The real problem of three-parent families


In a world first, MPs recently voted to permit IVF babies created using biological material from three different people, in order to prevent serious genetic diseases caused by faulty mitochondria passed on by the mother. This looks set to benefit around 2,500 UK families. Much has been made of the creation of ‘three parent babies’. That term is misleading; whilst the biological material of three people is involved, less than 0.02% of the child’s DNA will come from the anonymous female mitochondrial donor. However, there is another form of ‘three parent’ baby-making, the rules for which are long overdue reform: surrogacy.

The use of surrogacy is on the rise, no doubt in part fuelled by same-sex partnerships. However, the process is fraught with difficulties, from the assignment of parental rights to the non-enforceability of surrogacy agreements, and, crucially, the fact that ‘commercial’ surrogacy is illegal in the UK.

First of all, the parental rights assigned at a surrogate child’s birth fail to reflect who will actually care for the child. Under UK law, the carrier of the child is considered the legal mother, no matter if they are genetically related or not. If the carrier is married or in a civil partnership, her partner becomes the child’s second parent. A genetically-related commissioning father will be considered the second parent if the surrogate doesn’t have a partner, but a commissioning mother will never automatically receive parenting rights to the child.

To obtain proper legal parenthood, commissioning parents must apply for a Parental Order no more than six months after the birth of their child. Only couples may apply for an order and they can take months to process, leaving a child’s main carers in legal limbo.

Another interconnected and significant issue is that surrogacy agreements are only considered informal arrangements, and cannot be legally enforced. This means that no matter how careful or extensive arrangements are made, there is no guarantee that they will be honoured. In the UK where the surrogate is considered the legal mother, they are able to refuse to hand over the child, even if it is genetically unrelated to them.

Surrogacy agreements with legal weight would alleviate both these problems. An obvious solution would be the recognition of some kind of ‘surrogacy pre-nup’, outlining what compensation or fees will be given to the surrogate, as well as establishing the ‘correct’ parental rights from the moment of birth.

However, another significant barrier to the use of surrogacy is the fact that commercial surrogacy is strictly prohibited in the UK (as it is in a large number of other countries). Currently surrogacy can only take place on ‘purely altruistic’ grounds, with compensation limited to ‘reasonable expense’ only. Prospective parents are banned from advertising their interest in surrogacy, as are potential surrogates. If no suitable surrogates can be found in the UK, commissioning parents often look to certain US states (such as California) or the 'baby factories' of India, Thailand and Ukraine to find a willing surrogate.

The foundations of the legal status of surrogacy stem from The Warnock Report into IVF in 1984, which stated “it is inconsistent with human dignity that a woman should use her uterus for financial profit”. But what exactly is so demeaning about offering gestational services for financial compensation or gain?

It’s often argued that commercial surrogacy substitutes the norms of parental love with market norms. It encourages us to think of parental rights as more like property rights than a fiduciary relationship, and the ‘selling' of children, especially for profit, is wrong. However, what’s taking place with commercial surrogacy is the purchase of gestational services and the delivery of a child, not the child itself. The property rights involved are those of the surrogate's, who has rights of control and exclusion over her body and (most liberals will argue) may use her uterus as she sees fit.

Another related idea is that there are some things - like votes- which are simply too fundamental and valuable to sell, and that the bringing about of a child is one of these things. This type of argument is made by Michael Sandel, who claims that putting a price on some of the ‘good things’ in life corrupts them, and that their commodification results in their degradation.

However, paying for gestation does not diminish the innumerable other ways in which it has value. Placing a market value on something is not to say that it has no value over and above its price - ‘priceless’ paintings are still bought and sold for sums of money. The gift of a child to a couple, and the gratitude felt towards a surrogate can indeed be priceless, even if money is exchanged.

The real question is what informed and consenting adults may do with their bodies and its functions. Arguments defending prostitution form an obvious parallel here. But even prostitution aside, there are a number of ways we profit from using our bodies and its products. We allow hair, blood, and tissue to be sold, so why not the uterus? People use their hands and brains for profit, and ‘sell’ their bodies to medical science and to sporting contracts — what then, is so immoral about gestating someone’s child for a fee? Sperm donation is not particularly morally troubling to us, even though this too separates the genetic and biological elements of baby-making, allows the donor to give up parental rights, and to profit from their act.

Admittedly, many may feel uneasy about the entire surrogacy process; it uses our bodies in ways which are somewhat unnatural, and uproots our usual intuitions about motherhood, pregnancy and prenatal bonding. Whilst we may accept it in extreme, altruistic cases, perhaps 'normalizing' the process with a commercial market leaves an unpleasant taste in our collective mouths. However, a feeling of unease shouldn’t be justification alone for prohibition.

Our comfort zones and thoughts on what are acceptable change over time. Single parenting loses its stigma, and the acceptability of same sex couples grows. When first introduced the contraceptive pill was considered an aberration of nature. Today it is considered one of the biggest feminist breakthroughs of the 20th century. Perhaps with time the position of ‘the gestator’ will come to be viewed as a honourable and respectable profession, bringing joy to families and worthy of commercial recognition. Science lets us wage war on biological conventions and constraints, and it is time for us to tackle the social and legal barriers, too.

The ethics and practice of blood donation


We've one of those lovely Guardian discussions over the morality of commercial practices. You can guess the tone just from the headline:

Blood money: is it wrong to pay donors?

And we of course observe the comments section filling up with outraged screams that of course it's morally wrong.

Which isn't actually the point that should be under discussion. What we'd really like to know is whether paid blood donation is efficient. And the answer there is that no, it's not really. When offered a choice those who purchase blood place a higher price on blood that has been donated rather than that which has come from paid donors. Such pricing is because donations do tend to be og higher quality. So, if we could fulfill our requirements for blood and blood products purely from donations we would, by preference, do so.

But we can't so fill our preferences. So, for blood products specifically in the UK, we purchase from paid donors in other countries. Shrug. It's either that or simply don't offer the treatment and it's hardly moral to deny treatment because of some squeamishness that cash was involved in the process.

The important of this observation isn't confined just to blood of course. We tend to think that kidney transplants are better than he slow death which is dialysis. But many do die simply because there aren't enough kidneys available for transplant. And this would be true even if ever potentially usable organ was stripped from corpses, the wishes of their now deceased former owner be damned. To fill this gap we must therefore ask for live donations (much the same being true of liver and lung transplants, heart such cannot of course be carried out from a live donor). But there's a rather limited supply of people willing to live donate a kidney.

When, as we do from time to time, we suggest that the obvious answer is simply to pay donors, as they do in Iran, we're told that paying for kidneys would simply be immoral. As with those shouting about blood. Shrug: this means that people will die because of some squeamishness over cash having been involved.

Oh yes, most moral that outcome is.

It's the absence of markets that causes poverty


There's an excellent discussion of a recent finding in development economics over here.

If markets are missing completely, or so unreliable as to effectively be missing, then household separation fails. The extreme case is easiest to think of. If a household is completely autarkic, and can trade with no one else, then it can only consume what it produces. The two decisions are inseparable. If they want a new TV, then they’d better have a source of rare earth elements in their back yard and a passion for soldering.

The importance of knowing if household separation holds or not is that it tells us something fundamentally important about why a developing area is poor.

What's being looked at is that horrible, $1 a day, poverty that far too many of our fellow humans are stuck in. The big question being, well, are they stuck there because of the way that markets operate? Perhaps "the market" means they can't get enough fertiliser for example. Or is it that markets simply do not exist and thus they cannot reap the benefits of the division and specialisation of labour and the subsequent trade in the increased production?

The answer appears to be the absence of markets rather than any failure in them. Which leads to an interesting thought about what should be the right way to aid them.

Instead of sending money with which to buy them stuff we should be trying to work out how to create markets. And the most important part of that is in fact information. Not from us to them, but within such communities. And that ties in neatly with something that is becoming apparent from another part of the literature. It may well be that the mobile telephone is the greatest poverty reducing technology of our times. Simply because it does do exactly that, allow the spread of the information that enables markets to do their wealth creation thing. As this excellent paper makes clear.

It's not quite as simple as "make sure there's a phone network everywhere and the poor will get rich" but we're increasingly coming to the view that that's a damn good start to solving the problem.

Two cheers for Paul Krugman


Paul Krugman says that this (from this Branco Milanovic paper) gives you recent history in one chart, and it's hard to disagree: 010115krugman1-tmagArticle

Everyone got richer in real terms, although some a lot more than others – and this doesn't fully include technological developments that make pocket supercomputers cheap enough that even people on quite low incomes (for rich countries) can afford them. Like Scott I am more interested in the bottom 80 percent than the top 20 percent, so this is broadly good news. The bottom 10 percent do seem to be left behind to some extent, but African poverty has still fallen by 38% during this period, and most health-related metrics have improved. Maybe issuing more unskilled work visas to poor Africans and Indians would help to boost the incomes of the bottom 10 percent even more.

In another post, Krugman points out that the left's "econoheroes" tend to be of a pretty good academic calibre (he cites himself and Joe Stiglitz, both Nobel Prize winners), whereas the most popular economists on the right tend to be slightly less impressive supply-siders. I think that's fair, and it's a pity. When's the last time you heard a right-wing pundit citing Nobel Prize winner (and not-so-secret free marketeer) Eugene Fama's work on the efficiency of financial markets? Or, indeed, Milton Friedman's monetary prescription for stagnant economies like Japan or, now, the Eurozone?

Well, we try to here at the Adam Smith Institute, and a very honourable mention goes to the excellent James Pethokoukis at the American Enterprise Institute. There are others, but in general I think Krugman's point is pretty fair. For example, I often meet right-wingers who think using monetary policy to generate extra inflation during demand-side recessions is somehow a left-wing idea. This would come as a surprise to Milton Friedman!

I have a theory about why: the post-Cold War consensus has been so good for us – that is, the "Overton Window" of debate has shifted so far rightwards — that the best ideas have been absorbed by the 'centre' and the less compelling ones are all that's left over. That seems unsatisfactory to me, but it does leave me wondering what it means to be a free marketeer, if not a strong preoccupation with the supply side. Maybe Hayek has an answer.

It's terribly difficult to argue that markets are too short term


There's lovely little essay talking about how difficult it is to believe that financial markets are too short term in their outlook. To do so demands that said markets are entirely inefficient in their processing of information. And as this is something that no one but would be commissars still believes then it isn't really possible to insist that markets are short term in their outlook. Here's a part of said essay:

Basically, if capital markets price things well (with few ex ante errors, or put differently, the market is close to “efficient”) then maximizing shareholder value is a very good idea. Believing that markets make common and giant predictable errors is the only legitimate beef one can have with maximizing shareholder value, and it’s absolutely fair to debate this tenet.

But instead of confining the debate to this central point, or even realizing that this is the central point, critics attack shareholder value for many ancillary reasons. For instance, they laugh off the concept as vacuous, the absence of a strategy. They attack share‑based and particularly options‑based compensation. They attack markets and managers for being too “short-term."

The obvious point is that if markets are anywhere near efficient (and just about everybody agrees with the weak version and some more with the semi-strong) in the processing of information then the current market valuation is the value of that company from now into the indefinite future. And, given that we are measuring that flow of funds from that company off into that indefinite future then how on earth can this be short term thinking?

Sure, if you are a would be commissar then you can argue that markets aren't efficient at processing information. At which point you're going to have to explain the difference in food supply in London in 1990 and in Moscow in 1990. When that famous question got asked, "Who is in charge of the bread supply for London?".

Quite, markets are, observably, somewhat efficient at processing information. Thus they are forward looking and as such cannot possibly be short term. QED.

No, really, markets do sort themselves out


You'll recall the terrified bleating from the usual suspects over the way that the supermarkets were sitting on all that land that could be used? As we recall said bleating the first set of allegations were that they had the land banks to make sure that other supermarket chains couldn't build stores in an area. Our reaction to that was, well, issue more planning chittys then. More recently the story moved on to how the supermarkets were sitting on all that land that should be used for housing instead. To which our reaction was, well, issue more planning chittys then. We're really not short of land to build on in this country, we're only short of land someone is allowed to build upon.

And what is happening now?

Britain’s supermarkets are building on just 6pc of the land they control across the UK, underlining the problem they face with undeveloped sites as the industry battles tumbling sales.

New figures show that the pipeline of new grocery stores in the UK is 46.61m sq ft, the equivalent of more than 1,000 acres. However, just 2.8m sq ft of these new stores are actually under construction.

Building work on stores has fallen by 20pc compared to a year ago as the “big four” supermarket chains – Tesco, Asda, J Sainsbury and Wm Morrison – suffer from tumbling sales and profits.

This means that 43.81m sq ft of land across the country is sitting unutilised by grocery retailers according to property agent CBRE. This land is either subject to a proposal for a new food store, or planning permission has already been granted.

The supermarkets simply do not want to build more stores on that land that they own. That land will, therefore, in the fullness of time (given the time and effort it will take to change said planning chittys, this system is not known for its efficiency) be developed to some other purpose, most likely that housing that was being called for.

And all being done without a politician or a bureaucrat making a plan, without considering social usefulness and entirely cocking a snook at the desires of our betters in the Great and the Good.

We the peasantry have decided that we're not all that interested in more supermarkets. So, therefore, there won't be that many more supermarkets. Markets really do just sort themselves out, we get supplied with what we actually want for that's what we spend our money on, what we want.

Well, markets do sort themselves out if they're allowed to. Who's willing to bet on the campaigns against those now won't be supermarket sites being turned into the housing that people insist we need?

Free movement and discrimination: the case of football

The more you open markets up, the less discrimination you get on grounds of 'taste' (racism). The stuff left over is usually 'statistical' (i.e. where certain groups are different in their average levels of job-relevant criteria). There was already a great paper showing this for the Fantasy Premier League (which I play avidly), but now there's also one for the real Premiership! Pierre Deschamps and José de Sousa look at the impact of the 1995 Bosman Ruling on the gap between black and white footballer wages in the English league. They find that when only 20 clubs competed for their skills, black players were underpaid relative to white ones, indicating that owners were able to indulge their preference against non-whites (or indulge their fans' preferences).

But once the whole of Europe were effectively on an equal footing, blacks became highly mobile and garnered equal pay for their efforts:

This paper assesses the impact of labor mobility on racial discrimination. We present an equilibrium search model that reveals an inverted U-shaped relationship between labor mobility and race-based wage differentials. We explore this relationship empirically with an exogenous mobility shock on the European soccer labor market. The Bosman ruling by the European Court of Justice in 1995 lifted restrictions on soccer player mobility.

Using a panel of all clubs in the English first division from 1981 to 2008, we compare the pre- and post-Bosman ruling market to identify the causal effect of intensified mobility on race-based wage differentials. Consistent with a taste-based explanation, we find evidence that increasing labor market mobility decreases racial discrimination.

The figure below shows how the 'turnover' (i.e. churn between clubs) of black English players jumped when European markets opened up. Market freedoms; exit; a sort of 'voting with their feet', outperformed voice in bringing equality. And we know from ASI research that this did not harm the English national team.

This is in line with a lot of what we have been saying recently—markets are a good way to bring about justice!

Markets make us better people


One of the most common objections to market-based societies is that they erode non-market motivations to doing good. Critics, with this objection, say that although markets can in some areas latch onto greed and turn it to society's benefit in some areas ("It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest") they can also pervert and corrupt existing motivations in domains where markets are inappropriate. Consider blood donations: many argue that if you start paying for blood donations then people will stop seeing them as a good deed but as a market activity, and lose their 'intrinsic motivation' to give blood. Overall you might get less blood, or less good blood than before, even though you're now spending money to get it. Back in 2012, Harvard communitarian political philosopher Michael Sandel (famous for his online lectures), wrote a hugely popular book What Money Can't Buy: The Moral Limits of Markets making roughly these arguments (read a wonderful review here).

These questions are discussed widely, but what's weird is they tend to be tackled mainly with a priori thought experiment arguments like mine about blood, above, and anecdotes, even though they are empirical questions. We can actually test whether you get less or worse blood when you pay for it! (You don't) We can test whether people are less pro-social when you add extra market institutions!

A new paper by Björn Bartling, Roberto Weber and Lan Yao, "Do Markets Erode Social Responsibility?", in the Quarterly Journal of Economics tries to do as much:

This paper studies whether concerns for social responsibility persist in repeated market interaction. We develop a laboratory product market, in which socially responsible behavior by firms and consumers involves incurring additional production costs to mitigate potential negative externalities imposed on individuals otherwise uninvolved with the market.

The data from Study 1, conducted in Switzerland, show, first, that there is a non-trivial share of socially responsible products supplied and demanded in all our market conditions, and that—importantly—the market share of the fair product is stable over time in all conditions.

Second, the socially responsible product, which costs more to produce, sells at a price premium that persists with market experience. In most cases, this price premium increases over time, suggesting that consumers’ willingness to pay for socially responsible products is not eliminated with repeated market interaction. Third, we show that individual-level market behavior is consistent with a preference for positive social impact, though such concerns are heterogeneous.

In other words: markets do not erode existing pro-social motivation; they complement it.

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.

Markets involve substantial fairness

I have been writing recently about how market mechanisms work against taste-based (i.e. objectionable) discrimination on grounds of race and sex. A while ago, I wrote how, even if we think that people should not be punished with bad lives for being unlucky with their upbringing or talents, we should favour some wealth and income inequality in many situations so as to achieve more overall justice.

For example, if some choose to take more leisure instead of income, then it would not be just (on egalitarian grounds) to make sure their monetary income or wealth were equal—leisure is a sort of income. Similarly, it would not be just for people with more pleasant, safe or satisfying jobs to earn as much as those with less pleasant, more risky, or less interesting jobs (on egalitarian grounds).

There is one school of thought that understands and agrees with these caveat to equality. They may even note that teachers, who are respected and admired by society, and whose jobs are largely pleasant, satisfying and risk-free should not justly earn as much as despised unhappy bankers. But in the real world they see examples where people seem to have jobs that are high in pay and low in other benefits—boring or risky or low-status. Are markets failing to compensate people in pecuniary terms for the non-pecuniary costs of their job?

According to a new paper, they are not:

We use data on twins matched to register-based information on earnings to examine the long-standing puzzle of non-existent compensating wage differentials. The use of twin data allows us to remove otherwise unobserved productivity differences that were the prominent reason for estimation bias in the earlier studies. Using twin differences we find evidence for positive compensation of adverse working conditions in the labor market.

The authors look at twins to control for 'unobservable' factors about the person—basically their productivity and how employable they are—and find that workers are paid more for doing less desirable jobs. Though it often seems like they aren't, this is only because some people (mainly people on early steps of the productivity/human capital ladder without much in the way of experience or skills) are very unproductive. Of two twins, the one with a less pleasant or more risky job gets paid more.

The unique feature of our data is that we are able to estimate specifications that also control for unobservable time-invariant characteristics at the twin pair level (e.g. place of residence, spouse’s occupation, or family situation) and the common wage growth for the twins. We find evidence for positive compensating wage differentials for both monotonous and physical work using the data on MZs (monozygotic, i.e. identical, twins). Assuming that equal ability assumption holds for MZs, the results imply that both twin difference estimates and Difference-in-Differences (combined twin difference – time difference) estimates are unbiased for MZs.

I am perfectly comfortable with arguments that differences in endowments (basically upbringing and inborn talent) mean that there is a case for redistribution between individuals. But it bears repeating that markets, working properly, automatically produce results that in many ways elegantly fulfil the egalitarian concerns of leftist social justice.