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.

Economic Nonsense: 7. New technology destroys jobs

This is partly true, but in a misleading way.  New technology has often displaced people from their traditional occupations, but in doing so it has created the wealth that has enabled vastly more jobs to be created than were lost.  Agricultural technology meant far fewer jobs for farm workers, but it also meant cheaper, more abundant food that left people able to afford things sustained by newer jobs.  A similar effect occurred with early textile technology.  Spinners and weavers were displaced, but cheaper, mass-produced textiles enabled people to afford other things that led to other jobs. This is how economic progress is made.  People develop new products and new processes that people prefer over what they were doing before.  Jobs are lost and more are created as part of that churn.

Voices are often raised against the change, especially by those affected, with calls for restrictions to be imposed on new technology in the name of protecting jobs.  Sometimes it has led to violence.  The Luddites smashed machinery, while the Saboteurs were named from throwing their wooden shoes (sabots) into the machines to wreck them.  This was done in a vain attempt to halt the march of progress.

New technology can bring hardship upon those affected by it, and some of those displaced can find it hard to secure alternative employment.  Governments, rather than attempting to stop new technology, sometimes try to ameliorate some of its effects by funding schemes that help retrain and if necessary relocate those most affected by it.

Sometimes people will ask where the new jobs will come from if technology displaces traditional ones.  The question cannot be answered because the future is inherently unpredictable.  New technology makes things cheaper, and that leaves people richer, with more money to spend on other things.  We don't know what those other things will be, but we do know that they will involve new types of jobs.  New technology, in making manufactured good cheaper, has left people with more to spend on services industries, and there are more jobs in total than there were.  This is how new technology works.  It destroys some jobs and creates more.

It's the absence of markets that causes poverty

There's an excellent discussion of a recent finding in development economics over here.

If markets are missing completely, or so unreliable as to effectively be missing, then household separation fails. The extreme case is easiest to think of. If a household is completely autarkic, and can trade with no one else, then it can only consume what it produces. The two decisions are inseparable. If they want a new TV, then they’d better have a source of rare earth elements in their back yard and a passion for soldering.

The importance of knowing if household separation holds or not is that it tells us something fundamentally important about why a developing area is poor.

What's being looked at is that horrible, $1 a day, poverty that far too many of our fellow humans are stuck in. The big question being, well, are they stuck there because of the way that markets operate? Perhaps "the market" means they can't get enough fertiliser for example. Or is it that markets simply do not exist and thus they cannot reap the benefits of the division and specialisation of labour and the subsequent trade in the increased production?

The answer appears to be the absence of markets rather than any failure in them. Which leads to an interesting thought about what should be the right way to aid them.

Instead of sending money with which to buy them stuff we should be trying to work out how to create markets. And the most important part of that is in fact information. Not from us to them, but within such communities. And that ties in neatly with something that is becoming apparent from another part of the literature. It may well be that the mobile telephone is the greatest poverty reducing technology of our times. Simply because it does do exactly that, allow the spread of the information that enables markets to do their wealth creation thing. As this excellent paper makes clear.

It's not quite as simple as "make sure there's a phone network everywhere and the poor will get rich" but we're increasingly coming to the view that that's a damn good start to solving the problem.

Subsidising green tech could be self-defeating

One of the only arguably beneficial impacts of taxing petrol as heavily as the government does is, theoretically, to encourage the production of ‘fuel-efficient’ vehicles. A tax on fuel increases its price and consumers will seek fuel-efficient alternatives to current vehicles. This increased demand has encouraged car manufacturers to develop vehicles that are more fuel-efficient. Since subsidies are the inverse of taxation, the effect of subsidising green technology on innovation is inverted. Subsidising green technology means that producers have less incentive to continue innovating and producing even more efficient technology since the government basically favours the status quo or a particular benchmark. If we must have subsidies, this benchmark (as in, a certain level of efficiency) must be constantly revised upwards so that: 1. We don’t subsidise as many firms’ products, 2. Cash transfers to firms require constant innovation and improvement. Cutting back subsidies for fuel-efficiency and green technology in conjunction with these high fuel taxes (let’s face it, they’re not coming down anytime soon) should encourage innovation whilst tackling the budget deficit.

A similar logic applies to subsidising solar panels, wind farms etc. because the government has essentially signalled to the producers that, although their inventions are not cost-effective, the remaining burden will be imposed upon the taxpayer. This means that these alternative energy sources will not be developed to their full potential as quickly as they would otherwise be. Why delay innovation on the basis that we are happy with what we have compared to what we used to have? Surely, we should encourage the production of new, more efficient ‘green’ energy technologies sooner rather than later; this can be achieved by cutting subsidies for existing green technologies and thereby preventing such firms from being comfortable with inefficiency.

There's less to this robots will steal all our jobs story than you might think

We've another of those spine chilling warnings that the robots are going to come and steal all our jobs:

From self-driving cars to carebots for elderly people, rapid advances in technology have long represented a potential threat to many jobs normally performed by people.

But experts now believe that almost 50 per cent of occupations existing today will be completely redundant by 2025 as artificial intelligence continues to transform businesses.

A revolutionary shift in the way workplaces operate is expected to take place over the next 10 to 15 years, which could put some people's livelihoods at risk.

Customer work, process work and vast swatches of middle management will simply 'disappear', according to a new report by consulting firm CBRE and China-based Genesis.

We could all get very worried and ponder what it is that people might do. Alternatively we could be sensible and give the correct answer: something else. And even if that something else is something that isn't currently thought of as a "job" that doesn't matter one whit.

For we don't actually care whether someone, anyone, has a job. We don't, really, care whether they have an income either. What we do care about is that everyone has the opportunity to consume. And if the robots are off making everything then obviously there's lots to consume. So we've not got a basic nor an insurmountable problem here. All that's necessary is some system of getting what is produced into the hands of someone who can consume it.

And oddly enough we've got that system, that market for labour. We've had it for many centuries. The idea that someone might make a living as a writer of books (as opposed to a court funded artiste) would have been ridiculously exotic a few centuries back. The idea that a sprinter might make a living from sprinting was near illegal only 50 years ago. The idea that someone can make a living as a free market diversity adviser (they're not all tax funded) still seems pretty exotic to us frankly.

As has happened before, as has been happening for centuries, as the machines take over the much spreading then the muck spreaders go off to do something else. Usually, something a little less smelly and more enjoyable for a human being to do.

And there's one more observation we should make here. 50% of the jobs are going to disappear in 15 years? Pah! Lightweights.

For people always forget about "jobs churn". The economy destroys some 10% (for the UK, 3 million) jobs each year. Unemployment doesn't rocker by that amount because the economy also, roughly you understand, creates 3 million jobs each year. Those that disappear might appear to be the same as those that are created but they're almost always not quite. The move from one job to another always involves a subtle shift in what is being done. And continual subtle shifts in the flow of jobs move the stock of jobs along at a fair old clip.

We already expect some 150% of jobs extant in this current economy to explode, disappear, and be recreated as slightly different ones over the next 15 years. Whether this 50% is included in that figure or on top of it it's not the revolution some are predicting: it's just an addition to hte normal workings of the economy.

The NHS: bread and circuses

Juvenal, as every schoolboy used to know, coined the term “panem et circenses” almost exactly two millennia ago to describe the way politicians bought votes with little regard for important issues of state. What goes around comes around: this party conference season has seen Labour, Lib Dem and Conservative Parties trying to outbid one another in their promises for the NHS.  I am not suggesting that the NHS is mere entertainment even if party conferences are.  The point is that NHS spending is becoming a bribe in the same way bread and circuses were.

Any amount of money can be thrown at the NHS, just as it could at the Roman games.  And consuming more increases the appetite for more again.  Somehow questions of value for money, compared with other ways in which our money can be spent, need to be honestly and realistically addressed.  Does a Health service need to pay for people’s life choices or how they wish to look?  Does it need to accommodate elderly, but healthy, people who have nowhere else to go?

Does it need to fund legions of lawyers, managers and compensation claims for real and exaggerated errors?  Harold Wilson started this problem in the 1960s when patients became customers and could suddenly claim.  Until then the only customer was the state and we all had to take our chances.

Emotional wool seems to cloud all NHS discussion.  As it is all free to us individuals, we, naturally enough, only want the best even when the merely good would be good enough.  For, roughly, the same treatment, big hospitals cost double cottage hospitals which double GPs.  Scale does have benefits for specialism but also diseconomies. Only the hassle of big hospital visits, and car parking charges. keep us local.

The cutting edges of medicine, technology and techniques always cost more but some means of rationing will have to be found.  Alternatively, alcohol, tobacco and fatty foods should be prescribed as bread and circuses were.  Dying younger would keep NHS costs down and morale up.