The terrors of the ISDS provisions in TTIP


We're really all rather mystified by the furore over the investor state dispute settlement system within the Trans-Atlantic Trade and Investment Pact. Unite has been running a campaign insisting it will put the NHS at risk: foreign companies would be able to sue, outside our court system, if their profits from killing us all in our beds were interrupted. Others have been complaining that no future government could renationalise the railways if it came into force. The ISDS has absolutely nothing at all to do with either of those two cases. Nor, if truth be known, with most of what people are claiming about it. Here actually is the current text of what the EU is suggesting to the Americans.

Neither Party shall nationalize or expropriate a covered investment either directly or indirectly through measures having an effect equivalent to nationalisation or expropriation (hereinafter referred to as 'expropriation') except: (a) for a public purpose; (b) under due process of law; (c) in a non-discriminatory manner; and (d) against payment of prompt, adequate and effective compensation.

That is, any government can nationalise anything it wants. As long as all the usual rules about compulsory purchase and so on are followed: it's done legally, for some reason, it's not being done just to shaft someone and it is paid for. All things that we'd expect to be part of normal domestic law anyway, which are in fact part of normal domestic law anyway.

Thus we find it very hard to understand the demonstrations, the protests. There's nothing else in that draft that causes us the slightest concern either. That same clause even insists that it will not cover the compulsory licence of IP (say, a drug or a vaccine that a country cannot afford, under the usual WHO and WTO influenced rules).

We're left scratching our heads and the best we can come up with is as follows. And we will admit that we're not normally this cynical. It is obviously fun to go on a demo and if you choose the fashionable cause of the day that's where all the good looking people are going to be anyway. But in the absence of anything to have a good demo about there's still the need to all get together. And of course something like Unite needs to keep demonstrating (sorry) that it really is doing something for the workers in return for all those union dues. So, in said absence, why not create something to demo about? Doesn't matter how true or not anything is, whatever gets the juices flowing and shows continued the relevance of the organisers works just beautifully.

Sorry, we just can't think of any other reason why there's been this uproar. And read the full document for yourself to see if you can find it.

Pensions don't come for free


Toby Nangle has written a very good post on pensions, pointing out that Pay As You Go (PAYG) pensions and fully-funded pensions are similar in that they both represent the old having financial claims on the young. We can fund their pensions through taxing the young or by having them own financial assets. In his words:

Pensioners will collectively consume output produced by the young. Money, as always, mediates – and so in place of ‘consume output produced by’, read ‘receive income from’. Pensioners will receive an income that can come only from non-pensioners. This income could be in the form of rent, dividends, and interest only from the young, or the proceeds of asset sales made only to the young. This income could be in the form of tax transfers only from the young. Or some mixture. It was ever thus and it will ever be thus.

This is true, and a good point. But he goes too far in implying that this makes PAYG pensions and funded pensions similar overall, or that deciding between these two socially only involves practical questions. There are two huge differences.

  1. Inside a recession, when interest rates hit the 'Zero Lower Bound', extra consumption can increase aggregate demand. However, most of the time the economy is neither in a recession nor at the ZLB, and extra consumption comes at the expensive of extra saving (and saving is what goes into investment). Unless you are above the 'golden rule' level of saving—and this is very, very unlikely when there are so many taxes on saving and subsidies to non-saving (like providing retirement incomes) in our society—then extra saving (and investment) raises your productivity and living standards.Basically: if we force pensioners to save and invest to fund their retirements then when they actually do retire we have more capital, which means higher productivity and higher income. Thus, for any given level of retirement benefits, bearing it is an easier burden.
  2. Governmental claims can only be on your country's own citizens. Financial go all around the world. If you save a lot in your youth, invest those savings in foreign capital, and that capital earns a return, then your pensioners' claims could be on the young working citizens of another country—possibly one with a growing population! (NB having claims on the youths of another country doesn't necessarily make them worse off; if foreign investment raised a factory or funded training that made those citizens more productive then everyone can benefit.) Of course, this second point doesn't question Toby's story as a model for the world as a whole, just when we're considering individual countries separately—and since this is how pensions tend to be considered this is probably the way we should look at the question.

Yes, PAYG and funded pensions both involve bundles of financial claims. Yes, they might both be the same size, and one main difference is simply how the system is run and intermediated. But it does not follow that other differences are small or trivial; PAYG is likely to lead to a lower level of saving, investment, capital and income. Under PAYG, the burden of the elderly is heavier, because we have narrower shoulders.

Stepping into a wider world


Opponents of those inclined to vote to leave the EU often portray them as wanting to shut the UK off from the world and retreat into a narrow comfort zone. In fact the reverse is true for many of those I have spoken to. They regard the EU as a protectionist little backwater and want the UK to step into a wider world, dealing directly with many partners, and open to the world and its influences. Many countries outside the EU have negotiated trade deals with it that give them access to its markets and it to theirs. There is no doubt whatever that an important trading partner such as a non-EU United Kingdom would be able to do the same. More to the point is that a non-EU United Kingdom would be able to negotiate similar advantageous deals with other non-EU countries. EU countries have to let the EU negotiate on their behalf, blending their interests with those of the other members.

Some who want Britain to remain in the EU have warned that a 'leave' vote would constitute a leap into the darkness of uncertainty. Again, the reverse is more likely to be true. A vote to exit the EU would leave Britain able to have considerable influence on its own future, rather than having that future largely determined by other EU members.

There is no status quo. The EU is not static; it will not remain in the shape it has now. Many in the EU want "ever closer union." They want to be citizens of a country called Europe that has its own embassies around the world, its own police force and its own army. They want a Europe whose future is determined by a European Parliament and a European Prime Minister.

A UK that remains in the EU will not be able to prevent that; its voice and its voting power are too small. A non-EU United Kingdom would not be able to prevent that either, but it would not be a part of it. It would remain an independent United Kingdom, speaking or itself in the world's councils and representing its interests through British rather than European diplomacy.

It is false to suggest that the choice is between a UK connected to Europe and a UK that retreats into itself. The choice is between a UK that is a political part of the EU, and an independent UK that is connected economically to the EU, but able to deal with the wider world beyond the European Union.

The terrors of zero hours contracts


Forgive us but we do find this shouting about the evils of zero hours contracts to be really terribly amusing in one sense. For it is almost universally true that those writing the articles about the evils of zero hours contracts are themselves employed on zero hours contracts. Or, as it is also known, on a freelance basis and that just is the way that vast swathes of the media work:

What are zero-hours contracts? You asked Google – here’s the answer Dawn Foster

And off we go into a rather predictable Guardian rant about how awful such contracts are. Which then leads to our amusement, for when we examine the working life of the writer:

Dawn Foster is a writer on politics, social affairs and economics for The Guardian, London Review of Books, Independent and Times Literary Supplement, and is a regular political commentator for Sky News, Channel 4 News, and BBC Newsnight. Her first book, Lean Out, is on feminism, austerity and corporate culture.

Among us here at the ASI we have written for or appeared on near all of those outlets and the absolutely standard contract for all of them is a zero hours contract. It could be that this outpouring of protest is really a deeply buried attack on the media's own hiring practices, by those doing that very media reporting but we're really unsure as to whether people are being that Machiavellian. And observing the sharp elbowed jostle to gain absolutely any such work from any of those media outlets we really don't think people are protesting about their own employment.

Thus we're just left with the rather puzzling observation that zero hours contracts seem to be just fine for the middle class literati but obviously no one else should be allowed to enjoy the same employment structure. Which is, when you think about it, rather odd really.

Ten steps towards changing entrepreneurship policy


In Kathmandu this week, I have just done a series of meetings for the excellent think-tank Samriddhi – The Prosperity Foundation.  Rather like the Institute of Economic Affairs and the Adam Smith Institute in the pre-Thatcher era, Samriddhi rather have their work cut out in Nepal. It is largely socialist and poor (as if I needed to say that – the two go together so regularly), and any capitalism there is mostly regulated beyond endurance, or survives through crony deals with the overblown government and bureaucracy. Ho hum. Anyway, they asked me to talk about how to engage the private sector – the bit that isn't yet wholly corrupted by this statist system – in policy reform. Luckily I have the experience of Philip Salter to draw on. He is running The Entrepreneurs Network (TEN), a think-tank within the ASI think-tank. An here is his formula for engagement, which I cribbed mercilessly.

1. Most entrepreneurs are far too busy to engage in policy development. And the ones that aren't are usually pushing some agenda of their own. So don't expect to engage business people easily in policy work.

2. But you can form coalitions around particular issues. For instance, the UK's clampdown on immigration makes it hard for entrepreneurs to come to the UK, and for UK entrepreneurs to hire talent. We're working on that.

3. Policy folks need to be honest brokers between government and entrepreneurs. Most business people have no party allegiances: but they share a language of innovation, competition, disruption and progress. And that's free markets, isn't it? 4. TEN offers something practical to entrepreneurs: such as meetings where a really successful entrepreneur will talk about their successes - and importantly, their mistakes. That helps to build a really effective group of like-minded entrepreneurs.

5. Philip writes for Forbes and Annabel for HuffPuff, using the ideas and experience of their network of entrepreneurs. That helps bring their ideas to the attention of policy makers.

6. Having built these networks, we can and do hold workshops between government and entrepreneurs, so there is direct communication.

7. Entrepreneurs do things. Government talks about things. So there is a cultural difference to overcome. With 40 years of experience, though, we can do that!

8. And having built this large network, we can now meaningfully survey entrepreneurs, providing governments with real evidence of policy obstacles that hold them back.

9. We also work closely with groups of MPs, like the All Party Parliamentary Group on Entrepreneurship, helping both sides to understand each other and plan future reform initiatives.

10. We succeed in all this because we have a long-term vision of what we want to achieve – basically, we want to make the UK the best place in the world to start and grow an enterprise. Now that's a vision – not just for us, but for countries like Nepal, where so many folk, especially governments and bureaucrats, simply do not understand the creative genius of a free people.

GDP really only is a proxy, not actually how well we're doing


There are those who criticise the concentration on GDP as a measure of how well we're doing. And they're right: although not quite for the reason that they think they are. To say that it doesn't matter that we're all getting richer, that we should just be content, is nonsense of the most arrant sort. Any casual glance around the world will show that there are still outrages such as absolute poverty which greater wealth could solve: thus we do indeed want to get richer. However, the argument that GDP isn't a very good measurement of how much richer we're getting is entirely true. As this little story tells us:

While global economic problems have taken much of the blame for tightened tech spending lately, another culprit may be afoot: computing on demand delivered over the Internet.

The idea is that instead of capital spending on equipment people now rent it by the month. This plays merry hell with our GDP statistics. For people do indeed look at something like business investment in computing as a measure of how much, well, how much is being invested and thus likely how rich the future will be. But investment is defined as what gets written off over longer than one year. And renting the cloud kit is current expenditure. That's not investment: and thus those reading the runes on business computing investment are going to be fooled by this. For we've still the same amount of computing, still, at least possibly, the same amount spent upon it too. We've just changed the classification of that spending.

But that's not all:

Take Ted Ross, CIO of the city of Los Angeles. He needed to upgrade the technology that powers the city’s Business Assistance Virtual Network, the site where vendors bid for projects from various city agencies. Mr. Ross considered buying new blade servers to host the site. Instead, he decided to run the site on Microsoft’s Azure technology. He’ll halve his costs, and the migration should take four to six weeks, he said.

Actually spending less while still getting the same amount of computing done? That's something that makes us all richer. And yet one of the things we also know about GDP accounting is that it doesn't deal well with these "hedonic" improvements. Either the improvement in performance at the same price, or the availability of that same performance for a lower price.

We do want the world to be becoming generally richer, yes we do. And that means we do want GDP to rise: it's a measure of the resources we have available to solve problems and while the world still contains problems we'd like our ability to solve them to rise too. However, we must always remember that GDP is a proxy for that increasing wealth and that we shouldn't set it up upon a pedestal as being the only goal.

Small businesses needn't fret about relaxed Sunday trading laws


In a column for the Huffington Post, I’ve asked whether small business outcry over changes to Sunday Trading Laws is justified. From Autumn 2016, prohibitions limiting large stores (with a floor space of over 3,000 sq ft) from opening on Sundays for more than six hours will be lifted – an announcement which has led to claims that this will only see more trade moving to larger stores at the expense of smaller shops. Yet the evidence (research, polls and local borough reports), does not suggest that small businesses will suffer from their larger rivals opening for longer. One Australian study, for example, “found no relationship between the proportion of small retail businesses and the stringency of trading hours regulation in each state”. A fifth of consumers have said they would do more shopping on a Sunday were the changes implemented, meaning more customers for everyone – and another way for bricks-and-mortar stores to compete with online retailers.

And rather than wishing the competition be banned from trading, small business owners – many of whom are disruptive by nature – should view this proposal as an opportunity to find new ways to innovate and outsmart their larger rivals.

Read the whole thing here.

Safe standing vs unsafe standing


In a video interview in 2014, West Ham chairman David Gold said:

I am a great supporter of safe standing, it is interesting that for many years we have had unsafe standing, we do have that, I don’t think there is a ground in the country that are all seater stadium that don’t have their fans in some area of the ground standing.

Right now in most football grounds, many of the most enthusiastic fans will stand throughout the match, notwithstanding the all-seater nature of Premier League and Championship stadia. There are regular squabbles with security stewards but staff mostly turn a blind eye. As Gold points out, this is dangerous, as supporters will regularly fall over the seats in front of them into the next row.

It also causes steady, attritional damage, especially when particularly exuberant away supporters visit—as with a recent cup tie that brought Manchester United to Derby:

United will be asked to compensate Derby County after a significant number of seats were damaged in the away end when the teams met in the FA Cup fourth-round at the end of last month, resulting in a 3-1 win for Louis van Gaal’s team.

Derby have already informed United about what their groundstaff found on the morning after the match and intend to charge them for the relevant repairs, claiming that more than 300 seats were broken or pulled off whole.

Each match can cost thousands—peanuts in Premier League money but still a cost worth considering, especially when there's an alternative. Safe standing alternatives such as rail seats do not have breakages that require replacements every week; the seat is tucked away, clipped off or much harder to break.

Of course this isn't the main reason to favour a relaxation of the rules, allowing clubs in the top two tiers to emulate Germany, Sweden, Austria and the lower tiers, where standing has been safely allowed. Fans cite the more intense atmosphere that standing allows for (just look at the Yellow Wall above).

But perhaps more important is simply allowing for higher attendances. The recent Kop walkout over ticket prices was just the latest example of the rising fervour against the ticket prices Premier League clubs charge. Terraces can fit in as many as 1.8x times as many spectators—safely. Not only could greater total supply bring down ticket prices overall, but more variation in the 'products' that clubs can offer fans means they can price discriminate. Well-heeled neutrals and tourists can pay hundreds to sit; core fans can be offered cheaper season tickets.

But either way, after a long hiatus, it may be that safe standing in stadia is an idea whose time has come again.

Of course being good at business doesn't make you good at economics


Don Boudreaux makes an important and underappreciated point here:

Here’s a refrain that I’m being bombarded with by e-mail and on Facebook; this particular version is a Facebook comment by someone named Thomas Marise (whom I don’t know):

Trump has proven time and again he knows his stuff when it comes to economics. He has a personal wealth of $10Billion proving his understanding. Hard to argue with results.

Such a claim is illogical, even if we assume – falsely – that Trump earned every cent of his monetary fortune honestly rather that at least some of it through government-orchestrated theft.

Knowing how to run a business is not the same thing as knowing economics.

It's worse than just that they're not things being measured along the same axis of human endeavour. It's actually that rather a large amount of knowing how to run a business is in managing to avoid the things that economics, and economic policy, would like to do to that business.

Think it through for a moment: every business would love to make excess profits, profits above the average cost of capital. And much of business itself is trying to work out how to do so. but at the level of the economy we don't want anyone to be making excess profits: we don't want anyone to be making more than the average return to capital. And that's rather the difference between markets and capitalism as well as between business success and economics.

Sure, business is capitalism, let's make the profits where and when we can for private benefit. But it's markets that curb this tendency, markets which force only those pushing the technological boundaries capable of making those super-profits. It's also markets which compete away those excess profits as other producers catch up with that boundary pushing. Finally, it's economics which explains both why the markets are desirable and why they work.

Much of business is trying to avoid market forces, much of economics is discussing how much we've got to insist that market forces be allowed to work. They really are two very different subjects and success at one, knowledge of one, by no means even implies success at the other.

We regard this as something of a victory actually


People are throwing around the latest global mortality statistics to show that we've got some grand problem that we've got to deal with. And we're certainly amenable to the argument that things could be better. However, we would also still insist that this is a victory, not a defeat:

Now new research has found that air pollution is the leading environmental risk factor for disease, and the fourth highest risk factor for death. The data is the newest addition to the Global Burden of Diseases, Injuries, and Risk Factors Study, the most comprehensive international effort to measure epidemiological trends worldwide.

Yes, a victory:

According to the Global Burden of Disease Study, air pollution causes more deaths than malnutrition, obesity, alcohol and drug abuse, and unsafe sex. Cardiovascular and pulmonary diseases, as wells as respiratory infections, account for the majority of deaths from air pollution.

Historically human beings have died either from infectious disease or malnutrition. They're the two that have carved great swathes through the population repeatedly. Both are, while not entirely solved, at least under control to a great extent.

Which leads to two further things: the first being that if we don't die of one of those two then we're obviously going to die of something else. And given that life expectancies do keep on growing we are indeed living long enough to die of those other things. But much more specifically to this point, the pollution that is being complained about here is that air pollution. That air pollution which is the result of having a modern economy that is able to be clean enough not to be rife with infectious disease and which also produces enough food that we don't all starve. The poor world has a slightly different problem, in that it's indoor air pollution killing them, from wood cooking fires mostly, something we stopped doing many generations ago.

So, yes, we do regard this as a victory, even if not a complete one. Sure, we could and we will make things rather better as technology improves but that we are all living long enough to die of the side effects of the system that allows us all not to starve to death earlier is indeed a victory.