From the Annals of Rampant Stupidity

The latest bright idea is that apparently granny would like to scrabble in the dirt for a few potatoes the day after her hip replacement:

Even if hospital patients have always hated their food, whether it’s microwaved meals, over salted vegetables, or fresh fruit, there are still things we can learn from the past. One obvious change in food provision is the loss of the hospital garden. Until the nineteenth century many hospitals had outdoor space, part of the therapy for recuperating patients, a place for Apothecaries to grow healing herbs, and a site for kitchen gardens to feed the staff and patients. Outdoor space was lost in the nineteenth century as giant hospitals were built in crowded urban areas, and as convalescent and elderly patients were moved to homes and hospices elsewhere. There’s quite a trend for ‘urban farming’ in the twenty first century – perhaps that could extend to give hospitals back their gardens too?

The idea of a little herb garden where patients can convalesce in the sun amid the mint, rosemary and the butterflies they attract is obviously wonderful. The idea that anyone should be trying to grow bulk foods in an urban environment is simply ludicrous.

For we’ve invented this thing called “transport” as well as “economy of scale”.

Hospitals are, as they note, in urban settings. Because that’s where all the people are and it’s sensible to treat people near where they live, near where their families live so they can visit them. Excellent: but that means that land is expensive where hospitals are because that’s where all the people are. A few acres of urban land can be worth millions upon millions of pounds: using that to grow £50′s worth of vegetables is simply not sensible. What is sensible to to use that agricultural land 50 miles away, worth perhaps £5,000 an acre, to grow the same vegetables and then splash a fiver or so per tonne of food on the petrol to transport them. We thus use fewer resources to get to the same goal, feeding the sick, and this is a process that makes us richer as a whole.

It’s also true that agriculture is subject to the most enormous economies of scale. We can tell this: food grown in those 50 acre monocrops is markedly cheaper than food used to be when we all had our little 15 acres of the country to cultivate. This is true even if we don’t include the labour we used to perform “for free”. The urban poor would spend 80% of their income on food and rent in centuries gone by. Today the average is 10-15% on food.

The idea of feeding the sick from hospital gardens is simply bonkers: guess that’s why it’s being suggested in The Guardian.

Privateers and the sinister threat posed by ‘patent trolls’

Many in Britain may not be familiar with the term ‘patent privateering’ – but that may all be about to change. British courts are apparently being targeted in a forum-shopping exercise by global monopolists, who are using this technique to reduce competition and innovation in the hi-tech sector.

This new menace to the workings of efficient markets is rapidly gripping the global hi-tech sector and it threatens to stifle innovation, raise prices and constrain choice for consumers not just in Britain but across the globe. The threat has been dubbed ‘patent privateering’ and its impact on effective competition is already alarming.

Patent privateering refers to the practice whereby corporations enter into private agreements with patent assertion entities (PAEs) – effectively separate companies with no assets or manufacturing capabilities. The process works along these lines: Company X and Company Y have agreements to license a specified number of patents from each other in order to create a product. What Company Y does not know is that Company X has a private agreement with Company Z (a privateer) to hold certain patents that are essential to the production of the product Company Y is creating. Once the product is in the market, the privateer, Company Z, threatens to sue Company Y. Since it may cost Company Y anything up to $2.5 million to defend itself, most companies opt to settle. So Company X benefits from a large share of the proceeds collected by the privateer Company Z. Such behaviour cramps competition and damages the end consumer – big time.

This cynical form of economic rent-seeking is becoming more and more widespread. PAEs or ‘patent trolls’ as they are sometimes styled are now estimated to add a staggering annual burden of $29 billion on the back of American consumers alone[i].

Incumbents with a market share to defend are tempted to set up patent trolls – it’s often impossible to trace their real owner – to raise competitors’ product prices and shackle innovation and choice in the marketplace. By employing patent trolls the incumbents avoid counter suits which would risk their own asset base as well as attract unwelcome publicity and potential reputational damage.

Media reports have begun to shine some light on these questionable practices. One of the most prominent is MOSAID, a controversial patent troll which collects royalties on 2,000 patents transferred by Microsoft and Nokia while another troll, Unwired Planet, is collecting royalties on 2,185 patents assigned by Swedish telecoms giant Ericsson. Another PAE, owned by a group including Goldman Sachs and Boston Consulting Group collects royalties for patents originally filed by our own British Telecom, which stands to collect half the proceeds from the patent.

These developments risk turning patents into a tool of litigation rather than innovation. Abuse of the patents principle runs counter to the original intent of patents, which was a set of exclusive rights granted by a government of a sovereign state to spur innovation and provide entrepreneurs with a reasonable return for their innovative research collected on a fair, reasonable and non discriminatory (what lawyers term FRAND) basis.

In the computer software industry over 100,000 patents are filed each year. Many of these are for innovations which are not particularly novel and are likely to be independently invented by a host of IT engineers. In practice, it is often impossible for a software firm to know that it is not infringing on an existing patent. In the US, where wilful infringement triggers treble damages if proved in court, software developers have a powerful incentive not to conduct a patent search.

Competition watchdogs need to cast a careful eye on these worrying developments. Already in the US, the Federal Trade Commission (FTC) has begun to collect information on patent trolls’ corporate structures, their portfolio of patents and the way in which they acquire them and enforce them. Congress is also considering legislation[ii] aimed at outlawing deceptive patent demand letters and granting the FTC civil penalty authority to tackle this rapidly emerging threat to consumer welfare.

In Europe, regulators have yet to really tackle the problem posed by patent privateers. Yet, as Robert Harris, a law professor at the University of Berkeley, California, points out, “Given the harm to competition that patent entity sponsored privateering, there are important roles for anti-trust authorities: blocking potentially anticompetitive patent transfers and bringing enforcement actions against anticompetitive conduct by patent entity sponsored PAEs”[iii].

Due to the lack of regulation of this anti-competitive practice, the courts in England, it seems, will be the first in Europe to evaluate and rule on patent privateers. Cases are expected to begin in the High Court from the end of 2014. U.S. courts have already suffered from bruising judicial battles that have proved a perfect case-study of how rent-seeking through the courts can harm the effective functioning of a dynamic market.

The hope is that we do not have to learn the lesson the hard way, as the Americans have done. It’s about time our troop of regulators woke up to the threat posed by the growing ranks of rent-seeking patent trolls.

[i]                  See ‘As Congress and Enforcers Contemplate Patent Trolls, Don’t Forget about Privateering’, by David   Balto (a former policy director at the FTC), Huffington Post, 4 December 2013.

[ii]                 The House Subcommittee on Commerce, Manufacturing & Trade of the Committee on Energy & Commerce has been holding expert testimony hearings on a draft Bill with respect to deceptive patent demand letters (see FTC testimony, 22 May 2014).

[iii]                 PAEs & Privateers: Economic Harm to Competition & Innovation, Robert G Harris, Georgetown Law Annual Antitrust Symposium, Georgetown Law School, Washington DC, September 2013.

When your results should give you pause for thought

It’s entirely possible to construct methods of measurement that will prove anything you want them to. But when you do so it’s always worth just checking your results to see if they make some sort of sense. As with that delightful survey from nef a few years ago, where they tried to list the best places in the world to live coming up with Vanuatu as the answer. That they arrived at a place where a penis sheath is the major fashion accoutrement and they worship the Duke of Edinburgh as a Living God (which he is of course) leads to a certain questioning of the metrics they used to decide upon “best place to live”.

So it is with this report about how the children in England are horribly downtrodden, depressed and unhappy:

Children in England are less happy and satisfied with their lives than those in the majority of other European countries and North America, with only South Korean and Ugandan children worse off, a study by The Children’s Society has found.

Although 90% of English children in the study rated themselves as having relatively good wellbeing levels, England still ranked ninth out of a sample of 11 countries around the world in the study, which involved 50,000 children – behind countries such as Romania, Spain, and Algeria and ahead of only South Korea and Uganda.

When we look at the details of the report we find that three of the four happiest places (in the larger sample) to be a child are Greenland (60,000 people stuck on an ice floe), Armenia (per capita GDP around $6,000) and Macedonia (per capita GDP $10,000 or so, under a third of the UK). Among the smaller sample of 9 countries the very best place to be a child is apparently Romania: and aren’t we still sending teddy bears to the appalling orphanages there?

Perhaps being a child in England can be made better but it’s not entirely obvious that this report is using the correct ways of measuring that “best place”. Or even methods that are even remotely sensible.

Why Uber might be making a mistake in paying by the hour

There’s a little technical detail about incentives that suggests that Uber might be making a mistake in their policy of paying minicab drivers by the hour. That mistake being not quite getting the difference between the income effect and the substitution effect as it affects pieceworkers (those two effects together being what gives us the Laffer Curve of course).

The point is mentioned here:

I’ve been chatting to local minicab drivers about Uber’s operation in Manchester. They don’t feel threatened, or tempted. Prices here start at £1.50, and wages are hard for even those VC types to undercut. Uber have allegedly been trying to do this with the bogus guarantee technique: drivers around here are apparently on £10.00 an hour, anything above that gets kicked back to Big Minicab. They don’t fancy the deal. Even in slack times, when they’re not being robbed of their reward moments, there’s always the hope that a fare to the airport will show up, and that’s part of what keeps you ferrying people around all day. It means you can (XXXX) toddle off home a bit early, which you can’t do if you’re on Uber’s clock.

Uber, Lyft, Hurnya and whatever don’t seem to realise that there’s such a thing as a minicab work culture, intensely local and adapted both to the people who work in it and their customers.

Re those incentives: the income effect is the idea that we have a mental model of how much we want to earn in a day (or week, whatever). If we achieve that then we’ll go home: or if taxes rise then we’ll work more hours to make that target, if taxes on incomes fall then we’ll work fewer hours. The other is the substitution effect where if taxes fall we’ll work more hours as work now becomes more valuable to us than leisure and vice versa when taxes rise.

In general, across the economy, neither applies to us all all the time and both apply to some of us at least some of the time. It’s the mixture of both, according to personal preference, that gives us that Laffer Curve.

However, detailed empirical studies have shown that pieceworkers (and taxi and minicab drivers are one of the groups that have been studied) tend to be more subject to that income effect. There’s a definite mental model of how much they want to earn in a day and they’ll keep going until it is earned then toddle off to do something more interesting. This is why you can never get a cab when it’s raining of course: higher demand for cab rides means they earn their target earlier in hte day and thus, amazingly, an increase in demand leads to a reduction in supply.

Uber has thought this through with their surge pricing: in bad weather they increase prices and thus earnings to overcome this effect. But offering drivers a flat rate per hour is precisely and exactly the opposite and almost certainly isn’t the correct response to that known propensity to the income effect.

This isn’t the most amazing observation about the world, obviously, but it’s an interesting little application of the microeconomics we know to be correct. Piece workers are more subject to the income effect than the substitution: thus hourly pay for them might not be quite as effective in attracting them as one might originally think.

Boris is right. Tinkering with the presumption of innocence is, unfortunately, a minor change in the law

Boris Johnson has called for a change in the law. He wants to shift the burden of proof on those accused of travelling to Iraq and Syria to join ISIS. No longer will the prosecution be required to prove that they intended to join ISIS. Rather the accused will have to prove that they travelled there for innocent purposes.

There has been near universal condemnation of Boris’s proposals. The Prime Minister called it a knee-jerk reaction. Nick Clegg was not a big fan either. In addition to rejecting his proposals commentators on both the left and the right have taken issue with Boris’s statement that this was a “minor change” in the law. They argued that instead it was an attack on this hallowed principle that is the presumption of innocence. The fact Boris did not realise that was further proof that he is unfit to become Prime Minister.

However, Boris is completely right. Not about the substantive proposal but about the fact it represents a minor change in the law. The fact of the matter is that the presumption of innocence has in the past few decades been severely eroded. In 1935 we were told by the Lord Chancellor Viscount Sankey that “throughout the web of English criminal law one golden thread is always to be seen, that it is the duty of the prosecution to prove the prisoner’s guilt” [1]. There were only two exceptions: (i) the defence of insanity and (ii) statutory exceptions.

How often did Parliament by statute make exceptions to this golden thread? Andrew Ashworth and Meredith Blake attempted to find out in 1996 [2]. They look at how many of the offences triable in Crown Courts derogated from the presumption of innocence. It was not 5%, 10% or 20%. Out of 540 offences, 219 involved some form of departure from the presumption of innocence. That’s just over 40%! In the Magistrates’ Courts the position was hardly better. There, the defendant bears the burden of proving “any exception, exemption, proviso, excuse or qualification” [3]. At this point one can ask whether the exception has swallowed the rule. So Boris was not wrong when he described it as a minor change in the law.

The situation has not really gotten better since 1996. Parliament continues to reverse the burden of proof on a number of offences. In one respect, however, the situation has gotten better. Previously, if Parliament imposed a reverse burden of proof the courts would just have to apply it. However, following the coming into force of the Human Rights Act, the courts have been able to de facto nullify some of those reverse burdens.

For example in R v Lambert [2001] UKHL 37, the House of Lords was considering a provision of the Misuse of Drugs Act which required a defendant found in possession of a package containing drugs to prove that he did not know that it contained drugs. If the defendant failed to discharge that burden he would be found guilty of possession of drugs. The House of Lords held that this was an unjustfied infringement of the presumption of innocence. So, this provision was read as merely requiring the defendant to adduce evidence that he did not know the package contained drugs. The burden would then be on the prosecution to prove beyond reasonable doubt that this evidence was untrue.

Those wanting to repeal the Human Rights Act (and withdrawn from the European Convention on Human Rights), whilst still adhering to the presumption of innocence, should think carefully about that.

In the meantime the outrage sparked by Boris’s comments should be directed to adopting the proposal the Criminal Law Revision Committee made in 1972: that there should not be reverse burdens in English criminal law [4].

1 Woolmington v DPP [1935] AC 462 at 481

2 “The Presumption of Innocence in English Criminal Law” [1996] Criminal Law Review 306-317

3 Section 101 Magistrates’ Courts Act 1981

4 Criminal Law Revision Committee, Eleventh Report, Evidence (General), Command Paper 4991 of 1972, para 140

Rajiv Shah is a PhD student in Law at the University of Cambridge.