The Adam Smith Institute’s Young Person’s Outreach Programme

Among the most successful and popular of the ASI’s events is the series which caters for young people.

The Next Generation

The Next Generation, TNG for short, began in 1990, and brings together people from 18-30, usually on the first Tuesday of the month. It was named after the sci-fi TV series, “Star Trek – the Next Generation,” which had recently started. The aim was to bring together young people from five groups: those in fulltime education, those staring out in City jobs, young professionals in fields such as law and medicine, young people working in the media, and those involved in public policy, including research staff for MPs and people in think tanks.

The format is that of a wine reception starting at 6.00 pm. At each meeting there is a speaker of public prominence for 10 minutes in the middle (timed with an alarm clock!)  The young guests enjoy each other’s company as the invited speaker circulates among them answering their questions. Some of those who originally attended as guests are now themselves MPs and media personalities.

The highlight of the TNG year is the annual Boat Trip, when 240 of them sail up and down the Thames on a champagne cruise on a summer evening. It is always heavily over-subscribed.

ISOS

The Independent Seminar on the Open Society is aimed at school sixth formers. The London one, held in Westminster, attracts about 150 students, many of them sent by their teachers, with some teachers even accompanying them. The format is of a one-day conference with a series of speakers on topics relevant to the work and outlook of the ASI.  Each speaker has a half-hour slot to cover their speech and questions, so many can be fitted in. There is usually a debate on some topical or contentious issue.

The ASI has recently extended the programme to include ISOS conferences in Manchester, Birmingham and Sheffield, attracting about 120 students to each, and is looking to include other towns in the future.

Forum

The ASI’s Forum, held on a Saturday in early December, is a one-day successor to the Liberty League Freedom Forum conferences, and like them, attracts over 300 guests, mostly students or people in their early 20s.  It is very high powered, covering both esoteric and specialist topics as well, with speaks who are prominent, knowledgeable, and highly entertaining. It gives students a chance to network with each other and with the speakers.

Freedom Week

Freedom Week is held in a Cambridge college in early July. It is a Monday to Saturday conference jointly organized and funded by the Adam Smith Institute and the Institute for Economic Affairs. It selects 36 top quality students from about 250 applicants, and provides them with accommodation and meals during a week of intensive lectures in aspects of political economy and neoliberal ideas.

Social events make it even more attractive, and include an outdoor cava reception, a barbecue and a session of punting on the river Cam.  By the end of the week the students have formed a close-knit and effective group.

School visits

ASI President, Dr Madsen Pirie, speaks to about one school each month, going to the school to address their sixth formers on topics of economic and public policy that might not feature prominently in the school syllabus. The schools often invite nearby schools to participate, giving an even larger audience. These visits often spur the students into attending other ASI functions and becoming part of its network.

Gap Years

Each year the ASI employs two gap year people as paid full time employees. Often it is a boy and a girl taking a year out after school. They participate in the full work of the ASI, writing for the blog, organizing meetings and school trips, helping to plan lectures and events and editing and proofing our papers. It is very much a learning experience that makes it easier for them to handle the demands they will encounter first at university, then in employment.

Work experience

The ASI accepts a few interns each year for short periods of work experience, usually a week or two. They play a full part in the ASI’s work, and are usually assigned a special project to complete during their stay.

Overall

The ASI expends much time and many resources on its youth outreach programme, fully aware of the importance of the next generation of leaders in academe, public policy, the media and business. This attention has paid off handsomely in the past, does so today, and will do even more so in the future.

The BBC's horrible figures on social care staff turnover

The BBC has some horrible figures about the numbers of social care workers who quit each year:

More than 900 adult social care workers a day quit their job in England last year, figures reveal, as homecare providers warn the adult social care system has begun to collapse.

Analysis by the BBC of data released by a charity, Skills for Care, shows that in 2015-16 about 338,520 adult social care workers left their roles, equal to 928 people leaving their job every day. There were more than 1.3 million people employed in the adult social care sector in England in the period.

Such bald numbers don't mean very much, what we want to know is the rate:

The Skills for Care figures show that the industry has a staff turnover rate of 27%, which is nearly twice the average for other professions in the UK, according to the BBC report.

Profession? This is not being a social worker, this is the essential tasks of aid with bathing, bottom wiping and so on. Essential, entirely so, but not exactly a profession.

Still, what we want to know is how this compares with other occupations. What, for example, is the variance between different ones across the economy? Fortunately, that is already information collected.

And as it happens that turnover in social are is, at 27%, fractionally higher than that in leisure and hospitality at 25.9%. Two low paid jobs which require little in the way of qualifications or training - other than the basic human attributes of a bit of empathy and so on - have rather similar turnover rates.

This is a surprise to whom and why?

Deregulate childcare to make it affordable

Britain has the highest childcare costs in the developed world. A two-earner family will spend over a third of their after-tax income on nurseries and childminders. It's three times as high as in Germany, even though our Government actually spends more on early years education. In fact, the UK government spends a bigger share of GDP on childcare than the EU average.

We've argued before that the solution here isn't to focus on the demand side with ever-greater subsidies, but to look at the supply-side factors that make childcare so darn expensive in the first place. Britain has some of the most restrictive childcare regulations in the world. Currently in the UK one adult is required for every three babies, four toddlers, or eight children over the age of three. Our staff-to-child ratios are some of the strictest in Europe, as the table below shows.

Source: Institute of Economic Affairs (2017)

A 2015 study by Dianne Thomas and Devon Gorry for the Mercatus Center at George Mason University reveals the harm of mandating high staff-to-child ratios. Here are the four big takeaways from their study:

1. Relaxing the staff-to-child by just just one infant reduces the cost of child care by between 9 and 20 per cent across all US states. Applying those findings to the UK suggest that simply by relaxing child-staff ratios to Norwegian levels we could cut childcare costs in half.
    
2. Mandating quantity doesn't lead to better quality. When researchers control for confounding variables (e.g. mother's education levels, socio-economic status and income) staff to child ratios only have modest effects on the quality of childcare received. 
    
3. High staff to child ratios aren't just ineffective and expensive, they're actively harmful to quality once you consider their knock-on effects. High staff to child ratios incentivise daycare centres to hire less-qualified staff in order to keep staff costs at manageable levels. If caregivers can provide care to twice as many people at a time then it makes sense to pay a bit extra for a more qualified staff member. Indeed, the evidence suggests that the biggest determinant of care quality is the level of training of the care giver.

We should follow Denmark, Spain, and Sweden's lead and scrap child-staff ratio mandates altogether. It would leave more money in the pocket of parents without undermining quality of care.

Why must the spice flow?

In recent days, the media has been discussing a ‘zombie plague’ in our cities. Users of the synthetic cannabinoid drug known as Spice can become paralytically intoxicated and may be a danger to themselves and others through erratic and sometimes violent behaviour. It has also been said to have the physically and psychologically addictive properties of heroin and crack. It is developing into a crisis for our emergency services. Yet, paradoxically, this new outbreak can be directly linked to further restrictions on the harmful drug.

Spice is a drug so unpleasant that there is no real commercial market for it. A market in prisons only arose after mandatory urine testing was introduced for herbal cannabis in 2005. Spice, while it affects the same receptors in the brain, does not show up in usual THC drug tests, and is mostly odourless, even when smoked. Prisoners became addicted and it soon spread to homeless communities, popular for its low price and potent strength. As a result, our friends at Volteface found that in the first four months of 2016, around 22% of homeless people in Westminster were using spice, up from roughly zero two years earlier. The numbers are unlikely to have improved since then.

The drug’s status as a ‘legal high’ ended in 2009, but similar substances continued to be sold online and over the counter in head shops until the Psychoactive Substances Act was introduced in 2016. This has had the effect of pushing the supply further underground; outlawing the head shops that had previously attempted to ensure a degree of quality control and reliability to their customers, while also increasing the likelihood of violence and abuse used by dealers against vulnerable users.

This myopic belief by some in the media and government that the police are capable of stopping people using drugs, despite many decades worth of evidence to the contrary, has always and will continue to lead to more harm. The very existence of spice is the result of the prohibition of cannabis, just as hooch and moonshine were the result of alcohol prohibition in 1920s America.

It is clear that the UK should legalise cannabis and create a regulated market; to take away the revenue streams that fund the criminal gangs who supply it and to reduce the harm to users from cannabis produced by unscrupulous growers.

United against the world

If you use Twitter as much as us, you are bound to have seen the surreal video of a 69-year old doctor being violently ‘re-accommodated’ from his seat on a United Airlines plane and dragged down the aisle despectacled and bloodied while surrounding passengers cry in shock. The incident was the result of the airline overbooking the flight and needing a seat for a member of staff. After an entertaining carousel of passing the buck, United airlines is now investigating the  incident, but insists in internal emails, that their “employees followed established procedures for dealing with situations like this”.

Fortunately few suggestions have been made advocating the prohibition of overbooking or further regulation of the airline industry. However, there is a fundamental problem with the market for domestic flights in the USA; it is a literal oligopoly. Four firms shared 68.8% of the whole market in 2016.

This is exacerbated by ‘Fortress Hubs’ where a single airline controls a large majority of all flights out of an airport - turned off by United’s abysmal customer service? Tough luck if you have to fly out of George Bush Intercontinental Airport, 78% of all seats are on United planes. In 2015, the Department of Justice had to block a United acquisition that would have given them 75% share of flight slots at Newark airport.

Expanding anti-trust regulations designed by lawyers will not be not the answer to this problem. Prior to the 1978 Airline Deregulation Act, travel by air was a luxury and limited to the wealthy, but the act liberalised standards, encouraged additional routes and more airlines; by 1990, fares had fallen by 30% in real terms.

But one particularly egregious bulwark to competition remains - the protectionist cabotage rules that prohibit foreign and international airlines operating within the US. It may be that the air industry has a minimum efficient scale—firms need to be a certain size to compete. If only US firms can compete within America, then there can only ever be a small number of firms controlling the market. But even if this minimum efficient scale exists, the world market as a whole will be able to support dozens of effective firms.

Repealing these would reinvigorate competition and choice in the domestic market, push down prices, boost quality and undermine the complacent corporate culture that has led to what will inevitably be a go-to business studies guide on how not to do PR and customer care.

As we've been saying for several centuries now

Not we as in we you understand, but us classical and neo-liberals over these past few centuries. Human beings, that's the people we're trying to organise the economy and society to please and satisfy, do indeed have a finely developed sense of fairness. This is also what drives a very strong desire for equality. But what sort of equality is it that drives people?

There is immense concern about economic inequality, both among the scholarly community and in the general public, and many insist that equality is an important social goal. However, when people are asked about the ideal distribution of wealth in their country, they actually prefer unequal societies. We suggest that these two phenomena can be reconciled by noticing that, despite appearances to the contrary, there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness. Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality. Both psychological research and decisions by policymakers would benefit from more clearly distinguishing inequality from unfairness.

Equality of opportunity therefore, not equality of outcome. Which is really the classical and or neoliberal case on the point, as we've all been saying these centuries.

It's useful to have this sorted out of course. For this is published in a subset of the Nature journal universe, meaning that this is settled science. As we're continually told about everything else that appears in such journals, we can't argue about it because this is indeed that science.

Good, excellent, equality of opportunity it is and don't listen to anyone who says different, they're being unscientific.

Regulators should make the punishments fit the crimes

Since 2010 Ofgem has fined energy companies £191M and imposed redress payments of £255M.  Redress payments are “made by companies either directly to consumers or to programmes and funds which would benefit them.” Fines are a form of taxation, i.e. paid to HM Treasury. Ofcom fined BT £32M and the Environment Agency’s prosecution for sewage pollution cost Thames Water £20M;

Biggest by far was the multi-billion fines on the big UK banks, by the UK, US, Hong Kong and Swiss authorities, for Libor rigging, money laundering, assisting tax evasion, sanctions busting, failing to keep proper accounts and mis-selling.  The directors of said banks, their auditors and the Bank of England were, we are told, unaware of the malpractice under their noses.  Amazing.

HBOS director Peter Cummings was fined £500,000 in 2012 and banned for life but he is an exception. Generally speaking, bank directors, auditors and the Bank of England emerge Scot free.  Companies, being legal persons, pay the penalties but this is fantasy. Companies do nothing wrong.  It is their directors, employees and auditors who do what they should not do, and cover them up.

Compounding the absurdity, those responsible who do lose their jobs receive pay-offs (cash bonuses, shares and, usually, pensions benefits) as if they were innocent parties being made redundant.  Their contractual terms, we are told, over-ride any culpability.  Sacking the seven seniors at HBOS, including Mr Cummings, cost the company, namely the taxpayers, nearly £1M. The Finance Director, Mike Ellis, arguably the most culpable, became Chairman of the Skipton Building Society Act two years later albeit at half his former salary.  Nine years later the financial regulators have woken up and are making threatening noises but it is too late to fine anyone.

Tesco is a classic case: the company inflated its profits by £326M in the year to August 2014.  The CEO, Phil Clarke, was sacked on contractual redundancy terms (18 months’ salary +) in July 2014 for declining profit forecasts.  He knew nothing about the false accounting and, as CEO, how could he?  The Serious Fraud Office fined Tesco £129M and are bringing criminal prosecutions against three other former directors, Chris Bush, Karl Rogberg and John Scouler, but not the Nelsonian Mr Clarke.  Note that the company is being fined, not the perpetrators who may well, given the SFO’s track record, get off. 

Regulators sometimes acknowledge the unfairness of the clearly innocent shareholders and customers ultimately bearing the cost of these fines.  But if they do not pick up the final tab and nor do the the directors and employees, who does?

Fining companies is a useful form of income for HM Treasury but it is really grandstanding.  Perhaps it damages reputation but it is debatable how much harm it does to companies like Thames Water and BT whose reputations are hardly lily-white anyway.  And fines which do not hurt those culpable are no deterrent. Sending my speeding fines to some distant person is not going to stop me speeding.

Regulators should stop fining companies and start penalising those individuals responsible for the malpractice and those who should have published the malpractice but failed to do so – typically the auditors and sometimes the regulators themselves, notably the late and unlamented Financial Standards Authority whose ability not to see the facts drawn to its attention is legendary.  Punishment should fit the crime. The courts have already established that directors can be personally liable and not hide behind the corporate veil – see.  However the law in this area is a bit of a mess.  It would be sensible for government, perhaps with a Statutory Instrument if Parliament is not bothered, to require regulators and the courts to fine individuals and to ensure they are not compensated by their employers or insurance.  Claiming not to know what they should have known should be no defence just as ignorance of the law is no defence.  Personal liability should mean personal liability just as it does for speeding fines.  And financial malpractice that goes unpublished for two years or more should result in personal fines levied on the senior auditors and even the regulators themselves.  Obviously regulators will not fine themselves bu the courts can and should.

As a starting point, I suggest that the fines are borne 50/50 by Chairman and CEO unless they can publish who the real culprits are.  This is akin to ministerial responsibility: Lord Carrington stepped down as Foreign Secretary even though he had no idea his diplomats were inciting Argentina to invade the Falklands.  High rewards should be justified by high risks.

Regulations are only going to work if everyone knows any punishment will fit the crime.

We're fascinated by this definition of success

As we all know little snippets of information get bandied about in the public conversation and then take on the aura of incontrovertible facts. George Osborne, in a political speech, claims that raising the minimum wage does not cause job losses. That is taken to be true by all too many, when the actual official report accompanying the speech insists that the latest rise will cause 60,000 job losses.

"See, Osborne said it" is not what we would take to be a great standard of proof but it's enough for some people, sadly.

What really interests us here though is what people will take as the standard of success. To take an example from this morning's papers, Laurie Penny tells us that gender quotas in organisations make those organisations better:

Plenty of people do, according to another study, this time from the London School of Economics. It showed that companies with a strict 50-50 gender quota performed far better, partly because it meant men were expected to work harder to prove themselves – and fewer mediocre men ended up in positions of power. 

Well, no, that's not what the study shows actually. It's about gender quotas inside a political party:

Our study provides a unique window on quotas and, at the same time, pushes forward the measurement of competence in political selection. It uses the fact that, in 1993, Sweden’s Social Democratic party voluntarily introduced a strict gender quota for its candidates. 

We wouldn't insist upon it but we'd be willing to wager that political parties work a little differently from organisations where output can be measured in detail.

However, we will admit that their measure of competence is interesting. By looking at the wages of candidates (adjusted for experience, job, education etc) they show that insisting upon 50/50 quotas raises the general level of candidate. The assumption is that someone earning over the odds in the private (well, they include public sector workers as being "private" here but still) sector is likely to be more competent than someone not.

Hmm, OK. But let's go back to some measure of the actual output of the organisation. We seem to have evidence of the quality of the inputs increasing. But what of the quality of the output? 

Well, the year after this change marked the peak of the vote for the Social Democratic Party in the national parliament elections. It's fallen from the 45% achieved in 1994 to 31% at the last election. We're deeply unsure that that is a useful measure of an increase in the performance of the organisation. The point of political parties being, we're really quite sure of this, to gain and exercise power.

No, we most certainly do not claim causality here but we do still think this is a useful example of how these stories don't get the examination they probably need. The claim being made is that gender quotas make companies more efficient, the proof being offered is that a political party with gender quotas loses 33% of its vote. The more detailed look tells us that inputs seem to have increased in quality while output has decreased.

These stories do need a little more examination, a touch more investigation into what is success, don't they?  

The Campaign for Tariff Disarmament

With all the Brexit talk of trade deals and tariffs, an idea occurred to me. Rather like the CND (the Campaign for Nuclear Disarmament) I'd like to see the CTD - the Campaign for Tariff Disarmament, where all nations unilaterally agree to abolish all tariffs globally in a 5 year timeframe (for administrative reasons) whereby tariffs are reduced at 20% a year for the next 5 years, resulting in zero tariffs worldwide, and every nation and its citizens being better off as a result!

To see why this would be a good idea, we need to remind ourselves why tariffs are a bad idea. The golden rule about all economic inefficiencies — be they minimum wage laws, rent controls, tariffs, or any regulation of that kind, is that politicians get away with selling the bad policy as popular because the benefits are quite easy for everyone in the country to see, while the costs (that far outweigh the benefits) are more difficult to see because those costs are spread more widely and thinly throughout the nation as a whole.

To illustrate this, suppose there is an ageing firm in the UK called Steve's Steel that employs 3,000 people in Yorkshire. Understanding how the gains and losses of tariffs are distributed is key to understanding the problem with tariffs. The obvious benefits of lumping a tax on foreign competitors are felt by all the workers at Steve's Steel. The cost of saving those jobs, however, is distributed more thinly through the economy, which means as far as voters go, they see a tangible benefit to 3,000 of their fellow country folk and perceive no real cost to themselves. 

Moreover, since the workers and families have every incentive to lobby the government to save their jobs, and the rest of the population have little or no incentive to lobby the government to not subsidise Steve's Steel, there is more of an incentive for the government to listen to those connected to Steve's Steel.

But, alas, while you can see the losses connected to Steve's Steel quite easily, what you don't see quite so easily are the losses that occur around the rest of the country by subsidising Steve's Steel – the numerous other workers that lose their jobs for every one job saved at Steve's Steel – you never get to see all those who lost their jobs because the tariffs were enacted. 

Equally you never see all the reduced consumer income that Brits have due to these tariffs, via the increased prices they pay, nor the lost job opportunities by not having that money to spend elsewhere. You also never see that a British import tariff against, say, Chinese imports would mean the price of the yuan measured in pounds falls, making Chinese goods more expensive to Brits and British goods more expensive to the Chinese.

The upshot is, if you stifle foreign competition directly, you stifle domestic industries too, because somewhere down the line in the complex nexus of global trade, your fellow country folk are the competition. Therefore, even if it’s highly unlikely to ever happen, the reality is, if only we and all our trading partners could sign up to a multilateral agreement to discontinue tariffs over the next five years, it would be a collective agreement that would make pretty much everyone involved better off.

The museum to markets – The Museum of Failures

As regular readers will note around here we tend to like markets. On the grounds that they generally - except where they don't - work. But it's important to understand what it is that markets generally work at and that's not success, not at all. Markets work well because they work well at failure.

Which is why we're rather tickled by this new Museum of Failure.

LEARNING IS THE ONLY WAY TO TURN FAILURE INTO SUCCESS

That's their tagline and we'd quibble a bit with it even though we agree with the general idea. Rather, as we'd put it, you can only succeed if you work out what's failing. Some of the ideas, like that Coke Blak, could have, might have, succeeded. They didn't. Others it's a bit more mysterious why they didn't succeed:

Bic For Her pens are also on display. The supposedly female-friendly pink and purple pens launched to widespread derision and mockery in 2012. "I mean, you know that women can't use regular pens. You need special pens for their delicate hands," West said. "And they're double the price of regular pens because they're specially for women." 

Quite why that didn't work is unknown, pink razors do cost more than blue as we're so often told they do. The important part of it though is this:

West told The Local.: 'You can fail at any point during the process. It's better to have a lot of cheap mistakes early in the process, than to do so on a large scale. Then it costs billions.'

That's why market systems work better than planned ones. What it is possible to do, what people want to have done, is an ever moving feast. The technology with which we can do things is always changing and so are personal tastes. We want thus some method of sorting through what can be done and what people want to have done. And the finest way yet discovered of doing this is for every lunatic to try. We, the rest of us, will then sort through what is available and decide upon which of these possible things that can be done add utility to our lives.

Imagine wandering into GOSPLAN one day to explain that we need an overlay to the telecoms network so that people can swap cat pictures with each other. Mr. Zuckerberg would have been laughed out of the room and yet 2 billion people later that experiment he cooked up in a dorm room seems to add utility to some number of lives.

And thus the glory of that Museum of Failure, it's a museum to why markets work. Precisely and exactly because so many innovations get absolutely nowhere - that's how we find out which ones we want.