Author: Awareness News

Are central banks still capable of influencing economic activity?

September 24, 2020February 2, 2021by Awareness NewsLeave a comment

In the past decades, monetary policy has played a major role in addressing macroeconomic fluctuations. Recently, interest rates have dropped to historically low levels, turning negative in some countries, calling into question the most basic foundations of economics. But how have we come this far and what can we expect?

The goal of lowering interest rates

Central banks act as smoothers of the economy. When it gets overheated, they can, for instance, increase reference interest rates, making credit more expensive and slowing down economic activity. Contrariwise, in times of little confidence, they lower interest rates, facilitating access to loans and stimulating consumption and investment. Even though their action may jeopardize growth in expansion times, it is essential to avoid heavy recessions. Therefore, central banks are key in keeping stable confidence levels.

They can impact the economy by directly changing reference interest rates, reserve requirements or performing open-market operations. In this regard, they may engage in expansionary monetary policy (Image 1), in which case they might, for instance, buy assets, through open-market operations, from financial institutions, injecting liquidity in markets. As aforementioned, this suits recession times and has been taken to extraordinary levels since the COVID-19 outbreak started to dent economies across the globe. Contractionary monetary policy works the other way around, but it is far from being a reality during these times. So, the focus of this article will be on the expansionary side, trying to figure out whether or not monetary policy will be effective in smoothing the economic catastrophe brought by the pandemic, taking the past into account.

Image 1: Expansionary monetary policy tools Source: Corporate Finance Institute (adapted) — *Image 1: Expansionary monetary policy tools*

*Source: Corporate Finance Institute (adapted)*

Monetary policy and how it has changed over time

Adequate management of money supply has not always been the main driver of policy-making towards achieving economic growth. As a matter of fact, Monetarism, as this school of thought later became known, only grew dominant in the 1980s, when inflation and unemployment rising together raised some skepticism about Keynesianism. It was applied by Paul Volcker, Fed’s chairman, as a remedy to slow down inflation in the USA, during Jimmy Carter’s presidency. Similarly, it was put into practice with Margaret Thatcher in the UK. In both countries, the decrease in money supply prevented prices from continuing their seemingly unstoppable escalation.

Image 2: Milton Friedman, the father of Monetarism Source: Hoover Institution — *Image 2: Milton Friedman, the father of Monetarism*

*Source: Hoover Institution*

Nonetheless, as alternative regimes had and have their shortfalls, Monetarism also presented downsides. On the one hand, tackling inflation came at the cost of high unemployment (correlation coefficient between both variables of -0,62) (Graph 1). On the other hand, in 1980 and 1981, money growth targets in the UK were largely missed, worsening monetarism’s reputation, as (Pepper, 1998) noted in his book Inside Thatcher’s Monetarist Revolution.

These attempts to tie monetary policy to nominal anchors (being them money growth, as discussed, or gold and fixed exchange rates) and the fact that they failed proved that economic relationships (such as between inflation and unemployment or money growth) are often too unstable to serve as drivers of policy-making. Acknowledging their limitations in understanding the economy, most central banks devoted their efforts into keeping low and stable inflation, avoiding setting a particular exchange rate or money growth rate. Adopting this approach, they found out they had more flexibility to adapt their policies in the pursuance of their inflation target, which is set at just below 2% by the ECB.

Since the full adoption of the euro took place back in 2002 and until the outbreak of the 2008-2009 financial crisis, the ECB had been relatively successful in achieving close to 2% inflation (Graph 2). Nonetheless, in 2009, inflation accompanied the drop in Euro Zone GDP and decelerated significantly, with prices rising only marginally. In 2010 and 2011, inflation recovered a bit, responding to economic growth, but it would end up slowing down dramatically with the aftermath of the sovereign debt crisis, even when the economy started accelerating again.

As a result, in March 2015, the ECB engaged in non-standard monetary policy measures, implementing Quantitative Easing (QE), hoping to bring inflation back to the target and to enhance economic growth. The program is similar to the one tried by the Fed in the US or the Bank of Japan, being based on the acquisition by the ECB of financial assets (namely, bonds) from banks, which will increase their prices and consequently decrease yields. This decreases funding costs for both individuals and corporations, which is expected to stimulate consumption and investment. In the medium term, inflation should speed up and follow economic growth. Nevertheless, this shifts risk to central banks, whose balance sheets inevitably spike (Graph 3).

Looking at Graph 2 and considering its time frame, this program seems to be linked to economic growth. However, it is difficult to establish causation, as QE coincides with the recovery from the sovereign debt crisis, which by itself should have a positive impact on GDP. However, when it comes to inflation, success is yet to be a reality. This can be a result of two factors. On the one hand, the liquidity trap environment (interest rates close to 0% since 2009 and lately even lower) makes monetary policy less effective – the ECB cannot drop interest rates much further to stimulate the economy. On the other hand, uncertainty – which has risen to another level with the pandemic – leads to higher investment/savings rather than greater consumption – instead of reaching the real economy, inflation is deviated to financial markets, as it will be further developed in the next section.

Monetary policy by the ECB and the Fed during the pandemic and how it has been impacting economic recovery

The COVID-19 economic shock is one of the biggest since the Great Depression of the 1930s (Graph 4). It is particularly meaningful in the sense that the world as a whole – and not just some economies, as during the financial crisis of 2008-2009, for instance – has been heavily impacted. Supply-related disruptions and a substantial fall in demand led governments across the globe to design never-before-witnessed stimulus packages. At the same time, central banks have been engaging in an even more expansionary policy, reflected in their financials (Graph 4).

*Data sources: European Central Bank, Federal Reserve Board*

In the words of the former ECB’s President Mario Draghi, both the ECB and the Fed have been doing “whatever it takes” to help the European and American economies during such hard times. On the one hand, the ECB, besides loosening reserve requirements and setting lower interest rates, has launched its Pandemic Emergency Purchase Program (PEPP) (similar to QE), amounting to 1.35 trillion euros in the purchase of assets, just since March 2020. On the other hand, the Fed has also been undertaking a massive asset purchasing program, alongside direct support to mutual funds, banks, corporations and state and local governments.

The main problem stemming from monetary policy during these past few months is that, as briefly mentioned in the last section, it has not been particularly efficient in addressing supply and demand issues, since the high level of uncertainty channels funds to financial markets instead of the real economy. Especially in the US, this has induced an extreme asset overvaluation – the American stock market is worth, as of September 17, 2020, more than 175% of the US GNP (Graph 5).

Graph 5: Buffet Indicator  Source: GuruFocus — *Graph 5: Buffet Indicator*

*Source: GuruFocus*

More evidence on the ineffectiveness of monetary policy in facing the wreak havoc by the pandemic is provided by the relationship between money stock and money velocity – despite the quantity of money has soared, the velocity at which it circulates struggles to increase, reflecting very low economic activity (Graph 6).

Graph 6: Money stock versus money velocity (US) Source: Federal Reserve Economic Data — *Graph 6: Money stock* versus money velocity (US)

*Source: Federal Reserve Economic Data*

What lies ahead?

Monetary policy has faced complex challenges throughout time. Nowadays, policymakers are being forced once again to think outside the box, which has resulted in the non-standard measures discussed above. For now, policy transmission seems to be struggling, which may lead central banks to increase their stimuli, but maybe this is the time to focus on increasing efficiency rather than on pure money printing.

Sources: Corporate Finance Institute, European Central Bank, Federal Reserve Board, Federal Reserve Economic Data, GuruFocus, Investopedia, OECD, SpringerLink, The Brookings Institution, World Bank

The new era of Business: Exploring consumer-firm interactions

June 30, 2020February 2, 2021by Awareness NewsLeave a comment

The corporate world is well-known by many as a “battleground” where firms compete for market power, higher profits and better public opinion.The search for the competitive edge has led companies to specialize and improve every aspect of their organizations, striving for differentiation in every front.As ideas start to run out and specialization reaches sky-high levels, firms are starting to realise that there is one area in particular that has both much room for improvement and the capability of providing the advantage they look for: the consumer approach.This phenomena is not only embraced by firms simply because they enjoy helping the community. Even though consumers benefit from it, these measures also allow firms to increase their profits. In fact, the consumer service has improved a lot over the years and the saying “The client is always right” has gained special attention from companies. Ever since trades started to occur, the idea of a consumer and a producer being two separate identities only linked by the currency exchanged has been rooted in our minds. However, as stated, firms are now shifting their focus towards the people who are the reason why they exist in the first place. More and more, organizations are trying to end this notion of separation and starting to approach customers with the goal of breaking barriers and gaining trust.One way to do so lies in customization. The development of the trend where buyers customize their own product according to their tastes and preferences has increasingly brought gains for firms. On the one hand, consumers become emotionally attached to the products as they feel like, by being responsible for part of the creative process, the resulting product becomes part of themselves, boosting positivity towards the merchandise and the brand. On the other hand, firms also have the opportunity to receive massive feedback about consumer taste, transforming the otherwise “passive customer” into an “active customer”, transforming the whole decision process – a win-win situation one could say.

The head of the Center for International Manufacturing at the University of Cambridge, Jagjit Singh Srai, even said that he believed most major companies would have customization operations in place within the next 5 years.

*Nike is one of the most famous brands that embraces product customization*

Another way to build consumer trust relies on brand development. Through jingles, logos, catch phrases and multiple initiates firms’ main goal is not only capturing a bigger audience, but also promoting brand loyalty among the regular consumers.It is with no shame that everyone can remember at least a handful of commercials or jingles from their favourite brands, even if they don’t want to. It is actually not our fault that the themes are so catchy that our brains cannot detach from them, or that we are exposed to the same commercial so many times that it sticks. It is a great investment of time and money on the behalf of firms to improve our perception of their reality.

Moreover, brand image is also boosted by campaigns related to events occurring in the world where brands decide to take a stand and defend a certain point of view in order to send a message to their customers, showing what ideals they support. As an example, multiple brands like Nike, Netflix, Ben & Jerry´s and Amazon, decided to make a stand against racism in light of the recent protests “Black Lives Matter” through financial contributions, social media posts and advertisements.

*Part of Nike´s “For once, don´t do it.” Campaign.*

With all these measures the firm´s main goal is to be seen as much more than a company that trades a specific product or provides a service and more as an entity linked with ways of living and thinking, wanting to sell an experience which their customers can identify themselves with and embrace. It is of great importance to feel part of a family that shares their same interests as it drives loyalty and brings security while promoting and expanding companies’ perception within the market.However, it is also very important to notice that by doing so, firms are now starting to interact more and more with social norms and less with market norms. That is, firms, by trying to reach an emotional attachment with consumers, start to fill an enlarged pool of expectations that if they are not able to fulfil, might generate disappointment among the loyal customers that saw them as more than a brand.

Picture this situation:

For years, you only buy shoes of a certain brand, either because you like the design better or simply because you really like the brand’s message. Imagine that you like it so much that you even have posters on your bedroom wall and stickers on your laptop of commercials and slogans by that specific brand. Well, it’s safe to say you have an emotional connection with this brand.

Suppose now, that you made your first order online and the product is nothing like what you expected and so you complain, calling and sending emails to the “Consumer Help Service”. After hours waiting on the phone and a couple of sent emails, you receive no answer by the company you liked so much.

Now, you have a strong dislike towards this brand, you have been personally disappointed and it is very likely that you will not shop there again and will persuade your friends to do the same by telling them all about your experience. This feeling of betrayal would not exist if the emotional connection had never been established. Firms should have this in mind when they decide the type of image they want to send to the public.

To sum up, building an emotional connection with customers has numerous advantages and is a very prosperous way to gain market power and brand loyalty, but it is also a potentially dangerous measure that has the possibility of backfiring and having the opposite effect if the expectations are not met. This being said, emotional connections are a significant way to achieve consumer loyalty, but building an image that cannot be achieved can also greatly damage a firm’s reputation.

Sources: NY Times, The Guardian, Forbes Magazine

Scientific revision: Ana Clara Malta (Behavioral Economics Team Leader)

Populism: Will it stay in lockdown?

June 18, 2020March 3, 2021by Awareness NewsLeave a comment

In periods of economic distress, politicians who find scapegoats for the current situation are usually acclaimed by citizens that once might have felt discouraged to vote. However, the rhetoric used works as an attempt of dividing the population in native members and non-native members and minorities (cultural populism); honest members of the working class and big business owners (socio-economic populism) and victims of corruption and politicians (anti-establishment populism). Given that these arguments exploit societal concerns, they may pose a threat to democracy, by claiming that their opponents do not have people’s best interests in consideration and by excluding from “the people” each and every person whose support is not guaranteed.

In the past three decades, this trend has risen exponentially, even in countries with the most solid economies. According to Tony Blair’s global institute, in 2018, there were 20 countries with presidents or prime ministers that were considered populists, as shown in the graph below. Besides this, 40% of Asia’s population is governed by Populists.

Source: Tony Blair Institute for Global Change

Will populism thrive in the pandemic?

Before the global health crisis, the forecasts for 2020 were the continuous bet in dealing with inequalities and environmental issues. Although companies are increasingly investing in Environment, Social and Governance (ESG), that is not governments’ main concern anymore. The world leaders are trying to prevent the spread of the virus while attempting to reduce the economic implications that will arise. It is difficult to measure populists’ responses to this crisis as each country is adopting different policies and their role depends on whether they are in the office or in the opposition.

The graph presented above illustrates the idea that the rise in populism was hastened by the 2008 financial crisis. Research conveys that there is a significant correlation between the level of unemployment and the popularity of these parties. The virus has also helped uncover structural problems, such as an inefficient health care system or a dysfunctional government, which are likely to sustain populists’ arguments.

Hungary’s Prime Minister, Viktor Orban, is an example of a politician that is availing the pandemic to reinforce its position. After declaring a state of emergency, the government started to attribute the blame to illegal migration and eventually arrested students that were legally studying in the country, just for protesting. By taking immediate measures, Mr. Orban gained trust from the population, which allowed him to extend his mandate to an indefinite period to deal with the current crisis.

Another politician who has climbed in polls is Angela Merkel, for imposing mass testing and effective lockdown restrictions, thus controlling the death toll. Jair Bolsonaro, on the other hand, has made declarations underestimating the threat of the virus, just like Donald Trump, and has not taken any protective measures to ensure its civilian’s health, making him lose supporters.

In times of uncertainty, people look for the answers in their leaders. They prefer someone that actually deals with the situations and takes action from the beginning, whether he is populist or not, given that both populist (Victor Orban) and non-populist (Angela Merkel) politicians have surged in approval ratings.

Another factor that might influence the polls is data manipulation that misrepresents the hard times that the country is facing, or even the control of media pluralism. Besides the fact that populists’ arguments dismantle their opponents with ad hominem fallacies, some of these politicians live in countries with a low level of democracy, allowing them to promote their ideals even further, as it is depicted in the graph below.

Will populism stay in lockdown?

Despite the ability that populism has of growing and marching to brand new territories during economic and political setbacks, there are also some particularities in the pandemic that may constrain it.

Firstly, the strategy that most non-populists are using is the inclusion of messages of union in their speeches. The virus affects all social classes, races, ethnicities and orientations and there is no benefit in exclusion as everyone is working towards the same goal.

Secondly, the only way of tackling a problem is by not ignoring its existence. It comes as no surprise that the electorate demands experienced leadership with concrete goals and actions instead of mere comments, when faced with a recession. The anti-intellectualism promoted by some populists may also be in danger as it is not that appreciated when the entire world is waiting for the creation of a new vaccine and relying on doctors and governments to reduce the potential aftermath.

Lastly, with the increase in the level of unemployment and the decrease in aggregate demand, countries will not be able to survive by themselves. In the case of EU members, they will need financial aid from the European Union to combat this crisis, trying to fight the economic fallout. Thus, the nationalism nurtured by populists may no longer be welcome.

What can we expect?

There could be a significant decrease in populism in Europe if European citizens recognize EU’s assistance and realize the importance of inclusion and union, disregarding the priorly felt nationalist sentiments.

There is also the possibility of a second wave of infections. The sudden increase in cases would prove that the previously taken measures were inefficient and would decrease population’s support of their leaders. As the majority of the politicians haven’t got a secure spot in the office, some current populists might lose its power. However, they usually last longer in the government than the rest of the people and this might be an opportunity for a new brand of populists to arrive with an improved rhetoric that meets the new economic challenges.

India: the biggest lockdown in the world

June 15, 2020February 2, 2021by Awareness NewsLeave a comment

The COVID 19 pandemic stopped the world. Most of the globe entered in quarantine to prevent the spread of the new coronavirus, some with great success, others not so much. Now, we witness the consequences of the pandemic in one of the most populated countries in the world: India. The country is famous for its colossal population growth, low living standards, questionable working conditions and a bad public health system. A terrible recipe to face an epidemic.

The first confirmed case was reported on the 30th of January and many others in the months that followed. . It was on the 24th of March that the government implemented a countrywide lockdown, with 519 confirmed cases, forcing 1350 million people to stay at home in quarantine. Out of those, 280 million live under the poverty line.

Everyone is highly advised to stay indoors and commuting between and within cities or villages is either greatly conditioned or prohibited. Some neighbourhoods in big cities are completely blocked by fences. Even movement of goods, some essentials like food, are conditioned.

A great number of Indians lost all sources of income due to the confinement. It wasn’t long when people started disobeying it. Not because they do not fear nor understand the threat of the virus, but because they have no other choice. If the markets do not open, suppliers can’t sell their products and earn the little income they need to survive, and consumers are unable to obtain essential goods like food and health protection equipment. Also, because of the movement restrictions, the markets that do open have a shortage in supply. Therefore, prices for food and masks have inflated by around 30% according to Público.

Citizens are desperate as they can’t lose their sources of income as, if they do, they’ll most likely starve. Nevertheless, the lockdown and confinement are being enforced by the police, many times resorting to violence. There are reports of police forces beating up big crowds and drivers that are passing where they shouldn’t. They were probably just trying to deliver food to shops or driving to the only market opened for miles.

In the big cities, the situation is much worse. In Mumbai, for example, there are 27000 people per square kilometre. Many live in slums: enormous neighbourhoods with streets no more than 3 meters wide and exposed sewers, where many houses are just composed of one room. Families of 5 members cook, eat and sleep in that one room. How did they get there? Most of them are people from rural areas, brough to the city to work. They accept the job for a low salary and one of those houses in the slums that are generally provided by the company.

During this crisis, the majority either lost their jobs, did not receive the full monthly wages or both. These people now have no income, no home, and no food supplies, being their survival very dependent on food charities. This is the reality for a great number of Indians, having the unemployment rate reached 23.5% last April, according to the Centre of Monitoring Indian Economy (CMIE).

*Unemployment rate in India (Source: CMIE)*

Some try to leave the city on foot as trains and buses are non-operational. If found, the police will beat them and force them to go back, which they do, just to try again by a different route. When they are able to pass, these families carry their children for hundreds, sometimes thousands of miles to return to their home regions. They walk right next to the highways. 180 people, including a 2 years old girl, already died on these routes, either by exhaustion or run over by a passing car. When they reach another settlement, the police will probably try to keep them out.

In the middle of all this, the government has tried to help, but with no success. It has provided buses and train rides between cities, but there aren’t enough for so many. It correctly informed the population about the threat of the virus and why it is so important to stay at home, and acted quickly when more positive cases were being confirmed. But instead of sustaining the confinement by supplying the population, they lockdown cities by all means necessary.

Everything they have to show for their hard efforts, both from part of the government and the people, are the statistics. By the time that this article was written, India had a number of confirmed cases and confirmed deaths that put the mortality rate in 0,03%. Relatively speaking, that is not bad. Many call it a miracle or, at the very least, a mystery. It also has a great number of recovered people. It is true that India has a young population and a generally hot climate, both factors contributing positively to ease the severity of the proliferation of the virus. But that does not tell the full story.

Testing in India has not been enough in comparison with the rest of the world. The hospitals seem completely full of COVID-19 cases. Some became so restricted that other patients cannot get treatment for other diseases, like HIV/AIDS. India is also full of other dangerous illnesses. Pulmonary Tuberculosis, a disease eradicated in so many countries, still exists there and has very similar symptoms as the coronavirus like persistent cough, fever, fatigue and breathlessness. Of all deaths in India, only 22% are medically certified, and wrong diagnosis are often. Hence, many deaths are not being registered as COVID-19 caused, when some most likely are. Many deaths happen at home in India. A family member reports it by phone, and then authorities conduct a “verbal autopsy”.

“Counting deaths has always been an inexact science in India.”

— BBC

Under-reporting of COVID-19 cases and deaths is not uncommon amongst infected countries, but India already has a reputation of a terrible account of its diseases and deaths. All of this makes you wonder: how viable are those “miraculous” statistics?

*Map of cases per million in India by states (source: Ministry of Health and Family Welfare)*

What is more dangerous, the disease or the lockdown preventing it?

Many specialists are studying to get an answer for this question, but for the time being, we just don’t know. Until we have a better understanding and a better system to deal with the pandemic in India, the disease will continue to spread and people will die, let it be by the disease, starvation or another cause related to the lockdown. And as it was shown to us this year, the world can always get worse. A new strain of the coronavirus was found in India, resulting from a mutation, that experts say there is still no reason for alarm, but it can lead to the ineffectiveness of a potential COVID-19 vaccine. Not only that, but the strongest storm ever recorded in the Bay of Bengal, the Cyclone Amphan, is about to hit India and Bangladesh.

The people of India are in need of international help now more than ever. If you think you can help, please consider donating to a charity institution, such as Kolkata Relief.

Site: https://www.kolkatamonsoonrelief.org/
Instagram: @kolkatarelief https://www.instagram.com/kolkatarelief/

Sources: Público, RTP, ABC, South China Morning Post, BBC, CNN, CMIE, MoHFW.

Is TAP worth taxpayers’ money?

June 5, 2020February 2, 2021by Awareness NewsLeave a comment

The nationalization of TAP Air Portugal (hereby simply referred to as TAP) has been a hotly discussed topic recently. In this article, the major pros and cons of such a move by the Portuguese government are put into perspective, during a time in which taxpayers cannot afford to cover a bad decision from those in charge.

Founded back in 1945, under the Estado Novo dictatorship, TAP was initially a private company. During the first three decades of existence, its development occurred at a slow pace, mainly due to the fact that Portugal was a poorly internationalized country by the time. With the deposition of the regime, which led to the nationalization of the company (along with many other businesses), and a further global integration of the country, TAP could grow, expanding its routes and reaching more points on the globe. The fact that TAP took almost 20 years to reach the one million passengers milestone, compared to the 17 million attained in 2019, is a proof of the tremendous development registered not only by the company, but also by the sector as a whole.

What’s the company’s current situation?

Despite the pronounced long-term growth of the aviation industry, TAP exhibits long-lasting liquidity/solvency problems, presenting, year after year, worrying financial statements. As a matter of fact, the incapability of the firm to deliver sustainable results throughout decades led to its reprivatization (2015) in the aftermath of the financial crisis that hit Portugal.

Before diving into the numbers, let us proceed with a brief characterization of the firm’s organization nowadays. In fact, the aviation company itself, TAP SA, belongs to a holding, TAP SGPS, founded in 2003. Besides TAP SA, the group owns eight additional subsidiaries working on related businesses, such as catering, maintenance, cleaning services and computer engineering.

In 2015, under Pedro Passos Coelho’s government, the group was privatized and the Atlantic Gateway consortium, headed by David Neeleman and Humberto Pedrosa, acquired a participation of 61%. Later, in 2016, António Costa’s office partially reverted the process and secured a 50% share to the state, assuring an even split across private and public ownership. This ended up translated into an ambiguous shareholder structure, which has remained unchanged since then. But for how long?

TAP SGPS is in severe financial distress. The graph below says it all. In 2008, owners’ equity became negative and net income simply disappeared, almost never to be seen again. To make things even worse, the level of indebtedness is currently at dangerous levels (above 200%) and, even though the expansion of the aircraft fleet has been contributing to increased assets, liabilities struggle to be reduced. In finance, such analysis should ideally be conducted via peer comparison, but the values presented (namely, those relative to income) are intrinsically poor and are a good portrait of the group’s frightening financial situation.

Should TAP become a state-owned company again?…

In this dramatic scenario, one may wonder what factors could be a justification for state ownership, as the financial situation does not seem to be one. Consequently, on the one hand, nationalization’s supporters argue that private management would only care about profit and this would potentially mean the elimination of important routes for the Portuguese community, such as the links with Guiné-Bissau or Cabo Verde. On the contrary, the state would defend the best interests of citizens, even if they led to inefficient outcomes. In this domain, the fact that most European countries have state-owned airlines is often used as an authority argument to back nationalization.

Another idea in favor of state control is the role of ambassador of the Portuguese culture that TAP is believed to play abroad. The defendants of this thesis argue that, by becoming private, the brand would lose connection to its Portuguese background and start to be seen as just another airline, which would harm Portugal’s international exposure. In fact, this is one of the main concerns of António Costa’s government, which considers TAP as a «strategic company». Taking into account that the aviation industry is among the most affected by the COVID-19 pandemic, he says that the government will avoid its bankruptcy at all costs. Also, TAP employs more than 10,000 people nowadays and many believe that privatization, a merger or an acquisition by a competitor would mean many jobs lost.

*Could thousands of employees fill unemployment claims in case of privatization?*

… Or should it be effectively privatized?

On the privatization side, people argue that the state has no right to arbitrarily inject taxpayers’ money into a company near bankruptcy and which can well be run by a private entity with no prejudice for national interests. If for a bank that is admissible due to systemic risk, an airline company is not believed to be worth of taxpayers’ effort, especially considering that there are loads of similar companies providing the same kind of services, many times at a lower cost for the client.

An interesting counterargument to that of national interests is precisely that, as opposed to the theorized, TAP does not defend the interests of Portuguese citizens, but rather those of Lisbon. The company is accused of regionalism, namely owing to the fact that it announced the re-establishment of more than 70 routes from Lisbon and just 3 from Oporto after the lifting of containment measures. So, if the company only serves one city, it is argued not to be fair that all taxpayers are equally liable for it.

To rebut the vision of job posts loss, the apologists of privatization argue that, if TAP goes bankrupt, other companies will come over and fill its place. This would mean that, despite scale advantages, most workers will not lose their jobs, but will rather be hired by other companies. In the context of Lisbon’s airport, given TAP’s large share, this could mean lower fees in case of bankruptcy, as competition would increase. The case of the United States of America seems to support this theory. After World War II, the country deregulated airlines market and, despite Pan American (their public company by the time) went bankrupt, the increase in competition led to lower fees and routes’ expansion.

What does the future hold?

At this moment, there is no certainty about the future of TAP and, even though state’s help (through convertible bonds, for instance) is a possibility, nationalization is unlikely to happen, as the burden it would imply on households during these times would be massive. Extraordinary times demand extraordinary policy action, but taxpayers could well not be able to deal with a questionable public rescue to TAP.

Sources: ECO, Jornal de Negócios, NiT, Notícias ao Minuto, Sabi Nova SBE, Showbiz Cheat Sheet, TAP, Wikipédia

The German clash with the EU

May 28, 2020February 2, 2021by Awareness NewsLeave a comment

In 2015 the German Constitutional Court received a request from a group of 1750 german citizens, raising some doubts about the public debt purchase program undertaken by the ECB near its member states, claiming this to violate article 123 of the Treaty on the Functioning of the European Union. The article states that the ECB does not have the power to directly finance its member states, either through credit concessions or direct purchase of public debt. At the time, the ECB argued the validity of their operations given the legal support from the European Court of Justice.

On the 5th of May of the present year, the German Constitutional Court analyzed once more the 2018 response from the Court of Justice of the European Union in relation to the doubts raised in 2015 by a group of German citizens, and demanded that the ECB deliver, within a 3 months deadline, an analysis of the proportionality of its monetary policies. That is, the German Court does not question whether the monetary policy undertaken by the ECB violates article 123 of the TFUE, it rather wants to infer whether the public debt buy program complies with the principle of proportionality to which the ECB is obliged to stick. The German judges consider that the monetary policies led by the ECB are followed with disregard towards the consequences that those policies may have, and that this approach constitutes a violation of the principle of proportionality. Until the report is delivered, the German Constitutional Court has used its power to prohibit the Bundesbank (the German central bank) from buying any more foreign debt and it has even allowed the Bundesbank to sell the securities it is holding, if it wishes to do so.

Germany being the strongest economy of the European Union, the decision taken by the German Constitutional Court represents a serious drawback in the monetary goals established by the ECB. The decision gets even more preoccupying given that currently all Europe is combining efforts in trying to tackle the major economic crisis striking European economies.

While the German Constitutional Court claims to have power over national institutions, the CJUE already condemned the Court`s decision claiming this to seriously affect the European monetary policy strategy and the latter not to have the right to jeopardize or to contradict ECB measures that are backed by the CJUE, given that the principle of proportionality was always taken into account. CJUE also claims precedence in matters that involve the European Union and, therefore, does not acknowledge the legitimacy of the decision taken by the German Constitutional Court. Isabel Schnabel, member of the executive committee of the ECB, said that the public debt buy program will continue to happen, “regardless of the decision of the German Constitutional Court, given that CJUE has exclusive jurisdiction over BCE and its actions”. The fact that European legislation is above national legislations was not a part of treaties, it merely came into play in 1964 when the European Court of Justice (ECJ) decided so.

Is this the first time that a member state clashes with EU justice?

This is not the first time there is a clash between national courts and European law. A few countries have sought to mitigate this by enshrining the primacy of EU law in their constitutions. And most national constitutional courts have, at some point, declared that, based on article 6(3) of the Treaty on European Union, EU law takes primacy over national law as long as it doesn’t violate the human rights protected by their national constitutions. Constitutional courts have addressed these conflicts in different ways.

One alternative is to interpret constitutional law more broadly, so as to accommodate European law. For example, in 2011, the Greek Council of State recalibrated its interpretation of article 14(9) of the Greek Constitution. This article had previously been understood to prohibit owners of media corporations from applying for government contracts in other areas. But the Council of State decided that, according to the European principle of proportionality, this interpretation was doing more than what was necessary to ensure the objective of the law: transparency in public contracts.

The second alternative national judges have is to interpret European law in accordance with their national constitutional law, assuming the former cannot contradict the latter. This is based on the idea that the national constitution protects certain rights and freedoms that cannot be violated by any law, local, national or European. Few cases like this have appeared so far, but several national supreme courts, namely in Germany, Italy and Spain, have asserted that they have the power to review European law in this way and check if it complies with their constitutions.

A third possible alternative is for national judges to convince the Court of Justice of the European Union to change its interpretation of European law, so that the new interpretation is compatible with their national constitution. For example, in Taricco I, the CJEU held that the statutes of limitations in the Italian penal code violated European law, because they harmed EU financial interests (1). The Italian Constitutional Court then asked the CJEU for an opinion, arguing that complying with their decision would force the Italian penal code to contradict the Italian constitution. The CJEU granted their point and clarified their decision in Taricco I in a more relaxed way.

The fourth alternative national judges have is disobedience, or non-compliance with European law as the CJEU interprets it. This is, of course, an option of last resort. It occurred, for example, when the CJEU declared that a Social Security rule in the Czech Republic that gave an old age benefit only to Czech nationals in Czech territory violated the rights of EU nationals from other member states living there. The Czech Constitutional Court decided it would not apply the CJEU decision and would allow the rule to remain unchanged. The arguments were that the CJEU had exceeded its powers and that the CJEU had failed to take into account the historical fact that that rule was related with the dissolution of Czechoslovakia.

While in many cases national and European justice reach a consensus, it is unavoidable that other cases, like the German Constitutional Court one, will continue to happen. Some consider that these persistent challenges towards European Law from national courts undermine the strength and credibility of the European institutions. Others say that the preference from European Law over National one was a severe and non-democratic imposition over its member states. Nonetheless, this is an important question that urges to be answered in order to better define the future of the European Union: What are the limits, if any, that Europe wants to impose over National Courts in their interference on European policies?

(1) The European Union is partly financed by a share of member states’ VAT. The statutes of limitations for fiscal fraud in the Italian penal code, in the CJEU’s opinion, did not give people enough incentives to not commit fiscal fraud, and therefore harmed the EU’s financial interests.

Afonso Silveira Botelho Manuel Barbosa

Nuno Teixeira de Sampayo

Sources: Euronews, Expresso, Observador, Renascença, EUR-LEX

EU’s Black Sheep: The False Prophets of Poland

May 26, 2020February 2, 2021by Awareness NewsLeave a comment

Freedom, democracy and the rule of law. These were the three most important principles upon which the European Union was founded, as stated by Article 2 of the Treaty on the European Union. In May 2004, when Poland and nine other countries accessed the EU, these were the beliefs they sought to comply with, to their people. However, never have these values suffered from such blatant and dangerous violations, as of today. Sixteen years after the largest expansion of the Union, the Polish state constitutes a major threat to the ideals that cement and define Europe. But how have we come to this point? And most importantly, how will this mayhem be turned around?

Context and History

The Polish “European Project” dates back to its notable economic performance in the 1990’s and its desire of convergence and dissociation with the eastern bloc. Years of negotiation led to a national referendum, in which 77% of voters were in favour of Polish accession to the EU. In 2007, charismatic pro-EU politician Donald Tusk became prime-minister, ensuring a somewhat successful ruling alongside his party, Civic Platform. The following years marked a significant period of growth in Poland, with the reinforcement of its infrastructures, schools, industries and highways, the financial support of the EU and remarkable economic development.

Image 1 - Poland’s GDP per capita growth rate (1992-2019), compared with other European counterparts. The Polish growth has been considerably superior. — *Image 1 – Poland’s GDP per capita growth rate (1992-2019), compared with other European counterparts. The Polish growth has been considerably superior.*

Although the approval rates of the EU were indeed favourable in Poland, the rise of the nationalist, conservative and Eurosceptic party, PiS (Law and Order) was imminent. Founded in 2001 by the Kaczyński twins, two enticing politicians, this party claimed that the Polish government had become representatives of a corrupt and elite institution, submissive to the European Union. This narrative was appealing to a conservative mass of Polish citizens. It is important to highlight Poland’s issues with its independence, as the country has faced numerous attacks and invasions in the past centuries, often having its own sovereignty withdrawn. The impact of all these devastating decades was a collective trauma and insecurity of losing independence and identity. PiS were very successful in portraying this image to the Polish people, promising to retrieve Poland to its fellows citizens. In the 2015 parliamentary elections, the moderate coalition was unable to secure a victory, after Tusk, its main figure, left to preside over the European Council. As a result, PiS formed a majority government, following its crushing victory.

After PiS gained control of both houses of parliament, they also took over the presidency, with Andrzej Duda’s victory in 2015, who stands in office as of today. His voter-friendly appearance and posture allows the party to appeal to the more moderate voters, while Kaczyński operates behind the curtains. The next step for the party was to take over the judicial system.

Democratic Threats and the European Response

Firstly, Law and Order neutered the constitutional court. What was supposed to be an unbiased judicial body to assess the legislation according to the fundamental laws of the country, was now a servant of the main party, packed with loyalist judges and lacking any sort of independence.

Image 2 - Jarosław Kaczyński, the leader of PiS. This politician has been successful for the rise of a nationalist, conservative movement throughout the Polish territory. — *Image 2 – Jarosław Kaczyński, the leader of PiS. This politician has been successful for the rise of a nationalist, conservative movement throughout the Polish territory.*

Following this, the government set a number of laws that threatened the whole independence of the judicial branch. For instance, in 2017, a law was passed that set different retiring ages for male and female Supreme Court judges and giving the minister of justice discretionary power to prolong the mandate of some judges. Furthermore, a Disciplinary Chamber was created to review the decisions of the Supreme Court. Many questioned the independence of this body, whose members were appointed by the government. The Rule of Law was under imminent threat. Political rule reigned amidst Polish Courts, a pattern that followed through the next years, illustrated by various new laws. One of which was a recently appointed act which determined that judges may be punished for implementing a judgement of a supranational court. This represented a flagrant attack on the prevalence of European Law over domestic mandate. A further infringement occurred over a 2018 law that lowered the retiring age of all Supreme Court Judges. It resulted in the dismissal of 27 of the 72 justices, one of which was the President of the institution. The tension between the Supreme Court and the government had risen tremendously as an attempt of judicial takeover was on sight and European action was urgent.

“It is with a heavy heart that we’ve decided to initiate article 7.1”

— Frans Timmerman

These were the words of Frans Timmerman, the then European Commission First VP, in late 2017. The article in question is a punitive clause seeking to discipline countries that breach the core principles of the EU, and if needed to sanction them or even suspend their EU voting rights. The Union viewed the recent laws passed by the Polish government to disrupt the necessary independence of the judicial structure of the nation and an evident violation of the Rule of Law. It was not only a threat to the Polish people, but to the whole foundation of the European Union.

However, the case of Article 7 is still ongoing. Europe seems to be incapable of resolving the rule of law issues in Poland and the main cause of such irresolution is the need of unanimity from the remaining member-states for the European Commission to apply punishments. Poland is being backed by Hungary, another nation dangerously sliding onto autocracy and illiberalism. These two have formed an unofficial partnership which empowers their continuous breaches on democratic values through the need of unanimity vote to implement the punishments the EU seeks to apply. The constant mutual support of the two governments endangers all the values that shape the EU, since every time one ruptures the rule of law, it has the pat-on-the-back-like comfort of the other, which perpetuates the cycle to this day.

Freedom in Peril

The attack on judiciary independence doesn’t stand alone in the repertoire of the government’s attacks on democracy. Despite the democratically legitimacy of both parliamentary elections and a rule marked by intensifying nationalism and strong economic growth, Poland is holding a questionable position on humanitarian and progressive causes. During the refugee migration crisis, Poland was one of the nations who bluntly refused to receive migrants and blocked a deal on the redistribution of refugees within Europe. Kaczyński and PiS have adopted an Islamophobic, anti-immigration stance in their phenotype, despite the ECJ declaring their refusal to be against European Law.

Images 3 and 4 – Throughout the last decade, Poland has been marked by a number of protests from conservative to progressive ones. The most notable ones were the manifestations on Poland’s National Day in 2017, carried out by nationalists and white-supremacist groups.

Moreover, last year Poland declared the creation LGBT free zones, where almost 100 municipalities adopted an unwelcoming stance on the ideology. Whilst the declarations were local and unenforceable, the ruling party has often supported homophobic stances, further enhancing the Christian rhetoric of PiS. Poland is still a considerably homophobic country, as same-sex marriage and civil union are still not permitted. Freedom of press is equally in danger, as a growing tendency to criminalize defamation has pushed the expression of media and news outlets to an increasingly restricted ethos. Poland is the third worst-positioned EU country in the World Press Freedom Index, only behind Greece and Hungary.

*Image 5- Map of Poland, with the LGBT ideology-free zones in red. Almost a third of the country territory has declared these statements*

Image 6- Poland’s data regarding the 2020 World Press Freedom Index

The future is rather unsettling for Poland. If on the one hand, Poles are aware and willing to protest against the undemocratic decisions of the government, on the other, the residing feeling of Polish identity, the Polish family and Polish patriotism is boiling up through the masses, fevered by Kaczyński and his party. The certainty is the following: one must not overlook Poland’s situation. To say this is just a regular right-wing ruling would be an understatement, for we are witnessing the endangerment of European democracy right before our eyes.

Europe must stand its ground and fight the rise of illiberalism, or continue to dig an endless hole of bureaucracy and futile irresolution.

Sources: Financial Times, POLITICO Europe, World Bank, EuroActiv, Deutsche Welle

Teams: Global Politics, European Affairs

EU’s Black Sheep: Orbanism

May 25, 2020March 3, 2021by Awareness NewsLeave a comment

Almost two months ago, Hungary made news all around the world after the country’s National Assembly voted to allow Prime Minister Viktor Orban to rule by decree for an unspecified amount of time. He can now bypass the legislative body if deemed necessary, to fight the coronavirus pandemic. The parliament can repeal this at any time, but the current two-third majority Orban’s party, the Fidesz, holds on the National Assembly makes such a repeal without the government’s approval unlikely. As it was probably predicted, this sedation of Hungary’s democratic institutions resulted in widespread condemnation from all over the western world, but the authoritarian tendencies of Orban’s government have been making headlines for decades.

Hungary is a fairly new democracy, having only had its first free election after a smooth transition from a socialist soviet bloc country into a western-style democracy 30 years ago. Prior to this, the country has an extensive history of authoritarian domination. After breaking away from the Austrian-Hungary Empire at the end of WWI, Hungary became a totalitarian state and lost two-thirds of its territory as a result of the Treaty of Trianon. The humiliation of having lost a majority of its country and having more than three million Hungarians living in neighboring countries lead the government to eventual join sides with the Axis powers in WWII. The war was devastating for Hungary and after the Nazis surrender, the country was turned into a one-party socialist republic under the influence of the Soviet Union for the next 50 years. The lack of a long history of democratic institutions in Hungary could explain the insouciant feeling of the electorate towards Orban’s style of governing, but democracy is also fairly new in the Baltic States, and we do not see this sort of attacks on democracy in those three countries. The success of Orban seems to lie on his talent to appease to the nationalistic and conservative electorate that still dream of unifying the Hungarian people under one great country.

Road to Power

Viktor Orban was born in 1963 in a rural zone near Budapest. He studied Law after his compulsory military service. His time in the military is said to have molded his opposition to the communist regime in Hungary, and soon he became very outspoken, with his master thesis being about Poland’s Solidarity Movement, which opposed communism in Soviet-controlled Poland. In 1988 he co-founded Fidesz (an acronym for “Federation of Young Democrats”) with other young opponents of the regime and demanded free elections and the withdrawal of Soviet troops from Hungary. In these early years, Orban was seen as a young liberal icon behind the Iron Curtain. In the late 1980s, Viktor Orban’s career was symbolic of the democratic and western leaning transformations of Eastern Europe. On the first free elections in 1990, Orban was elected as an MP for the National Assembly for the first time, transforming Fidesz from a youth political movement into an important party in the new democratic Hungary. Orban took over control of the party three years later, and under his direction, Fidesz moved away from the liberalism ideas that originally defined it to a more right-wing ideology. First, he rebranded it as a center-right Christian democratic party, and then later in 2002, as the nationalist and authoritarian party it is today. Orban thought that assuming an empty space on the political spectrum was the best way to have success against the left and liberal parties. Gradually, it became the dominant right-wing party in Hungarian politics. Fidesz’s changes are best understood as responses to Orban’s pursuit of power than as driven by ideological evolution. In 1998, Orban was elected prime minister, the youngest ever in the country’s history. His first term was a regular center-right government. Under his leadership, the foundations for Hungary’s membership of the EU and NATO were laid, and his performance was mostly praised. In 2002, Fidesz lost power to the Socialist Party, and Orban lead the opposition until 2010, when he was once again elected as prime-minister by using the Hungarian’s discontent with the Great Recession and widespread corruption charges against the socialist government to win in a landslide.

The second term of the new Orban government would start the demolition of democratic institutions in Hungary. After the win in 2010, Orban’s party had a two-thirds majority in the National Assembly, and it used it to approve – and then later amend to his benefit – a new constitution that reduced the power of the courts and severely diminished the freedom of the press. Under the new constitution, the number of MPs in the National Assembly was reduced by almost half. The now reduced number of MPs would be elected in redrawn constituencies that are believed to favor Orban’s party, the Fidesz. The new constitution also ended the requirement that judges for the Constitutional Court needed the support of the majority of the parties’ in the National Assembly to be elected, which means judges can now reach the court with a two-thirds majority despite objections from opposition parties, allowing Fidesz to pack the court with allies of the government. As for local courts, the government reduced the retirement age of judges, which forced hundredths to retirement and allowed the government to pack all levels of the judiciary system with Orban sympathizers. With government control of the media, the vanished power of the courts, and a political ally as President, Viktor Orban has created a fortress of power that allowed him to win once again a two-third majority in the National Assembly in 2014 and 2018. With this new coronavirus emergency bill granting Orban the power to rule by decree and to suppress what little remains of the free media in Hungary, the elections of 2022 will likely not be any different.

Can Europe do anything?

The European Union’s reaction to Orban’s recent power grab has so far been diplomatic and deemed “modest”. Although Orban has been suspended from the European People’s Party on his conduct, he has openly characterized the outcome as being “mutually agreed”, instead of a punishment. However, former EU chief Donald Tusk is urging the largest party in the European Parliament to expel Orban’s party, the Fidesz. A statement by thirteen EU countries reminded the risks to fundamental rights and the rule of law but did not directly name Hungary. President of the Commission Ursula von der Leyen urged governments to take strictly proportionate measures, without specifically targeting Budapest, although then mentioned it would analyze the newly passed law and monitor its application. The Council of Europe, the European Commission, Reporters without Borders and the European Parliament all have expressed that the law would pose a threat to democracy in Hungary.

The options the EU has to tackle a case like Hungary are limited. The sanctions process in Article 7 can end up in a member state losing its EU voting rights, but another member can block it – in this case, Hungary could most likely count on Poland’s vote. A proposal to include the rule of law into EU budget negotiations has not been conclusive. The most effective move the European Commission could make might be taking Hungary to the European Court of Justice, as non-compliance with the latter’s rule may lead the country’s first step to exiting the Union. Nonetheless, this process takes time, and for the time being, we have a de facto dictator in the European Union.

Sources: Euronews, Politico, New York Times, Institute Montaigne, The Atlantic, Kim Lane Scheppele on Hungary’s new constitution – the full lecture at CEU

Teams: Global Politics, European Affairs

Is self-control equal to sacrificing pleasure?

May 22, 2020February 2, 2021by Awareness NewsLeave a comment

Have you ever regretted eating that hamburger or that pizza some days later? Probably you have, and you are not the only one. How can this possibly be explained? Well, we are humans, it all lies in the way we perceive our own self-control.

Self-control is the concept of sacrificing short-term pleasure for an important long-term benefit. All existing theories are based on this idea of conflict of preferences between the “now” self and the “future” self. The “now” will seek (and consume) a tempting good, but the “future” one would regret such consumption.

Following this idea, preferences are a key element to have present. It is crucial to understand the reflection of individual taste as it explains one’s choice of consumption. Therefore, to address this opposing conflict we have to explore various properties of preferences and relate them with time.

Firstly, it must be recognized that the conflict between the present and the future implies that preferences actually change over time. This is what behavioural economists and scientists like to call time-inconsistent preferences. Similarly, preferences are usually ranked, meaning that one is more important than the other. So, as the importance of immediate gratification fades quickly as time passes, long-term preferences end up being superior to the short-term ones, forming a hierarchy which consequently characterizes all forms of self-control conflicts. Considering the previously mentioned characteristics, talking about anticipated regret seems pretty logical. Smoking a cigarette provides pleasure to the smoker, but brings with it a sore throat immediately after smoking and potentially cancer in the long term. Knowing this, the smoker who anticipates that he may regret giving into the temptation of smoking a cigarette is experiencing a self-control conflict.

Where does this bring us? Around 96% of the papers that explore the concept of self-control and present it use this idea that self-control lies where there is a given sacrifice of pleasure. More recently this idea is being presented as flawed mainly because of its assumptions. On one hand, it assumes that all consumers trade-off short-term goals with long-term ones and that the absence of a self-control conflict would inevitably result in the choice of the long-term goal (while the short-term goal always represents a breakdown in self-control).

Nevertheless, many elements may change since not all consumers pursue the same superordinate long-term goals. Consider the choice between pizza and grilled chicken salad. A consumer may choose the former but not necessarily experience a self-control failure because he/she does not care about restraining her calorie intake, or because she is a vegetarian, or because she likes pizza more than salad. (Actually, even though American consumers, in general, believe the better a food tastes the less healthy it is, in a recent cross-national survey conducted in the US, UK, France and Belgium, consumers associated ‘unhealthy’ only weakly with ‘tasty’).

Why is this relevant? This is a powerful insight into consumer behaviour that is even relevant in policymaking. A good example of this is the food industry. Behavioural economists cannot substitute nutritionists but they can find a way to help consumers align their goals and actual behaviour with objective criteria. Consumer behaviour researchers can devise interventions that motivate consumers to consider the long-term consequences of their actions. Based on this “theorizing”, it should also be easier to exert self-control when abandoning the idea that pleasurable and beneficial consumption (hedonic consumption) represents a self-control failure. Rather than categorizing foods into good and bad, consumers could train themselves to use relative quantities as a benchmark for harmful consumption. Rationing portion sizes and consumption frequency are indeed powerful strategies to limit food-intake since how much we eat is as much governed by a food’s tastiness as by serving size.

Beyond food and bad habits, self-control is present in our day to day and regret is inherent to human nature. The more we sacrifice short-term pleasure for an important long-term benefit, the more we become aware and the less probable we are to be disappointed over something that we did or failed to do. Regardless, not everything in life is to be regretted and some things are meant to be done today.

Lab Grown Food: Opportunity for sustainability or dystopian nightmare?

May 13, 2020February 9, 2021by Awareness NewsLeave a comment

In 2014, the United Nations issued a report claiming that at current rates of soil degradation “all of the world’s topsoil could be gone within 60 years”.

The production of livestock is responsible for 14 to 18% of our greenhouse emissions and takes up to 70% of all agricultural land. Most of the world’s crops are used to sustain livestock and it is a major cause of deforestation and water contamination, problems which farther aggravate climate change and the health of our ecosystems.

While the world population has doubled over the last 50 years, the amount of meat produced has more than quadrupled – in fact, if the world ate as much meat as the top 20 meat-eating countries, the whole surface of habitable land would have to be used to feed people, and, even if packing animals together, that still wouldn’t be enough. Moreover, factory farmed animals are fed antibiotics: in the US, more than 70% of all antibiotics sold each year now go to farm animals, which has lead many to speculate that the industry is fueling the risk of a deadly pathogen that is resistant to bacteria, a so called super bug, that will have consequences greater than the current Covid-19 pandemic.

By changing the way we grow meat, or our meat consumption habits, this diagnostic would improve significantly. However, what if we could grow all our food from a lab? Meat might not be the only lab-grown product of the future.

Lab-grown meat, as the name suggests, consists on creating a piece of meat through cell culture. Initially, a small segment of cells tissue is taken from an animal and subsequently, added to a growth medium – like a soup that provides proteins, vitamins, sugars, and hormones. Along with a temperature-controlled environment, the cells are tricked into thinking they are still inside their owner, hence growing and replicating themselves. This process takes between two to six weeks, and the final product is a doughy chunk of meat, close to minced meat, which will then give rise to our everyday meat-products.