Blogroll: Adam Smith Institute

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The Unworldliness of the EU Court

Tue, 28/03/2017 - 10:04

The EU Court of Justice published two reports on 27th March.  Both concerned the legitimacy of firms banning their employees wearing Islamic headscarves. This being the EU, the Court came to opposite conclusions.  In one, the ban was upheld as it was the firm’s general policy.  In the other, the ban was disallowed as it was merely to satisfy customers.

The key finding in the former case was that the ban, to be acceptable, had to be “objectively justified by a legitimate aim, such as the pursuit by the employer in its relations with its customers of a policy of political, philosophical and religious neutrality, and the means of achieving that aim were appropriate and necessary.”  The key word, amongst several hundred words of verbiage, turned out to be “objectively”.

The latter case concluded that the ban “was not a genuine and determining occupational requirement justifying a difference in treatment of the worker”.  This is curious: banning all headscarves for everyone cannot be discriminatory whereas banning Islamic headscarves clearly is.  In this case, it would appear, all headscarves were banned.  But the crunch comes at the end: Banning the headscarves was not “a requirement that was objectively [my emphasis] dictated by the nature of the occupational activities concerned or of the context in which they were carried out.  It could not, however, cover subjective [my emphasis] considerations, such as the willingness of the employer to take account of the particular wishes of a customer.”

The Times headlined this as “Need to humour customers does not justify Islamic headscarf ban”.  The Times appears to agree that humouring customers is a silly and subjective thing that no right-minded company should do.

This attitude harks back to the days when judges and other gentry would not allow their children to take up anything so vulgar as trade, except perhaps the wine trade.  Never mind being below the salt, to be caught actually selling anything cost one a place at the dining table altogether.

Objective reality is that all companies depend on the cash provided by customers and their employees owe their livelihood to that too. Customers are entitled to spend their money how they wish.  They have freedom of choice.  They may not do so on the basis that judges would like them to, but that is for the customers to decide, not judges, and there is nothing subjective about it.

Categories: Current Affairs

Farmers still aren't quite getting this free trade thing, are they?

Tue, 28/03/2017 - 06:32

The Guardian carries a long piece about Brexit, tariffs, beet and cane sugar and so on. Should we continue to protect beet growers? Should we just abolish the tariffs and let cane rule?

Our answer is obvious, abolish the protections and see what happens. Not all agree

Even then, its farmers claim the burden of living in a high-wage economy means it is unfair to pit them against surplus cane that is dumped on the world market below the average cost of production by developing economies.

“If we are living in a higher-cost economy than Brazil, and as a society we value things that those higher costs support, then a degree of tariff protection to make that sustainable is legitimate,” argues Martin. “In an ideal world run by rational people, that is what tariff barriers used sensibly can help to balance out.”

Actually, that's the argument for cutting tariffs entirely and the heck with it. Because that very fact that we are a high wage economy is precisely why we should not be doing low value add things. We should only be doing things which add a lot of value - wages do after all reflect the value being added in the economy.

If there are people out there willing to grow sugar for $300 a month while we would need £3,000 a month to do it then we should be buying from them and not producing ourselves. We should be off doing something which adds more than £3,000 a month to justify those wages.

Again, the fact that we're a high wage economy isn't an argument to build protection around it, it's the very argument that we shouldn't be doing the low value things that poorer people in other places could be.

Categories: Current Affairs

The Financial Confusion Authority and the Long Grass

Mon, 27/03/2017 - 11:37

On Sunday’s Radio 4, Lord Vince Cable asked why the FCA had still not published its report into the alleged mishandling, by the Royal Bank of Scotland (RBS), of Small and Medium-sized Enterprises during the financial crash of nine years ago.  The complaint, in essence, was the classic one that large British banks lent umbrellas to small business customers when the sun was shining and then took them away when in rained.  More specifically, it was alleged that RBS pushed customers towards insolvency through, e.g., selling them inappropriate products and/or revaluing the businesses, and then transferred them to the “care” of their Global Restructuring Group (GRG) whether they wanted that or not.

GRG had two objectives: “turnaround” and “commercial”, i.e. making as much money out of the situation as possible.  It was alleged they did this, in part, by forcibly acquiring customers’ assets cheap and selling them dear.  RBS has since recognized that these objectives were in conflict and, they claim, now supervises to ensure fair play.  Quite how it does, or even could, do that is opaque.

In January 2014, the FCA appointed the Promontory Financial Group to investigate the extent of the abuse.  Promontory, now owned by IBM, reported to the FCA in 2016.  The FCA published its own summary of the Promontory report in November.  How that differs, if it does, from the original is not clear but it is an odd document.  On the one hand it reads like a whitewash, playing down the admitted abuses, but then remarkable admissions crop up.  For example:

  • “the failure to support SME businesses in a manner consistent with good turnaround practice;
  • placing an undue focus on pricing increases and debt reduction without due consideration to the longer term viability of customers;
  • the failure to document or explain the rationale behind decisions relating to pricing following transfer to GRG;
  • the failure to ensure that appropriate and robust valuations were made by staff, and carrying out internal valuations based upon insufficient or inadequate work – especially where significant decisions were based on such valuations;
  • the failure of GRG to adopt adequate procedures concerning the relationship with customers and to ensure fair treatment of customers;
  • the failure to identify customer complaints and handle those complaints fairly”.

Two thirds of customers transferred to GRG were in fact viable and “most of them experienced some form of inappropriate action by RBS. However, the Report also concluded that, in a significant majority of cases, it was likely that inappropriate actions did not result in material financial distress to these customers.”   That does not sound like a ringing endorsement to me nor does it match up with the media reporting of RBS/GRG management actions during this period.

But why has the Promontory Report still not been published six months on, nor the FCA’s own report?  The FCA seems to have plenty of time to hound the little guys, like individual Financial Advisers, but none to uncover a potential scandal concerning one of the country’s biggest national institutions.

Finally, there is another possibly innocent but still intriguing aspect of the FCA’s long grass strategy: the role of Margaret Cheever. Ms Cheever was a Managing Director of RBS during the period under review, responsible for Banking Credit Policies and Practices and Corporate and Institutional Banking. She left to become, guess what, a Director of Promontory.  Obviously she may well have had nothing to do with any of this but it would be good for that issue to be clarified not least because conflicts of interest lie at the heart of this matter.

Categories: Current Affairs

It's the canvas that has changed, not the economics

Mon, 27/03/2017 - 07:06

The Guardian carries another of those whining pieces. Where did it all go wrong? Back post-WWII the economy was just lovely, then Ronnie, Maggie, neoliberalism, privatisation, you know, the stuff we here at the ASI do, and it's been terrible since then:

The share of national income that went to the bottom 90% of the population held steady at around 66% from 1950 to 1980. It then began a steep decline, falling to just over 50% when the financial crisis broke in 2007.

Similarly, it is no longer the case that everybody benefits when the US economy is doing well. During the business cycle upswing between 1961 and 1969, the bottom 90% of Americans took 67% of the income gains. During the Reagan expansion two decades later they took 20%. During the Greenspan housing bubble of 2001 to 2007, they got just two cents in every extra dollar of national income generated while the richest 10% took the rest.

Those responsible for global financial crisis got away with it while those who were innocent bore the brunt of austerity

The US economist Thomas Palley* says that up until the late 1970s countries operated a virtuous circle growth model in which wages were the engine of demand growth.

“Productivity growth drove wage growth which fueled demand growth. That promoted full employment, which provided the incentive to invest, which drove further productivity growth,” he says.

At which point a simple but not simplistic explanation of what happened. The canvas upon which we were painting the economy changed, economics did not.

It really is neoliberalism and globalisation to blame, or thank according to preference. Consider Milanovic's Elephant Graph. Which shows whose incomes have been gaining these past decades. Yes, the 1% (note that the global 1% includes me and most likely you too, above about £25,000 a year is that global 1%) but the vast majority of the gainers have been the 10% to the 70% of people out there. China got rich, India's getting there and even Bangladesh, yes Bangladesh!, has been growing at 5 and 6% for two decades now.

All those old economic drivers, productivity, wages, demand, they're all still working away. It's just that they're operating on the global economy now, not just a small series of national ones. And as before the gainers are the poorer end of society.

30 years back the great demand was that we must aid that global South to develop. Excellent, it's happening, why is everyone complaining?

Categories: Current Affairs

There's nothing quite so conservative these days as a worried liberal

Sun, 26/03/2017 - 08:05

That's liberal in the American sense you understand, a wet left winger. As with Will Hutton here:

The internet celebrated its 28th birthday a fortnight ago. It’s an invention that ranks alongside the wheel, immunisation against disease and the internal combustion engine as a transformer of human existence. As an open information digital connector, it is an extraordinary force for individual liberation, embodying the very best of Enlightenment values: more information is available to more people through their mobile phones and personal computers than ever before.

The world can then follow the Enlightenment injunction to dare to know to a degree that the great philosophers, arguing for a free public realm where information and evidence could be openly marshalled and tested for human betterment, could never have foreseen.

Over the last 18 months, it has become obvious that the internet is the most serious threat to the Enlightenment values it purports to represent.

The Enlightenment was about more people gaining more access to more information in their own language. The King James Bible, as with Wycliff before and the equivalents in other languages of translations into the vernacular, were really the start of it all. And now that very same process, where more people gain more access to more information in their own language is a threat? 

Well, yes, it is actually, but it's a threat to a certain set up, not to the idea itself:

Worse, the advertising draining from newspapers is reaching such a scale that the viability of a free press is under threat. Online newspapers can charge subscribers, but still need advertising to support journalism and the expensive edifice of complying with publishing law. At the very least, as upholders of true news, they should be competing with Google and Facebook on equal terms.

The world of cushy berths is threatened, berths where four digit weekly pay checks are distributed for an hour's work on a column. That's the actual complaint and that's the threat, not to the Enlightenment or its values but to the people who have done very well out of he current structure. Thus the most conservative insistence that nothing must change.

Categories: Current Affairs

The most outrageous drivel

Sat, 25/03/2017 - 06:55

Terrible events have the capacity to bring out the most dreadful drivel in society. The murder of PC Palmer appears to be doing just that:

The website running a fundraising campaign to raise money for the family of murdered policeman Pc Keith Palmer is refusing to waive its five per cent fee, The Telegraph can disclose.

The fundraising page set up by JustGiving for the Metropolitan Police Federation has raised over £670,000 by Friday night. 

This means that JustGiving - which pockets 5p of every pound donated - is likely to receive around £33,500 in administration fees.

It costs money to run a website. It costs quite a lot of money to run one which can work at scale.

The website takes a cut from most donations. While some of the money is used for maintenance, product development and charity training, accounts allegedly show that more than £10million was spent on staff costs last year.

People were paid for turning up to work? What horrors!

As it happens, JustGiving spends all the money it earns on developing the services of JustGiving. There's not even some rapacious capitalist behind the curtain. Although if there were we'd be defending them too:

He said: "The unfortunate thing is that they are a business and there is no other way of doing it other than asking people to go to bank and pay the money in over the counter."

We are enriched by the service they offer, as is true of all of the other things that we voluntarily spend our own money upon. Seriously, where did this drivel start, that people should not make a living giving us what we want?

Categories: Current Affairs

The Tax Justice Network makes another unsubstantiated claim

Fri, 24/03/2017 - 08:01

The Tax Justice Network has just told us, once again, that countries lose gazillions in tax revenue to tax dodging. However, their claim is not in fact true. Specifically, this is not true:

We focus now on the long-term estimates of the revenue (in per cent of GDP) lost by each country i in period t as a consequence of profit shifting through tax havens in 2013, i.e. ????????????????. 

They are not measuring long term revenue anything. For they are not measuring the effects of the corporation tax rates they look at.

Imagine, for example, that a country had a corporate profit tax of 100%. There would be little to no corporate activity leading to profit to be taxed. The country would be dirt poor in fact. Thus there would be little revenue.

Equally, a tax rate of zero would encourage activity like billy oh. And revenue would be gained from other taxes instead, like the consumption of the workers now gaining higher wages, even perhaps their income tax.

This is, of course, the Laffer Curve argument and just like that argument it is something which is true at some level of taxation. Lower rates will increase revenue, higher rates reduce them.

We're not insisting that current rates are either above or below that revenue maximising level, not right here and right now we're not. But we do insist that failing to even consider the point means that no estimation of long term revenue losses has in fact been made.

We'd also point out that going over that revenue raising rate is easier than many think. The combination of three things made it probable that the UK corporation tax system in the UK in the 1970s managed this. High inflation, a corporate tax system which did not rebase costs on that inflation and relatively high tax rates meant that corporate capital wasn't even earning enough to cover depreciation in some of those years.

It really is necessary to consider the wider effects, not just do sums as the TJN has done. But then, you know. This is the same researcher who insisted that Zambia was losing squillions in revenues by comparing the price of tens of thousands of tonnes of copper in that country with the price of 10 kg samples of copper in Switzerland. Experimental design might not be the strongest suit here.

Categories: Current Affairs

Save the environment — don't buy local

Thu, 23/03/2017 - 17:26

Those who encourage us to buy locally do so with the view that reduced transport times will result in less CO2 emissions. Seems simple, but what such people neglect is the fact that the majority of emissions associated with getting products (particularly food products) from producer to consumer are not from transport. Rather, the majority of emissions come from production.

A paper published by Christopher L. Weber and H. Scott Matthews in 2008 found that the Greenhouse Gas emissions associated with food are dominated by the production phase which…

contributes 83% of the average American household’s yearly footprint for food consumption. Transportation as a whole represents only 11% of life-cycle Greenhouse gas emissions, and final delivery from producer to retail contributes only 4%.

Production is less energy intensive when it takes place in optimal weather conditions, on large scale farms with machinery and fertilizer to make things incredibly efficient.

One might easily argue that this US study is applicable only to the American market. In response I would say that not too long ago, DEFRA released a report saying that the carbon footprint of Spanish grown tomatoes is likely smaller than that of UK tomatoes grown in greenhouses. So clearly something very similar is happening in the UK.

It might also be worth mentioning that food (especially food that must travel long distances) is generally transported in bulk, increasing food mile efficiency. Further, the majority of food miles are from the supermarket to fridge, which will not change, even if your food is produced locally. Plus, food from far abroad is often cheaper than local alternatives. In this way, globalisation is saving you money, and saving the environment.

Another paper in 2000 revealed the exact same thing applies with flowers. Economists Vringer and Blok compared the energy use associated with Dutch and Kenyan cut flower production. Air freighted Kenyan roses transported to Europe were found to have a lower total energy footprint than the Dutch grown roses.

So perhaps this mother’s day, we should aim to buy both food and flowers from as far afield as possible, because we don’t just love our mothers, but we also love the environment.

Categories: Current Affairs

This doesn't bode well, does it?

Thu, 23/03/2017 - 06:27

Clearly, a would be Labour Chancellor is going to have rather different views on a just or reasonable taxation system than ourselves. But we are usually able to agree upon history. That seems not to be the case with John McDonnell:

It was under Osborne’s watch that the bank levy, introduced by the last Labour government to claw back some of the astronomical returns major banks had been making, was phased out, in his first budget after the 2015 election. 

No, that's not what happened at all. Alistair Darling imposed a tax upon bonuses. That was an idiot piece of lashing out. Osborne imposed the bank levy. This was an excellent piece of taxation.

Too big to fail banks enjoy an implicit subsidy from the rest of us. If they totter they will be rescued - that's what we mean by too big to fail, they're too big for us to allow them to fall. This is both a potential cost to us and also a subsidy to their profits for that insurance means they can borrow at finer rates. The solution is simply to charge them an insurance fee in the manner that, say, the FDIC charges banks over the pond for that guarantee upon deposits, as is also done here.

The tax was also calculated correctly. It was upon bank liabilities - what they owe to others, or, as we can also think of it, upon deposits. For a bank over a certain size, that too big thing, tot up deposits which are not already covered by various insurance schemes already being paid for. Apply a risk weighting - at sight deposits are riskier than long term bond issues for example. Charge that insurance fee.

This is, in essence, a Pigou Tax on being too big to fail.  It is excellent taxation.

Of course, Osborne, as is his wont, then messed it up, firstly by targeting the revenue yield rather than the behavioural change desired, then by getting rid of it in effect but then, you know, perhaps people who yearn to be journalists aren't quite the right choice as Chancellor.

But back to McDonnell. It's clear that we'll have differences with his plans for the economy and tax. But we really would hope that a Shadow Chancellor would know his history, especially of one of the few good taxes that have been imposed in modern times.

Categories: Current Affairs

Brexit gives us a chance to try the world's most effective anti-poverty programme

Wed, 22/03/2017 - 12:36

It's hard to predict what Britain's relationship with the EU will be like once the dust settles in April 2019, but the odds that free movement will continue in its current form are slim. I think that's real shame; as Sam Bowman points out, EU migration has been incredibly beneficial to the UK. EU migrants haven't lowered wages or increased unemployment, they've simply helped us pay down our eye-watering debts (by about £1.5bn a year).

The Government instead seem to prefer what they call a "bespoke immigration policy" with different rules applying to different sectors. In other words, a centrally planned labour market. That'd be a bitter disappointment: it'd mean increased bureaucracy and slower growth for Britain's businesses.

But, as the saying goes, every cloud has a silver lining. It gives us a chance to enact the most effective anti-poverty policy ever discovered.

One sector with a particularly pressing need for low-skill migration will be agriculture. Farmers rely on cheap, seasonal labour. If they can't get it many will be forced to close as they lose out to foreign competition. Most countries rely on seasonal migration programs, indeed Britain itself had one targeted at Romanians and Bulgarians as late as 2013.

But as much as farmers benefit from access to seasonal migrant labour, it's the migrant workers themselves that see the biggest benefit as a new study from the Centre for Global Development's Michael Clemens and Hannah Postel shows..

They looked at a program that loosened regulations in the wake of the Earthquake in Haiti to allow more Haitians to get seasonal worker visas. Clemens and Postel compared Haitians who got seasonal visas to those who were unsuccessful. The results were staggering.

Haitian migrants saw massive income increases. On average they saw their incomes multiply by around fifteen times. And they didn't just spend that on themselves, they helped those stuck back in Haiti by sending remittances. In fact, they were able to double their families annual income in a matter of months.

The paper's authors point out that these results are unprecedented. No other aid programme comes close to producing income benefits on this scale.

It's certainly proved to be a much more effective program than the many recovery projects targeted at Haitians. Haiti received $13bn in humanitarian aid after the 2010 Earthquake, but the results have been dismal. An NBC News report in 2015 found that five years on, there were still 85,000 Haitians living in displacement camps.

Migration beats traditional aid projects for three main reasons.

  1. It goes straight to those who need it. A significant chunk of foreign aid is eaten up by overheads (29% on average according to Bill Easterly). Now that wouldn't be a problem if the aid itself (the other 71%) was effective. But too often it's not spent well. It's rare for a project to raise the incomes of the poorest by more than £1 for each £1 spent. It's different with migration, all of a seasonal worker's earnings end up in a Haitian household where nearly 85% is actually spent in Haiti. And once it's spent it Haiti it spurs on even more productive activity.
  2. It's not a free lunch, it's a paid lunch. We're fond of saying there's no such thing as a free lunch, but in this case it's one better. We're not just lifting people out of poverty for free, we're actually benefitting from the exchange. These jobs simply wouldn't exist in the absence of seasonal migration programs. Locals wouldn't do it at a competitive wage - so farmers would have had a choice automate the jobs or lose out to foreign competition. When Haitians come to the US, they'll be spending and paying taxes boosting the local economy.
  3. It delivers massive financial flows to the developing world. The big reason though is scale. Because a person's productivity varies massively based on where they are - compare an Uber driver in London to a rickshaw driver in India - moderately opening up to migration can deliver gigantic financial flows to the world's poorest. As Clemens put it once, we're leaving "trillion dollar bills on the sidewalk".

These schemes certainly have their critics. Many argue that workers are liable to be exploited on seasonal programs – some have gone as far to say that they're close to slavery. But Clemens and Postel spoke to the Haitians who got visas. They replied that they wouldn't change the program if they could and the only concern they had was that the program would be cancelled and they wouldn't be able to work in the US.

Given the current appetite for greater migration control, it's unlikely that we'll see the level of expanded migration that Clemens and myself would like. But, we can take action at the margin.

New Zealand shows the way. They amended their seasonal worker program to encourage greater migration from Tonga and Vanuatu. That boosted incomes of Tongan and Vanuatuan migrants by factors of 12 and 8 respectively. That's miles better than many (if not all) of the aid projects DFID currently funds and again, free. Let's take New Zealand's lead and use Brexit as an opportunity to try out the world's most effective anti-poverty policy.

Categories: Current Affairs

A Capital Idea - turning nominal ownership into real ownership

Wed, 22/03/2017 - 11:12

A stakeholder is generally taken to be someone with an interest in a concern, or someone affected by it.  Very often it is used to denote those who do not own a business but are in some way affected by its actions and its outcomes.  In addition to the shareholders and directors of a company, several others are involved in what it does and can be called stakeholders.  This can include creditors, employees, suppliers, and the community in which the business is located or from which it draws its resources.  The term is a loose one, but it is generally taken to indicate those who do not literally own a stake in the business, but who nonetheless feel its impact on their lives.

The term is often used politically, in that its users acknowledge that the stakeholders do not control the actions of a company and have no say in its decision-making process, but urge that they should have.  They sometimes advocate that stakeholders should have the right to be consulted and should have some say in the decisions that affect them.

Citizens of the United Kingdom can be said to be stakeholders in the country, in that they are clearly affected by what it does.  They do have a say of sorts in the decisions that affect them if they exercise their right to vote in Parliamentary or local government elections.  This say, however, is a loose one in that they vote for a bundle of policies, many of which are loosely expressed as intentions rather than detailed proposals for a plan of action.  And most UK citizens do not literally own a stake in their country, one they can use for their purposes.

Herein lies one of the problems faced by the poorer section of the population.  They have no capital.  Most of the poorest third have negligible assets outside of their few personal possessions.  They have nothing to draw on, nothing to borrow against, nothing to tide them over during hard times.  Most of them live precariously from hand to mouth, worrying whether their income, drawn from whatever sources, will meet their outgoings.  They struggle to get through to their next payday, and some are reduced to short-term borrowing at punitive rates of interest.  They have to budget carefully, knowing they cannot afford costly items.  Some struggle to make sure their children are adequately fed and clothed.  Many have to scrimp as the end of the month approaches, sometimes falling short of what many would regard as a decent living standard.

The problem is that most of them have no reserve.  Their income is entirely used up in day to day living.  They have no margin to set aside for saving against unexpected emergencies or even harder times.  They might be described as stakeholders in their country, but they have no tangible stake, nothing they can call their own, nothing with their name on it, nothing they can use when they need help to get by.

Most people think in terms of poor people being helped by welfare, by giving them access to additional sources of income such as housing benefit or income support or the many other benefits that are available to those who understand the system.  The problem is that the welfare system is built up of a myriad of overlapping benefits with complex rules for qualification.  It is by no means user-friendly, although its complexity and opacity is ameliorated to some extend by charities which specialize in helping poor people to surmount the benefits hurdle.

A further problem with welfare income lies in two forms of poverty trap.  One is that the welfare income is itself a disincentive for people to go out and make every effort to gain paid employment instead.  The other is that when outside income is earned, the benefits are reduced, making the extra effort to be self-supporting hardly, if at all, worthwhile financially.

Many of the poorest third are working poor, trying to get by on low wages, and while welfare payments can undoubtedly help some of them to get by, they do nothing to solve the basic problem of a lack of capital.  Transfer payments may enable them to make ends meet, but they very rarely allow for any saving.  The welfare system is designed to give people sufficient income to meet their needs, not to build up a capital reserve.

A novel alternative approach would be to concentrate on allowing poor people access to capital as well as to wage and welfare income.  The nation has a huge stock of capital which is nominally owned by the public but to which the public does not have access.  This includes a large stock of land and buildings, plus some businesses which the state owns wholly or partly.  This capital stock belongs to the nation, which means it belongs to its citizens.  The problem is that those citizens cannot do anything with it, even though it is held in their name.

'Public ownership' is largely a fiction, since the public cannot enjoy any of the rights of ownership.  Someone who owns property can decide how it is to be used, what is to be done with it, and who shall have access to it.  None of this applies to public ownership.  Furthermore, someone who owns private property can alienate it.  They can sell it, give it away or trade it.  They can use it, if they wish, as collateral and borrow against it, using it as security for a loan.  None of this can be done with anyone's share of what is supposed to be owned by the public.  No-one can sell their share of it or transfer it to someone else.  They cannot borrow against it.  It is theirs in name only because they enjoy none of the rights that apply to private ownership.

When British Airways, to give but one small example, was publicly owned, every citizen theoretically owned a small part of it.  The problem was that they could not transfer that part to anyone else, or sell it or use it as collateral.  They could not even say how it should be used.  When it was privatized many people opted to buy shares in BA and become part owners of the now private company.  The difference was that they could now exercise the rights of ownership, including the right to sell their piece of it, something they could never do when it was held by the state in their name.

Instead of saying that citizens each have a small stake in the nation's capital assets, a meaningless stake that is of negligible personal value to them, they should be assigned an actual stake over which they can exercise ownership rights. 

The process begins with an inventory of UK national assets.  A recent count put their value at £1.3 trillion.  This, if the figure were correct, would put each citizen's 'share' at over £20,000.  It is almost certainly an under-estimate.  A Treasury Commission should set about classifying and counting all national assets.  They should be put in the order in which they might be realized.  Land, for example, is among the most disposable, and should be high on the list.  Estimates put land ownership by the Ministry of Defence alone at in excess of 1 percent of all land in Britain.  State land, when sold, could be put on sale with full development rights granted in advance to enhance its value.  Buildings form a large part of that inventory.  It is normal for businesses to rent office space rather than owning it, and the same policy could apply to government.  It could rent the space needed for its activities, and realize the capital value of many of its buildings to distribute to its citizenry.

Obviously there are some assets that would be difficult to sell, and some that should not be sold at all, but that still leaves space for a huge sale to take place over the years, with tranches of state assets being disposed of systematically.  That sale could transfer capital nominally owned by the public into capital actually owned by people individually, and would take a huge step towards solving the lack of capital that gives the poorest in the economy no reserve or cushion, and no fund towards their eventual retirement.

When the government of post-Communist Czechoslovakia (as it was then) embarked upon a programme of mass privatization, it began by distributing vouchers to its citizens.  As companies were systematically put onto the market, those vouchers were convertible into actual shares.  Before that they were, in effect, promises of shares.  A similar scheme could be used during the transfer of shared national assets into individual personal accounts.

Each citizen would have an account opened for them, and into that account would go vouchers designating their share of each tranche of assets.  When the sales gradually took place over the years, the appropriate voucher would be converted into actual shares in the various assets. 

When Sweden privatized its state pension into private funds, each citizen was given a choice between several competing fund managers.  Those who made no choice were assigned into a default fund manager, one that exercised a relatively more cautious investment strategy.  (Following the Financial Crisis post 2008, the default fund manager actually achieved better returns than the others because it was less exposed to equities).

This model would be a good one for the UK to follow in its disposal of state assets.  Each citizen would be given a choice between a number of fund managing providers – Sweden chose six with the default as a seventh, and the UK might choose a similar number.  Each citizen would be given time and information before making that choice, or choosing not to make one, or neglecting to make one.  The providers would invest their clients' funds in a variety of asset classes, and would report monthly to their clients with the balance in their accounts.  The mix of permitted asset classes would be decided by an industry-wide body, and would allow considerable flexibility between providers.  This would give the public choices as to the degree of risk they were prepared to tolerate in pursuit of higher returns.

As the asset disposals took place, equal shares in the proceeds yielded by each tranche would replace the vouchers in each account.  People would thus see the amount in their account grow steadily over the years.  They would be required to hold the capital in their accounts for a set number of years, and a part of it should be kept in the fund until retirement.

The funds would accrue through capital growth and dividends, and none of this growth would be taxable.  If people wished to pay other amounts into their fund, they would be able to do so, indeed encouraged to do so, but this would be done from taxed income.  These additional payments, like the transfers from state asset sales, would generate untaxed growth within the funds.

Others might be encouraged to pay sums into the accounts of others.  Parents and grandparents might want to put funds into children's accounts.  This would be from taxed income, and any growth such funds accrued in the recipient's account would be untaxed.  While Inheritance Tax persists, the government might put limits on the amounts that could be thus transferred, in order to prevent people using it just to escape the tax.  Or it might simply follow the present rule for gifts and have tax liability taper to zero if the donor lives for a further seven years after the gift.  The hope is, though, that Inheritance Tax will have been abolished, along with other taxes on capital.  If the aim is to create a capital-owning society, it makes little sense to tax it.

One great advantage of creating capital accounts for citizens from the sale of state assets is that it creates a flexible system that can be adapted for other worthwhile purposes.  The primary and most obvious one is that they can become fully-funded retirement accounts, resembling to some extent those which most people own in Chile.  People could pay a percentage of their monthly salary into their fund, with employers making a contribution, too.  For the poorest group with no surplus income to spare each month, a personal contribution would not be an option, but an employer contribution could be.  Similarly the government itself could pay contributions into the funds of those unable to contribute themselves.  This could ensure that the accounts of unemployed or disabled people would receive contributions on top of the receipts from state asset sales.

These citizens' accounts could even be adapted to make provision for future health needs along the lines of Singapore's Health Savings Accounts.  This would assume at some stage that a major overhaul of the structure of the National Health Service might be required, one that involves more people choosing to fund private medical treatment for some conditions.

They could even be used to fund higher education, and might be found more attractive and more viable than the loan scheme currently in place.  The point about them is that they are flexible.  Capital can be deployed for a variety of purposes, depending on individual preferences.  The accounts would have a similar flexibility, allowing individuals to exercise their priorities and preferences.

By giving capital funds to everyone, they would provide something which the poorest third a currently lacking – a capital pool that grows over time and could provide a cushion against some of life's contingencies.  Each account would be the property of the owner.  Instead of dying with them as many pensions do, it would be a heritable asset whose full value could be passed on to their children or to other heirs and successors.

Some of the funds could be withdrawn after a set interval, so the funds could be used as collateral for loans.  They would give people the option of leaving the funds to grow within the account, or of taking out part of them for other purposes such as setting up a small business.  They give flexibility; they give choice.  They also give a considerable degree of independence from government.  They give the poorest section of the population access to some of the security and the opportunities presently enjoyed only by those higher up the socio-economic scale.  An important feature would be that funds withdrawn from these accounts would not be taxed.  The capital in them is comprised of funds from the sale of state assets which nominally already belong to the people, and from extra inputs made into them from already taxed income.

From the government's point of view, a scheme of private capital accounts such as these would enable it to use the assets currently held in the state's hands in order to reduce the increasing burden which continued state dependence by a large part of its citizenry will impose on its future budgets.  It is a scheme that would transform publicly owned assets into assets actually owned by members of the public, and in doing so would empower them to have more choices and more chances in their lives.

Categories: Current Affairs

Friedrich A Hayek (1899–1992)

Wed, 22/03/2017 - 10:47

F. A. Hayek, who died 25 years ago today, was one of the most important liberal thinkers of all time. He wrote not just about economics (for which he won a Nobel Prize), but also politics, psychology, and the history of ideas.

He was a good friend of the Adam Smith Institute, and spoke at many of our seminars, where his great wisdom was apparent. Often our participants would be discussing some difficult subject, getting tied in knots: whereupon Hayek would rise, cut straight to the heart of the matter, and provide the answer.

Hayek’s 1944 The Road To Serfdom, which showed how easily the ideas of social democracy could (and did) morph into totalitarianism, brought him popular fame. Soon after, he founded the Mont Pelerin Society, an international forum that kept liberal ideas alive during the bleak times after the Second World War. Its ideas influenced a whole generation of intellectuals and informed the policies of Margaret Thatcher (1925-2013), Ronald Reagan (1911-2004) and the new Eastern European leaders who emerged after the fall of the Berlin Wall.

His life as an economist began when he was hired by Ludwig von Mises. In 1927 they set up an institute to explore business cycles. They concluded that these cycles were caused by central banks setting interest rates too low — encouraging excessive borrowing, investment and spending. But low rates also discouraged saving, and when funds dried up, investments had to be abandoned and people were thrown out of work. It explains much of our present predicament.

In the 1930s, Hayek came to Britain, becoming professionally famous through his disputes with Keynes, who wanted government spending to kick-start the economy. Hayek countered that this would bring only inflation, disruption and debt.

But Keynes won the day, and Hayek turned more to social and political philosophy. His key insight was the concept of spontaneous order. Human and animal societies, he observed, show obvious regularities. Yet nobody planned the society of bees or the rules of human language or the operations of markets. They evolved spontaneously, and endured simply because they were useful.

But they are also complex and devolved. We tamper with them at our peril — as evidenced by the dismal failure of economic ‘planning’ behind the Iron Curtain.

We did not design the market system. We stumbled upon it. When people traded, prices emerged: and prices contain all the information needed for the system to work. We do not need to know why people want more of something, or why not enough was being produced: a rising price says it all — and draws effort and capital into serving those wants.

Hayek saw freedom as critical to spontaneous orders. When we force people to act in preconceived ways, we disrupt the delicate workings of society. And if spontaneous social orders are to evolve and strengthen, they need new ideas, not preconceived ones.

Freedom, to Hayek, meant minimising coercion, including state coercion. The state should be limited to preventing people breaking the rules by which society survives and prospers. But to prevent state power being abused, we need a rule of law that restrains government officials just like the rest of us. 

Hayek saw justice as the rules that enabled the social order to work. We could not invent justice: we had to discover it through trial and error. What people call ‘social justice’ was quite different — not a set of rules but a preconceived social outcome. Achieving that outcome meant treating people differently — and once we began to do that, there was no obvious stopping point on the road to serfdom.


Eamonn Butler is author of Friedrich Hayek: The Ideas And Influence Of The Libertarian Economist (Harriman House).

Categories: Current Affairs

Is a nearby pharmacy worth 2% of annual income?

Wed, 22/03/2017 - 06:56

As ever when budget cuts are considered the current beneficiaries are screaming blue bloody murder and insisting that they're only talking about the public good not their own wallets:

Nearly 300,000 people, many of whom are elderly and live in rural areas, will have to travel five miles more to collect their medicines because of a Government subsidy cut.

The study by the House of Commons library laid bare how much further the ill and sick will have to travel for medicines if pharmacies close because of a cut in a vital subsidy.

The news comes as campaigners will today start a four day challenge in the High Court against the cuts.

That's not quite what the study does say:

297,384 people would see increases of more than 2½ miles but less than 5 miles.

68,376 people would see increases of 5 miles or more

Note that this is all people, not just the elderly, nor even those needing prescriptions.

But to the money. So, those 300,000 claimed, the savings will be £200 million. That's £600 odd per person per year.

Median income is in the mid £20 thousands these days, so why not call that 2% of annual income for those affected? Which gives us the question, is having a nearby pharmacy worth 2% of annual income? 

No, we don't know either but we do think that's an interesting way of phrasing it.

Categories: Current Affairs

Eight reasons to legalise cannabis

Tue, 21/03/2017 - 16:59

I was asked to speak on a panel this morning to give the case for cannabis legalisation, and found it a useful exercise in tidying and focusing my thoughts. My overarching point was that, if it does happen, it’s probably going to be because of a fundamental shift in public opinion of the kind that’s taking place in some parts of the United States, so at this stage it’s most useful to consider how we might want to approach decriminalisation or full legalisation. Still, the broad case for cannabis legalisation is worth making, and I tried to do so.

  1. Fundamentally: because it’s an enjoyable consumer product that causes less harm than many existing legal products that nobody sane thinks we should make illegal, and the harms that it does cause are best dealt with by cannabis being a legal product.

  2. 2.1 million people use cannabis a year, 6.5% of the UK population (according to the Home Office Crime Survey for England and Wales). That’s an awful lot of people who are de facto criminals, and even a broad estimate of the proportion of ‘problem users’ is relatively small – and there’s not much reason to think that the drug being illegal is good for problem users anyway.

  3. The law isn’t predictably or consistently enforced – arrests for possession of cannabis in England and Wales have dropped by 46 percent since 2010. Cautions dropped by 48 percent and charges fell by 33 percent as of 2016. This is mostly because funding has been cut, targets have changed and stop and search is being used less. Other than possession with intent to supply, it's not a priority for most police forces. Having a law on the statute books that is capriciously enforced makes an ass of the law in general.

  4. Prohibition increases the supply of stronger and potentially more harmful types of cannabis – as Sam Dumitriu put it, prohibition created skunk. Suppose we treated alcohol the same way we treat cannabis: very quickly the most widely available stuff would be strong spirits, because they are a much more concentrated way of delivering alcohol than beer or wine. By imposing effectively a blanket additional cost on drug supply, drug prohibition encourages the most concentrated drugs to dominate the market. Most cannabis users and would-be users that I am aware of would prefer to buy less strong stuff, but find it difficult – because the market is not being allowed to function properly.

  5. Most revenues from drug supply goes to criminal gangs, creating financing for other (more harmful) activities & violent side-effects such as turf wars. Taking the cannabis supply chain out of the hands of people willing to kill and putting it into the hands of organisations like Boots would reduce violence, and make the suppliers legally accountable to their customers in the event of fraud.

  6. Legalisation could produce benefits to the government of £750m–£1.05bn in tax revenues and lower criminal justice costs. I’m not too excited about this, because a revenue-hungry government might well put the tax up to a level that’s so high that black market cannabis is still attractive to users. This has been a problem in Colorado – regular users are still buying from their (untaxed) black market dealers, who can undercut the legal market, so some of the benefits we hoped for haven’t materialised.

  7. The public probably isn’t as opposed as you think. Polling results differ wildly depending on how we frame the question. Polls that stress the regulated nature of a legal market produce majorities or near-majorities in favour of legalisation or decriminalisation; polls that just ask the question straight show majorities or near-majorities against. That suggests to me that opposition is fairly soft and the big question is how reform happens and how the debate is framed. In the US, the polling evidence suggests that people have very specific things in mind (street consumption, teenagers’ access to the drug), which we might be able to craft a regulatory framework to avoid.

  8. Cannabis is a much less dangerous alternative to many 'legal highs' that attempt to synthetically reproduce the effects of drugs like cannabis. These are mostly illegal, in fact, under the absurdly expansive Psychoactive Substances Act, along with things like hangover-free alcohol, but a simpler way of moving people away from them would be to make drugs like cannabis that we have more experience with and knowledge of easier to get hold of.

As for how we do it, I’ve written elsewhere about the need to regulate cannabis as a consumer product and not act as if the 2 million people who use it are all addicts in need of a treatment programme (a very small fraction are, in fact). I also argued here that decriminalisation is a bit of a dead-end for reform, and going for full legalisation is a better idea. Charlotte Bowyer reflected on the first year of Colorado’s legalisation back in 2015, and Volteface’s Dr Henry Fisher and I comprehensively fisked a really poor piece in the Times about the Coloradan experience a few months ago. And here’s The Tide Effect, the ASI and Volteface’s joint publication about the history of cannabis prohibition in the UK.

Categories: Current Affairs

The neoliberal man

Tue, 21/03/2017 - 13:46

The cover of a soon to be released ASI paper features a Hong Kong market at night. Which is rather fitting, for Hong Kong could easily be described as the most neoliberal country in the world — a paragon of neoliberal success.

The story of Hong Kong’s growth is both long and fascinating, and could not be done justice in a mere blogpost. But there is one man who is worth mentioning, who has much responsibility for making Hong Kong into what it is today, and yet is all too often forgotten.

John J. Cowperthwaite is not likely a name that you will remember from your history lessons. In fact, it is not likely a name that you will remember at all. He is arguably one of history’s most unsung heroes, and that is a great shame, for he was absolutely instrumental in not only taking Hong Kong’s economy from strength to strength after the Second World War, but also in showing the world that laissez faire economics is workable and brings results.

Milton Friedman said “it would be hard to overestimate the debt that Hong Kong owes to Cowperthwaite”. But he was by no means a self-important man. He had a reputation for being shy, and as an appointed civil servant, he owed no favours to anyone. He arrived in Hong Kong in 1946 as the Assistant financial secretary, with instructions to “come up with a plan for economic growth”. But he came up with no plan, and yet the economy grew. It grew astoundingly. In the decade that he was financial secretary, wages rose by 50% and the percentage of those living in poverty in Hong Kong plummeted from 50 to 15%.

What did this son of a Scottish tax collector do to propel so many into prosperity? The answer is that he didn’t do anything. When a British executive approached Cowperthwaite to ask him to develop the merchant banking industry, Cowperthwaite politely palmed him off and told him that he had better find a merchant banker. Similarly, when a legislator suggested to Cowperthwaite that the government should prioritise the development of promising industries, Cowperthwaite refused and asked how the government could possibly know which businesses had potential and which did not.

Cowperthwaite flat out refused to collect most economic statistics, from fear that doing so would give bureaucrats and legislators an excuse to meddle in the economy. Of course, this caused upset in Whitehall, and when they commanded a group of civil servants to go over and see just what the hell was going on, Cowperthwaite sent them home as soon as they arrived. Yet still from 1945 to 1997 Hong Kong ran a surplus every financial year – surprising all involved because the surpluses were not planned. Rather, they arose as a result of the market being left free. 

It was slightly unfair of me to state that John Cowperthwaite “didn’t do anything”. For though his success was largely down to his non-interventionism, ensuring that there was no intervention was backbreaking work. People were always trying to tinker with the economy. But Cowperthwaite maintained: “in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.”

Today Hong Kong has a GDP per capita at 264% of the worlds average, which has doubled in the last 15 years. The World Bank now rates the “ease of doing business” in Hong Kong as the best in the world. It has no taxes on capital gains, interest income or earnings from abroad. Its overall tax burden is just half of that of the United States. Its people are rich and its government small, and for this reason, it makes a fitting cover for our latest paper, but for this reason also, we should be thankful to John J Cowperthwaite. 

Categories: Current Affairs

As we've been saying for some time now

Tue, 21/03/2017 - 05:43

There is both a certain hysteria about us all being fatty lardbuckets and also a true outbreak of us all being fatty lardbuckets at present. The obvious question is why? For only once we know why this is true can we attempt to do something about it.

Various bits and pieces of thinking are put forward. It must be because food is cheap therefore we're all eating more. Or our grotesque modern consumption of sugar. Or fizzy drinks, or, well, something! That we eat fewer calories than our forefathers, less sugar than in the past, means that those three explanations can't really be true even given their popularity within political circles.

As we've been muttering for some time now we think it is ubiquitous central heating:

Opening your bedroom window at night to allow in a cool breeze could be simple, if chilly, way of preventing obesity and Type 2 diabetes, an Oxford University academic has suggested.

Professor of Endocrinology Ashley Grossman said there was mounting evidence that cooling the body even by just a couple of degrees was beneficial for health.

Of course there's some burble about climate change in this report just to be fashionable but still:

A recent study by Maastricht University Medical Centre in the Netherlands advised turning the thermostat down to between 15 C and 17 C for a few hours a day to keep weight down.

The experts claimed that because we spend so much time indoors, often in overheated homes and offices, our bodies do not naturally burn calories to keep warm. Temperatures closer to what it is like outside might be more beneficial to health.

Simply being colder raises the metabolic rate - the speed at which calories are burnt - by 30 per cent,

We base out thinking on the point that the major energy usage in a mammal is body temperature regulation. Now that we've automated much of that the imbalance between calories in and out has widen - thus we all get fat.

Now that we've identified the correct cause we can design a solution. The most obvious would be to plunge the entire population into fuel poverty so that we have to cool our homes. Fortunately we have government departments working on that already what with those green energy plans so we're sorted, aren't we?


Categories: Current Affairs

How sweatshops help the poor

Mon, 20/03/2017 - 16:31

President of the ASI Madsen Pirie recently wrote a blog telling of how we used to give out rubber wristbands that said “I buy goods from poorer countries” to those who signed up to our mailing list. A rather ironic take on the famous “make poverty history” slogan.

But a common objection to buying from poorer countries is that in doing so, one might be complicit in supporting the atrocious working conditions many are forced into. This has led to various campaigns to boycott companies that don’t source labour responsibly. One source of labour viewed by many as irresponsible is sweatshops.

Sweatshops are frequently vilified, and rightfully so. They are often horrible places to work, with long hours and few workers’ rights. But though they may be awful, they should not be outlawed. They play an important role in the world economy and in bettering the lives of millions across the globe.

The first point to note is that more often than not, the alternative for those who work in sweatshops is much much worse. Yes, they may be blisteringly uncomfortable places to work with disease and abuse rife, but if people have chosen to work there, it must be better than their alternatives.

The danger posed to those unfortunate enough to consider them their best choice was shown by the horrific Rana Plaza collapse in 2013, where 1,129 people died. These included individuals making goods for high street names such as Matalan, Primark, Monsoon and Walmart. Given this, it is easy to see how sweatshops may be viewed as incredibly evil. But it is important to remember that for many of these people, the alternative is to work in agriculture, particularly subsistence farming, which is the most dangerous line of work in the world. If sweatshops were banned, then many of the people working there would be forced to move into far more dangerous, less desirable professions.

This point was illustrated well in 1993, when US Senator Tom Harkin proposed a ban on imports from countries that employed children in sweatshops — a measure that would seem to many both noble and just. But in response to the proposal, a factory in Bangladesh let 50,000 of its workers go. According to Oxfam, a significant number of children made unemployed as a result became prostitutes.

It is important to remember that conditions in sweatshops are awful to us by our own standards. By the standards of cripplingly poor rural Bangladeshis’, they might well be very attractive. Likewise, the pay that sweatshop workers receive would be seen as unimaginably meagre if we were to frame it in the context of the society in which we live. It would be impossible to exist in the UK on what they earn in sweatshops. But to them, sweatshops bring a pretty penny. Research by David Skarbek in 2006 found that wages from sweatshop work exceed national average income in eight out of ten countries surveyed. In paying more than the national average, it lifts people out of poverty and gives them money to spend and invest in things that improve not only their individual lives, but the condition of the nation as a whole.

Which bring me onto my next point. Sweatshops are great for the economic and social development of a nation. The extra money that can be earned can be taxed to provide basic infrastructure and sound governance. More importantly, the extra money earned can be spent by individuals on education, healthcare motorbikes and goats. If people wish to forgo pleasant working conditions (or escape worse working conditions) for these things, then who are we to stop them?

But I must not neglect the remarkable fact that sweatshops seem to be particularly good for women in the developing world. Rachel Heath and A. Mushfiq Mobarak, of Yale and Washington Universities wrote a paper in 2014 that took a look at the impact the garment industry had on young girls and women in Bangladesh. They found that girls who live in villages closest to garment factories (also known as sweatshops) had significant advantages compared to those who did not. Amongst the findings were that girls living near a factory were 28% less likely to get married in the school year than on average for a Bangladeshi girl, similarly, girls were 29% less likely to get pregnant in a school year. These findings were most pronounced amongst 12-18 year olds. Sam Bowman wrote a blogpost on this fascinating study a few years back.

Sweatshops are often seen as stepping stones on the path to economic development. When millions move away from subsistence living and produce a surplus that can be invested and spent, whole nations rise up out of poverty. This can be seen to have happened in Taiwan, South Korea, and Japan (to name but a few), where large scale cheap labour was instrumental in creating the developed nations that exist today.

So buying cheaper goods made in the developing world not only makes you richer by saving you money, but it also makes those in the developing world richer too. It doesn’t mean you are complicit in the abuse of factory workers, it means you are filling the coffers of those who are most in need of having their coffers filled. So next time you are torn between buying from two shops, just remember that to enrich the poorest and neediest in the world, sweatshops might just be your best bet.

Categories: Current Affairs

Virtue-signalling does not help the poor

Mon, 20/03/2017 - 10:27

Eleven years ago people were wearing wristbands that said, "Make Poverty History." It was a popular virtue-signalling slogan partly because it did not involve actually doing anything. 

The Adam Smith Institute produced its own wristbands for the first and only time.  They said, "I buy goods from poorer countries," expressing something people can actually do about relieving poverty.  Of course the wristbands were made in poorer countries, and we sent a free one to anyone who gave us a mailing address.  We had thousands made and they went all over the world.  A second batch was made, then a third.  Having made our point, we stopped.

Our point was that poor countries don't become rich because of pious sentiments, or even by receiving development aid.  They grow richer through trade, through selling their goods on world markets.  Globalization, free trade and neoliberalism have done more in a generation to relieve poverty and uplift the human condition than has ever been done before in human history.

All of the major indicators of deprivation, including child mortality, hunger, illiteracy, and poverty, have taken a steep downward path.  Poverty, for example, has halved worldwide in the past 20 years.  Some critics try to depict neoliberalism as an approach designed to increase the wealth of rich countries at the expense of the poor ones, and claim the gap is widening.  The reverse is true; it is people in poor countries who have benefitted most from it.

This graph features in a CapX article by Chelsea Follett

Yet the free trade that has lifted so many from subsistence and starvation is currently under attack by a devil's band of anti-capitalists, protectionists, populists and environmentalists.  They would deny poorer people the chance to gain wealth by selling us what they produce, and they would deny us the chance to gain wealth by buying it.  Maybe in the fanciful world of their ideologies the slogans they bandy about might resonate, but in the real world they have no traction.  Globalization, free trade and neoliberalism can stand on the record of what they have achieved in practice. 

The arguments we made when we produced those wristbands are just as valid today, and are supported by even more years of practical achievement.  Poverty is well on its way to becoming history, but it is not virtue-signalling that is working toward that goal, nor is it protectionism.  It has been capitalism and free trade.

Categories: Current Affairs

This grammar school ding dong is so confusing

Mon, 20/03/2017 - 07:01

To us the arguments of grammar schools are almost exotically simple. The customers of the school system are the parents of the children in it. Systems should deliver what customers want. Thus those parents who wish to have a selective school system should be able to have one.

We would also note that those who wish to have a non-selective school system are equally free to send their children to one. We know of no one who does advocate grammars who insists they must be universal. That insistence upon uniformity only works the other way, those insisting upon a purely comprehensive system. And that too makes the decision of which side to support exotically simple. One side is stating that they want this and you can have what you want, the other insisting that everyone must only have the one system, choice must be denied.

Grammars it is then.

But even within the arguments being offered there is confusion

Theresa May’s personal crusade to expand the number of grammar schools is in serious jeopardy today as senior Tory, Labour and Liberal Democrat MPs unite in an unprecedented cross-party campaign to kill off the prime minister’s flagship education reform.

In a highly unusual move, the Tory former education secretary Nicky Morganjoins forces with her previous Labour shadow Lucy Powell and the Liberal Democrat former deputy prime minister Nick Clegg to condemn the plans as damaging to social mobility, ideologically driven and divisive.

The opposition is clearly nothing but ideologically driven but that's just the normal hypocrisy of politics. But this insistence upon social mobility is a mark of the confusion among those arguing.

Social mobility, near always and everywhere, has been low. The UK's measure of it isn't very different from other countries, other places with very different school systems - say Sweden, as Greg Clark's research has shown. The one great burst of social mobility was post-WWII, but that's not quite what it seems either. We tend to apply greater social status to indoor work, no heavy lifting, and those decades were when the economy shifted from mass manufacturing into those sorts of services. And this happened right across the Western world and there's just about no correlation at all with the underlying school system.

But what really flabbers our ghast is that people are talking about social mobility when what they mean is economic mobility. For that's how they measure it, income of children relative to income of parents. And it's absurd to have a conversation in England, of all places, which confuses the two issues. Social position, in this of all countries, is more about whether you use a knife to eat your peas rather than how much money you make. Polly Toynbee may have emulated* Barbara Ehrenreich's Nickled and Dimed by trying out a few week's of society's scut work but she was still the gg granddaughter of an Earl and that matters in England.

We find this whole discussion, as at the top, very simple, exotically so. What confuses us is why everyone else seems to get so confused.


*That's one, rather polite, description of the genesis of "Hard Work"

Categories: Current Affairs

We do have to say this, Duncan Weldon is entirely correct here

Sun, 19/03/2017 - 07:01

Up to a Copperian Point Weldon is correct that is. It is entirely true that if the British State is to carry on spending in the manner of that nautical shore leave then taxes must rise to match:

Back in the 1960s and 1970s tax receipts averaged around 38% of national income, but after a large drop in the 1980s they have bounced around the 34% to 36% mark ever since.


Despite all the rhetoric on the pressing need for deficit reduction, since 2010 the burden has fallen mainly on the spending side of the ledger. Current tax receipts stood at 36.4% of the economy in 2010-11 and by 2015-16 had fallen to 36.2%. Meanwhile, government spending as a proportion of the economy was cut from 44.9% to 40%.

Quite so. And there is a political choice to be made here. We can have the low tax low redistribution near laissez faire of Hong Kong, we can have the high tax and redistribution heavy social democracy of the Nordics and we can also have this middle way, the Anglo-Saxon muddle through the middle which characterises the US and UK. It's pretty clear which of those we ourselves would prefer but it is also equally obvious that this is a choice, it's a vision of the good society and it's perfectly valid to aim for any of the three.

But here's the thing. This is Britain and thus which of the three we aim for will depend upon the wishes and desires of Britons en masse. And we can very easily get the inhabitants of these sceptre'd isles to tell us that they'd just love more government services and more hand outs and that Nordic welfare state. But when push comes to shove we come up against revealed, rather than expressed, preferences:

Not since 1992 has one of the major political parties felt able to commit itself openly at an election to raising one of the major taxes – the basic and higher rate of income tax, NICs or VAT.


 In the past few decades only Gordon Brown’s increase in NICs in the early 2000s – a pledge explicitly linked to the NHS – has received broad public support.

We Brits will happily contemplate getting more from government but we're not willing to pay government to have them. That is, we're not being serious, we don't in fact want these things at all.

To have that Nordic state would mean paying (much) more in tax. We won't pay much more in tax - thus we're not only not going to have the Nordic state we don't want it either.

Ho hum, looks as if we're stuck with that Anglo Saxon through the middle thing then, much as we ourselves would prefer the Hong Kong option.

Categories: Current Affairs