What’s wrong with a bit of corruption?

One bit of news over the last few days has been another bunch of Fifa officials being arrested for corruption. You may, of course, be tempted to shrug your shoulders, particularly if you don’t like football much. Maybe if you like it, you may have already got corruption fatigue in light of all the high-profile (and long overdue) arrests thus far.

It might be worth thinking about what exactly is wrong with corruption? What even is corruption? Casting it in an economic light, it’s a mis-allocation of resources, where the means of re-allocation has a criminal element to it.

Thinking even more strongly in economic terms, corruption is rent seeking behaviour. That is, it is behaviour that does not create new wealth (such as producing a new widget that can be sold), but instead that extracts wealth from others. For example, a corrupt official may solicit bribes from those around him (or her); those bribes do not create anything, they simply reallocate wealth to the corrupt official.

Hence we can think that, absent of corruption, there might be a very different distribution of funds and activities in Fifa – some of the vast amounts of money that move around the game might get to grass roots endeavours around the world, in some of the poorest and needy parts of the world, rather than in the pockets of officials of football associations in some of those countries (and other ones).

So, even if we don’t care about football itself, we ought to care about corruption – and we ought to be trying to ensure that in all areas of economic life resources are going where they ought to be going, rather than into the hands of corrupt officials…

Immigration and Sport

At a time when public sentiment regarding immigration has perhaps never been more negative (in recorded times at least), the Rugby Football Union has just started a global search for its new head coach. Apparently South African Jake White is favourite. The appeal is obvious, as White won the World Cup as South Africa coach in 2007. The explanation also, of course, is straight forward in terms of the apparent contradiction: we don’t mind skilled foreigners coming here, it’s the non-skilled ones we apparently have an issue with, and the illegal ones.

This is, of course, labour economics, and feeds into macroeconomics as one of the key macroeconomic variables we’ll spend some time looking at is unemployment. We’ll also spend time thinking about globalisation, too. Unemployment, most simply, is an excess supply of labour: more people looking for work than there are firms looking for workers – at the current market price.

This simple description covers over a multitude of complexities; different types of work have different supplies of labour – hence governments worry about skills shortages, which are insufficient levels of the supply of labour in particular industries. Most people support the idea that we should allow immigration in areas where skills shortages are most acute, and one could quite easily make the case that in elite sport management, that is the case. In football, no Englishman has won the Premier League since its conception in 1992, and in rugby we all know the abject failure of the England team at their World Cup in the last few months.

However, even this is debatable. Some would (and do) argue that English candidates could still do a perfectly good job; after the last non-English football manager, Capello, the Football Association felt compelled to search only for an English candidate. It may well be true: the labour market is one characterised by huge uncertainties: will somebody do well in this job? Can those looking to fill positions necessarily identify the best workers for those roles?

Faced with all these difficulties even at the firm level, it seems very optimistic to think that at an industry level it’s possible to know whether there’s a skill shortage or not?

All sorts of questions you can start to think about asking as you study economics…

Micro: Football and Sackings

Sherwood and Villa in happier times (from the Telegraph)

You’re studying microeconomics at the moment, which by and large looks at individual markets. While you eagerly anticipate macro for next term, here’s some more microeconomic stuff that shows how we can apply what we’re learning to all sorts of situations.

Those who follow football, in particular in the West Midlands, will be reflecting on the end of yet another managerial tenure at a local football club. Tim Sherwood on Sunday was sacked as manager of Aston Villa. A manager is an employee at a firm, most fundamentally; a firm that competes in a marketplace with other firms.

Football is an interesting economic case study, as it’s not immediately obvious where we should focus: should we focus on football teams, or football leagues? Indeed, Walter C. Neale pondered this in the Quarterly Journal of Economics in 1964. Sports teams compete with each other, but teams will always populate leagues; whether the leagues exist is what matters, and sports leagues have come and gone over the years.

Nonetheless, football teams must operate on a day-to-day basis without going bankrupt. Teams like Aston Villa face the very real threat of being relegated from the Premier League. The Premier League is a sports league which is hugely lucrative for the teams who compete within it; relegation to the Championship, the league below, has huge financial implications – massively lower income levels, not to mention reduced prestige. However, the hugely lower income levels (mainly television money, we all like watching the Premier League) are what matter: without income, expenses become unaffordable, and losses will be made.

With a defeat on Saturday, Aston Villa dropped to the bottom of the Premier League, and the three teams finishing lowest are relegated. As such, the decision to sack the manager was taken with the purpose of avoiding relegation. The club will have weighed up the potential cost of relegation, the likelihood of suffering it with Tim Sherwood as manager, the likelihood of suffering it with another manager in charge, all against the cost of sacking the manager (some pay-off will be necessary), and have decided, in their estimation, that sacking Sherwood is their best option.

It’s all economics…