Topic: Business & Public Policy
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Beyond Repair
The potential downsides of right-to-repair laws
The “right-to-repair” movement scored a major victory in June when New York state passed the first law requiring companies that make digital electronic products to give the public access to repair instructions, tools, and parts.
The goal was to make it easier and cheaper for consumers to fix their gadgets and to break manufacturers’ monopolies on the repair market, allowing independent repair shops to compete.
Yet despite a groundswell of support from consumer and environmental groups, right-to-repair laws may have unintended consequences, according to Haas research co-authored by Assistant Professor Luyi Yang and appearing in Management Science. The result could be higher prices, more e-waste, or longer-term use of older, energy-guzzling products.
“Strikingly, [right-to-repair] legislation can potentially lead to a ‘lose-lose-lose’ outcome that compromises manufacturer profit, reduces consumer surplus, and increases the environmental impact, despite repair being made easier and more affordable,” says Yang.
Yang built a model to analyze how manufacturers, who generally oppose right-to-repair laws since they can reduce demand for new gadgets, might respond to the new regulations and what the repercussions might be.
The answer depends on the type of product and especially the price. With low-cost products, the strategic response for manufacturers would be to lower new product prices and flood the market, thus reducing the appeal of repair. “Motivating more consumers to purchase new products translates into higher new production volume and more e-waste,” Yang says. “As a result, the environmental impact increases.”
Conversely, for manufacturers of higher-end products that are expensive to produce, a continual price cut would eventually leave the profit margin too thin. If independent repair was widely available, products would have a longer lifespan, making them more valuable. Manufacturers would be incentivized to raise new product prices, which hurts consumers. Easier repair could also lead more consumers to use old, energy-inefficient products, resulting in a higher environmental impact, especially with cars, trucks, refrigerators, or other major appliances.
Well-intentioned policy makers should not make assumptions about who will benefit from right-to-repair laws, Yang says. Instead, legislators should examine specific product categories, including their production cost and environmental impact, and avoid sweeping, one-size-fits-all policies.
Demonstrations in China slowing the country’s economy
Berkeley Haas Dean Ann Harrison on her days as a globetrotting development economist and her new book
(Photo: Copyright Noah Berger / 2018)
As a young economist, Dean Ann Harrison traveled the globe for the World Bank, lugging home reels of magnetic tape from mainframe computers that she gathered from census bureaus in developing countries. She poured over the data she collected, asking questions like: Does freer trade and globalization help or harm workers? Do wealthy multinational corporations help local economies by raising wages, or is it the reverse, and do they exploit cheap labor?
The academic work she produced, as a faculty member at Columbia University, Harvard University, UC Berkeley, and the University of Pennsylvania’s Wharton School, propelled her to become one of the foremost scholars in trade and development economics. She is now the world’s most highly cited scholar on foreign direct investment.
In 2019, Harrison took on a more public role with her appointment as dean of the Haas School, adding a new dimension to a career of serious scholarship that also included serving as director of development policy for the World Bank.
A new book, “Globalization, Firms, and Workers” (World Scientific Books 2022), collects Harrison’s path-breaking work on globalization, trade, and foreign direct investment into a single volume.
We sat down with Dean Harrison to hear more about her work.
Haas News: In the introduction to your new book, editors Keith Maskus and Jed Silver note that your work “shone a light on workers who were not the focus of academic studies in the past, including those in sweatshop industries or multinational firms that were pursuing low-cost labor around the world.” Tell us the backstory of how you came to this work.
Ann Harrison: I was always interested in international issues because I came from an international family. My father was American, my mother was French; I was born in France and French was my first language, and we always went back and forth between France and the U.S. As an undergraduate at Berkeley, I started off as a history major and I became fascinated by questions like: Why are some countries rich and other countries poor? Being a Berkeley undergraduate you naturally gravitate towards these kinds of questions. And then I became interested in the economics of these inequalities, and what we can do about them. By the time I graduated, my goal was to eliminate world poverty. I cold-called the World Bank, since that was their mission, and they told me the most effective thing I could do was to become an economist. So I got my PhD in economics and I started working at the World Bank.
You were working in developing countries at a time when data wasn’t all that accessible. How were you able to gather your data?
In the early- to mid-eighties when I started doing this research, you had to go to Washington and sit in Census Bureau offices to get national data. But as a World Bank staff member, we had more access to emerging market company data. The World Bank lends billions of dollars a year to emerging markets and we would go to countries to help them devise their policies. We supported them in their analysis, and they supported us in our research and data collection. That put me in a position where I was able to get access to census data sets that in the U.S. nobody had access to.
First I went to Caracas and visited their census bureau. I signed documents saying I wouldn’t release their data and they handed me reels of tape from mainframe computers. In some countries, the data sets weren’t so big, so I could get them on floppy disks. Later, they started making PCs, but they were really big and heavy, and I had to get on planes with these heavy computers. I would carry everything back to Washington and the technical people would help me figure out how to read the data. We worked on it for months and even years. I still have some of those tapes— in my basement and I might even have some in the storage closet in the bathroom of the Dean’s Suite.
How many countries did you visit for your research?
I don’t have a tally, but some of the places I went to are Guyana, Trinidad and Tobago, Saint Lucia, Morocco, Pakistan, India, Argentina, Chile, and Jamaica. I spent my 30th birthday in Saint Vincent and the Grenadines—that was nice. I’m sure there are more.
What’s your dinner party answer when people ask you, as a trade economist, has globalization left us better off or worse off?
Economists usually just add up all the winners and subtract out the losers and if the answer is greater than zero, then globalization is good for you. And I think it is true that, on net, it’s been good for a lot of countries. It’s been good for China, which is much richer than it was before. It’s generally been good for the U.S. in terms of access to cheaper goods and more efficient supply chains and opportunities to buy and sell things that we couldn’t have done before. But it hasn’t been good for everyone.
The big mistake economists made is that they underestimated how difficult it would be to compensate those who lost out from increasing global competition. The benefits of globalization hinge on us being able to use the gains to help those who are hurt. But that part of the policy package was not well executed. What could have been good for everybody just ended up benefiting parts of society and hurting others.
The term “globalization” has become a dirty word, synonymous with the loss of the working class, erosion of manufacturing jobs, and rising inequality. Right now we’re seeing a rise of right-wing populist leaders—such as Italy’s Giorgia Meloni—lashing out at globalization, gaining support from workers who feel left behind. How much can we blame the decline of manufacturing and good working-class jobs on globalization?
Technology and automation are replacing people beyond manufacturing—think Amazon fulfillment centers. If you’re educated, you’re doing pretty well, but if you don’t have a college education, you’re doing worse and worse. That inequality is largely being driven by automation. There’s no question that trade did play a role in undermining manufacturing wages. The pain is real. But I found that automation played a much bigger role. We know that’s true because even in China the percentage of workers engaged in manufacturing is declining and people are being replaced by machines. I would say about 75% of the decline is from automation and technology and 25% is from globalization.
You had a counterintuitive finding in one of your papers about Mexico. The assumption was that free trade would benefit workers in Mexico, but it was only the most skilled workers who benefitted while low-skilled workers lost out.
Yes, that’s right, because in order to benefit from globalization you need a lot of knowledge, skill and education. What happened is that Mexico’s unskilled workers were undercut by even lower-wage workers elsewhere in the world. It was a race to the very bottom.
It’s a really interesting case because Mexico put a lot of weight on going global. The leaders really believed that globalization was going to make them richer. The jury is still out.
What are some of your other surprising findings?
Here’s one that is surprising—at least to proponents of globalization. When multinational firms went into a country like Venezuela, the multinationals took away significant market share of the local companies. It may sound obvious, but a lot of governments still welcome investment by foreign firms because they think it will make them better off. What some of my research showed is that this market-stealing effect could be really big and it could hurt you.
The Chinese government figured this out a long time ago. They decided to only let in foreign firms if they partnered with domestic companies. And then eventually policy makers phased out all the benefits that they accorded to the foreign firms. Today foreign companies get no benefits at all in China. So while China understood this from the beginning, a lot of other countries, including the U.S., provided all these benefits like tax subsidies to incoming multinational firms. We thought about the benefits of investment but we didn’t think about the costs in terms of the foregone market share for domestic firms.
You also studied sweatshops.
I did a series of papers on the anti-sweatshop movement. The question was: If you target global companies that set up “sweatshops” and shut them down, what happens to the workers? Are they better off, and is it possible to get to a win-win outcome? What my research showed is that a win-win is possible if you encourage the companies that are already making huge profits to share more of those profits with the workers. But if you force companies that are barely profitable to share more of the meager profits they have, they might go under and workers will lose their jobs.
Another unusual finding looks at what happens when you get rid of special protection for very small firms. In India, 80% of workers work in really small enterprises, and intuitively you would think that removing protection for those firms would not be good for employment, wages, and investment. But it turns out that removing protections was really good for employment and wages because the government had been protecting firms that were so small that they wouldn’t ever get to economically efficient sizes. There wasn’t enough employment growth, wages weren’t high enough, productivity was low. When these laws, called small scale reservation policies, were phased out, wages and employment overall grew.
That was a form of industrial policy, which is another area you’ve studied closely. What is your overall conclusion about industrial policy?
I think there are good kinds of industrial policy and there are bad kinds. You don’t want to promote declining industries. You want to promote the emerging growth areas that are going to create a lot of great jobs tomorrow. What China has shown is that if you systematically promote advanced industries, you can move much more quickly. And so what China has done is given a lot of sectors an artificial advantage. China is not trying to prevent its steel industry from going under. They’re thinking about what are going to be the leading sectors tomorrow and trying to get a leg up there.
You’ve managed a rare career combining serious academic scholarship with public service and leadership. How has your academic work influenced your leadership as dean?
Great question. It has turned out that my three top priorities, innovation, sustainability and inclusion—which I refer to it as my ISI agenda—are the very things I focused on in my research. I don’t think it’s by accident. A lot of the research that I did over the decades was about what happens to people’s livelihoods when they’re exposed to trade and globalization. Who’s helped and who’s hurt? So I’ve always been interested in this question of inclusion and that’s something I’ve brought to my role as dean by prioritizing DEIBJ.
My long fascination with companies is based on questions such as how to identify the companies that are successful, and how to measure innovation at the company level. How do you create something better? So this focus on innovation and the creation of new companies or better ways of doing things is something that I’ve brought to my role as dean.
Right now I am really prioritizing sustainability. When you travel, you see first-hand the huge environmental issues that we’re facing. Access to clean water and access to clean air are fundamental challenges that countries face. Earlier in my career, I became a professor at UC Berkeley’s College of Natural Resources in Agricultural and Resource Economics. And before I became Dean, the last project I worked on looked at how you make environmental policies effective in emerging markets where compliance and enforcement are big challenges. I became interested in green industrial policy, which is industrial policy focused on sustainability and environmental economics. And then when I moved back to California, the first things I noticed were wildfires, drought, blackouts. That just reinforced the importance of sustainable policies. I’ve really taken all that research and background and I’ve used it here as Dean. I’ve gone back to my old contacts at the World Bank and the College of Natural Resources, and we’re partnering with them, and we are building sustainability into our core curriculum so that every Haas graduate can lead in this area.
You’ve talked a little bit about some of the mistakes that were made with globalization, and we’re now in a period of even greater inequality. Do you see any hope of reversing that?
That’s one of the reasons I took this job. I think public education is the solution. That’s the hope. We’re sitting on top of part of the solution right here.
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Report reveals inequity in electricity pricing, calls for rate reform to help fight climate change
Researchers from the Energy Institute at Haas analyzed 11 million Californians’ utility bills and concluded that one-half to two-thirds of the charges amount to a hidden electricity “tax.” The report was commissioned by nonprofit NEXT 10.
Every time a California resident switches on a light or toasts some bread, they’re helping to pay for the damage wrought by wildfires across the state.
In fact, one-half to two-thirds of the electricity bills paid by Californians subsidize costs beyond providing the electricity itself. Some of these costs are closely related to electricity, like the maintenance of infrastructure or investments in energy efficiency, while others are more tangential, like wildfire mitigation and victim compensation.
“The price that we pay for electricity doesn’t reflect the cost of supplying that electricity,” says Severin Borenstein, professor of the graduate school at the Haas School of Business and a co-faculty director of the Energy Institute at Haas. “And, importantly, all these programs that we finance through our electricity bills disproportionately burden low-income households. This amounts to a regressive tax.”
In a new report released today, Borenstein and Energy Institute colleagues Meredith Fowlie and James Sallee—both professors in UC Berkeley’s Department of Agriculture and Resource Economics—analyze the impact of this hidden “electricity tax” on Californians. They recommend two significant policy reforms to ease the burden on low-income households and spur consumer interest in the adoption of electric vehicles, heat pumps, and other electric technology.
The researchers suggest shifting some of the systemwide costs into the state budget, which is funded by less regressive forms of taxation: income and sales taxes. The remaining system costs could be paid using a monthly fixed charge on electricity bills that is tied to income, and therefore more progressive.
The report, “Paying for Electricity in California: How Residential Rate Design Impacts Equity and Electrification,” was commissioned by Next 10, a nonpartisan research nonprofit organization. It builds on the findings of a previous study released last year.
Tallying the invisible costs
The three largest investor-owned utilities (IOUs) in the state—Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric—combine to serve over 11 million people. The researchers matched electricity use from these customers with census data to paint a picture of how much households with different incomes were paying for charges beyond the cost of electricity. These costs include maintaining the grid as well as policy goals such as wildfire mitigation, compensation for past victims of wildfires, investments in renewable technologies, and subsidies for rooftop solar, energy efficiency programs, and low-income customers.
The report finds that in 2019, IOU residential customers were paying an effective electricity tax that averaged $678 per year. The effective electricity tax was $809 for typical PG&E customers, $512 for SCE customers, and $786 for SDG&E customers during the period covered by the study.
They found that the lowest-income households, earning $25,000 or less per year, spend on average more than three percent of their income on these additional electricity charges. Households earning more than $200,000 per year, by contrast, spend half-a-percent or less of their annual income.
“Proportional to their income, lower-income households are paying more than three times what wealthier households are paying,” says report co-author Fowlie, co-faculty director of the Energy Institute at Haas. She also explained that as California invests more money in climate change adaptation and mitigation measures, and as extreme heat becomes more common, “it’s a safe bet that those costs will increase, pushing prices even higher. We should be even more concerned going forward about this relative regressivity.”
On top of this inequitable distribution of costs, the current electricity rate structure discourages many of the actions that are necessary for California to achieve its goals for fighting climate change. The researchers estimate that these extra charges on utility bills reduce the adoption of electric heat pumps by about one-third, and of electric vehicles by between 13%” and 33%. “This is particularly noteworthy given California’s recently adopted rule requiring 100% of new vehicles sold in 2035 be zero-emission.
“When people go to buy an electric vehicle or a heat pump, if they think carefully about not just the upfront costs but also the operating costs, then the amount California is charging these consumers is simply putting up a barrier to adoption,” Borenstein says. He noted, in contrast, that natural gas is priced at roughly the true cost to society, and gasoline is priced below its true cost. “If we’re massively overpricing electricity while underpricing or correctly pricing these other, more carbon-intensive alternatives, then we’re undermining everybody’s incentives.”
A better way to pay
Two proposals emerged from analysis. The researchers advocate moving some of the system costs for the grid and policy goals out from under the purview of electric utilities and into the state budget. To cover remaining costs, they propose a fixed monthly charge based on income.
In the example the authors present for PG&E, e. Households in the middle of the income distribution would pay $70-80 per month in additional fees. Those at the top of the income distribution would pay roughly $150 in fees. Borenstein recognizes that this sum is not negligible, but points out that the accompanying decline in the price consumers pay for electricity would mean that even customers in the highest income bracket would see their overall bills go up by less than $40 per month.
“Though economists play the role of the wet blanket, bearing bad news, I actually think this is a good news story,” Fowlie says. “Policymakers have at-the-ready the levers and instruments needed to respond to this issue.”
The strongest opposition to this work, interestingly, comes from the solar industry, as high electricity prices make solar installations more attractive. But, as the report makes clear, residential solar adoption occurs among predominantly higher-income customers. As these customers install panels and consume less from the grid, the current rate structure becomes even more inequitable, further shifting costs to low-income consumers.
The researchers are optimistic. Just this year, California Senate President Pro Tempore Toni Atkins put forward legislation to move some of these costs to the state budget; and California’s newest budget (AB205) requires the California Public Utilities Commission to implement an income-based fixed charge. It remains to be seen how large, and how progressive, this charge will be.
Borenstein sees this as significant progress. “Even two years ago, a lot of people were saying high electricity prices are a good thing as they force people to conserve,” he said. “Far fewer advocates and politicians are now talking this way, so the work we’ve done has moved the ball. They know the current system simply doesn’t work.”
Read the full report:
Paying for Electricity in California: How Residential Rate Design Impacts Equity and Electrification
By Severin Borenstein, Meredith Fowlie, and James Sallee
Commissioned by Next 10. Read the press release.
Media Contact: John Stodder (Better World Group) stodder.john@gmail.com
About the Energy Institute at Haas:
The Energy Institute at Haas helps create a more economically and environmentally sustainable energy future through research, teaching and policy engagement. The Energy Institute produces research and analysis backed by rigorous empirical evidence and the frontiers of economic research so that energy and environmental policy and business decisions are based on sound economic and business principles.
About NEXT 10:
Next 10 is an independent, nonpartisan, nonprofit organization that educates, engages and empowers Californians to improve the state’s future. With a focus on the intersection of the economy, the environment, and quality of life, Next 10 employs research from leading experts on complex state issues and creates a portfolio of nonpartisan educational materials to foster a deeper understanding of the critical issues affecting our state.
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Norman Y. Mineta, BS 53, first Asian-American federal cabinet secretary, dies at 90
Norman Y. Mineta, BS 53, a 10-term Democratic congressman from California and the first Asian American to become a federal cabinet secretary under Presidents Bill Clinton and George W. Bush, died Tuesday at home in Edgewater, Md., at 90.
Mineta, who as a child was interned with his family and thousands of other Japanese Americans during World War II, died of a heart ailment, according to the The New York Times.
After graduating from Haas in 1953 with an undergraduate degree in business administration, Mineta joined the U.S. Army and served as an intelligence officer in Japan and Korea.
Mineta broke racial barriers for Asian Americans in becoming mayor of San Jose, Calif. in 1971, according to his AP obituary. Elected to Congress in 1974, he became popular with voters by supporting transportation projects and fostering public-private partnerships that created explosive growth in Silicon Valley.
After 9/11, Mineta guided the creation of the Transportation Security Administration.
In an interview about the aftermath of 9/11, recorded by The Japanese American National Museum, Mineta discussed concerns over some public calls for “putting Arab Americans and Muslims in camps.” Recalling a Sept. 12 cabinet meeting, he said a Michigan congressman shared that his Arab American constituents were concerned about fallout from the attacks. President Bush responded that he was also concerned. “We want to make sure what happened to Norm in 1942 doesn’t happen today,” Mineta recalled in the interview, adding that after the meeting he told his staff that “one of things we have to make sure we do is no racial profiling.”
After leaving public service, Mineta became vice chairman of Hill & Knowlton. San Jose’s airport was renamed Norman Y. Mineta San Jose International Airport in 2001; in 2007, Mineta was awarded the Presidential Medal of Freedom. In a statement, President Bush called Mineta “a wonderful American story about someone who overcame hardship and prejudice to serve in the United States Army, Congress, and the Cabinet of two Presidents.”
Read Mineta’s New York Times obituary.
Listen to a 2008 NPR interview with Mineta, who talked about his road to White House leadership and leading the nation through acts of terror on Sept. 11.