It’s a pity to see Larry Elliott going off the rails

We always thought that Larry Elliott was a little oasis of comparative sanity over at that small part of The Guardian that has actually heard of the basic concepts of economics. So it’s something of a pity to see him coming off the rails over the desirability of limited liability:

Finally, there’s the nuclear option: stripping companies of the protection provided by limited liability. The owners, the shareholders and those running companies wield enormous power but don’t bear full responsibility for their actions because their liability is limited to the size of their investment in a company or partnership. But limited liability is a privilege not a right, and in return for granting it society should get something back in return. The argument the Thatcher government used when it said employers could sue unions for damages caused by strikes was that there was no such thing as a something-for-nothing world, and the same argument applies to companies.

The deal should be that companies get the protection limited liability provides in return for looking after all their stakeholders: the workers they employ, the customers they serve, the companies that form their supply chains, the taxpayers who pay for the transport infrastructure and the education system that businesses require. The deal should not be limited liability in return for boardroom greed, running rings round the taxman and breaking the law.

As Prem Sikka said in this series, any change to limited liability would be fiercely resisted. But even the suggestion of change would concentrate minds. Imagine, for example, that a future government set up a royal commission to look into the issue. Would this lead to companies treating their staff better and paying more tax? You bet it would.

Limite3d liability has been called the third great invention, after agriculture and the scientific method. That might be rather overegging the argument but we do face Chesterston’s Fence here. We shouldn’t be thinking about removing something until we’ve worked out why it was introduced in the first place. And the reason we have limited liability isn’t particularly because it’s a necessary feature of capitalism, neoliberalism, corporatism or any other -ism that might currently be unfashionable. It’s because it’s a necessary precondition of having any large scale economic activity.

Some economic projects require the mobilisation of the assets of tens of thousands to tens of millions of people. Or some reasonable fraction of those individual assets. And it doesn’t matter, for our argument here, whether that’s done through the State, a workers’ coop, a capitalist style corporation or any other method. If all those thousands to millions are to be held jointly and severally liable for all of the risks of however many projects their assets support then that mobilisation simply will not happen. Limited liability is simply a precondition of being able to have large scale projects undertaken.

So Prem Sikka is howling at the Moon here but then we knew about the Professor’s tendency to do that already. what’s disappointing is Elliott’s support for the argument. For Elliott is missing something we’ve mentioned around here a number of times. The value to us of an organisation that produces things is not in the tax they pay, the wages they cough up, the manner in which they treat their suppliers. The value to us of a producing organisation is in what they produce. And, as above, limited liability allows large scale producing organisations to exist. And that’s the benefit that we the wider society get from it.

Nothing else is necessary.

It’s time the government let adults – even the smokers – grow up

While the under-12s and orchestras hit the jackpot in yesterday’s Autumn Statement, tobacco companies were subtly thrown under the bus, as the Chancellor quietly committed to a consultation to determine how much more money tobacco companies should be contributing to public services; a pledge Labour has already signed on to as well.

Specifically, the consultation will look at the “introduction of a levy on tobacco manufactures and importers,” which could raise taxes on tobacco companies by millions of pounds a year.

From the Independent:

The tobacco industry should pay for the costs it imposes on British society, the Chancellor has said, signalling that the Government will back a levy on tobacco manufacturers and importers.

In a low-key Autumn Statement announcement, George Osborne committed the Government to a consultation on how tobacco companies could make bigger contributions to the public purse.

Specifically he said:

Smoking imposes costs on society, and the Government believes it is therefore fair to ask the tobacco industry to make a greater contribution.

The Government will shortly launch a consultation on introducing a levy on tobacco manufacturers and importers.

My colleague Ben has just recently addressed these ‘costs on society’ the Chancellor references, and debunked a fair few of them. He also pointed out the known, positive effects of nicotine, and reminded us that, despite all the lies perpetuated around smoking and NHS spending, smokers, on average, take up less health expenditure over their lifetime than non-smokers do.

My two-cents goes something like this: What cost on society? Sure, there’s a cost on the smoker, who will deal with the consequences that come from inhaling all sorts of questionable stuff – but adults get to make those personal decisions and take those risks. All choices have a cost, but in the case of cigarettes, the individual bears the brunt of the consequences; not the public at large.

But more powerful than the adults trying to make decisions about their personal lifestyles is the government, which is treating cigarettes the same way children tend to treat stuffed animals – labelling them with human-characteristics; acting as if objects are inherently bound to be good or bad.

And when it comes to cigarettes, the government has deemed them inherently evil. And it’s the tobacco companies, of course, that are proliferating them (remember, public demand matters very little to paternalists), so naturally, they must be taxed to the death.

But you know who’s really going to suffer when push comes to shove and levies are imposed? Low earners – who probably will, but can’t afford to, see cigarette prices rise when the levy comes into play. Because, at the end of the day, these levies aren’t coming in to save public health; they’re there to save vulnerable public budgets. It’s time the government came clean on that—childish, indeed.

Bad Signals from DCMS

Yesterday was the final day of a rushed, three week long Government consultation into the elimination of the ‘partial mobile not-spots’ — areas where there’s 2G coverage from some, but not all, of the 4 mobile operators — which cover a fifth of the UK.

The Government now considers such gaps unacceptable, and Sajid Javid has warned that he is prepared to legislate a solution should mobile network operators fail to come up with a satisfactory ‘voluntary’ response.

One of the options the consultation considers is the introduction of national roaming. Via government dictat, mobile operators would be required to enable customers to roam onto a competitor’s network if their home signal were not available.

As the ASI has warned in a submission to the consultation, national roaming would be a terrible idea.

Partial not-spots occur where mobile infrastructure is lacking. To address them we need things like more masts, more powerful equipment and more infrastructure sharing agreements. National roaming does nothing to achieve this, and on the contrary could harm investment and the quality of mobile networks across the board.

A system of national roaming rewards those who’ve invested least in their infrastructure at the expense of those who’ve invested the most. Were it to be introduced, networks could free-ride off the infrastructure of others where their own signal is weak or non-existent, and still ‘provide’ coverage for their customers. Roaming also creates a strong disincentive for any one operator to invest in infrastructure where there’s complete not spots or signal from all 4 operators is weak, as well as reducing the incentive to spend on general repair and upkeep.

Since mobile networks compete predominantly on coverage and the quality of their service, roaming reduces networks’ ability to differentiate themselves. With consumers less able (or less concerned) to judge the quality of an individual network, the return on investment further lessens.

Roaming could also have potentially disastrous consequences for network’s resilience. Were one network to experience an outage, customers would move en mass to alternate networks. This surge in traffic could overwhelm another operator’s infrastructure, leading to a domino effect of failures. This very real risk to critical infrastructure has long been acknowledged as a key argument against a permanent, ‘any to any’ system of national roaming.

For something that wouldn’t actually improve mobile infrastructure and could actually actively threaten it, national roaming wouldn’t come cheap, either. The government’s back-of-the-fag-packet figures put the cost of mandating roaming as between from £276-400m, compared with projected benefits of only £54-249m.

Creating a robust system of national roaming would be a lengthy, expensive, and complex procedure. There’s a very real risk that forcing mobile operators to divert resources towards roaming would result in the slowdown or scaling back of other projects, such as the rollout of 4G. To add insult to injury, consumers would also have to pay for the cost of establishing and operating roaming, even if it makes their service worse than it otherwise would have been.

For all of these problems, national roaming isn’t even an effective solution to partial not-spots. Roaming would be ‘non-seamless’, meaning that calls would be dropped when a phone switches from one network to another. This means that roaming would do very little to help those travelling by motorway or train and going through patchy areas at speed. Calls made where there’s weak signal also risk being dropped when they would have previously stayed connected, and in some areas connection could ‘bounce’ between operators as the phone tries to lock onto the strongest signal.

Roaming would also impact other, surprising elements of consumer’s mobile experience. Roaming on another’s network means that you lose access not only to things like voicemail, but all data services. The practicalities of roaming mean that a phone will probably ‘lock on’ to a network for a few minutes before searching again for a home signal, which means that consumers could be left without internet and other services for a prolonged period of time, despite only experiencing a temporary loss in signal. In addition, a phone which constantly scans for signals and changes networks will deplete its battery far quicker than one locked onto the same operator.

To ask consumers to lose core mobile services and accept diminished handset performance in the name of tackling partial not-spots is frankly absurd. Whilst it may be possible to disable roaming on some devices until needed, the fact that it’s a good idea to do so simply highlights what an enormous waste of time and resources national roaming would be.

Everything so far suggests that introducing national roaming would be a mistake. But when you look at the scale of the problem of partial not-spots, you start to wonder why DCMS even launched this consultation at all.

DCMS point out that 21% of the UK’s land mass is covered by partial not-spots; but they also admit that mobile networks are already working to bring this down. Project Beacon, an infrastructure sharing project between Vodafone and O2 is expected, once completed, to bring this down to 13%, leaving just 2% of premises affected by partial not-spots.

It’s not even clear why the government is so concerned with land mass coverage statistics, anyway. When you look at the percentage of the population with 2G coverage, you see that every operator hits 99%. In addition, spectrum licence obligations mean that 99% of the population will have 4G coverage by 2017 (and developments like voice over WiFI may prove an effective way of  extending coverage and call quality). It’s somewhat misleading, then, to portray a lack of signal as a problem for a significant chunk of the population. Whilst losing signal in rural areas and when travelling can be annoying, it’s millions of miles from clear that it justifies such extensive intervention from the government.

At best, national roaming would bring marginal benefits at great cost. At worst, it would be an expensive, time consuming and potentially destructive disaster. It runs the risk of reducing competition and investment, and sucks for both mobile operators and consumers. Hopefully the consultation will convince DCMS that national roaming is a terrible solution to a problem blown way out of proportion. Certainly, the department would be best to focus on projects that would actually improve mobile infrastructure, such as reform of the inaccessible and outdated Electronic Communications Code. National Roaming is one call that it would be good to drop.

 

 

Err, yes Mr. Naughton, this is entirely the point

John Naughton, over in The Observer, is very worried about, err, capitalists being capitalists. Something of a pity really for someone, let alone a journalist, of his richness in maturity should by now have realised that this is the damn point of it all:

The real lesson of the Uber exposé, though, is that it’s time to discard the rose-tinted spectacles with which we have hitherto viewed these Silicon Valley outfits. For too long, they have been allowed to trade fraudulently on the afterglow of the hippie libertarianism that supposedly infected the early days of the personal computer industry. The billionaire geeks who currently run the giant internet companies may look and talk like a new species of entrepreneur but it would be more prudent to view them as John D Rockefellers in hoodies.

And the economic philosophy that’s embedded in this new digital capitalism is neoliberalism red in tooth and claw, which is why they minimise the number of “ordinary” (ie non-geek) workers on their payrolls, outsource everything they can, despise trade unions, view regulators as barriers to “innovation” and are outraged by the temerity of European institutions that seek to curb their freedoms of action.

Yes, exactly. Companies operate to the benefit of their shareholders. They’re also pretty red in tooth and claw when they do so. And if that were all the economy were about then agreed, we consumers might not enjoy the experience all that much. Which is why we do our darndest to make sure that that’s not all there is in the economy. The other magic ingredient we look for is competition. This means that we’ve any number of red in tooth and claw capitalist institutions trying to do the best for their owners and for their owners only. But they can only do this by offering us something that we think is worth it. Their proposition must offer us value: both in the simple sense that no one buys anything at all that they don’t think is worth more than they are paying for it and also in the more detailed sense that competition means that the offering must be better than that of those others.

It’s competition in the market that tempers that profit lust. Just as it’s competition that tempers the inherent inefficiencies and producer capture of formerly monopolistic and non-profit making state services.

On that capitalist side of it this is the very point of the entire system. We want them to be sharp elbowed, nothing but profit seeking, neoliberals. Because only by producing something that we both desire and are willing to pay for can they become those billionaires (geeks or not).

Releasing data could help Britain’s entrepreneurs scale-up

The celebrated entrepreneur, investor and adviser Sherry Coutu CBE has just released a detailed report on scale-up businesses. Scale-ups are defined as enterprises with average annualised growth in employees or turnover greater than 20 per cent per annum over a three-year period, and with more than 10 employees at the beginning of the observation period.

The Scale-Up Report explains how “a boost of just one per cent to our scale-up population should drive an additional 238,000 jobs and £38 billion to GVA within three years”…“[I]n the medium-term, assuming we address the skills-gap, we stand to benefit by £96 billion per annum and in the long-run, if we close the scale-up gap, then we stand to gain 150,000 net jobs and £225 billion additional GVA by 2034.”

The report identifies key issues for helping these companies grow:

  • Finding employees to hire who have the skills they need
  • Building their leadership capability
  • Accessing customers in other markets / home market
  • Accessing the right combination of finance
  • Navigating infrastructure

Twelve recommendations are put forward, but the first (arguably) offers the biggest bang for its buck:

Recommendation 1. National data sets should be made available so that local public and private sector organisations can identify, target and evaluate their support to scale-up companies, and evaluate their impact on UK economic growth.

The specific data required includes:

  • Company registration number
  • Revenue (UK and export)
  • Location of headquarters and plant
  • R&D tax credit (recipients and amount)
  • Employment data (number of pay slips issued in a given month)

It is suggested that data “should be made available on a real-time basis openly or to a cross-departmental scale-up support unit within government. This would allow both public and private sector organisations to target scale-ups accurately to make sure support is offered at right time to the right leaders.”

Releasing this data wouldn’t add to the bureaucracy faced by entrepreneurs. As the report explains, companies are already required to submit turnover data annually to Companies House, report on PAYE in real-time, file quarterly VAT returns, and report on the amount the spend on R&D (if claim R&D Tax Credits). However, as the report acknowledges, releasing this data raises questions around data privacy. To counter this criticism, the report uses the example of the Cambridge Cluster Map, where this sort of data is already collated, and 59 companies have asked to be included in it since its initial launch.

Also, following a YouGov survey, the report reveals: “83% of scale-ups were in favour of the government sharing information on their company growth with other government departments or agencies, and 72% were in favour of government sharing this externally.”

But this leaves a minority of companies unwilling to open up their data willy nilly. The report doesn’t offer any guidance on how to deal with these concerns but there should be a way for companies to opt out. If, as the report reasonably suggests, these companies are then better targeted for support, those that have opted out will surely be all too ready to release their data too.

Philip Salter is director of The Entrepreneurs Network.