active lifestyle and aims to portray these aspects in every marketing campaign. 

Global Energy Drinks Market Share 
Source: T4 Data 

The Business Model 

The Austrian energy drink has been the dominant brand in the industry, despite fierce competition from copy-cats. It can easily be argued that Red Bull’s unique business model is what gives the company an edge over the competition

An important aspect of the business model has been little to no diversification whatsoever. When it comes to the variety of products, Red Bull produces the very same product, although with some differences geographically. It has introduced special editions from time-to-time and, in total, 20 different variants, including a sugar-free version. Red Bull’s decision not to move to other segments in the food and beverage industry relates to their intent to preserve the values and principles of the firm. This strategy contrasts with what has been the golden rule in the industry of expanding to other segments to gain market power and benefit from synergies, exemplified by Coca-Cola’s rule in the beverage market, from sodas to tea and bottled water. Pepsi has followed Coca-Cola’s lead too, also producing energy drinks and even entering the food industry with Lays, Cheetos and Sun Chips, besides having the regular soda. 

Another peculiarity of the energy drink lies in the company’s operations, or lack thereof. The majority of consumer goods companies, especially in the food and beverages industry, such as the Coca-Cola Company, have a strict control of their operations for a quality guarantee standpoint, as well as to keep their formulas secret. Red Bull, on the other hand, is not in charge of its own production, which is outsourced to two companies licensed under the Thai Red Bull. In fact, Red Bull GmbH is not even directly responsible for the entirety of its distribution, relying on already established distributors to bring the famous blue can to some parts of the world.  

Outsourcing operations is not too uncommon in the corporate world. It is actually a way of bringing value to the value-chain that the company could not bring on its own. Nevertheless, it is uncommon for a brand the size of Red Bull to have so little control over its operations. This is not a result of poor resources or capabilities; it is part of a greater strategy to focus on what the company does best – marketing – which has been a winning formula so far. 

The famous blue Red Bull can 
Source: Red Bull 

Marketing as Core Activity  

Red Bull’s success was determined not only by the quality of its product, but also by its marketing strategy. Red Bull has the highest market share of any energy drink in the world, with approximate revenue of €6.07bn in 2019, a third of which was re-invested into marketing, which proves the importance of that department to the company.  

“In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi”, says Koehn, professor of business administration at HBS. 

Rather than following a traditional approach to mass marketing, Red Bull has generated awareness and created a seductive “brand myth”. Their strategy has not focused on promoting the popular product, but rather to create a brand that embodies a distinct lifestyle and audience. 

Their advertisement objectives were to create a brand preference as their primary source of income within Generation Y’s young active males, but also to attract and maintain a secondary target market of older males needing energy to maintain their heavy workloads. 

To increase awareness among their most likely consumers, 18- to 34-year-old-males, Red Bull followed a marketing strategy with the aim of making the drink just edgy enough to grab the interest of this public (“Wing 1 of the Dragonfly Effect Model”). The focus was subtle branding that grabs attention, while having high production quality without an overproduced look. In addition, to start engaging with both its original and second target demographics, Red Bull began sponsoring “breath taking” stunts. Big doing so, RB subtly invites people both to take action and fulfil their biggest dreams. Besides sponsoring and participating in multiple sports, Red Bull also owns Red Bull TV Online, Red Bull Radio, and Red Bull Media House.  

Other revenue streams  

In 2019, Red Bull sold 7.5bn cans of their energy drink, for a revenue of over US$6bn. Despite the impressive numbers, this is not the only revenue stream that Red Bull is capitalizing on, especially given the decreased growth that they have observed since 2012, triggered by their one-product only strategy. Many of the marketing initiatives to promote the energy drink got a life on their own as businesses, in addition to serving as a support activity to the drink: 

  1. Media Production: They own Red Bull Media House, a globally distributed multi-platform media company that seeks to “inspire with ‘beyond the ordinary’ stories”, both direct-to-consumer and through partnerships. 
  1. Team ownership: Some of the Football teams owned include RB Leipzig, FC Red Bull Salzburg, Red Bull Brazil and New York Red Bulls, allowing them to take advantage of synergy. They also own teams in Hockey, EC Red Bull Salzburg, in Formula 1, Red Bull Racing, and other sports, such as MotoGP and Skateboarding. 
  1. Broadcasting: Inserted in their media house, they own Red Bull TV Online, where they share the exclusive images from the events they organise. This platform also includes radio, magazine, and digital platforms.

4. Contract Management: Red Bull established contracts with professional athletes that aim for the top brackets in their areas, adopting this as a way of promoting their brand.

Sebastien Vettel, F1 World Champion for Red Bull Racing
Source: Formula 1

Conclusion 

Red Bull is no ordinary company, with no ordinary business model. The Austrian company has taken advantage of industry best practices to create a brand bigger than its blue can, becoming the biggest player in the energy drinks industry in the way, with a market share of over 40% of the energy drinks market. Despite competition from industry giants, such as Coca-Cola, through Monster, and Pepsi’s Rockstar, Red Bull did what no other drink achieved – successfully marketing itself to a new customer base.  

What is more, the company created a media and advertising ecosystem to project the energy drink, which cemented its brand image as seductive ‘myth’, that is still the company’s biggest asset. As a result, that same media ecosystem that once started as a marketing campaign became a business of its own rather than an annual expense.   


Sources: Banknotes, Forbes, Inside Beer, Investopedia, MarketLine, Medium, Red Bull, Statista, The Economist, T4, Whide Group

Tiago Rebelo

Alexandre Bentes

Diogo Almeida

The collapse of the Soviet Union

Reading time: 6 minutes

Context

For many decades, the USSR was regarded as an economic powerhouse. It achieved rapid industrialisation through central planning, despite an enormous human cost. In the 1950s and 1960s, it grew rapidly, and many observers in the West considered it possible that the USSR would surpass the US as the biggest economy in the world. Furthermore, it also achieved full employment, stable low prices for basic items, and free social services to its population. It seemed that the system worked, attaining both growth and material well-being for the population. 

However, by the 1970s and 1980s, there were many signs of economic problems. Growth rates were declining, as well as consumption, with many people having to recur to black markets. In technological terms, the USSR was lagging behind the capitalist world, with lower quality and quantities of industrial production. This implied that the country was not able to compete in international markets for manufactured goods. From industrial power, the USSR turned into a mere exporter of raw materials. Moreover, some indicators of life quality like infant mortality or life expectancy were declining. 

The very nature of the Soviet regime prevented it from dealing successfully with the economic and social challenges it faced in the 1970s and 1980s. Reforming a socialist regime, whit state ownership of the economy and firm control of the Communist Party was not an easy endeavour. However, the regime was not doomed to collapse like it did in 1991. Many frail and inefficient regimes subsist despite serious troubles. The story and the impact of the collapse can only be understood when looking at the attempts at reform, and the events and decisions of the agents at the time. 

Gorbachev’s reforms 

The most important actor was Mikhail Gorbachev, who served as the General Secretary of the Communist Party of the Soviet Union from March 1985 to August 1991, which was the most influential position in the Soviet State.  Contrary to what some might believe, he did not act as a sole visionary, but rather he represented a faction inside the Communist Party that defended the need for reforms deviating from orthodox Marxist thought to overcome the problems of the USSR. 

A political overhaul of the Soviet Union began during this period. The period is named for Perestroika policies. The term means restructuring, which encompassed economic, social, and political reforms. Regarding the economic activity of the USSR, two important laws deeply changed the functioning of the Union: 

  • The 1987 law on State Enterprises, which decentralized economic controls: removed restrictions concerning workers’ wages and companies’ chosen output production, allowing them to keep a share of their profits and reinvest them. Besides, factory and farm managers were to be elected directly by the company workers, rather than through the Party. 
  • The 1988 law on Cooperatives, that permitted the creation of privately owned businesses in the services, manufacturing, and foreign-trade sectors. The size of these cooperatives was not limited by law and they could participate in any legal economic activity, being able to form joint ventures with foreign companies as well. Effectively, they were indistinguishable from capitalist enterprises. 

Furthermore, another concept deeply related to the Perestroika, was the Glasnost, meaning transparency. Gorbachev wished to increase the openness of state affairs to the public, which was pursued by increasing media freedom. This provided ideological opponents of Marxism-Leninism, from Nationalists to Liberals, new platforms to express their dissatisfaction. However, this was also a period of tension and unrest. 

Returning to the cooperatives, numerous administrators and managers, especially in the foreign trade sector, were able to enrich themselves through lucrative deals with foreign investors. This culminated in Artem Tarasov, a founder of one of these cooperatives, proclaiming to the media that he was the first soviet millionaire in history. To the soviet population, who were taught from early the importance of economic equality and economic democracy, this was outrageous, at best. Riots ensued. 

The fact is the whole Perestroika proved to be a failure: in 1989-90 the USSR experienced significant inflation, allowing speculators to purchase goods at state-owned stores, which had fixed prices, and resell them at exorbitant rates. This led to state-wide shortages which further fueled the wrath of the population, increasing public unrest. The moderate 2.3% real economic growth in 1985 had turned into a -11% recession in 1991. 

Pressured by nationalist and pro-independence movements across the different republics, the Soviet regime organized a referendum in March 1991, where it was asked to the Soviet citizens if they wished to remain in a renewed Soviet Union. With a turnout of 80% of its population, over 76% voted that they wished to preserve the USSR, despite the hardships. 

However, this was not enough to prevent the dissolution of the USSR. Boris Yeltsin, who had been elected the president of the Russian section of the USSR in June of 1991, albeit initially claiming to be a pro-USSR reformer, would deal the decisive blow. His signature of the Belavezha Accords with the leaders of the Ukrainian and Belarussian republics in December 1991 marked the effective end of the USSR. 

The aftermath 

After the dissolution of the USSR, Russia was turned upside down, with enormous changes in the economy, society, and politics.  

Firstly, there was an opening of the Russian economy to the world, promoting the relations with foreign countries, especially with the U.S, as the dissolution of the Soviet Union also marks the end of the Cold War, followed by liberalization of the economy with Boris Yeltsin’s radical reforms.  

This shock therapy included the sale of the Russian state assets, privatization of some industries, and the liberalization of the economy. Although, these reforms did not happen the way Yeltsin predicted. During this process, the state assets were sold at a lower price than what they valued, and there was hyperinflation reaching 2 000% during 1992. The government, in an attempt to control it, implemented tight monetary and fiscal measures (such as taxes and interest rate increases and subsidy cuts). Nevertheless, this led to a shortage of goods because the producers began slowing down their production.   

In these circumstances, Russia lost most of its power and could no longer achieve global supremacy. It moved from a country that fought for global supremacy to a broken and corrupt country with an uncompetitive economy. Its economy suffered from the loss of some of its states. Another factor to take into consideration is that its Cold War economy was targeted to the military sector and it faced some difficulties in being competitive when they enter the global market. Consequently, there was a major decrease in real GDP per capita. 

A comparison of the real GDP per capita of the USSR with the USA and the world GDP per capita shows the dramatic crises around the time of the collapse that lasted for many years. 

This breakdown of the economy had an extensive effect on the living conditions of the population. Life expectancy decreased from 70 years to 64, only between 1988 and 1994, and by 1992 about a third of the population lived in poverty. There was also an extensive gap between rich and poor, worsened by the high corruption within the regime, revealed by the Gini Index that reached 48,4 in 1993. Besides that, the liberalisation of prices made an entire class of people with fixed income (such as pensioners) suffering a drop in living standards. Furthermore, there was an increase in criminality (in 1990 were registered 1. 84 million crimes, and in 1995, 2.76) since the regime lessened its force in an effort of democratisation, allowing the growth of the Russian mafia. 

Cartoon from 1992, regarding Yeltsin’s reforms. 

As the market barriers disappeared, western companies entered Russia. But other barriers disappeared as well. Western products, trends, and tastes became widely accepted and disseminated. These contacts with the West were not only an economic shock, but a cultural one as well. 

The collapse of the USSR created economic, geopolitical and cultural shocks and problems that are somewhat present today and may help to understand 2021 Russia. 


Sources: American Enterprise Institute for Pulbic Policy Research; BBC; Brookings Papers on Economic Activity; Financial Times; Gapminder; History.com; International Labour Office; Investopedia; Irénées; Journal of Eurasian Studies; Macrotrends; National Bureau of Economic Research; Norwich University; Pew Research Center; Russia Beyond; Statista; The Atlantic; The Conversation; The Guardian; US News; VOXEU; Wilson Center; World Bank. Robert W. Strayer, Why Did the Soviet Union Collapse?: Understanding Historical Change. 


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Rui Ramalhão

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Palestinian Election

Reading time: 7 minutes

For the first time since 2006, Palestinian citizens were expected to exercise their right to vote in legislative elections initially scheduled for the 22nd of May 2021. In a complex geopolitical territory located at a crossroads between Africa and Asia and with a past of Western influence, the opportunity to express their voice in the polls is a rare occasion for Palestinians. As it has been seen in current events, these elections are expected to trigger reactions from the international community and neighboring powers, notably Israel.

Modern Palestine’s complex past

Although the region of Palestine has long been controversial, regarded as the Holy Land by Christians, Jews and Muslims, the State of Palestine dates back to the 20th century.

Between 1896 and 1948, due to Zionist movement [1], and later to flee prosecution across Europe during the Second World War. Hundreds of thousands of Jews re-settled on what was initially the Ottoman Empire and following the Empire’s fall, British Palestine, in a majorly Arab and Muslim populated area. The local Arab community, which started developing their identity as Palestinian Arabs, resisted the attempt of a national Jewish homeland, claiming the land was theirs. Arabs thought Britain would endorse them in return for their support against the Ottomans during the First World War [2], but Great Britain and France predicted instead an international division of the territory [3]. In 1947 and marking the fall of British rule, the United Nations (UN) proposed a partition plan to split the territory in two and grant the city of Jerusalem, disputed by both parties as their rightful capital, a special international status. While the Jewish community agreed to the plan, Palestinians feverishly opposed it, the scheme being interpreted by locals as “Europeans trying to steal their land”.

Figure 1: UN proposed division of territory between Israel and Palestine in 1947
Source: Vox

Two major conflicts in the 20th century were especially defining for Palestine. Firstly, the Arab-Israeli war (1948) opposed Israel to five Arab powers: Jordan, Iraq, Syria, Egypt and Lebanon, seeking to establish “a unified Arab Palestine”. Following the conflict, Israel controlled more than two-thirds of former British-ruled territory. Additionally, Jordan took over the West Bank while Egypt took control of the Gaza Strip. In 1964, the Palestine Liberation Organization (PLO) was founded with the objective of forming an Arab state in Palestine, largely comprised of the territories that had previously been British dominated and would now be illegitimately occupied by Israel. The second major event was the Six Day War (1967), which again resulted in significant land losses for Palestine to the benefit of Israel, who took over the Gaza Strip, the West Bank, the Sinai Peninsula and the Golan Heights. Nonetheless, the PLO’s existence was recognized by the Israel through the Oslo Accords (1993), in exchange for Israel’s right to exist to be recognized by the PLO itself. Following these agreements, Yasser Arafat (PLO), Shimon Peres (Israel) and Yitzhak Tabin (Israel) were awarded the Nobel Peace Prize, for their efforts to create peace in the Middle East.

Palestinians wish to establish a State in a part or in all territory that is now occupied by Israel. Today, the State of Palestine is officially recognized by more than 135 UN powers (but not by the United States and Israel) and includes parts of modern Israel as well as the Gaza Strip, along the Mediterranean Coast, and the West Bank, which is located west of the Jordan River, although no international consensus regarding the borders has been achieved. Around 20% of the Israeli population identify as Arabs. The West Bank and the Gaza Strip are home to a majorly Arab population, territories which are also disputed by Israel, although many Palestinians also live in neighboring countries like Lebanon.

Fatah, Hamas and the long-lasting division of Palestinians

For decades, Fatah, the major political party in the PLO, dominated Palestinian politics. Fatah leaders negotiated the 1993 Oslo Accords that handed limited control of Palestinian territories from Israel to the new Palestinian Authority (PA). Since then, they have led the government through successive crises and peace deals with Israel and international parties.

In 1987, however, the opposition party Hamas was created on the pretext that Fatah and the PLO were too compromised with Israel. Hamas disagreed with many of the deals, and soon came to be seen by many as a threat to peace in the region, a violent extremist group who did not accept the existence of Israel and actively seeked its destruction. In 2003, Fatah negotiated with Israel under US President Bush’s “roadmap for peace” – a plan to end conflict in the region by creating a stable Palestinian state alongside Israel, which Hamas opposed.

In the 2006 legislative elections, Hamas won a surprising victory. With 74 out of the 132 seats in the Legislative Council, it could take control of most government positions. In response, the US and Israel imposed economic sanctions on the Palestinian Authority. They hoped these would destabilize the government, leading to new elections.

The formation of a Hamas government, in which Fatah refused to participate, led to an increase in hostility between both sides. These tensions quickly turned into incidents of violence between the supporters of the two groups, leading to dozens of deaths.

Figure 2: Hamas demonstrators clash with Palestinian Security Forces in the West Bank
Source: The Eletronic Intifada

In early 2007, Fatah and Hamas signed an agreement to form a coalition government, in order to end violence in the streets and lift international sanctions against Palestine. However, it was just some months until Palestinian President Mahmoud Abbas, Fatah’s leader, declared a state of emergency and dismissed the coalition, including the Hamas Prime Minister. Hamas, regarding the President’s actions as unconstitutional, formed an alternative government. A brief civil war erupted, with each party supported by different factions of the armed forces. These conflicts concluded with Hamas taking control of the Gaza strip, and Fatah having control of the West Bank.

Figure 3: Division of Palestinian State in the Gaza Strip, controlled by Hamas, and the West Bank, controlled by Fatah
Source: ResearchGate

Since 2007, many attempts have been made to mend the conflict. Disagreements over holding elections led legislative and presidential votes to be postponed in both territories. Numerous talks and attempted deals between the two parties were unsuccessful. Most recently, in 2017, Hamas and Fatah agreed to hold new legislative elections in 2018, but these never occurred. On the West Bank, President Abbas announced elections would be held in 2019, but then postponed them.

Palestinian Elections – Dream or Reality?

In 2021, Hamas and Fatah agreed to hold legislative and presidential elections once more, later scheduling them for the 22nd of May. However, it was not long until Abbas postponed both indefinitely, allegedly due to uncertainty regarding Palestinians’ access to polls in East Jerusalem. In fact, just as in the 2006 elections, while Israel has control of the area, it has issued no formal announcement on whether it will allow elections to take place.

This postponement has been widely criticized not only by Hamas, but also by future voters, especially those under the age of 34, who have not yet been able to exercise their rights. Some believe Mr Abbas postponed the elections by fear of not having enough support, as he has seen his popularity shrink in polls. Having led the country for a decade over his initial mandate, new younger faces are now competing against him even within his the party. Both Fatah’s party member Marwan Barghouti, who is currently in jail, and Nasser Al-Qudwa, who is the nephew of Fatah’s founder, will compete against Abba, being a symbol of a younger generation who seeks to reshape the party’s values. However, Fatah still holds some advantage over Hamas in election polls, partly due to the latter’s mismanagement of Gaza, who has seen three destructive wars over the last 10 years.

Figure 4: Mural painting in Gaza City calling on people to vote for the 2021 elections
Source: BBC

15 years later, these elections could symbolize a reunion of Palestinians with democracy.

The delay will cause a great disappointment among Palestinians, most of (whom) hoped it was time to end the dividiond and bring about a change.

Talal Okal, Gaza analyst

In light of the previous events, what will these elections mean? Will they mark a turning point in Palestine’s history, or is history just repeating itself?


[1] According to Britannica, Zionism is a “Jewish nationalist movement supporting the creaton of a Jewish national state in Palestine, the ancient homeland of the Jews. [..]. Though Zionism originated in eastern and central Europe in the latter part of the 19th century, it is in many ways a continuation of the ancient attachment […] of the Jewish religion to the historical region of Palestine, where one of the hills of ancient Jerusalem was called Zion.”

[2] McMahon–Hussein Correspondence.

[3] Sykes–Picot Agreement.


Sources: Britannica, History, BBC, Vox, Albawaba, Aljazeera, Reuters, Washington Post, Financial Times, Oxford Journals, Brandeis University Publication


Ana Terenas

Manuel Barbosa

Antonio Payan

Maria Mendes

The Hidden Champions of Germany

Reading time: 6 minutes

Germany’s success has been built on its SMEs, but why do they succeed? Will the pandemic put an end to this remarkable journey?

Today, Germany is the 4th largest economy in the world in terms of nominal GDP, enjoying the biggest current account surplus on Earth, in absolute terms, even greater than that of China’s, and a high level of quality of life. It is, therefore, no wonder that it is seen as a role model for aspirating economies to follow. However, unlike many others, the engine of the German economy is not the big multinationals, even though it is home to quite large corporations, such as Siemens, Bosch, Daimler and Allianz. Rather, what allows the German economy to have an edge are its Mittelstand.

The Mittelstand are small- and medium-sized companies, which often only employ up to 500 workers. In fact, while Germany only counts for 28 of the global 500 biggest companies worldwide, in terms of niche markets – the main focus of the Mittlestand strength – the economic giant is most definitely a market leader, accounting for around 48% of these small “hidden champions”. They are given this nickname, because, although the markets in which they operate are not very large and they themselves are not well known, they are the market leaders of these niche fields. Examples of Mittelstand include sausage packaging, cabin pressure control systems for passenger jets, realistic 3D anatomical models, food for ornamental fish and shoe manufacturing machines.

Furthermore, the Mittelstand are normally family businesses which are mostly export-driven, being the main contributor for Germany´s long-standing positive trade balance. These small- and medium-sized firms account for around 99% of the total companies in Germany and employ close to 60% of the total employed workforce of the country. Moreover, these approximate 3.3 million firms are responsible for about 35% of the total country turnover. 

Figure 1 – SME shares 2018 in Germany; Source – Federation of German Industries (BDI – Bundesverband der Deutschen Industrie)

Why the Mittelstand Succeed

First of all, they focus on customer satisfaction, they are committed to establishing a long-lasting relationship with their customers, striving to attend to their wishes and not solely focusing on the profit side of the trade.

Secondly, they invest a lot in state-of-the-art technology, deploying significant resourceson innovation and differentiation. Indeed, data shows that Mittelstand enterprises have five times more patents per employee than large businesses, but that these are also five times less costly. Innovation and efficiency are key to continue leading the market.

Thirdly, they are less focused on immediate and short-run profit, instead opting to think carefully on their business choices, maintaining high equity ratios and sometimes foregoing short-term success for perhaps a lower, but steadier and longer lasting growth. In fact, most prefer not to rely on debt as a means for growth preferring to avoid it and grow more slowly, in a more “sustainable” manner. This aversion to debt may arise due to deep rooted cultural factors, as the word for guilt and debt is the same in German, “schuld”.

Moreover, they also value the workplace, with their workers being a detrimental part of their business. As such, they employ a lot of resources into guaranteeing a healthy working environment, striving to keep their employees motivated and, hence, promoting productivity gains.

Besides, this appreciation of the workforce is also seen in the effort they put into apprenticeship programs, a lot of which are aimed at newly graduates looking for an entry in the job market. In most countries, there are either very qualified college educated workers or very low skilled ones, and not much in between. In Germany, thanks to the close connection between high school education and the Mittelstand, there is a sizable medium-skilled workforce, ideal for complex manufacturing jobs.

Furthermore, in Germany, it is also common for labor unions and workers to have a greater saying in how companies are managed. In fact, large companies with more than 2,000 workers are required to have union representatives on their administrative boards. This shows that, in Germany, there is greater cohesion and connectiveness between workers and management, allowing companies to sometimes take tough decisions, such as reducing salaries in times of crisis without as much unrest, as workers are more aware of the firm’s difficulties.

Finally, the fact that most of these firms are passed down from many generations serves as a guarantee that the future owners were born into the trade and are well aware of the goals of the company, as well as of the structure of their operations, ensuring a great knowledge of the market in question.

Challenges for the Mittelstand

However, as competitive as the Mittelstand are, they also face a myriad of challenges. The pandemic, in particular, is pushing these hidden giants to the brink. Here are some of them:

The Mittelstand do not have as much bargaining power with their suppliers as their larger, publicly listed rivals may have, which may lead to lower profit margins.

Secondly, due to increasing globalization and freedom of exchange of goods and services between countries, the Mittelstand are facing growing international competition, especially as China transitions its economy to the production of more added-value goods.

An ageing German population is also a cause for concern, as this will mean fewer consumers for the internal market and a smaller labor force from which to recruit young and talented workers, which may reduce the total production capacity of the Mittelstand and also stifle the fervorous innovation these companies need to stay on top. German companies are actually already facing shortages of skilled labor.   

Sometimes, the family business characteristic can also be a disadvantage, as it may lead to problems of succession or even disputes among future potential heirs of the business.

The Mittelstand face a growing challenge regarding the digitalization of the economy too, and increasingly important technologies, such as AI and Big Data, have not yet been adopted at a wide range. Overall, there is still much to be done if these companies want to stay on top when the Industry 4.0 takes flight.

Nonetheless, all the challenges referenced so far have been ones that the Mittelstand had been facing even before Covid. As suggested before, however, the pandemic is bringing a new array of challenges.

Figure 2 – Top issues of business associations; Source: IfM Bonn 2020

Among them, lack of liquidity has been of particular concern, as business activity has greatly fallen and, unfortunately, due to the slow resolution of the pandemic, businesses have not recovered much. Although lay-off programs and other support measures from the German government have mitigated some of these problems, the fact is that they are no full replacement for normal business activity.

Due to the spread of the virus, companies have also been forced to shut down their facilities, which has caused halts to their production. Some firms have been able to cope with this shutdowns better than others, though, as industries that mainly rely on the so-called “white collar” workers have been able to maintain part of their activity through remote working models. Models that have also come with their fair share of challenges with regards to adaptation one must admit, but still these companies have performed better than the many that rely on blue collar workers.

Finally, the Mittelstand have also had to cope with pressure on their supply chains, as these too have been subject to restrictions, therefore causing delays and problems in terms of acquisition of inputs and for the export of products. Going forward, many of these firms are rethinking their supply chains by possibly decreasing their reliance on overseas suppliers and switching to more local networks to a greater degree than before.

Final Remarks

Although the large German corporations may catch everyone’s eye, Germany’s success lays in the giants one does not see. The Mittelstand focus their attention on niche markets, too small for the big companies to get involved in, but too complex for the average smaller company. Their achievements are the result of many factors, but the challenges they face are equally as many. Nevertheless, one ought not to bet against them not coming out on top of those.


Sources: BBC, BDI, Entrepreneurial Living, Financial Times, IfM Bonn, McKinsey and Company, Harvard Business Review, PwC Reuters, The Economist

Rodolfo Carrasquinho

Inês Lindoso

Jorge Lousada