There’s a difference between the intent of regulation and the effects in the real world

We have another of these lovely examples of how the intent of a regulation can be very different indeed from the effect of said regulation out there in the real world. We’ll assume that most people are pretty cool with there being regulations against murder and punishments for breaching them. We’re also pretty sure that such regulations and punishments reduce the number of murders that occur. So, sure, some regulations can indeed be beneficial, achieve their stated goal.

We can also look around the world and see those gurning idiots in South America who think that if you peg the price of toilet paper nice and low then the poor will be able to afford toilet paper. Of course, what happens is that no one can afford toilet paper as no one is willing to make it for this new and lower price. Regulations can have the opposite effect to that intended.

And then there’s, well, then there’s this:

Fair or not, this latest evidence of the risks of informal surrogacy arrangements, in the context of Britain’s strict regulatory code, can only encourage more parents to bypass local options and head straight for a poorer or developing country. In India, for example, surrogates are plentiful, screened and by all accounts more dependable than British volunteers.

Leave aside, for a moment, any judgement on either the morality or desirability of such surrogacy. And consider the statement there. That strict regulation of who may do what and when drives the very activity itself out of the regulatory net. Does this regulation therefore achieve its aim? We would say probably not. The take away from this specific example being that, if one wanted to keep the activity inside the regulatory net then one would probably argue for a lighter touch with the regulation.

This observation is of a great deal mpore use than just talking about reproductive technology of course. It’s from the one side, the argument used in favour of legal abortion: without the legality it would still take place on those fabled backstreets and this would be worse. And it, from the other side, informs our attitude towards recreational drugs. As is obvious it’s going to happen anyway. So, loosen the regulations on whether people can or not so as to bring the activity into the regulations on purity and safety. Which is, as should be obvious, exactly the same as that abortion argument. Both are arguing that regulation should be pitched at the level to minimise harm, that only being possible when regulation is sufficiently light for the activity to remain regulated at all.

Thus it is essential that all regulation be “light touch” regulation. Within a wide and highly variable definition of “light” to be sure, dependent upon the specific activity. But it must always be light enough not to drive the activity underground and thus out of the reach of any regulation at all.

Here’s one reason for slow growth: regulation

Perhaps we do want to drill for oil in the heartland of the Home Counties, perhaps we don’t. That’s rather a political question and probably one best solved by politics. Instead, we want to draw attention to one of the reasons why the richer countries tend to have lower growth rates:

It is understood that although UKOG, which is chaired by Mr Lenigas, and its partners have local planning permission and a licence for the site in Surrey they would still require formal approval from the newly established OGA before any flow testing operations- vital to the project’s commercial future – could begin.

UKOG, whose shares are traded on the London Stock Exchange’s junior Aim market, said in a statement to the stock exchange that planning permission to proceed at Horse Hill was in place and that it had “already submitted the applications to the authorities for their consent” to conduct a flow test of the well.

However, The Telegraph understands that no such application had been received by the Oil and Gas Authority as at the close of business today, Aoril 28.

A spokesman for Mr Lenigas – who is playing an active role in driving the scheme forward – said that the company stands by its original statement “which is entirely accurate”.

According to guidelines, a well test would require planning permission from the Mineral Planning Authority, environmental permits from the Environment Agency (EA), a review of well plans by the Health and Safety Executive and finally regulatory consent from the OGA.

This process could take months, which if so would potentially put the company’s plans to flow test Horse Hill this year under pressure.

Leave aside, entirely, the interesting financial background to this. Consider instead this regulatory thicket.

It’s entirely possible that this is environmentally sound. That it really should take many months for the authorities to decide whether someone should be allowed to carry out a flow test. We find that hard to believe, given that well tests are a normal, routine, and well understood part of the process. But let that stand: there’s still, obviously, a restriction of the growth rate of the economy when people trying to do new things meet such regulatory thickets.

If there must be regulation then it needs to be simple, obvious and above all fast. The current regime doesn’t meet those tests: and this is a part of the explanation as to why growth rates are slow. We’ve allowed the necessity of a certain amount of bureaucratic licence gaining to become the equivalent of a barnacle encrusted hull on a ship. This reduces the speed through the water: time to haul the system out for a good careening.

It really is planning that is the problem with housing and house prices

We know, we go on about this almost ad nauseam. But it really is true that the basic problem with housing and house prices is the planning system. An interesting paper from the CEPR allows us, once again and via a different route, to prove this:

How have house prices evolved over the long‐run? This paper presents annual house prices
for 14 advanced economies since 1870. Based on extensive data collection, we show that real
house prices stayed constant from the 19th to the mid‐20th century, but rose strongly during
the second half of the 20th century. Land prices, not replacement costs, are the key to
understanding the trajectory of house prices. Rising land prices explain about 80 percent of
the global house price boom that has taken place since World War II. Higher land values have
pushed up wealth‐to‐income ratios in recent decades.

It is not that houses have become more expensive to build. The standard 3 bedder suburban semi can be put up, from scratch, for £120k and a little less than that in volume. What has become more expensive is that land. And, no, it’s not that we’re running out of land nor even that land itself has become more expensive. Even prime agricultural land in he SE tops out at £10k a hectare.

It is that land upon which you are allowed to build a house has become more expensive. And that of course is an entirely artificial shortage caused by the planning system itself.

So, if we want to deal with the “housing crisis” what we need to do is reform the planning system. Probably to the one we had before it caused this particular problem which was, essentially, to have no planning system at all.

The terrible pollution from Chinese rare earth manufacturing

It’s entirely true that socialist and communist mineral extraction methods are not quite as interestingly clean as we might like. It’s also true that the technologies used in China for the disposal of the wastes from such processes are less clean or safe than we would accept in our own back yards. It is, however, possible to lose any sense of proportion about this. The BBC has a long piece about just that pollution:

You can see the lake on Google Maps, and that hints at the scale. Zoom in far enough and you can make out the dozens of pipes that line the shore. Unknown Fields’ Liam Young collected some samples of the waste and took it back to the UK to be tested. “The clay we collected from the toxic lake tested at around three times background radiation,” he later tells me.

Unknown Fields has an unusual plan for the stuff. “We are using this radioactive clay to make a series of ceramic vessels modelled on traditional Ming vases,” Young explains, “each proportioned based on the amount of toxic waste produced by the rare earth minerals used in a particular tech gadget.” The idea is to illustrate the impact our consumer goods have on the environment, even when that environment might be unseen and thousands of miles away.

We admit, we’ve never really understood why every hippie is so fascinated by home made pottery. But they are correct in that rare earth mining does mean radioactive substances. Almost all such pores have thorium in them. As no one uses thorium to do very much that thorium is left in the wastes rather than extracted. And do note that none is created: what is being done is that extant radioactive metals are being pulled out of the earth in one place then dumped back onto the earth a few kilometres away. However, there’s something rather more important here. What they’re saying is true, there’s radioactivity in that thar’ lake. But is it an important amount?

Three times background? The difference between London and Cornwall. No, it’s not an important amount.

Uber forms of governance

A few weeks ago Samuel Hammond posted some interesting thoughts on multi-sided platform (MSP) technologies like Uber and PayPal, and the role they play in providing forms of governance. You can read the whole thing here, but the outline is as follows:

Governance—that is, things like rational planning to solve co-ordination problems, the setting of rules and assigning of rights, etc—is done not just by states but by private companies, too. Platform technologies (essentially those which enable interaction between different groups of people) are a good example of this. Amazon and Ebay, for example, are virtual marketplaces which connect disparate buyers and vendors from across the world, whilst PayPal is not only a payments processor but an arbiter of commercial disputes, with procedures to file a complaint and rules on when compensation is entitled.

‘Good’ governance occurs when the rules set and rights assigned are reasonable to both sides of a transaction, and when the total societal cost of any regulation is kept to a minimum.

State governance schemes are well-intentioned, but can be rather crude and inefficient in their execution. Take taxi-regulation for example: licenses guarantee a certain level of quality and safety for consumers, whilst regulated fares remove the cost and risk of having to haggle for every journey. At the same time, though, these regulations result in high prices, inflated barriers to entry, a lack of competition and little reason for incumbents to innovate or improve their service. Whilst the state tries to efficiently balance the costs regulation imposes on each party it often falls short, both because of the grand Economic Calculation Problem, and things like capture of the regulatory process by special interest groups.

In contrast, Hammond argues, MSP technologies are very good at being governance institutions. For example, Uber has ruffled so many feathers because its popular service is arguably a superior system of taxi regulation, thanks to its use of participant rating systems, safety features, an algorithmic pricing structure and so on. And, by controlling a bottleneck to market access, Uber to some extent acts as a de facto private licensing authority.

These ‘market regulators’ tend to be good at governance for a couple of reasons. One is that they’re free to harness new technology and experiment with different setups, driving down transaction costs. Another is the fact that a rival platform may always come along an offer an alternative service— and, as Hammond notes, “the only way to supplant an incumbent platform is to adjust the governance structure in a way that social costs are better compensated by maximising the bargaining surplus”. This ensures that even when a market regulator looks like a natural monopoly, so long as there is the possibility of exit, the cost of regulation will tend towards the social minimum.

Hammond argues that this means that MSP technologies are not just a bit better at governance than state institutions, but that “they potentially meet the economic definition of an ideal ‘public interest’ regulator”. And, just as Uber challenges traditional taxi governance models, we can imagine a future where all property rentals are listed on something like Air BnB, with tenancy acts and local regulation displaced by market-set rules and regulations which efficiently balance the interests of renter and landlord.

Such a situation should perhaps not be understood as ‘deregulation’, but a shift in the act of governance from the state to the firm, resulting, we assume, in reduced costs to society as a whole.

I particularly liked this post because it complemented some thoughts (and assuaged some fears) I’d had about the state harnessing new technology and commercial consumer insights to better perform its functions. In November I wrote a rather gloomy piece on ‘algorithmic regulation‘ and the government’s use of things like ‘big data’ and behaviour prediction to create more efficient, streamlined, and reflexive regulation, which, like the google search algorithm, would be constantly reviewed and updated according to insights generated into ‘what works’.

Such algorithmic regulation, I thought, could make government regulation more efficient, less irrational and less intrusive—but it could also open the doors to forms of dystopic technocracy. Once governments have the ability to create, access, and utilise vast swathes of information on their citizens, they’re likely to want to expand their scope of operations. Perhaps they’ll be tempted to ‘connect the dots’ between different types of lifestyles and tax income, health outcomes and the like. The opportunities for Nudge-on-crack policies could be everywhere. In addition, behind the seemingly apolitical goal of ‘rule by algorithm’ it’s easy to smuggle in hidden political assumptions, and use questionable or untrue assumptions to dictate what our government supercomputers do. Nonetheless I felt I was being an unwarranted techno-pessimist, so I filed it away my wonderings before resurrecting them recently on my tumblr.

However, Hammond’s post sketches out an alternative governance system I’m much more of a fan of. Instead of harnessing private sector insights and using them to aid an intrusive and bloated state, he imagines a situation where government effectively outsources certain functions to private bodies (Uber as a private licensing authority, etc). And, because these bodies have to respond to market pressures, if they do a bad job or overstep the mark parties can vote with their feet. These alternative governance systems are less likely to cater to special interests, and don’t require the state to handle so many terabytes of personal data. We still have algorithmic regulation, but done more on the terms of the parties affected instead of the state.

To me, neither of these two futures of regulation seem implausible. But I certainly know which one I’d prefer.