The Pin Factory Blog

It's supposed to be the season of goodwill, and I've been thinking about goodwill recently. Not the good cheer and fellowship that is supposed to exist between human individuals, but goodwill in the commercial sense.

The goodwill of a business is the loyalty of its customers, and indeed its suppliers. When people buy or sell a small business, they are not just buying or selling a piece of land, or a building, or even the stock in the shop – although all of those things have value. They are also buying the goodwill. They are buying the trust that customers have in the business, and their willingness to return to it. They are buying the willingness of suppliers to continue to supply it. And they are buying the knowledge of how to make the business work – things like which customers should be avoided because they don't pay, or which suppliers provide the best value for money and the most reliable service.

Until recently, this goodwill and inside knowledge have been a large fraction of the value of a business. Larger companies even put the value of their brand - the name that customers trust - on their books as an asset, as valuable as cash or stock.

But has the internet changed this? How much inside knowledge do you buy when you buy a small business, like a shop. It might indeed be useful to know which customers and suppliers are reliable. But in terms of sourcing the stock which you have for sale, that is a lot easier these days. A quick online search will discover plenty of willing suppliers. And through blogs and chatrooms it's not hard to check the reliability and value of any of them.

I think this must affect small businesses in particular. A loyal customer base is worth something, but the knowledge of how to stock and run a shop, say, is much easier to acquire these days. Perhaps most of that knowledge now can't really be sold as part of the price of the business. On the other hand, this widespread online knowledge must make it easier for people to start new businesses, and add to the competition. What's bad for shopkeepers might be good for their customers.

My true love sent to me: eleven pipers piping. It might refer to the eleven loyal apostles. But who - in the title of Brian Montieth's excellent little book on Scotland's finances - will actually pay the piper?

The bill is rising. Over the last nine years, the Scottish Executive's kitty has roughly doubled, from £16bn to over £30bn. A lot of the money, of course, comes from the Barnett Formula, which provides for public spending being about a sixth higher in Scotland. It was devised in the 1970s to help solve some Cabinet disputes, but as Milton Friedman said, there's nothing more permanent than a temporary government programme.

The Scots enjoy better-funded public services as a result, including free university education, and free care homes for the elderly. And of course they pay their police better than do the English. It's amazing how much you can achieve - on someone else's money. But how much more we would all achieve, if we were allowed to keep more of our own, and spend it efficiently on what we actually wanted, rather than inefficiently on what politicians thought we ought to have.

If government can't get the small things right then why do we trust them with the big things? For example, the fire control centre project was costed at £100 million, is now running at £1.4 billion and is "only" two years late at present.

On the subject of the big things, a very reasonable outline of what is wrong with the NHS. 

 Similarly on the subject of the War on Drugs . When are we actually going to start having a rational discussion of this subject?

A quick note on how the world changed in the past year. 

A change in thinking on the sub prime mortgage mess in the US. 

Will the music industry change quite so much as to lead to this dystopia? 

And finally, there'll always be an England and be careful how much electricty you try to save. 

The government's suggestion - however tentative - that people who are overweight or won't quit smoking shouldn't get treated by Britain's state-run National Health Service is outrageous.

These people have paid their taxes - smokers have probably paid more than most - for what we're told is a state 'insurance' system. What commercial health insurer would be allowed to take your money and then refuse to pay out on the grounds that your lifestyle was politically incorrect?

Health ministers say they're simply trying to encourage people to live more healthily. And indeed, plenty of commercial insurers are doing just that - reports this week reveal that they are willing to give discounts of 75 percent to people who use the gym regularly, and provide supermarket points to
clients who purchase lots of fruit and vegetables.

That's fine. The difference is that people have no choice but to contribute their tax 'premium' to the NHS. If ministers were saying that fat smokers wouldn't get NHS treatment but they'd get their taxes back, then they might have the basis for a deal.

I saw a man yesterday taking gates.

I didn't say anything in case he took offence.

My true love sent to me: ten lords a-leaping. This probably refers to the Ten Commandments, but lords today aren't exactly leaping to do anything, particularly to reform the House of Lords.

The subject has been talked about for decades. Everyone has agreed that reform is needed, but nobody has ever been able to decide exactly what. The trouble is that the House of Lords has actually worked quite well. It has checked the House of Commons, but not been able to override it. The hereditary peers might have been overwhelmingly old, white, posh, bumbling prats, but in fact the system brought in lots of people you never see among the serried ranks of lawyers and political careerists in the Commons - more young people, more women (until recently), more people of all classes (Lord Nelson was a policeman, I recall), more communists, more libertarians...

Tony Blair took a major step in abolishing the heredities - or most of them: these peers are pretty nifty politicians, having had the gene in their families since Tudor times. But that leaves us with a House of Lords that is appointed. This can be good - non-politicians like the medical pioneer Lord Winston bring enormous depth to the House's discussions. And even ex-politicians can bring a lot of experience. But a House full of the Prime Minister's chums is not a delectable prospect.

Nor is an elected House - it will just fill up with the same political lawyers we have in the Commons. If we're going for elections, it needs to be a completely different system, with different constituencies, and radically different rules. Personally, I'd prefer the first 500 people out of the phone book. Or almost anyone, provided they didn't want to do the job.

Philip studied BA History from UCL, focusing upon the history of political thought, specifically the British radical Enlightenment. In the process, he read and wrote more on Thomas Hobbes than is probably healthy in one lifetime. It is at university that his interests in politics blossomed, leading him to go on to study MSc International Relations at the LSE. Here he concentrated his learning and research around questions of state sovereignty and the European Union as a political actor.

Throughout his studies he worked in a number of jobs of various repute in an attempt to avoid a lifetime of student loan induced debt, the most superficially glamorous including cocktail waiter and tennis coach. Upon completion of his studies he undertook a couple of internships, one with the Shadow Defence Secretary, Dr. Liam Fox, the other with a small business consultancy; both interesting and challenging in a different ways.

In both his studies and work experience Philip has picked up a considerable amount of intellectual fodder and practical experience. His interests include most sports (particularly tennis and football), while to relax he cooks, his speciality dish being couscous with roasted vegetables. Firmly behind the libertarian principles of the ASI, he is looking forward to putting his talents into action in his new role as Business Development Director.

A very interesting point . Just because the UK and the US both have the internet and are democracies, it doesn't mean that the internet will (or even should be) used in the same manner in the futherance of said democracy in the respective countries.

A disturbing look at the quality of the science behind many of the decisions in our own democracy. 

On the subject of research in the social sciences, Netsmith would be happy to report back on this:

"You can't pull with a Ferrari in Copenhagen". This is a claim which should be tested.

We all know the arguments about copyright: but, empirically, what is the optimal length? 15 years sound about right? 

As if you don't get enough Tim Worstall blogging, here he is at the Globalisation Institute on the subject of Cornish coffee. 

A conundrum : outsourcing saves 15-20% on average. American women earn, on average, 77 cents for each dollar made by men. That is, the gap is higher than that which prompts outsourcing. So why isn't that work being outsourced to American women?

And finally , a definitive answer to one of Thoreau's questions. 

The US has sustained a series of energy bills with the intention to foster energy efficiency. But they have caused lots of headaches for consumers and are likely to cost a lot of money. Rent seeking special interests from the burgeoning eco business are rolling their pork barrels all over the place. Just look at the 1992 US Energy Policy Act.

Implemented in 1994 it forced millions of Americans to install water-saving toilets. But they performed so badly that people mostly had to flush twice, actually increasing water usage. Or the 2005 energy law that prescribed that agricultural-based ethanol must be mixed into the gasoline supply. Since then we learned that the energy and water needed to produce ethanol is huge, and also that biofuel production has driven up food prices. On top of that, ethanol generates less energy during combustion because unlike fossil petrol it is already partly oxygenated.

Despite these well documented shortcomings the latest US energy bill, which just passed Congress, includes a fivefold increase of ethanol in the gasoline mix. Other provisions likely to backfire are for new, supposedly energy efficient devices such as new light bulbs, boilers, refrigerators, dishwashers, cloth washers and air conditioners. Ben Lieberman, a senior policy analyst at the Heritage Foundation, got it right when he said the following:

There shouldn’t be any mystery why these laws fail. They all involve Congress trying to force the public into using something the market place has rejected. If newfangled toilets or increased ethanol usage actually made sense, they would catch on without heavy-handed government mandates. Ditto the required modifications to appliances. More often than not, this kind of government interference with the free market works to the detriment of consumers. Washington may think it is passing energy bills, but all it’s really doing is proving the law of unintended consequences.

A man was giving a speech at his club meeting. He got a bit carried
away and talked for two hours. Finally, he realized what he had done
and said, "I'm sorry I talked so long. I left my watch at home."
A voice from the back of the room replied, "There's a calendar behind you..."