Author: Awareness News

Machine Learning (Part II)

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To all our readers, this is the second part of an article still brought to you by humans. We encourage all to go read Part I here in case you missed it.

Why all the buzz around machine learning now? Just how many of them are there? What are ‘Neural Networks’ (otherwise known as deep learning) and why do they threaten to take our jobs? And finally, how likely is it that my robot vacuum cleaner wrote this entire article? (Tip: More likely now than ever before)


  Although similarities nowadays are sparse, Artificial Neural Networks got their name from being modelled after our own biological human neurons.

Although similarities nowadays are sparse, Artificial Neural Networks got their name from being modelled after our own biological human neurons.

To broach a topic as diverse as Artificial Intelligence only raises more questions than it answers. This is especially true when writing an introductory article to the topic. As a result, the Tech team is dedicating a second story to further develop ideas brought to the table during the first part of our article.

From deciphering literally all questions that Machine Learning can answer – from an abstract perspective in the very least – to explaining some factors behind the notable rise of Neural Networks. In keeping in tone with the previous article, we’ll further explain some of the nuance behind Recommendation systems (such as the ones used by Amazon and Netflix) and the way these systems (traditional vs. new) complement each other.

The 5 most useful questions ever answered by Machines

When breaking down Tinder’s diverse processes, we saw how Learners could be utilized to perform several distinct tasks (image recognition vs. matching) and how one system built on top of another (new data powered other learners). The result of this systematic and iterative approach towards Machine Learning shows how data can be used to extrapolate powerful predictions. It is but one of many successful examples in how these powerful algorithms constantly shape our lives.

Our first part also provides a notion of the breadth and versatility of Learners. Much like how it’s said that all plots in media are variations of just seven basic story archetypes, it’s said that Machine Learning can only provide answers to 5 basic questions. When looking at a user’s Tinder profile in order to assign a trait or personality, we looked at what is called a Classification task – “Is this A or B.” Assigning a score to a user to predict a match with another user is what is called a Regression task – “How much or how many” – something not so (mathematically) different from trying to predict house prices. More towards the end of that story, we also brought up Clustering in regard to its potential uses in segmentation – in other words, “How is this organized”.

The two other questions, despite playing a very minor part, were also mentioned in some way or shape. They are: “Is this weird?”, useful in anomaly detection (also known as the reason why you shouldn’t use a credit card for one dollar purchases) and “What should I do now?”; a question that a machine is likely to ask itself whether being taught how to drive or when considering an insurrection against its human overlords.


Yes, there is a model called Logistic Regression . Yes, it is ironically cruel (especially if you’re hearing about all this for the first time). While objectively a Regression model (as in, it uses regression) it is used as a Classifier /for Classification tasks (e.g. based on the regression output, it will classify an object as A if below a 0.5 threshold or B if above 0.5)

Yes, there is a model called Logistic Regression. Yes, it is ironically cruel (especially if you’re hearing about all this for the first time). While objectively a Regression model (as in, it uses regression) it is used as a Classifier/for Classification tasks (e.g. based on the regression output, it will classify an object as A if below a 0.5 threshold or B if above 0.5)

While reducing all types of Machine Learning to 5 simpler questions might help you understand the nature of them, it likely puts you no closer to figuring out which one allows the GPT-3 model to produce human-like text. It might surprise the reader to learn that of all models in the diagram above, only one directly relates to Neural Networks – and that it does not explain the human-like text capabilities of GPT-3.

Much how Machine Learning is a field of techniques within Artificial Intelligence, Deep Learning is an entire field within ML. Many of them have been around for decades now – even before a time where computational power allowed for the efficient use of ML – often times in the form of scientific papers that could never go beyond conceptual form. Neural Networks, much like a lot of techniques in ML, grew in use and popularity as processing power turned many of these techniques viable.

In this sense, Neural Networks are the latest – and perhaps greatest – of ideas taken out of the Machine Learning icebox. From ‘Supervised’ to ‘Unsupervised’, the school of ML is capable of answering and solving any of these tasks. Going beyond versatility, it has also proven itself highly successful in performing tasks that traditional techniques, could not.

What Machine wrote my news?

Pretend for a moment that a Machine is capable of human-like thoughts (they aren’t, despite their increasingly impressive cognition). Would GPT-3, while outputting text, ask itself “How many?” or “Is this A or B?”

Furthermore, could a non-Neural Network learner have produced such an outcome? Can we say for certain that Neural Networks are inherently better than conventional techniques? For either question, it has to do with the quirks in data. Neural Networks, more specifically Convolutional Neural Networks (CNN), excel at the many challenges brought up with image recognition (namely high dimensionality). When faced with traditional techniques, Neural Networks will not perform inherently better outside of one notable exception – data size.

Past a certain (big) size, Neural Networks are practically guaranteed to be the better choice due to scalability. The bigger the data, the better it works when measured against other models. Work in Machine Learning has a lot to do with measuring and evaluating performance, and in keeping in tone, it has more to do with picking the better model than writing thousands of lines of code.

Additionally, often times we will find a mixture of both (Neural vs. Traditional) powering our increasingly complex systems. Consider Amazon and Netflix; both boast powerful Recommendation Systems, a million-dollar idea (Netflix Prize) that nudges you towards the next movie or item.

A traditional Recommendation System is a matter of matrix factorization. In simpler terms, it is one of the easier algorithms you can write by hand (and with just one or two courses of Calculus). Another thing is that Recommendation Systems pair you with something likely to be relevant – either due to similarities with other users or items – in essence, a Regression or Classification task.

At surface level, much remains the same by migrating to Neural Networks. Data goes in the model, and a prediction (whether regression or classification) comes out. The interesting part is how Recommendation Systems can be used to transform the data before it goes inside the model. Layered on top of each other, a learner can perform multiple tasks (answering more than one question) before reaching our desired output.

To return to our initial question, the secret to what GPT-3 might think before a prediction is likely to be “How much/How many” – it is described as an autoregressive model after all. But the secret to its success might be in answering multiple questions in succession.

Sources: Netflix Prize, The Ascent, The Awareness News, The Guardian, Towards Data Science.

Coulter, D., Gilley, S., Sharkey, K., 2019. Data Science for Beginners video 1: The 5 questions data science answers. 22 March

Pant, R., Singhal, A., Sinha, P., 2017. Use of Deep Learning in Modern Recommendation System: A Summary of Recent Works. 7 Dec

Machine Learning (Part I)

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“Machine Learning is like teenage sex: everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it…”

Machine Learning (ML) and Artificial Intelligence (AI) are buzzwords often used interchangeably in the casual and intellectual discourse of today. Many ideas often spring to mind when either is mentioned: data science, self-driving technology, big data and, on the more ridiculous side, robots hellbent on humanity’s destruction. The truth, however, is that Machine Learning is part of our increasingly data-driven world. It makes our lives better, despite several shortcomings, and is likely to be relevant to you even when not working directly with it.


Picture1.png

Let us take a quick moment to make the distinction between ML and AI. Consider the picture above: Machine Learning, a subset of AI, is a field dedicated to generating predictions based on the hidden patterns, machines pick up within data. In practice, it is an AI technique where the machine writes its own rules. This means that a machine is fed with inputs (in tabular form) such as housing data or photos of dogs and cats, and it learns to perform a specific task without humans telling it how to do so.

In this article, we hope to explore some interesting case studies, such as how Tinder uses these learners to match you with your next date or how Amazon attempted to use an algorithm to analyse CVs (revealing a bias against women instead). With Tinder, for example, a machine takes our explicit (e.g. age range) and implicit (e.g. our photo was taken in a forest) preferences to match us with people likely to be a match. This is a task performed by several algorithms (or learners/machines), each one trained specifically for its task.

How does my swiping allow a Machine to learn?

Tinder uses an ELO-system, attributing a score to every user. Based on this score it will determine the likelihood of two individuals swiping right on each other, resulting in a match. This score is determined by multiple factors, such as the photos, bio and other settings of the profile, as well as swiping activity. Users with similar ELO scores, who have been identified as sharing similar interests, will be shown to each other.

Let us refer to the diagram below.

Picture2.png

Firstly, the algorithm starts by analysing the user’s profile and collecting information from the photos they posted and personal information they wrote on their bio. In the photos, the algorithm can pick up on interests or cues such as liking dogs or nature. Through the bio, the machine will profile you based on words and expressions used (see picture below). From a technical perspective, these are distinct tasks likely to be performed by different learners – identifying words and sentiments is fundamentally different recognizing dogs in pictures.

Picture3.png

At this point, Tinder does still not have much knowledge about one’s preferences and will therefore show your profile to other users at random. It will record the swiping activity and the characteristics of the persons swiping right or left. Additionally, it will identify more features or interests from the user and attempt to present the profile to others in a way that it will increase the likelihood of someone swiping right. As it collects more data, it becomes better at matching you.

The ‘Smart Photos’ option, a feature that places your ‘best’ or ‘most popular’ photo first, is also another instance where Tinder uses Machine Learning. Through a random process in which a profile and pictures are shown to different people in different orders, it will eventually create a ranking for your photos.

In Smart Photos, the main goal is for you to be matched. This works best when the most relevant picture is placed first. This could mean that the most ‘popular’ photo – the one that performed better – might not be the best; think of someone who likes animals. For these people, the photo of you holding a dog is likely to be shown first! Through the work of creating and ranking preferences and choices, a match can be found solely on the valuable insights from a photo.

By and large, the techniques that match you with other people as described above are part of a school of techniques in Machine Learning called ‘Supervised Learning’. In other words, the algorithm that learns to identify dogs and nature has been trained with similar pictures of dogs and nature. These stand in contrast with other schools, such as ‘Semi-supervised Learning’ and ‘Unsupervised Learning’.

The Perils of our (Human) Supervisors

In 2014, a group of Amazon engineers were tasked with developing a learner that could help the company filter the best candidates out of the thousands of applications. The algorithm would be given data with past applicants’ CVs, as well as the knowledge of whether said applicants were hired by their human evaluators – a supervised learning task. Considering the tens of thousands of CVs that Amazon receives, automating this process could save thousands of hours.

The resulting learner, however, had one major flaw: it was biased against women, a trait it picked up from the predominantly male decision-makers responsible for hiring.  It started penalizing CVs where mentions of the female gender were present, as would be the case in a CV where “Women’s chess club” was written.

To make matters worse, when the engineers adjusted so that the learner would ignore explicit mentions to gender, it started picking up on the implicit references. It detected non-gendered words that were more likely to be used by women. These challenges, plus the negative press, would see the project be abandoned.

Problems such as these, arising from imperfect data, are linked to an increasingly important concept in Machine Learning called Data Auditing. If Amazon wanted to produce a Learner that was unbiased against women, a dataset with a balanced amount of female CV’s, as well as unbiased hiring decisions, would have to have been used.

The Unsupervised Techniques of Machine Learning

The focus up until now has been supervised ML types. But what of the other types are there?

In Unsupervised Learning, algorithms are given a degree of freedom that the Tinder and Amazon ones do not have: the unsupervised algorithms are only given the inputs, i.e. the dataset, and not the outputs (or a desired result). These divide themselves into two main techniques: Clustering and Dimensionality Reduction.

Remember when in kindergarten you had to identify different shades of red or green into their respective colour? Clustering works in a similar way: by exploring and analysing the features of each datapoint, the algorithm finds different subgroups to structure the data. The number of groups is a task that that can be made either by the person behind the algorithm or the machine itself. If left alone, it will start at a random number, and reiterate until it finds an optimal number of clusters (groups) to interpret the data accurately based on the variance.


Picture4.png

There are many real-world applications for this technique. Think about marketing research for a second: when a large company wants to group its customers for marketing purposes, they start by segmentation; grouping customers into similar groups. Clustering is the perfect technique for such a task; not only is it more likely to do a better job than a human – detecting hidden patterns likely to go unnoticed by us – but also revealing new insights regarding their customers. Even fields as distinct as biology and astronomy have great use for this technique, making it a powerful tool!

Ultimately brief, Machine Learning is a vast and profound topic with many implications for us in real life. If you’re interested in learning more about this topic, be sure to check out the second part of this article!

Sources: Geeks for Geeks, Medium, Reuters, The App Solutions, Towards Data Science.

Daniel André -  Daniel André Laura Osório -  Laura Osório


André Rodrigues -  André Rodrigues

LVMH Acquisition of Tiffany & Co. “The Wolf in Cashmere Sports New Jewelry at Last”

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In November 2020, LVMH announced it reached an agreement to acquire the US Jeweler Tiffany & Co for a record breaking $16,2 B. Almost a year has passed and the deal has not been completed, the two companies have been back and forth on the negotiations, involving lawsuits in courts and the French government.

The companies behind the drama

LVMH Moët Hennessy Louis Vuitton SA, commonly known as LVMH, is a French multinational firm, based in Paris, France. The firm was created through a $4 billion merger, in 1987, of fashion house Louis Vuitton with Moët Hennessy. LVMH is the world’s leading luxury goods seller, controlling around 60 subsidiaries that each handle a small number of prestigious brands, 75 in total. The subsidiaries are often managed independently, under the umbrellas of six branches: Fashion Group, Wines and Spirits, Perfumes and Cosmetics, Watches and Jewelry, Selective Distribution, and Other Activities. The oldest of the LVMH brands is wine producer Château d’Yquem, which dates its origins back to 1593. The company also owns luxury retailers, including a majority stake in DFS Group Ltd., a group of duty-free stores, and Sephora. The company sought to expand and diversify in the late 1990s through several acquisitions.

Tiffany & Co., commonly known as Tiffany’s, is an American luxury jewelry and specialty retailer, based in New York City. Tiffany’s is known for its luxury goods, particularly its diamond and sterling silver jewelry, but their offering also includes china, crystal, stationery, fragrances, water bottles, watches, personal accessories, and leather goods. It markets itself as an intermediary of taste and style. Tiffany & Co. was founded in 1837 by the jeweler Charles Lewis Tiffany and became famous in the early 20th century under the artistic direction of his son Louis Comfort Tiffany. The company operates retail outlets in the Americas, Asia-Pacific, Japan, Europe and the United Arab Emirates. Tiffany’s operates 326 stores globally in countries such as the United States, Japan, and Canada, as well as Europe, the Latin America, and Pacific Asia regions.

 

Why Tiffany & Co.?

LVMH, the largest player in the luxury goods market, had been looking to grow its “hard luxury” segment for some time, seeing a perfect contender in Tiffany & Co., a leading brand in jewelry manufacturing, in a period of significant M&A activity. Despite the drama around the acquisition, the operation is still the largest ever luxury deal, giving the French group led by billionaire Bernard Arnault a greater presence in its smaller segment.

LVMH is already the market leader in the “soft luxury” market, composed of clothing, leather goods, bags, and accessories, with this segment representing almost 40% of total revenue. However, the group has a smaller presence in the jewelry market, the so-called “hard luxury”, the deal would double LVMH’s size in this segment from $4,72 B to over $9 B.

Picture2.jpg

The deepening of the presence in the jewelry market will increase the group’s capacity to compete with other leading players such as Richemont, Chow Tai Fook Jewellery Group, Signet Jewellers, and Pandora, in one of the fastest-growing categories in the personal luxury goods sector.

Tiffany’s network of over 300 stores across the globe would complement LVMH’s Watches & Jewelry division of 75 stores. Furthermore, the American company has greater presence in the United States, a market LVMH looks to consolidate, and among Asian consumers. In fact, Mr. Arnault believes Tiffany & Co. “would fit perfectly within LVMH’s portfolio of brands”.

The luxury market has been growing consistently, having greatly accelerated in 2019 driven by a stronger growth of the US and Chinese markets, with the Chinese market representing the most rapidly growing proportion of the global luxury goods market, due to the expansion of an aspirational middle class. Nevertheless, the industry has seen difficulties in expanding in recent years because of changing consumer patterns, particularly among younger generations who tend to prefer experiences and services, such as travelling and dining, in comparison to luxury goods.

 Also, because of the pandemic, global demand has shrunk, the luxury market is no exception as demand is expected to drop by 30% in 2020, with a recovery that could take years. Horizontal integration can be seen as a way to strengthen the brand ahead of the storm.

Picture3.png

Despite LVMH’s growing collection of brands, regulators have not seen the deal as harmful for consumers, the European Competition Authority says there is no danger of monopolization or restriction of consumer choice. In fact, the acquisition will not alter the competitive structure of the market, because of the low market concentration. LVMH will still face competition from several other manufacturers of luxury goods, including Cartier, Van Cleef & Arpels, Richemont, among others.

 

Turbulent negotiations:

LVMH acquiring the American luxury jeweler for a colossal $16.2bn seemed like a “too good to be true” offer coming from the French billionaire, dubbed “the wolf in cashmere” – and it was so. The offer based on an EBITDA ratio of 17, over 50% greater than Tiffany’s 10-year average at the time, was not going to stand as the COVID-19 pandemic promised a possible 35% contraction in 2020 in the luxury market, predicted by Bain consultants, with Tiffany’s earnings closely trailing that downturn, according to the S&P Global.

 When the deal was first struck, the $135 per share (37% premium at the time) supported the added value brought by Tiffany & Co, notwithstanding the closure of major markets, namely China. However, when the lockdown reached Europe, investors began to jitter, dropping Tiffany’s share price to around $114. With 35 years of experience in the luxury industry, Arnault knew that this was his opportunity to alter the deal’s terms, despite the air-tight prenup signed by both parties and the costs of backing out ($575M).

Negotiation turbulence climaxed in early September, when LVMH threatened to pull out of the deal, following a request from the French foreign minister, Jean-Yves Le Drian, to delay the deal. Tension between Paris and Washington arose, after US President, Donald Trump, imposed customs duties on certain French luxury goods, following the French’s adoption of digital services taxes. LVMH’s CFO, Jean-Jacques Guiony, stated they were prohibited from closing the deal, and uninterested in lengthening the lock-stop date, resulting in Tiffany’s share price dropping by 8.4%, to $111.67.

Nevertheless, Tiffany & Co was determined to follow through. It filed a lawsuit against LVMH claiming the conglomerate was merely attempting to strong-arm the jeweler into dropping the agreed merger price, consequently breaching the transaction agreement. LVMH hit back with a suit claiming Tiffany’s “catastrophic” performance following the pandemic indicated dismal prospects for the future. Ad interim, predictions on the deal resulted in stock price fluctuations for Tiffany & Co.

Final offer

Conflict between the giants ended with the French luxury group agreeing to pay a total of $15.8bn, at $131.5 per share – a haircut of $425M, less than 3%, of the original price. Moreover, Tiffany’s would have to pay shareholders a dividend of $0.58 per share. All lawsuits were settled. Though LMVH’s course of action seems extreme for such a modest price cut, ultimately it was able to bulk up on watches and jewelry, boosting its portfolio in the “hard luxury goods”.

Whether Bernard Arnault suffered from buyer’s remorse or went from the “wolf in cashmere” to the “lamb in lycra”, and despite the hiccups brought about by governmental intervention, legal conflict and pandemic-induced economic slowdown, this marks the largest deal ever in the luxury industry.

Sources: Financial Times, Marketline, Statista.


Tiago Rebelo -  Tiago Rebelo Nuno Sampayo -  Nuno Sampayo

Diogo Almeida - Diogo Almeida

Somaliland: A New Hope

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The main purpose of development economics should be to give any country or community hope. Hope for a future they own and where they can grow. But no hope is seen nor given to anyone in Somalia, as the country has been a disaster since the day it gained independence in 1960. With the premise of bringing the major native ethnic group of the Somalis together, the British and Italian colonies were unified. Its government started as a failed democracy, followed by a brutal dictatorship under Siad Barre, resulting in wars and many genocides across the country. The dictatorship lasted two decades, until in 1991, the government was dismantled by rebel armed groups. Afterwards, no government successfully took control. Somalia has been in a civil war with different factions fighting for control, being the perfect hub for terrorist groups, warlords and pirates. An absolute anarchy. The years go by and there is still no hope for the Somalis.

But there is one exception – Somaliland, a region of Somalia that belonged to Britain in the north of the country. It has had relevant developments and it’s starting to have its first foreign diplomatic relations. It possesses its own currency and even its own passport. Its achievements have been considered remarkable. Even though it is not internationally recognized as a country separated from Somalia (yet), it’s developing the best it can to become one.

In this article we will focus on this small wannabe country and try to ascertain if it can indeed become a successful nation recognized by the rest of the world or if it is just another African state waiting for its decline. Is there still any hope for the Somali people?


Map of the faction division in Somalia, as of 2017

Map of the faction division in Somalia, as of 2017

A short story of tragedy

Dictator Siad Barre of Somalia

Dictator Siad Barre of Somalia

Somaliland has always been the odd one out in this unification, being always marginalized by the rest of the country. In 1978, during Barre’s dictatorship, with the goal of unifying other Somali dominated territories, the national government started a war with Ethiopia, which it lost. This defeat destroyed the economy of the country, the lives of its citizens and the image of its government. Because of this, in the mid-1980s, rebellions started rising. Somalia’s military started a brutal counteroffensive, not only against the rebels, but also against the different clans that supported them. It was in Somaliland that the national army marched to the region’s largest cities of Hargeisa and Burao. Using artillery and air strikes, they bombarded the cities, destroying 90% of Hargeisa and 70% of Burao, killing thousands of civilians. This is known as the Isaaq Genocide. Barre’s government collapsed in January 1991, and in April of the same year, Somaliland declared independence. All Somaliland militias were dismantled or incorporated into the new national army of Somaliland, providing a solid stabilization and security in the region. For the rest of Somalia, a long civil war awaited.

On the road to a better future

For Somaliland to become a successful country, there are some key points that must be assured: regional stability, an efficient government and a healthy economy.

Somaliland is considered the most stable region in the Horn of Africa. As the former militias join the national army, this army remained loyal to the new government. After the remaining of Barre’s forces were defeated, many other dangers were still present, such as Islamic terrorist organizations, pirate groups and the other numerous factions in the civil war. All were successfully expelled. Its major stability problem is still with the neighboring Puntland with whom it has some territorial disputes. As of national identity, these were the same people marginalized by the rest of Somalia and the same clans killed in the Isaaq Genocide. We can associate the loyalty of Somaliland’s troops to this strong national identity.

Its government started as a democracy that distributed all major powers between the most powerful clans. Later in 2002, it decided to substitute it for a more ideology-based democracy. This new government had a modern constitution, with full separation of powers between independent institutions. In 2003, the first president of Somaliland was elected, and the subsequent elections have been all considered fair and legitimate internationally, largely thanks to this government architecture that was built with no help from abroad. All of this made Somaliland’s government gain the recognition of most efficient democracy in East Africa.

As for its economy, despite having great potential, it’s still quite underdeveloped as it continues to be based on livestock exports, largely to Arab countries. The government is progressively looking to diversify its economy, investing in its most promising sectors. Somalia is situated in the Horn of Africa, a valuable strategic location since it’s where many trade routes pass through. Somaliland took advantage of this by investing in its ports. Berbera’s Port is one of the biggest and most developed ports in the region and is a booming site for maritime operations, providing access for maritime trade and attracting foreign investment from China and the UAE. Its territory also has an abundance of mineral resources, such as industrial ore like iron and titanium and even rare metals. Oil reserves are also present and have already started being explored in 2018.

To summarize: it’s the only stable region in Somalia, as well as one of the most efficient governments build from the ground that has a promising economy. This great potential is not officially recognized in the world, but in many ways, it is unofficially: it has trading agreements with multiple countries, such as the UK and Taiwan, and is a member of multiple international organizations such as the UN’s Unrepresented Nations and Peoples Organization.

Somaliland representative Mohammed Omar Hagi Mohamoud meeting Taiwan’s President Tsai Ing-wen

Somaliland representative Mohammed Omar Hagi Mohamoud meeting Taiwan’s President Tsai Ing-wen

Current problems

There are still many weaknesses inhibiting the self-declared country from being recognized. For instance, the ongoing civil war with the north-eastern area of Somalia – Puntland, due to the territorial dispute over eastern provinces, whose control is claimed by Somaliland based on colonial boundaries and by Puntland based on tribal affiliation. Another obstacle is that many countries and international organizations, including the African Union, don’t support a successful separatist’s movement, no matter how efficient it may be, fearing it may encourage other similar movements to seek independence. And because it has no recognition, no foreign aid can be provided to the government. Hence, the government is very dependent on private donors and investment, leaving the danger of corruption of the government wide open.

Apart from its lack of recognition, Somaliland also has many internal problems. It still presents an extremely low GDP per capita of $347 US, making it the fourth poorest country in the world, according to the World Bank. As the effects of climate change increase, it endangers the livestock industry, which is still the backbone of the current economy, resulting in income loss and famine to a part of the population. Despite Somaliland’s efforts and investments towards education, half of the children still have no access to school. Several human rights abuses are still committed, such as feminine genital mutilation, which unfortunately is still very popular in Somalia as it’s estimated that 98% of women have been submitted to it, according to ActionAid.

The Veredict

Truth is, this reality is very complicated. It takes a very long time to see improvements in a country, and failed cases of separation are the most common examples. But against all odds, this government has been achieving all the right benchmarks in the 30 years of its independence: stability in a region globally known for widespread chaos, a complex political system that disapproves and punishes corruption and a promising economy built with investments in infrastructure and education. Moreover, by granting international recognition, the resulting provision of foreign aid would alone solve many of Somaliland’s problems. But one question remains: if the international community doesn’t reward this nation, how can it expect to see more of its kind in the future?

Sources: World Bank, East African Business Week, UNICEF, UN News, The Conversation, Institute for Security Studies, Economist, Britannica, BBC, Action Aid, The Taiwan Times

João RodriguesJoão Rodrigues    Madalena AndradeMadalena Andrade

Vladyslava ShoturmaVladyslava Shoturma

The Rise of Far – Right in Portugal

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Portugal left wing history

The Third Portuguese Republic was implemented after the Carnation Revolution on April 25th, 1974. This movement overthrew the fascist regime that had been in power since 1933, established by António de Oliveira Salazar, the main figure of Estado Novo (“New State”).

The first democratic elections in 1975 were won by the Socialist Party (PS). Thereafter, the only parties with a majority in Parliament or with a respective prime minister were the socialists or the social-democrats (PSD). Other parties would only be part of the government through coalitions. Historically, Europe is categorized as moderate inclining towards social democracy.

In recent years, Europe, Portugal included, have witnessed a rise in radical right movements. Portugal’s main figure is Chega! (Enough!), a rightist, populist movement led by André Ventura. Although not the first party located further right of the Portuguese political spectrum, it was the first to gain notoriety and a seat in Parliament. The former National Renovating Party (PNR) is a self entitled far right party with very narrow public adherence.

André Ventura

 André Ventura, born on January 15th, 1983, had a brief passage through the seminary (an attempt to follow priesthood), which fits some of his catholic conservative statements. Ventura ended up pursuing Law at Nova University of Lisbon, graduating with a 19/20 GPA. The PhD thesis  he presented at Cork University criticized the stigmatisation of minorities and expressed his concerns on the expansion of repressive powers from the state.

In 2001, he joined the Social Democratic Party but only gained visibility in 2017 as a sports commentator on national television. This led to an invitation inside the party to run for the local elections of the Loures municipality. As a candidate, Ventura claimed that Roma people residing in Loures “live almost exclusively on public subsidies” and “think they are above the Rule of Law”. His declarations and hostile position over various social matters hindered the relationship with PSD leading to his disaffection from the party in 2018. In

April 2019 he founded Chega!. Representing it, André Ventura ran for the 2019 legislative elections (providing him a seat in Parliament), and is currently running for the 2021 presidential elections.

Chega!

“The Portuguese far right party” built its marketing as an anti-system movement – it claims the establishment is corrupt and does not have the people’s best interests in mind. The party seeks to establish a new and Fourth Republic by, among other measures, implementing a new constitution, as can be read in its manifesto (2019). The latter is intensely economically liberal and endorses a minimalist State on, for instance, education and healthcare services. Its political program includes fiscal reforms: the abolishment of double taxation on corporate income; reduction of VAT; and the adoption of a “flat income tax”.

On the other hand, Chega is strongly conservative on societal issues, which include motions such as the prohibition of gay marriage, of LGBTQ+ propaganda, abortion or any situation that “violates human integrity”. Furthermore, its program introduces chemical castration as a legal punishment for convicted pedophiles, among other severe penalties. Chega recently affiliated to ID (Identity and Democracy), a European parliamentary group composed of nationalists, far-right parties and eurosceptics, namely Alternative for Germany, National Rally (Marine Le Pen) and Lega Nord (Matteo Salvini). The group stands for national differentiation and administrative preservation of autonomy, alternatively to a European selfhood. Chega first presented a candidate for the european elections in 2019, leading a coalition named Basta!. It failed to elect a MEP.

The latest October 2020 legislative poll, conducted by Aximage, placed it with 5,4% of vote intentions. This consistent growth was confirmed by the regional elections in the Azores. The party gained 5% of votes, fourth most voted. Two regional MPs were elected and with no clear majority of votes in the elections, these two will be fundamental for the configuration of the new regional government. The party has gained recognition and consolidated its political force.

source: Jornal Luso

source: Jornal Luso

Electorate’s Profile

Studies conducted to identify the typical voter of a far-right party in Europe concluded  he is a young poorly qualified male. Generally, he is a worker or a small businessman, if not unemployed.

In Portugal, the first study to provide an identification of this typical voter was a poll published last February by ICS/ISCTE. Given the European context, it came to contrasting conclusions. The typical radical right elector in Portugal has qualifications above the mean of the Portuguese population, mainly middle-class, namely office employees living in metropolitan areas. Furthermore, the electorate is evenly split between male and female. According to CESOP, the voters of the party previously voted for the two main parties or abstained.

Reasons for Widespread Growth

Populism is a political approach, which strives to appeal to ordinary people who feel their concerns are disregarded. The 2008 crisis and subsequent stagnation significantly worsened the middle class. Their substantial tax burden and the subsidies paid to those who “do not respect the Rule of Law” lure them to Chega, as proven in the ICS/ISCTE poll.

André Ventura often appropriates the popular contempt with a dividing logic of “us” against “them”. There is a large share of society which, after being constantly immersed in scandals and corruption at the highest levels of Public Administrations, feel as if “all politicians are the same”. André Ventura’s concept is appealing to the average Portuguese, who possess a sense of distrust towards politicians in general, thus embracing the anti-system propaganda. This could be why Chega has developed a hostile environment with most parties. This, paired with its image as a xenophobic and racist party, influences other parties to distance themselves, afraid of an electoral backlash.

Cultural liberalization and imigration are pointed out as troubles by Chega. In its manifesto, there are many references to an ideological proselytism: the attempt to change people’s beliefs. This concept is referent to LGBTQ+, BLM and other movements, which Chega frequently lessens, attracting social conservatives and clashing with leftists.Likewise, Chega seeks to strain the process of granting Portuguese citizenship, standing fiercely against the recent Nationality Law, eventually enacted. Illegal immigration is adressed by Ventura, although the Portuguese electorate cannot relate to that issue as well as larger European countries: contrarily to what happened to countries such as Germany, Greece or Italy, the Portuguese borders have only had some minor predicaments with refugees, never a worrying affair. Therefore, regarding intercultural matters, the main argument brought up by the party has been directed towards the Roma people and others living on subsidies. The leader of the party often accuses them of not complying with Portuguese laws, women’s and marriage rights, as well as respect for authority. During the pandemic, Ventura supported a special confinement for a Roma community outside a small city that refused to be subject to testing.

Nonetheless, the main explanation regarding the rampant rise of this party is the spotlight offered by the media in general, and the wideness of Ventura’s presence in social media. There have been weekly constant mentions and polemics around his name and party. Correspondingly, that has been the method chosen by European far-right parties which appears to be successful. Also, the fact that mainstream parties commonly criticize him helps the branding of the party as the solution for a damaged structure (given the “system” is against him, he should then be considered “anti-system”).


source: jornal “SOL” - “Portugal is not racist” movement against BLM movement

source: jornal “SOL” – “Portugal is not racist” movement against BLM movement

Conclusion

Portugal is not an exception anymore. In 2018, it belonged to a short list of countries in the EU without radical right representation in the Parliament. Today, it is another example of a substantial expansion of such a movement in a compact period of time. Nonetheless, it is important to say that Chega is not the typical far right party, for the latter (former PNR) has failed and lost vote intention to the earlier. The death penalty, a more extreme proposal, was presented and failled to gather internal support. Some claim the party is imploding due to an even more radical branch that starts to label Chega as another conventional party.


 Afonso MonteiroAfonso Monteiro     Hugo CanauHugo Canau

Manuel BarbosaManuel Barbosa     Afonso S. BotelhoAfonso S. Botelho

Rui RamalhãoRui Ramalhão

The Rise of Far – Right in Europe

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Extremist Movements in Europe

The origin of «left» and «right» terms concerning politics dates to the French Revolution, in 1789. One of the main topics debated when writing the new constitution was the amount of power the king would have. Among the present in the National Assembly, those in favor of the king having an absolute veto sat on the right side of the assembly’s president, while those who disagreed sat on the left side.

Nowadays, we use the terms left-wing and right-wing when referring to two broad opposite political points of view. The left is known for having a more socialist economic perspective, while the right commonly defends capitalism and a free-market economy. Throughout the years, both gave impetus to different extremist movements. When it comes to the far-right, although having different facets, this extreme side of the political spectrum is known for supporting nationalist, authoritarian and anti-immigration policies.

The Rise of Far-Right – Nationalism and Globalization

In modern politics, we tend to look at the far-right as a consistent political ideology, while throughout history it has been a quite flexible movement. Even so, there has been a prevalent feature: nationalism, particularly ethno-nationalism. Indeed, the core of the movement idealizes a version of a cultural, national, and historical identity, with the rhetoric that it is constantly under threat and therefore needs to be defended.

From the perspective of many right-extremists, globalization constitutes  a significant threat to this feeling of «national identity». The free movement of goods, capital, services and people, the homogenization of culture, and the loss of economic independence are ways in which far-right movements have framed this holy war between external forces destroying the nation and the heroes defending it. Nationalism is seen by many as the savior that holds together the victims of tough and challenging times. Recently, for instance, Marine Le Pen, the candidate of the Rassemblement National in France, told supporters that globalization was «slowly choking communities to death». She backed up her statement with facts: globalization made many factories relocate from France to other parts of the world where labor was cheaper. This also happened in other European countries and heavily affected the middle class.

According to Arie Kacowicz, an academic expert on international relations, nationalism is one of the main resistors of media-induced globalization. However, there is a paradox: while nationalists often depict globalization, they also earn from it. In other words, changes in technology, for instance, create favorable conditions to the spread of right-extremist values. In fact, right-wings often use online platforms such as Facebook, YouTube, and WhatsApp so that their followers are constantly bombarded with breaking news and political propaganda. This enables them to connect with each other, creating a mechanism of echo chambers in which their own opinions and points of view are shown over and over.

The Rise of Far-Right – The 2008 Financial Crisis

Since World War II, the extreme-right has been seen with worrying eyes, but the 2008 financial crisis was the alarm buzz for the sleeping giant in the room. Recent years have witnessed an important rise of the far-right, taking over European countries’ political systems until today.

The crisis led to low economic growth, a rise in unemployment and an increase in inequality. It revealed an unexpected unregulated character of the market and main financial institutions, which in turn sparked mistrust of the ruling elites. People faced lower or stagnant incomes, as consequence of severe recession policies, and fewer job opportunities. Moreover, governments were not able to provide welfare redistribution, nor assist the transition to higher welfare. For instance, the British austerity measures ended up raising inequality, affecting the poorest the most, because, as shown by the Institute for Fiscal Studies, “the cuts have fallen in a disproportionate manner”

Indeed, the middle and lower classes were the most affected and found that help from the EU was scarce. As governments were decreasing spending and constrained on borrowing, some countries needed to resort to the International Monetary Fund (IMF), such as Portugal and Greece. Large economies such as Spain, France and Italy were also largely affected. Italy’s, Portugal’s, and Greece’s debt-to-GDP ratio rose and has remained above 100% of GDP until today. This happened, in part, because the European Central Bank (ECB) was unable to act as a lender of last resort, imposing  austerity as one way to “save” European economies. Consequently, households felt hurt and blamed the EU for their newly found precarity. A Eurosceptic sentiment emerged among citizens and nationalistic ideologies were fostered through an increased  support of far-right parties, which constituted alternatives to the governments who faced the crisis. Eminently, most European countries have seen a rise in votes for far-right parties in the last elections.


Debt-to-GDP ratio of Portugal, Greece and Italy

Debt-to-GDP ratio of Portugal, Greece and Italy


18 out of 28 countries in Europe saw a rise in votes for far-right parties comparing the last two elections.

18 out of 28 countries in Europe saw a rise in votes for far-right parties comparing the last two elections.

Electorate’s Profile

According to the Horseshoe Theory, the political spectrum does not form a straight line but rather a horseshoe form. This means that the far right and far left, originally at opposite points of the political spectrum, would be  closer and bending in toward each other. In fact, both left-wing and right-wing extremist parties target similar audiences.

Extreme-right voters are often young millennials or old nationalists who view the current far-right as broken and wish to restore it. Far-right politicians look for people who feel victims of the current government and angry with the state of things, people who feel subject to marginalization and ostracization.

Therefore, both extremist sides make use of populist speeches focusing on insecurities, fears, and emotions. They offer the audience a sense of stability, security and belonging, and provide simple explanations to reduce troubling complexities over complex questions, easily dismissing critical thinking. In their speeches, they create a sense of urgency of change, inciting radical action, sometimes violent, and occasionally leading to “sacrifices for the greater good”.

The Drivers of Right-Wing Extremism

Migration stands as one of the most important topics of European right-wing parties. In a recent poll conducted by the Italian News Portal, Affari Italiani, 65% of Italians said they feel threatened by migration and would feel safer under the more rigid policies of the previous Minister of the Interior, who blocked NGO-backed rescue boats from docking in the country. Additionally, terrorist attacks across Europe, including the recent beheading of a French teacher by a Muslim extremist in Nice, heated the anti-migrant sentiment in Europe. European citizens increasingly resent the EU and its handling of  the refugee crisis, feeling that their well-being and safety are being threatened.

Arising from the consequences of the financial crisis, inequality and mistrust of the ruling elites  also play a role. In Spain, according to the Pew Research Center, people are increasingly unhappy with the country’s political system and are lacking faith that the elected officials are up to the task. Inequality continues to be an issue since redistribution of wealth was not a priority on the agenda during the crisis.

Among European countries, there are several examples which demonstrate rising Euroscepticism. For instance, in the 2017 presidential elections, the French Rassemblement National led by Marine Le Pen, who opposed Emmanuel Macron and advocated for Frexit, reached the second round, only 2,7pp behind Macron. In Spain, the far-right Vox Party gained a lot of media coverage, since founded in 2013, becoming  the third most voted party with 15,1% on the November 2019 General Spanish Elections. Finally, in Sweden, the Sweden Democrats are now on the top of the most recent polls.


Cartoon representing the battle for citizen’s vote between pro-Euro and anti-Euro parties in Europe.

Cartoon representing the battle for citizen’s vote between pro-Euro and anti-Euro parties in Europe.

There are, however, exceptions, like the Italian Movement Five Stars that is now getting closer to supporting the EU, even stating, in 2018, that the “European Union is the Movement’s home”. Another case is Poland’s current government which is considered softly Eurosceptic, believing Europe should help Poland and not the other way around, positioning against a federal Europe.

Conclusion

The right-wing is rising and came to stay. All over Europe, including Portugal, Spain and Scandinavia (countries where social democracy’s fall is not as strong as in the rest of Europe), the far-right is gaining ground against the left-wing parties. Anti-immigration and anti-Euro speeches are the used tool to convince voters. Inequality and discontentment towards democracy also constitute reasons for the people’s increasing support for the right-wing since the crisis.

However, recent polls point out to a decrease in the rise of right-extremist voting intentions. Almost all countries denote a fall regarding right-wing intention of vote, probably due to the current pandemic. People may prefer to vote for parties that can ensure more stability than more revolutionary ones when dealing with the CoVid-19 crisis. All this together raises a question: is the rise of the far-right decelerating or just starting?

Sources

Financial Times, Global Solutions Initiative, G1 Globo, The Guardian, Intereconomics, London School of Economics, New York Times, Pew Research, Politico, RMX, Time

Maria Margarida MendesMaria Margarida Mendes 

Pedro Afonso EstorninhoPedro Afonso Estorninho        Raquel NovoRaquel Novo

Francisco PereiraFrancisco Pereira                     João BaptistaJoão Baptista
Ana TerenasAna Terenas                             Teresa ThomasTeresa Thomas

Breaking the gender glass ceiling in South Korea

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In the 1960’s, South Korea’s fertility rate displayed an impressive and even slightly concerning population growth, leading the government to implement restrictive population policies. Nowadays, the scenario is significantly different, with the country’s fertility being one of the lowest worldwide. Combining that with an increasingly ageing population, South Korea is currently facing a decline in its population growth, with the natural replacement of generations being at stake. This concerning new demographic paradigm has led the government to take action, committing to increase the country’s birth rate, albeit unsuccessfully.

With these failed attempts, the solution may revolve around changing the women’s role in society, incentivising an active participation in the job market, granting them the same rights and benefits to those of men.

However, this raises the question: is South Korea’s society ready for such a drastic change?

Historical roots

South Korea was established as a nation with the division of the Korean Peninsula after World War II. In the aftermath, an invasion by North Korea of its southern counterpart´s borders triggered an armed conflict between the two, which was only solved by 1953 through the signing of an armistice agreement. Today, South Korea is one of East Asia’s most influential countries, with an economy ranking just behind Japan and China and a population of around 51 million people, of which more than 25 million are established in its capital, Seoul.

In recent years, South Korea has experienced a rapid industrial growth, as well as a vast economic modernization, contributing to the shrinking of the income gap that for many years separated it from the developed Occidental economies and, in some cases, to overcome some of them in GDP per capita (Graph 1). Nevertheless, even if in economic terms this gap is now practically non-existent, when it comes to gender equality and the women’s role in society, South Korea is still very far from the Western standards.


Graph 1 – Real GDP per capita comparison Source: Federal Reserve Economic Data

Graph 1 – Real GDP per capita comparison

Source: Federal Reserve Economic Data

Window-dressing gender action

With the ever-growing role of women in society after the late 1960s, as they increasingly sought and integrated the job market and pursued higher levels of education, the government enacted the Equal Employment Act in 1987, in order to guarantee equal and fair treatment across the two sexes. However, this proved to be ineffective in practice, as women continued to be victim of lower wages and sexual harassment in the workspace. As a matter of fact, South Korea is still today the worst-performing OECD country in terms of gender wage gap (median wage earnings of women are, on average, 32,5% lower than men’s, as shown by Graph 2).


Graph 2 - Gender wage gap across OECD countries (difference between median men’s and women’s wages) Source: OECD Data

Graph 2 – Gender wage gap across OECD countries (difference between median men’s and women’s wages)

Source: OECD Data

This discrimination in the labour market is still deeply rooted on the misconception that women are less desirable as employees, as they may require maternity leave in the future as well as leave to take care of their children, should they fall ill. Related to this is the patriarchal view that women are the ones responsible for the care of domestic affairs, leaving men to work to provide for the family. While efforts have been made in changing this current of thought (particularly, with the 2005 decision of South Korea’s Constitutional Court to abolish “hoju”, a family registry system that identified the head of household as a male and that obliged family members to be registered under him), it is still far from reaching the desired effects. In fact, the World Economic Forum and a United Nations report have recently ranked South Korea´s gender empowerment among the lowest in the developed world.

Therefore, this discrimination of women in the job market, centered around their role in the society, has forced many women to choose between professional success and family life, with many opting to forego entirely marriage and children. This is part of a rising social phenomenon in South Korea called the Sampo Generation, with the word ‘sampo’ meaning giving up three things: relationships, marriage and children.

A demographic winter

As a result of the Sampo phenomenon, birth and fertility rates plummeted in recent years, causing demographics in South Korea to take a concerning tumble. In fact, South Korea’s fertility rate has been declining steadily, not being able to reach the minimum threshold (2.1 children per woman, so as to ensure the replacement of the generation) for more than 30 years, nowadays reaching only 1.1 children per woman (an astounding contrast with the impressive rates registered in the 1960s, as seen in Graph 3).


Graph 3 - Total Fertility Rate in South Korea (1955-2020) Source: Worldometer

Graph 3 – Total Fertility Rate in South Korea (1955-2020)

Source: Worldometer

Moreover, longevity has also been improving in South Korea, with the country displaying one of the highest life expectancies in the world (around 82 years old), a value that the United Nations predict will continue to grow, estimating that, by the end of the century, an average baby born in South Korea will live to the age of 92.

This two effects combined result in an ageing population, with a population growth rate that has been significantly decreasing over the years (Graph 4), a fact that reinforces the notion that, even though a reduction in the country’s population is not yet a reality in the short-run, it seems to be an unavoidable scenario in the long run (Graph 5).

Graph 4 - Rate of population growth in South Korea (1960-2020) Data source: Populationof.net

Graph 4 – Rate of population growth in South Korea (1960-2020)

Data source: Populationof.net


Graph 5 - Estimated population of South Korea (2021-2050) Data source: Populationof.net

Graph 5 – Estimated population of South Korea (2021-2050)

Data source: Populationof.net

Promoting population rejuvenation

In order to combat this concerning demographic framework, various measures have been taken by the government in recent years, with a significant $70bn made available to be channelled into incentivising childbirth, marking it as one of the largest childbirth incentives worldwide, encompassing subsidies, facilities, as well as multiple perks for working parents and large families. For instance, in regards to subsidies, 500 000 won (around $500) are awarded to expectant parents so as to help covering prenatal expenses, as well as a monthly allowance  of around 200 000 won ($200) during the infant’s 1st year.

Also, in recent years, the government has been working in providing free day-care services for everyone, implementing more flexible pick up and drop off hours,, as well as allowing for exceptions in which children of both working parents are attributed priority in long day-care waiting lists.

In addition to all these national measures, some specific cities, like Seoul, have applied localised measures such as subsidising fertility treatments, providing free parking or even offering housing assistance.

However, as of today, these measures appear to have had little impact in boosting birth rates. This is probably due to the fact that the issue of the problem lies not in monetary concerns, but on the deeply rooted mentality of South Korea’s society, which attributes primacy of work over family, making it hard for women to conciliate the two realities (inevitably leading them to choose one over the other).

 

Paving the way through the correction of a historical problem

The solution to this demographic problem seems to revolve around increasing women’s participation in the labour force, actively incentivising it by granting them the same salary rights as men, as well as offering more benefits for working mothers. In fact, this can only be achieved if women are allowed the proper balance between work and family, leaving them enough time to dedicate to their children, as well as granting them the maternity leave they are entitled to and also not using that matter as a discriminatory selection criterion in job interviews.

In sum, while this seems to be the best course of action to take in order to invert the current demographic situation, there is still a long path ahead when it comes to women empowerment in South Korea. In fact, even if some legal action has been taken towards the goal of gender equality, in practice, this change is yet to be felt.

Bridging the gender gap as the sole way of reinventing South Korea

As long as society’s mentality remains unchanged, it is unlikely that the government will succeed in combining an increase in women’s participation in the labour force with a rise in birth rates, dooming the country to suffer the consequences of a long economic and demographic winter.

Sources: Asiasociety.org, BBC, Bloomberg, History, JSTOR, Kostat, Populationof.net, The Economist, Wilson Center, World Bank, Worldometer

Gonçalo Ferreira da SilvaGonçalo Ferreira da Silva  

Inês LindosoInês Lindoso       Mariana SoaresMariana Soares  

Rodolfo CarrasquinhoRodolfo Carrasquinho

Luxurious consumption: (not) for everyone?

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Since the beginning of mankind, evolution has gone far changing fundamentally the way we live our daily life despite little or no change in our biology since thousands of years: we now have healthcare, language, our habits.

Still the most fundamental things of our nature did not change much.

Humans’ most basic needs did not disappear as we are still subject to biology (we need safety, sheltering, food, sleep…). But steering from survival we also have needs that, still biological, are necessary for a pleasant existence. The overall desire to feel accomplished, recognized and respected is one of them.

The american psychologist Abraham Harold Maslow theorized about human needs as being hierarchical. He put the Esteem needs towards the top of the pyramid in his famous Maslow’s Hierarchy of Needs chart. The framework is still used today as the basis for many consumer psychology studies (brand managers know this well!).


Maslow's Hierarchy of needs

Maslow’s Hierarchy of needs

All these needs are shared with our ancestors, even though the ways we satisfy them today are much different.
For this article, we want to focus for a moment on the esteem needs and how we deal with them.

Travelling back in time, we realize that the way we perceive status and accomplishment has changed dramatically. Back in the early 20th century,  recognition of prestige and success was relatable with something that today is considered as basic income level goods: simply owning a car or having access to products and appliances like a toaster, a vacuum cleaner or a radio were status symbols upon release.

Thanks to a mass economy of scale, globalization and technological advancements prestige is less correlated with these things and access to common goods and easy mobility is somewhat granted for a big percentage of the world population. Following our previous example, having a toaster in the 50s was somewhat a luxury whereas today it is just a machine taking up space in a kitchen. This means that what was considered a luxury in the past, is now considered common, which forces people to search for something original, unique and that makes them feel special in comparison to their peers.

As a result, people are going a long way to present themselves as accomplished and successful. Evidence has shown time and time again that luxury purchases are overwhelmingly emotional and driven by perceptions regarding self-identity and self-comparison. Since luxury goods have the ability of changing the perspective of who we are, they deliver emotional benefits regarding self-esteem, power and overall satisfaction regarding the consumer and his identity.

A paper of 2015 about preference of luxury goods concluded that luxury products are associated with success and considered a way to satisfy needs of social integration. In the study, most participants stated that luxury items helped them to highlight their personality and demonstrate their self-value, improving their confidence and self assurance, meaning that, through the purchase of expensive items or services, people get a feeling of accomplishment that enhances their idea of self-worth.

This is relatable to the concept of “conspicuous consumption” that was first introduced by the economist Thorstein Veblen. In essence, so-called luxury products serve a purpose beyond their utilitarian value, by providing a more visible one: the status value of the product. They provide the chance to publicly display individual economic power.

More recent studies further confirmed this vision, as Rayo and Becker (2006) suggested, the purchase of certain items was mainly motivated by a desire to advance in the social ranking and was viewed as an investment in self-image that could be projected to surrounding outsiders. Also, Manolis and Roberts (2008) defended that conspicuous consumption is a result of a motivational process where the individual wishes to improve social status by displaying consumption of products that symbolize a certain social position.

As a result, it is important to talk about “Veblen goods”, a very particular type of goods that contradict one of the most important laws of economics, the law of demand. As opposed to the “typical” goods, these are subject to an upward sloping demand curve, that is, as the price rises, so does the demand. This phenomena seems to question the rationality of economic agents, since ultimately individuals ask for the best price. But as we see, real life is different.

Just Imagine that you are online shopping and an advertisement pops-up: “Gucci bag at 19.99$, limited offer!”, what’s your first thought? It’s fake, right? At least, that is what most people think, and who can blame them? Gucci and other designer brands are associated with luxury, quality and exclusiveness. All of these attributes seem to lessen as the price goes down. Other examples are hyped sneakers, produced in limited quantities, as demand rises, so does the price. However, demand does not stop increasing since desirability is linked to exclusivity, to scarcity.

In behavioral economics and marketing, this lesson is well known and the markets for Veblen goods are increasing horizontally and vertically, with more and more exclusive and vintage products gaining traction in a stock market manner. These kinds of effects are part of our decision-making process as we don’t know the absolute value of any product or service, because, objectively, the value of anything is nothing more than a human construct. Brands are the most exemplary case for a psychological construct holding value.
If you’re offered (for free) a no brand version of your favorite piece of clothing and one from your favorite designer, you would probably go for the latter, even if the two items were exactly identical.

What if I have to decide on something I’ve never seen? To evaluate such a decision, our brains go for the relative price, comparing it to the most similar choice. What if we have no reference? Well, that’s difficult…for your brain too.

This human brain feature is called reference dependence. We rely on a reference point to make a judgement. This is usually well known by marketing departments and is a crucial way to find untapped business opportunities. Suppose you, as a company, are the product architect of a brand new product: a fine piece of jewellery with a rare material that no one has ever heard about. You will have to decide a price point for launch, which will influence future perceptions of the jewel. That is, you have to decide on the positioning of your product in the market. But how to proceed when your product doesn’t have anything directly comparable? Where you’re going to put your product next on the shelves, will also correspond to where it is positioned next in the consumer’s mind. New car price tagged the same as a Ferrari will not be regarded as a Prius!

After all, price is associated with quality and this abstraction can be more elaborated (that is the job of brand managers). With luxury goods, elasticity of demand is different than with consumer products, and price plays a vital role in consumer decision making. Price is a handy heuristic for quality.

The “You get what you pay for” goes far beyond the physical characteristics and attributes of a product, and most of the time those attributes don’t even matter. Blind tasting experiments with expensive wines showed that the majority of consumers can’t differentiate wines over a certain price threshold and even the most renewed sommeliers have troubles if blindfolded of the label.

So is it all in our minds? It was proven in a study made by Stanford and Caltech scholars regarding wine tasting that when looking at the MRI scans of the participants’ brains, not only did people rate more highly the most expensive wines, as they also enjoyed the experience of drinking them more.

Another take on the matter from Michael Norton, a professor at Harvard: “There’s an extra boost when you go up in the quality of experiences. So, it’s possible that a $10,000 bottle of whiskey would be more than twice as pleasurable than a $5,000 bottle of whiskey because it’s such a peak experience way out in the extreme.”

As an endnote, luxury serves a purpose beyond the experience itself and it is quality that goes on the sociological side. When people are satisfying their egos and amplifying their self-value through expensive items and services, they are also sending a message to everyone around them. This can only be achieved by publicizing that lifestyle and receiving public recognition and praise.

A very famous example of using luxury to reinforce social status came from Louis XVI along his bride Marie Antoniette. Royalty historically used luxury and wealth as a power statement.

In essence, there is a general acceptance in our society that possessing some items qualify an individual as successful and that gives them access to exclusive social circles that are recognized as powerful, wealthy and prestigious.

Through this article, it becomes understandable that Veblen goods and luxurious experiences serve a very important purpose for human beings as they satisfy a need that is sometimes unclear due to its intangible attribute. Mainly, the need to be accepted and recognized by others which is present in all of us. Ultimately, luxury is rational in the eye of the beholder: is human made, and human needed. Definition of luxury transcends time, but it’s materialization is very much unfixed, ever changing, and far from absolute.

Scarcity makes luxury. Not diamonds.

Picture2.png

Afonso SerranoAfonso Serrano     Alvise PersegatoAlvise Persegato

Benedita EliasBenedita Elias

US Elections 2020 and the Stock Market

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General effect of elections on the Stock Market

Political stability is known to be one of the most relevant requirements for one to invest in a given market. Given this fact, it is no wonder that the United States have been the number one place to invest in over a century. One may say its capitalist policies have been the primary cause to that result but it is also important to notice that, unlike many of its European and Asian peers, this country has been under an ongoing democracy since 1776, which ultimately led the country to be seen as one of the most safest and transparent places to do business in.

Since we are talking about one of the main drivers of the current world economy, any political deviation tends to trigger either positive or negative worldwide economic forecasts, thus, influencing financial markets as whole.

Going into the most recent elections between Joe Biden and Donald Trump, and despite the polls pointing from day one to the Democratic nominee, expectations about bullish or bearish views on the market (e.g. Energy Sector) were highly reliant on this election. However, it is important to bear in mind one very important aspect: both the Democratic or Republican parties believe that, under their own policies, the overall economy will grow at a faster and sustainable pace than under the other. Therefore, usually there are no major setbacks in stock markets since a large share of the US population must trust on the chosen economic strategy.

 

But for how long can this volatility affect the market?

Let’s use for example the two most disputed elections of the new millennial:

Al Gore vs George W. Bush 2000 election

In the midst of a Dotcom Bubble and a slowing US economy, the Al Gore vs George W. Bush clash took place, leading to one of the most disputed elections the country had ever seen, with a losing candidate having more popular votes for the first time since 1888 (Gore had approximately more 500.000 votes than Bush). After a very close race between both candidates, Florida’s 25 electoral votes were called “too close to call” after George W. Bush had won the state by a mere 900 votes out of a 6 million ballots cast. Such a close margin led Gore to demand a recount by hand in vary crucial counties, thus, postponing any official announcement for 36 days, and taking Wall Street into some red territory.

Overall, the S&P 500 had tumbled 7.8% during the recounting of votes and the final decision by Florida’s Supreme Court to overrule that same recounting.

Picture 1.png

Hillary Clinton vs Donald Trump 2016

During the final hours of the shocking 2016 elections, investors once again feared that no one would come out victorious as Florida’s counting was already looking similar to the one seen 16 years before. As so, Dow Futures plunged as much as 5% in the after-market, as a close call could once again lead to a lingering recount. Nevertheless, Hillary Clinton conceded the victory shortly after the official results came out, bringing relative calm to the stock market and even giving it some momentum.


Picture 2.png

What were the markets betting on?

For months, the world had its eyes on the U.S. Elections and last week’s slow and excruciating wait for its outcome left millions of people worldwide constantly refreshing electoral maps and predicting its result. As millions of individuals around the globe, the stock market also established its prediction, based on one specific indicator: the S&P 500’s performance.

Historically, since World War II, 88% of the times the most relevant equity index in America fell in the three months prior to the election, the incumbent party lost. On the other hand, when the S&P 500 showcased some growth, the incumbent candidate for the presidency has won. This year was no exception. Until little time prior to the elections, the index was predicting a Republican win, yet, on the last Friday of October, markets were shaken and the S&P 500 drop 1.2%, registering a 0,04% plunge between the last days of July and October that, despite the very slight margin, meant a favorable result for Joe Biden, the Democratic candidate.

Despite the general idea that a Trump presidency would ultimately benefit Wall Street due to lower taxes and loose regulations, investors, businesses and the overall corporate America showed no worries of a possible blue wave, even considering Biden’s explicit support of a higher corporate tax rate, stronger unions and an expansion of government-run health insurance.Indeed, according to Harvard Business School professor Deepak Malhotra, “There is a growing sense that for business to do well, [and] for the economy to do well and to grow, you need a government that’s functional” matching JPMorgan statement that, despite the “consensus view” that a “Democrat victory in November will be negative for equities”, the multinational investment bank sees this “outcome as neutral to slightly positive”. Furthermore, Goldman Sachs stated that a Democratic win would increase the possibility of a fiscal stimulus package amounting to $2 trillion by the time of Joe Biden’s inauguration and his plans to increase spending on infrastructure, health care and education would ultimately “match the likely longer-term tax increases on corporations and upper-income earnings”. Supporting such predictions, Moody’s Analytics investigation outcome showed that Biden’s economic policies would create more 7.4 million jobs that Trump’s would, leading the economy to return to full employment by the second semester of 2022.

One should also not forget the fact that Joe Biden, given the current predictions, will rule the US under a Democratic Congress and a Republican Senate accentuating the need for compromise in all future policies. Rumors have it that Mitch McConnel and Biden have a healthy and professional relationship of mutual respect and they have worked well in the past, but only time will tell if the Senate will constitute an obstacle to the future POTUS or a means of achieving bipartisan consensus regarding the future of the United States of America.


The Evolution of the S&P 500 in the post-election: Markets seem to like Joe Biden so far

The Evolution of the S&P 500 in the post-election: Markets seem to like Joe Biden so far

Ultimately, investors dream about stability and smooth transitions of power. The latest remarks made by President Donald Trump before and after the elections, where he refused to concede to Biden and promised to legally contest the voting outcome, worried financial markets. Uncertainty surrounding the most powerful office in the US means trouble for investors and, due to this fact, we dare to say that they are looking forward to a Biden presidency and a peaceful ending to the Trump era. At the moment this article is being written, the outcome of the election does not seem final since top Republican officials are backing Trump’s unfounded accusations of election fraud pushing the process to the courts of law. If there is not a clear victor soon or if Donald Trump continues to refuse the will of the American people, markets will get edgy and volatility will be the law, in the short run.


 Francisco NunesFrancisco Nunes 

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João RibeiroJoão Ribeiro

Joe Biden, the 46th President of the United States

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Joseph Robinette Biden Jr. won the 2020 US Elections, becoming the President-elect, with his inauguration as the 46th President of the United States of America being planned for January 20th, 2021.

After a turbulent election week, delayed by prolonged counting, due to an increased number of mail-in ballots and early votes, as well as allegations of voter fraud. The fog eventually cleared, and Joe Biden has come out victorious, with decisive upsets in Pennsylvania, Arizona, Michigan, Wisconsin, and Georgia. Some results have been highly disputed, and the Trump campaign has already called for a recount in Wisconsin, Georgia, and Arizona. Despite all this, everything points towards Biden beating Trump, 306 to 232 Electoral College votes.

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Senate and House of Representatives

Joe Biden is experienced for the office, having already served two terms as US’ Vice-President under the Obama administration, as well as six terms as Senator of Delaware.  His presidential campaign was based on being an experienced, traditional American politician, with an old-fashioned appeal and charismatic honesty.

With Biden at the helm, it feels like Washington’s future will be predictable and optimistic, unlike the last four years of Donald Trump’s erratic presidency.

The first two years of Biden’s mandate, however, will highly depend on the outcome of Georgia’s Senate runoff race. If Democrats can secure both seats, the Senate will be split 50-50 between Republicans and Democrats, with Kamala Harris, the Vice-President, serving as tiebreaker. As the House of Representatives is already held by Democrats, it would be considerably easier for Biden to pass some of his more ambitious policies, that stem from a more progressive wing of the party if both chambers were held by Democrats. Biden managed to gather the support of these progressive members of the Democratic Party, following his nomination for the Presidency. The impact of Alexandra Ocasio-Cortez’s and Bernie Sanders’s policies, if passed, could bring a substantial shift not only to American politics, but also to its socio-economic structure.

On the other hand, if Democrats are unable to secure both Senate seats, Biden must wait until 2022 to try to obtain a Senate majority, when 34 Senate seats will be up for election. Until then, Biden would have to strive for Bipartisan measures, that would be less ambitious than his proposed measures, especially regarding a new tax plan and healthcare bill.


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What can we expect of Biden’s Presidency?

Biden has already stated that on his first day in office, he will rejoin both the Paris Climate Deal and the World Health Organization, following Trump’s unexpected withdrawal from both these agreements, in 2017 and April of this year, respectively.

It has been made clear by the elected President, that he will tackle this pandemic with a science-based approach, appointing a task force of scientists led by Dr. Anthony Fauci. The Biden administration will also have to face the current crisis that was brought forth by the Covid-19 pandemic. This will be one of the major hurdles to surpass, as restructuring the economy will be vital to ensure that the American Economy overcomes this crisis. The plan is to primarily help low-income families, as they were the most affected by the current crisis, by encouraging the creation of small businesses and their expansion to economically disadvantaged areas. These areas are predominantly inhabited by minorities, and these measures would allow for greater racial equity throughout all social classes and ethnicities.

In the long-run, Biden plans to take concise action towards fighting Climate Change, seeking to invest $2 trillion to boost clean energy and rebuild deteriorating infrastructure. According to Biden, the US is currently facing “A Child Care Emergency”. To tackle it, he plans to invest $775 billion to lower the cost of and expand the access to healthcare for Americans. To raise funding to apply these measures, the Biden administration plans a tax increase on people earning over $400.000 a year, as well as multi-million dollar companies, who benefited from tax cuts under the Trump Administration. However, as mentioned before, these highly ambitious, but ground-breaking measures, are extremely difficult to be approved in a Republican-controlled Senate.


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Biden’s plan on Foreign Affairs

Biden has clearly stated that he intends to revitalize the Iran Nuclear Deal, following Donald Trump’s unilateral withdrawal from it, correcting the subsequent unforgiving economic sanctions that plummeted the Irani economy into a deep recession with soaring inflation and shortages of basic goods.

The election of Biden for President was not the desired outcome for Mohammed bin Salman, the Crown Prince of the Kingdom of Saudi Arabia, as Biden announced he would reassess the relationship between the US and Saudi Arabia. He further declared he will demand accountability over the killing of Jamal Khashoggi, a Saudi journalist murdered inside the Saudi consulate, in Istanbul. The military support provided to Saudi Arabia by the US government in the Yemeni Civil War has also been questioned due to the increased death toll of civilians by Saudi Air and Drone strikes. This contrasts Mohammed bin Salman’s relationship with Donald Trump, who in 2019 referred his Saudi counterpart as “a good friend of mine”, after deciding not to confront the Saudi leader following the murder of Khashoggi.

During his tenure as Vice-President, Joe Biden was highly critical of Putin especially following the annexation of Crimea in 2014. He maintained this rhetoric after Alexei Navalny, a Russian opposition leader, was poisoned. However, Biden commented encouragingly the extension of START, the latest nuclear arms reduction pact between Russia and the US, that is set to expire in February.

Regarding China, Biden plans to take a more measured and multilateral approach to “pressure, punish and isolate China”, than the Trump administration’s barrage of sanctions on Beijing. 

“This is the time to heal America”

In his victory speech, the President-Elect displayed empathy and tried to reach out to those who did not vote for him. Essentially, Joe Biden attempted to convey a positive message that sought to reunite the American people, following a tumultuous election.

“To make progress, we have to stop treating our opponents as our enemies. They are not our enemies. They are Americans. They are Americans.”

— Joe Biden in his victory speech

For now, one must wait until the Electoral College meets to officially declare Joe Biden the President-elect, as Donald Trump has not yet conceded, and is still trying to fight a legal battle to annul what he deemed to be “illegal votes”. Only time will tell if Biden will be able to unify and heal a country deeply split by polarizing issues, that range from police brutality and institutional racism, to gun control and immigration. Without this unity, it will be even more demanding to ensure the US can come out of the current crisis stronger, as they did many times before, as a country.

Sources: Aljazeera, CNBC, EuroNews, Financial Times, Futurism, Reuters, The New York Times.


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