It was with no great surprise that the award to Jean Tirole of “the Bank of Sweden prize in economic sciences in memory of Alfred Noble”, (more commonly known as the Nobel prize for economics), was accompanied by a loud chorus of praise for the 61-year-old French economist.
Those in France who applauded the president and founder of the Toulouse School of Economics, who is also an Annual Visiting Professor of Economics at the Massachusetts Institute of Technology (where he obtained a PhD in economics in 1981), included French Prime Minister Manuel Valls, his new economy minister Emmanuel Macron, the former presidential advisor to the late François Mitterrand (and controversial first president of European Bank for Reconstruction and Development), Jacques Attali, French education minister Najat Vallaud-Belkacem and former conservative higher education and research minister Valérie Pécresse
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But before being swept away amid the outpouring of such moving, unanimous accolades – and which carry just a hint of chauvinism - it would be advisable to better understand just who the happy recipient of the prestigious international award is, for he has also prompted much controversy. Not least, it is Tirole who has contributed the most in France to the attempts by the finance sector to take over the highest-level centres of economic research. He is one of the better known personalities among a category of experts who I named, in the title of a book I published in 2012, as being among The Impostors of the Economy.
The international alter-globalization association Attac was one of the very few to voice criticism of the award of the noble prize to Tirole after it was announced on Monday. “While a deluge of laudatory comments, in the form of ‘cocoricos’ [Editor’s note: a French term to describe chauvinistic pride] are distilled in the media, Attac deplores this choice that is in keeping with the awarding of prizes to [Friedrich] Hayek, [Milton] Friedman and other neoliberal economists who are in large part responsible for the current crisis,” said Attac in a statement published on Monday.
Of course, none of that was mentioned in the official statement by the The Royal Swedish Academy of Sciences, which explained its jury’s choice of awarding Tirole the 2014 Nobel prize for economics was for the quality of his “analysis of market power and regulation". In its official statement, the Academy noted: “Jean Tirole is one of the most influential economists of our time. He has made important theoretical research contributions in a number of areas, but most of all he has clarified how to understand and regulate industries with a few powerful firms […] The best regulation or competition policy should therefore be carefully adapted to every industry's specific conditions. In a series of articles and books, Jean Tirole has presented a general framework for designing such policies and applied it to a number of industries, ranging from telecommunications to banking.”
However, the award is likely to meet with a much more reserved reaction among the community of French economists. Firstly because the Nobel prize jury has, over the past two decades, taken the detestable habit of recognizing only the neoliberal school of thought, with the notable exception of Paul Krugman, prize-winner in 2008. But economics is not an exact science. It is a branch of social sciences, inherently meaning that it is a discipline the richness of which depends upon the plurality of approaches. With the award made to Jean Tirole, the Academy’s detestable habit continues for yet another year.
There is another reason why many economists will feel disappointed, and this is down to the very person of Tirole. For it was he who created, and remains a director, of the Toulouse School of Economics, which represents the spearhead in French academia for liberal and ultra-liberal economic theories. Furthermore, it is he who was among the very first who invited the world of finance to sponsor economic research in France.
In my book, The Impostors of the Economy, I of course also focussed on many other economists apart from Tirole. I above all attempted to demonstrate how the financial crisis had prompted a wide debate in the US about the honesty and independence of economists, fuelled notably by the documentary Inside Job. In France, I observed, no serious enquiry into the same issue had yet, when the book was published in 2012, been mounted.
Referring to the first early works on the topic, notably those of French economist Jean Gadrey, I went about establishing a list of economists who, by virtue of their academic status, monopolise public debate in France, especially in TV studios, but who most often hide the fact that they sit on the boards of large banks, insurance companies – which in France is illegal – or who carry out projects paid by such institutions (which is also illegal in the case of those who do not seek authority to do so from their academic hierarchy). My investigations focussed on the likes of Daniel Cohen, Jean-Paul Fitoussi, Jean-Hervé Lorenzi and Olivier Pastré, along with their friends within the think tank established by Lorenzi, the Cercle des économistes (The Economists’ Circle), and which is one of monolithic thought.
In effect I applied myself to establish how the world of finance had launched a takeover bid for the world of economists, and that some among the latter had given in, becoming more or less lobbyists for their discreet employers.
To properly underline the gravity of this trend, I also set about establishing how the world of finance had also launched a takeover bid for the entirety of France’s leading economic research sector, and in particular the poles of excellence among the country’s universities. That was the reason that I became interested in Jean Tirole. Below, and over the following four pages, are selected extracts of what I wrote in my book about the Toulouse School of Economics and, by way of contrast, its rival, the Paris School of Economics. This does not present an insight into the personal works of Jean Tirole, but does offer an understanding of the importance he has acquired in the world of French economic teaching and research.
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Extracts from Laurent Mauduit's The Impostors of the Economy:
It is putting it mildly to say that the world of economics, and thus that of teaching and universities, has witnessed a sort of epidemic over recent years, as if a virus has swept through all the higher education sectors responsible for the teaching of economics, the very same sectors that once appeared the most protected from such fatal evolutions in order to follow one single path, that of research and knowledge. It’s not exactly a ‘subprime’ virus, but it resembles the notion. Let’s call it ‘the Tirole virus’.
In the galaxy of the French university system, the economist Jean Tirole occupies a place apart. Along with Jacques Laffont (1947-2004), who enjoyed wide renown for his work into the theory of incentives and regulation, he created the celebrated Toulouse School of Economics (TSE) which, together with the Paris School of Economics (PSE), is unquestionably one of the great French successes [in the teaching of economics].
A leading specialist in industrial economics, and recipient of the French national scientific research centre (CNRS) Gold Medal, Jean Tirole is one of France’s top economists, and one of its most talented ones. But let’s say frankly that he is also one of the most worrying among them, because it is he who, in Toulouse, allowed, in the most spectacular manner, the wolf into the sheep pen – or rather, the world of finance into that of higher education. He gave the example that other universities followed, and which is at the origin of a true implosion in the teaching and research of economics in France.
Brutal acceleration of a thinly-veiled privatisation
It was the Institute of Industrial Economics, the Institut d’économie industrielle (Idei) - the forebear of the Toulouse School of Economics – which, at the beginning of the 1990s, acted as the scout, sealing partnership deals with business companies to create and finance a foundation made up of teachers and researchers. These were paid more than the state-provided salary for those in equivalent posts, engaged in new sectors of research which notably interested the companies. The extra funds were also used to directly finance a specific chair post.
Following suit, numerous French universities in turn created similar structures, benefitting from private capital as well as public financing. Foundations sprang up across the country, with chairs funded by the private sector. But amidst this process of ‘finance-alisation’ of economics teaching, Toulouse always remained several leagues ahead of its rivals.
The problem is that the process is subterranean and invisible. All the new centres that prospered displayed the ambition of being centres of excellence. All the criteria for validation of this were scrupulously respected, but nevertheless the world of finance had, in a manner of speaking, reached the core of the reactor. A law concerning scientific research introduced in France in 2006, which set up a framework of organization for this foundation system jointly financed by public and private funds, as well as by individual patronage (and allowing for tax reliefs), brutally accelerated this thinly-veiled privatisation of high-end university teaching and research of economics.
Jean Tirole certainly keenly refutes the corrupting influence of the financial world’s bid to takeover academia. In an opinion article published in French daily Le monde on December 11th 2007, he presented a lengthy defence of his school. “And independence,” he asked. “While strongly funded by the private sector, American universities are not only places of intense intellectual effervescence but also extraordinary places of freedom. Can one fear that it would be different for French universities? I don’t think so. Firstly because, from personal experience, companies respect the independence of the [institution that is the] university. In the future, they will finance the French university [system] collectively to gain access to well-informed students and experts. To violate this independence would run against the objectives sought. Independence could, furthermore, be reinforced by the diversification of partnerships, the constitution of a capital, the right to publish freely, the validation of studies by major international reviews (guarantors of quality) and competition between universities (a restraint upon intellectual excesses).”
But these arguments have difficulty in rallying support because they give only a slight picture of the implosion of the university system caused by these unbalanced partnerships with the private sector. To understand the extent of this, it suffices to consult a report that is beyond suspicion of bias, which has never been mentioned by the press in France for the simple reason that it was not made public. The report is by inspectors of the French national court of audit, the Cour des comptes, on the subject of the Toulouse School of Economics, and which is published here below.
Vast remunerations
The court of audit’s report, covering the years 2007-2010, demonstrates how the public-private partnership has become something of a strange one. The Toulouse School of Economics is managed by a foundation, the Fondation Jean-Jacques Laffont, as allowed by the 2006 law governing research. The foundation was created by prestigious institutions: the CNRS, the Paris-based School of Higher Social Science Studies (EHESS), the French National Institute for Agricultural Research (INRA) and the University of Toulouse 1. But rather than keeping control of the foundation by inviting private partnerships on a minority basis, these public institutions did everything, under Jean Tirole, to give the private sector a major stake, sharing in the foundation’s management and funding.
During the period 2007-2010, the foundation, with 140 researchers, was funded as follows: 42.8 million euros were provided directly by the state, 33.4 million euros came from private businesses and 825,000 euros were given by the public institutions that founded it. For the year 2010, the state provided 7.5 million euros, the private sector gave 6.825 million euros and the founders gave 165,000 euros.
Among the outside donators figure finance and insurance group AXA, utility giant EDF, Electrabel (a subsidiary of GDF Suez) the public financial institution La Caisse des depots, the BNP Paribas bank, the Crédit Agricole bank, oil company Total, France Télécom and the French Post Office (La Poste).
The private sector has almost as many seats on the board of governance of the foundation as the founding institutions. Apart from its president Jean Tirole and two other qualified figures, the founding institutions are representaed by six board members while the business donators have five seats – representing GDF Suez, France Télécom, Crédit Agricole and BNP Paribas and investment company Exane.
Thus a large number of the board members governing one of France’s top economic research centres are from the business and finance worlds, and notably private banks. These private partners have also brought private sector practices to the foundation, notably concerning salaries. Whereas the average monthly wage for a French university professor reaching the end of his career is around 5,000 euros net per month, the court of audit reported that the monthly wage of those occupying senior chair posts at the Toulouse School of Economics, paid by the foundation, ranged from 21,000 euros to 80,000 euros. The auditors wrote in their report that these remunerations were the result of negotiations between the candidates and the management of the school which were carried out in conditions “close to opacity”.
Bonuses are paid to researchers whose studies are published in top international reviews. In 2010, these amounted to a total of 700,000 euros. This was shared by 46 researchers, athird of the total number, amounting to 15,000 euros each. “The beneficiaries of a junior chair see themselves offered remunerations of between 35,000 euros to 42,000 euros per year (double the remuneration of a [public university] lecturer at the start of their career), plus 10,000 euros for research expenses,” noted the court of audit.
This is equivalent to a time bomb being placed within the French university system, and which threatens to reduce its economic disciplines into fragments. For it creates a two-tier situation, with on the one side a luxurious university, held by the private sector and with teachers and researchers paid salaries that are considerably superior to those of the publicly-financed universities, and on the other the public university of the poor, with under-paid teaching staff.
[…] But the consequences of this unmasked privatisation go even further, for it leads to a very particular method of recruiting researchers. One could reasonably assume that those economists specialised in issues of social exclusion and inequalities have little chance of a career at the Toulouse School of Economics. At the very least, they have fewer chances than those researchers with a more liberal economic approach and whose research is focussed more on issues concerning the financial markets. Take the case of Augustin Landier, recruited by the Toulouse School of Economics for the new academic year in 2009.
Forced into begging business for money
A graduate of the prestigious Paris-based École normale supérieure, qualified as an agrégé in mathematics and a doctorate from the renowned Massachusetts Institute of Technology, Augustin Landier founded a hedge fund in New York before joining the payroll of the International Monetary Fund. As much a trader as an economist, a speculator as much as a theoretician, Landier is the living symbol of the dangerous blurring of lines between the world of finance and academia. He became something of a star of the Toulouse School of Economics, and was soon invited onto the team of the Economic Analysis Council (au Conseil d’analyse économique), a panel of economists who act as independent advisors to the French prime minister.
[…] But another set of consequences is equally apparent. It will no longer be academic criteria – or, at least, not only academic criteria – that will decide the attribution of funding to one or another research and teaching centre, for private sponsors will hold significant sway in the matter. Even among different poles of excellence, the private funders can influence the choice of fields of research. For example, this can be to give preference to studies of the financial economy over research into issues of regulating the economy.
Thos in favour of this privatisation of academic institutions, beginning with Jean Tirole, dismiss this criticism. They underline that while the private sector co-finances the foundations – that of Toulouse and others that have sprung up around France since – there is a firm boundary established between the management of these foundations and the scientific activity carried out under them. That is their line of defence and it is a myth that can be easily exposed.
Another institution as prestigious as the Toulouse School of Economics is the Paris School of Economics (PSE), created in 2006 and which is also managed by a similar foundation. The PSE foundation includes major public institutions that are the CNRS, The École normale supérieure, the School of Higher Social Science Studies (EHESS), the French national economic research institute (l’Institut national de la recherche économique) and the University of Paris I Panthéon-Sorbonne. The private sector is also represented on its board, including financial groups AXA and Exane.
[…] The PSE, which employs around 150 teacher-researchers and economists, appears to have avoided the excesses of its counterpart in Toulouse. The PSE has limited the number of seats for private sector donators on the board of its foundation to just three. The board’s president is Roger Guesnerie, professor with the prestigious Collège de France. The PSE has thus kept a reasonable distance between it and the world of finance which is associated with the school rather than controlling it.
This situation is largely the result of the school’s first head, French economist Thomas Piketty. Keen to defend his independence and, unlike numerous other economists, disinterested in high-life socialising, the young Piketty spent several months away from his research at the end of 2006 and early 2007 to present the project and find funding. But as soon as the school was successfully created, he returned to his research and handed the mantle to François Bourguignon, a former chief economist with the World Bank. This angered some of Piketty’s sponsors, notably AXA chairman and CEO Henri de Castries. This mini-crisis that clouded the PSE’s launch finally contributed to establishing the distance between the school and its private sponsors.
But here again, one can yet again observe that the system established under the 2006 law governing research had negative consequences for the PSE. Firstly, it led to the requirement for researchers and economists to hand out a begging bowl in the corridors, sometimes slimy, of the CAC 40 [benchmark French stock market index], an unhealthy and humiliating process. […] Against the forced-march towards privatization of the Toulouse School of Economics, the PSE went about defending its independence. But this was against increasing difficulties, as underlined in another report by the court of audit (the Cour des comptes) in a report (see below) covering the period 2006-2009.
Dictating the orientation of economic studies
[…] The biggest illustration of the inequalities between the PSE and the Toulouse School of Economics is in the funding of the schools. The PSE received just 2.375 million from its private partners when it launched in 2007, way below the amount of private funding for its counterpart in Toulouse. The spectacular disproportion in funding highlights the risks of the rampant privatisation of high-end economic research and teaching, whereby major banks, insurance groups and industrial giants can favour one research pole over another.
It is a sad but logical process. The PSE, which carries a reputation of being to the Left of Toulouse and more focussed on regulation issues, attracted less funding than its counterpart which focuses more on liberal, even ultra-liberal, economic theories. Can one imagine that the reactionary CEO of AXA, Henri de Castries, would fund, light of heart, the works of Thomas Piketty which present a damning attack on a world of economic and social inequalities of which the AXA boss is a symbol? One can imagine that Castries is hardly an adept of “the fiscal revolution” championed by Piketty.
The epilogue to all this was perfectly predictable. At the end of 2010, Henri de Castries announced he no longer wished to sit on the PSE’s management board. In January 2011, Exane boss Nicolas Chanut sent a vehement letter to all the administrators of the PSE announcing that he, too, would no longer sit on the board.
In this situation where the world of finance holds the commanding position, the inequalities between the PSE and the Toulouse School of Economics is also apparent in the wages paid to staff. Unlike Toulouse, the PSE is confronted with inextricable difficulties in the remuneration of the economists it employs. To its honour, the PSE did not want to copy the remuneration system adopted by Toulouse and which dynamites the system of salaries in French universities. The PSE does top up the level of pay for researchers in comparison to the public education system, but this is often a modest increase. Some of its teacher-researchers are invited to give paid lectures once or twice per month in public institutions such as the Banque de France.
What else could it do? In face of practices in the Anglophone world, the public-sector pay levels are so low that the PSE would lose a number of its economists, tempted to move abroad, if it had not found a way of topping up their salaries. The court of audit report detailed the remunerations of the PSE’s staff. An associate chair is paid between 1,000 euros and 2,000 euros net per month for 48 hours of master’s course teaching in the year. Associate professors are paid 3,600 euros net per month for 24 hours master’s course teaching during the year. Doctorate researchers receive 2,600 euros per month net while post-doctorate researchers are paid 4,000 euros. Quite plainly, pay levels at the PSE lag well behind those of the Toulouse School of Economics
[…] This system of remunerations is alarming, because the public education system does not take responsibility for them given that the pay levels do not correspond with its own salary structure. The PSE economists are not directly responsible, for it is the infernal logic of poor state funding that pushes the school into finding an alternative solution on a piece by piece basis. By leading a policy of austerity, the state joins in a common cause with the financial world which seeks to grab hold of France’s centres of excellence in economic research.
[…] Everything adds up, concerning donations and remunerations, to the situation whereby the PSE is at a disadvantage compared to its counterpart in Toulouse, and this disadvantage is all the more acute between France’s public universities and its higher education centres of excellence: while the state asphyxiates the former, banking and insurance groups finance the latter. Everything, then, leads to much greater economic research focussed upon liberal themes dear to finance and industry than that centred upon issues of closer interest to civil society. Whatever Jean Tirole may say, it is finance that has hold of the power and - even if the PSE offers resistance to this, for which it should be applauded - it is in the process of winning the wider battle.
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- The French version of this article can be found here.
Laurent Mauduit's book Les Imposteurs de l'économie (The Impostors of the Economy) is published in France by Pocket, priced 6.80 euros.
English version by Graham Tearse