Policy Priorities in 2019: Rebooting Britain—Creating a More Prosperous Society post-Brexit

This is the first of a three part series on the Adam Smith Institute’s Policy Priorities in 2019. In part two, we discuss how practical liberalism will tackle Britain's burning injustices. In part three, we outline a future worth fighting for.

It’s time to reboot Britain.

From housing and tax reform to cutting red tape and backing free trade, the Adam Smith Institute will continue to put productivity and economic growth at the heart of our policy agenda in 2019.

The ASI will continue to make the moral case for economic growth. Over the last two hundred years economic growth has reduced absolute poverty from over 90 per cent to less than 10 per cent today, despite substantial growth in population. This means more people than ever with not only a shelter over their head and food on the table, but also access to education for their children and smartphones for entertainment. And if anything, measures of economic growth actually underestimate the massive improvement in living standards over the past few hundred years. Nevertheless, it has become fashionable in recent years to reject growth. Equality, reallocating a limited pie, is often cited as their most pressing concern, others push the idea that growth is secondary to the nation or society, while others still say we must hold back growth to protect the environment. The thinking on all three completely misses the point. Economic growth helps the worst off by creating jobs which help the poorest individuals pull themselves and their families out of poverty (rather than aiming to pull down those at the top), and even improves the environment.

The biggest political challenge facing Britain in 2019 is leaving the European Union. The Adam Smith Institute had no institutional position on Brexit itself. Nevertheless, we do believe that with Britain having voted to leave we should take advantage of the opportunities presented. For many leaving the European Union is the end point. For the ASI, Brexit is a means to an end. The important issue is not the parliamentary antics in the coming days and weeks, it is the course that Britain charts in the coming years and decades. It is not politics that matters, but policy. The challenge for Britain is to take advantage of Brexit to create a freer, more prosperous, and more innovative nation.

This means rejecting EU protectionism and promoting free trade multilaterally in the World Trade Organisation, establishing CANZUK, and joining the TPP-11. It means bilateral deals with countries like the United States on the basis of mutual recognition, and unilaterally by reducing tariff and non-tariff barriers with countries around the world. Leaving the EU need not make Britain a closed society. In fact, it is an opportunity to make the popular case for migration. Migration is a good, for those countries that receive migrants, and for those migrants themselves. We will continue to highlight the folly of the illiberal arbitrary numbers cap while promoting migration from around the world: the people who will staff our public services, build the first trillion pound company, and lead our country. Britain could raise funds and ensure visas are taken up by those who can contribute most  to our economy by introducing a visa auction system.

Brexit is also an opportunity to unshackle from costly EU red tape, such as the GDPR, nonsense protectionist restrictions on GMO crops, and the Working Time Directive which limits the ability for individuals to freely contract. Regulation does not just hurt innovation, as discussed in the A Future Worth Fighting For post, but also reduces competition by hurting business creation and is regressive because the poorest households spend a larger proportion of their income on goods in heavily regulated high cost sectors. The first step will be taking stock of regulation, understanding its causes and effects, and what is most important to reduce. We must also start talking about reforming occupational licencing, which restricts entry to many professions leading to higher consumer prices and unemployment.

It is essential that upon leaving the European Union chains are not reimposed. Britain must not simply replace a distant, unaccountable and harmful bureaucracy in Brussels with a slightly closer, unaccountable and harmful bureaucracy in Westminster. To fight a bias towards the status quo, EU regulation incorporated into British law should automatically sunset within 5 years unless Parliament specifically reauthorizes the rules.

We will continue to fight for the building of affordable, high quality housing to alleviate the housing crisis. High housing prices hurt productivity by reducing mobility. High prices make it too expensive to move for better jobs. Soaring housing costs also have intergenerational equity and political implications. The rising value of homes owned by older generations is increasing wealth inequality and makes it harder for those relying solely on income to succeed in any given generation. The cost of housing is also making young people susceptible to extreme anti-capitalist messaging. While not everyone needs to own their home – there’s nothing wrong with wanting the flexibility of renting – everyone should be able to afford their home.

It is essential to reject boring old proposals, like taxpayer funded social housing that crowds out private sector projects, patently ineffective rent control, or subsidies that push up costs further. House prices are high because there are restrictions on building more homes. Less strenuous and less politically ambiguous rules would means more affordable housing where we need and want it most. The first step is to allow building on the Green Belt, much of which is not actually green. It is also important to relax regulatory limits on the height, design, density, aesthetic, and size of houses which only serve to make building more expensive.

There are other steps that could be taken to fight the housing crisis. Councils could introduce planning auctions for property rezoned for residential purpose, with the proceeds directed to infrastructure and compensation for any loss of value of existing homes. Social tenants eligible for the Right to Buy should have access to Flexible Right to Buy: the ability to buy a different new home using the value of their Right to Buy discount. Reforming the taxing of property will also improve affordability. Stamp duty, council tax and business rates should be replaced with a Land Value Tax with regularly updated valuations. This will stop stamp duty discouraging downsizing.

Tax reform is key to boosting productivity. From first principles, the tax system should raise the necessary revenue for government services with the minimal burden on taxpayers with as little disruption to productive activities as possible. Following last year’s American corporate tax reductions, wages have been boosted by hundreds of companies, and, more importantly, the immediate deduction of capital expenditure has encouraged investment.

Taxes on interest, capital gains and inheritance discourage saving which is necessary to create the capital base for productivity boosting investment. These taxes should be replaced with a broader based VAT, since ultimately consumption is the endpoint of economic activity. If we want to reduce poverty, particularly among low income households, an important step would be to increase the personal allowance so more of the lowest income earners do not have to pay tax. There is also no reason for National Insurance to be separate from income tax, since the contributory link between NI and actual pension payments is long since broken.

Brexit is a watershed moment. Britain’s economic future is open. We should follow the low tax, light touch regulation model of the world’s richest countries such as Singapore and Hong Kong. The alternative path of higher taxes, more regulation, nationalisation and central control of the economy is the downwards spiralling trajectory of failed socialist nations, from communist China and the Soviet Union in the past, to Venezuela today. That choice is ours.

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Part 1: Rebooting Britain—Creating a More Prosperous Society post-Brexit

Part 2: Practical Liberalism—Tackling Britain’s Burning Injustices

Part 3: Into The Future—Why Everything Will Be Awesome

Privatise your Personality?

You may be reading this on your way to lunch at the Ritz, on the way to school or even in your parent’s basement like the true libertarian you are (and secretly wished everyone else was too). Whichever caricature you empathise with, there are some curiosities which unite us all. If you have ever wondered why vegans always look like vegans and why it’s always people on the centre-right that like double breasted jackets this blog post is for you.

Only kidding; I am not quite yet qualified to answer these great enigmas. Nonetheless, this blog post aims to explore why such manifestations of personality are so crucial and how they became possible. There are debts we owe to the free market for the idiosyncrasies and interests which culminate in ‘personality’ as we understand it today. Your ‘usual’ at Costa, cheeky Netflix binges and new sick obsession with the Adam Smith Institute’s Twitter page are dispositions impossible without the material wealth and choices available to us at present.

Perhaps there exists a universe where - like ants - humans are content with intrinsic values, goals and biological imperatives governing their lives. Apparently some would even like for this to be the case today, but humans in the real world live their lives in a system of trial and error which goes hand in hand with economic and personal freedom. Whilst it is often claimed that it is the Humanities and Arts, rather than the Sciences, which make the human condition their sole purpose of study, human action often operates through experiment in an intriguingly scientific way. The difference being that unlike ‘hard sciences’ such as physics we are both the subject of study and the executors of the experiment.

Just as how a good scientist would test as many independent variables as possible to examine how different factors affect the dependent variable, most people live best when they have as many choices as possible; this is the point of the system of trial and error which leads to progress. It results in choices being made either for us or us making choices we don’t fully endorse because there is little to choose from. Whilst there is not objective truth regarding human action as there is with any hard science, the element of choice allows for an almost scientific method of hypothesising, testing, and concluding; The end result is learning how to better oneself and our decisions each time. Thus it is only through increasing choices - freedom - can man fully express his personality how he wishes.

The freedom to make such choices, develop interests, and adopt attitudes stems from the abundant and (hopefully) ever-increasing time and resources available today.  Nobody can become an art history enthusiast in a primitive society where much of everyone's time is spent harvesting (not even running through) fields of wheat. Specialisation allows us to develop interests and the free time to rolick aimlessly around Christmas markets without worrying that the next harvest leaves us with no orange for the yule log. What’s more, being able to pick up the ‘Vikings’ box set at less than a day’s work at minimum wage (despite how nauseating the historical inaccuracies are) is testament to how well economic and social development correspond with each other.

Personalities are often shaped by relationships to the people around us, not just interests and material possessions. Capitalism’s ‘great enrichment’ was the catalyst to urbanisation, leading to communities in which individuals may have greater choice in their company rather than the all-too-familiar primary school situation where you realise your friends were only friends out of proximity. The theory of Dunbar’s number may still apply to cities with populations outnumbering countries, such as London. Nonetheless, a greater pool of people means it is more likely that one would find those that make them tick, those they love, and  - if they’re really lucky - those they loathe. Though in a city, of course, you can get away from those you loathe: it is much harder to do so in a primitive society where you are bound by mundane endless tasks just to maintain yourself.  

In Scandinavia, countries lauded for their levels of equality and wealth, individuals are better able to make choices they want, and the outcomes are often surprising. This has been dubbed the ‘Nordic paradox’ whereby countries such as Albania and Algeria have a greater percentage of women amongst their STEM graduates than more egalitarian societies such as Finland, Norway and Sweden. When individuals are not constrained by the need to choose a relatively high-paid STEM career, they are able to study and develop interests in fields they genuinely find more attractive.

This is merely a microcosm of the way wealth creation has created a developed society in which man is able to flourish through specialisation, and most importantly choice.

Finally, probably the best answer (fit for civilised discourse) you will get on why vegans always look like vegans and why it’s always people on the centre-right that like double breasted jackets is this: because they choose to.

The establishment will have its slice of economic activity

Facebook is to “invest” $300 million in local journalism. There are a number of possible ways of looking at this. One might be to applaud a rich corporation’s investment in such necessary infrastructure of a good society. Another might be - and rather closer to our own opinion - that this is the feasance that is being extracted by the current establishment. There’s lots of economic activity there after all, so why shouldn’t they have some of it?

Facebook is investing $300m (£233m) in local journalism projects amid mounting criticism over fake news on its platform and its role in the demise of regional newspapers.

The company said it would be investing in local reporters and newsrooms as well as helping media organisations to create sustainable business models.

It said the three-year project would be part of its efforts to "fight fake news, misinformation, and low quality news on Facebook", and said there was an "opportunity and a responsibility, to help local news organisations grow and thrive".

News of the investment comes just days after Facebook unveiled a new fact-checking service in the UK to deal with disinformation on its site, as it struggles to cope with the onslaught of accounts posting such content. The announcement is among the first initiatives since Sir Nick Clegg, Britain's former deputy prime minister, joined Facebook as head of global affairs and communications tasked with repairing the company's reputation.

One could imagine - and of course this is just an imagining - that political process looking at the irruption onto the stage of this new technology, social media, and there being a certain amount of muttering of nice business you’ve got there, shame if something happened to it. And thus a rent is extracted from that activity to be spent upon what that political process thinks should be spent upon.

The actual merit of the activity is an irrelevance here. Politics is, after all, the scramble to be able to command the resources and efforts of others without consideration of that pesky merit.

Yes, of course, this is all much too cynical. Couldn’t possibly be true that a company threatened with regulation by all sides hires an ex-politician to devise the pay off. Just unthinkable, the very idea. Such a pity that there are some so debased as to think ill of all concerned here.

Isn't the taxpayer doing well out of Capita's Army contract

We’re told that Capita’s contract with the Army to provide recruitment services will never make the company a profit. They were chasing revenue, not that profit, so they underbid. This, although few to none will care to note this, means that the taxpayer is doing very well out of the arrangement.

Note what we’re not saying, that Capita is performing well, or that all is ticketty boo. Our point is a much simpler and more basic one. If Capita is being paid less than it costs to provide the service - those costs obviously including the cost of capital - then that’s a transfer from the company to taxpayers. For us taxpayers are getting those services at less than they cost to produce:

Capita will never make money on the troubled £495m contract it signed to recruit soldiers for the British Army, MPs have been told.

The boss of the outsourcing company admitted Capita was “chasing revenue” when it took on the programme in 2012, and which has failed to provide enough soldiers, leaving the Army dangerously under strength.

Again, we’re not saying that it’s a good contract being performed well. We’re only on about that one financial aspect. If the private sector is so competitive that profits are competed away then that’s a benefit to taxpayers, not a problem for us all. For any loss, any price less than covering full economic costs, is a transfer from the capitalist owners of the providers to said taxpayers. That’s a bargain.

Coca-Cola: A symbol of capitalism

There are several significant dates on the early history of Coca-Cola, but a generally accepted one is January 15th 1889, 130 years ago, which was when the franchised distribution system that became its hallmark was introduced. Today the company is reckoned to have the third most popular brand name, recognized by 94 percent of the world's population, and the company's $35.1 billion in revenue makes it the 84th largest economy in the world, just ahead of Costa Rica. It has 500 brands sold in more than 200 countries.

Coca-Cola has become a symbol of entrepreneurial capitalism. Originally Colonel Pemberton was looking for a way to wean himself off the morphine addiction he'd picked up after the American Civil War. He developed a medication containing carbonated water, coca leaves (a source of cocaine), and kola nuts (a source of caffeine). It was sold in soda fountains, but it was the business model of providing syrup to franchised bottlers that provided the basis of its success.

Its status as a symbol of capitalism, and indeed of America, is helped by the fact that it has made mistakes along the way and corrected them. To counter the popularity of its sweeter tasting rival, Pepsi, the company introduced New Coke in 1985. It was a PR disaster that yielded a huge backlash. The company quickly responded with Coke Classic to recapture its popularity. It succeeded, and it quietly dropped the Classic tag in 2011.

It has responded to criticism, adding sugar-free versions such as Diet Coke and Coke Zero alongside its original product (from which the cocaine was removed long ago).

What does Coke do? It provides a product that millions of people all over the world willingly pay to consume every day. Coke spends more on advertising than Apple and Microsoft combined, recognizing that people drink it to be part of a culture as well as having their thirst quenched. Their 1971 ad featured teenage children of embassy staff on a hillside in Rome singing "I'd like to teach the world to sing," promoting Coke as a symbol of internationalism and harmony between different peoples. The song became a chart topper, albeit with the specific pitch for Coke removed.

Today Coke ranks among the world's top ten private employers with over 600,000 employees. It is a huge success, and a testament to what entrepreneurial capitalism can achieve with good ideas, determination and drive. Happy birthday, Coca-Cola.

We did in fact warn about this - time to be a free society again

It wasn’t just us that warned about it either, Feargal Sharkey did:

It is a sad indictment of society when something as innocent as singing sea shanties in a pub is banned. Yet when James Purefoy and fellow actors were relaxing in a London tavern after a hard day’s filming some months ago, they were asked to stop singing traditional folk-songs because the pub was not authorised to have live music. The landlord risked losing his alcohol licence.

The irony is that those actors had been making a film based on the true story of the Fisherman’s Friends, Cornish fishermen and their friends, who received a million-pound record deal and chart-topping success after a holidaying executive heard them singing songs of the sea in their village pub.

That warning? From 2007:

The singer Feargal Sharkey asked of the Licensing Act 2003 that regulates live music: is it really necessary that old men should be stopped from singing folk songs to each other in a room above a pub? Stopped unless they apply for permission to do so?

The essential guiding principle of anything even approximating to a liberal society is that consenting adults can be left to working out and organising such things themselves. Permission from the State is not necessary nor a system which insists upon it desired.

Perhaps we should return to that idea then, be liberal as England used to be?

An NHS result - but what's the cause of it?

A fascinating finding from the National Health Service here. That old people in hospital do better if they’re fed more. Specifically, those going in for hip problems fare very much better if they’re fed an extra meal a day. The question is here, well, what’s the cause of this improvement?

Giving elderly patients an extra meal a day halves their chances of dying in hospital, an NHS pilot scheme is showing.

Death rates among those admitted with hip fractures have plummeted since the scheme was introduced two years ago, prompting medical chiefs to consider recommending it nationally, The Telegraph can reveal.

Experts behind the programme say older patients are typically failing to consume enough nutrients while convalescing on geriatric wards.

They believe this contributes to the toll of more than 4,000 elderly people who die within a month of being admitted for a hip fracture each year.

What we do now is obvious enough - we feed old people in hospital more.

But we’d still like to know why this is so, why is there this improvement?

As a first estimate we’d not think that a national and government managed health care system was providing insufficient calories in the general diet. All those experts, all that attention paid to hospital food, it simply cannot be that we are starving our elderly. Not by plan at least.

So, what is it? Our suspicion - and it’s very much a suspicion, nothing else - would be that the process of an experiment like this is what has caused the benefit. To do an experiment one must measure exactly how much people are eating. Monitor matters. Make sure they are ingesting the food provided. It could possibly be - and we mention this as only the vaguest of possibilities - that without the experiment not enough attention is paid to how much of the food provided is actually being eaten.

Perhaps, whisper it, not enough nursing attention is given to people finishing up their plate?

Fortunately this is easy enough to test. Run two wards on equal experiments, equal in their measurement and monitoring methods at least. Provide that extra meal on one, not on the other. That way we’ll find out whether it’s the extra food being provided - that is, our current meal plans just don’t contain enough calories - or the extra attention to the food provided being eaten - that we’ve an inadequacy in nursing attention.

It’ll be fascinating to see the results, won’t it?

Venezuela Campaign: no-one's on the buses in Maduro's Venezuela

The streets of Caracas are unnaturally quiet. But this is no blissful moment of peace. Public transport in Venezuela, in common with the rest of the country, is ceasing to operate altogether - yet another symptom of a collapsing state.

In order to get to work many Venezuelans now have to walk or buy a bicycle, although there is a shortage of those too. Commuters often have to walk 7 kilometres (over an hour) to reach their place of work.  Driving is not an option either. Most cars and motorbikes are off the road because their owners cannot get spare parts to repair them.   People are being murdered just to cannibalise their bikes for parts.

Caracas’ main bus company, Colectivos del Norte, used to operate a fleet of 80 buses. Now it can only keep two running due to this lack of spare parts. Taking a taxi isn’t much of an option either, as one ride often costs several times the average monthly salary.

It shouldn’t come as a surprise that the collapse of Venezuela’s transport systems has been directly caused by the economic policies of the Chavista regime.  The government held down ticket prices below the costs of operation, without providing subsidies or any other sources of income. This forced operators to take their buses off the road, as they could no longer afford to buy spare parts or carry out basic maintenance.  As of mid-2018 only 10% of the country’s public transport fleet was still operating, according to Jose Luis Trocel, the head of the main transport workers union.

The Chavista government had sought to address this growing crisis by constructing a new state-owned bus plant - supposedly the biggest bus assembly plant in Latin America - in partnership with the Chinese company Yutong. However, the scheme has been a dismal failure. An inquiry by the National Assembly found that the factory was largely inoperative and that massive corruption had occurred. The regime overpaid some $92,852 per bus. An estimated 939 million dollars was stolen by regime members. In June this year an opposition activist published on Twitter aerial images of “Yutong bus cemeteries” where hundreds of non-functioning Yutong buses lie abandoned.

In a half-hearted effort to help people get to work, municipal authorities have started using lorries and garbage trucks as buses.  Known as ‘dog-carts’, these trucks are standing room only – mainly for poor Venezuelans – and are both unreliable and dangerous. People are dying as a consequence. In Merida earlier this year a truck overturned, killing eleven passengers. Nine of them were children.

When one can find a bus or truck, it is often beyond the means of most Venezuelans, as drivers are forced to ignore price controls and increase prices weekly. This is largely because hyperinflation is relentlessly pushing up the cost of essentials such as oil and tires.  But this means when Venezuelans are offered new jobs – a rare phenomenon – they often have to decline because the cost of getting to and from the job exceeds the pay.

Functioning public transport is something that is taken for granted in most countries. It is only when it disappears as in Venezuela that one understands the essential role that it plays. Most importantly, in a country where most of the country lives in poverty, failing to provide public transport hurts the poorest most.

More information on the Venezuela Campaign can be found on their website. 

Creating money out of nowhere

On this day in 1404, 615 years ago, Parliament passed the "Act Against Multipliers," making it illegal to turn base metals into gold by alchemy. Alchemists could not at that time actually do this, and cannot now, but English lawmakers wanted to cover themselves against the possibility for fear that if it did happen, it would ruin the country. It is not recorded if they had discovered, centuries before Milton Friedman, that "inflation is always and everywhere a monetary phenomenon," but they had an inkling that too much gold and silver coming suddenly into circulation would be a bad thing.

They were wise before their time, in that the during the following century the Spaniards discovered abundant gold and silver in the Americas and brought it back to Europe, where it did cause significant inflation, which Spain exported to the rest of Europe by spending it there. It made Spain rich for a time until the inflation kicked in, but the easy wealth meant the country had little incentive to stimulate its own production since it could easily buy from others.

England never received vast quantities of specie. Sir Francis Drake pirated a little from Spanish ships, and Queen Elizabeth I wisely used it to pay off the national debt. England's alchemists never discovered how to make precious metals out of base ones, but later governments found how to turn base paper into money, and have often caused inflation by printing too much of it.

Present-day alchemists think there is a magic money tree, and that government can print as much as it likes to finance increased social welfare payments with it, use it to buy up industries into state hands, and create employment by financing huge infrastructure projects with it. They might do well to study a little history.

Paying for a TV licence would put some oldsters into poverty, would it?

A useful example of how we get our poverty and inequality statistics entirely wrong here. Yes, this is specific to the UK in details but it is indeed an illustration of a larger problem which affects all such calculations everywhere.

The claim is that if the oldies among us have to pay for a TV licence then this will push some of them into poverty. This isn’t actually true given the measure being used anyway:

Scrapping the free TV licence for over-75s could push 50,000 older people into relative poverty, according to research by the charity Age UK, which is urging the government to pick up the bill of providing BBC services to elderly people.

The broadcaster opened a consultation last year on whether to start charging older people the £150.50-a-year fee, but the charity said such a move could distress many older people, “potentially forcing them to cut back on other essentials such as heating and food in order to remain informed, entertained, stimulated and connected to the world beyond their doorstep”.

Age UK calculated that forcing over-75s to start paying for BBC services could hit disposable incomes and leave tens of thousands of households facing a choice between being able to watch television or being pushed into relative poverty, which is defined as households with less 60% of median household income.

Relative poverty is defined by income, not expenditure.

But that larger problem. Let us accept disposable income as our measure. The TV licence is indeed a tax, so, OK. We’ve the claim that people having to pay it will drive some into that relative poverty. OK. So, where in our measurements of poverty and or inequality is the value of those services which they currently do not have to pay for?

We all gain access to the same medical services at the same price through the National Health Service. This reduces both poverty and inequality substantially. So too free education for all to the age of 18. Even equal access to the road network is an economic leveler. Yet none of these appear in any of our poverty nor inequality statistics.

Which means two things. Firstly, it’s a bit off to claim increased poverty or inequality as a result of withdrawing such things if we’re not equally claiming reduced such by their existence. Secondly, it makes a mockery of the claim that either are up to historical levels, Victorian say. Simply because those equally available services and public goodies mean that we’re not anything like those times at all.