European regulation at a glance

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According to a new proposed directive from the European Commission (Late Payment Directive), governments are soon to decide the content of contracts between businesses when it comes to agreements concerning payments. The intention of this directive was originally to ensure that government institutions made payments to private companies on time, a principle of which one can only approve. However, government regulation tends to grow in the making and this directive is not an exception.

The latest discussions from the European Parliament reveal that some groups intend to make the directive include business-to-business contracts as well. This will mean that businesses can't decide the conditions of payments in future contracts, making it completely impossible to compete on these parameters. If loss of competitive advantages wasn't enough this system also looks to expand the bureaucratic burdens on the economy in order to monitor it. All in all a loss – loss situation!

It sounds from the discussions in Brussels that they have lost track of what they intended to do in the first place. Instead of intervening in the content of contracts between businesses, the EP should instead increase the possibilities for actors to sanction late payments if they wish to do so. Politicians ought to accept private contracts as legally binding documents made by enlightened adults!

If the Commission intends to hold back European enterprise, and make the Saharan desert look like a better place to do business, the approach this directive indicates is surely the way to go. However, if the Commission wants to fulfil its own vision of making Europe the most competitive knowledge-based economy in the world, I would suggest that the Commission view this directive as a sunk cost and moves on!

National Free Enterprise Award event

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Next Tuesday we will be holding an event to celebrate the fact that Dr Madsen Pirie and Dr Eamonn Butler will recieve the National Free Enterprise Award. The evening will feature short speeches by Andrew Neil (BBC) and Terence Kealey (Vice Chancellor, Buckingham University):

23rd February 2010
Queenborough Room, St Stephen’s Club, 34 Queen Anne's Gate, London, SW1H 9AB
6.00pm – 7.30pm; Drinks & Canapés
Dress code: Jacket & Tie
RSVP: events@old.adamsmith.org

The National Free Enterprise Award is presented annually by a panel of 14 independent expert judges under the auspices of the Institute of Economic Affairs. Previous winners include Lord Lawson, Richard Branson, Lord King, Baroness Thatcher, Lord Forte and Sir Freddie Laker. Winners receive a handsome custom-made silver presentation trophy.

Underemployment

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The big news this morning is that unemployment has not risen, at least according to official figures, which show a 3,000 fall in unemployment in the last quarter of 2009, putting the overall number at 2.46m.

But this story in the FT tells a more interesting story, which not all the papers have picked up on. According to the Office of National Statistics, '2.8m people, almost a tenth of the UK workforce, are "underemployed" - working fewer hours than they would like because the work is not there.' That figure is up by 33 percent since the third quarter of 2007, and confirms what a lot of business people have told me – that the only reason this recession has not yet resulted in mass unemployment is because private sector workers have been flexible, realizing that their employers have little cash to go around and accepting fewer work hours and lower pay, instead of forcing layoffs.

But what will happen when the recession finally hits the public sector? There is simply no question that public spending is has to be cut after the general election (you just can't keep running a double-digit structural deficit* forever), and given that public sector wages and pensions consume about 25 percent of tax revenues, there is no way that public sector workers can emerge unscathed.

But while some job losses are inevitable, their extent will largely depend on whether public sector workers are prepared to show the same restraint as their private sector counterparts. Freezing recruitment, freezing pay, increasing employee pension contributions and restricting benefits are all sensible steps that would help reduce the need for job cuts – but will the left-wing union bosses accept them?

* By double-digit, I mean in percentage terms. As DK rightly points out in the comments, the structural deficit in money terms is well into triple-digit territory. (OK, as Tom Papworth says, it is actually in 12-digit territory... But you know what I mean!)

Buster's World propaganda

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A couple of weeks ago it emerged that Ed Ball’s Buster’s World – an education resource children "helps you find out about the world around you" – took the same name a fetish website. As the fetish site is top of a Google search for "Buster’s World" this resulted in many irate parents and embarrassed apologies from the Department of Children, Schools and Families.

Buster’s World – the government site, not the gay fetish porn website – is in fact a tool for political propaganda that any right thinking parent should keep their children well clear of. Of the games here are my top three to avoid:

Footprint

In ‘Footprint’ children are given the opportunity to find out much carbon they and their family are producing and how to stop it. Recommended especially for parents who want make their children feel guilty for being born.

Fair Shares

This is great for teaching children that without government, the whole world comes to halt through a realistic simulation of how a town works. For example, if one reduces taxes the words ‘Tax Level: Extremely Low‘ flash on screen. I managed to do awful job as in no time at all I lost with the message: “Oh no! People were very unhappy with the way you ran the DirectgovKids town. You didn’t get the balance between raising money through taxes and spending money on services. You made bad decision about the town’s finances.” the trouble is there is no private sector in Buster's World.

PM for the Day

Here your child will be free to choose between any of these policies:

Emergency Services

1. Increase the number of police on the beat
2. Increase the number of ambulances in hospitals
3. Invest in new fire engines and equipment for fire fighters

Education

1. Make the school day finish at 1pm
2. Make sure every school has a swimming pool
3. Give free school dinners to every pupil

Health

1. Ban junk food advertisements on TV
2. Raise the No Smoking age from 16 to 21
3. Raise the amount of tax on alcohol

Environment

1. Make all fur trading illegal
2. Ban all cars in town centres
3. Double the number of parks and nature reserves in the UK

Transport

1. Double the number of cycle lanes in the UK
2. Gives everyone under 16 free travel on public transport
3. Lower the speed limit on roads from 70 mph to 60 mph

Sport and Culture

1. Build more local sports centres
2. Bid for Birmingham to host the Commonwealth Games in 2022
3. Make all museums and galleries free to enter

Personally, I would keep children as far away from this nonsense as I would the fetish website

Co-Operative Dissonance

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The Conservative Party recently re-asserted its commitment to allow co-operatives and other non-profit bodies to run public services on a contractual basis. It is an idea very similar to the adopted Swedish model of paying for schools, although there are a number of clarifications that need to be made. Whilst the 'Free School' model allocates funds according to the number of pupils being educated (i.e. according to outcome), the worker-co-operative proposals have hinged on the use of contracts. This means that while the penalty for a failing school will be the loss of pupils and a corresponding loss of revenues, ultimately resulting in the closure of a pupil-less school, the penalty for a failed contract is still unclear. The 'Free School' model means competition is automatic as pupils and parents are instantly able to choose and change the school they would like to attend, but a truly competitive environment based on contracts will be much harder to achieve with co-operatives, as each contract could essentially be a short-term monopoly on government-funded services for its duration.

Nevertheless, some competition in government-funded services is far better than none at all, and the proposal will also allow for greater accountability, giving public sector workers greater incentive to perform well. Cameron is looking to John Lewis for his inspiration, and fortunately for him and us, they have largely been enthusiastic about the idea. Inexplicably, Labour, its Co-Operative Party allies and the Trade Unions have been disparaging about the idea, despite recognising its merits and trialling it themselves. More tragically, Robert Peston appears to have missed the point: in his brief critique of the idea, he has raised questions about the proposed structures of these co-operatives - the point is that a liberalisation of the sector will allow workers to organise themselves in any way they choose. However, the question the Conservatives must ask themselves is why they are willing to fully liberalise state-funded education, but insist on continuing the monopolies of government-funded services in other areas.

Inflation, I presume

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Now that UK inflation, measured by the Consumer Prices Index, has risen to 3.5 percent (up from 2.9 percent in December last year), Bank of England governor Mervyn King will have to write a letter to the Chancellor explaining himself. Needless to say, the whole thing has become something of a farce, but it does amuse me to imagine what King would say if he was being honest...

Dear Al,

As you are aware, the Bank of England recently printed £200m of new money. This new cash was used to plug your government's record-breaking budget deficit, and pumped into the economy via public spending. You also raised VAT by 2.5 percent at the end of 2009, pushing up retail prices. Are you really that surprised that we are seeing inflation?

Lots of love,

Merv x

It might also be worth noting that the Retail Prices Index, which is probably a more realistic measure of living costs since it includes housing, rose to 3.7 percent in January, up from 2.4 percent in December. Stagflation, anyone?

Robbing Hood tax

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As a slick, and perhaps at first sight appealing campaign, The Robin Hood Tax has raised a lot of undue interest.

Firstly, is it accurate to invoke the image of Robin Hood? As far as I remember, Robin Hood did not steal to give to the bureaucrats. Secondly, although the percentage rate may make it numerically ‘a tiny tax’, its damaging effects would be huge. One cannot remove $400 billion from the private sector without significant distortion. Deals on the margin would no longer be profitable, and both the banks and their users (almost everyone) would have to bear the huge burden. Furthermore, talent is mobile, so whilst we might like to drive the majority of financial transactions away, those abroad who value their economic competitivity and wealth generation would happily not implement a tax.

The now reversed Swedish policy error of 1984 gives us some context as to the likely results. Tax revenues were extremely disappointing, about 5% of the amount expected. Fixed income transactions (debt, borrowing and lending), despite a much lower rate of only 0.003% on 5-year bonds, saw the volume of bond trading fall by 85% in just the first week! Futures trading collapsed 98% and the options trading market was destroyed.

The problem for bankers is that they do a thankless job, and when trouble comes they take blame regardless of responsibility. The government, central banks and regulators all played a huge role in this crisis and generated an unstable monetary inflation boom. Bankers, although not producing physical items, and sometimes rightly being generously rewarded for their years of toil and sweat, which may breed jealousy, actually act as wonderful wealth generators, make markets much more efficient, giving access to financial services without which we would have a lower standard of living.

Like other folklore from the Beast of Bodmin Moor to Cerne Abbas Giant, the Robin Hood tax should be understood as the nonsense it is, before it causes everyone in society serious pain. Either that, or Gog and Magog, the legendary giant guardians of the City of London, may need to make a return. If not, Mother Shipton the prophetess, who although wrong about her prediction of the end of the world in 1881, may be correct in her earlier yet unpublished conclusion that ‘the British Economy’s end shall come, in twenty, one, one. Driven by a hooded tax, collected at the barrel of a gun’.

Dr Pirie in the Telegraph

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Why 350 economists are utterly wrong...

The problem with calling the end of the world

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There's a major problem with those who keep telling us that the world is going to end because we're about to run out of something. Doesn't matter all that much what it is, as we know, there's always someone telling us that we're doomed, doomed I tell you, because oil, gas, forests, air, fresh water, is about to run out and then we'll all be sorry. There was even a fashion in the 1890s for the idea that pasture land for the world's horses would run out: the doomsayers entirely ignorant of the horseless carriage and kerosene.

The current one is some combination of gas running out and we'll all be reliant upon foreigners and oil will run out anyway. Well, maybe and maybe not:

The International Energy Agency said in November the world may have an “acute glut" of gas in the next few years because production of so-called unconventional fuel, which includes shale gas, is set to rise 71 percent between 2007 and 2030.......Western Europe may have held 510 trillion cubic feet of shale gas as of 2007, JPMorgan said. That’s adequate to feed Germany for 175 years, based on BP Plc’s data.

That number is, remember, after only a few years of looking for the stuff. You can put this two different ways (you may even think of other ones). The first is that we human beings don't in fact consume resources so much as create them: we create them by developing technology that can take advantage of them.

The second is the gross error that the doomsayers always make: that technology is static. Which, of course, it isn't and hasn't been ever since the first hominid noted the lovely sharp edges you can get from bashing two pieces of flint together.

Advancing technology isn't going to solve everything of course: while it's solved the physical problem of how a middle aged man such as myself might offer and gain enjoyment from having attracted a young popsie it's most unlikely to aid in doing such attraction. But advancing technology is going to solve, as it has done, the problems that we're going to run out of things.

EGBDF

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On Saturday evening I saw an excellent production of Every Good Boy Deserves Favour at the National Theatre. Sir Tom Stoppard and André Previn's play tells the story of a dissident, Alexander, who is locked up in an asylum. If he accepts that he was ill, has been treated and is now cured, he will be released. He chooses to refuse.

Stoppard dedicated his play to Victor Fainberg and Vladimir Bukovsky; Soviet political dissidents, authors and political activists whose personal accounts of the use of psychiatric abuse in mental institutions in the USSR, exposed the horrifying reality of life under the Communist Party's rule. The play is based on Fainberg's chilling account.

After seeing the play I turned to the reviews to see what others thought. Through my searches I came across one from last year's run that deserves rebuttal. Although he likes the play, Ian Shuttleworth of the FT thought: "To put it harshly, this bleak, fantastical indictment of the Soviet Union's use of psychiatric hospitalisation against dissidents is a play for yesterday". His concern is that the "play says nothing about today's Russia or about our own conduct". I vehemently disagree with this. Governments around the world still lock up political prisoners under the pretext of being mentally ill. It is a warning from history that should not be forgotten.

Admittedly history does not always split its actors easily into goodies and baddies. However, when it does we should embrace the lessons that it teaches us. Soviet dissidents were and are heroes of freedom, while their abusers were either wolves or sheep that orcastrated or supported the system. The message of this play rings eternal.