It is rare that a movie captures contemporaneous events so well. The reason why Contagion grips the viewer from the first frame is because it makes allegorical references to the contemporary world we live in and taps deep into our insecurities. It is also an intelligent cautionary tale on the globalisation and urbanisation. As the recent ebola crisis amply illustrates, we are never far from a apocalyptic contagion.

Contagion works at various level. The movie is a docudrama which describes how a contagious disease would spread in todays world and tear apart the fabric of the society. It is a mutated virus that spreads through contact and within days becomes a global pandemic. The disease spreads at an alarming rate because of our interconnectedness. Even though there are no surprises in the movie and the story proceeds at an even pace, the movie turns out to be gripping. I was intrigued by the effect the movie had to me. I was drawn to it as I would be to a movie in the horror or thriller genre, even though it had none of the usual cinematic techniques used in the genre. On reflection, the movie seems to work because it plays on our the insecurities associated with living in a inter-connected modern world. It taps into the insecurities that go much beyond the fear of a global pandemic.

The fact that the movie does not have a well defined human protagonist is refreshing. The story is written around a well defined invisible, yet lethal antagonist. The real protagonist in the movie is the abstract notion of how we organise and govern ourselves as a society. The institutional structures the society uses to organise itself is thus the real protagonist. The protagonist is frail and has serious setbacks but prevails over adversity ultimately. In the well travelled cinematic tradition, this abstract protagonist is fighting a losing battle through the duration of the movie and succeeds in the face of adversity towards the end. The movie proceeds at a even monotonous pace and ends gently without a clear sense of a climax. Yet, the movie grips the audience like a thriller would. Steven Soderbergh has tapped into the insecurities that we carry with us in the modern world. What frustrates the viewer interminably is both the invisible nature of the threat and the incompetent institutional reaction to the threat.

The threat is not idiosyncratic in nature. Put another way, it is not a threat that affects an individual with a given probability. We are quite used to that in the modern world and there are numerous well-developed mechanisms for insuring against idiosyncratic threats. The threat in the movie is a covariate threat, as in, it affects a significant proportion of the population at the same time. The parallel with the recent financial crisis is uncanny and maybe intentional. The institutional reaction to the covariate threat posed by the financial crisis is inadequate both at level of individual countries as well as the global level. The institutions were slow to grasp the nature of the threat from the financial crisis and their reaction was inadequate at best. In the movie, as the global pandemic spreads, the inadequate institutional response leads to break down of law and order. Widespread looting ensues leading to anarchy and lawlessness.  Again, the parallel with the London riots and protests in Greece is uncanny.

The institutions we live with and that govern us were designed for a very different world. Institutions by its very nature get ossified over time.  It is thus not surprising that these ossified institutions are neither able to comprehend the nature or the scale of the evolving threat to our prosperity. Our ossified institutions have not kept pace with the threats that have emerged from globalisation. 

In essence the evolving nature of covariate threat in the modern inter-connected world and ability of our ossified institutions to react to it taps into the insecurity that envelopes all of us in the modern world. There are great pecuniary and non-pecuniary benefits to be had from globalisation. The benefits of globalisation are meaningless if we don’t acquire a new set of institutions that are capable of reacting effectively to the covariate threat the globalised world poses.

Agglomeration and Urbanisation: The technological advances of the last couple of decades along with the natural tendency to agglomerate has meant that we are living a world where we trade off prosperity for a covariate risk. We are moving towards a increasingly inter-connected world with intense specialisation where we are constantly in sync with each other. Thus, we live in a world of impossibly long value chains that implies that a simple product we buy at our local store could have been made in a number of countries. These long value chains allows individuals to specialise and become part of this large interconnected global production process that makes us more prosperous over time. But this interconnected prosperity is like a house of cards. One significant covariate shock and it all collapses in a blink of an eye.

The institutions that govern us are past their sell by date. Occupy Wall Street, the Tea Party movement, the Arab Spring or the Anna Hazare led anti-corruption movement in India is all part of the same overall challenge to our institutional structures. The fact that is easier to communicate and travel has meant that it is easier for the civil society to organise itself and challenge the current institutional structure. There institutional governance structures are still used designed to respond to threats that are staccato in nature. These institutions are like the superstructures in Marx’s world and generate a similar friction in the society due to their inherent inertia.

The institutional governance structures we currently have are synonymous with the modern nation states. Even though the nation state is the organising principle for institutions that govern us, people across the world are able to assort themselves in smaller homogenous groups according to their interests and want to governed accordingly to their newly acquired group identity. Hence, we see emergence of trans-national movements like the environmental movement and political islamism.

Technology is allowing people to group in ways that defy traditional geographical and physical constraints, yet the nation states and its institutions remain embedded in well defined geographical space. It is not at all clear that the demands we collectively place on our institutions as groups can be resolved easily. Something will have to give. It would either be a radical institutional change or a apocalyptic contagion.

Thresholds in Education

Malcolm Gladwell suggests in his celebrated book “Outlier” that the key to success lies in investing 10,000 hours in practising and perfecting a pertinent task. Does that mean that 10,000 hours guarantees success in your profession? Skill is a perquisite for success in most profession, yet that is not all it takes.

Malcolm Gladwell focusses only on the “outliers” in the society. It is obvious that practising a relevant skill for 10,000 hours is just one part of the success matrix. The outliers are likely to be individuals with exceptional innate abilities. The sample that Malcolm Gladwell studies consists of individuals that already have certain innate abilities and have gone on to invest 10,000 hours to hone a particular skill to perfection. Malcolm does, however, make an useful point of about the effect of thresholds in skill formation that we explore here in the wider context of education.

Across the world, there is a considerable debate on whether the quality of education matters, i.e., to what extent does a good teacher have an positive impact on the student’s future life? The fadeout effect has always puzzled the economist, i.e., the impact of good quality education in kindergarten fades out as the student’s grade drop to average level. The Project STAR, a well known education experiment in Tennessee randomly assigned students to kindergarten classes. This allowed Chetty et. al. (2010) to identify the impact that being in a “good class” had on a student. Students from some kindergarten classes did better than others but this effect on student’s educational performance faded out by high school. What is surprising is that the initial positive effect revisits the student in later years. Students that did better in kindergarten were more likely to go to college, less likely to become single parents, more likely to save for retirement and earn more.

What is striking is the impact initial education in kindergarten had on seemingly unrelated aspects of the student’s later life. Of course, the exact channel through which early education impacts later life is not clear from the study.

Heckman and Cunha (2007) summarise decades of empirical work on education. Their story suggests that thresholds are relevant in a very specific way. Formal education consists of acquiring a series of skills that can be mapped on an inverted pyramid. There is certain hierarchy of skills, i.e., acquiring a particular skills allows one to acquire a range of further skills. More specifically, certain primary skills facilitate the acquisition of intermediate skills. Learning how to write or do basic math could be one of those primary skills. Similarly, these intermediate skills allow the students to acquire more advanced skills. Heckman and Cunha (2007) also make the point that the level of a primary skill increases the marginal returns on effort in acquiring a related advanced skill. Put another way, the cost of acquiring a certain expertise on a new skills gets lower if you have mastered the previous skill. That is, the more skilled a child is at reading and writing, the easier it is for her to learn history, geography and physics. In Tennessee, students that were put in better kindergarten classes presumably acquired primary skills that allowed them to attain better outcomes in later life. Some of these could have been direct effect in terms of lifetime income where as others could have been indirect effect like lower likelihood of being a single parent.

This paints a rather depressing picture. Children who get a good quality early education get far ahead of children who miss out on early education. Further, it is almost impossible to catch up once there is gap in a child’s education. Further, at a day to day level, the education systems need to be designed to plug the skill gaps so that children are able to acquire more advanced skills. One critical gap could have a disproportionate effect on a child’s ability to acquire skill in future, which a flexible education system would immediately plug. This is where good schooling and home environment becomes critical. A high human capital parent may be more effective in both recognising a critical skill gap in their child and ensuring that it gets plugged by hook or crook. Thus, low human capital parents and under-performing schools are a combination that fatally damages a child’s future from which there is no escape. If a society aspires to provide social mobility to its citizens, then it needs to address this problem head on. Of course, the problem even the richest societies face is that under-peroforming schools are often found in neighbourhood where the average human capital level tends to be low. Hence, these neighbourhoods find themselves caught in a vicious trap, where human capital acquisition remains low from one generation to another.

Malcolm Gladwell suggests that the critical threshold is 10,000 hours of learning a particular skill. Of course, Malcolm Gladwell has a very specific issue in mind. The point he makes about thresholds applies generally to any skills an individual acquires. Heckman-Cunha‘s story of smaller inter-connected skill thresholds is more likely representation of reality. Ensuring that each child gets the best possible chance in life is very resource intensive, which is expensive even for the richest nations in the world. Given the enormity of the problem, it is not surprising that education policy and its role in inter-generational mobility is still being hotly debated in even the most developed of nations of world.