Today's Oxfam report says increasing inequality increases inequality

We suspect that Oxfam might want to think a little bit more about this part of their report today:

Research carried out for Oxfam by the London School of Economics, to be published later this year, shows empirical evidence that poverty rates tend to be higher when inequality is higher and increases in income inequality are associated with increases in income poverty rates.

Err, yes, we suppose so.

Poverty in the UK is a relative measure. Less than 60% of median household income adjusted for household size (and often after housing costs). This is a measure of inequality, not one of poverty.

Thus the actual information content of that coming report is that increasing inequality increases inequality.

Err, yes, we suppose so really.

A first stab at explaining the surging money supply

Allister Heath is getting worried over the surging money supply. It's entirely possible that he's right to worry as well. What follows is not *the* way to think about this. It is, rather, *a* way to walk through the basics of the subject.

Think of the equation MV = PQ. Money times the velocity of circulation equals prices times quantity demanded. One way to think of monetary policy is that to try to gee up the economy we try to increase V - we do this by lowering the interest rate. Thus, hopefully, Q increases. Similarly, if P is rising, that is we've got inflation, raise interest rates so as to reduce V and thus stop the rise  in P.

Again, please note that proper monetary economists will have conniption fits at this explanation. We're really trying perhaps too hard to make it simple.

We can also simplify what we mean by "money supply". M in that equation should be thought of as M0 in the national statistics. Notes and coins and central bank reserves sorta stuff. And MV can be thought of as M4, which is M0 plus all the stuff the banking system does, loans and debts and credit and so on. Again, not right but useful as an aide memoire.

Which brings us to the recent unpleasantness. Interest rates were already near or at rock bottom. But we could see that V was plummeting. We were really rather worried about a very deep recession (Q falling) and or deflation (P falling). And the solution there is to create lots more M so that MV doesn't shrink.

Which is one way of describing what QE was and is. The Bank of England makes up some more money and goes and buys stuff with it. Simple because it has made more M0, thus MV is larger than it would be if V fell but there was no increase in M.

All of which is great. But there will come a time when V returns to something like normal. and what we don't want to have is some great overhang of M which when timesed by that now resurgent V leads to massive increases in P - because it won't turn up as Q rising 20% a year, that's for sure. That's where the so far at least unmet predictions of QE causing galloping inflation come from. It presupposes that V returns to normal, of which there's no sign yet. Or, as Heath worries, perhaps there is:

Lilico provides context for this. The 14.7pc rate of increase is a new record for this statistical series, launched in 2009. Looking at an earlier and closely comparable statistical series, the strongest rate of growth in recent history was in 2006, at the height of the pre-crash madness, when the money supply surged by 12.8pc, a jump now widely understood to have been scandalously out of control.

There are other possible explanations for this. But the above is, while a scandalously simplified explanation, a possible one. Our whole aim in doing QE was to protect the economy against that fall in V. The reason it was QE rather than going out and spending the cash is because we wanted to be able to reverse the increase in the money supply (and QE has increased M0 a number of times, it's not just a small percentage increase) if, as and or when, V recovered to more normal levels.

Thus, if V has or is recovering in order to avoid that galloping increase in P we will want to reduce M. That is, reverse QE. The Bank of England will, assuming that this is the right explanation of course, sell the gilts they have and cancel the money they collect from doing so. Or, perhaps, simply not replace maturing gilts as they currently do, thus reducing their stock of gilts over time - this will have the same effect on M as the government will have to issue new gilts to the public to replace those maturing that the Bank holds. 

That is, if the money supply is booming because matters monetary are getting back to normal then the answer is for matters monetary to get back to normal. QE was a response to extraordinary times and if they're leaving the stage then so should QE.

Just what is the problem with grammar schools?

We find the current furore over grammar schools to be puzzling, difficult to understand.

Take this in the Observer. They note, correctly, that Upper Bavaria has an astonishingly low youth unemployment rate of only 3.4%. They credit, correctly, the education system:

Germany’s much-admired dual education system (in which apprentices are trained jointly by employers and at specialist vocational schools) has grown in Upper Bavaria, not because it was seen as the more responsible thing to do, but because companies, unable to “buy in” a fully trained-up workforce, often had to mould the workers they needed themselves.

That education system is dual in another manner too:

 The Gymnasium is designed to prepare pupils for higher education and finishes with the final examination Abitur, after grade 12, mostly year 13. The Realschule has a broader range of emphasis for intermediate pupils and finishes with the final examination Mittlere Reife, after grade 10; the Hauptschule prepares pupils for vocational education and finishes with the final examinationHauptschulabschluss, after grade 9 and the Realschulabschluss after grade 10.

Perhaps not dual then but there's a definite separation into academic and vocational streams - streams which go to different schools. And this is a much-admired system which leads to a 3.4% youth unemployment rate.

Yet mention grammars in Britain, the equivalent of those gymnasium (and common across much of central Europe too) and we are discussing the very devil, encouraging the destruction of all that is good and holy in our society.

We don't understand it. Our assumption is that it must have something to do with left wing politics - we find that's the usual explanation for beliefs entirely at variance with reality.

How to make public policy these days

The TL:DR version of how to influence public policy these days. Ride hobby horse, spout piffle, invent targets then shout loudly.

You might think we are joking but sadly not. For this is exactly what is happening over sugar.

The hobby horse is, as we have mentioned many a time, the insistence that it is sugar which is causing all that obesity out there. This cannot be true given that calorie intake and sugar intake are both down on the levels of the past. It cannot be rising consumption which is the cause as consumption hasn't been rising.

The spout piffle part is to insist that it is:

 Many believe sugar is the biggest contributor to the obesity epidemic crippling the NHS, and the results, published on Friday, reignited criticism of the failure by the government to take a stronger line in its childhood obesity strategy.

It isn't, as we've been saying. The inventing targets:

Britons are advised that sugar should account for no more than 5% of daily calories, but from 2012-14, the average was 13.4% for those aged between four and 10, 15.2% among 11- to 18-year-olds, 12.3% for adults under 65 and 11.1% for those aged 65 and over, the national diet and nutrition survey (NDNS) found.

This is a particularly cute one because the target itself, that 5%, was only invented after the period being described. It was only invented last year:

Dietary sugar should account for no more than 5% of daily calories consumed, half the previous recommended limit, the UK’s official nutrition advisers have said.

Note again, it's not just that the target is entirely pulled from some nether region it's that it didn't even exist, let alone apply to, the time period being examined. And then finally the shouting louder:

The Action on Sugar chairman, Graham MacGregor, a professor of cardiovascular medicine at Queen Mary University of London, said: “Today’s NDNS data shows that children are still consuming almost three times more sugar than the daily maximum recommendation. Theresa May must urgently rethink her pathetic childhood obesity plan that lacks restrictions on the marketing of, and promotions on, products high in saturated fat, sugar and salt.

“The strategy must include the implementation of the soft drinks industry levyand a mandatory reformulation programme, as the failed responsibility deal has already proven that a voluntary system does not work.”

We're not meeting an invented target, one that we've only just invented, which shows that compulsion is required to get everyone doing as we wish.

We really don't think this is a sensible way to run a country if we're honest. If it were possible we'd insist these campaigners spend more time with their train sets - there is at least an acknowledged role for the Fat Controller there. In the absence of that being possible we feel they should best be left to howl in the wilderness - and certainly not taken seriously.

Two particularly stupid views of trade in one morning

It's rare to be treated to two pieces of stupidity about trade on the same day but here we are, the event has happened. And sadly the people in error are people who do have at least some modicum of power over our lives. 

The error being made is to be mercantilist. To think that it is the exports which are the purpose of trade, the exports which make us rich. This is, as we all know, precisely the view which Adam Smith railed against that 240 years ago and Adam Smith was right. Both in what he said and in said railing. For it is, of course, the imports which make us rich, the reason we trade is to gain access to those imports.

Here is Liam Fox:

“If you want to share in the prosperity of our country, you have a duty to contribute to the prosperity of our country,” he is reported as saying, hinting that companies that do not take advantage of new export opportunities could face sanctions.

Clearly thinking that it is exporting which makes Britain rich:

He added: “We’ve got to change the culture in our country. People have got to stop thinking about exporting as an opportunity and start thinking about it as a duty — companies who could be contributing to our national prosperity but choose not to because it might be too difficult or too time-consuming or because they can’t play golf on a Friday afternoon.”

Again, exporting being equated with increasing the wealth of the nation. From the other side of the Channel we have M. Macron who is an odds on runner for the French Presidency:

British-based financial institutions must be prevented post-Brexit from selling their services in the eurozone, Emmanuel Macron, the likely progressive left candidate for the French presidency has told the Guardian.

This is the same mistake. It is to think that the British companies doing the exporting are the beneficiaries of such exports. When nothing is further from the truth. Those who benefit are the consumers who get to enjoy the imports. for that is why we do this trade thing - in order to gain access to those things which Johnny Foreigner does better or cheaper than we do. And that's the only reason we do trade too.

It gets worse:

But Macron insisted:

“The financial passport is part of full access to the EU market and a precondition for that is the contribution to the EU budget. That has been the case in Norway and in Switzerland. That is clear.” The proposal would be rejected outright by British Eurosceptics.

The insistence is that being able to sell to people is a privilege, one that a government must pay for so that businesses may do so. But this is incorrect - the benefit is to those who may buy the imports.

By not grasping the most basic point about trade M. Macron is threatening to hold the people of the European Union hostage unless some gelt is paid to the Brussels bureaucracy. He really is shouting that he'll make Europeans poorer unless the Brits give him some money. Such is the lunacy one is driven to by not understanding the basics of trade.

It has been 240 years now since the Wealth of Nations was published. We'd really rather hoped that people had grasped the point by now.

Re-dressing old wounds: The unintended consequences of NHS prescription regulations

The current system for exempting certain patients from paying for their NHS prescriptions is discriminatory, unjust and unfit for purpose.  The high cost of prescription medication deters many patients from engaging consistently with treatment, increasing their risk of adverse outcomes such as strokes and heart attacks. 

When Bevan introduced the NHS in 1948, his intentions were clear and honourable: nobody in this country should suffer from a treatable illness or ameliorable impairment because they were too poor to afford care. 

Unfortunately his advisors had under-estimated the scale of demand for health services.  From every corner of the country, people emerged in droves requesting glasses, false teeth, and wondering whether they could discard their antique trusses if they had their hernias repaired surgically. 

On 1st June 1952, after four years of dismayed contemplation of the rising cost of the NHS, a prescription charge of one shilling was imposed, and a charge of one pound for dental treatment. 

In 1965 prescription charges were removed again, but this was again a short-lived interval and in 1968 they were reintroduced.  The only difference was this time, they were not for everyone.  A list of exemptions was drawn up, based on the state of medical art in 1968, and this list has remained largely unchanged since then.  In 2009 there was one major addition, to exempt people suffering from cancer, but otherwise the list has been embalmed.

As is often the case with overly complex regulations, unintended consequences arise.  The aim of the original list of exemptions was to ensure that people whose lives depended on regular medication should never be unable to afford that medication. 

Exemptions were granted to:

-       People with epilepsy needing continuous medication

-       Myasthenia gravis, a neurological condition which can lead to profound disability and death

-       Certain hormone deficiencies (but only those which were recognised in 1968 and were expensive to treat in 1968)

-       Anyone who had a fistula (a hole causing body fluids to leak from the urinary system or digestive system onto the skin surface), if that hole was permanent.

In 2009 cancer patients were included, not only for their initial phase of treatment, but potentially on a permanent basis.  They are exempt from paying for prescriptions as long as they are having treatment for cancer or for the side-effects of treatment.  So, if they develop a coin-sized patch of dry skin where they had radiotherapy and need an emollient cream for that, then they qualify for all their prescriptions to be free forever. Moreover, like all patients who are exempt for one reason, all other prescriptions for unrelated problems are covered by the NHS.

As a doctor, scenarios like the following are quite typical. This morning I saw Mr A, who has high blood pressure and asthma.  His medical treatment is essential.  Without it he will be unable to work and will be at a much higher risk of strokes, heart attacks and death from asphyxiation. 

He is not exempt from prescription charges and must either pay £8.40 for each of the six medications he has to take; or he can pay £109 for an annual season ticket. He is open about his reluctance to use medication regularly because despite his reasonably high income, he has a dependent family and doesn’t feel able to spend the money on medicine for conditions which do not immediately incapacitate him.  High blood pressure at this level does not produce any symptoms at all until the stroke or heart attack or kidney failure occurs. 

Then I saw Mr B, who also has high blood pressure and asthma, but is also severely obese and has over-taxed his pancreas so he has to take tablets to keep his blood sugar down.  His pancreas does produce insulin, but not enough to cope with what he eats, and the fat around his abdomen produces substances which impede the action of his natural insulin.  A few years ago he managed to stick to a diet and his blood sugar was normal without medication, but then he resumed over-eating and it went out of control again.  He is classified as a type two diabetic, and as a diabetic he can claim all his prescriptions free.  All diabetic people are exempt, except those who change their lifestyle and diet in order to control their blood sugar without medication.  Over-eating saves Mr B £109 per annum, and he gets other benefits such as free eye checks. 

Mr B is not exceptional.  Studies have indicated that the majority of people with type two diabetes mellitus could cure their diabetes by restricting food intake.

This injustice has not passed unremarked.  In 2008, Professor Ian Gilmore was asked to review the current arrangements with a view to extending exemption to everyone with a chronic medical condition. His report suggests that the current list was illogical and unfair, but he was worried about the cost implications of levelling the playing field, observing that the NHS would lose revenue of £500 million per annum if prescriptions for chronic conditions were dispensed free of charge.  Professor Gilmore suggested phasing in the new, less discriminatory system, and used phrases such as “as soon as possible” – but seven years later, no progress has been made. 

Professor Gilmore is appropriately cautious.  An Ipsos Mori poll from 2008 indicates that in the course of one year, 800,000 UK residents did not collect a prescription because of the cost.  One billion NHS prescriptions are dispensed annually, so there would be approximately an 8% increase in the number of prescriptions dispensed if cost were no longer a barrier.  

The NHS could be at risk of a successful class action by one of the minorities who suffer in particular from this system. High blood pressure is much more common in certain ethnic groups; for example, about one in three US black people need medication for it, compared to one in four white people. Alternatively a patient group action might ensue, perhaps by people who have asthma and who need to pay for medication throughout their adult life while they are making an active contribution to the NHS, until they reach sixty and qualify for free medication. 

The NHS is an expensive luxury, but having seen the consequences of living without a well-organised public health care system, nobody would want to make it unsustainable.  The cost of prescription medication is a significant element, so we need a solution which will be more equitable.

If we were to abolish exemptions from prescription charges, the NHS would gain revenue. If we also abolished pre-payment certificates, the revenue would be a significant contribution to the cost of the service.  There would be additional savings because the £8.40 item charge does not cover the cost of paying for the medication and the dispensing service.  In other words, every prescription not dispensed represents a greater saving than the cost of the drugs.  People would no longer collect medications they do not intend to use, whereas when I do home visits and ask about medication, I am frequently introduced to a private pharmacy containing collections of unopened boxes, collected over the years “just in case”. 

It would not be fair, of course, that people with chronic conditions would need to pay for medication.  Indeed, it was never their choice to suffer those conditions in the first place.  However, we are deluding ourselves if we believe we can make life entirely fair.  People would still be protected from much of the cost of their treatment, if there continued to be a flat rate charge per item. 

Finally, people should be free to prioritise the demands on their budgets.  Long-term medications are generally prescribed in quantities to cover a three-month period, so if there were a £10 charge per item, that would equate to less than £1 per week.  Some people choose to prioritise their health needs; they manage their diets; take regular exercise; avoid smoking and drinking to excess – and take regular medication as and when required.  Others place less of an emphasis on health maintenance, and that is a lifestyle choice which they should be free to make.  

Why Europeans really do need American healthcare

Psychiatrist and blogger Scott Alexander has been on a tear lately about the price of pharmaceuticals in America, in particular the EpiPen, a common device used to treat people who have had severe allergic reactions. The EpiPen’s price has been hiked by about 400% since 2007, which left-wing website Vox blames America’s lack of price controls for but Scott blames on America’s cronyish regulation:

Let me ask Vox a question: when was the last time that America’s chair industry hiked the price of chairs 400% and suddenly nobody in the country could afford to sit down? When was the last time that the mug industry decided to charge $300 per cup, and everyone had to drink coffee straight from the pot or face bankruptcy? When was the last time greedy shoe executives forced most Americans to go barefoot? And why do you think that is?

It’s a fascinating piece and worth reading in full.

But what I’m really interested in is a part of his follow-up piece where he looks at rates of pharmaceutical innovation in the US, compared to countries with price controls:

1. Golec & Vernon (2006) say that as a result of European drug price regulation, “EU consumers enjoyed much lower pharmaceutical price inflation, however, at a cost of 46 fewer new medicines introduced by EU firms [over a 19 year period].”
2. Eger and Mahlich (2014) find that among pharmaceutical companies, “a higher presence in Europe is associated with lower R&D investments. The results can be interpreted as further evidence of the deteriorating effect of regulation on firm’s incentives to invest in R&D.”
[…]
So by my count, there are eight-and-a-half studies concluding that price regulation would hurt new drug innovation, and one-half of a study concluding that it wouldn’t. I’ve tried to eliminate all the studies sponsored by the pharmaceutical industry from this list, but I might have missed some.

Scott also cites an impressive-looking RAND Corporation paper which tries to project the consequences of government price-caps in healthcare.

In the short-term, things get better – drugs are cheaper. Great! But in the longer-term, things get worse. Much worse. Innovation declines and life expectancies fall in both the US and Europe.

Which makes me think that, as bad as the US system is in many ways, there’s a very important silver lining. All that money and intellectual property protection create much, much bigger incentives for healthcare innovation in the US than in Europe.

And that allows those of us in price-controlled countries to get something like the best of both worlds: cheap(er) drugs, but lots of research for new drugs, funded by our less fortunate friends in the United States. In a very important sense, it looks as if we’re free riding on American healthcare spending.

None of which is to say that the US system isn’t a dog’s dinner. Read Scott’s posts to get a flavour of that. But it does make smug posts and charts like the one above, which laugh at the nutty Americans and their wild, wasteful overspending, look quite silly. Without Americans spending all that money on healthcare, those of us living in price-controlled European systems would be living shorter lives, too.

The dirty little secret about GDP

An interesting point made in The Times about GDP:

For even GDP — the greatest, most definitive statistic of all — is really just a survey too. Forms are posted out to a selection of companies where they are filled in and sent or faxed back (“Informed estimates are sufficient for our needs”, says the bumf). Those figures go into a model and soon enough they become GDP. The size of Britain’s economy, the question of whether we are in or out of recession, the fate of governments — ultimately it all hangs on a questionnaire.

Well, yes, obviously it's a survey for as Hayek pointed out we cannot possibly gain enough information to really measure something as complex as an economy. There is the idea that we should move more to tax data - but the problem with that is that we know very well that people lie about taxes.

But there's actually something much more important than this. GDP isn't what we're interested in. It's a proxy, an interesting and useful proxy but a proxy all the same.

What we want to know is "How well off are the people?" We want to know this so that we can consider whether what we're doing makes them better off again or not. And our problem with GDP is that we're measuring things at market prices. What people actually pay for things.

Yet we know very well that this is not the price at which people actually value something. If a producer were able to price discriminate so that we each paid exactly what something was worth to us then it would be of course. And they attempt this. VW sells much the same car under the Skoda, VW, Audi and so on brands, each at a different price, in an attempt to do such price discrimination. But it doesn't work entirely.

The usual rule of thumb is that this consumer surplus, this value that we gain but which we don't have to pay for, is about equal to recorded GDP. So our consumption value is really some 200% of recorded GDP.

Which is where our problem comes in. Because the digital world would appear to be changing that multiplier. WhatsApp appears in GDP as something like $30 million, $50 million. There's no sales of it, no revenue from it, just the cost of the engineers working on it. And yet this is something that a billion people use for their telecoms needs, or some of them. The value in actual human value as consumption is obviously more than $100 million a year.

We must therefore remember not only that GDP is a proxy for what we really want to know but also that it's becoming an ever less reliable one.

Food of the Future: Chinese Food Security and the Opportunities of Brexit

The old adage – “the way to someone’s heart is through their stomach” - has never been more pertinent to global security.  With the world’s population now exceeding 7.2 billion (an awful lot of stomachs to fill) we require a mind-boggling amount of food. In fact, farmers will need to grow as much food in the next fifty years as they did in the last 10,000 years combined. And at a time when one in eight people on the planet is already chronically malnourished, this is clearly an issue that isn’t going to be resolved purely by traditional production methods. Resources are particularly limited in high economic-growth regions such as China, a country that has to feed 22% of the world’s population but which is endowed with only 7% of the planet’s cultivable land. With so many increasingly vociferous middle-class mouths to feed, it is unsurprising that food security is rapidly becoming the most contentious issue in Chinese politics.

Inspired in part by India’s “Green Revolution”, China has been keen to expand their area of influence in the agrichemical sector, and have been investing heavily in their own research into genetically modified technologies. As with many aspects of China’s economy, however, their GM industry is dominated by state-owned companies, reflecting the government’s political objective of securing domestic food supply through improving agricultural productivity.

The economic and environmental opportunities that these revolutionary GM foods present are staggering, and potentially unlimited. So far, we have been unable to escape a trade off between the need to ramp up supply - in order to satisfy dramatic increases in demand - and the degradation this inflicts on our planet. Scientists purport that herbicides and pesticides, pumped over crops by farmers attempting to maximise yields, have disturbing environmental consequences and can actually reduce the productive potential of the land over time.

The fragile balance of the ecosystem breaks down rapidly as the concentration of ions (vital nutrients for healthy plant growth) in the soil is dramatically reduced, damaging plants’ immune systems and weakening their roots. The chemicals harm insect and microorganism species that play important, fundamental roles in the ecology of agricultural land: naturally limiting pest populations via the food chain mechanism and maintaining soil condition. Worse still, just as antibiotic resistance is one of the greatest threats to patients' safety, there are fears that organisms are also developing resistance to certain pesticides – a catastrophe of unimaginable proportions.

However, we are now living in a remarkable reality where it is possible to create pest resistant crops, eliminating the use of herbicides and thus averting the immunity crisis. The devastation to cotton crops as a result of the cotton bollworm is now just a memory to many Chinese farmers; in 2002, half the cotton grown in China was genetically engineered to produce a toxin poisonous to the terrible pest. Research undertaken by Wilhelm Klümper and Matin Qaim, published in the Public Library of Science, has found that, on average, such GM technology adoption has not only reduced chemical pesticide use by 37%, but increased crop yields by 22%. Substantial economic rewards can also be reaped; the study estimates that farmers who grow GM crops harvest profit increases of 68%. Modifications extend the shelf life of products, benefitting supermarkets that currently bin their revenues as a result of overcautious sell-by dates and consumer expectation of cosmetic perfection.

The economy benefits indirectly too, as a healthier workforce is created. Specific nutrients are introduced into crops to supplement paucities in the diet of a local population group. For example, the GM crop known as ‘golden rice’ has been engineered to enhance the levels of ß-carotene to tackle Vitamin A Deficiency (VAD), a condition disproportionately affecting children. Research has shown that in China alone, roughly 13% of children aged 0-6 years old suffer from VAD, severe cases of which can lead to blindness. This field is limitless and we are only just discovering other advantages, such as with new research into creating GM plants capable of producing vaccines.

A clear statement of the Chinese government’s serious intentions in ensuring adequate food supplies for the future is the recent announcement by ChemChina of their $43 billion bid for Syngenta, a Swiss firm, spun out of AstraZenca, a UK-domiciled chemicals corporation, specialising in pesticides and genomic research. If this acquisition gets regulatory approval, not only will it be the largest foreign investment ever made by a Chinese company, it will also mean that the combined ChemChina-Syngenta conglomerate accounts for more than a quarter of the world agribusiness market by revenue.

Since the opening of China to international trade in 1978, the sweeping market-economy reforms that were begun under Deng Xiaoping have successfully lifted 700 million people out of poverty and chronic hunger. The size of the middle class (defined as those with annual household income between $11,500 and $43,000) has grown exponentially from just 5 million households in 2005, to roughly 225 million households. The increasing affluence of China’s population has led to ever-increasing demand for protein-rich, processed-foods. McDonald’s is now frequently the restaurant of choice for Chinese families celebrating a special occasion, reflecting the growing westernization of the Chinese palate rather than any perception of the Big Mac as gourmet cuisine!

The dizzying growth of the Chinese middle class in the past decade has been accompanied by equally rapid urbanisation. Ten of the world’s top twenty fastest-growing cities are in China and the number of city dwellers now exceeds the rural population: a truly remarkable one-generation transformation of a traditionally agrarian society that would have bewildered Chairman Mao. As these cities and factories encroach and then consume the countryside, cultivable land has steadily diminished. This insatiable pursuit of economic growth regardless of externalities has, in places, resulted in environmental catastrophe. By some accounts, one-fifth of the country’s soil is now contaminated by unregulated industrial pollution. This cocktail of shrinking fertile land, increasing urban population drift and the relaxation of the one-child policy is a frightening one for China’s rulers.

As China is starting to suffer from diminishing marginal efficiency gains from its investment, avoiding famine on a scale even greater than that of the Great Famine of 1959-61 (when 14 million people died as a result of the Great Leap Forward) has become a primary objective. Lack of investment now into commercial agrichemical research and development would, Chinese leaders fear, stifle China’s economic growth. By failing to ensure a food supply for the city workers, the modern-day Great Leap Forward will be constrained. A nation, like an army, can’t march on an empty stomach.

Although the Chinese are at the cutting edge of research in agricultural biotechnology, having run more than 130 projects since the 1980s, rolling out nationwide commercial GMO schemes will still take years. Progress is often hindered by dislocation between state-sponsored GM research centres and commercial enterprises. Just as elsewhere in the world, there is vocal public opposition to these “freaky” and “unnatural” foodstuffs. Multiple shocking (and fatal) food scandals, involving everything from exploding watermelons to tainted formula milk, have received sensational coverage in the normally quiescent national media, rightly causing the public to be profoundly sceptical about the ability of food-safety authorities to enforce regulations.

Although public dissent in China towards government policy is traditionally muted, the leadership know that such events make it harder to sell the undeniable benefits of genetic modification. Given the pressure on the government to provide urgent solutions, momentum is growing: recent Five-Year Plans have announced ever-increasing government financial support to commercialise scientific innovation, with a special focus on genetic engineering. The ChemChina-Syngenta merger is only one, albeit highly visible, commitment to the Chinese government’s goal of eventually establishing food security for its entire population. Targeted propaganda campaigns to correct the information failure surrounding the perceived danger of GMOs should help to educate the public about the almost universal undeniably favourable stance on GMOs held by scientists and agencies, including the World Health Organization.

Anxiety about food insecurity in China (and in other developing nations with similarly large populations) could provide a massive impetus to UK agribusiness now it has left the EU. No longer constrained by the Common Agricultural Policy’s protectionist stance towards GMOs, Brexit gives UK scientists and agrichemical businesses the opportunity to become global leaders in this virtually limitless field. When the UK was tied to the EU’s autonomous food security programme, there was little incentive to fund research projects into GM crops. Throughout the EU’s history, there has only been one licence granted to allow the commercial production of genetically modified crops, which was over a decade ago. This anti-GMO stance in Europe resulted in 19 of the 28 EU countries banning their farmers from growing GM crops in October 2015. Even those countries that don’t implement the ban on GMOs are still required to seek the approval of the European Commission before they are allowed to plant any newly developed crop strain, and since the GM-sceptic countries are in the majority, they delay authorisation for years.

The bureaucracy involved in assessing whether new biotechnology practices are environmentally safe has meant that, in the cases of 21 safely tested GM crops, the entry to market of new GMOs has been delayed for a total of 44 years. These unjustifiable delays have been increasing since mid-2013, and are forecasted to have cost the European economy €9.6 billion due to the resulting trade disruptions. Frustrated by this deadlock, many European companies have simply abandoned attempts at submitting crops for review.

But the referendum gives the UK an unexpected opportunity to seize the initiative. Exiting the EU could revolutionise our farming practices and allow us to capitalise on the urgency of the Chinese to secure reliable food suppliers. The recent slowdown in the Chinese economy and the lack of suitable domestic investment opportunities has encouraged Chinese firms to look for profitable mergers abroad. A flourishing British agrichemical sector would be extremely attractive to China, both for investment and for security reasons. Despite having been restricted as a member of the EU from being able to profitably harvest GMO crops on our own soil, Britain’s strong pedigree in agricultural research has attracted all of the industry’s major players – the “Big 6” as they are known (BASF, Bayer, Dupont, Dow Chemical Company, Monsanto, and Syngenta).

Our outstanding reputation in the early stages of the research and development cycle has driven private investment. Syngenta, for example, employs around 2500 people in the UK across 11 sites, in particular investing nearly $200 million per year into their largest agrochemical R&D facility in Berkshire. The company, which turns over $1.25 billion annually, is capitalising on the powerful brains of British plant scientists – some of the best in the world. Although all attention is currently focused on the form exit from the European Union will take, the government should not ignore this immense opportunity, freed from EU suspicion and regulation. Collectively the “Big 6” spend around $4.7 billion each year on R&D, and the government would be wise to encourage greater investment, perhaps through infrastructure projects connecting the clusters of biotech firms that have appeared. The availability of grants for new research projects and the establishment of more dedicated enterprise zones would help Post-Brexit Britain’s standing in the global agriculture sector sprout tall.

Undoubtedly there will be opposition to supporting such a divisive initiative, just as there has been to fracking. But if the government is serious about rejuvenating the agricultural sector, after decades of mismanagement as a consequence of CAP regulation, it should consider how Brexit has freed us to consider radical solutions. Though we may be a long way ourselves from stocking genetically modified food on our supermarket shelves, the necessity to secure a reliable food supply in China is much stronger. Opening our country up to Chinese investment into our GMO trials would be an exciting enhancement of our trade relations with China.

What would it be like if the government really did run the economy?

It's very difficult indeed for us to map out exactly how it would all turn out if the government really were to run the economy in detail. Thus we need to try and find a comparator, somewhere that has two economic systems and we can observe the different outcomes.

We can of course think of the grand experiment that was the 20th century. Those places that had state socialism ran a race against those that used markets and the state socialism lost. But of course no one calls for such any more - at least we are continually assured.

But there are people calling for a democratic economy - that is, one where everything is decided through voting on committees. Others call for the bureaucratic economy, where the committees decide and there're even those absurdists who demand a Courageous State, where politicians decide each detail.

What we would like to find therefore is somewhere which has something like our market mix and right next to it something more like that state run and controlled economy so we can observe the different outcomes. Fortunately we have this - the United States. Government, planning, bureaucratic control, once again lose: 

Imagine if the government were responsible for looking after your best interests. All of your assets must be managed by bureaucrats on your behalf. A special bureau is even set up to oversee your affairs. Every important decision you make requires approval, and every approval comes with a mountain of regulations.

How well would this work? Just ask Native Americans.

The federal government is responsible for managing Indian affairs for the benefit of all Indians. But by all accounts the government has failed to live up to this responsibility. As a result, Native American reservations are among the poorest communities in the United States.

Hmm, perhaps government isn't the way to run life and the economy then?