The start of Stalin's Great Purge

It was on December 1st, 1934, that a gunman burst into the offices of Sergei Kirov, the Mayor of Leningrad (now St Petersburg) and shot him dead. Stalin used the assassination as a pretext to launch his Great Purge of dissident Communist officials and any party members who did not toe Stalin's official line one hundred percent. In the show trials that took place in the late 1930s, over a million people were put to death after a sham judicial process.

Although Kirov was loyal to Stalin, popular opinion at the time, supported by some later historians, was convinced that Stalin had personally ordered the murder fearing that Kirov's popularity was making him a potential rival to Stalin himself. When Kirov had been elected to the central committee earlier that year, he had only three votes against, the fewest of any candidate, while Stalin had 292 votes against.

What was new about the Great Purge that Stalin now instigated was that, for the first time, members of the ruling Communist Party featured prominently among its victims. Most held party offices of some kind, but the purge of the party was accompanied by a purge of society. Many Bolsheviks, famous for their roles in the 1917 Revolution, were seized and convicted in show trials, expelled from the party and then executed. Many of them "confessed" to being involved in Kirov's murder.

Western left-wing journalists, of the type Lenin had called "useful idiots," covered the trials and reported them as open and fair. What they did not know then, but what is now known, were the methods used to extract the confessions on which the guilty verdicts depended. They included torture by repeated beatings, simulated drownings, forcing prisoners to remain standing, depriving them of sleep for several days, and threatening to  arrest and execute their families.

The whole process was brilliantly conveyed in Arthur Koestler's "Darkness at Noon," which ends with Rubashov, the fictional Old Bolshevik, making a full and public confession after torture to crimes he did not commit, and doing so out of a lingering loyalty to the party. The book ends with his execution.

A vast series of closed trials was held in addition to the show trials. These were of top Soviet military leaders, tried in 1937-38, and executed. This was accompanied by a massive purge of the Soviet armed forces, an event which helps to explain the initial poor performance of Soviet defending forces when the Germans invaded in 1941. Their leadership had been eliminated, and their morale was low in consequence. It took the anvil of war to renew both of these.

Many dissidents opposed to Stalin who had fled abroad were hunted down and murdered by killer squads sent to eliminate them. Leon Trotsky was killed in Mexico. No-one was safe. Robert Conquest refers to this period as "The Great Terror," (the title of his book on the subject), deliberately calling to mind the Reign of Terror that gripped the French Revolution.

It is possible that Stalin was seeking to expunge all forms of Communist thinking except for his own narrow party line, but there is a good case for supposing that he was by then totally paranoid, corrupted by the absolute power that has always characterized communist regimes. The leaders think the cause is so right that it justifies anything to sustain it, even brutality, torture, and mass murder.

The quite appalling level of private contracts in the NHS

We’re told that there’s some terrible amount of privatisation of the National Health Service going on. We agree:

Private firms have been handed almost £15bn in NHS contracts over the past five years, figures show.

The value of contracts given to non-NHS providers, mainly profit-driven firms but also including some social enterprises, has soared by 89% since 2015, from £1.9bn to £3.6bn a year.

Around about and roughly enough the NHS costs £150 billion a year. Thus some 2% of the service is currently being outsourced. We agree that’s appalling, entirely terrible. It should be much, much, more than that.

It is of course Ronald Coase who provides us with the basis here. Why should some things be done within the one organisation, on a command and control basis, others be done using a nexus of contracts with independent market actors? The answer is, well, it depends. There are costs either side, benefits either side and what is the optimal balance depends upon, well, it depends, upon the specifics of what is under discussion.

It also depends upon the state of technology at any one time. The major cost to the outsourcing is what are called “transaction costs”, the price of organising those independents into working with the core organisation. The major technology of the past 30 years has been the internet, the very thing which massively reduces transaction costs. To pluck just one near random example out of the air the reading of, diagnosis from, radiology can now be done online from India. Something not even feasible back then, let alone efficient or optimal.

That change in technology, that lowering of transactions costs, means that rather more should be outsourced these days. Given the resistance of any large organisation to, umm, organisational change we would all expect the NHS to be lagging behind such opportunities to increase efficiency. We don’t just expect it of course, we here insist upon it. 2% of everything is far too small an amount to be outsourcing.

Actually, when we come to think about it, we’d insist that more than the marginal 2% of absolutely anything should newly be outsourced given that technological change. Our own outsourcing of part of our blog to Portugal as an example….

Winston Churchill

On November 30th, 1874, a remarkable man was born as Winston Churchill came into the world at Blenheim Palace, ancestral home of the Dukes of Marlborough. Although the family was wealthy, he himself was not, and at many times in his life, especially in the wilderness years of the 1930s, he supported himself by his writing skills, and received backing from patrons who supported his stance.

He gained early fame as an army officer and war correspondent, including an escape from imprisonment by the Boers in South Africa. During his political career he represented five constituencies, first as a Conservative, then as a Liberal, and finally as a Conservative again.

He was out of power and influence in the 1930s when the UK’s policy was one of appeasement to the growing might of Nazi Germany. Churchill warned of their menace and called for rearmament to resist the threat they posed. When war did break out, Churchill was made First Lord of the Admiralty, a post he had held in the First World War, and became Prime Minister in May, 1940, when Chamberlain lost the support of the House and resigned.

Churchill’s enduring fame is as war leader, the man who stubbornly refused to surrender against superior forces, and who ultimately led his country to victory alongside its Allies. He did many things wrong in his political life, and made many wartime decisions that led to disastrous outcomes. But he did one thing right that made up for all the wrong ones. He held out against the unspeakable evil that was Nazism, and saved the world from what he called “a new dark age.”

Many accolades were bestowed. He was reportedly offered the Dukedom of London, and would have been the first non-royal duke since Wellington. He declined, saying there was no higher honour than serving in His Majesty’s House of Commons.

He was awarded the Nobel Prize for literature for his “History of the English-Speaking Peoples.” It was almost certainly a reward for winning the war, but they could hardly have given him the Peace Prize as a war leader.

A major poll conducted by BBC2 in 2002 sought to establish whom the British thought was the greatest Briton in History. Despite heavyweight candidates such as William Shakespeare, Isaac Newton and Charles Darwin, Churchill topped the poll.

He showed what character can achieve if one is prepared to buck the trend and swim against the tide, holding out for one’s convictions with tenacity. He gambled and won the big one, despite losing several of the smaller ones. The appreciation for him was never stronger than on VE Day, when he joined the King and Queen on the balcony at Buckingham Palace. Earlier that day he had told the cheering crowds, “In all our long history, we have never seen a greater day than this.” He led the nation in making it happen.

How much do we owe the rest of the world over climate change?

That we might owe nothing is a reasonable enough answer. But start by agreeing with the set up here from the IPPR:

The UK contribution to the UN’s climate fund should balloon to £20bn by 2030 if it plans to pay a “fair share” to helping tackle the global climate crisis, according to new research.

A report from the IPPR thinktank says the UK should “shoulder more of the burden” of the global climate crisis because of its major contribution to the world’s rising carbon emissions.

The left-leaning thinktank found that the UK is responsible for the fifth largest contribution of carbon emissions in the atmosphere since the 1750s. The UK is behind only the US, China, Russia and Germany in terms of its global climate impact.

The IPPR called on the next government to radically increase the money it spends on helping to fund green initiatives by almost threefold to match its contribution to the climate crisis with funds to help tackle the environmental breakdown.

Do we owe £20 billion a year?

Think on what the actual climate change solution is - assuming that we still agree with the IPPR just for the sake of the argument. It will be having a method of powering an industrial civilisation without the use of fossil fuels. And what is it that we in the UK have been doing this past couple of decades? We have been driving ourselves into fuel penury by subsidising research into and the scaling up of solar, wind, tidal and so on energy sources. We’ve already been giving that is, in the development of the required technologies. Rather than giving money other governments to splurge upon the problem.

Or, as we might put it, yes, we see that begging bowl but thanks, we already gave at the office.

Compulsory education

On November 29th, 1870, the Elementary Education Act passed into law. We’ve tended to call landmark education acts in the UK after the education ministers who put them through, and this one is popularly called the Foster Act, just as later ones were the Butler Act of 1944 and the Baker Act of 1988. The Foster Act introduced compulsory private education in England and Wales, though it was not initially all tax-funded state education.

Until then schooling had been private, with the “penny schools” teaching a high proportion of children literacy at the cost of one penny a week. A penny was then one 240th of a pound. The 1870 Act established local education authorities to fill gaps in schooling, and authorized public monies to upgrade existing schools where this was deemed necessary. The 1902 Education Act allowed local authorities to create secondary schools, and the 1918 Education Act 1918 abolished fees for elementary schools.

Schooling in Britain has been very much a case of the wrong thing done for the right reasons. It is good that children should be educated and given a chance to exercise their talents and to make good. Nearly all parents want this to happen, and some need help to bring it about. The mistake was for the state to go into the production of education, owning schools and paying teachers. The role of the state would have been better had it concerned itself with the finance of education. It could have directed funds to ensure that every child had access to decent schooling. Instead it turned primary and secondary education into effective state monopolies, giving power to local authorities and teachers’ unions to control its output, instead of directing it to produce what parents wanted.

The result was the abolition of grammar schools, which promoted social mobility, and the spread of comprehensive schools that held back bright students by prioritizing equality of outcome more than achievement. Starting with the Baker Act of 1988, various measures have been implemented to redress this. Foundations schools, Academy schools and more recently Free schools have been given a status that gives the school some autonomy from local authorities.

Ideally state education should allow for different types of school, with parents given the choice of where their child should go, and with public funds being directed by those choices. The school system in England and Wales is heading there steadily, as more schools choose that route. It is, in effect, a voucher system in which the vouchers have been made invisible, floating above the head of every child, and sending state funds to the chosen school they attend.

Teachers’ unions and left-controlled local authorities have opposed all of the measures designed to turn schooling from a top-down system in which the state allocates each child a school place, into a bottom-up system in which the choices are made by parents and children. Fortunately, the reformers were able to draw on the experiences of countries such as Sweden and the Netherlands where parental choice directs the state funding.

Ideologues might want to create new model children, taught to value a state-directed society and to acquire statist opinions, but parental choice thwarts this by choosing to have children educated instead.

The BMJ on the NHS - Depends upon which numbers you use really

An interesting little example of how it does so depend which numbers you use. The Telegraph tells us that:

Britain's health service is lagging behind that of other high-income countries, research suggests.

The study by the London School of Economics and Harvard School of Public Health compared

ten countries, examining spending levels, and a range of indicators measuring quality of care,

That is rather going to depend upon which ten countries are compared.

Researchers compared the UK with Australia, Canada, Denmark, France, Germany, the Netherlands, Sweden, Switzerland and the US, using data, some of which came from the Organisation for Economic Co-operation and Development (OECD).

The UK was found to have the lowest healthcare expenditure per person at £2,978, compared with an average of £4,438 in the other countries.

Overall, the UK spent approximately 8.7 per cent of GDP on health in 2017, compared with the average of 11.5 per cent.

Ah, yes. So, if we include the US - which spends vastly more than anyone else - then our averages are going to be rather high. Which is how we get to the NHS being the poor orphan having to ask for more gruel. Except that’s probably not the correct message to be taking from this. In the paper itself:

The UK had the lowest healthcare expenditure per capita relative to our comparator countries (UK, $3825 (£2972; €3392); study average, $5700), although this was roughly in line with the average healthcare expenditure of the OECD member states ($3854) and the EU member states ($3616)

That is, if we drop the US from our list of comparator countries the NHS is no longer the fiscal beggar.

Total per capita spending on long term care in the UK was below the study average, but slightly above the average long term care expenditure across the OECD and EU. Social spending in the UK as a percentage of GDP was 19.6%, which was similar to the study average of 20.1% but above the OECD average (16.9%) and the EU average (18.8%).

That paucity of cash for the NHS and social care simply isn’t there when comparing the UK with other European societies. It being possible, we think, to agree that the US is the wayward character in these matters? Thus it being useful to exclude it from the averages we’re going to use to judge the point?

All of which does give us a rather different policy point. Including the US as a comparator gives us quick, quick, we must shovel more cash into the NHS. Restricting ourselves to actually similar countries tells us something different. Given that we’re spending about the same amount, possibly a little more, why is it that we’re not getting results as good? Perhaps, whisper it though we must, there’s something wrong, inefficient, about the manner in which the NHS spends the money it does get?

Our view is much closer to that second of course. Stalinist bureaucracies are not efficient. But it does all rather matter which set of numbers you start with before considering the point, doesn’t it?

Hazlitt and Engels

Henry Hazlitt was born on November 29th, 1894. He shared a birthday with Friedrich Engels, who was born on the same day in 1820. Hazlitt is most remembered and appreciated for his classic work, “Economics in One Lesson,” first published in 1946. For many free market advocates, this has been a gateway book, introducing them to the basic ideas of economics in clear, simple prose.

The book starts with the observation of Frédéric Bastiat in his essay, "What is Seen and What is Not Seen." It makes the point that we have to look beyond the immediate impact of economic activity to the longer-term consequences. Bastiat points out that the broken window appears to provide money for the glazier, who spends it to augment the local economy, but we too easily forget that the owner of the window is poorer by the cost of replacing the window. He or she might otherwise have spent that money boosting the local economy.

Hazlitt takes us elegantly through the idea of opportunity cost, or what might have happened otherwise. Government projects might look good and draw applause, but they are paid for by taking tax money from people who might otherwise have spent it on projects of their own. Government seems to create employment and wealth, but all it really does is redistribute those things from one group to another, taking its cut in the process.

Government might seem to be helping business with loans or subsidies, but all it is really doing is taking money from successful businesses to support unsuccessful ones. Similarly, price controls and rent controls seem to support needy groups, but in reality, they have negative effects on the wealth of the community, and the longer they are continued, the greater are the bad effects they have.

Hazlitt’s book has the advantage of its straightforward simplicity. It has been widely praised by thinkers as diverse as Milton Friedman and Ayn Rand. Those who look to government for the goodies it purports to hand out learn from Hazlitt that everything it does has to be paid for. What it mostly does is redistribute, making some a little richer by making some a little poorer by doing so, and it distorts people’s ability to give expression to their own preferences.

Engels, alas, had a more baleful impact. His book, "The Condition of the Working Class in England," looked at the poor conditions in Britain’s industrial towns in the 1840s and concluded that only a proletarian revolution could improve their lot. He had no inkling how wretched and squalid their previous rural existence had been. He went on to use his inherited cotton mill wealth to fund Karl Marx to write the books that inspired people to unleash the horrors of communism on the world, with its stunting of human aspiration and achievement, and the mass murders that accompanied it.

Of the two men who shared the same November birthday, one taught how to let people develop and improve the human condition, while the other inspired people to constrict it, and to oppress them while doing so.

The engineers are entirely correct here about climate change

Sure and there’s a particular individual who keeps claiming the invention of this idea but it’s still a useful one. Worstall’s Fallacy - To measure what needs to be done without accounting for what is already done. If we were to measure income inequality purely by market incomes then we would be indulging in idiocy - what matters, if anything does, is how much inequality is there after the things we do to reduce inequality? Thus we measure post-tax and post-benefits inequality, not that of market incomes.

Of course, when we come to wealth inequality we do indulge in idiocy because that is measured pre-tax and pre-welfare state terms but there we are.

Another example is this from the engineers:

Extinction Rebellion are ‘destructive’ and ‘unsupportive’ of technologies that already exist to tackle global warming, the Royal Academy of Engineering (RAEng) has warned.

Ahead of a new report, calling for the rapid scaling up of Britain’s engineering biology sector, experts said that scientists and engineers were on the brink of solving many of the major problems linked to climate change and environmental pollution.

But they said many protesters were simply unaware of how much was already being done to tackle global issues, such as the development of specialist materials to clean up the oceans, green fuels, bugs being engineered to churn out biodegradable plastics, meat alternatives and even environmentally friendly hair dye.

There’s more to it than just this, much more. In the original projections of how much we should worry about all of this there were versions which assumed that we didn’t make solar panels cheap, didn’t work out how to build windmills, continued to use coal in vast quantities and so on and on. We have in fact changed those things, meaning that those more extreme projects (to taste, A1FI from the older set of models, RCP 8.5 from the newer) simply are not going to happen. They’re not part of our possible collective future.

Yet the shrieks of horror from the likes of Extinction Rebellion are based upon the idea that not only will those impossibilities happen they are the only possible collective future. They are committing Worstall’s Fallacy - measuring what needs to be done without accounting for what has already been done.

For example, just recently the International Energy Authority announced that the world was only installing 60% of the renewables generation capacity needed to bypass that 1.5 degrees warming target. No, leave aside whether that’s a sensible target, whether renewables will meet it and all that. Just think about that statement.

We have done nothing to deal with climate change? Or we’ve done 60% of it and there’s only 40% to go? And public policy should be based upon which answer?

The early dawn of helicopter money

In 1969, Milton Friedman coined the phrase "helicopter money" to dramatize extra money being pumped into an economy as if dropped from helicopters. Some economists have since suggested that this could boost demand in a severe downturn to lift the economy, though others point to the inflation that would result.

It was almost given a trial in one of the most bizarre Nazi plans of World War II, entrusted to SS Major Bernhard Krüger, who was born on November 27th, 1904, and whose name was used as the codename for the plan, Operation Bernhard. The idea was to produce large quantities of fake British banknotes and drop them from aircraft all over Britain. It was reckoned that the British people, suffering from war privation and rationing, would spend the money instead of turning it over to the authorities. The result, reasoned the Germans, would be financial chaos, inflation, and the collapse of Britain's economy and its ability to continue to fight the war.

Krüger toured the concentration camps to collect the slave labour he was ordered to use, choosing Jews with the skills he was looking for, those with expertise in engraving and printing. His unit was set up near Berlin at Sachsenhausen camp, with printing presses capable of producing 65,000 fake notes a month. It is reckoned that notes to the value of hundreds of millions of pounds were produced, equivalent to about £7 billion in today's values. They were fake, but they were of superb quality and virtually indistinguishable from the genuine ones.

Hitler personally approved the plan, though Goebbels thought it “grotesque,” pointing out that Britain could retaliate in like manner. Operation Bernhard was not carried out as planned because by the time it was ready, Germany no longer had enough aircraft, or ones capable of penetrating Britain’s defences.

Instead of abandoning it, Himmler took it over and used it for money-laundering to fund intelligence operations. He called on the services of Friedrich Schwend, a gangster dealing in currency fraud and smuggling, to run the network. Schwend used the fake currency to buy gold, diamonds and art works that were resold for genuine currency. From his headquarters in Merano in Italy, he spread the fake British banknotes across Europe.

The forgery business ended in 1945 as the Allies advanced across Germany and Sachsenhausen was shut down. Crates of the fake notes were dumped by the SS into Lake Toplitz in Austria, from where some were recovered by divers in 1959, but the bulk lay undisturbed until the year 2000, when a submersible brought up several boxes of the counterfeit notes. At Merano in Italy, a 1967 examination of the church organ to check its age revealed £5 million fake notes that Schwend had stuffed there.

Schwend fled to South America after the war and was involved with Klaus Barbie and Josef Mengele. In 1976 he was extradited from Peru to Germany to face trial for wartime crimes. Found guilty, he received a two-year suspended sentence and was deported back to Peru. Krüger was initially detained by the British but released in 1948 without facing charges. He returned to Germany and later faced trial in a denazification court. Former inmates under his charge at Sachsenhausen provided statements that resulted in his acquittal. He died in 1989, aged 84.

Some of the fake money had crept into circulation in Britain, and was so good that it alarmed the Bank of England, and led them to issue a new design. We never, therefore, had an advance test of the effect of helicopter money. Who knows? It might have caused a wartime consumer boom in the UK economy as people rushed to spend their airborne wealth. But since goods were in short supply because of the U-boat menace, the inflation would have reached Venezuela levels, perhaps even Zimbabwe. It never happened.

Young people and immigrants will be hit hardest by Labour's rent controls

‘In many cases rent controls appears to be the most efficient technique presently known to destroy a city – except for bombing,’ socialist economist Assar Lindbeck declared in 1972.

Labour’s Manifesto released last week commits to cap rent increases to inflation, while giving cities power to cap rents even further. 

Rent controls transfer the mechanism for setting rent prices from the market to the state. They result in lower rents for those who currently have a rental apartment and are happy to stay in them. But for everyone else it makes them worse off. It drives up shortages that, depending on the exact policy, results in longer waiting lists or much higher prices for those entering the market. It is the property equivalent of pulling up the drawbridge when you get in. Corbyn might profess to be for the many, but this is a policy that is only ever for a privileged few. 

Rent control fails everywhere it is tried. . Take Sweden, in Stockholm the council has had a policy of rent controls for decades. It takes an average of a decade, and up to 30 years, to get to the top of the waiting lists for apartments. This prevents young people and immigrants from being able to find a home. It also greatly restricts those who want to find a bigger place as they start a family. It’s worth noting too that Stockholm capped rent controls above the level of inflation, Labour doesn’t want to do even that and is planning to go further to lock controls to inflation. This will mean more people locked out of moving to our great cities, it will mean even more shortage, and even more substandard accommodation. 

Most private renters’ gripes come down to issues with accomodation: a broken fridge that has taken too long to get fixed, a damp wall, or a boiler on the blink. Well, rent control doesn’t fix this — it makes it worse. Because property developers realise that they cannot get a sufficient reward for building new properties due to restrictions on rents, new home building collapses and investment in properties already in the market dries up. This makes the shortages even worse while the quality goes down. 

It’s not just in Sweden of course — equally self-promotingly progressive San Francisco also has rent controls. A study by Stanford University found that between 1994 and 2010 those who were already living in rent-controlled properties had benefited from lower rents by about $2.9 billion between them. This however had been at the identical expense of an additional $2.9 billion to those who came to the city later who experienced higher rent because of a shortage of available housing. Rent controls added up to a transfer of benefit from young people and immigrants to those who are already tenants. 

Tinkering with the price of rent does not identify the real underlying problem behind the housing crisis: the fact that there are too few homes. Heavy restrictions on building new homes have stifled building by both the state and the private sector. Council procedures as well as national planning legislation currently results in housing that inefficiently uses space. It also takes years to obtain permission for large developments. With our politicised and democratised planning system we’ve ended up making property an asset class with a few winners at the expense of everyone else. We should not replicate that shortage in rentals too. 

The Conservatives have gone some way to help deal with this by easing restrictions on building extensions. Current Conservative housing minister Rob Jenrick has proposed some good reforms. such as allowing owners of detached homes to build two extra storeys without planning permission which could then allow the property to be split into flats. 

However, both parties need to realise that current planning procedures are not fit for purpose in order to bring about more homebuilding. If not, then no level of tinkering will prevent shortages, high prices and long waiting lists that come with that — and the last thing Britain needs is the explosive economic impact of rent controls.