Adam Smith Institute ranked among top 10 economic think tanks in the world

Today, the University of Pennsylvania has released its authoritative Global Go To Think Tanks Report’s rankings of over 6,500 think tanks. The Adam Smith Institute is delighted to be placed 7th in the world for domestic economic policy and 10th for international economic policy.

These rankings place us in the same league as think tanks with budgets a hundred times bigger than ours. They confirm that we make a big difference, are highly cost-effective, and have earned the respect of our peers around the world. We were also named as the think tank with the 18th most significant impact on public policy in the world.

These rankings for 2012 confirm the Adam Smith Institute as one of the world’s leading policy think tanks, effectively fighting for free markets and a free society. 2012 has been an exceptional year and the impact of our work is reflected in our excellent position in the global rankings.

"This is a marvellous endorsement of our young, focused, energetic team, who have outperformed much larger institutions in terms of impact and cost-effectiveness", said Adam Smith Institute Director Dr Eamonn Butler. "I am proud to work alongside them in one of the world's leading policy think tanks."

The full report and rankings can be viewed online here.

Ayn Rand and the Free Market Revolution

The Adam Smith Institute hosted a book launch on Tuesday at St. John’s Church at Smith Square, London; a paradoxical venue to invite Dr Yaron Brook, the president of Ayn Rand Institute, the advocate for Objectivist philosophy, to talk about his new book co-authored with Don Watkins Free Market Revolution: how Ayn Rand’s ideas can end big government.

Church halls are not probably the best venues to host a movement of committed atheists, for atheism is the epistemological foundation of the Objectivist movement that many people tend to glance over, including the US vice presidential candidate Paul Ryan.  This is where, in principle, I have to part company with Objectivism, for I am a believer.  It would be wrong of me to promote a movement that argues against my fundamental belief in God.

Having said this, however, there is much in Ayn Rand’s philosophy that appeals to the advocates of free markets and small government, of which I am one.

Dr Edward Younkins writes about Objectivism:

Hierarchically, philosophy, including its metaphysical, epistemological, and ethical dimensions, precedes and determines politics which, in turn, precedes and determines economics. Rand bases her metaphysics on the idea that reality is objective and absolute. Epistemologically, the Randian view is that man’s mind is competent to achieve objectively valid knowledge of that which exists. Rand’s moral theory of self-interest is derived from man’ s nature as a rational being and end in himself, recognizes man’s right to think and act according to his freely-chosen principles, and reflects a man’s potential to be the best person he can be in the context of his existing circumstances. This leads to the notion of the complete separation of political power and economic power – that proper government should have no economic favours to convey. The role of the government is, thus, to protect man’s natural rights through the use of force, but only in retaliation and only against those who initiate the use of force. Capitalism, the resulting economic system, is based on the recognition of individual rights, including property rights, in which all property is privately owned.  For Rand, capitalism, the system of laissez-faire, is the only moral system.   

There is little that a proponent of a free market system can disagree with here.  And, as Dr Yaron Brook emphasised last night, our society has become increasingly collectivist.  No longer is the economic benefit of a man’s self-interest celebrated; rather, it’s condemned.

No longer is the economic contribution of an entrepreneur such as Bill Gates celebrated. Dr Brook was absolutely correct in his analysis that Bill Gates’ contribution to the betterment of the lives of countless people through Microsoft have been ignored or even berated for the fortunes he amassed through his entrepreneurial genius; it’s only now when Bill and Melissa Gates’ Foundation is giving the fortune away, that Bill Gates gains the ‘stamp of approval’ as a good guy by the masses.  The same analogy applies to the late Steve Jobs of Apple, and dare I say, Mark Zuckerberg of Facebook and countless other successful entrepreneurs.

Interestingly, Mr Jobs, when challenged about the ‘lack’ of his philanthropic activities, stated that his contribution to the world were his beautifully designed products that people lust after.  He was quite right, but not what the masses wanted to hear.  On the contrary, Apple, Google, Starbucks, Amazon etc. have been condemned as profit-crazed global thieves by the same people whose lives these firms have enriched.  Instead, governments, that impose taxes and make decisions on our behalf what to spend our hard-earned cash on, are applauded as altruistic institutions.

Poppycock. If I don’t like what Starbucks, or any other firm for that matter, sells, I can take my business elsewhere, but it’s very difficult for me to take my business away from the British taxman as a British subject.  And this is where the economic philosophy of Dr Brook and Watkins comes in. It is a refreshing perspective that argues for the return to the individual moral high ground against the collectivist coercion by the state.  It is time again to start celebrating wealth creation; this only comes if we, as a society, make a fundamental transformation from collectivism to moral individualism.

Ayn Rand’s Objectivist philosophy and its proponents have much to contribute to the movement for small government and the man’s freedom to choose.  Free Market Revolution makes an important contribution to the debate; even if one does not accept the ontological and epistemological foundations of Objectivism.


Merge audit and compliance in financial services

In terms of employment growth, regulation must be the UK’s most successful enterprise.  And we have been attempting to export it worldwide.  The 4,000 strong Financial Services Authority (FSA) has now been divided into two main successors, the Prudential Regulation Authority (PRA), made part of the Bank of England, and Financial Conduct Authority (FCA), and a few minor ones.  Hydra-like we can expect the combined total employment by the new bodies comfortably to exceed that of the FSA.

A couple of ironies here are firstly that financial services regulation was handed over to Brussels by Prime Minister Brown in 2009, leaving all these UK bodies merely with supervision of the rules set by the EU.  Secondly, the level of malfeasance by banks in particular has grown in proportion to the numbers of regulations and regulators.  The more regulators and regulations we have, it seems, the worse the banks behave.  Part of the explanation is that the regulators have been incompetent at worst and invisible at best.  If you doubt me, see the comments this month by the Commons Treasury Committee about the appointment of the new Chairman of the FCA.

And talking of invisibility, where were the auditors when this naughtiness was taking place?  Auditors are theoretically employed by shareholders but, in reality, by the directors of the companies they audit.  So you do not get a lot of auditors reporting that the directors are up to no good or turning blind eyes to practices they should be correcting.

To return to the issue of the numbers employed, the number of regulators, or regulatory supervisors, is not of much interest to a government which is cutting the size of the civil service (good) but recharging all the financial services regulatory staff costs back to the firms in the sector.  Pontius Pilate was no better at hand-washing.

And the number of external regulatory staff is only a fraction of the total, arguably one third.  The firms themselves have myriad compliance officers infiltrating the veins of the business and taking up the time of those managers trying to run it.  The upside of that is that the better the internal compliance system, the less need there should be, in terms of person-hours, for the involvement of the external supervisors.

Much the same applies to internal audit: the better job they do, the less the audit fees should be.

But what, when all is said and done, is the difference in roles between external and internal auditors on the one hand and regulatory supervision on the other?  Would it not be better to have fewer people combining audit and compliance and doing it properly, rather than the legions now employed and failing?  And let us prohibit directors from appointing their own watchdogs, or rather poodles.  A joint appointment committee of shareholders and PRA would give the audit/compliance team true independence.

JS Mill on Europe

What has made the European family of nations an improving, instead of a stationary portion of mankind? …Europe is, in my judgment, wholly indebted to this plurality of paths [of character and culture] for its progressive and many-sided development. But it already begins to possess this benefit in a considerably less degree. It is decidedly advancing towards the Chinese ideal of making all people alike.

John Stuart Mill, On Liberty, Chapter 3

The crisis of government

Since the 2007-2009 financial crisis, many calls have been made (often in right-wing newspapers) that capitalism has failed; capitalism has died or that capitalism is in crisis. These claims are weaked by the government’s impact on society and markets,  given the massive growth in government’s size and power. Public spending is estimated at 44.13% of GDP for FY 2012 (Actual FY2011 45.65% of GDP). This chart shows the growth over the last 110 years.

Government has become too big and like a bull in the proverbial china shop its weight and strength end up trampling everything and everyone. Society is a complex mechanism whose nuance is lost on goofy footed government. Bureaucracies don't manage anything well nor do they have an eye for economics. Indeed government cannot manage itself or the society it governs. As a result, government sets up unintended consequences because of its size, influence and power. It is not, as many would claim, a crisis of capitalism but rather a ‘crisis of government’. Society can no longer afford the bull. It is causing too much damage.  

At every level of society, the state through its agency, government, subverts responsibility. For the individual, the group, the corporation; government intercedes at the behest of lobbyists, voters or the unseen dictates of bureaucrats. Bureaucrats and politicians are weighed down by the responsibility of having to be seen to do something - anything so long as they can fulfil their perverse self interest in maintaining perks, position and privilege. Indeed the term public servant has become an oxymoron. 

Heavy hoof prints come in many forms. One big hoof print is the high level of taxation borne by you that brings low satisfaction for your taken money. Another large hoof print is the unintended consequences that occur when actions of government have effects that are unanticipated or unintended. Often cited but rarely defined, the law of unintended consequences illuminate the perverse unanticipated effects of legislation and regulation. In attempting to mend the unintended consequence of one policy, the result brings further consequence. 

At the heart of all the bull lies the problem of economic ignorance by politicians. Our political class never realize the unintended consequences of their legislation and policymaking until it is too late. And having dug themselves and the nation into a giant dung heap, politicians lack the insight that they are the cause of the problem and lack the political will to find a way out. Hubris clouds judgment. 

Privatize marriage

I've written for PoliticsHome today about why the whole debate over same-sex marriage misses the point. Why are we even having a discussion about which groups of people should be allowed to 'marry' others, I ask, when marriage has historically been a private institution that had nothing to do with the state? 

Removing the need to get a state licence for 'marriage' would allow consenting adults to sign whatever contract they want and call it marriage. People would be free to draw up contracts tailor-made for them, or to take one of the one-size-fits-all 'marriage contracts' that would inevitably be offered by private firms.

This rather simple step would make the whole marriage debate redundant. Any pair of consenting adults – gay, bisexual, straight, transsexual, or anything else – could agree to a contract that suits them and hold a marriage ceremony wherever would have them. (I say a pair, but there is no reason that three or four or more consenting adults should not be allowed to share their lives with each other in a private marriage, if they want.)

Of course, they would be free to hold whatever ceremony they wanted to around the contract signing. Marrying couples could hold unique weddings that reflected their own values and passions, instead of having to sign their contracts in a state registry office. It would be up to individual churches to decide for themselves whether or not they want to be involved – some probably would, and some probably would not.

So long as marriage is a state institution, it should be available to people in as many different kinds of relationships as possible. But there is something deeply unpleasant about a world where every kind of private relationship has to be approved in the court of public opinion before it is granted the same legal status as 'acceptable' relationships. We are fortunate to live in a fairly tolerant era where things like gay marriage are becoming accepted by the majority, but this is an insufficient safeguard.

Taking marriage out of the hands of the state would end the tyranny of the majority over people's private relationships. It's vital that we push politics out of our private lives. As I say in my post, love is too important to leave up to the state.

The broken Withywindle fallacy

Over on the Guerrilla Economist blog, Ust Oldfield discusses the economic consequences of the dragon Smaug on Tolkien's fictional universe, Middle Earth. He argues that the net effect on Middle Earth's economy may well have been positive. Both Dwarves and dragons hoarded the gold, so there would have been no monetary shock from the rapid withdrawal of so much precious metal from the economy. The Dwarves were then forced to offer their labour and skills to the outside world as refugees, contributing to the economy at large.

Perhaps. But there is something wrong with this picture. Ust neglects to mention that much of the Dwarven kingdom of Erebor and nearby Dale were utterly destroyed. Thousands of years' worth of accumulated physical, human (or should that be Dwarven?) and social capital incinerated. In order to have a net positive effect on the economy of Middle Earth, the Dwarves' integration with the wider economy must outweigh this massive destruction of wealth. This is unlikely, to say the least. For a start, the human city of Dale existed because of its trade with Erebor. Therefore the Dwarves were already engaging in peaceful and mutually beneficial exchange with the rest of Middle Earth. The Dwarves' actions as refugees can only have created less value if their highest-value, voluntary choices were forcibly eliminated.

The second problem is an epistemological and moral one. Sure, this is fiction, but Ust should not be so quick to defend forcible actions to create the most value for the most people. In his analysis, the values of a minority are subjugated to that of the population at large in a zero-sum manner. Creating a Dwarven diaspora constitutes the loss of the economic, social and cultural institutions that best satisfy their demands. Dwarves lose, Middle Earth supposedly gains. And yet, in a peaceful world without the destructive interventions of Smaug, both parties gain through voluntary exchange according to what they themselves value most.

Ust, like many other Keynesians, loses sight of what actually matters in economics: economic growth and production are only important because they satisfy peoples' demands and values. Forcibly removing their best avenues for peacefully satisfying demands can only be a net loss to all.


Remembering George Orwell

George Orwell died on January 21st 1950, only 47 years old.  Short though his life was, his achievements earned him a place in history.  His Homage to Catalonia, describing his experiences as a volunteer in the Spanish Civil War, brought him fame, but with it the enmity of the hard, pro-Soviet left because of his indictment of the duplicity of the Communist forces in Spain.

Orwell's passionate concern for the underdog and the poor shines through his writings, as does his fervent opposition to the lies and distortions used by some to advance political ideologies.  Some of his essays on the use and abuse of the English language earned the status of enduring classics.

Although on the left himself, two of his works, Animal Farm and Nineteen Eighty-Four constitute the most effective exposures of the fraudulent brutality that underlay Soviet Communism.  Indeed, the latter work, completed just before his death, bequeathed us the vocabulary that describes totalitarianism, with phrases such as "Big Brother," "thought police" and "doublethink."

Orwell genuinely loved liberty and had a deep affection for the British people and their way of life.  His ability to project his honesty into his writing has earned him a place among the top British authors of his century.  In the fight for freedom he played a significant role, and is rightly remembered and appreciated.

The quiet nationalization of Stansted Airport

When David Cameron became leader of the Conservative Party, it is unlikely that many Conservative members expected him to preside over the nationalisation of an airport. But, with the £1.5bn sale of Stansted to Manchester Airports Group (MAG), that is, in an odd way, what has happened. For although MAG (which already owns and operates Manchester, East Midlands and Bournemouth airports) is privately managed, its principal shareholders are a group of ten local authorities. Manchester City Council owns 55%, and Bolton, Bury, Oldham, Rochdale, Salford, Stockport, Tameside, Trafford and Wigan own 5% each.

True, MAG is doing the deal with the Australian investment group Industry Funds Management, which will take a 35.5% stake in the newly-enlarged enterprise. But that still leaves the local authorities as the main owners.

The privatisation of the UK's airports was not done well. The 1984 Adam Smith Institute paper Airports for Sale, by the distinguished Dublin transport economist (and now Irish Senator) Sean D Barrett, raised the idea of privatising the then British Airports Authority (BAA), but insisted that its airports – three in Scotland (Aberdeen, Glasgow and Edinburgh) and three around London (Stansted, Gatwick and Heathrow) should be sold individually or in packages in order to promote competition. Sadly, Margaret Thatcher's government, while taking on the wisdom of privatising the badly-run BAA airports, chose to take the easy option (and perhaps the most lucrative one) of selling all six together. We knew this was a mistake, but consoled ourselves in the thought that such a monopoly could not last for ever and (like that other privatised monopoly, British Gas) it would be broken up one day, once it had acquired a more commercial way of working.

And it is right that the airport monopoly inherited by BAA plc should be opened up to competition. Glasgow and Edinburgh are what economists would call 'near substitutes', as are the three London airpots (or they would be, had BAA and British Airways not striven to segment them). And though  both groups face competitors (Prestwick, Luton, Cit), these are small. It is just a shame that the competition has to come from a publicly-owned body. Rather like Britain's electricity sector, a large chunk of which is now owned by nationalised French firms. If we really believe in competition, should we really be handing companies back to state enterprises here or abroad?