Perhaps it's time to abolish statutory holiday pay

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We can imagine some getting a little outraged at this suggestion but perhaps it's time to remove one of the great distortions in the labour market: it's time to abolish statutory holiday pay. Currently:

Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.

Self-employed workers aren’t entitled to annual leave.

From the US we hear that these sorts of rules are killing parts of that gig economy:

This is one of the first startup casualties as a result of the worker classification issue that has gripped the tech industry. Many companies in the gig economy, such as Uber, Postmates, Luxe and Sprig, classify their workers as contractors instead of employees. As a result they don’t have to foot payroll taxes, social security benefits, vacation time or other fees. But workers have filed lawsuits over the issue, and it’s now become a heavily debated talking point among the presidential candidates.

Loading the employment of labour with all of these things (and we could add maternity and paternity leave and so on) makes labour cost more to employ. Well, obviously. but insisting that people take a defined bundle of benefits reduces the value of selling our labour. For if we receive instead just the cash we can decide ourselves, according to our own personal utility maximisation calculations, how we are going to allocate the rewards of our labour over children, retirement, leisure and other forms of consumption. what this problem in the gig economy is doing is making those costs plain to all: some people are willing to do things in exactly that all cash manner and do the allocations themselves. Insisting that they take the defined bundle destroys those jobs they're quite happy doing.

Of course, some will say that everyone must therefore be forced into that standard bundle. But we think there's a liberty argument to be made for instead destroying the very idea of that standard bundle being imposed. Let wages be paid in cash, only cash and purely cash and everyone then gets to decide how they're going to structure their leisure, retirement, child rearing and everything else.

Why should the State insist on either a minimum or maximum amount of leisure for us?

Nudging people to do what they want to do

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Not all of us in the Adam Smith Institute agree on everything all the time.  Life would be duller if we did.  One topic that divides some of us is the notion of 'nudge.'  Thaler and Sunstein wrote a book under that name in 2008, describing ways of "changing the choice architecture" so that people find it easier to do what they want to do, but fail, perhaps because of inertia, to follow through upon.

Two thirds approve in polls of organ donation after death, but less than 30% were completing the form.  The US driver's licence application gave applicants the choice, and they had to choose yes or no.  The number volunteering as organ donors shot up to the two-thirds who approved of it.  The choice to volunteer had been made easier.  Other countries have followed suit with similar results.  Some add a third option: "I do not wish to make a choice at this time."

The BBC news magazine's Home Editor, Mark Easton, has described some successes by the No. 10 Behavioural Insights team, colloquially known as the Nudge Unit.  They boosted job applications by unemployed people by personalizing the invitation.  A simple request to turn up for potential jobs at a supermarket saw 11% come forward.  When the person's name was added to the request ("Hi, Sam…"), it rose to 15%.  When the JobCentre adviser signed it at the bottom ("Good luck, Michael.") the proportion turning up rose to 27%.

The team managed to boost black and ethnic minority (BME) applications to become police officers by adding the words "Congratulations! " and telling applicants they had been "selected to participate in the next stage of the assessment process."  It added "What is it about being a police officer that means the most to you and your community?"

Whereas previously the situational judgement test had been successfully completed by 60% of white applicants but only 40% of BME candidates, the revised wording saw the BME percentage rise to more than match the success rate of white applicants.

Some in the ASI are suspicious of this approach, partly because it involves a decision about what should be nudged, meaning about behaviour that should be encouraged, and partly from a fear that the technique could easily be abused to promote behaviour that people don't want to do.  These should certainly be watched, but if the technique uses polling to ascertain what people would like to do but find difficult, then it can be helpful.

The technique has been used to help people pay their tax arrears more promptly, and to encourage people to put more aside into their pension funds.  Many countries are now adopting these techniques, and the Nudge Unit sells its services to other governments.  Whatever else can be said, to libertarians 'nudge' is better than compulsion.

Perhaps a closer connection with reality might be in order?

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We will admit to being fascinated by the coming car crash that is the Labour leadership competition. While we're intensely political here, we're not party political. But we do think that perhaps a slightly closer connection with reality might be in order. Here's Jeremy Corbyn's latest policy idea:

“Under these plans Labour 2020 will make large reductions in the £93 billion of corporate tax relief and subsidies.

“These funds can be used to establish a National Investment Bank to head a multi-billion pound programme of infrastructure upgrades and support for high-tech and innovative industries.

That £93 billion comes from a paper discussed here. That £93 billion also has no connection to this universe that we inhabit. But despite a certain amount of to and fro between the report's author and your current humble scribe it simply was not possible to convince that report's author that depreciation is not a subsidy to business. He really is under the impression that capital allowances mean that the government buys stuff for companies to use: rather than just not taxes them on the money they use to buy them for the obvious reason that companies are taxed upon their profits. And the cost of buying something to use to make stuff is obviously a cost of business.

Yet only a couple of weeks after the publication of a report of such obvious fatuity we've got it as the cornerstone for a national economic policy after the next election.

All most amusing but we might recommend just a slightly closer connection with reality.

EUtopian Regulation

David Cameron has made the reduction of red tape a cornerstone for EU reform. As we know, there will be no treaty reforms before 2017, the best we can expect is promises albeit firm ones. Brussels may well agree to deregulation as incoming Commission Presidents have done so often enough before: but can we believe such promises?  Whatever is bound can be unbound or, more likely, just overtaken by events. This paper moves on from what is likely to happen and considers the best that could happen.  What is the common ground between necessary commercial regulation and maximising UK competitiveness?  One obvious option is that London and Brussels should stop competing with one another to impose more regulation: one set of unnecessary regulations is bad enough but two are suicidal.

After reviewing what EU and UK politicians are telling us, the paper sets out alternative ways of dividing regulatory responsibility. Should we hand over responsibility to a single global regulator?  Or an EU one?  Or should nation states compete, each reducing regulation to increase competitiveness?  Or some other arrangement?

Finally, what seems to be the least bad solution for the EU – what would be EUtopian regulation?

Can we believe the politicians?

At the beginning Chapter 43 Charles Dickens’s David Copperfield, Copperfield has become a parliamentary journalist for a morning newspaper and writes “Night after night, I record predictions that never come to pass, professions that are never fulfilled, explanations that are only meant to mystify. I wallow in words. Britannia, that unfortunate female, is always before me, like a trussed fowl: skewered through and through with office-pens, and bound hand and foot with red tape.”

Plus ça change…

  1. Precisely the regulations to be removed?
  2. The mechanism to achieve that?
  3. Who, in the future, would regulate what?

Danny Alexander spoke in France on “making the EU fit for the challenges ahead” in January 2015.  All he said about regulation was 

“And it [very practical things that the EU can do] can free businesses from unnecessary regulations.  A 25% reduction in EU administrative burdens on businesses could lead to an increase of 1.4% in EU GDP.”

Hardly specific. 

In both Brussels and London, “deregulation” translates in practice to rewording regulations.  For example, the 2015 UK Deregulation Act has a long list of regulatory amendments including: “Section 11 of the Employment Act 1989 (exemption of Sikhs from requirements as to wearing of safety helmets on construction sites) is amended in accordance with subsections (2) to (10).”  This is not untypical: a few moribund regulations have been removed but to no benefit to competitiveness as they had already fallen from application.

An EU Memo of 18 June 2014 summarised the Brussels position: “The Regulatory Fitness and Performance Programme (REFIT) launched in December 2012 is a programme aimed to make EU law lighter, simpler and less costly so that it benefits citizens and businesses and helps to create the conditions for growth and jobs. It does notput into question the EU’s policy objectives, but seeks for more effective ways to achieve them….

On 2 October 2013, the Commission defined an ambitious agenda with over 100 individual actions including 46 legislative actions to simplify and reduce regulatory burden, 7 initiatives to repeal existing regulation and 9 initiatives to withdraw proposals for new regulation. In addition, the Commission committed to carry-out 47 Fitness Checks and evaluations under REFIT to assess the efficiency and effectiveness of EU regulation and prepare future initiatives for simplification and regulatory burden reduction.”

In other words, of the 40,000[1] or so EU regulations, Brussels found just 16 that could be withdrawn after 18 months study. Furthermore, “A decision by a Commission official in the name of and on behalf of the Commission is just as binding on member states as treaty articles. There is no hierarchy of laws in the EU. The number of more or less binding acts passed 134,500 in 2015 if these different types of acts are counted together.”[2]

Clearly, the UK government is not going to sift through all those by the end of 2015.  What the government probably wants, but has not spelled out, is a return to the Social Chapter opt out secured by John Major and an ability to opt out of finance sector legislation of the grounds that the sector is well regulated by London and it is as critical to the UK economy as agriculture is to France (which has a veto on changes to the CAP). But the reality is that we do not know from what regulations the UK seeks exemption, nor the mechanism for achieving it.

Alternative regulatory regimes for the EU

The neat solution where one authority regulated a single international market has probably never existed and never will.  Some argue that it never should, as such a monopoly would endlessly seek more power and regulatory control for itself without being prevented by countervailing forces. On the other hand, can regulatory authorities compete to attract more business as brands of soap powder do?

Income taxes work that way: to some extent companies and individuals move to lower tax countries but the tax differences have to be big enough to justify what can be a large upheaval. But under international agreements, income is usually only taxed once.  Tax paid in one authority offsets the need to pay it in another.  That does not apply to regulation: conforming to UK regulations does not mean one is exempt from conforming to French ones.

Patents and trademarks have a different arrangement.  Each country registers its own but trademarks can also be registered in all member states simultaneously (Madrid system) or collectively at the European Patent Office as a “Community Trade Mark”. Similarly for patents.

So in principle there are many options for the future of EU regulation. The alternative regulatory regimes include (there may be others):

  1. An untrammelled single EU regulatory authority with divisions for each sector.  This would respond to consumer concerns and complaints but have to justify itself to member states in terms of compliance costs, the effect on internal (EU) and external (global) competition, barriers to entry and innovation.  This is the ultimate “a single market requires only one set of regulations” approach. The justification is that if a consumer needs protection in one member state, she needs it in all of them. Conversely, if she does not need it in one she does not need it in any.
  2. No central EU regulation at all.  National regulation being accepted throughout EU as for Cassis de Dijon. But the income tax principle could be applied to regulation, namely that any firm complying with the regulations of its HQ member state would be deemed to be complying EU-wide. Consumer confidence would affected by country of regulation but the EU would still be a single market.
  3. Regulation tailored by size of business (SMEs to have less regulation not least because they are more subject to competition) and by business sector risk and complexity. As a rule of thumb, the less well the consumer can be expected to understand the products and the bigger the risks from them (e.g. medicines and financial services) the more regulation will be required.
  4. The present situation: EU regulation throughout EU plus member state regulation in each country.  This is not “single market” at all.  It is inconsistent for the UK to press for the single market at the same time as introducing an unceasing flow ofUK regulations. At present both EU and national regulation is out of control with no consideration compliance costs, effect on internal (EU) and external (global) competition, barriers to entry and innovation.  This is the worst option.

Regulatory principles versus precision

Principles-based regulation would be far easier to understand and use far less paper. It would not be difficult to produce a set of regulatory principles for each business sector on one sheet of paper.

The regulators, legislators and larger companies are working against the public interest in putting precision (and complexity) ahead of principle. Competition, costs and innovation all suffer.  By relying on principles only, these regulation factories both at national and supranational levels could be closed down and a commission of interested parties meet once a year to deal with any necessary revision to those principles.

A genuine return to principles may be too radical for the present time but some such drastic approach is needed to reverse the tide of regulatory excess.

Competition between jurisdictions

As noted above, competition between jurisdictions, e.g. the US and EU, could either slow the pace of regulation or enhance it or make no difference. The self-interest of the current regulation factories promotes more regulation and complexity.

Governments do know the cost burden of excessive regulation but do little more than call on business to name the regulations they could do without and then having civil servants consider the suggestions until the long grass covers them over.  So far as I know, only New Zealand has ever taken the radical approach of doing the opposite, namely asking civil servants to identify the regulations they had to keep and then jettisoning the rest. It worked splendidly.[3]

With the rise of emerging economies in Asia and Latin America, maintaining global competitiveness is going to become more and more crucial for the US and EU, the twin regulatory powers. At present their business is more inhibited by regulation than the newcomers and as things stand, this is likely to deteriorate.  We need to campaign for turning regulatory competition around so that it becomes a drive towards less rather than more.

Proposed policies

I began this paper believing that governments would need to agree regulatory reductions and perhaps have just one global rule factory rather than the many we have now.  Others have pointed out the danger of giving such a monopoly such powers, especially given their track record.  A Damascene conversion may be unlikely but that is what is needed for any of the alternatives above.

So which of those first three alternatives is chosen matters little compared to a determination to reverse the flow.  The policies that do are:

  1. Governments to be brought to realise the economic damage from current levels of regulation with the prospect of worse to follow.
  2. A determination to make deregulation real and to use competitive pressures downward either unilaterally or by negotiation..
  3. Principles to take the place of precision.

____

[1] There are now more than 40,000 legal acts in the EU. There are also 15,000 Court verdicts and 62,000 international standards, all of which must be respected by citizens and companies in the EU.” http://en.euabc.com/word/2152

[2] Ibid.

[3] See Tim Ambler and Francis Chittenden, Deregulation or Déjà Vu? UK Deregulation Initiatives 1987/2006, British Chambers of Commerce, January 2007.

Not that we want to defend Donald Trump but this is outrageous

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Donald Trump is not, to put it, mildly, quite our flavour of politician. Yet it is necessary to defend him in this instance. What is being proposed is outrageous:

Mr de Blasio's administration was already conducting a legal review into the possibility of severing the many contracts with Mr Trump currently on the city's books. That review was opened after Mr Trump described illegal immigrants arriving in the US from Mexico as "rapists" and drug dealers during his campaign launch in June, when he declared he would seek the Republican presidential nomination. "My impression is that unless there has been some breaking of a contract or something that gives us a legal opportunity to act, I'm not sure we have a specific course of action," Mr de Blasio said on Monday, "but we're certainly not looking to do any business with him going forward."

An ideological Turing test in order to do business with the City of New York? Say something that Bill de Blasio doesn't like or disagrees with and never have lunch in that town again?

The test of whether a politician, a political structure, should have a specific power should be, well, how happy would you be if one of your ideological opponents, one of your enemies, had that power? And this isn't a power that we want someone to have therefore, is it? Our own opinion is that Trump is somewhere between a blowhard and a fool but he does still have the right to say stupid things in public without the government of anywhere discriminating against him. As do we all in our own moments of foolishness.

Shunning people: a defence

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Last week, 30 students descended on Sidney Sussex College, Cambridge, for five days of learning about classical liberal philosophy and economics. At the end of their week, they asked a panel of liberals their views on issues - including, whether it was right to ‘shun’ someone with views you found offensive, distasteful, or more generally, ‘bad’. Sam Bowman, our Deputy Director, said we shouldn’t shun people for having bad views or opinions. When the threat of being shunned exists, you raise the cost of expressing such opinions - which makes it less likely that people will express them. Ultimately, then, these ‘bad’ opinions don’t get aired and addressed - but likely continue to shape the conduct of those who affirm those views, even unwittingly. I have sympathy for this argument - I’m naturally inclined towards anything that helps us challenge people’s preconceptions. The problem is that I don’t think this works.

First, let’s look at market interactions for an analogy. It’s great when the method of production in a given industry varies - we’re more likely to discover which is the more ‘efficient’, which produces the higher-quality good etc, and, most importantly, we’re more likely to enable innovation. But, when I’m buying that good, I’m under no obligation to buy a more expensive, lower-quality version simply in order to ensure that these varied production methods continue. In fact, I would argue the opposite (as part of an ‘ethical capitalism’) - I have the obligation to do my research and pick the best product available, to help encourage production of that strain of good and promote welfare for others. If firms that produced the lower quality good go bankrupt, this is neither my responsibility, nor am I deserving of any blame. I’d argue it’s a similar situation with people with bad views - of course, I subscribe to an argument for humility, and recommend plurality of views as a way to best advance society (as per J.S. Mill). But, also, as Mill says, that doesn’t mean I have a responsibility to ensure this situation - or to tolerate bad views within my personal sphere. I defend your right to be a bigot, but I don’t need it in my living room.

I also think there’s something very dangerous about safeguarding people from the consequences of their actions or thoughts. If you truly affirm X, then you should believe it even when I refuse to be your friend because of it. But to argue that I shouldn’t unfriend you, is to do precisely that - it’s to make me suffer (from association from someone whose views mean I have come to dislike them) for some external agent’s behaviour. In addition, it’s hard to understand how you can have a marketplace of ideas without some kind of currency - and the currency is other people’s opinions. If I affirm ‘women deserve to be second class citizens’, then my understanding of the value that view has been given by those around me is the degree of revulsion/disagreement that provokes from them. If someone cannot be my friend because I have affirmed this, it effectively has been given maximum negative value. This is a clue that perhaps I need to think about what I’ve just said a little closer.

Look at the Liberal Democrat storm, because Tim Farron refused to say that homosexuality wasn’t a sin. He’s refused to affirm a view that I understood to be a staple position of the Lib Dems (and that I wholeheartedly affirm). His supporters have argued that he is still a good liberal (which I don’t deny - he recognises that this is his personal view) and that we should stand behind him. This is a classical example of refusing us the right to shun those whose views we find distasteful or offensive. In this case, I think his views betray an inability to judge which parts of an archaic book should be brought into the 21st Century. I don’t want to associate (personally) with such people, because I think views like his harm people and because I value good judgement (quips about how I’ve just joined the Lib Dems are not welcome here). The extent to which Farron faces disagreement and dislike will provide a currency for his views - it won’t stop him having them, but it provides an invaluable context by which he can evaluate them.

Nobody is under any obligation to disassociate with people they like, with worrisome views. But equally, nobody has any duty to retain relationships with such people. Tolerance is good insofar as it respects others’ private lives, and reminds us to show humility in the face of subjective judgements. But there is such thing as ‘too tolerant’. ‘Too tolerant’ improperly values judgements. It allows people to say horrendous things with no, or few, repercussions. This is market failure in the marketplace of ideas.

To solve the organ donation problem

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Once again we've got the medical trade telling us that more lives could be saved if only more people would donate their organs. We agree entirely that more lives could be saved (and significant sums of money saved too) if more organ transplants took place. But the solution is, at least in part, to purchase organs for transplant, not to continue to rely upon the gift economy.

New statistics released today in the annual Organ Donation and Transplantation Activity Report shows the number of transplants has decreased from 4,655 last year to 4,431 in 2014/15. This is a five per cent decrease on last year and means that 224 fewer people received an organ transplant. At the end of March 2015, there were 6,943 patients on the transplant waiting list with a further 3,375 temporarily suspended from the list, because they were too ill to survive the operation. The NHS Blood and Transplant service is calling for everyone in the UK to discuss organ donation with their family so that they are aware of their wishes.

Of that four and a half thousand transplants, some 3,000 were kidney transplants. And obviously there's not much chance of a live donor offering a heart transplant, but both kidney and liver (and obviously bone marrow) can be done from a live donor. And the obvious way to encourage more people to offer organs while they are still alive is to pay them to do so.

This would save the NHS considerable amounts of money too: a kidney transplant is expensive, yes, but it's cheaper than dialysis over any significant period of time and those with those transplanted kidneys tend to survive a decade or so.

It's worth noting that there's only one country in the world that doesn't have a backlog of people on f#dialysis, dying as they wait for a scarce kidney. That's Iran. It's also worth noting that there's only one country that has paid live donation of kidneys. That's Iran again.

No, there's not a line of people hawking their bodies outside the clinic: the government pays a set fee for a donation on the grounds that, as above, it's cheaper to do that than pay for the years of dialysis. So, given that this is a system that works, saves lives and money, we should be doing it.

And as we so often point out around here, there are some things that are simply too important for us not to have markets in them.

A Budget of wasted opportunity

Tory MPs cheered wildly as Chancellor George Osborne unveiled his budget proposals, and Iain Duncan Smith punched the air in delight as the government committed itself to a "living wage" by 2020.  Yet more dispassionate observers watching from afar sighed in disappointment as the Chancellor took not one of the opportunities he had to reshape the economic and political landscape.

It was a very political budget, and it did not need to be.  Five years before an election, the Chancellor could have left his mark by improving the way in which Britain is governed and taxed.  He could have given the country an economic budget to transform its future, but instead he decided to score political points.

If circumstances limited his scope for action now, he could at least have laid down markers for the future basis of a sound economy attractive to investment and promising raised living standards.  Cutting Corporation tax first to 19% then to 18% is good, but he could have announced his intention to later lower it to the Irish level of 12.5%.  That would have sent a clear signal to investors.

The Chancellor made modest changes to tax thresholds, raising the starting level for the basic 20% rate to £10,600 - well below the minimum wage.  What he could and should have done was to simplify the tax system by having only two rates, 40% and 20%, and cutting out many exemptions.  

His lifting of the minimum wage to £7.20 per hour next year and £9.00 by 2020 used the language of the left's "living wage," for a political coup, but the reality will be lost jobs for low earners, 60,000 of them according to the IFS.  Osborne's calculation is that those in minimum wage jobs will thank him, whereas those who now fail to enter minimum wage jobs will not tag him as the author of their misfortune.

Raising the threshold for the death tax (IHT) on housing to £1m for a couple looks good, but will put more pressure on house prices.  It should have applied to all assets to avoid sucking money into housing, and the level should have been £2m. 

The Chancellor could have helped millions by ending stamp duty on shares.  This would have given pension funds a boost, and increased the capital available to firms to expand and create jobs.  

Instead Mr Osborne's budget plans to raise an additional £9bn in tax revenues by 2020, making this a clear tax-increasing budget.  He could have proposed a tax-cutting, tax-simplifying, spending-cutting budget.  Instead he raised taxes and played politics.  He wasted the opportunity, and there may not be another.

Flux Versus Stasis

Parmenides and Heraclitus were two contrasting philosophers who lived at roughly the same time, about 480 BC.  Parmenides took the view that nothing changes.  He claimed that a goddess had shown him the way of truth versus the way of opinion, and he deduced from logical truths about the universe.  The universe, he said, is a single and unchanging entity, it always was, and always will be.

"Nothing comes from nothing," he said.  Observation shows us the illusion of change because all senses belong to the world of opinion, not to that of truth.

Heraclitus, his contemporary, took the exact opposite view.  Whereas some sought permanence amid disorder and uncertainty, Heraclitus embraced change.  Everything is in flux.  "We step and do not step into the same rivers," he said.  We call it the same river but new waters have replaced those we stepped into.

He taught the unity of opposites.  "The way up and the way down are the same."  And the same is true of other opposites, day and night, winter and summer, war and peace. He did not mean that they were identical but that they changed into each other.  Day replaces night, night day.  Everything is constantly changing. You are not the same person you were.  He denied that "a thing is what it is," because things change.

So the pre-Socratic philosophers gave us two takes on the universe, two opposing mindsets.  Parmenides was for permanence, Heraclitus for constant change.  Heraclitus was for flux, Parmenides was for stasis. 

Now we run forward to 2000 years to the year 1494 when Pope Alexander VI divided the recently discovered New World between Spain and Portugal.  It didn't last, largely because he didn't allot any of it to England, the Netherlands, or any other European nations.

I now propose to divide the world as the Pope did.  Putting on my papal zucchetto, I divide the world into the followers of Parmenides and those of Heraclitus.  It is a division between flux and stasis.

The division is between those who seek the stability and predictability of permanence, and those who are ready to embrace change – even to welcome it.

This is far from more conventional divisions into left and right.  Normally we associate conservative temperament with wanting to keep things familiar and comfortable, and resisting change as unsettling as it is unfamiliar.  Yet if we look about us today, at those who yearn for the world of Parmenides, we find some strange alliances.

Trade unions like to keep things as they are.  They resist new technology and new working practices because they threaten jobs.  They want people to remain in familiar employment as far as possible.  The early industrial revolution featured Luddites, and those who threw their wooden shoes (sabots) into the new machines and gave us the words saboteur and sabotage.

Their modern counterparts regard change as threatening.  It puts their standard of living at risk.  So union leaders, conventionally left wing, are at one with retired Tory colonels in their suspicion of change and their aversion to it.

Now look at environmentalists.  Many of them look back to when we all lived more simply and made less impact on the planet.  They urge us to go backwards, to travel less, to produce less, to consume less, to do less.  Many of them are against growth.

At heart they are deeply conservative, the children of Parmenides.  They yearn for a predictable, static world.

Those who want to keep things the same support such things as protection and subsidy for domestic industry.  They want the comfort of traditional goods produced by traditional methods in traditional places.

The admission of cheaper foreign goods threatens that stability and portends upheaval.  So tariffs are urged to protect domestic producers from competition, while subsidies from taxpayers are urged to keep them in business

Those who want things to stay as they are oppose extensions to Sunday trading, just as they opposed it altogether a generation ago.  They deplore more relaxed moral attitudes and the changing nature of the family.  If the followers of Parmenides today could put their motto in three words, it would be "legislate against change."

The followers of Heraclitus, on the other hand, know that change happens.  Nothing stays the same.  Technology changes.  Human ingenuity and inventiveness find new ways of doing things and new things to do.  As a result, practices change and society changes.  And as society changes, attitudes change and our moral judgements change.  The children of Heraclitus know that change brings upset for some, but they also know it brings progress for many.

Human beings have rational minds.  They think, and when they think, it changes things.  They think of ways to make them less vulnerable to fate and fortune.  They try instead to control their circumstances.  Agriculture enables them to store food against leaner times; buildings protect them from the weather.

At every stage humans have sought to improve their lot, to manage things better than their predecessors did.  But improvement means change, and the price of progress is learning to adapt to change, to ride with its flow.

Those who embrace Heraclitus do not try to sustain industries made obsolete by change.  They do not use tariffs and subsidies to keep the world at bay.

They might use the wealth created by change to ease the lot of those adversely affected by it, or to help them adapt to it, but they don't try to stop it.

Human beings constantly think of new ways to achieve their goals.  They test them, and those that succeed gradually spread, transforming society in the process.  It is constant flux, churn, just like the churn in economic activity.

It works better in practice than legislation does.  If a thermometer shows the room is too cold, it is possible to inform the government and have them send someone round to turn on the heater, but it's faster and more efficient to let a thermostat do that automatically.  That's what a market does – it responds to continual changes, and it responds and adapts to their stimuli.  It's like a thermostat.  Markets are a way of living with change – indeed of using change.

We can divide societies into ones that seek stasis and ones that embrace flux.  Static societies try to sustain traditional practices, sometimes relying on tradition itself and strong social sanctions against deviation from accepted norms.  Often the force of law is used to compel compliance with conventional norms, with prosecution and punishment of those who behave differently.  

Societies based on strong religious norms tend to fall into this category, with divine punishment in the afterlife threatened against those who fail to comply with social norms of this life.  Isolated societies also tend to be more static.  Without contact with other cultures or comparison with them, their ways of doing things are seen as the way of doing things, and alternatives are seen as repugnant, failing to comply with what is decent. 

People in such societies tend to live much as their parents did, with a measured rhythm of life that is repeated in each generation.  There is a psychological pattern, too, in that they do not tend to brim with inquiring minds or intellectual curiosity.  They tend to be as culturally static as they are socially.  Most people know their place and keep to it.

Societies that embrace flux are turbulent.  Changes come thick and fast and undermine stability.  Their citizens compare themselves firstly with other societies they are in contact with, and for some brave minds, with imagined societies.  There is greater social mobility, with people seeking to improve their lot in life, and to pass more on to their children than they started with themselves.  They seek improvement, which necessarily means change.  They set targets and seek to attain them.  They experiment and innovate.  People live lives that are dramatically different from the lives lived by their parents, and incomprehensibly different from those lived by their grandparents.   Their lives are characterized by progress.

The story of humankind can be told as the story of progress – by no means constant, by no means linear, but the story of progress nonetheless.  It took only 12,000 years for us to come out of our caves and plant our footprints on the moon – that's not even a tlck of the astronomical clock.

Everything changes and we either live with that or we resist it.  So now my papal division of the world has divided it between the followers of Parmenides and those of Heraclitus, between those who think things can be constant and those who think that change is the only constant.

Societies that seek stasis limit freedom.  They restrain the right to innovate, to experiment, because this threatens stability.  Societies that embrace flux tend also to embrace freedom – freedom to differ, freedom to change. 

I would like to quote from a movie to illustrate that division.  The movie is "Things to Come," made in 1936 by Alexander Korda and with a screenplay by H G Wells. I do recommend you to see the movie but I certainly recommend you to see the ending.  The closing scene takes place on the balcony of an observatory looking up at the night sky.  They have just sent a capsule carrying people to voyage around the moon.  Cabal's deputy challenges him.

"Oh God, is there never to be any age of happiness?  Is there never to be any rest?

Rest enough for the individual man.  Too much and too soon, and we call it death. But for man no rest and no ending. He must go on. Conquest beyond conquest.  First this little planet with its winds and waves. And then all the laws of mind and matter that restrain him. Then the planets about him. And at last out across immensity to the stars.  And when he has conquered all the deeps of space and all the mysteries of time – still, he will be beginning.

But we're such little creatures.  Poor humanity's so fragile, so weak. Little animals.

Little animals? If we're no more than animals, then we must snatch each little scrap of happiness, and live and suffer and pass, mattering no more than all the animals do or have done.  Is it this, or that.  All the universe or nothing!  Which shall it be?"

Let's Keep the EU Renegotiation Simple

Subsidiarity

Perhaps it is only since Tony Blair gave away so much of John Major’s negotiation of the Maastricht Treaty signed in 1992, that we have realised what a good deal that was and how lucky David Cameron will be, if he can win most of it back.  As it is, his shopping list remains secret but it is most likely too long.  He wants to come back with as many goodies as he can get to justify a “yes” campaign so the longer the list, the more successes can be shown.

That may not be wise: sometimes the rifle is more effective than the shotgun.  This note argues that what we most want is not a ragbag of trifles but the implementation of just one thing: the “subsidiarity”[1] agreed in the Maastricht and confirmed in the Lisbon (2009) Treaties[2].  In other words, returning sovereignty to all member states for those things that really do not need EU uniformity. 

Lord Garel-Jones was the UK Europe Minister during the Maastrict negotiations. In an important speech to the International Institute for Strategic Studies on July15th, he said that the subsidiarity agreement achieved in the Maastricht Treaty was thereafter obstructed by Brussels.  The Lisbon Treaty had a further shot at transferring responsibility for all save that which really had to be EU-wide back to member states. A complex system of “yellow cards” was introduced under which if enough chambers of national parliaments voted to make the issue in question subsidiary, then it should be left with member states, not Brussels.  See the Appendix to this paper for a full explanation.

The download forming the Appendix is the Brussels party line that these transfers of powers are taking place. Needless to say, in reality, Brussels has continued to obstruct the return of any issue to member states in defiance of the Maastricht and Lisbon Treaties.

Most of the reforms the UK are seeking would be met by implementation of subsidiarity, e.g. lightening regulation on SMEs, welfare for cross-boarder workers, social matters and employment rules. If the subsidiarity agreement is honoured, by the Commission and all member states, almost all else falls into place. 

To take one simple issue: why do hairdressing salons need to be regulated by both Brussels and Whitehall?  A further tranche of hairdressing regulation appears to be on the way from the Commission.  Of course, hairdressing salons should protect the health and safety of its customers and employees but that is a generic requirement for all businesses.  In such a competitive and traditional market, with no cross-border trade, why should any further regulation be needed at all, still less both nationally and from Brussels?  Why should we care if hairdressing regulations are the same in Naples and Sunderland?

The EU official view of subsidiarity

Nowhere is the EU hypocrisy in claiming one belief and practising the opposite more obvious than for subsidiarity, except perhaps deregulation.

The EU claims that subsidiarity is one of the three guiding principle of the EU: “In all cases, the EU may only intervene if it is able to act more effectively than Member States.”

Yet its own presentation of the topic looks a little different: “The general aim of the principle of subsidiarity is to guarantee a degree of independence for a lower authority in relation to a higher body or for a local authority in relation to central government. It therefore involves the sharing of powers between several levels of authority, a principle which forms the institutional basis for federal States.”[3] Note the EU’s assumption of superiority and federal government.  And, importantly, subsidiarity has to be justified, not the reverse.

The three levels of authority are EU exclusively, shared and subsidiary.[4]

“The areas over which the EU assumes exclusive competence are:

  • the Common Commercial policy 

  • the Common Agricultural policy

  • Fisheries policy

  • Transport policy

  • Competition rules

  • Rules governing the free movement of goods, persons, services and capital."

The list of “shared competences”, i.e. the EU and/or member states’ areas of legislative responsibility, is exceedingly long and the list of areas for subsidiarity does not exist at all. In practice Brussels casts its net, sometimes with the tacit support of member state civil servants over anything it cares to regulate.

Thus whilst the Treaties and Brussels pay lip service to subsidiarity, it is simply not implemented.

Implementing subsidiarity

Lord Garel-Jones suggested that the yellow cards requiring subsidiarity should be replaced by red cards with no opportunity for Brussels to frustrate the process.  With the majority of EU members, however, now in the Eurozone and calling the shots, enough votes for red cards would be very hard to achieve.  Member states cannot achieve them now for yellow cards.

What needs to happen now it that all the areas of shared competence be apportioned either to the EU’s “exclusive competence” or be deemed subsidiary and left to member states, starting with hairdressing.  Furthermore, the areas of exclusive competence need to be more tightly defined.  One such, transport policy, could be interpreted to mean that only Brussels can make decisions concerned the new UK HS2 train line.   All apart from those tightly defined competences should be deemed subsidiary.

The main problem with the status quo is that the Commission only has to assert its opinion that it should be an EU matter and the Court of Justice of the European Union will automatically back it up, as happened to Germany in 1997.[5]

It would always be possible to add sectors to the uniformity (“exclusive competence”) list at a later date but that should require the “double lock”, i.e. majorities of both the Eurozone and non-Eurozone members.

Recovering subsidiarity would go a long way to satisfying the UK’s wishlist.  Of course the UK would like more, notably protection for financial services, control over employment law and reform of the Common Agricultural Policy which has been so often promised and equally often reneged upon.  With luck, David Cameron can achieve some of that but the brutal truth is that if the UK cannot find at least 14 other member states to agree, it is not going to happen.

Locking in agreement on subsidiarity

Treaty change is not going to happen until 2020 at the earliest, because major EU intergovernmental meetings take at least four years to set up.[6]Brussels may hope the current UK government will be gone by then and be replaced by something more pliable.  Given the EU’s history of disregarding democracy and steaming on regardless, the UK should insist on some form of binding short term agreements to last until a new treaty ratifies them.  One to one treaties between the UK and each other member state provide an answer and are legitimate within existing EU rules provided they are compatible with EU Treaties.  Since subsidiarity is very much enshrined in the Maastricht and Lisbon Treaties it would be hard for the ECR to rule against bilateral agreements implementing it.

These agreements should start from the Dutch government's new philosophy of "Europe where necessary. National where possible" (see here)The bilateral treaties should commit both parties to insist upon:

  1. The revised list of EU exclusive competences
  2. All other matters being deemed subsidiary
  3. Revision the rules for the ECJ so that they follow these agreements and not the whims of Brussels.

Leaving the EU Parliament and Commission out in the cold would do them no harm at all.

Reasons for all member states to implement subsidiarity

  1. The principle was agreed in the Maastricht Treaty and remains “the general principle of European law”. Implementation has been frustrated by the Commission.

  2. This benefits all member states and is not special pleading for the UK.
  3. There is a good reason in 2016 for EU members to agree to this which did not exist in 1991: nationalist parties are gaining strength and unless nationalists are given some red meat, the EU will fall apart.  As well as Greece, look at France (National Front), the “Alternative for Germany” party, Spain (Podemos), the Danish People’s Party, the “Finns Party” and UKIP.
  4. Brussels should be shamed by exposing the gap between their rhetoric and reality.
  5. It would be a major step towards less regulation.  With full implementation of subsidiarity, each sector would be regulation either by the EU or each member state but not both.
  6. Less regulation and more freedom for member states to develop their economic advantages (e.g. financial services) will increase the competitiveness of the EU as a whole.
  7. While consolidating the implementation protocols into a future treaty would be helpful, treaty change is not essential.  The principle has already been established and binding inter-governmental agreements (bi-lateral treaties), which are allowed by the Amsterdam Treaty, would suffice.

Conclusion

Brussels, on past form, cannot be trusted.  Any positive outcomes from the renegotiation need to be watertight and legally binding.

Now we need legal authority to be apportioned either exclusively to the EU and more tightly defined or all other matters be deemed subsidiary and left to member states. Shared responsibilities to be abolished.

Pending a new treaty, intergovernmental (bilateral) agreements should set those agreements in stone.

_____

[1] The concept was invented by the Roman Catholic church to allow some degree of devolution and reached Brussels via the German word “Subsidiaritāt”

[2] Article 5(3) of the Lisbon Treaty: “Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.”

[3] THE PRINCIPLE OF SUBSIDIARITY, p2, Fact Sheets on the European Union – 2015.

[4] For definition and allocation of competences see also http://ec.europa.eu/citizens-initiative/public/competences/faq 

[5] Germany claimed that the Directive on Deposit Guarantee Schemes was not compatible with the principle of subsidiarity

[6] Meetings to make minor treaty changes can be much quicker especially if Germany approves.

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Appendix - Yellow Cards

“EU law-making is undergoing a profound change in an oddly-shaped annex to the European Parliament building in Brussels. Here, officials working on behalf of 28 national parliaments are helping their members flag up draft EU laws that may fail to respect ‘subsidiarity’. That is the idea that the Union should act only when strictly necessary, and that the national governments should act where possible. The 2009 Lisbon treaty gave national parliaments the right to police subsidiarity through the creation of a so-called 'yellow card' system. This allows a third or more of them, acting together, to vet and temporarily block draft laws proposed by the European Commission. (For legislation in the sensitive area of justice and home affairs, the threshold is only a quarter.) Each parliament has two votes, or one per chamber for the 13 member-states that have bicameral systems. Each chamber that votes for a yellow card provides a 'reasoned opinion' why the EU law in question is an unwarranted trespass on their sovereignty. A yellow card requires 19 reasoned opinions (14 for a piece of justice legislation). The Commission can get around a yellow card by giving clearer justifications for its actions and proposing the law again, perhaps with some changes or caveats added. But if it does, half the national parliaments can still block the second attempt, rather than just a third the first time around. This is the unwieldy 'orange card' (29 reasoned opinions). At this point, if either a majority of governments or MEPs agrees that the orange card is justified, then the legislation is defeated outright.

National parliaments have yellow-carded new legislation only twice. The first occasion was last year when they rejected the adoption of common EU rules on the right to strike (known as 'Monti II'). But last month, parliaments in Britain, Cyprus, Hungary, Ireland, Malta, the Netherlands, Slovenia, Sweden, Romania, as well as the French and Czech senates, rejected a proposal by the European Commission to create an EU prosecution office. (See here for a fuller analysis of the stakes in the European public prosecutor debate.) National parliamentarians' deliberate blocking of a project that has a distinctly federalist flavour marks their arrival as serious players in how the Union is governed. Why?

First, because the Commission has so far treated a yellow card as a virtual veto. In 2012, EU officials withdrew Monti II, albeit while insisting that the legislation did not fall foul of the subsidiarity principle. European Commissioners have even amended draft legislation pre-emptively, such as the 2012 directive on public procurement and another (the IORP directive) on pensions, just to ward off a likely yellow card from national parliaments.

Second, most national parliaments have long had their own offices in Brussels. But the existence of the yellow card regime since 2009 has made this network of offices – cooped up in their shared corridor – more coherent by giving it a common purpose. These officials are getting better at using the brief two-month period allowed for assessing draft legislation to connect the debates in their home parliaments to each other, and to the EU's legislative process. So it is likely that yellow cards will become more frequent in future.

Third, the yellow card scheme is making national parliamentarians more assertive on EU issues. Apparent attempts by Commission officials to pressure wavering parliaments over their EU prosecutor proposal only served to turn more chambers against the idea. And now, one national parliament, or even a single chamber, has a powerful means to signal that they do not fully agree with their own government's European policy. For example, France's government, and its National Assembly, supports the creation of the proposed EU prosecutor. The French Senate clearly has a different take. (The powers of such chambers over EU business could become pivotal if a member-state has a minority government.)

Hence the yellow card innovation is encouraging governments to be more careful about consulting national parliamentarians first – including the frequently ignored upper chambers – before striking deals in Brussels. It may even make the lines of democratic accountability within individual member-states stronger than they were before the Lisbon treaty. And the scheme should demonstrate to eurosceptics in Britain and elsewhere that the checks on EU executive power provided for under the Lisbon treaty are far better than they would perhaps like to believe.

The spectacle of national parliaments acting in concert to limit EU action is aptly symbolic at a time when euroscepticism is rising to unprecedented levels across the Union. But it is more likely that the yellow card system will act as a safety valve for such pressures, rather than a US-style filibuster for those who would like to stymie the EU altogether. Governments could also make a minor, surgical change to the treaties to expand the procedure so that it can be more constructive. For example, new rules could allow a third of national parliaments to request the Commission to bring forward new laws and a half of them could ask for useless or out-of-date legislation to be repealed. Furthermore, eight weeks is only a heartbeat in European politics. The amount of time available for parliaments to consider the Commission's draft proposals should be extended to twelve weeks. (These ideas were recently proposed in a major CER report.)

Twenty years ago, Jacques Delors, then president of the European Commission, jokingly offered a €200,000 prize for a clear definition of what 'subsidiarity', a concept drawn from Catholic theology, actually meant. Lord Mackenzie-Stuart, a former British president of the European Court of Justice, later termed it mere “gobbledygook”. But the actual answer is neither theological nor legalistic. It is being eked out politically, on a case-by-case basis, as some 40 parliamentary chambers across Europe slowly learn how to form alliances, determine what their shared interests are, and – when warranted – take action vis-à-vis Brussels."