Are we innovating less?
According to Huebner (2005) the per capita rate of innovation has been falling steadily since 1873 (it doesn't look quite like that from the chart below, which is just of patents, because patent laws changed a lot during the period). He constructs an index of innovation by looking at independently-created lists of events in the history of science and technology and from US patent records and compares them to the world population.
Woodley (2012), looking at the numbers for a different purpose, compared them with three alternative indices of development, and found that they correlated well with different numbers gathered for different purposes. For example, they correlate highly (with a coefficient of 0.865) with the numbers in Charles Murray's Human Accomplishment, which quantifies contributions to science and arts partly by how much space encyclopaedias devote to particular individuals.
It also correlates 0.853 with Gary (1993)'s separate index, which was computed from Isaac Asimov's Chronology of Science and Discovery. Finally, it correlates with another separate index, created in Woodley (2012), computed from raw numbers in Bryan Bunch & Alexander Hellemans (2004) The History of Science and Technology, and divided only by developed country population numbers in case there is something special about them in creating innovation.
The result seems quite robust, although I am hoping my friend Anton Howes (who has an excellent new blog on the industrial revolution, and is working on a PhD on innovation and the industrial revolution) will construct an even better index. Should we worry?
There are a few reasons for optimism. Firstly, the population is going up, so per capita declines in innovation are being counteracted by there being more people around to innovate. For example, even if Gary (1993) is right in thinking there has been a roughly five-fold decline in per capita innovation in the past 100 years—there has been almost a four-fold increase in population, balancing much of that out. Secondly, some of the innovations we are getting will allow us to raise our IQ—including genetic engineering and iterated embryo selection—and we know that IQ is one important factor in innovation. Thirdly and finally, there are many countries (such as China and India) who have so far been too poor to have many of their population engaged in innovative activities, but who will surely soon be.
The point about visa systems is that they are reciprocal
We don't do party political partisanship around here so allow us to tip toe very gently through this latest proposal from the Labour Party over visas, tourist taxes and waivers. There's a significant problem with what is being suggested: the end result will be a tax on British people who decide to go to other countries. The proposal is the following:
Labour will seek to beef up its pitch to voters on immigration with a pledge to pay for 1,000 extra border guards by imposing a charge on visitors from the US and 55 other countries.
Yvette Cooper, shadow home secretary, will criticise other parties for engaging in an “arms race of rhetoric” on the issue, which has been thrust to the centre of political debate by the rise of Ukip.
But she will accept that the opposition “needs to talk more” about public concerns and will say action to restore public confidence that illegal entrants are being caught and dealt with is “vital for a progressive approach”.
Under the proposals, nationals in countries enjoying a “visa waiver” system of fast-track permission to enter the UK will be hit with a charge of around £10 per visit, which the party said would more than cover the £45m cost of the additional staff.
Leave aside what the Tories say about it (roughly speaking, "Yah! Boo! Sucks!" as far as we can see) and leave aside the silliness of such hypothecating of taxes (the amount that we should or desire to spend on one particular thing has absolutely nothing at all, whatsoever, to do with how much we can raise in taxation from either that or any other specific thing. All taxation should be flowing into one pot to be distributed. Think, for a moment, if such a visa tax reduced the number of people arriving legally. Would that reduce our need for more immigration officers to deal with people arriving illegally? Not obviously, but under a hypothecated tax system it would reduce the budget for them).
And consider simply the fact that all visa arrangements are reciprocal. If we demand a visa from the citizens of Dystopia then Dystopia will demand visas from Brits. If we offer a visa waiver scheme for visitors from Utopia then Utopia will offer a visa waiver scheme for Brits going there (Utopia, obviously, being that mythical place where the NHS works).
If we impose a charge on people from 55 countries for a visa waiver then those 55 countries will impose a charge on Brits going to those 55 places. And one more thing: we think we're right in stating that more Brits go to other places than people from other places come to Britain.
So, the net effect will be a transfer of money from Brits to foreign governments. As more of us will be paying to go to 55 countries than citizens of those 55 countries will be paying to come here.
Making foreign governments richer is a very odd indeed method of increasing revenues to pay for services in the UK.
As at the top there this isn't party political partisanship. It is instead a call for all politicians to understand Chesterton's Fence. If you see a fence somewhere you shouldn't pull it down until you've worked out why someone built it in the first place. Only when you've understood the original reasons, then ensured that they no longer apply, should you proceed with destruction.
Why do we have visa waiver schemes with no charges? Because visa systems are always reciprocal. We charge them and they will charge us, not obviously to our benefit.
This isn't about the Labour Party this is about a politician not bothering to think.
To reduce rape in India, legalise porn
In India, there has been uproar amongst the general public and from the media with respect to the alarming frequency of rape across the country. In the four decades leading up to 2012, reported rapeshave increased 900% (alarmingly, some activists claim that 90-99% go unreported). Additionally, in India it is currently legal to watch or possess pornographic material but the distribution, production or publication of such material is illegal. In Anthony D'Amato's (2006) 'Porn Up, Rape Down' (published in the Public Law and Legal Theory Research Paper Series at Northwestern Law School), the abstract reads:
The incidence of rape in the United States has declined 85% in the past 25 years while access to pornography has become freely available to teenagers and adults. The Nixon and Reagan Commissions tried to show that exposure to pornographic materials produced social violence. The reverse may be true: that pornography has reduced social violence.
Of course, it is often presumed by many Indian politicians that Indian society is largely conservative and would not tolerate legalisation of the distribution, production and publication of pornography. This is ironic when we consider that a world-famous book of Indian-origin is the Kama Sutra. Continuing to prioritise the appeasement of conservative facets of Indian society over the safety of women is counterproductive. India certainly has the maturity to see these activities legalised and, given that the recorded incidents of rape has raised serious concerns both within the country and around the world, it is necessary.
Whatever the reason may be for legalised and easily available pornography having a negative impact on rape (and there are more than several competing theories), the fact is that it does have a very strong, negative correlation and if we would like to see a decrease in rape on the subcontinent (both immediately and over time) and anywhere else where it remains illegal, for that matter, it would be best to legalise the distribution, production and publication of pornography immediately.
This would also improve the working conditions and salaries of those workers who are currently exploited in an industry that remains largely underground in the subcontinent, allow social workers to have greater contact with workers in a legal profession, bring in some much needed tax revenue and enable diversion of law enforcement resources from pornographic material to other, more critical issues (such as rape itself).
Independent Seminar on the Open Society
Yesterday saw the Autumn instalment of our Independent Seminar on the Open Society 6th-form conference series. Over 260 students from afar afield as Newcastle and Devon descended upon the Emmanuel Centre in Westminster for a day of talks and debate from leading think tankers, politicians and academics. Kicking off the day was the ASI’s own Madsen Pirie, delivering ‘Economics in 2 Lessons.’ Asking students to rank the priority of achieving objectives like clean drinking water, sustainable lifestyles, economic growth in poor countries and an end to ebola, Madsen brought alive the concept of opportunity cost. Moving onto the zero sum fallacy, Madsen explained how so many fail to realise that the economy is not a fixed ‘pie’ to be carved up, and value is created as a result of mutual exchange. The talk provided a solid grounding in how unhindered free trade between individuals makes everyone better off.
Next up was Emma Carr, Director of Big Brother Watch on ‘Civil Liberties in a Digital Age’. Her talk was wide-ranging, highlighting the true extent of state surveillance of individuals, and the actions taken by campaign bodies in response. She also considered the health of the digital economy, looking not only at the impact of surveillance on UK-based tech firms, but the extent to which these companies can manipulate and benefit from our personal data. Considering whether privacy as we know it is dead, Emma argued that it is up to us as members of the public to define the new boundaries, and stressed the importance of good digital hygiene and the use of encryption.
The debate topic for the day was ‘This House Believes That the Living Wage should be mandatory’. Proposing the motion was Deputy Leader of the Green Party Amelia Womack, and opposing it Professor Len Shackleton from the University of Buckingham. Amelia’s argument, peppered with quotes from Churchill and Roosevelt, focused upon the benefits a living wage would bring to local communities and business, and a higher wage floor’s place in a wider re-imagining of society. Len adopted a no-nonsense approach, and laid into the Living Wage’s failings as an anti-poverty measure. The question of age discrimination and equal work for equal pay was also part of a heated discussion. From the floor we saw questions on inflationary pressures, worker productivity and the cost of a Living Wage on small businesses, and despite a passionate performance from Amelia the crowd sided heavily against the motion.
The afternoon saw James Zuccollo, Senior Economist at Reform, ask the fascinating question ‘can fiscal policy make us happy?’ The answer, he argued, is yes. The state can’t really help in areas like family life, but it can help when it comes to issues like unemployment – which causes great unhappiness and declines in perceive self worth – and alleviating economic hardship. James then argued that the government has performed relatively badly on these fronts recently- targeting cuts at the least well-off, whilst protecting comparatively wealthy pensioners. He implored the audience to consider a career in economics, to add balance to the not-so long term economic plans enacted by politicians of all stripes.
To round off the day, Steve Baker MP (bravely!) questioned whether politics was the problem, or the solution. Nobody is satisfied with politics nowadays, but why is that? The problem is not that all politicians are actually lazy, greedy, and corrupt, he argued, but that we expect politics to ‘fix’ so many issues that we’re best placed to solve ourselves. Instead of turning to a distant, central government for guidance on how to live our lives, we should use our own knowledge and compassion to a far greater degree.
Throughout the day the audience was highly engaged, with brilliant questions on subjects from the regulation of bitcoin and foreign policy to reducing the deficit and the rise of UKIP. We also handed over 700 copies of educational, free-market primers to students. ISOS is designed to engage and challenge 6th-form students in a way which compliments the A-level syllabi, and it was fantastic to see such a diverse range of students get involved.
A huge thanks to all our speakers, and the schools and students in attendance who made it such a wonderful event!
People of the same trade seldom meet...
It's very rare that new evidence overturns something Adam Smith wrote in the Wealth of Nations or Theory of Moral Sentiments, and a new paper on guilds, to which I was alerted by John Cochrane (read his post on it here), is no exception. Sheilagh Ogilvie's "The Economics of Guilds", in the latest issue of the Journal of Economic Perspectives, lays out a history of European guilds 1000-1800, explains why they rose and fell, and explains how the fit the classic profile of the rent-seeking interest group. In Cochrane's words:
The paper nicely works through all the standard pro-guild and pro-regulation arguments. If you just replace "Guild" with "regulatory agency" it sounds pretty fresh.
Ogilvie shows that guilds neither provided contract enforcement, a guarantee of quality, better training and/or qualifications, or innovation. They eventually declined because globalisation and competition rendered them redundant. She explains that guilds did not exist because they solved market failures but rather because they had obvious, concentrated benefits, and hidden, diffuse costs, and because they could use part of these benefits to bribe authorities.
Guilds were institutions whose total costs were large but were spread over a large number of people—potential entrants, employees, consumers—who faced high transaction costs in resisting a politically entrenched institution. The total benefits of guilds, by contrast, were small, but were concentrated within a small group—guild members, political elites—who faced low costs of organizing alliances to keep them in being. Guilds survived for so long in so many places because of this logic of collective action.
There is nothing new under the sun.
Banning Blanc from Britain stifles free speech
Sky sources have learned the so-called pick-up artist Julien Blanc will not be allowed to enter the UK.
The decision to deny Julien Blanc's entrance into the UK has set the precedent that freedoms of speech and expression can be criminalised, if and when enough people sign a petition.
Blanc's comments are socially reprehensible and offensive to both men and women, but if we do not respect the rights of the offensive, we start risking the safety of any minority viewpoint.
Those upset by Blanc's remarks have the opportunity to push back in cultural and social spheres; they do not need to call on the government to ban things they find socially disturbing. Private event businesses can take after EventBrite and deny him platforms, people can boycott his events, and viewers can turn their televisions off when he is on-air voicing his opinions.
The market has ways of listening to the moral needs of its customers, and while it is not a perfect system, it can serve to bankrupt those who are morally reprehensible without criminalising them for non-criminal behaviour.
Surely, we must recognise that there is a fundamental difference between the private sphere taking away one man's platform to be noticed, and the state taking away every person's platform to speak freely without threat of punishment or criminalisation.
This ruling should not just be a wake-up call to public hysteria, but also a reminder of how flawed the UK immigration system is. The Home Office can legally deny anyone entrance to the country if their character or opinions are not deemed conducive to the ‘public good'.
This is Big Brother at its worst - 'protecting' the people from speech criminals, who are a danger to the moral good; let any who speak out be at the mercy of mob rule, and the Home Office.
If QE avoided a Depression it doesn't matter if it increased inequality
I’ve just come from a fascinating event with The Spectator’s Fraser Nelson, on his recent Dispatches show, How the Rich Get Richer. In general the show was very good, and it’s extremely refreshing to see someone as thoughtful as Fraser get half an hour of prime time television to discuss poverty in Britain from a broadly free market perspective.
But I did take issue with the show’s treatment of Quantitative Easing (QE). Fraser described this as ‘perhaps the biggest wealth transfer from poor to rich in history’. The evidence for this was the rise in asset prices following QE, particularly in stock markets. Since rich people own assets and poor people don’t, the rich got richer and the poor didn’t.
That’s a common view and I understand it, but I think it’s wrong.
Consider the Great Depression. When the money supply (and hence nominal spending) collapsed in the 1930s, the US economy did too, for reasons outlined in Milton Friedman and Anna Schwartz’s Monetary History of the United States.
Basically, contracts are set in nominal terms, so if nominal spending collapses, you’re left with a musical chairs problem where you have too little money to go round. So people are laid off and firms go bankrupt that would not have done so if money had remained stable across the board. Enormous amounts of wealth were destroyed unnecessarily because the government mismanaged the money supply. (It shouldn't be managing money at all, in my view, but if it is we can at least try to minimise the harm it does.)
Perhaps inequality fell during this period because the rich lost proportionally more than the poor – they had more to lose, basically. But who cares? Everyone became worse off. That’s what matters.
The point of QE since 2008 has been to try and avoid a repeat of the 1930s by boosting the money supply. Its supporters wanted to avoid another massive destruction of wealth that would make everyone much worse off.
Yes, QE boosted stock markets a lot. But there is nothing about QE that meant that banks or other investors would have to invest there – it’s not an ‘injection of cash into stocks’, as some people seem to believe. Stock markets rose because investors reckoned that QE would help avert a much worse Depression, which meant that firms would be (much) more valuable compared to a QE-less world where many of them may have gone bankrupt, or at least taken severe losses, instead.
Yes, that increased inequality because rich people own stocks and poor people don’t. But if everyone would have been worse off without QE, the extra inequality is beside the point. It's people's absolute wellbeing that should matter, if what you're avoiding is a big Depression. You might as well think economic growth is bad because it makes everyone richer, but rich people a little more so.
Of course, it’s an open question whether QE actually did work as intended. Perhaps it made things worse, or did nothing at all. That is a question worth asking and it's not one I can answer. But focusing on whether it increased inequality or not is beside the point – what matters is whether it prevented a Depression.
In praise of Project Gregory
This is a really rather inventive idea that's just been funded on Kickstarter. We've lots of homeless people (perhaps rather fewer in England than many think but still). And we'd all obviously like to find a way to house the homeless. We might say it's for ethical reasons, civilised ones or just that they clutter up the urban landscape so badly: but housing the homeless is quite obviously a good thing to be doing. So, why not build little self-contained units, by the roadside, that are then slathered with advertising? The billboard pays for the upkeep (even if not the capital cost) of that housing? On much the same basis that various advertising firms are willing to build bus shelters as long as they get the advertising rights upon them.
An excellent concept except for just one thing:
Cities are engulfed with billboard advertisements which are expensive to construct, maintain and their subsequent renting is a costly venture. The proposal increases the functionality of the structures in a way that the insides could be turned into living spaces. Such an object would produce minimal maintenancecosts, which could be paid through the rental space of its facade. In addition, the architects believe, ‘if we take the electricity cost needed for the billboard to keep it lit during night and we try to optimize it by x%, we find that this saved energy could fully cover all those interior usage needs.”
That might not quite roll off the tongue but that's pretty good English for some Slovak architectural students.
At which point we come to that just one thing.
Planning permission.
To do this would obviously require the granting of planning permission to build such dwellings. But if we had a planning system that allowed the building of cheap and cheerful urban homes then we wouldn't (absent addiction and mental health issues) have a problem with homelessness in the first place.
It's a fascinating solution. But the reason it won't work as a solution is because it won't pass through that planning system that causes the problem it's trying to solve.
Ain't bureaucracy wondrous?
The Civilisation of Capitalism
In Joseph Schumpeter's (1942) Capitalism, Socialism & Democracy , Chapter 11 is entitled ‘the Civilisation of Capitalism’. There, he argues that the culture fostered by Capitalism has been responsible for the ‘rationalisation’ of society, as we know it. Rather than quoting Schumpeter word-for-word, I’d encourage people to read that short chapter. We can derive inspiration from Schumpeter’s thoughts in making the case for free markets and a free society. Intuitively, one would expect the individual living in a free society to be more intelligent and rational than his counterpart in a hypothetical, centrally planned Utopia (like Plato’s Republic). In a predominantly centrally planned economy, where there is deprivation of civil liberties, choices have already been made on our behalf whereas in a free society, people have more choices. The typical individual in the former will, most likely, be more naïve than his counterpart in a freer society and in the latter more rational. The freer society is, the greater the sphere in which people can develop the appropriate mental faculties for optimising outcomes.
Therefore, total freedom of thought is only really attainable in a free society with free markets. Restricting individuals’ freedoms prevents them from being the best people they can be and therefore prevents the best possible outcome for society as a whole.
It is a fundamental premise in Economics that all economic problems are rooted in the scarcity of resources. In Physics, understanding how to manipulate matter is considered somewhat of a holy grail. A certain depth of understanding with respect to matter would solve the problem of scarcity completely. However, if we indirectly restrict individuals’ thoughts by preventing them from living in a freer society that is conducive to such scientific discovery, we are shooting ourselves in the foot twice since Economics necessarily deals with this problem of scarcity that the other sciences might be able to relieve us of.
In a free society, the enhancement of mental faculties that accompanies increased freedom of thought enables individuals to deal with the problem of scarcity more intelligently, creatively, innovatively and rationally.
Releasing data could help Britain's entrepreneurs scale-up
The celebrated entrepreneur, investor and adviser Sherry Coutu CBE has just released a detailed report on scale-up businesses. Scale-ups are defined as enterprises with average annualised growth in employees or turnover greater than 20 per cent per annum over a three-year period, and with more than 10 employees at the beginning of the observation period. The Scale-Up Report explains how “a boost of just one per cent to our scale-up population should drive an additional 238,000 jobs and £38 billion to GVA within three years”...“[I]n the medium-term, assuming we address the skills-gap, we stand to benefit by £96 billion per annum and in the long-run, if we close the scale-up gap, then we stand to gain 150,000 net jobs and £225 billion additional GVA by 2034.”
The report identifies key issues for helping these companies grow:
- Finding employees to hire who have the skills they need
- Building their leadership capability
- Accessing customers in other markets / home market
- Accessing the right combination of finance
- Navigating infrastructure
Twelve recommendations are put forward, but the first (arguably) offers the biggest bang for its buck:
Recommendation 1. National data sets should be made available so that local public and private sector organisations can identify, target and evaluate their support to scale-up companies, and evaluate their impact on UK economic growth.
The specific data required includes:
- Company registration number
- Revenue (UK and export)
- Location of headquarters and plant
- R&D tax credit (recipients and amount)
- Employment data (number of pay slips issued in a given month)
It is suggested that data “should be made available on a real-time basis openly or to a cross-departmental scale-up support unit within government. This would allow both public and private sector organisations to target scale-ups accurately to make sure support is offered at right time to the right leaders.”
Releasing this data wouldn’t add to the bureaucracy faced by entrepreneurs. As the report explains, companies are already required to submit turnover data annually to Companies House, report on PAYE in real-time, file quarterly VAT returns, and report on the amount the spend on R&D (if claim R&D Tax Credits). However, as the report acknowledges, releasing this data raises questions around data privacy. To counter this criticism, the report uses the example of the Cambridge Cluster Map, where this sort of data is already collated, and 59 companies have asked to be included in it since its initial launch.
Also, following a YouGov survey, the report reveals: “83% of scale-ups were in favour of the government sharing information on their company growth with other government departments or agencies, and 72% were in favour of government sharing this externally.”
But this leaves a minority of companies unwilling to open up their data willy nilly. The report doesn’t offer any guidance on how to deal with these concerns but there should be a way for companies to opt out. If, as the report reasonably suggests, these companies are then better targeted for support, those that have opted out will surely be all too ready to release their data too.
Philip Salter is director of The Entrepreneurs Network.