So that's the housing shortage solved then

This is just excellent news, the Labour Party seems to have figured out what's wrong with the UK housing market.

Sir Michael Lyons told the Guardian he had identified protracted delays in the release of land as the single biggest cause of Britain's housing crisis.

Hurrah!.

We have no shortage of land in the UK, only 3% of the country is housing and under 10% is developed in any manner whatsoever. So there's plenty of room to increase housing by, say, 25%, for that would take some 1% of the country. This really isn't a land shortage.

However, what we do have is a shortage of land that people are allowed to build housing upon. It is this which makes housing itself so expensive: the scarcity value of the permission slip to build a house on a particular piece of land. So, issue more permission slips more quickly and that scarcity value will fall.

Yes, we know, we've been saying this ad nauseam this past decade. You're getting sick of hearing it and we're getting very bored with saying it. But if even the Labour Party's housing investigation committee is now coming around to this idea than obviously our repetition has not been in vain.

If not enough permission slips to build houses makes housing expensive then the answer is to issue more permission slips.

It's so simple an idea that even Labour are managing to get it.

Jackie Ashley has seen the future of the NHS and it works!

I think it's quite lovely that Jackie Ashley of The Guardian has been able to see the future of the NHS. Not just that, she says that it works!

It's in a sprawling house in Twickenham, west London, housing a staff of 30 in former bedrooms. It doesn't look much like the future of healthcare in Britain, but at a time when the debate rages about NHS charges, privatisation and scarce resources, this organisation could provide part of the answer.

Excellent, so what is it that they're doing? Well, there's a charity which provides some health care that the NHS doesn't, or which it provides not very well. They get some cash from the NHS itself, some from various people who think they're doing good stuff and none at all from patients. So, free at the point of use health care but not being provided by the monolith of the NHS. You know, just like hospices which most agree do a pretty good job as well.

So now here's the rub. How is INS financed, and how can it be spread nationwide? Its founding principle is that treatment is free to all of those who need it. It receives £250,000 a year from the NHS, and the salary of the chief executive, Ann Bond, and one of the two fundraisers are paid from the Big Lottery fund. As it happens, the charity's contract comes up for renewal in a year's time. If Big Lottery doesn't renew this funding it would be a big mistake.

Excellent we could say.

At the core of this success story is flexibility – what the patients want. There is no talk of outcomes, waiting times, service provision and the rest of the NHS jargon. Above all, there is no talk of profit. Profit is the last thing that would motivate staff – their reward is seeing the progress of their patients, and in simply continuing, year on year, to provide that help. This is absolutely not a privatised service, unlike Hinchingbrooke hospital in Cambridgeshire, run by Circle group. INS started from the bottom – two therapists who saw a desperate need in the community. It has been nurtured by the local community, with many volunteers helping to raise funds. Ultimately, it will only be sustained by NHS contracts, lottery money and community spirit. Surely, until the great British public is prepared to pay high enough taxes to fund the NHS properly, it is part of the future.

Well, actually, it's exactly what the current reforms of the NHS management system are trying to encourage. Other providers, whether charitable, for profit, even state owned, offer services which are then paid for by the tax take that funds the NHS. Allowing exactly this sort of experimentation outside the centralised management structures of that NHS.

What would Confucius have made of UKTI?

Far be it for me to belabour the UK Trade and Investment quango: I seek only to help.  In that context my attention was drawn to UKTI’s 1st Edition of “Doing Business in China”, their 164 page guide.  It would not have impressed Confucius.

Quite soon (p.24) the novice SME exporter gets to this advice:

Do you know the answers to the following questions before you start venturing into China:

• What are the unique selling points to [sic] your business proposition? • Will there be a market for your product and services? • Are there any legal barriers to your business model? • Where in China would you start? • Do you have sufficient resources (management time, project finance and expenses) to fund your China projects? • Who will be leading the project within your company? • Do you need to work with a partner in China to succeed? • Can you communicate with them effectively? • Have you evaluated business risks (such as protecting your IP) and conducted research and due diligence? • Do you know how to secure payment and get the right quality products? • Would Hong Kong be a safer place to start?

It seems that no British SME should even consider visiting China, soon to be the largest market in the world, without knowing the answers to all those questions. How on earth could a novice exporter answer those questions without visiting China? What world is UKTI living in?

None of the producers of this guide are Chinese and, although the usually admirable China Britain Business Council have had a hand in it, there is no sign the producers have any relevant experience.  There is no bibliography which might point novice exporters to China guides with better foundations.

We should not belabour UKTI but try to help.  And especially try to help them focus their limited resources in the most productive way.  They could begin by burning this book and starting again.

Tim Ambler is a co-author of Doing Business in China, published by Routledge (2010, 3rd edition).

Perhaps we should be scientific rather than all of this chaos of markets?

As we all know there are plenty of people out there who think that we should do away with this chaos and disorder of markets and properly plan things. This scientific socialism idea, that clever people acting altruistically will be able to determine what we should all be doing. It's not so much that such people don't grasp the point of markets, it's that they're not doing very well in understanding science.

From The Science of Discworld IV:

There is a common misconception of the scientific method, in which it is argued that there is no such thing because specific scientists stuck to their guns despite apparent contrary evidence. So science is just another belief system, right?

Not entirely. The mistake is to focus on the conservatism and arrogance of individuals. who often fail to confiorm to the scientific ideal. When they turn out to have been right all along we hail them as maverick geniuses; when they don't, we forget their views and move on. And that's how the real scientific method works. All the other scientists keep the individuals in check.

The beauty of this set up is that is would work even if no individual operated according to the ideal model of dispassionate science. Each scientist could have personal biases- indeed, it seems likely they do- and the scientific process would still follow a universe-centered trajectory. When a scientist proposes a new theory, a new idea, other scientists seldom rush to congratulate him or her for such a wonderful thought. Instead, they try very hard to shoot it down. Usually, the scientists proposing the idea has already done the same thing. It's much better to catch the flaw yourself, before publication, than to risk public humiliation when someone else notices it.

In short, you can be objective about what everyone else is doing even if you are subjective about your own work. So it is not the actions of particular individuals that produce something close to the textbook scientific method. It is the overall activity of the community of scientists, where the emphasis is on spotting mistakes and trying to find something better. It only takes one bright scientist to notice a mistaken assumption. A PhD student can prove a Nobel prize-winner wrong.

It occurs to me that you'd only have to tweak that a little to make it a description of markets. The "market" is the community in which things are tried, we use profit (as a synonym for satisfying consumer desires) instead of reputation but other than that it's remarkable how similar the two structures are. Given which we can thus see why that centralised planning doesn't work. For to gain either useful science or a useful economy we need to use that try it and test it method of working out what does actually work.

As an example, Lysenko was just as damaging to Soviet biology as GOSPLAN was to the Soviet economy.

More on how inheritance is becoming less important

One of Piketty's little insistences is that inheritance already plays a much more important part in who is rich that it used to in mid-century. And, of course, that this is bad. And thus our little picture of Ms. Hilton. For as far as I know she's famous for being an heiress. But also, at least as far as I know, she's not inherited. She has however made her own fortune by being known as a future heiress. Which doesn't really support Piketty all that much.

Further, via Marginal Revolution, we get this:

Using estate tax returns data, we observe that the share of women among the very wealthy in the United States peaked in the late 1960s at nearly one-half and then declined to one-third. We argue that this pattern reflects changes in the importance of dynastic wealth, with the share of women proxying for inherited wealth. If so, wealth mobility decreased until the 1970s and rose thereafter. Such an interpretation is consistent with technological change driving long-term trends in mobility and inequality, as well as the recent divergence between top wealth and top income shares documented elsewhere.

It is of course possible that all sorts of dire things will happen in the future but shouldn't we be asking for at least some evidence that they are going to happen, that there are really some trends likely to make them happen, before we drive the rich into penury just because lefties like doing so?

Will more govt spending on childcare really help?

The UK government is expected to make childcare free of charge. Parents with young children in the UK spend on average a third of their household income on childcare, compared to just 13% in other countries, according to OECD figures, and 25% of parents in severe poverty in the UK have given up work, and 33% have turned down a job, because of high childcare costs.

However, UK already spends more of its GDP on government support to families than any OECD country except Denmark and France. State-funded childcare in the UK starts at three, or two for lower-income families, but it is limited to 15 hours per week. Some 10% of government support for families goes towards maternity and paternity leave, compared to 17% in Denmark. Around 26% goes on day care, compared to 49% in Denmark. Another big concession is tax credits, which Denmark does not use.

In Denmark, 97% of children aged three to five, and 92% aged one to two are in day care. While around 55% attend centres, the rest are looked after by registered childminders in private homes. Generous parental leave, flexible working hours and the absence of long-hours culture all help families with young children to be able to manage. But childcare is not free. In Denmark, families pay up to 25% of the cost of day care, with those on low incomes or single parents paying less (for the poorest, nothing), with discounts for siblings, and with the government funding the difference.

There is a case for subsidising childcare, if it makes parents able to take a job, rather than depending on state benefits. A paying job is the best welfare programme for families yet devised. But such support should go to the parents who need it, rather than in subsidies for the childcare industry. In our 1995 Pre-Schools for All, we proposed that poorer families would be given vouchers to cover the full cost of a pre-school place, with families on basic and higher-rate taxes receiving proportionately less. "Because the pre-schools provide integrated education and care," wrote our author David Soskin, "access to them would give many parents the choice of going out to work, reducing dependency on benefits." The government heeded this advice, but unfortunately, experiment with childcare vouchers became a bureaucratic nightmare – which it need not have done.

There are of course other possible models. In our 1989 report Mind the Children, we argued that employers should be able to provide childcare facilities or vouchers without employees having to pay extra tax on the benefit. We have also argued that the restrictions on home-based childcare are too onerous, raising the cost to unaffordable levels, and discouraging informal arrangements between parents.

If we are to make childcare available to all, instead of trapping poorer families on benefit dependency, then we need to address the costs of regulation and taxation, and to employ market principles and competition rather than dash towards indiscriminate subsidy or become swamped in bureaucratic red tape. Not an easy task for any government.

The UK's income inequality is regional inequality

We've long said here that inequality in the UK really just isn't quite what we're all told it is. It's not that we have plutocrats in every part of the country, lording it over the surrounding peasantry. No, our high overall inequality numbers are as a result of wages being very much higher in some regions of the country (and the living costs in those parts are higher too, substantially decreasing consumption inequality). And this all works in a manner unlike any of the other european countries, London and it's economic dominance, and higher wages, being quite unlike what happens elsewhere.

Which makes these numbers from the Resolution foundation, funded by the Rowntree folks, so interesting:

Cities in the south of England – such as London, Reading and Milton Keynes – tend to have the highest levels of wage inequality and employment polarisation. The Gini coefficient of wages (a measure of inequality) is 0.337 in London, the most unequal city.

Smaller cities and those that have experienced industrial decline – such as Sunderland and Burnley – tend to have the most equal labour markets. The most equal city, Sunderland, has a Gini coefficient of only 0.237.

The main driver of urban inequality is affluence. Cities with higher average wages and knowledge based economies tend to be more unequal. Cities with weaker local economies generally have lower levels of wage inequality and employment polarisation.

Just to give you a couple of benchmarks, the market wages gini for the UK as a whole is some .45, .46 or so, that of Sweden about the same. The post tax and post benefits numbers for both countries are around .33 and .25.

Even in the most unequal area in the UK the market gini is substantially below the gini for the country as a whole. This is showing us that it is indeed regional differences, not a generally widespread inequality, that is to blame. Further, in the most equal parts of the UK the local inequality is actually less, even at market wages, than the post tax, post benefits, inequality in Sweden.

There really is something substantially different about inequality in the UK. If you look at US inequality then you find that the wage inequality in each State is not that different from the inequality across the country as a whole. It would not surprise me at all to find that being true of much of Europe. But it simply isn't the case here. We really are different: and it's London that makes us so.

Fracking, property rights and compensation

A new Infrastructure and Competitiveness Bill, to be announced to Parliament in the Queen's Speech on Wednesday, will change the UK's trespass law to allow shale gas exploration firms to drill beneath private property without needing the owners' permission.

This move will greatly advance fracking in the UK, where there are large shale gas reserves. It will bring major economic benefits, not to mention increased energy security, at a time when the country's North Sea oil production is tapering off. But there are issues about it, which need to be addressed.

People feel strongly about their property rights, and do not like the idea that people can 'mine' underneath it, even if it is a mile or more underneath it. Others are not over-bothered, but maintain that if people are going to drill under their property, they should be compensated. And some people are concerned about what might go wrong, in terms of the geological stability of their land or the pollution of local water supplies. While research suggests that these latter concerns are almost entirely unfounded, drilling under people's property remains something of concern for them, for a variety of reasons.

The government has tried to address the issue by saying that prospecting firms must make 'community payments' by way of compensation, though critics have complained that the amounts being mooted are rather small. But a more important question is whether such collective payments really meet the public concerns at all. If they simply go into the coffers of local governments, to be spent by local politicians on whatever pet social-engineering scheme they favour, property owners will not regard that as any compensation at all.

If public disquiet is not to hamper the UK's fracking initiatives, compensation should do directly to those whose property is affected. And it must be large enough to convince the majority of them to accept the process. Sending a cheque directly to every home in a village is not such an onerous task. But it is the one thing that would make people accept – and even welcome – fracking under their property, the only practical measure that shows at least some respect for their property rights.

Hedge funds are so over that they're not worth worrying about

We've another of those worrywart articles over in The Guardian. All about how awful hedge funds are, what a bad deal they are and how much power they have. The problem with the situation as laid out is that, as Adam Smith pointed out, the solution is already there in the situation as it is laid out.

Are these sophisticated investors making sophisticated investments? It's hard to find the proof that they are. By many measures – and it is hard to measure – hedge fund returns are pretty much just average. That hedge funds can charge such high fees for such average returns has economists and many others confused. It's not exactly rational. Theories abound.

Smith didn't use quite these words but to condense his usual several thousand of them down to a blog post.

Capitalists like profit: there's also an average rate of profit across an economy (we would add "risk adjusted" to that these days). Given that like of profit everyone's always on the look out for ways of making above that average (risk adjusted) rate. And sometimes people do find them: this can be anything from inventing the smartphone to running the logistics chain of a supermarket better to a new method of investing on the public markets.

Precisely because the capitalists like profit they observe that lucky blighter who has found that better than average (risk adjusted) profit and so they all move some of their capital into copying that activity. At which point that higher than average profit starts to slip away given that there are many more people chasing it.

Or as they might say in the financial markets, no arbitrage opportunity survives the general knowledge of its existence. And as we can say about the economy in general, innovation can lead to economic profits, which then get competed away over time by the competition that comes from copiers.

And we're just fine with this: we consumers get the new products, eventually, at the average profit rate for the economy, those transient economic profits from the innovation being what encouage people to create those new products. This is as true of shiny shiny tech as it is of logisitics chains and financial markets.

Hedge funds are no different. It's definitely true that in their early days, when they were new, they were making economic, above that average, profits. As the complaint itself observed today they're not. They've grown massively in size over that time. Competition has reduced those economic profits to the average of the economy.

Why worry? Everything is working out just as Adam Smith pointed out it would.

Megafund pensions: tax, regulation and competition

On Wednesday in the Queen's Speech before Parliament, UK ministers will herald a move towards a new workplace pension arrangement. The idea is for 'collective defined contribution' pensions, or CDCs, which the government believes could boost pension returns by up to 39%. Such a plan might have hundreds of thousands of members, all of them pooling their regular pension contributions, giving the 'mega-fund' managers far more clout than they have with individual pension arrangements. Denmark and the Netherlands, which already have CDCs, have the lowest levels of pensioner poverty in Europe.

Two things strike me about this proposal.

First, it is a welcome attempt to bring back, in a different form, the highly successful workplace pension plans that the UK used to have before they were taxed and regulated out of existence by former Chancellor of the Exchequer Gordon Brown. Before 1997, huge numbers of employees put part of their salary in workplace pension plans, in return for a defined benefit – normally two-thirds of their final salary. It was a huge success, and the UK private pension sector became larger than that of every other European country put together. But seemingly insignificant changes to 'advance corporation tax' in Brown's 1997 Budget took billions of pounds out of such pension investments each year. Then, much strict solvency regulations – far too strict, in fact, and infinitely stricter than the rules on the government's own, bankrupt, state pension system – led to the closure of plan after plan.

So my first reflection is, if the UK is going to revive this successful idea of workplace pensions, but on a defined-contribution rather than defined-benefit basis, then it needs to armour them against future tax raids and over-regulation.

The second is that there needs to be proper competition between these new mega-funds. Right now, ministers are unclear on that. The pensions minister, Steve Webb MP, has talked about the pensions industry setting up 'the' collective scheme, with the government providing the regulatory framework, and possibly even providing some kind of ultimate guarantee. But while a single collective could provide a great deal of investment clout, it would suffer from the same problems as every monopoly – sloth, bureaucracy, no comparisons on which its success or failure can be measured, leading to bad value for customers.

The right model for CDCs has been around since the early 1990s. Indeed, we reviewed it in the Adam Smith Institute report Singapore Versus Chile back in 1996.It is the Chilean model, now adopted by dozens of countries across the world. In this model, there are many, competing pension funds. Workers may make contributions into whichever they choose, and indeed switch their contributions from one to the other. There is regular reporting, so that contributors can see how their particular fund is reporting. When they retire, their invested savings provide their retirement income.

The popularity of the old workplace defined benefit plans suggests that the new collective defined contribution plans could be highly popular too. But they need to be both competitive and secure from the ravages of future politicians and regulators.