The mass employment in manufacturing just isn't coming back you know

I'm always rather puzzled by those who shout that we've got to bring manufacturing back to the UK. Apparently this will solve all our problems over what to do with dim Northern lads or something. Once they're all hammering out whippet flanges then we just won't have a problem with unemployment ever again. The problem with this idea is that modern manufacturing simply doesn't provide many jobs. And if it were to provide mass employment it would be very badly paid employment too:

Americans working to produce traded goods and services earn, roughly, according to their productivity. If low-skill workers in America aren't much more productive in manufacture of traded goods and services than low-skill workers in China, then they can't earn much more than workers in China while being employed in manufacture of traded goods and services. They can earn a rich-world wage in production of non-traded goods and services, like sandwiches and haircuts, so long as there is sufficient local demand. In other words, the only way to get less-skilled Americans a good wage in a manufacturing industry is to significantly raise their skill and productivity level. If that can't be accomplished, they can only hope to find good wages in non-traded industries. At least, that is, until wages of less-skilled workers across the developing world come much closer to converging with those in America.

Of course, that's all about America but the same logic pertains here as well. Chinese manufacturing wages are around $6,000 a year at present. Meaning that if we had mass employment in manufacturing, as they do, then wages would need to be around that level. Or, alternatively, UK based manufacturing would have to be much more productive to support higher wages. And "more productive" is the same as saying "uses less labour". Thus you can have few well paid jobs (in the Rolls Royces etc of this world) or you can have many badly paid jobs (Shenzen). It isn't actually possible to mix and match between the two.

It's also worth noting that UK manufacturing output peaked in 2005. Oh sure, manufacturing employment has been falling for decades as has manufacturing as a percentage of the economy. The first because manufacturing has become more productive, the second because other parts of the economy grew faster. But manufacturing output did indeed rise from the 1940s all the way through to 2005 (with wobbles for recessions of course).

It's also worth noting that manufacturing has been falling as a percentage of the global economy. No, really, it has, and manufacturing employment has been falling globally too. Even as manufacturing output continues to rise. And the UK's share of the economy that is manufacturing is around and about the norm for an OECD country too. What's happened to our manufacturing sector is nothing special at all. It's happening everywhere, to everyone.

What's actually happening in manufacturing is what happened to farming 80 years ago. It mechanised, as manufacturing is now. The sector is simply using ever less labour as it uses ever more machines to keep on pumping out things we can drop on our feet. Then it was tractors, now it's robots but the effect is much the same. We're going to end up with, as we did with farming, 2 % or so of the population doing the manufacturing. Everyone else is going to be one or another form of services. Perhaps whippet flanges are essential, perhaps Britain should make its own but whatever we do about it we're simply not going to see mass employment in manufacturing ever again.

Which is why it always confuses me to hear the incessant claims that we must have more manufacturing. Why?

Why yes, we are being lied to. Why do you ask?

A continual theme of mine is the way that the various numbers we're presented with in the political arena aren't entirely, exactly and strictly, quite true. Nothing new in this of course, the lies, damned lies and statistics line is well over a century old already. The latest, how shall we put this kindly, misdirection is on the subject of energy prices. Ed Davey tells us that we're all saving money by spending vast amounts of money on renewables.

Our analysis shows that, taken together, these policies and others mean household bills are already lower – by an average of £64 – than they would have been if we’d introduced none of our policies.

This is exceedingly difficult to believe. For energy produced by renewable means is still more expensive than that produced by fossil fuels. This is why we actually have a climate change problem: if renewables were in fact cheaper then we'd all quite naturally be using them. And it's not really possible to make the system cheaper as a whole by moving from a cheaper component of it to a more expensive one.

An excellent thrashing of this contention is provided here, at The Register:

Thus we see that the consumer price of 'leccy overall stands approximately 25 per cent higher today than it would have been if Whitehall and Brussels had left the UK energy market alone.

Mr. Davey then goes on to tell us that government action will really save us all money in hte medium term, you just wait and see:

In 2020, bills will on average be around 11 per cent lower, than they would be if we were doing nothing. Let’s be clear - bills will still be higher. But they will be £166 lower than if we sat on our hands.

The problem here is that they've made an assumption: that natural gas prices will rise by 70% in the next few years. The only reason they've made this assumption is because they've not bothered to talk to anyone at all who knows what they are talking about as the FT makes clear:

The UK’s Department of Energy and Climate Change is about to publish forecasts suggesting that gas prices could rise by up to 70 per cent over the next five years. This is scaremongering nonsense, and shows just how out of touch the Department is with the realities of the international energy market. Officials appear not to have consulted the industry or the traders. In reality the odds are that prices are just as likely to fall as to rise for three distinct reasons.

Those three reasons are shale (even if we don't produce much ourselves, there's still going to be US exports), demand has fallen because of all the renewables that everyone is being forced to use and the pricing structure of the material is about to fall over. Traditionally gas prices were linked to oil prices and it's increasingly becoming true that they are not: gas prices are linked to gas prices now.

Regular readers will know that I'm generally onboard with the idea of climate change, think it's happening, we're doing it and that something must be done about it. However, this doesn't mean that we all have to wander off into LaLa Land in our discussions of what to do about it.

I agree that a certain amount of smoke and mirrors is inevitable in politics: but what worries me is that DECC has been repeating this guff to itself so often that they actually believe it.

They really are not saving us all money on our energy bills by making energy more expensive. And it would be very nice indeed if they stopped misleading us about their doing so.

Incoherent bank regulations

The Bank of England’s Financial Policy Committee has announced an increase in capital ratio requirements for banks and the FSA announces a reduction.  The former is, of course, for existing banks and the latter for new banks.  Higher capital ratios are intended to stop banks going bust so, on the surface, it is odd that those that are unlikely to be at risk now their days of profligacy are over, at least for the time being, are having further bolts applied to the empty stable door whereas those banks most at risk, namely the small new ones, are being encouraged to expose themselves further.

Maybe handicapping the big banks in this way is good, in the long run, for competition. Perhaps we should not care if small banks go under and worry only about the systemic banks.  That shows a misunderstanding of the economic cycle.  Cyprus was the last domino in the 2008 crash, not the beginning of a new one.  Whatever happens in Cyprus will not put large British banks at risk.

Some economists, and the Bank of England, fail to grasp an elementary piece of accountancy.  Capital adequacy ratios decline if cash is replaced by loans to small businesses. New small banks are going to have an insignificant effect, in the short term, on lending to small business and we need those loans to rebuild the UK economy.  It is the clampdown on lending by the big banks which is mostly to blame for the UK’s sluggish economic recovery.

The Chancellor nearly got it right when he arranged for big banks to borrow at subsidised rates.  He hoped they would pass it on with more lending at lower rates.  Instead they put the money in their pockets, widening their margins and bolstering their capital ratios.  Instead of sending them to gaol for defrauding the rest of us, the Bank of England is now patting them on the back.

An impressive new ambassador for entrepreneurship

People who make a lot of money are not very popular in Britain these days.  A cult of envy fed by the Left and parts of the media led by the BBC decries "the rich," "the top one percent," and wants us to take it that the wealth of the few is gained at the expense of the many.  If we lived in a world where wealth was in fixed supply this might be plausible, but we don't.  We live in a world where wealth is created, and in which entrepreneurs who develop new products and new processes bring improvements to our lives and are rewarded accordingly.  Even so, people who become rich risk the envy and resentment of those who do not understand how the process works.

Onto this stage has stepped someone who is probably the best ambassador that entrepreneurship has had these past few years.  He's Nick D’Aloisio, who's just made a reputed £20m by selling his app to Yahoo!  He's 17 years old.  The smartphone app, called Summly, was developed in his bedroom while he was revising for GCSEs, and basically manages to summarize longer news stories into three paragraphs that can be read on a smartphone's screen.  Sarah Rainey's interview with him in the Telegraph depicts a fairly normal teenager, excited but not overwhelmed by his success.  When asked what he intended to do with his new-found wealth, he replied that he was going to buy a new shoulder bag since his present one has a broken strap. 

Part of his success is down to backers like Hong Kong's Li Ka-shing who backed him with investment and treated him fairly in the process.  Now Nick plans to become an "angel investor" himself, lending financial support and skills to other start-ups.  As a successful young entrepreneur, he is a good role model for other teenagers.  Looking at his achievements they can aspire to do similar things themselves.  It does make rather a refreshing change from ambitions limited to perhaps celebrity status following a fleeting appearance on reality TV.

Had this been done by a 45 year-old, no doubt envy would have been aroused, and mean-spirited pieces would have been written about how unmerited it all was.  But Nick is 17 and seems fairly well-balanced, so most people are applauding his success.  Basically Britain needs more entrepreneurs, and we need a culture that can produce them and reward them. Nick D’Aloisio makes an excellent ambassador for that culture.

Welfare cash cards are a paternalistic folly

At the end of last year, the Conservative MP Alec Shelbrooke suggested to parliament that 'Welfare Cash Cards' should be introduced to curb benefit spending. Janice Atkinson has recently suggested that UKIP adopt the policy, and a worrying number on the right seem to agree with the idea. There are two quite major problems with this policy, first, it will not deliver the intended consequences and will result in higher costs to the taxpayer, and second, it is paternalistic and ethically wrong.

I agree that government should seek to reduce costs to the taxpayer, but it is unnecessary and cruel to punish people on benefits purely for being out of work. If they are not trying to find work (and breaking their “jobseeker's agreement”), then sure, sanction them. But to punish all on benefits, purely for being such, will not help anyone. As long as people on Jobseeker's Allowance (JSA) are trying to find work, they should be supported by the government, not punished purely for trying. This is especially true in times like these, when unemployment is often involuntary and there can be hundreds of applications for every job.

Petty moralising over this problem will not deliver positive outcomes. Just like the US Food Stamps program, 'Welfare Cash Cards' will be plagued with corruption and other problems from the start, requiring police resources to deal with. Anyone addicted to drugs (including alcohol and tobacco) will find ways around the system. They might start dealing drugs, join a gang, they might resort to theft or other crimes to pay for their habit. Something that will happen will be the growth of a new industry that turns 'Welfare Cash Cards' into ready cash, taking a tidy sum in the process, diverting taxpayers money away from the intended recipients (who will be poorer as a result) straight to criminal gangs.

Government will not be good at closing loopholes or fixing other problems with the system. Are local corner shops going to be registered? That's tens of thousands of little shops. What about people who get jobs through networking in pubs? What products are allowed to be purchased exactly? Are we going to have a government register of acceptable products? Did anyone proposing this think through these problems? Of course not; small-minded moralising was more important.

This idea, like many that usually come from the left, is nothing but government meddling. It is attacking the results of various problems rather than dealing with the sources. We should instead look to legalise drugs, end high alcohol and tobacco taxes, tighten up the benefits system and tackle supply-side issues to create jobs and reduce the cost of living. Whatever the issue, misguided and petty moralising is not the answer.

Some Reason on gay marriage

There's a lot to like about the Reason Foundation's new report, "The Argument for Equal Marriage". Its basic argument is:

1. Marriage has changed enormously over time. 2. Same-sex marriage is just another change, and on the scale of possible changes that can be made to "marriage", it is far less significant than changes that have already been made to the status of women. 3. "Traditional" marriage as defined by the monotheistic traditions has treated both women and gay people badly, and it is therefore not wise to use it as a basis for law or public policy.

As the report says,

Marriage has been put through the laundromat of the Enlightenment, two waves of feminism, and the civil rights movement: what we have now would be unrecognizable to Bracton or Blackstone or Jesus, and this is a good thing. If one were to isolate the greatest change in the definition of marriage over time, it would come down to a choice between the enactment of unilateral divorce (with its attendant effect on murder, suicide, and domestic violence rates) and the ending of coverture, granting women property rights in marriage and separate legal personality. Compared to these definitional shifts, equal marriage is peanuts.

Read the whole report. Last month I wrote for The Guardian that marriage, gay or straight, should be taken out of the hands of the state.

Basic budget blunders

Worryingly many commentators repeatedly make two basic budget blunders. Firstly, ‘deficit’ and ‘debt’ are not the same. Secondly, this government is not cutting spending. Neither point is original. Both should be simple to understand. Given consistent misinformation these both need clarification.

Debt is an obligation owed by one party (the British Government, i.e. the taxpayer) to a second party, the creditor (owners of British government bonds). The national debt is the total amount our government owes. It is different from the budget balance. That is the gap between what the government spends and what it receives. The budget is in deficit when the government spends more than it receives.

So what are the numbers? According to latest estimates from the Office for Budget Responsibility, public sector net debt for 2012-13 is projected at £1189 billion. By 2017-18 this is expected to reach £1637 billion. So when David Cameron said earlier this year, “…this government has had to make some difficult decisions, we are making progress. We are paying down Britain’s debts”, he was wrong. No. We haven’t paid down debt and will owe more.

It is the deficit that is projected to fall. For 2012-13 the deficit is forecast at £120.9 billion. However, the coalition no longer expects to meet pledges to balance the budget. Even by 2017-18, government will spend more than it takes in (with an estimated £43 billion deficit). High deficits will remain and the Government will add to the amount we owe every year.

Surely we've been cutting spending? No, again. The OBR neglect to mention how much the government spends for most of their report. Yet on page 123, they note spending is rising. For 2012-13 they forecast government spending of £673.3 billion, increasing to £765.1 billion by 2017-18. So in absolute terms expenditure is rising, not falling. Even accounting for inflation (using their inflation projections) expenditure rises significantly. The Coalition have only reduced the amount by which government planned to grow expenditure. Nevertheless, this brings pain, from pay freezes to programme closures, because budgets assumed even more profligate spending. Now that expenditure is growing more slowly than previously planned, some old commitments have lost out to new sources of expenditure.

Debt is rising, expenditure continues to outstrip receipts, and the Government is increasing not shrinking spending.

James was a founder of the Liberty League, who are hosting the upcoming Freedom Forum.

Abandon hope all ye who enter this immigration debate

Immigration is good for us. With every major party now promising to ‘get tough’ on immigration, it’s easy to forget that immigrants bring new skills to the country, allow for more specialization, tend to be more entrepreneurial than average, pay more in to the welfare state than they take out, and make things cheaper by doing the jobs that Britons won't.

No political figure of any stature will say any of these things. Instead, people like David Cameron and Ed Miliband and Nick Clegg focus on the two potential problems with immigration: that, other things being equal, immigrants may push down average wages, and that an unrestricted welfare state incentivises immigration by people who want to draw benefits instead of working.

These are both valid points, but insignificant ones. Ben Powell points out that the wage-depression claim ignores the fact that immigrants demand goods and services (raising wages for those things) as well as supplying them. It also assumes that immigrants always directly compete with indigenous workers for jobs. If immigrants are doing jobs that indigenous workers will not (or cannot) do, like highly unskilled service industry work, then they are not outcompeting indigenous workers.

There is quite a bit of evidence to suggest that this is the case in Britain. Fraser Nelson has shown the high effective marginal tax rates that people on welfare face if they want to enter the workforce. If these Britons are unwilling to take low-paid jobs, then there is no harm to them caused by immigrants taking these jobs. On the contrary, the fact that these jobs are being done by someone adds to the number of goods and services that everyone in Britain can take advantage of. (There is one other point: if people’s lives are getting better overall, who cares where in the world they happened to be born? Not me. But even I do not expect any politician to go so far as to say that all men are created equal.)

The second point against immigrants is usually the one focused on by politicians. The problem here is that a valid theoretical point is assumed to be a significant problem in actual fact. Here, the numbers simply do not bear the theory out.

As it happens, we don’t actually have an unrestricted welfare state – most major forms of welfare and state services are limited to UK residents. And, if anything, the evidence suggests that immigrants are less likely than Britons to draw out of work benefits – according to Jonathan Portes, “migrants represent about 13% of all workers, but only 7% percent of out-of-work claimants”. What a surprise: the people leaving behind their friends, family and communities are the ones who most want to make better lives for themselves. Again and again, empirical studies have shown that immigrants pay more in than they take out.

In any case, if we have a benefits system that is open to exploitation, why only worry about it being exploited by non-Britons? Conversely, if benefits are necessary to maintain a basic standard of welfare, why doesn't the welfare of non-Britons matter? There is a good case for reforming benefits so that they complement work instead of substituting it, but that has nothing to do with immigration.

Like most ‘major policy announcements’, the specific proposals outlined by the Prime Minister today will probably be forgotten soon enough. Even if they do end up becoming law, they will not affect many people. But what David Cameron and Ed Miliband and Nick Clegg have achieved is to throw out any chance of a policy line that, however unpopular, has the rare political virtue of being right.

Changing the way we study the social sciences and economic behaviour

Writing in Pacific Standard magazine, Ethan Watters draws attention to the game-changing work of Joe Henrich, Steven Heine and Ara Norenzayan, and the studies they have made on the behaviour and perceptions of non-Western cultures.  For example, the 'ultimatum game' produces different results.  This is the 'game' where one player is given $100 and told to offer some of it to another player.  If the second player rejects the offer, neither receives any money.  Typically players offer 50-50, and reject small offers in order to punish inequitable behaviour.  The Peruvian Indians Henrich introduced to the game with amounts representing a few day's wages behaved differently.  The first player tended to offer smaller mounts, and the second would usually accept them, however small.

“It just seemed ridiculous to the Machiguenga that you would reject an offer of free money,” says Henrich. “They just didn’t understand why anyone would sacrifice money to punish someone who had the good luck of getting to play the other role in the game.”

In cultures elsewhere where gift-giving is used to secure favour or allegiance, the first player would often offer more than 60%, and the second player would refuse, not wanting to accept the burden of obligation that would come with it.  What social scientists and economists had thought was human behaviour was in fact behaviour conditioned by the culture from which the players emerged.  Other studies showed that perception of the length of a line (depending on whether arrows at its ends pointed upwards or down as in the Müller-Lyer illusion) varied with culture.  Those brought up in a built environment tended to be deceived more often than desert nomads and foragers.

Henrich, Heine and Norenzayan published a paper in 2010 in the journal Behavioral and Brain Sciences.  It was entitled "The Weirdest People in the World," and they were talking about Americans.  WEIRD is an acronym for Western, Educated, Industrialized, Rich and Democratic, and the paper makes the point that our Western habits, cultural preferences, and even the way we perceive reality, separate us from people in other parts of the world and even from our own ancestors.  The importance lies in the fact that much of our study in the social sciences and in economic behaviour has used almost entirely Western subjects to arrive at its findings.  When other cultures are included, the Americans are outliers in many of their attitudes.

WEIRD minds are analytic, focussing in on an object rather than understanding it in the context of what is around it.  Experimental psychologists assumed that their job was to look beyond the content of people's thought to the hard-wired origins it came from.  "Deeply flawed," says Norenzayan, "because the content of our thoughts and their processes are intertwined.  The influence of culture on cognition has to be factored in.

He [Henrich] notes that the amount of knowledge in any culture is far greater than the capacity of individuals to learn or figure it all out on their own. He suggests that individuals tap that cultural storehouse of knowledge simply by mimicking (often unconsciously) the behavior and ways of thinking of those around them.

The research lends powerful support to Hayek's notion of dispersed knowledge, and seriously undermines the notion that an object such as the human mind can be lifted from its context and studied in isolation.  It also supports the notion that human choices are very complex and defy simple statistical treatment that treats people as if they were all similar.

But I'm afraid we've tried Allemannsrett in Britain

George Kirby had a suggestion here on this blog last week. That we ought to copy the practise of Allemannsrett in Britain. This Nordic idea that access to the land is for all and that as long as you're just walking through you should be able to go anywhere you please. And I agree that there are attractions to such an idea. However, the real problem is that we've tried this in this country and it doesn't work here. The hint is in this that George says:

A final objection is the claim that it would be pointless to introduce the Allemannsrett in Britain as it is in Scandinavia, since here we have a much higher population density. But the vast majority of the British population lives in urban areas, and the country has many places of natural beauty and sparse population where greater rights of access could allow much greater appreciation of them.

You see, we did in fact try this. There was the Mass Trespass movement and they went off and demanded that the urban proletariat must be allowed to walk the moors. Instead of the Duke's grouse having exclusive rights to those areas of great natural beauty. The end result of which was, in the words of the National Trust:

“Kinder Scout is one of the most iconic landscapes in the Peak District because of its vast open moorland, the wildlife that it is home to and because it was the setting for the Mass Trespass. However, it is also one of the most damaged areas of moorland in the UK and its future is in jeopardy as a result of catastrophic wildlfires, a long history of overgrazing, air pollution and the routes that thousands of visitors have taken. We’ve decided to take action with our partners to save Kinder for future generations.” Mike Innerdale — General Manager for the National Trust in the Peak District

I'm afraid we're back to the basic point that Garrett Hardin made about the Tragedy of the Commons. No, it isn't and never was that assets held in common cannot be preserved. It's that when demand for a resource is greater than the regenerative capacity of that resource then access must be limited. In some manner. It could be, as with the Grand Canyon, the Park Rangers only allowing so many people down there at one time. Or it could be private property. But there does have to be some method of limiting access. Elinor Ostrom went on to show that communal restriction of access, just people working it out among themselves, can also work. But this breaks down when we've more than a couple of thousand people doing the communalling.

In most parts of the Nordic nations there are perhaps three people and a dog named Colin (Haakon is that in the local lingo?) who want to go tramping over the outside scenery. Here in the UK it's rather different. In fact, there's some 25 million Nordics looking to roam over 470,000 square miles and the UK has 63 million on 94,000 square miles. Now quite where Hardin's limit is I'm not sure but I would imagine it's something to do with the UK having 2.5 times the population on one fifth of the land.

Which brings us back to there having to be a limit. We could have the entire countryside limited by men with clipboards, counting us in and out of the meadows and moors. Or we can have our current system of private property. And even if only on the grounds of the crime rate I think that the second of those two is preferable. For I'd hate to have to calculate the murder rate, as those clipboard wielders swung from the trees, as they tried to stop people going for a walk in the woods on the grounds that 5 other people had already done so that day. "Get Orff Moi Land!" is preferable to that.