Addressing the real problem of social mobility in education


Social mobility is a desirable aspect of a modern society and it can be broadly defined as the ability of individuals from underprivileged backgrounds to climb the socioeconomic ladder. Education is both an important and necessary determinant of future earnings[1]. If we are to tackle social immobility, then we must have an education system that is inclusive and not divisive. That being said, it is a problem that the UK cannot seem to solve.

A commonly accepted measurement of social mobility is to compare the academic performance of children eligible for Free School Meals (FSM) with their ineligible counterparts, throughout the duration of their school career.

Let us first look at the attainment gap[2], which reveals a telling story:

graph 1

Percentage achieving ‘Level 4’ in English and Maths at KS2, age 11

graph 2

Percentage achieving ‘A* to C’ in English and Maths at GCSE, age 16

graph 3

Percentage achieving 2+ A-levels, age 19

Across 3 age groups, improvements in social mobility in terms of educational attainment over the past 10 years have been limited – if present at all. Even in light of the slightest signs of improvement, it would take decades to reach parity – and even this is uncertain amidst the unnerving cycle of politics. However regardless of political persuasion, it is difficult to argue against the fundamental fact that a premium for economically advantaged children exists., or in other words, a handicap on the underprivileged.

The difference amongst political commentators arises from the way in which we wish to tackle this problem.


A leftist approach on two fronts

Do nothing - Sweden is a better society to be lower class in[3]

The American Dream is a mere illusion and we should learn from the Swedish. Our futures are determined by our surnames and those of aristocratic descent are destined for a life of luxury. For those of us that are born into less privileged families, we need to accept our fate and it is the moral duty of the state to protect us from the Five Giant Evils[4].

A National Education Service[5]

Enter Jeremy Corbyn. As we have a lifelong healthcare service in the NHS, it is only right that we have one for education: the NES. By modelling the NES on the same building blocks that founded the NHS, we should “invest in learning from cradle to grave”. This will provide the opportunity for anyone throughout their lives to learn new skills or retrain.


Dismantling one argument at a time

We should indeed protect the most vulnerable in society, but following a Nordic-style system of state protection could well prove counterintuitive and lead to an upward debt spiral, burdening generations ahead. Transitioning into a vastly different model is costly and time-consuming, with no guarantee of success. Whilst unequal distribution of goods is a natural product of capitalism, we can still limit its impact. But trying to mitigate the consequences of failed mobility means we lose sight of the real problem at hand. By doing this, we create more problems for ourselves in the form of state-dependency and so forth.

Indeed, education is a right and not a privilege, which is why it should always remain free in one form or another. However, the NES is one step too far, and Corbyn’s proposition of an NHS-style education system is a dangerous one, given that healthcare costs spiralled from the get-go (and in fact exponentially) up until recent measures were implemented to curb this trend.

graph 4

In times when our government should be austere, such a policy would reverse the progress we have made over the past 5 years. Corbyn’s utopian vision of the NES is ultimately unsustainable and it could very well do more harm than good without yielding noticeable improvements in social mobility.


A call for structural reform

Our struggle is not financial, and therefore money will not solve the problem of failed mobility. Instead, it is structural and lies within the system itself. From an anecdotal perspective, grammar schools are a great vehicle to climb the socioeconomic ladder – but not in its current form. It is true that often the advocates of grammar schools are those who themselves have benefitted from such experiences, and there is overwhelming evidence to suggest that such an opportunity for upward mobility is not widespread enough. That is not to say that grammar schools are per se bad for social mobility, but rather their current system of selection is fundamentally flawed and is in drastic need of change.

Hadow’s The Education of the Adolescent (1926)[6] formed the principle of primary and secondary school segregation at age 11. On this premise and with the introduction of the tripartite system of education, grammar school entry was determined on the basis of 11-plus performances. Of the remaining grammar schools in the country, selection is still being conducted in similar fashion. The problem with this method is that the age of 11 is arbitrary, out-dated and untested to any sophisticated academic standard. In any case, the age is merely a historical accident more than anything else, yet this issue is often very little discussed.

Rigorous academic research needs to be undertaken to find a fair age to test children’s true, underlying intellectual maturity. In fact, evidence finds that choosing an incorrect age can be detrimental to a child’s development and in doing so inhibit the ability for the underprivileged to climb the social ladder. Research additionally finds that failing the 11-plus, for many, has proven to be psychologically scarring by limiting self-confidence. As a result, many do not dedicate themselves as much to education to avoid remembering previous failures. This characteristic can be detrimental to professional development in the working world, thereby placing a lifelong glass ceiling on career trajectory.[7]

The consequence of selecting an incorrect age makes hiring tutors for entrance exams an attractive investment for the middle and upper classes. This means that in addition to academic research on intellectual maturity, there is also a need to tutor-proof entrance exams, otherwise there will become – as there is to some degree today – a culture of testing on the basis of wealth over intelligence. By levelling the playing field, only then can education become merit-based.


Steps forward

We have discussed a variety of evidence which suggests that there is a need to modify our current education system and in particular we must introduce a fairer way of testing children on the basis of merit and not wealth. In our current system, the underprivileged are subject to an unfair and unmeritocratic method of selection. Statistics show the extent to which this is true, with students of grammar schools being less likely to be eligible for Free School Meals than those in non-selective schools. The Sutton Trust found that less than 3% of grammar school students were eligible, which is meagre compared to the non-grammar average of 18%.

Only once these criteria are satisfied will grammar schools be a true vehicle for social mobility and in doing so the educational attainment handicap of underprivileged children can be reduced. The answer is reform.

We have justified the existence of grammar schools and what they can have the potential to achieve if executed correctly. If things stay as they are, though, those who are unsuccessful in grammar school selection are left behind in comprehensive schools, destined for academic underachievement. This is driven by a combination of the psychological scarring aforementioned and the low quality of teaching standards in comprehensive schools.

A free economy and strong communities honour the dignity of every person, rewarding effort with justice, promoting upward mobility, and building solidarity among citizens.”

-Paul Ryan, US politician

In order to achieve this and contrary to what Corbyn and many others believe, the education sector needs to move away from the hands of the state. The introduction of academy schools under firstly New Labour and furthered by the Tory-Lib Dem coalition was a step in the right direction. By taking schools out of local authority red tape regulations, schools were given a greater degree of autonomy leading to improvements in teaching standards. This is because free choice over teacher pay structures means that good teachers are rewarded adequately. Not only this, but also the greater funding from central government and private institutions can be invested into providing the best facilities. Autonomy over one’s curriculum additionally allows for a flexible learning process – one that is conducive to innovative teaching techniques and allows for more creative thinking amongst students.

Consequently, academies improve the quality of a school. Our current government can go further by converting more struggling schools into academies in areas of local deprivation. This is a simple method to reduce the premium, as there is evidence to suggest a positive correlation between poorer students attending poorly performing schools. Indeed, research has shown that academies have shown positive effects on social mobility[9]. Since the Education Act of 2010, most academies have been ‘converters’, whereby previously successful schools have become autonomous. Given that these schools are located disproportionately in rich regions, much more needs to be done to support the conversion of underperforming schools into the alternative ‘sponsored’ academies.

graph 5

If less advantaged children remain unable to make the most of our education system, there is no way of achieving a socially mobile society. Urgent action is needed to curb the trend and it is important that the poorest in society receive a good and just education, as a means to escape poverty and improve their living standards.

Scientific research suggests that a child’s brain development is most malleable when youngest, which implies that changes need to be made at a primary level too to lift the performance of state-funded schools to that of private ones. Whilst primary schools have been given the opportunity to convert to academies, this has not been widespread enough for one reason or another, as seen below.

graph 6

What’s worse is that even with the lack of primary academies, the trend of underperforming schools not being converted proportionally to sponsored academies is again prevalent at primary level. The number of converters far exceeds the number of sponsored academies at both primary and secondary level (as seen in the table above previously).


Lessons from Iceland

We can learn of lot from the Icelandic model of education, where the level of social mobility, as measured by the influence of parental socioeconomic background on a child’s secondary education, is the highest of all OECD countries (country code ISL).

graph 7

We look to why this may be the case and pay particular attention to the Icelandic education system below:

graph 8

Academic separation is not undertaken until 16 and in doing so a level playing field is created. ‘Compulsory’ schooling from 6 to 16 ensures that each student has gone through the same educational experience. In fact, most of the Scandinavian countries follow this type of education system, which is perhaps why they fare so well. Whilst greater mobility may be the case because of the high levels of educational spending, its structure is also something that stands out as different to the UK’s and something that is worth considering.

As mentioned, the first major difference is that academic separation starts at the age of 16.

Secondly, even though Iceland’s education spending as a percentage of GDP is in line with other Nordic countries, which have previously been higher than average, what makes Iceland so mobile is its special focus on pre-primary and primary schooling. This type of schooling is an integral part of child development, as we have previously established.

It is not the case that Iceland’s educational spending is extreme, given that its average expenditure per student per year at $9180 is lower than the OECD average of $9487[9]. Even more interestingly, Iceland spends a lot more on pre-primary and primary schooling than secondary and tertiary schooling and this is reflected upon in the table below.

graoh 9

This has resulted in lower than average class sizes in infancy years, where in 2011 Iceland had the lowest student-to-teacher ratio throughout OECD countries in pre-primary and primary schools at 6:1 and 10:1 respectively. As a comparison, the UK average public primary school class has 26 students – 5 higher than the OECD average. Coupled with the fact that British primary school teachers work for fewer hours than average, there is a great deal that has to change in the current primary education structure to ensure that children in the most important period of development are receiving enough individual attention.

graph 10

Source: 2010, OECD (Argentina, China, Indonesia) and UNESCO Institute for Statistics, World Education Indicators programme

As such, Corbyn’s NES plans are unfounded and unsustainable. Given the UK’s circumstances, a spending increase can only be justified if spent on primary schooling. The UK averages higher education expenditure across primary, secondary and tertiary schooling than the OECD average, much of which was fuelled by New Labour. Despite this, the annual spend per pre-primary student is only $6493 compared to the average of $6670. A better approach would be to shift spending from secondary and tertiary schools to pre-primary and primary. Disregarding the lack of spending in pre-primary schooling for a moment, the lack of teaching hours and overcrowded classrooms makes it all the more necessary that the education sector drives for efficiency gains through privatisation.

There is no quick-fix solution to social immobility, but with fundamental structural reform in our education system, long-overdue progress can be made.


Sources cited










Gentrification: Demolishing a Sense of Community?


In 1964, Ruth Glass first coined the phenomenon of gentrification having observed the transformation in the social-structure of Barnsbury, Islington, following the residential displacement of its local working-class population. However, residential rehabilitation is merely one particular feature of today's gentrification process that is now encompassing of broader strategies of, inter alia, economic, social, and spatial restructuring. Indeed, contemporary social movements like Focus E15 indicate that gentrification has become an extraordinarily politicised and contentious phenomenon in the sphere of urbanisation. Its mechanisms could be analysed through combinations of both production-side and consumption-side channels. Neil Smith's (1979) rent-gap thesis has served as a provocative explanation of the production-side factors, describing the process of gentrification as a gradual consequence of the systematic disinvestment of capital in certain localities. But, from a consumption-side perspective, gentrification could be understood as a process of changes in the consumption preferences of the middle-class demographic that have increasingly renounced the monotony of suburbia and have become intoxicated by the thrills inner-city life.

However, London's current process of housing stock transfers can be better understood through the concept of a third-wave of state-sponsored gentrification (Watt, 2009), whereby the state has actively encouraged the gentrification process within previously inaccessible, disadvantaged inner-city neighbourhoods, most of which are home to a plethora of low-cost socially rented dwellings, by promoting the investments of housing associations and privately-operated property developers into the construction of owner-occupied housing, and, in the meantime, validating the destruction of affordable social housing to accommodate these changes. Interestingly, for private-investors there is considerable potential for capital accumulation because of a state-induced rent gap that has come to being because of sustained state-disinvestment into London's urban infrastructure whilst the land that it is constructed on has continually risen in value because of market demand outstripping supply. London's individual councils have all used the rhetoric of mixed-communities, and their supposed benefits in terms of the reduction of socio-spatial segregation and improvements in social-cohesion, as a rationale to displace, and replace, substantial parts of those same communities. It is through regenerative programmes that are “discursively framed as community-led regeneration [initiatives]” (Watt, 2009), such as the New Deal for Communities, that the leverage of those residing in London's social housing against a market-led gentrification process has been removed. Indeed, London's gentrification process, at present, is not representative of a natural, inevitable market adjustment process, but is, in fact, a series of inefficient government interventions that have failed to treat the systemic causes of regional degeneration within the capital and, oftentimes, produced grossly socially inefficient outcomes.

So, what does the existing academic literature have to say about the outcomes of gentrification? Principally, the most commonly invoked consequence of the gentrification process is displacement, which can be defined as the “complex, multi-stranded phenomenon whereby low-income residents are pressurised out of their homes and neighbourhoods, either directly via removal through housing demolitions, landlord evictions and rent increases, or indirectly via the loss of neighbourhood resources” (Watt, 2009). Atkinson (2000) validated this phenomenon as a veritable outcome of London's 'urban regeneration' initiatives and found that in the inner-city boroughs of Hammersmith, Kensington, and Camden, increases in the number of those in professional employment, those with higher-education qualifications, and those that are owner-occupiers, were subsequently followed by elevated levels of displacement of the working-class, the elderly, and private-sector tenants. Naturally, the forced dislocation of these residents from their communities has staggeringly detrimental consequences for the most vulnerable subdivisions of society; the elderly, for example, which are disproportionately represented amongst displacees, could suffer from the removal of long-term, supportive community networks which are imperative for comfortable day-to-day life if they are displaced from the places in which they have legitimate economic and social claims. Whilst neighbourhood transition can, of course, be understood as an organic outcome of the interaction of market forces, and the supposition that a neighbourhood must remain a stagnant environment is entirely inaccurate, the direction of its outcomes, however, are malleable and could be, and ought to be, moulded by political interventions which counterpoise the effects of displacement rather than fostering them. Currently, London is pursuing its strategy of mixed-community development by increasingly utilising public-private partnerships to improve their existing inventory of housing in light of unprecedented levels of budget cutbacks. Yet, the government's benign motivation to dilute London's gravest difficulties of concentrated poverty has been achieved through considerably more hostile approaches by private-developers that have aggressively out-migrated residents of social accommodation. Therefore, this development strategy has circumvented any sense of social responsibility and, more importantly, neglected the “structural causes of regional and city economic decline and poverty” (Atkinson, 2003).

    However, gentrification is less-interestingly considered through residential displacement of individual households than through the effects that the threat of displacement imposes upon on the residents of pre- or post-gentrified districts. Professor Stephen Sheppard (2012) notes that “community improvement actions” are privately-produced public goods that, as is the case with many goods of this kind, unfortunately suffer from persistent under-provision and, as such, are not provided at a socially optimum level. Interestingly, unstable communities, by which I mean those that are consistently plagued by the threat of displacement, are denied investments into socially-beneficial community projects that every resident would profit from had this threat not existed. Ideally, a “perfectly organised” community would have devised institutions to ensure that community improvement actions were provided to a level where the marginal social-benefit of these improvements were equated to their marginal social-cost and, therefore, they would be provided at an efficient level. But, now suppose that residents of the community, regardless of socio-economic class, perceived there to be a considerable displacement risk, then this would have the effect of decreasing the expected benefit from some community improvement because said resident is uncertain whether they will benefit from it over the lifetime of the community. It is therefore clear that if these residents were to value community improvements below their true socially optimal level then, theoretically, they will be under-provided in such communities. Sheppard (2012) chose to test the hypothesis that a risk of displacement could be associated with considerable reductions in community benefit actions by estimating four different regressions; the chosen dependent variables to measure community improvements were the logs of the expenditure per thousand residents and the number of community improvement organizations per thousand residents, and the independent variables to measure displacement risk were the logs of the percentage of the population over the age of five that has moved within the last five years and the percentage of all the population that had moved within the metropolitan statistical area over the same time period. Sheppard found that the estimated coefficients were both statistically and economically significant. Indeed, considerable increases in displacement risk were associated with “a 52% to 72% decrease in community benefit expenditures per capita, or a 17% to 35% decrease in the numbers of organizations” (Sheppard, 2012). Consequently, there is evidence that there exists a social-cost borne by the community holistically, not only by those low-income households typically associated with bearing the brunt of gentrification. It is necessary that London's municipal governments assist in the provision of community improvement actions and that their policies address issues facing the retention of affordable housing such that these potential outcomes of state-sponsored gentrification are counteracted.

Furthermore, Sakizlioglu (2014), of the Urban and Regional Research Center at Utrecht University, explores the outcomes of this element of temporality in the analysis of displacement and has likened the state authorities targeting of Tarlabaşı, Istanbul, for urban renewal to a form of state-sponsored gentrification. Residents of Tarlabaşı found that, after having their locale announced as a 'designated renewal area,' they faced increasingly threatening appropriation strategies from both the public and private sector, suffered from substantial disinvestment within the district and observed the gradual deconstruction of the social-networks to which they belonged; as such, the inhabitants found themselves living in the long-shadows that displacement had cast some time before they were actually displaced. Today, Tarlabaşı is being transformed into the “Champs-Élysées of Istanbul” (Sakizlioglu, 2014), its residents, though, 'decanted' to the peripheral limits of the capital like those in Parisian banlieues.

London's borough of Southwark is similarly undergoing a process of urban regeneration, although it is more moderate in its approach than Istanbul's destructive transformation of Tarlabaşı. Indeed, Southwark Council's regeneration of Elephant and Castle actually comes with a promise that local people will benefit from a “dramatically improved physical environment,” have “access to more local jobs and training opportunities” and the chance to buy thousands of newly built homes (Southwark Council, 2015). However, whether such promises will materialise in the near future remains a much contested issue.

Southwark, of course, is home to two of London's most infamous 'sink estates,' the Aylesbury and the Heygate, which are characterized by extreme socio-economic marginality and serve as perfect symbols of the capital's urban blight and material dilapidation. Naturally, these estates were prime targets for Southwark's own plans for urban revitalisation and the introduction of  socially “mixed communities [which will] help to overcome the problems associated with areas focused on deprivation such as reduced local business activity, limited local jobs and employment ambitions, downward pressures on school quality, high levels of crime and disorder, and health inequalities.” (Aylesbury Area Action Plan, 2010); these are, of course, completely justified aspirations for estates that frequently feature as narcotic-infested backdrops for television's latest crime dramas.

The 'regeneration' of the Heygate Estate, however, has presented previous residents with a scenario that is the antithesis of the discursive vehicle used by Southwark Council. Indeed, the neo-brutalist council estate which formerly provided the local community with 1200 dwellings, the majority of which were socially rented, has recently literally been ripped down by the insatiable hands of private property developers who plan to build approximately double the existing amount on the site. Unfortunately, merely seventy-nine of those units are allocated to be socially rented and only five-hundred are considered “affordable” - I note that affordability in this context does not actually suggest that the estates previous residents could constitute the majority of tenants in the modern apartment blocks, the rent for a two-bedroom flat alone would require an income of almost £44,000, which far exceeds the £12,000 mean-income earned by tenants that socially rent (Wiles, 2014). Heygate's residents now find themselves forcibly decanted across London's other boroughs, many of them far from relatives and workplaces; as an aside, Southwark Council actually engaged in unethical tactics like permanently switching off the estate's district heating systems to flush out its remaining residents, leaving those that are vulnerable without even the most basic utilities. It appears that the previous occupants of the Heygate Estate won't be able to share in the proposed benefits of mixed communities, although it must be noted this is but one constituent of the wider redevelopment of the Elephant and Castle area. The future of the Aylesbury Estate, though, appears similarly bleak.

However, the anti-gentrification narrative, which typically presents neighbourhood transition as totally exclusionary of the locale's original residents, at times, discounts the positive consequences of revitalisation that Southwark Council had alluded to above. Primarily, gentrification can be associated with both absolute and relative increases in the average levels of income in gentrified neighbourhoods. But, to properly examine the net-effect of these absolute and relative changes, it's necessary to understand three possible underlying sources of these changes beforehand. First, those that move-in might earn an income that is comparatively higher than the localised average; we shall call this selective entry. Second, those that move-out might earn an income that is lower than the average; we shall call this selective exit. Or, third, those original members of the neighbourhood that are not displaced might actually experience increases in their level of income; we shall call this incumbent upgrading.


    The Center for Economic Studies (CES) (2010) found that both selective entry and selective exit played crucial roles in determining changes in income levels of gentrified neighbourhoods in the US. It found that in-movers in gaining tracts had incomes greater than incumbent residents by approximately twenty-five percent, which is broadly in accordance with the stereotypical pattern of gentrification which presumes that well-heeled homeowners move into lower-income areas. It also found that residents who moved out of the area earned an income considerably lower than the localised average and thereby helped contribute to rises in mean income levels. However, these two results are merely indicative of an increasing localised average of income and are of limited use in considering whether the remaining residents have actually profited from the gentrification process. Fortunately, the CES's data suggests that incumbent upgrading too had occurred in neighbourhoods undergoing economic succession; residents who remained in their housing units in gaining neighbourhoods experienced increases in real-income levels comparatively higher than their counterparts in non-gaining neighbourhoods. Now, although incumbent upgrading is not the most important contributor to changes in average real-income levels in gentrified districts, it's nonetheless still an important contributor and one which is frequently ignored in discussions of neighbourhood change – discussions that usually assume that indigenous residents themselves cannot drive community improvements. Interestingly, the National Bureau of Economic Research (2008) found that certain indigenous low-income ethnic groups with high-school diplomas actually stood to gain the most from gentrification.


What, then, are the sources of incumbent upgrading in gentrified neighbourhoods? Well, presuming that these communities were heretofore experiencing societal or spatial isolation from job opportunities, then the residential integration of well-heeled in-movers may serve to inject economic capital into the neighbourhood and facilitate access to localised employment that they previously were isolated from (Meltzer & Ghorbani, 2015). Furthermore, incumbents also benefit from ameliorations in information asymmetries concerning local employment opportunities and, therefore, their search costs will decrease. However, whether the original residents actually profit from the influx of business establishments is a contentious issue. Primarily, for the neighbourhood's original residents to benefit from the establishment of new businesses the probability that those firms choose to hire within the community must be moderately large. If service-orientated businesses resolve to set-up in the neighbourhood, complementing the consumption preferences of the middle-class, then these establishments will most probably employ the local labour force because they are unlikely to require skill-sets that are more technical than those already possessed by the neighbourhood's unemployed workers. It can be argued that this process will create positive feedback loops that encourage further employment. But, if the process of gentrification is to be inclusive of London's working-class we must endeavour to ensure that our public policies support the continuous employment of these residents.

However, Lester and Hartley (2013) posit that one possible outcome of economic upgrading observed in certain neighbourhoods is that a process of industrial restructuring had occurred as manufacturing businesses found themselves evicted from industrial buildings by commercial landlords, such that their buildings could, instead, be purchased by property developers or other commercial enterprises. Therefore, it is imperative that policy makers incorporate restructuring efforts, including additional re-training schemes and improvements in education, into their urban regeneration initiatives, such that the neighbourhood's transition away from employment in the manufacturing sector does not increase structural unemployment, further aggravating the phenomenon of spatial mismatch.

Moreover, through the process of gentrification, the appetites of the upper- and middle-classes for high-quality institutions puts pressure on important public services to improve the quality of the service that they deliver, thereby improving the quality of life for all residents within the community. 'More Coffee, Less Crime?' is a recent examination of the outcomes that gentrification has had on the crime rates of certain neighbourhoods in Chicago, playfully using the annual number of coffee shops operating as an “on-the-ground measure of a particular form of economic development and [the] changing consumption patterns that tap into central theoretical frames within the gentrification literature” (Papachristos et al., 2011). Its conclusion? That more coffee does demonstrate a negative relationship with the community's crime rate, especially with regards to serious offences like larceny and homicide. Its logic is simple; indigenous residents are able to benefit from the social, cultural, and economic capital of the more-affluent in-movers and so can demand better law-enforcement efforts that ameliorate crime rates at the neighbourhood and, potentially, city level. Furthermore, the process of gentrification not only improves such institutions but, also, has the effect of offering original residents economic and social opportunities that increase social-cohesion and further decrease delinquency. However, the investigation also found that certain neighbourhoods that have undergone periods of socioeconomic heterogeneity are sometimes less-capable of controlling crime internally than others; this effect was found to be particularly marked in Black gentrifying neighbourhoods where particular types of crime, including those of property and economic nature, have increased marginally. In London, though, it seems that the gentrified neighbourhoods are seeing that crime is actually falling precipitously, but we must question who does this really benefit?

Whilst some academics have argued that 'improving' the social-mix in less-affluent areas has, on aggregate, proffered greater investment into socially-beneficial projects for the local community, the distribution of some of these benefits within these communities has begun to reflect the socio-spatial segregation that has come to define classic anti-gentrification rhetoric and the oppositions notion of 'gentrified London.' Indeed, Butler, Hamnett and Ramsden (2013) have used cross-sectional data to argue that the process of gentrification in the Victoria park area of East London has resulted in “direct exclusionary displacement” of the existing lower-income population from well-performing local schools that have benefited from the influx of the London's upper-classes within the last few decades. Schools like Lauriston and Mossbourne Academy have become part of a middle-class narrative, and have readily submitted themselves to middle-class domination at the expense of inclusion and multiculturalism by constraining local resident’s choice of education through 'distance to school' regulations and increasingly bounded catchment areas. Only those with a certain threshold of social and economic resources are able to make the decision that their local educational establishment is unsatisfactory and, therefore, engage in socially reprehensible behaviour like purchasing property in close proximity to schools like Lauriston, such that their child's name is registered to an address in the school's catchment area, but subsequently renting the address out to other aspiring professionals. Consequently, such behaviour serves to displace children in the locale from what would otherwise be their catchment school, resigning them to under-resourced and under-performing institutions and, more importantly, denying them an opportunity to escape their immediate position in the UK's system of social stratification. Indubitably, one's choice of education has never been a truly free choice, naturally bound by the number of places that schools have to offer and, in the case of the private sector, one's ability to pay, but to further concentrate the freedom to exercise choice amongst the absolutely and relativity privileged (Power et al., 2003) by increasingly rationing choice through 'distance to school' policies is contrary to libertarian ideology and, at the same time, ultimately denies children from lower-income households of opportunities for intergenerational equality.

        It is these disparities in the distribution of outcomes between agents in locales undergoing initiatives of urban regeneration that serve to undermine the propounded benefits of mixed-communities that are premised on the economic, social, and normative, integration of people within heterogeneous neighbourhoods. Lees (2008) argues that the predominant policy assumption that gentrification can foster social cohesion is usually predicated on political conjecture. Instead, the evidence presented contrasted said assumptions and appeared to suggest that “gentrification [tends] to result in ‘tectonic’ juxtapositions of polarised socioeconomic groups rather than in socially cohesive communities” (Lees, 2008). It seems that socially-mixed communities cannot actually guarantee the upward mobility of the working-classes because the lifeworlds of each differing group rarely intersect, which, thereby, restricts the transference of social capital from high- to low-income populations. Furthermore, contact between these divergent groups “tend to be superficial at best and outright hostile at worst” (Uitermark & Duyvendak, 2007) which implies that communities that are socially mixed, and, therefore, home to disparate culture and social-classes, are equally likely to engender community conflict as they are harmony. Indeed, the state's promotion of urban regeneration through mixed-communities as a panacea to London's problems of concentrated poverty is a cosmetic policy that treats its symptoms without actually ameliorating the social conditions that affects its most underprivileged groups. Further, mixed-communities appear to be a completely one-sided strategy that are seldom advocated in equivalently socially-homogenous, but comparatively more-affluent, neighbourhoods; consequently, these strategies increasingly stigmatise the working-classes and, incorrectly, foster the sentiment that all of society should become, or aspire to become, middle-class.

    The literature of the Create Streets and the Policy Exchange's 2013 co-publication of 'Create Streets,' which found itself particularly well-received by those in favour of the UK's current form of urban regeneration strategies, reflects these attitudes that those who reside in local-authority housing require betterment of the socio-economic composition of their community in order to improve their immediate position. Create Streets utilises these thoroughly erroneous, but nevertheless well-established, attitudes as a fundamental component in the formula for the justification of the destruction of socially rented multi-storey tenements, and the facilitation of their replacement by privately-developed “real houses.” Its arguments are premised on the stigmatisation of the high-rise architecture of London's inner-city housing estates, which, apparently, intrinsically lends itself to “[making] people badder, sadder and lonelier” (Create Streets, 2013), despite London's love-affair with luxury condominium towers. However, its implications are concerning because it presents us with a false-choice between the current form of state-sponsored gentrification, a strategy marketed as one of the only instruments of growth within the context of a deteriorating city, or the continual social, and physical, degeneration of its neighbourhoods. Indeed, this nouvelle vague of state-led gentrification, premised on mixed-community policies, owes little to the age-old invisible hand of market forces, but much to an overbearing government with an insidious political desire to cease the municipal management of social housing. Unfortunately, the UK government's urban regeneration strategies are, at present, exclusionary of those that are in a position to profit the most from gentrification's localised outcomes, such as the increased availability of employment opportunities, because the issue of displacement is merely viewed as “an unfortunate corollary of processes that are revitalising city centres, attracting private investment and securing the physical fabric of architecturally valuable neighbourhoods” (Atkinson, 2003).

    However, I do not suggest that the government should endeavour to pursue alternative policies and impose regulations that merely serve to insulate impoverished neighbourhoods from the gentrification process, thereby condemning successive generations of those communities to a destitute existence. But, instead, I argue that gentrification's current form is generally delivering outcomes that are socially inefficient. Primarily, I believe that, instead of pursuing policies that exacerbate London's existing issues of affordable housing, its municipal governments must be observed to be actively involved in addressing the residential demands of its lower-income population. I propose that local councils must proceed to eliminate supererogatory regulatory barriers to residential development, whilst, also, providing long-term financial and technical assistance to entities that include substantial portions of both socially-rented and genuinely affordable units in their development plans; consequently, this commitment will demonstrate that affordable housing is an important component of the broader community. Furthermore, in lieu of dismantling its pre-constructed housing stock, London's municipal governments must support these commitments by promoting development on appropriate brownfield sites. I believe that an increasingly more laissez-faire approach to residential development would provide the necessary incentives for agents to re-optimize their behaviour and this would, therefore, help to mitigate the exclusionary displacement effects of gentrification

Furthermore, municipal governments must resolve to encourage the participation of representative members of localities into their urban regeneration initiatives, such that these members can identify their neighbourhood-specific needs and assist in the development of functional solutions. I suppose that the comprehensive engagement of the local community in addressing their residential requirements before their options become increasingly constrained by the process of gentrification will mitigate the degenerative effects that displacement risk can impose on the indigenous population. Currently, state-sponsored gentrification materialises the abstract concept that the demands of lower-income households are immaterial, this is, of course, clarified by the permitted retrogression of the economic, social, and physical capital in those areas targeted for regeneration; this is something that our policies must endeavour to change. Furthermore, incentivising the investment into, and the operation of, privately-managed community improvement institutions that could fulfil the demands of the community's residents, will exponentially ameliorate declining levels of neighbourhood satisfaction and, perhaps, could expedite other private-market investments that will further revitalise the locality.

Additionally, the policies of neighbourhood regeneration should not only focus on the production of affordable housing units but, also, on the retention of existing units. It is imperative that retention strategies concentrate on the continued affordability of residential units to mitigate the effects of increases in costs which can result in the secondary displacement of an area's residents. Increasing the accessibility of credit to lower-income households, those that may previously have been discriminated against, could potentially offset these sources of secondary displacement. Finally, instead of promoting mixed-communities as the preeminent strategy to resolve London's complex problems of concentrated urban poverty, I argue that public policies should precisely tackle the systemic causes of socioeconomic inequalities. I emphasise that refinements in the quality of educational establishments and improvements in the availability of employment opportunities will serve as the vehicle for reductions in poverty. Introducing 'Community Contracts,' for example, as an initiative to encourage commercial enterprises to provide unskilled employment for lower-income households in neighbourhoods undergoing gentrification, in return for regulatory support to take advantage of market conditions.  I believe that these opportunities would both increase the incumbent resident's capability to remain in the neighbourhood and support the development of commerce committed to hiring within the community, whilst also treating the fundamental causes that perpetuate the cycle of poverty.

It is entirely possible that gentrification can produce mutually-beneficial outcomes throughout the various strata of the UK's society, but to achieve this we must re-evaluate the evidence of the benefits of mixed-communities that we have premised the current manifestation of state-sponsored gentrification upon and then, in light of this, we must proceed to reformat the gentrification process such that it is inclusive of all. It is only through doing so that we can begin to rebuild the sense of community that we've regrettably begun to demolish.

Resources used:

Gentrification, Education and Exclusionary Displacement in East London (SAKIZLIOG ̆ Lu);jsessionid=154782A3949BF5D494A1D55978836FFB?doi=*~hmac=2b4cda5f91635d14c1496ec1465b9f5bb5f761d176b66d3573d1bd70342fb654

Using what we know to solve what we don’t

Every two days we generate an equivalent amount of data to that produced by the whole of human history up to 2003. Such a scale of data is almost daunting, with much, if not most of it, recorded consistently and ubiquitously through sensors embedded into the tools of our everyday: mobile phones, tablets, barcodes and travel passes. As global mobile phone penetration reached 95.5% in 2014, and 90% for developing nations, this advancing use of mobile phones is providing researchers with a veritable feast of data from users. The data are collected not only directly through the sensors in smartphones, (GPS, gyroscope, accelerometer, microphone, camera and Bluetooth) but also indirectly through the cellular infrastructure, creating enormous streams of ‘big’ datasets. This big data represents a new form of research methods for scientific endeavour. The sheer size of datasets calls for novel ways of interpreting, analysing and discussing the knowledge it creates. Distinguished by its volume, velocity and variety, much big data will be geographically referenced and in real time - a sea change in statistical analysis from small-scale studies that comment on static data from the past.

So what can big (mobile) data do? Already, the data generated through user internet searches has been used by marketers to enhance our online advertising experience with ‘targeted’ ads specified to our frequently searched phrases - a development that is thought of by some as useful, and by others as unnerving. As mobile phone penetration has skyrocketed, so has the opportunity to further understand consumer behaviour and create personalised advertising. With a vast amount of people using their mobiles as their primary internet source, clickstream data (which monitors the browsing habits of users by recording a tiny text file of search/viewing history) grants access to the trends in internet searches for shopping, information and entertainment purposes. The development of Google Now demonstrates such a use of big data collection in action for users: a function of the Google search application, it works by recording the frequent actions of users (common locations, popular contacts, calendar appointments etc) providing relevant information to the user such as nearby attractions/events, product listings, developing localised news stories, traffic alerts and event reminders, mostly in anticipation of the user’s location and schedule.

Social behaviours

The data deluge is clearly extremely valuable for marketing applications, but also has the potential to provide new areas and methods of researching social behaviours. Mobile big data has been used to understand the structure of social groupings and how they adapt during critical times. Research in Oaxaca, Mexico analysed cellular data of social responses to an urban earthquake in 2012. Research on the volume of calls, call duration and extent of social circles found that in the minutes after the quake volume increases, duration decreased and social circles expanded widely. The change in call behaviours is easily explained - a panic situation begins during the earthquake, with call volumes increased (larger increases seen in cities closer to the epicentre) as inhabitants rapidly make short calls to their immediate family and then wider social group to confirm their safety. Previously, this kind of information could only be gained via self-reporting - the ability to provide data-based evidence is thus a step forward.

Mining data from smartphones and the cellular infrastructure now allows us to access detailed knowledge about people, things and events that are currently happening, potentially anywhere in the world. The dissemination of new scientific information across the globe is another social behaviour investigated with the use of mobile big data. De Domenico et al.’s 2013 paper ‘The anatomy of a scientific rumour’ crawled worldwide Twitter feeds after the announcement from the research team at CERN Switzerland of the discovery of a Higgs-boson like particle. The data enabled researchers to model the spread of information across the network via the methods of tweets and retweets, with users commenting and giving their personal opinions as well. Clearly, mining big data for analysis is opening up new methods and areas of scientific inquiry.

City planning

What attracts people to places is other people. Big data can further our understanding of why locations work as they do, opening doors for us to see deeper into the meanings behind places, consider new reasons for what makes some areas successful (busy but efficient and safe) or failures (congested or desolate, with a high fear of crime), and see the ways in which the public interact with space and infrastructure. Roth et al (2011) created a map of the flows of pedestrian movement across London as passengers used Oyster cards to travel on the tube. A polycentric spatial arrangement was found comprised of large flows organised around a limited number of activity centres- rather than one central hub of activity. Knowledge such as this about an area allows city planners to better orientate their designs to locals’ actual use of space. Understanding individual traffic movement patterns will allow planners to look to increase efficiency of public transport routes, answering questions such as where to ease congestion by creating new lines or directing new lines to existing stations. The Array of Things team is an urban planning project hoping to ensure central Chicago’s ‘success’ as an area using this idea. The plan includes installing hundreds of sensors across the city that would capture data such as: light level, ambient volume, pollution, humidity, pollen count, smartphone usage, and parking availability. Collecting real-time data on the activity, environment and infrastructure surrounding a sensor has potential uses including providing locals with more fine-grained weather updates and quicker and safer walking/driving routes through the city. All the data recorded would also be openly available for public download, so that it can be used by app developers and researchers too.

Big data for development

The outcomes of big data mining projects have not been a solely developed nation phenomenon. Global Pulse, a UN initiative launched in 2009, is a program with the aim to mine data for assisting development and humanitarian projects in developing countries. The areas of research in this project are vast: food and agriculture, humanitarian action, economic well-being, climate and resilience, gender, and public health. This research therefore helps us explore issues including immunisation awareness, trends in workplace discrimination, estimating migration flows, early warnings of conflict, disaster management during floods, seasonal mobility of populations and measuring global engagement on climate change. Here, big data has been able to go beyond targeted ads and assisted governments and humanitarians in receiving up to date policy feedback and greater knowledge of the groups they strive to assist.

Much of the work in such a project is focused on aiding humanitarian projects in response to major environmental events or violent conflict. Intervention planning for emergencies depends greatly upon knowing where people are. With this in mind, mobile data, which provides a geographically located ‘tag’ of phone users, can enable researchers to describe trends in the macroscopic behaviour of populations through creating relatively cheap population maps in emergency and data scarce situations. This feature of mobile data can be incredibly useful in low-income countries where directed big data sourcing by governments may be infrequent, (e.g in the Democratic Republic of Congo, the last census was taken in 1984, however mobile phone penetration here is 64%). A team working with Antonio Lima as part of the Orange Data for Development Challenge utilised a dataset of mobile phone calls from Ivory Coast and found that social ties are an incredibly useful tool to be manipulated in intervention planning. When vital information needs to be disseminated rapidly (e.g. at the beginning of a disease epidemic), ‘social beacons’ (individuals that make a large number of calls to a wide social set) in communities can be contacted to ensure greater spread of information such as the nearest vaccination centre and suggested hygiene practices to prevent transmission. With knowledge of phone user location, as well as the prime candidates within a population for information spread, governments and organisations tasked with responding to crises are equipped with greater ability to reach vulnerable people more quickly.

Though big data analysis, as an emerging discipline, has not come without its concerns. Our mobile devices are with us for a significant portion of our daily lives, acting as witness to many private moments. Thus issues of privacy abound as sceptics and proponents debate the ability of personal information to be de-anonymised and individuals identified from their activity on social media, particularly with mobile data mined from geo-social media (when users tag themselves on location). Experimental results have found that identification strategies can achieve an accuracy of more than 80% using only 10 ‘check-ins’. One can argue that by participating in location based social networks, users are implicitly agreeing to the privacy disclosure agreement, as they are sharing their location and information to all other users. However there is clearly a call for greater public awareness and information campaigns concerning this, as many users will remain unaware of the potential uses of their data.

This could be partly addressed for the future with the introduction of more computer science based classes in schools, as an attempt to demystify the technology and aims of research in this discipline, as well as encouraging greater interest in the emerging field. Currently only few university institutions in the UK are able to offer course at undergraduate level, despite widespread agreement that computational social science is a fundamental skill for the modern workplace. Educating the public of the technology, developments and potential issues would surely only make them more aware, better informed, and able to decide when to update their social media status.

Sarah Willson is an undergraduate student of Geography at University College London, and can be contacted on Twitter at @SarahWllsn

EUtopian Regulation

David Cameron has made the reduction of red tape a cornerstone for EU reform. As we know, there will be no treaty reforms before 2017, the best we can expect is promises albeit firm ones. Brussels may well agree to deregulation as incoming Commission Presidents have done so often enough before: but can we believe such promises?  Whatever is bound can be unbound or, more likely, just overtaken by events. This paper moves on from what is likely to happen and considers the best that could happen.  What is the common ground between necessary commercial regulation and maximising UK competitiveness?  One obvious option is that London and Brussels should stop competing with one another to impose more regulation: one set of unnecessary regulations is bad enough but two are suicidal.

After reviewing what EU and UK politicians are telling us, the paper sets out alternative ways of dividing regulatory responsibility. Should we hand over responsibility to a single global regulator?  Or an EU one?  Or should nation states compete, each reducing regulation to increase competitiveness?  Or some other arrangement?

Finally, what seems to be the least bad solution for the EU – what would be EUtopian regulation?

Can we believe the politicians?

At the beginning Chapter 43 Charles Dickens’s David Copperfield, Copperfield has become a parliamentary journalist for a morning newspaper and writes “Night after night, I record predictions that never come to pass, professions that are never fulfilled, explanations that are only meant to mystify. I wallow in words. Britannia, that unfortunate female, is always before me, like a trussed fowl: skewered through and through with office-pens, and bound hand and foot with red tape.”

Plus ça change…

  1. Precisely the regulations to be removed?
  2. The mechanism to achieve that?
  3. Who, in the future, would regulate what?

Danny Alexander spoke in France on “making the EU fit for the challenges ahead” in January 2015.  All he said about regulation was 

“And it [very practical things that the EU can do] can free businesses from unnecessary regulations.  A 25% reduction in EU administrative burdens on businesses could lead to an increase of 1.4% in EU GDP.”

Hardly specific. 

In both Brussels and London, “deregulation” translates in practice to rewording regulations.  For example, the 2015 UK Deregulation Act has a long list of regulatory amendments including: “Section 11 of the Employment Act 1989 (exemption of Sikhs from requirements as to wearing of safety helmets on construction sites) is amended in accordance with subsections (2) to (10).”  This is not untypical: a few moribund regulations have been removed but to no benefit to competitiveness as they had already fallen from application.

An EU Memo of 18 June 2014 summarised the Brussels position: “The Regulatory Fitness and Performance Programme (REFIT) launched in December 2012 is a programme aimed to make EU law lighter, simpler and less costly so that it benefits citizens and businesses and helps to create the conditions for growth and jobs. It does notput into question the EU’s policy objectives, but seeks for more effective ways to achieve them….

On 2 October 2013, the Commission defined an ambitious agenda with over 100 individual actions including 46 legislative actions to simplify and reduce regulatory burden, 7 initiatives to repeal existing regulation and 9 initiatives to withdraw proposals for new regulation. In addition, the Commission committed to carry-out 47 Fitness Checks and evaluations under REFIT to assess the efficiency and effectiveness of EU regulation and prepare future initiatives for simplification and regulatory burden reduction.”

In other words, of the 40,000[1] or so EU regulations, Brussels found just 16 that could be withdrawn after 18 months study. Furthermore, “A decision by a Commission official in the name of and on behalf of the Commission is just as binding on member states as treaty articles. There is no hierarchy of laws in the EU. The number of more or less binding acts passed 134,500 in 2015 if these different types of acts are counted together.”[2]

Clearly, the UK government is not going to sift through all those by the end of 2015.  What the government probably wants, but has not spelled out, is a return to the Social Chapter opt out secured by John Major and an ability to opt out of finance sector legislation of the grounds that the sector is well regulated by London and it is as critical to the UK economy as agriculture is to France (which has a veto on changes to the CAP). But the reality is that we do not know from what regulations the UK seeks exemption, nor the mechanism for achieving it.

Alternative regulatory regimes for the EU

The neat solution where one authority regulated a single international market has probably never existed and never will.  Some argue that it never should, as such a monopoly would endlessly seek more power and regulatory control for itself without being prevented by countervailing forces. On the other hand, can regulatory authorities compete to attract more business as brands of soap powder do?

Income taxes work that way: to some extent companies and individuals move to lower tax countries but the tax differences have to be big enough to justify what can be a large upheaval. But under international agreements, income is usually only taxed once.  Tax paid in one authority offsets the need to pay it in another.  That does not apply to regulation: conforming to UK regulations does not mean one is exempt from conforming to French ones.

Patents and trademarks have a different arrangement.  Each country registers its own but trademarks can also be registered in all member states simultaneously (Madrid system) or collectively at the European Patent Office as a “Community Trade Mark”. Similarly for patents.

So in principle there are many options for the future of EU regulation. The alternative regulatory regimes include (there may be others):

  1. An untrammelled single EU regulatory authority with divisions for each sector.  This would respond to consumer concerns and complaints but have to justify itself to member states in terms of compliance costs, the effect on internal (EU) and external (global) competition, barriers to entry and innovation.  This is the ultimate “a single market requires only one set of regulations” approach. The justification is that if a consumer needs protection in one member state, she needs it in all of them. Conversely, if she does not need it in one she does not need it in any.
  2. No central EU regulation at all.  National regulation being accepted throughout EU as for Cassis de Dijon. But the income tax principle could be applied to regulation, namely that any firm complying with the regulations of its HQ member state would be deemed to be complying EU-wide. Consumer confidence would affected by country of regulation but the EU would still be a single market.
  3. Regulation tailored by size of business (SMEs to have less regulation not least because they are more subject to competition) and by business sector risk and complexity. As a rule of thumb, the less well the consumer can be expected to understand the products and the bigger the risks from them (e.g. medicines and financial services) the more regulation will be required.
  4. The present situation: EU regulation throughout EU plus member state regulation in each country.  This is not “single market” at all.  It is inconsistent for the UK to press for the single market at the same time as introducing an unceasing flow ofUK regulations. At present both EU and national regulation is out of control with no consideration compliance costs, effect on internal (EU) and external (global) competition, barriers to entry and innovation.  This is the worst option.

Regulatory principles versus precision

Principles-based regulation would be far easier to understand and use far less paper. It would not be difficult to produce a set of regulatory principles for each business sector on one sheet of paper.

The regulators, legislators and larger companies are working against the public interest in putting precision (and complexity) ahead of principle. Competition, costs and innovation all suffer.  By relying on principles only, these regulation factories both at national and supranational levels could be closed down and a commission of interested parties meet once a year to deal with any necessary revision to those principles.

A genuine return to principles may be too radical for the present time but some such drastic approach is needed to reverse the tide of regulatory excess.

Competition between jurisdictions

As noted above, competition between jurisdictions, e.g. the US and EU, could either slow the pace of regulation or enhance it or make no difference. The self-interest of the current regulation factories promotes more regulation and complexity.

Governments do know the cost burden of excessive regulation but do little more than call on business to name the regulations they could do without and then having civil servants consider the suggestions until the long grass covers them over.  So far as I know, only New Zealand has ever taken the radical approach of doing the opposite, namely asking civil servants to identify the regulations they had to keep and then jettisoning the rest. It worked splendidly.[3]

With the rise of emerging economies in Asia and Latin America, maintaining global competitiveness is going to become more and more crucial for the US and EU, the twin regulatory powers. At present their business is more inhibited by regulation than the newcomers and as things stand, this is likely to deteriorate.  We need to campaign for turning regulatory competition around so that it becomes a drive towards less rather than more.

Proposed policies

I began this paper believing that governments would need to agree regulatory reductions and perhaps have just one global rule factory rather than the many we have now.  Others have pointed out the danger of giving such a monopoly such powers, especially given their track record.  A Damascene conversion may be unlikely but that is what is needed for any of the alternatives above.

So which of those first three alternatives is chosen matters little compared to a determination to reverse the flow.  The policies that do are:

  1. Governments to be brought to realise the economic damage from current levels of regulation with the prospect of worse to follow.
  2. A determination to make deregulation real and to use competitive pressures downward either unilaterally or by negotiation..
  3. Principles to take the place of precision.


[1] There are now more than 40,000 legal acts in the EU. There are also 15,000 Court verdicts and 62,000 international standards, all of which must be respected by citizens and companies in the EU.”

[2] Ibid.

[3] See Tim Ambler and Francis Chittenden, Deregulation or Déjà Vu? UK Deregulation Initiatives 1987/2006, British Chambers of Commerce, January 2007.

Flux Versus Stasis

Parmenides and Heraclitus were two contrasting philosophers who lived at roughly the same time, about 480 BC.  Parmenides took the view that nothing changes.  He claimed that a goddess had shown him the way of truth versus the way of opinion, and he deduced from logical truths about the universe.  The universe, he said, is a single and unchanging entity, it always was, and always will be.

"Nothing comes from nothing," he said.  Observation shows us the illusion of change because all senses belong to the world of opinion, not to that of truth.

Heraclitus, his contemporary, took the exact opposite view.  Whereas some sought permanence amid disorder and uncertainty, Heraclitus embraced change.  Everything is in flux.  "We step and do not step into the same rivers," he said.  We call it the same river but new waters have replaced those we stepped into.

He taught the unity of opposites.  "The way up and the way down are the same."  And the same is true of other opposites, day and night, winter and summer, war and peace. He did not mean that they were identical but that they changed into each other.  Day replaces night, night day.  Everything is constantly changing. You are not the same person you were.  He denied that "a thing is what it is," because things change.

So the pre-Socratic philosophers gave us two takes on the universe, two opposing mindsets.  Parmenides was for permanence, Heraclitus for constant change.  Heraclitus was for flux, Parmenides was for stasis. 

Now we run forward to 2000 years to the year 1494 when Pope Alexander VI divided the recently discovered New World between Spain and Portugal.  It didn't last, largely because he didn't allot any of it to England, the Netherlands, or any other European nations.

I now propose to divide the world as the Pope did.  Putting on my papal zucchetto, I divide the world into the followers of Parmenides and those of Heraclitus.  It is a division between flux and stasis.

The division is between those who seek the stability and predictability of permanence, and those who are ready to embrace change – even to welcome it.

This is far from more conventional divisions into left and right.  Normally we associate conservative temperament with wanting to keep things familiar and comfortable, and resisting change as unsettling as it is unfamiliar.  Yet if we look about us today, at those who yearn for the world of Parmenides, we find some strange alliances.

Trade unions like to keep things as they are.  They resist new technology and new working practices because they threaten jobs.  They want people to remain in familiar employment as far as possible.  The early industrial revolution featured Luddites, and those who threw their wooden shoes (sabots) into the new machines and gave us the words saboteur and sabotage.

Their modern counterparts regard change as threatening.  It puts their standard of living at risk.  So union leaders, conventionally left wing, are at one with retired Tory colonels in their suspicion of change and their aversion to it.

Now look at environmentalists.  Many of them look back to when we all lived more simply and made less impact on the planet.  They urge us to go backwards, to travel less, to produce less, to consume less, to do less.  Many of them are against growth.

At heart they are deeply conservative, the children of Parmenides.  They yearn for a predictable, static world.

Those who want to keep things the same support such things as protection and subsidy for domestic industry.  They want the comfort of traditional goods produced by traditional methods in traditional places.

The admission of cheaper foreign goods threatens that stability and portends upheaval.  So tariffs are urged to protect domestic producers from competition, while subsidies from taxpayers are urged to keep them in business

Those who want things to stay as they are oppose extensions to Sunday trading, just as they opposed it altogether a generation ago.  They deplore more relaxed moral attitudes and the changing nature of the family.  If the followers of Parmenides today could put their motto in three words, it would be "legislate against change."

The followers of Heraclitus, on the other hand, know that change happens.  Nothing stays the same.  Technology changes.  Human ingenuity and inventiveness find new ways of doing things and new things to do.  As a result, practices change and society changes.  And as society changes, attitudes change and our moral judgements change.  The children of Heraclitus know that change brings upset for some, but they also know it brings progress for many.

Human beings have rational minds.  They think, and when they think, it changes things.  They think of ways to make them less vulnerable to fate and fortune.  They try instead to control their circumstances.  Agriculture enables them to store food against leaner times; buildings protect them from the weather.

At every stage humans have sought to improve their lot, to manage things better than their predecessors did.  But improvement means change, and the price of progress is learning to adapt to change, to ride with its flow.

Those who embrace Heraclitus do not try to sustain industries made obsolete by change.  They do not use tariffs and subsidies to keep the world at bay.

They might use the wealth created by change to ease the lot of those adversely affected by it, or to help them adapt to it, but they don't try to stop it.

Human beings constantly think of new ways to achieve their goals.  They test them, and those that succeed gradually spread, transforming society in the process.  It is constant flux, churn, just like the churn in economic activity.

It works better in practice than legislation does.  If a thermometer shows the room is too cold, it is possible to inform the government and have them send someone round to turn on the heater, but it's faster and more efficient to let a thermostat do that automatically.  That's what a market does – it responds to continual changes, and it responds and adapts to their stimuli.  It's like a thermostat.  Markets are a way of living with change – indeed of using change.

We can divide societies into ones that seek stasis and ones that embrace flux.  Static societies try to sustain traditional practices, sometimes relying on tradition itself and strong social sanctions against deviation from accepted norms.  Often the force of law is used to compel compliance with conventional norms, with prosecution and punishment of those who behave differently.  

Societies based on strong religious norms tend to fall into this category, with divine punishment in the afterlife threatened against those who fail to comply with social norms of this life.  Isolated societies also tend to be more static.  Without contact with other cultures or comparison with them, their ways of doing things are seen as the way of doing things, and alternatives are seen as repugnant, failing to comply with what is decent. 

People in such societies tend to live much as their parents did, with a measured rhythm of life that is repeated in each generation.  There is a psychological pattern, too, in that they do not tend to brim with inquiring minds or intellectual curiosity.  They tend to be as culturally static as they are socially.  Most people know their place and keep to it.

Societies that embrace flux are turbulent.  Changes come thick and fast and undermine stability.  Their citizens compare themselves firstly with other societies they are in contact with, and for some brave minds, with imagined societies.  There is greater social mobility, with people seeking to improve their lot in life, and to pass more on to their children than they started with themselves.  They seek improvement, which necessarily means change.  They set targets and seek to attain them.  They experiment and innovate.  People live lives that are dramatically different from the lives lived by their parents, and incomprehensibly different from those lived by their grandparents.   Their lives are characterized by progress.

The story of humankind can be told as the story of progress – by no means constant, by no means linear, but the story of progress nonetheless.  It took only 12,000 years for us to come out of our caves and plant our footprints on the moon – that's not even a tlck of the astronomical clock.

Everything changes and we either live with that or we resist it.  So now my papal division of the world has divided it between the followers of Parmenides and those of Heraclitus, between those who think things can be constant and those who think that change is the only constant.

Societies that seek stasis limit freedom.  They restrain the right to innovate, to experiment, because this threatens stability.  Societies that embrace flux tend also to embrace freedom – freedom to differ, freedom to change. 

I would like to quote from a movie to illustrate that division.  The movie is "Things to Come," made in 1936 by Alexander Korda and with a screenplay by H G Wells. I do recommend you to see the movie but I certainly recommend you to see the ending.  The closing scene takes place on the balcony of an observatory looking up at the night sky.  They have just sent a capsule carrying people to voyage around the moon.  Cabal's deputy challenges him.

"Oh God, is there never to be any age of happiness?  Is there never to be any rest?

Rest enough for the individual man.  Too much and too soon, and we call it death. But for man no rest and no ending. He must go on. Conquest beyond conquest.  First this little planet with its winds and waves. And then all the laws of mind and matter that restrain him. Then the planets about him. And at last out across immensity to the stars.  And when he has conquered all the deeps of space and all the mysteries of time – still, he will be beginning.

But we're such little creatures.  Poor humanity's so fragile, so weak. Little animals.

Little animals? If we're no more than animals, then we must snatch each little scrap of happiness, and live and suffer and pass, mattering no more than all the animals do or have done.  Is it this, or that.  All the universe or nothing!  Which shall it be?"

Let's Keep the EU Renegotiation Simple


Perhaps it is only since Tony Blair gave away so much of John Major’s negotiation of the Maastricht Treaty signed in 1992, that we have realised what a good deal that was and how lucky David Cameron will be, if he can win most of it back.  As it is, his shopping list remains secret but it is most likely too long.  He wants to come back with as many goodies as he can get to justify a “yes” campaign so the longer the list, the more successes can be shown.

That may not be wise: sometimes the rifle is more effective than the shotgun.  This note argues that what we most want is not a ragbag of trifles but the implementation of just one thing: the “subsidiarity”[1] agreed in the Maastricht and confirmed in the Lisbon (2009) Treaties[2].  In other words, returning sovereignty to all member states for those things that really do not need EU uniformity. 

Lord Garel-Jones was the UK Europe Minister during the Maastrict negotiations. In an important speech to the International Institute for Strategic Studies on July15th, he said that the subsidiarity agreement achieved in the Maastricht Treaty was thereafter obstructed by Brussels.  The Lisbon Treaty had a further shot at transferring responsibility for all save that which really had to be EU-wide back to member states. A complex system of “yellow cards” was introduced under which if enough chambers of national parliaments voted to make the issue in question subsidiary, then it should be left with member states, not Brussels.  See the Appendix to this paper for a full explanation.

The download forming the Appendix is the Brussels party line that these transfers of powers are taking place. Needless to say, in reality, Brussels has continued to obstruct the return of any issue to member states in defiance of the Maastricht and Lisbon Treaties.

Most of the reforms the UK are seeking would be met by implementation of subsidiarity, e.g. lightening regulation on SMEs, welfare for cross-boarder workers, social matters and employment rules. If the subsidiarity agreement is honoured, by the Commission and all member states, almost all else falls into place. 

To take one simple issue: why do hairdressing salons need to be regulated by both Brussels and Whitehall?  A further tranche of hairdressing regulation appears to be on the way from the Commission.  Of course, hairdressing salons should protect the health and safety of its customers and employees but that is a generic requirement for all businesses.  In such a competitive and traditional market, with no cross-border trade, why should any further regulation be needed at all, still less both nationally and from Brussels?  Why should we care if hairdressing regulations are the same in Naples and Sunderland?

The EU official view of subsidiarity

Nowhere is the EU hypocrisy in claiming one belief and practising the opposite more obvious than for subsidiarity, except perhaps deregulation.

The EU claims that subsidiarity is one of the three guiding principle of the EU: “In all cases, the EU may only intervene if it is able to act more effectively than Member States.”

Yet its own presentation of the topic looks a little different: “The general aim of the principle of subsidiarity is to guarantee a degree of independence for a lower authority in relation to a higher body or for a local authority in relation to central government. It therefore involves the sharing of powers between several levels of authority, a principle which forms the institutional basis for federal States.”[3] Note the EU’s assumption of superiority and federal government.  And, importantly, subsidiarity has to be justified, not the reverse.

The three levels of authority are EU exclusively, shared and subsidiary.[4]

“The areas over which the EU assumes exclusive competence are:

  • the Common Commercial policy 

  • the Common Agricultural policy

  • Fisheries policy

  • Transport policy

  • Competition rules

  • Rules governing the free movement of goods, persons, services and capital."

The list of “shared competences”, i.e. the EU and/or member states’ areas of legislative responsibility, is exceedingly long and the list of areas for subsidiarity does not exist at all. In practice Brussels casts its net, sometimes with the tacit support of member state civil servants over anything it cares to regulate.

Thus whilst the Treaties and Brussels pay lip service to subsidiarity, it is simply not implemented.

Implementing subsidiarity

Lord Garel-Jones suggested that the yellow cards requiring subsidiarity should be replaced by red cards with no opportunity for Brussels to frustrate the process.  With the majority of EU members, however, now in the Eurozone and calling the shots, enough votes for red cards would be very hard to achieve.  Member states cannot achieve them now for yellow cards.

What needs to happen now it that all the areas of shared competence be apportioned either to the EU’s “exclusive competence” or be deemed subsidiary and left to member states, starting with hairdressing.  Furthermore, the areas of exclusive competence need to be more tightly defined.  One such, transport policy, could be interpreted to mean that only Brussels can make decisions concerned the new UK HS2 train line.   All apart from those tightly defined competences should be deemed subsidiary.

The main problem with the status quo is that the Commission only has to assert its opinion that it should be an EU matter and the Court of Justice of the European Union will automatically back it up, as happened to Germany in 1997.[5]

It would always be possible to add sectors to the uniformity (“exclusive competence”) list at a later date but that should require the “double lock”, i.e. majorities of both the Eurozone and non-Eurozone members.

Recovering subsidiarity would go a long way to satisfying the UK’s wishlist.  Of course the UK would like more, notably protection for financial services, control over employment law and reform of the Common Agricultural Policy which has been so often promised and equally often reneged upon.  With luck, David Cameron can achieve some of that but the brutal truth is that if the UK cannot find at least 14 other member states to agree, it is not going to happen.

Locking in agreement on subsidiarity

Treaty change is not going to happen until 2020 at the earliest, because major EU intergovernmental meetings take at least four years to set up.[6]Brussels may hope the current UK government will be gone by then and be replaced by something more pliable.  Given the EU’s history of disregarding democracy and steaming on regardless, the UK should insist on some form of binding short term agreements to last until a new treaty ratifies them.  One to one treaties between the UK and each other member state provide an answer and are legitimate within existing EU rules provided they are compatible with EU Treaties.  Since subsidiarity is very much enshrined in the Maastricht and Lisbon Treaties it would be hard for the ECR to rule against bilateral agreements implementing it.

These agreements should start from the Dutch government's new philosophy of "Europe where necessary. National where possible" (see here)The bilateral treaties should commit both parties to insist upon:

  1. The revised list of EU exclusive competences
  2. All other matters being deemed subsidiary
  3. Revision the rules for the ECJ so that they follow these agreements and not the whims of Brussels.

Leaving the EU Parliament and Commission out in the cold would do them no harm at all.

Reasons for all member states to implement subsidiarity

  1. The principle was agreed in the Maastricht Treaty and remains “the general principle of European law”. Implementation has been frustrated by the Commission.

  2. This benefits all member states and is not special pleading for the UK.
  3. There is a good reason in 2016 for EU members to agree to this which did not exist in 1991: nationalist parties are gaining strength and unless nationalists are given some red meat, the EU will fall apart.  As well as Greece, look at France (National Front), the “Alternative for Germany” party, Spain (Podemos), the Danish People’s Party, the “Finns Party” and UKIP.
  4. Brussels should be shamed by exposing the gap between their rhetoric and reality.
  5. It would be a major step towards less regulation.  With full implementation of subsidiarity, each sector would be regulation either by the EU or each member state but not both.
  6. Less regulation and more freedom for member states to develop their economic advantages (e.g. financial services) will increase the competitiveness of the EU as a whole.
  7. While consolidating the implementation protocols into a future treaty would be helpful, treaty change is not essential.  The principle has already been established and binding inter-governmental agreements (bi-lateral treaties), which are allowed by the Amsterdam Treaty, would suffice.


Brussels, on past form, cannot be trusted.  Any positive outcomes from the renegotiation need to be watertight and legally binding.

Now we need legal authority to be apportioned either exclusively to the EU and more tightly defined or all other matters be deemed subsidiary and left to member states. Shared responsibilities to be abolished.

Pending a new treaty, intergovernmental (bilateral) agreements should set those agreements in stone.


[1] The concept was invented by the Roman Catholic church to allow some degree of devolution and reached Brussels via the German word “Subsidiaritāt”

[2] Article 5(3) of the Lisbon Treaty: “Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.”

[3] THE PRINCIPLE OF SUBSIDIARITY, p2, Fact Sheets on the European Union – 2015.

[4] For definition and allocation of competences see also 

[5] Germany claimed that the Directive on Deposit Guarantee Schemes was not compatible with the principle of subsidiarity

[6] Meetings to make minor treaty changes can be much quicker especially if Germany approves.


Appendix - Yellow Cards

“EU law-making is undergoing a profound change in an oddly-shaped annex to the European Parliament building in Brussels. Here, officials working on behalf of 28 national parliaments are helping their members flag up draft EU laws that may fail to respect ‘subsidiarity’. That is the idea that the Union should act only when strictly necessary, and that the national governments should act where possible. The 2009 Lisbon treaty gave national parliaments the right to police subsidiarity through the creation of a so-called 'yellow card' system. This allows a third or more of them, acting together, to vet and temporarily block draft laws proposed by the European Commission. (For legislation in the sensitive area of justice and home affairs, the threshold is only a quarter.) Each parliament has two votes, or one per chamber for the 13 member-states that have bicameral systems. Each chamber that votes for a yellow card provides a 'reasoned opinion' why the EU law in question is an unwarranted trespass on their sovereignty. A yellow card requires 19 reasoned opinions (14 for a piece of justice legislation). The Commission can get around a yellow card by giving clearer justifications for its actions and proposing the law again, perhaps with some changes or caveats added. But if it does, half the national parliaments can still block the second attempt, rather than just a third the first time around. This is the unwieldy 'orange card' (29 reasoned opinions). At this point, if either a majority of governments or MEPs agrees that the orange card is justified, then the legislation is defeated outright.

National parliaments have yellow-carded new legislation only twice. The first occasion was last year when they rejected the adoption of common EU rules on the right to strike (known as 'Monti II'). But last month, parliaments in Britain, Cyprus, Hungary, Ireland, Malta, the Netherlands, Slovenia, Sweden, Romania, as well as the French and Czech senates, rejected a proposal by the European Commission to create an EU prosecution office. (See here for a fuller analysis of the stakes in the European public prosecutor debate.) National parliamentarians' deliberate blocking of a project that has a distinctly federalist flavour marks their arrival as serious players in how the Union is governed. Why?

First, because the Commission has so far treated a yellow card as a virtual veto. In 2012, EU officials withdrew Monti II, albeit while insisting that the legislation did not fall foul of the subsidiarity principle. European Commissioners have even amended draft legislation pre-emptively, such as the 2012 directive on public procurement and another (the IORP directive) on pensions, just to ward off a likely yellow card from national parliaments.

Second, most national parliaments have long had their own offices in Brussels. But the existence of the yellow card regime since 2009 has made this network of offices – cooped up in their shared corridor – more coherent by giving it a common purpose. These officials are getting better at using the brief two-month period allowed for assessing draft legislation to connect the debates in their home parliaments to each other, and to the EU's legislative process. So it is likely that yellow cards will become more frequent in future.

Third, the yellow card scheme is making national parliamentarians more assertive on EU issues. Apparent attempts by Commission officials to pressure wavering parliaments over their EU prosecutor proposal only served to turn more chambers against the idea. And now, one national parliament, or even a single chamber, has a powerful means to signal that they do not fully agree with their own government's European policy. For example, France's government, and its National Assembly, supports the creation of the proposed EU prosecutor. The French Senate clearly has a different take. (The powers of such chambers over EU business could become pivotal if a member-state has a minority government.)

Hence the yellow card innovation is encouraging governments to be more careful about consulting national parliamentarians first – including the frequently ignored upper chambers – before striking deals in Brussels. It may even make the lines of democratic accountability within individual member-states stronger than they were before the Lisbon treaty. And the scheme should demonstrate to eurosceptics in Britain and elsewhere that the checks on EU executive power provided for under the Lisbon treaty are far better than they would perhaps like to believe.

The spectacle of national parliaments acting in concert to limit EU action is aptly symbolic at a time when euroscepticism is rising to unprecedented levels across the Union. But it is more likely that the yellow card system will act as a safety valve for such pressures, rather than a US-style filibuster for those who would like to stymie the EU altogether. Governments could also make a minor, surgical change to the treaties to expand the procedure so that it can be more constructive. For example, new rules could allow a third of national parliaments to request the Commission to bring forward new laws and a half of them could ask for useless or out-of-date legislation to be repealed. Furthermore, eight weeks is only a heartbeat in European politics. The amount of time available for parliaments to consider the Commission's draft proposals should be extended to twelve weeks. (These ideas were recently proposed in a major CER report.)

Twenty years ago, Jacques Delors, then president of the European Commission, jokingly offered a €200,000 prize for a clear definition of what 'subsidiarity', a concept drawn from Catholic theology, actually meant. Lord Mackenzie-Stuart, a former British president of the European Court of Justice, later termed it mere “gobbledygook”. But the actual answer is neither theological nor legalistic. It is being eked out politically, on a case-by-case basis, as some 40 parliamentary chambers across Europe slowly learn how to form alliances, determine what their shared interests are, and – when warranted – take action vis-à-vis Brussels."

The impact of interest groups on public policy

Interest groups impact upon public policy in several ways.  Firstly, when legislation is being prepared, those drafting it consider the likely impact upon any specific and identifiable groups.  They consider the likely effect on the population as a whole, which is normally beneficial, but also consider any sub-groups of that population which might be adversely affected.  A proposal to open foreshore areas to ramblers will benefit those who might take advantage of their new-found rights, but might impact negatively on those who have previously enjoyed exclusive access.

Secondly, the legislators who are to determine public policy will take account of how interest groups might respond to it.  Some do this because those interest groups include numbers of their constituents whom the legislator wishes to represent properly, while others take account of the likely electoral impact.  All things being equal, they would rather have members of interest groups vote for them rather than against them.  Some politicians have made a policy of assembling sufficient support from interest groups to build a majority, even though their support of some interest groups has adverse effects on others.

Thirdly, it is sometimes the interest groups which take the lead in lobbying for legislative changes that will benefit their members.  This often takes the form of rent-seeking, in which the aim is to use legislation to secure improvements for their members that would not be attained in its absence.  A proposal that hairdressers should licensed, and that only qualified ones should be allowed to practise their trade, is one that brings advantages to existing hairdressers at the expense of those who might otherwise enter that trade in the future.  By limiting the numbers of competitors, it facilitates higher prices than would prevail otherwise.  Much lobbying for new regulation is of this form, seeking to benefit current practitioners at the expense of new ones.  A large established firm can afford the cost of meeting regulatory requirements more readily than can a start-up would-be competitor.

It is also common to see interest groups lobby against proposed changes in public policy because they perceive a threat to the continued well-being of their members, or some undermining of advantages they currently enjoy.  A proposal to end academic tenure in the United States might open up many employment and promotion opportunities to young academics, but it would meet with determined opposition from organizations that represent those who either have tenure or who perceive themselves to be on the brink of securing it.

There are, in addition, interest groups composed of those who share an ideological view and who are prepared to defend it against legislative changes that might run counter to it.  Those committed ideologically to promoting equality might well oppose any measures which could allow some to prosper more than others and thus bring about greater disparity.  Those of a conservative disposition who feel unsettled by change might well be prevailed upon to oppose measures that threaten to upset the status quo and replace it with something unknown.  This is not necessarily because they oppose the content of the proposed reform, just that they oppose change itself.

There are many groups who would not accept the description as conservative, but which nonetheless oppose many of the trappings of the modern world.  They can be rallied to oppose modern agriculture, genetic modification, new buildings, new modes of transport and new lifestyle freedoms.  At the root of some of this might lie a yearning for their own childhood when things were simpler and slower.  Many of them feel unhappy with growth and progress, and claim that the new opportunities and choices they present are unnecessary and even counter-productive.

Sometimes ideological opposition to change combines itself conveniently with self-interest.  It was 40 years ago in 1973 that I was first asked in the US to delineate the difference between a developer and a conservationist.  I was told that a developer was someone who wanted to build a mountain cabin in the wilderness, whereas a conservationist was someone who already had a mountain cabin in the wilderness.  Jocular and cynical though the answer is, it does express an essential truth: that many of those who oppose development already have access to enjoyment of amenities, and think these will be degraded if such enjoyment is extended to others.

Whatever the motivation that directs interest groups such as these, they present a serious problem to those who would provide innovative public policy solutions to social and economic problems.  Interest groups can thwart useful reforms, and they can also pressure legislators into introducing legislation that imposes costs on others to satisfy their rent-seeking aspirations.

In a democracy the size of an interest group is important, given the need of current legislators to secure re-election, and of would-be legislators to win votes.  Size, however, is not paramount.  The effectiveness of an interest group can, paradoxically, be inversely proportional to its size in some cases.  Consider the fact that in 1850 farmers in the US constituted 64 percent of the workforce. This had dropped by 1900 to 41 percent.  The figure today is 1.9 percent.  This means that US farmers have in one and a half centuries gone from nearly two-thirds of the workforce to fewer than one fiftieth of it today.  Yet few, if any, would dispute that farmers today comprise a far more effective interest group than they did then.  There is more pro-farmer legislation on the statute book, and they have more subsidies, supports and special rights than did their much more numerous predecessors.  It is easier for farmers’ lobbies to influence legislation now than it was then.

Self-awareness is often of more importance than the numbers in an interest group.  If people perceive themselves to be members of a group with known interests, the group itself can be more effective than if people lack such self-awareness.  Farmers know they are farmers and stand to benefit from pro-farming legislation.  Pensioners know that they are affected by changes to pensions that are introduced.  Rural dwellers know they can be affected by changes that take place to the countryside.  

Groups which are not self-consciously aware of their status are less effective.  If people do not realize how forthcoming legislation will impact upon their interests, they have no particular motivation either to endorse it or to oppose it, and will be difficult to rally on either side.  A measure which increases farm subsidies will, in general, command the enthusiastic support of farmers.  They can be organized to lobby legislators, to demonstrate, to write letters and to campaign in other ways.  The taxpayers who will foot the bill for these subsidies might be many times more numerous, but they are less self-consciously aware of their status.  They do not, in general, perceive themselves as losers, and are difficult to mobilize in favour or against specific measures that will affect tax levels.

Sometimes a group which stands to gain or to lose from particular policy proposals might not realize that it is in this position.  Those who object to a new power station being built, be they local residents or conservationists, can identify their interest.  Their amenity will be downgraded, or their ideological preferences circumvented.  They can organize opposition with those similarly affected and constitute an effective interest group.  On the other hand, the users of electricity, both present and future, those who stand to gain cheaper and more reliable energy supplies do not see themselves as beneficiaries.  They are dispersed and not conscious of their status as beneficiaries.  They will not normally organize as a lobby in favour of the power station to set against that which opposes it.  They are dispersed and their interest is not obvious to them.

There is a second important asymmetry.  It is that the smaller interest group which sees its advantage sees it as significant, whereas the larger group, if they do perceive their disadvantage, see it as relatively small.  A subsidy might make a huge difference to the living standards and prospects for farmers, yet cost taxpayers a near-negligible amount, maybe pennies a year.  The ones who stand to gain big have more motive to campaign than the larger group which sees its potential losses as tiny.

In this way legislators can act to benefit large numbers of small groups, all of which might be grateful from their gains and campaign for them.  And while the cumulative cost to taxpayers might be large, no individual measure is seen as worth campaigning about because the cost of each is small, and it is only the cumulative cost which is large.

Similarly the gains to large numbers from a new proposal might be seen by them as small, even marginal, whereas the loss of value perceived by the small group might be highly significant to them.  Thus the small group has a motive to campaign, whereas the large group does not.

A proposal for a new housing estate is seen by local residents as making a big difference to their lives.  It might degrade their view and impair the quality of some of their countryside.  It will probably mean more vehicles on the roads and more congestion.  It might lower the value of their own homes.

On the other hand, those who stand to gain, the people who might live in those new homes, do not usually know who they are.  To young people wishing their own home, or urban dwellers who would prefer to live in the country, the one new estate adds marginally to the choices and opportunities open to them, and even this small gain is usually unknown to most of them.  A big and perceived loss to a few contrasts with a marginal and unknown gain to the many.  This is why such contests are usually seen as being between local residents who stand to lose, against big business developers who stand to profit, rather than against the unknown people who might benefit from the development.

This asymmetry is particularly significant for the Conservative Party.  While its leadership might want economic development and growth, including new house-building, many of its MPs represent rural county constituencies whose residents are anxious to protect their existing amenities against the encroachment of new developments.  They might recognize a case for new housing and opportunities for young first time buyers, but all of them would prefer to have it take place somewhere else.  And all of the somewhere elses added together constitute almost the whole country.  This is the famous NIMBY phenomenon.

While the NIMBYs are prepared in principle to see development take place elsewhere, rather than in their own back yard, those whose ideology looks down on growth and development as such, preferring what they see as the measured rhythm of a slower pace of life, do not want any kind of development anywhere.  The acronym for them is BANANAs rather than NIMBYs, in that it stands for “Build Absolutely Nothing Anywhere Near Anyone.”

The effect of all these factors is twofold.  Firstly it acts as a brake on progress and development.  Entrenched interest groups, even though they might constitute a small minority, know their advantage is at stake, and are in a position to campaign, and the adverse publicity they generate can weaken the resolve of legislators to press ahead with the intended reforms. Thus policy proposals calculated to benefit the population in general can be thwarted at the hands of perhaps small numbers who perceive adverse consequences for themselves, and are sufficiently concentrated to be effective.

Secondly, relatively small interest groups can use the political process for rent-seeking activity that acts against the common good.  One by one they can impose burdens on the general populace that convey concentrated advantages for themselves, and even though the burden in each case might be small, taken together they can constitute a substantial drain on the resources of the many in order to secure advantages for the few.

The analysis thus far constitutes a critique.  It explains why policy proposals which could benefit the many are often blocked, while those that benefit the few at the general expense can succeed.  To these effects must be added the insights of Public Choice Theory, that legislators and administrators pursue policies which serve their own advantage, sometimes even in circumstances where this runs counter to the interests of the public they are nominally employed and empowered to serve.

These factors explain why reform can be difficult to achieve and why sometimes policies injurious to the general good are enacted.  The critique aids analysis, but does not, of itself, aid innovation.  The question arises as to whether there is a creative counterpart to this critique, an approach to policy formulation which takes account of the interest groups involved and somehow manages to neutralize or circumvent their opposition. 

The answer is that there is such an approach, and it is one which takes on board the likely responses of interest groups and which incorporates into the proposals measures calculated to prevent or to overcome their hostility.

One such technique is to identify the interest groups that will be affected by a policy innovation, and to build into the proposal measures to protect their perceived advantage.  This was done when the Post Office monopoly telephone service was privatized.  Rural dwellers were concerned that a telephone service run for profit would be less ready to connect remote country areas, and the county MPs were concerned on their behalf.  A requirement was written in to require the new company to connect remote areas, so the concerns were satisfied.  Groups representing disabled people worried that a for-profit service might be less prepared to offer the same services to disabled people, so it was made a requirement that the new company must offer such services.

Another technique is to offer affected groups something in exchange for their perceived loss of benefit, something that they value sufficiently to accept it as compensation.

Employees of the Post Office telephone service were concerned that a private company could not offer the same job guarantees as a public body could.  Their unions ran a campaign against privatization with posters depicting a pair of scissors cutting the cord of a telephone handset.  The company’s response was to offer employees the chance to become shareholders in the new company, and to share its success.  Employees were given preference in share applications, and any of them who bought 200 shares was given a further 200 shares free.  The union urged its members to oppose privatization, but over 90 percent of them took up the offer to buy shares.  The tactic here involved the recognition that the interest group’s leaders did not necessarily represent the opinions of their members.  In effect the government bid over the heads of the leaders with a direct appeal to the members themselves.

BT was successfully privatized in what was then the largest share issue in the world.  Some consumer groups feared that a BT monopoly would be exploited to the disadvantage of customers, so the privatization created a smaller competitor, Mercury (owned by Cable & Wireless), and BT was required to carry its signals into customers who chose it.  This assuaged the consumer groups, the more so when subsequent reviews were built in, at which time the number of permitted competitors would be increased.  One consequence is that the UK now has one of the world’s most competitive telecoms markets.

The approach of offering an interest groups something of greater value than the benefit foregone was used in housing policy in the late 1970s and early 1980s. Some 35 percent of Britons lived in state-owned houses, most at rents well below market levels. The political problem was that they constituted almost a rotten borough, electing legislators who supported subsidized rents at a cost to others paying local and national taxes.  The council house dwellers were an interest group well aware of their advantage, and all attempts to move rents towards market levels failed at a political level because state tenants voted against candidates who attempted this.

The new policy was the famous right-to-buy initiative.  If people valued their subsidized rents, they might value even more the opportunity to become home-owners at a discounted price.  State tenants were offered the chance to buy their own homes, with huge discounts on assessed market values, depending on how long they had lived there.  It was, in effect, a capital cost since for a one-off discount on the market price of the property, the government achieved an end to the annual subsidy on it.

Housing and house-building have always been an area in which interest groups impinge on policy.  It was true in the past and remains true today.  Ministers talk of the need for new homes, appealing to the young voters who might become home-owners, but must contend with the fact that large numbers of new houses will depress the price of the existing stock, adversely affecting current home-owners.  Since for most people their home is their most substantial item of saving or investment, their interest lies in rising values not in falling ones.  Current home-owners know who they are; future ones generally do not.

The technique of compensating an interest group with something of greater value has been used many times.  British Airways, when it was state-owned, needed to slim from 59,000 to 39,000 employees before it could operate efficiently and profitably as a private company.  None was threatened with dismissal.  Cash sums were offered instead to those prepared to leave voluntarily, and the sums were set high enough to encourage enough of them to do so.  Some used the money to achieve long-held desires to set up in business.  Again, from the BA point of view it was a capital cost, paying money up front in order to buy more efficient operation in future.

The voluntary and non-confrontational aspect of this approach has led to it becoming almost routine.  When local governments or business firms have to slim down owing to financial constraints, it is commonplace now for this to be don by voluntary redundancy, voluntary early retirement, or ‘natural wastage,’ meaning that departing and retiring employees are not replaced.  The approach is popular because the interest group is assuaged by this approach and does not cause trouble or embarrassment to the local authority or the business concerned.

The offer to an interest group to compensate them for loss of advantage need not be monetary.  People might be prepared to accept greater opportunities for advancement in return for lower job security.  It is often the case that the private sector does not provide the same level of job security as its public sector counterpart, but might provide easier opportunities for promotion.

Some people will accept greater independence and flexibility as compensation for a forgone advantage, valuing the chance to exercise more initiative and take more control over the circumstances of their employment.  The essential point is to adapt the policy initiative to incorporate some compensatory advantage, monetary or otherwise, to offer to an affected interest group, preferably at a level sufficient to soften their opposition.

The effect of all this is often to make the proposed initiative rather messy, with all kinds of ad hoc clauses included to placate interest groups that might otherwise thwart its passage.  This is true, but a messy proposal that succeeds is better than a clean one that fails to be implemented. Sometimes the concessions to interest groups will lower the value of what is being achieved.  Again, this is true, and again it is to be preferred to no achievement at all.

There can even be an issue of fairness, with critics saying that the advantages enjoyed by interest groups were unjust, and should not be compensated for.  The response to this might be that the compensatory offer is preferable to the continuation of that unjust advantage.  When state-owned houses were offered to their tenants, some middle class home-owning Conservatives objected.  Their case was that they had bought their houses the hard way, while the state tenants had for years paid below-market rents, made possible by the taxes paid by home-owners. Now the government was offering those tenants a chance to buy at a price below what their house was worth, and they thought this unfair.  The answer at the time was that the sale of council houses would end the continuing annual subsidy to support their rent, and that this one-off concession would reduce the demands made on taxpayers in the future.  

It undoubtedly entered the thinking of the government of the day that if state tenants became home-owners, they would no longer have an interest in voting for candidates who supported cheap rents, but might now have an interest in voting for candidates whose outlook seemed more favourable to home-owners.

Interest groups founded upon a shared ideology are often more difficult to compensate, since their interest might not be based on any personal advantage, but on a shared view of how society should operate or be constructed.  Teachers unions have opposed giving choices to parents or operating independence to schools because they are committed to a view of education in which children are allocated to school based on what are seen as the needs of the community, and in which schools are required to operate in like manner to each other.  For similar reasons the unions tend to oppose measures that devolve powers away from local education authorities down to individual schools.  There is probably no compensation that could be offered which would wean them away from that position.

There is the possibility, however, that even where an interest group cannot be placated by the offer of alternative or compensating advantages, it might be possible to call into being an interest group that could outweigh them.  In the case of the state houses, most local authorities were totally opposed to the initiative which reduced their housing stock and their ability to allocate it.  They were, however, outweighed by the new group of state tenants who saw themselves as prospective purchasers, and who had no interest in supporting their local authority’s resistance to the reform.

In the case of school choice, it is unlikely that any advantage offered to the teachers’ unions would placate their opposition, but there are two new groups that could outweigh their opposition by perceiving advantages for themselves in supporting it.  The first comprises parents who think their children might benefit if they had free choice between schools.  Those previously allocated places for their children in low quality schools would see benefit in being able to choose a better one for them, and like the prospective home-buyers, they would constitute a group much larger than the teachers’ unions, albeit more dispersed and less experienced at lobbying.

The second group is constituted from among the headteachers.  Many of them welcome the extra authority which comes with operating independence for their schools.  Many relish the chance to make and implement real decisions about how the school should be run, instead of being ciphers for a central authority which sends out detailed guidelines for them to follow.  While not as numerous as the teachers; unions, the headteachers generally command the respect of parents in a way that teachers’ s do not.

Thus the combination of school choice and operational independence for schools, while it cannot placate one interest group whose ideology sets it in opposition, can nonetheless conjure up two new groups to outweigh its influence.  A policy initiative, if it is to succeed, might therefore first consider how to win over any interest groups who might otherwise stand to lose out from its introduction, and secondly how to create new interest groups to counter-balance those who cannot be won over.

It was in this spirit that the Adam Smith Institute set out to solve the problems of a housing shortage without alienating existing home-owners whose amenity and value might be adversely affected, while securing the acquiescence of many of the environmental lobbies which have hitherto opposed more building.

The proposal began with an overview of existing land use in Britain.  Some 90 percent of us live in urban areas, and we occupy 8.6 percent of the total land space to do so. Nearly three-quarters of Britain (72 percent) is classified as ‘open space,’ and 11.6 percent is forested.

The popular vision of a green and pleasant countryside does not always accord with the reality.  Much land, including land in the green belts, is used for intensive farming, with large monoculture fields of crops much as wheat or rapeseed.  UK farms have a very high level of productivity, backed up by intensive use of fertilizers and pesticides.  They do not provide a diverse habitat for wildlife, and are not particularly environmentally friendly.

The ASI proposal is to convert 3 percent of farmland in England and Wales over a 10-year period.  The land would be converted in the following ratio: 90 percent would be given over to new woods and forests. 5 percent would be for housing, and 5 percent for supporting infrastructure.  Thus a total of 0.15 percent of farmland would become housing, and a further 0.15 percent for infrastructure.  The remaining 2.7 of that 3 percent would become wooded.

The principal change would see tree cover increase by 130,000 hectares, an increase of 11 percent.  The proposal is for the creation of diverse woodland, including small streams and lakes, providing a habitat for animal, birds and insects, and considerably friendlier to the environment that much of the agriculture it would replace.

The remaining tenth of the 3 percent of farmland converted would allow 950,000 homes to be built, together with supporting infrastructure.  This would make a considerable impact on the nation’s housing shortage, giving more opportunities for young and first-time buyers, and providing many more opportunities for those wanting to live in rural areas.  It would create new jobs in rural areas and boost the nation’s economy at the same time.  Interest groups which seek a vibrant rural economy with jobs available for young people there should welcome this. 

Existing home-owners in the countryside constitute the biggest potential interest group opposed to new housing there, but they are offered something in return.  Fairly unsightly and unfriendly fields of monoculture would be replaced by woods with attendant wildlife.  None of the new houses need be overlooked by existing houses.  Instead of their view being spoiled by the sight of new houses, current countryside dwellers would find it improved by the new woods created. 

Environmentalists and conservationists who would normally object to new building in rural areas are offered something in return.  The new woods would be friendlier to the environment than the crop fields they replaced, and would provide a diverse habitat for wildlife.  Furthermore, the reduced use of fertilizers and pesticides, combined with the carbon absorbing effects of the extended tree cover, would count as a considerable environmental improvement.

People who are ideologically opposed to all development, growth and human activity would not be satisfied, but many environmentalists would accept the trade, regarding the new homes built as an acceptable price for the environmental gains of the new woodland.  There would be a very small loss of green belt land, but in compensation there would be major environmental improvement of other green belt land, nine times more than any lost.

It is quite common in disputes involving potential rural development to have winners and losers.  Usually it is either the developers or the conservationists who win, the one at the expense of the other.  This proposal, by contrast, is deliberately structured in such a way that there is something in it for most groups to come out ahead, with only a tiny group unsatisfied because it conflicts with their ideology.  The other groups can all benefit, and this includes the building firms, the would-be home-buyers, current rural home-owners, those wanting to sustain the rural economy, the environmentalists and conservationists who seek less chemical pollution and an improved environment for plants and animals, and those who simply want the countryside to look nicer.  It is structured so that nearly everyone can come out as winners.

This process of identifying the interest groups and incorporating measures to build in their support or to at least mute their opposition is not a particularly easy one.  It is comparatively straightforward to identify interest groups that might stand to lose out from a new policy initiative.  Indeed, some will step forward to identify themselves by noisy opposition to the proposals.  But the process of thinking up and incorporating measures that might assuage them is less straightforward.  It is essentially creative activity that requires the flashes of invention and insight that are required for new ides to emerge.  It is by no means a deductive process or one that can be carried out by following a formula.  

Nonetheless it offers a way round the impasse which is caused when groups which stand to lose an advantage currently enjoyed will campaign to thwart new policy initiatives that might benefit the many.  It minimizes the conflict which reform proposals can cause, especially in controversial areas such as development and land use change, and it does this by making allies of its potential opponents. By identifying potential opponents before the proposals are set in final form, and by co-opting them with bolt-on measures for their benefit, it smoothes the path for desired reforms without the rancour and adversarial politics that reforms can often trigger.

There are two extras.  This approach promises to shorten the time that reform measures can take as they make their way through the inquiries and court procedures normally put in their path.  And finally it has the additional effect of increasing the number of policy initiatives that make their way safely through onto the statute book or into implementation.  Whether or not you regard that as a good thing depends on how satisfied you are with the current status quo and how ready you are to accept that reform need not always be for the worse.

Seven Misconceptions About Europe

Myths and deceptions abound concerning the EU and Britain's place within it or outside it.  Oliver Lewis in the Spectator has done a workmanlike and admirably brief summary of what he calls "Ten myths about Brexit," identifying scare stories.  There are also 7 common errors about Europe that will almost certainly feature in the debate.  Some are misconceptions and self-deceptions, but all are untrue.

1.  The first is the misidentification of Europe with the EU.  "Britain must stay in Europe."  "Our future belongs in Europe."  Although the term "Europe" is often used in Britain to refer to "the Continent," Britain is part of Europe.  The land link that connects England, Wales & Scotland to mainland Europe is under the Channel, but islands of European countries are included in the term.  The European Union, by contrast, is a political and economic association of some European countries.  It does not include such European countries as Norway, Switzerland and Iceland.  If the UK leaves the EU, it will remain part of Europe, sharing the cultural heritage and the links forged by history.

2.  It is not true that if the UK chooses to leave the EU, we will be like Norway, having to accept EU rules, but having no further say in the framing of them.  Countries outside the EU have to meet EU rules for goods they export there, but do not have to meet EU rules for their domestic goods or for ones they export to world markets.  The UK might seek a relationship with the EU similar to that between the EU and the USA, or between the EU and China, or it might opt for a closer one such as that enjoyed by Switzerland.  There are several options.

3.  We are told that the UK has not lost sovereignty to the EU; it has pooled sovereignty with other nations.  This might have some truth in a technical sense, but little in a practical sense.  The UK can exercise a say in EU deliberations, but it is routinely outvoted by nations with a totally different conception of law and of the role of the state.  The UK has a tradition of Common Law, and of looser reins of state direction than most of its EU counterparts.  Other EU nations often combine to pass laws that Britain perceives to be against its interest.  Britain, on the other hand, has little impact on what happens in Continental countries.

4.  The EU deal claimed that it was worthwhile for its member nations each to sacrifice some individual sovereignty in order to achieve EU-wide rules that would enable all members to prosper.  This was the argument put to encourage the UK to join in 1973 and to reaffirm its membership in 1975.  Britain was then the "sick man of Europe" because of its basket-case economy.  Times have changed.  UK growth now easily outstrips the EU's.  It is creating more jobs than the other members combined.  Meanwhile countries such as Greece, Italy, Spain and Portugal are searching for the prosperity that was supposed to follow their surrender of sovereignty.

5.  The loudest misconception is that British jobs would disappear if the UK left the EU.  As Lewis points out, the famous "3 million jobs will disappear" dates back to a 2000 study by the National Institute for Economic & Social Research that simply counted the jobs sustained by exports to the EU.  EU customers would not suddenly stop buying British goods if Britain were no longer an EU member.  They buy goods from many countries, including the US and China, and would continue to buy from the UK.  It is in their interest to do so.  Worldwide trade agreements from the WTO onwards would ensure that the UK and the EU had access to each other's markets.  If anything, jobs would be created if Britain were free to trade with the rest of the world on its own terms.

6.  We are told that foreign investment would cease to flow in if Britain were not part of the EU project.  The same claim was made if Britain did not join the euro. It remained outside, yet last year saw the highest level of inward investment in the UK in over a quarter of a century.  It makes the same mistake as the claim over lost jobs, the assumption that UK trade with the EU would splutter to a halt without full UK membership.  Since the UK has a huge trade deficit with the rest of the EU, it is scarcely credible that other EU members would wish to reduce trade with Britain.

7.  Various special interests which benefit from the EU budget have expressed alarm that their grants would disappear if Britain left the EU.  Universities are concerned about research grants, farmers about agricultural subsidies.  It is true that some UK interests count on EU grants that would disappear.  It is also true, however, that the UK contribution to the EU budget would also disappear, a sum that dwarfs the grants made to interest groups.  This would leave the UK government ample funds to replace such of those grants as it saw merit in sustaining.

It is quite possible that Mr Cameron will secure an advantageous deal from his EU colleagues that allows the UK to protect its sovereignty while enjoying a vigorous trading relationship with its partners.  If he does, the British people might well vote to accept that deal.  It will be better for the debate leading up to that vote, however, if the above misconceptions about the Europe and the EU are laid to rest.

Pivotal People at Pivotal Times: John Blundell

John Blundell (1952-2014) was a very critical individual in the world-wide advance of classical liberal ideas in the 1980s and beyond.  As a young student in the UK, John played an instrumental role in spreading the ideas of the Austrian School of Economics among college and university students.  In his 30s who would assume a leadership role in the US in organizations such as the Institute for Humane Studies, and the Atlas Economic Research Foundation. And in the 1990s and 2000s, John would return to the UK and serve as the General Director of the Institute for Economic Affairs.  Along the way, he published a book on Margaret Thatcher, and a book on the important contributions of “Ladies of Liberty”.

John was personable, committed, and professionally organized.  This is why he could have such a critical role at such a young age and for such a sustained period of time.  I personally knew John from the mid-1980s, and in fact my wife Rosemary worked directly for John at the Institute for Humane Studies from 1986-1988, which was a critical time, as the IHS in 1986 celebrated its 25th anniversary and this coincided with a major capital campaign that was directed by John.  What I want to stress is that John was the right man, in the right organization, at the right time — he was a pivotal person at pivotal times in the world-wide resurgence and advance of the ideas of classical liberalism.  I would be remiss if I didn’t also mention Christine, who was his partner through thick and thin, and who played such an important role at both the IHS and then the IEA.

My narrative of John’s role is rather straightforward. (1) He possessed unique organizational skills, and this talent was evident early on so while in his mid-20s he was given major responsibilities, such as organizing the Austrian School of Economics conference at Windsor Castle as the follow up to the conference at South Royalton. (2) Clarity of mission defined John’s work at the IHS, Atlas and the IEA, he did not suffer from mission creep, but as he stressed in his IEA monograph, Waging the Battle of Ideas, he took seriously Hayek’s message from “The Intellectuals and Socialism.”  Quoting Hayek, “Unless we can make the philosophical foundations of a free society once more a living intellectual issue, and the implementation a task which challenges the ingenuity and imagination of our livest minds, the prospects of freedom are indeed dark.”

John’s mission was not one of politics, nor even one of policy, but of cultivating the creative development of policy relevant ideas.  John was an ideas man.  Clarity of thought and clarity of exposition were defining characteristics of what he sought in others and what he demanded of himself.  He was interested in the “marketing” of the ideas that explained the institutional order of productive specialization and peaceful cooperation among free individuals, and the spread of those ideas to audiences that previously had not heard the message or remained unpersuaded by the message.  But while he may have recognized the importance of tailoring and contextualizing ideas, he never failed to emphasize the critical ideas of private property, freedom of trade, freedom of association, sound money, and fiscal responsibility.  Finally, (3) John was the right man in the right organizations at the right time.  In the 1980s, John was the organizational head and manager of the Institute for Humane Studies.  He made possible the programs that were instituted under the intellectual leadership of Walter Grinder and Leonard Liggio.  Most critically, John oversaw the move of the IHS from small offices in Menlo Park, CA to the organization playing a central role in the intellectual life of a major university – George Mason University – and a massive expansion in its operating budget.  Then in the late 1980s and into 1990s, John moved to Atlas where he oversaw an explosion of free market think-tanks across the US and especially the state level policy institutes.  And, finally, in the 1990s and 2000s, John returned to the IEA where he oversaw the great expansion and resurgence of that venerable institution of classical liberal scholarship and analysis.

At the IEA the old story was that basically Fisher met Hayek, then Lord Harris, and then Arthur Seldon and the IEA was off and running. The team of Harris and Seldon was indeed a formidable one and had a major impact on the culture and policy atmosphere that resulted in the Thatcher revolution.  But the modern history of the IEA cannot be written without due recognition of the great work John Blundell did for 2 decades as its general director.  Again, John led the battle of ideas, and a new generation of students and interested members of the public were exposed continually to new ideas of liberty presented in new ways and by new voices.

The international movement for classical liberalism experienced major growth during John’s tenure at the IHS, Atlas and the IEA and it is no mere coincidence.  John’s commitment to the ideas, his clarity of mission, and his unique organizational capacities put him in a position to play a pivotal role.  He didn’t waste his opportunities.  Instead, he made the most of them.  It is now up to us to continue to push forward his good work, and not squander the opportunities we are afforded to advance the ideas of liberty – the intellectual heritage of Smith and Hume, of Say and Bastiat, of Menger, Mises and Hayek, of Alchian, Buchanan and Coase, etc.  John Blundell was indeed a pivotal person at a pivotal time.

Do we need the FCA?

Students of the Financial Conduct Authority will appreciate the FCA’s Business Plan 2015/16 which mostly sets out what it does, but also touches on what it achieves and its value for UK citizens.  It is as close to accountability as the FCA gets.

What does the FCA do?

The core business is the supervision “of about 73,000 financial services firms operating in the UK, and we prudentially supervise those that are not covered by the Prudential Regulation Authority (PRA). We look closely at firms’ business models and culture and use our judgement to assess whether they are sound and robust.” (p.63)   Understanding each of 73,000 firms better than the manager of that firm is a Herculean task even with 3,060 staff and a budget of £460M. But that is only part of the FCA’s business.

Annex 2 lists 106 new EU regulatory initiatives in which the FCA is involving itself.  It would be good to believe they were seeking to reduce the number, and simplify and reduce the burden, of the on the British financial sector and its consumers.  There is no hint that such is the case.  The FCA seeks “active engagement” which can be translated as assisting more rather than less.

In addition, the FCA has a programme of domestic regulation. Yet the FCA should not now be creating new financial regulations at all.  Under the Brown administration’s agreement with the EU, Brussels is responsible for all new financial regulation leaving the UK solely with supervision.  For the FCA to add new rules is not merely piling Pelion upon Ossa, it is undermining the City’s competitiveness and unnecessary.  In a single market, a regulation is either needed everywhere or nowhere.  

In June 2014, the Chancellor created a Fair and Effective Markets Review (FEMR) of financial services, co-chaired by the Bank of England, FCA and HM Treasury. The report is due next month but has been widely trailed. Before we see that review (due July), and in an effort to keep itself busy, the FCA has announced a further review (due spring 2016) covering some of the same ground, the Investment and Corporate Banking Market Study (ICBMS): “We are examining issues around choice of banks and advisers for clients, transparency of the services provided by banks, and bundling and cross-subsidisation of services.” 

In addition Annex 1 lists 30 “current and planned market studies and thematic work” not all of which will lead to new regulation.  Perhaps the most significant is the “Culture review”.  There is no mention of whose culture, nor how and why it should be reviewed.  Reassuringly the start and finish dates have yet to be decided.

So far as one can see from the business plan, the FCA has no central guiding principle to determine what it should do.  The Financial Ombudsman Service deals with consumer complaints and the Competition and Markets Authority deals with policing fair markets and competition.  By contrast, the FCA seems to involve itself without restraint in anything it feels like doing.  It is no surprise that its costs are growing at 6% p.a.

Measuring performance against the statutory objectives

The Chairman, in his foreword to the plan, highlights the FCA’s “principal tool [for measuring success], our outcomes-based performance framework” (p.7). As searching that description did not reveal such a framework, he presumably is referring to the table below. 

Screen Shot 2015-05-26 at 14.04.45

It is unusual, to say the least, to have a set of performance measures without a single number.  And there is no discussion about whether these objectives, for that is all they are, can be attributed to the FCA or not. Most of them are what the firms do but it is impossible to know whether the firms’ performance improved, or quite possibly deteriorated, as a result of the FCA intervention. It may be hard for the firm to keep the consumer at the centre of its attention if the FCA is knocking on the door.

The paperwork I now have to complete for my stockbroker has multiplied two or three times as a result of “compliance” which I also have to spend £20 a time for.  In all other respects, the service is exemplary, but this has tipped my stockbroker experience from satisfaction to complaint.

The “respected regulatory system” will let only the good firms know where they stand, leaving the miscreants, presumably, in the dark. Is low financial crime an indication of the FCA doing well or failing to detect crimes or, just possibly, the police deterring crime and catching criminals?

The Business Plan refers the reader to their quarterly data bulletin for the actual figures but, guess what?, these have little to do with the table above.  They are:

  • Monthly number of people contacting FCA about consumer credit.

  • Outcomes of upheld complaints.

  • Annual volume of “approved persons”.  There are about 20,000 p.a. and, in the last two years, not a single application has been rejected.

  • Attestations “are a supervisory tool used to ensure clear accountability and a focus from senior management on putting things right in regulated firms.” Basically they are individual senior executives promising to put things right. There were 74 of those in the year to March 2015.

  • Skilled person reports. There are 50-60 cases a year of consultants being called in to investigate matters more closely.  The great majority are conducted by accounting firms at a cost of over £150M p.a. The quarterly data simply give the number, not the cost nor whether they are value for money, still less whether the FCA adds any value.

  • The number of financial promotions. The relevance of this item to FCA performance measurement is opaque.

The simple bottom line of this section is that there is no performance measurement of the FCA.  It is an elaborate charade.

Value for Money?

In his Foreword, the Chairman also stated “We are also committed to working as efficiently as possible with firms to deliver value for money, as well as the right outcomes for consumers and the financial markets.” (p.7). This topic next arises, in any substantive way, on p.37: “We remain focused on the principles of good regulation and advancing our objectives in the most efficient and effective way. We will continue to measure and evaluate our impact and report publically [sic] on this. Our aim will be to be as effective as possible and focus our resources on the front line of regulation. In 2015 we will launch an Efficiency and Effectiveness Review, which will look at the value for money of areas of higher expenditure. As part of this we will review our governance and decision-making processes. To embed this we will have a new structure,”

This good intention is repeated a number of time in the pages following, e.g. “We will achieve this by delivering year-on-year improvements in effectiveness, efficiency and economy. One of the key drivers of our strategy is to increase our efficiency and effectiveness.” (p.72).   

Nowhere does the plan indicate how the FCA’s effectiveness, efficiency and value for money should be measured, still less what the numbers are or should be.  The nearest we get is the p.37 quote above. As some army wag wrote on a Berlin wall in the 1940s: “we tend to meet any new situation by reorganising; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralisation.”

There is no evidence of the FCA providing value for money or even understanding how that might be measured.


All the things the FCA does could be done as well, if not better, by other agencies:

  • Consumer complaints have vastly increased since the FCA and Ombudsman services were created.  In the year to Match 2015 the FCA had 150,000 consumer contacts (almost all complaints) and the Ombudsman contacts have risen from 62,170 in 2003 to 512,167 in 2014. One has to wonder about cause and effect. There are undoubtedly too many cases coming to the FCA and Ombudsman Service but the answer to that is not to increase these quangos, and allow malpractice to grow, but to take systemic action to minimise malpractice and when it does not arise, pressure the firms to deal with the complaints themselves, e.g. by massively increasing the penalties on complaints upheld by these two quangos, including gaol sentences.

  • Consumer complaints do, and should, go to the Financial Ombudsman Service which has 2,400 staff of its own.  The FCA deals with only about 25% and is not now needed.

  • As noted above, the FCA should not now be creating new financial regulations at all.  It should be helping the EU deregulate, simplify and reduce the burden of financial regulation, not assisting the EU in undermining the City’s competitiveness.  In a single market, a regulation is either needed everywhere or nowhere.  

  • Much of the wholesale side of the FCA’s supervision is purely “prudential” because it overlaps with supervision by the Bank of England through the Prudential Regulatory Authority.  The BoE should be left to get on with it.

  • About one third of the cost of the FCA relates to the investigatory work contracted out to professionals, largely accounting firms.  It should not take more than a couple of people to choose the firms, the terms of reference and make out the cheques.  This, and all remaining FCA functions, could be handled by the Competition and Markets Authority.  Indeed that would be a better solution anyway to bring consistency to markets and competition policy.

It is hard to resist the conclusion that the FCA is not simply redundant but a drain on the effectiveness, resources and efficiency of the vital financial services sector.  It should be abolished.