Clement Attlee’s Lesson

Biteback Publishing have published a new biography of Clement Atlee.  Authored by Michael Jago, it explores what motivated Atlee and drove him to become one of the most influential of Labour Party leaders.

Atlee had a remarkable record in putting through his programme.  In 6 years he achieved major structural reform of Britain’s economy and society.  He is thus to be admired dispassionately as an effective Prime Minister.  What he also did was to teach us all an important lesson:  Socialism doesn’t work.  While other European nations were renewing themselves after the destruction and exhaustion of a world war, Britain wallowed in nationalization and allowed its industries to stagnate and decay under state ownership and control.  He left a country impoverished, heading down a slope that left it diminished, impoverished and ineffective.  Only in 1979 did Britain begin to shake off his influence, change direction, and once again climb back to prosperity and significance.  Atlee left a legacy that lasted, it is true, but it was a legacy that left his country ruined for decades.

It was an important lesson, though, and one we learned again just 25 years ago when the Communist empire collapsed and left exposed not just the terror that had sustained it, but the squalor it had concealed for so long.  Socialism doesn’t work and never has done because it goes against the grain of human nature and the desire of peoples to make free decisions that can improve their lives and better the lives of others in the process.

We can only hope that people will not only read the new book about Atlee, but that they will also remember the lesson and the years of suffering that it took to learn it.

A bankers’ ethics oath risks being seen as empty posturing

The suggestion put forward yesterday by ResPublica think-tank that we can restore consumer trust and confidence in the financial system, or prevent the next crisis by requiring bankers to swear an oath seems excessively naïve.

Such a pledge trivializes the ethical issues that banks and their employees face in the real world.  It gives a false sense of confidence that implies that an expression of a few lines of moral platitudes will equip bankers to resist the temptations of short-term gain and rent-seeking behavior that are present in the financial services industry.

In fairness to ResPublica’s report on “Virtuous Baking” the bankers’ oath is just one of many otherwise quite reasonable proposals to address the moral decay that seems to be prevalent in some sections of the banking industry.

I don’t for a moment suggest that banking, or any other business for that matter, should not be governed by highest moral and ethical standards.  Indeed, the ResPublica report is written from Aristotelian ‘virtue theory’ perspective that could be applied as a resource for reforming the culture of the banking industry.  ‘Virtue theory’ recognizes that people’s needs are different and virtue in banking would be about meeting the diverse needs of all, not just the needs of the few.

The main contribution of the “Virtuous Banking” report is to bring the concepts of morality and ethical frameworks into public discourse.  Such discourse is laudable but we should be under no illusion that changing the culture of the financial services industry will be a long process. Taking an oath will not change an individual’s moral and ethical worldview or behaviour.  The only way ethical and moral conduct can be reintroduced back into the banking sector is if the people who work in the industry were to hold themselves intrinsically to the highest ethical and moral standards.

Bankers operate within tight regulatory frameworks; the quickest way to drive behavioural change is therefore through regulatory interventions.  However, banking is already the most regulated industry known to man and regulation has not produced any sustainable change in the banks’ conduct.  One of the key problems with prevailing regulatory paradigms is that regulation limits managerial choice to reduce risk in the banking system, rather than focuses on regulating the drivers for managerial decision-making.

Market-based regulations that do not punish excellence but incentivize bankers to seriously think through the risk-return implications of their business decisions, will be good for the financial services industry and the economy as a whole.  A regulatory approach that makes banks and bankers liable for their decisions and actions through mechanisms such as bonus claw-back clauses will be more effective in reducing moral hazard at the systemic level and improving individual accountability at the micro level than taking a “Hippocratic” bankers’ oath.

What joy, another entrant in the not-think tank stakes

We’re just so terribly fortunate to have another entrant in the non-think tank stakes here in London. Welcome to Philip Blond and ResPublica!

The last time we looked at these two and their proposals they were suggesting that this Social Credit idea from Major Douglas might be a good idea and then hinting that perhaps Belloc and Chesterton were pretty good economists too. At least one reviewer of this combination pointed out that this was in fact the Fascists economic program: and the real Fascist economic program, not just the usual insult to be bandied about for anyone you don’t like.

Recovering from this they’ve made a new suggestion:

An oath for bankers should be introduced to raise accountability and standards in banking, said the think tank ResPublica.

It said the lack of public trust in banking after numerous scandals was an “ongoing concern” for the industry and the government.

In a new report, ResPublica called for an oath for bankers to “fulfil their proper moral and economic purpose”.

Well, yes. We know very well that nearly all people in modern society live in mortal fear of being an oath breaker, don’t we? Most unlike olden days when no one believed in an afterlife of the threat of the devil waiting to boil those who broke their word. Most unlike. And of course Harold Shipman would have been stopped in the tracks of his rampage if only doctors did take that Hippocratic Oath.

But maybe Blond has actually got something here. Think how many choirboys would be unsullied if only the Catholic Church insisted that priests took an oath of chastity?

Government bans fracking in 25% of the country

The government has just announced that it’s pretty much going to ban fracking for oil and or gas in 25% of the country. This is not actually what they’ve said, of course not, but it is what they mean. For they’re saying that the rules will make fracking in national parks and or areas of outstanding natural beauty much more difficult. To the point that only if a deposit is of great economic importance will drilling be allowed.

We might think this is just fine: we’d not drill under Westminster Abbey after all and there might be parts of the country that are simply so beautiful that we wouldn’t want anyone to put a couple of shipping containers of equipment behind concealing hedges. That’s possible, even if unlikely.

However, the part that people will miss here is quite how much of the country this blocks off. Some 25% of it in fact.

National parks and other areas of important countryside will be protected from fracking, ministers will announce in a move that will head off anger in the Tory heartlands ahead of the election.

While stopping short of a total ban, the Government will unveil new planning guidance to make it harder to drill fracking wells in national parks and areas of outstanding natural beauty.

In a significant concession, the new rules state that fracking should only be allowed in the most precious areas of British countryside in “exceptional circumstances”.

Any will say “Oh, how sensible” to that. But then add in quite how much land this covers. National Parks cover some 10% of the country. Areas of Outstanding Natural Beauty a further 15%. People don’t seem to realise quite how much of the country is already being pickled in aspic.

There’re very definitely people who don’t want us to have access to this lovely cheap energy for whatever reason. Sadly, some of them are currently in government and making the rules.

Increasing access to private education will add billions to growth

  • The UK’s average annual growth rate between 1960 and 2007 would have been almost 1 percentage point higher had it matched the Netherlands’ long-term level of independent school enrolment since 1960. This in turn means that UK GDP per capita would have been over £5,800 higher in 2007 than it was.
  • Better education boosts economic growth; improving students’ international test scores by 10% raises a country’s average annual growth rate by 0.85 percentage points.
  • UK GDP per capita would have been almost £5,300 higher in 2007 had it performed as well as Taiwan since the mid-twentieth century.

Britain could add billions of pounds to long-term economic growth if it increased access to private education, a new report released today (Tuesday July 29th) by the free-market Adam Smith Institute has found.

The report, “Incentive to Invest: How education affects economic growth”, illustrates how higher educational achievement boosts long-term economic growth, and the important role of private schooling in this process.

Through the use of existing research and new quantitative evidence, the author of the report, Gabriel Heller Sahlgren, establishes that test scores are closely related to growth. Lifting achievement by 10% hikes a country’s average annual growth by 0.85 percentage points.

Furthermore, the report illustrates how competition from independent schools has proven successful in generating higher international test scores, while also driving costs down. Sending 20 percentage points more 15 year olds to independent schools would raise growth by 0.4pp—or about a sixth—via its positive effect on educational achievement.

Based on his findings, Heller Sahlgren calls for the government to radically reform education policy by encouraging more privatisation and competition in the education sector.

Had the UK matched the Netherlands’ long-term level of independent school enrolment since 1960, its GDP per capita would be over £5,800 higher today, the report argues. At a time when policymakers are trying to cement and broaden the economic recovery, the report suggests that expansion of access to private schooling would be an attractive component of a long-term growth strategy.

Commenting on the report, its author Gabriel Heller Sahlgren said:

My research shows that a focus on increasing the number of pupils taking higher qualifications is misguided. There’s in fact no robust impact of average schooling years in the population on economic growth on average.

On the other hand, education quality, proxied by international test scores, has a consistent and strong effect on growth. According to my calculations, the UK’s real GDP per capita in 2007 would have been over £5,000 higher had we performed on par with Taiwan since the mid-20th century. So the dividend of improving children’s attainment is large indeed.

Yet there are different ways to do achieve this. Unlike expensive resource-driven education reforms, which are rarely cost effective, a good option is to raise the level of independent school competition, which other research shows both increases international test scores as well as decreases costs.

According to my calculations, the indirect economic benefit, via higher achievement, of increasing the number of pupils in independent schools to the Netherlands’ level would be a 0.92 percentage point higher long run GDP per capita growth rate. The government should therefore continue their market-based reforms on education and expand choice as widely as possible.

Sam Bowman, Research Director of the Institute, said:

This report shows that we need greater access to private schooling for all pupils regardless of background, not just to improve the welfare of the children themselves but to boost the UK’s overall standard of living and long-term economic growth.

Expanded access to private education through school vouchers and a revival of the assisted places scheme may be an easy, low cost way for the government to boost growth by improving the human capital of British workers. The results may take some time to materialize but studies like this show just how valuable a long-term strategy for expanding access to private schools could be.

Click here to read “Incentive to Invest: How education affects economic growth”.

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778207.