The Pin Factory Blog

The Institute of Chartered Accountants in England and Wales publishes a quarterly survey of business confidence, and the current report is the third in a row that makes rather depressing reading. Business confidence is, of course, down. In fact, it's the lowest it's been since the surveys started in early 2004.

The number-crunchers say that business confidence has sunk faster than the overall economy – which may just indicate the effect of a gloomy media, and the complete collapse of confidence in the financial sector. But however well the real economy is holding up, if people are too nervous to make investment decisions now, that can't be a good sign for the future. The accountants are predicting very low economic growth for 2008 – though they think that preparations for the Olympics, interest rate cuts, and consumers dipping in to their savings will spare us a true recession.

Genetically modified (GM) plants are helping to adapt to climate change. This is mostly because of drastically minimizing water use compared to non-GM plants. Worldwide 1.4 billion acres are already cultivated with DNA-modified crop varieties in 22 countries. However the same agency that took the lead in climate change alarmism is now seriously considering a moratorium on all field-testing and commercialisation of GM tress. This comes on top of already extant heavy-handed over-regulation that stifles innovation in biotechnology. According to a new paper from the Hoover Institution the UN may actually be worsening the global environment with its policy:

Irrigation for agriculture accounts for approximately 70 per cent of the world’s fresh water consumption… so the introduction of plants that grow with less water would allow vast amounts to be freed up for other uses. Especially during drought conditions…even a small percentage reduction in the use of water for irrigation could result in huge benefits, both economic and humanitarian.

GM crop varieties could accomplish exactly that if only the UN would give up its unscientific, anti-innovative approach to regulation of biotechnology. With its numerous policies and programs the UN inhibits the development of important tools indispensable for the adaptation to a changing climate. Finally, DNA technology does not require new resources. It’s all there. The UN needs simply to shed its hypocrisy, get out of the way of farmers and plant breeders, and hand the mettle over to the market.

With speculation about Tony Blair becoming EU President intensifying, it's time to take another look at William Hague MP's wonderful take on the subject. Junksmith is almost beginning to feel sorry for Gordon Brown...

Much is being said about the Granite securitisation and Northern Rock. Here's something actually sensible on the subject. And here's the FT taking that something sensible and expanding upon it.

Something else deeply unsensible: how can you write an entire chapter of a book on inflation without mentioning the two words "money supply"? 

Yet more: moves afoot to harmonise EU taxation: the apparent logic is that having tax competition will, umm, allow people to compete. 

Answering George Monbiot's accusations. If only George understood the subjects he was writing about... 

The Precautionary Principle is often likened to Pascal's Wager: here's why it isn't. 

Ever wondered why the amount ripped from you untimely in taxation only ever goes upwards? Because you're usually paying through the tax system for people who lobby for higher taxation. 

And finally, where all the education tax goes. 

Ferrovial's misfortunes may be London travellers' gain. The Spanish infrastructure group, which controls Heathrow, Gatwick, and Stansted (plus four Scottish airports) through its ADI (Airport Development and Investment) consortium, is under pressure from all sides.

The airport regulator (and recent ASI Power Lunch guest) Harry Bush seems likely to cut the return on the consortium's capital. The Competition Commission is also looking at the London airports monopoly, and may force the consortium to sell Gatwick. The economic slowdown has alarmed aviation executives, since holidays and business travel are some of the first things that people cut down on when times are tough.

All of which means that Ferrovial's shares have halved since last year, and its debts have soared. It needs to restructure fast. But the credit crunch has made that pretty difficult. Some commentators are speculating that Ferrovial will have to sell Gatwick, even if it isn't forced to by the regulator, just in order to make ends meet.

That would be good for travellers. When the Adam Smith Institute proposed the privatization of Britain's airports in the Airports for Sale back in the 1980s, we did not even contemplate the idea of the London and Scottish airports being packaged as a single unit. We were sure that a competitive structue with different owners would serve customers better. Now, more than two decades later, the regulators seem to be coming to the conclusion that we were right. It's a conclusion that air passengers - especially those who have to face the hell of Heathrow - came to a long time ago.

Fidel Castro’s retirement seems to offer a “once in a dictator’s lifetime” opportunity for Cuba to escape the injustices of Communism. However, with reports that brother Raul is of equal mind to Fidel, freedom could be as far away as ever. With the internal strangleholds over internal revolution, this may be a good time for the US government to change their policy towards Cuba, undermining the new leadership through trade and engagement.

If life is to improve for the people of Cuba, the US should consider ending its long-term trade embargo. It could be the necessary catalyst to move the country from the dead-end limitations of Venezuelan oil money to the limitless wonders of free and varied trade. However, President Bush (like those before him) is in a tight corner. The Cuban-American lobby puts strong pressure on the US to continue its embargo, a valid position in view of the many freedoms taken for granted in the US but routinely trampled upon by the Cuban government.

However, efforts like the Condozeela Rice led United States Commission for Assistance to a Free Cuba (CAFC) have failed. The best way to put pressure on the inadequacies of the Cuban system is to trade with them. Such a position was argued convincingly in the Financial Times last month. Cuba’s future may not come from the withered seeds of its home grown kleptocracy, the passing of power from dictator to dictator. Instead it could come with the inauguration of a new President and a change of US policy: from the energised democracy, ninety miles across the Straights of Florida.

41. "Privatization has given to a few hands industries and services which should belong to all of us."

The term 'public ownership' is a misnomer. The state sector may have the name of the public filled in on the dotted line, but the public do not own it in any meaningful sense of the word. All of the attributes of ownership, such as control, the right to determine what use is made of it and under what conditions, is determined by the bureaucracy in command of it. Far from being owned by the public, it is owned in effect by the people who administer it. The public actually has more influence, via its choices and purchasing decisions, on private sector businesses than it can ever have over state industries and services. In those cases its influence is diffuse and diluted through the political process.

Because the public has no choice over whether to pay for state services, or to choose what quality of service is appropriate for them, they have no power over them. In their absence it is the managers and workforce who increasingly direct the services to meet their needs and convenience instead of those of the public. The phenomenon, called 'producer capture' by economists, results in services which score low in customer satisfaction, and in the output achieved for the funds they receive.

When parts of the state sector are privatized, they are moved into that part of the economy over which people do have some control, and influence. It is the public sector which is in the hands of the few, and the private economy which is subject to the will of the many. And where state industries are privatized by widespread share issue, large numbers of the public do achieve some genuine measure of ownership, as opposed to the total myth which is what public ownership has always been.

UK Chancellor Alistair Darling, announcing the nationalization of failed bank Northern Rock:

"This is a temporary measure. The long-term ownership of this bank must lie in the private sector."

US economist Milton Friedman, reflecting on politicians' plans:

"Nothing is so permanent as a temporary government programme."

Castro resigns and Brad Delong has to man the barricades against the mouth breathers. This is both most droll and quite possibly true on the end of the embargo.

Greg Mankiw, Larry Summers and William Polley all agree: you should read Capitalism and Freedom.

An entirely wondrous and excellent find at The Guardian. Still there as Netsmith goes to press... 

The last bank nationalised for borrowing short and lending long was Continental Illinois. We might not like the results at Northern Rock to judge by that experience. But it is just like Bargain Hunt, isn't it?

Sausages and laws: you might actually prefer the tour of the abbatoir to this description of the legislature. 

A possible step on the way to a hydrogen economy. 

And finally, waiters everywhere are cheering wildly.

The Adam Smith Institute and its supporters think that a range of policies covering every area of government is needed to improve life and prospects in Britain. We think that a flat tax would improve the economy and the range of choices open to people if they could spend more of their own money. We think that universities would do better if they secured their independence from government and were free to pursue their own admissions and tuition practices. We'd like health services that responded to the needs and priorities of patients, rather than to the targets which government and its managers preferred to deliver. We think that much of the regulatory burden could be replaced by industry wide codes of practice and a legal regimen that specified general objectives whose details could be filled in by accumulated case law of test cases and tribunal decisions.

The list of these desirable and necessary changes is a long one, but if we had to pick one out for fast-track priority action, it would probably be the schools. Long an ideological battleground, a social laboratory, and a factory for inculcating fashionable attitudes, many of the state schools have failed to bring out the full potential of their students. Indeed, all too many have even failed to equip them with the basic educational skills needed for a decent life.

It is not that state-produced education needs to be changed; it needs to be ended. Schools should be independent, setting their objectives according to the wishes of parents, headteachers and governors. It should not be a decision of government to replace A-level examinations by a certificate, or to abolish oral tests from language qualifications. It should be up to the school to decide which exams are appropriate for its students, and for various exam boards to offer different alternatives.

City academies are not the answer, and neither are grammar schools. Both are part of the answer because the desired outcome is of a variety of different types of school so that parents can choose one they find suitable. Government's role should not be that of running schools and employing teachers, but of ensuring that everyone has access to a decent and appropriate education. If they were allowed to spend the state funding in schools they choose, like the Swedish model, all parents would be able to choose quality education for their children.

This should be coupled with moves to make it very easy for new schools to be set up, whether by parents and teachers getting together, or by educational organizations taking the initiative. The key factors are free choice for parents and a wide range of choices for them. Yes, we need all the policy changes in other areas, but we need this one most of all, and we need it soon.