It's only ever the excuse for economic planning which changes

Time was when that scientific socialism was going to make us all richer though planning - eliminating that waste and competition of undirected free markets. That one worked so well as 1989 showed. Sadly though, the passion for planning remains, it's only the excuses which change:

The Climate Change Act should now become the model for the new sustainable economy act. At its core would be a legal requirement on the government to set environmental limits, and to produce economy-wide plans to achieve them. Over time these limits should include air pollution, soil degradation, resource depletion, plastics pollution and biodiversity loss. All together they would bring the economy within a sustainability constraint.

For each major environmental impact, the act would establish a long-term goal and require the government to set shorter-term targets and plans. So, for example, the 25-year goal of eliminating non-recyclable plastics would be implemented through a series of five-year plans to cut plastic waste by a specific number of tonnes. A long-term goal of restoring biodiversity to, say, a 1980 benchmark would be implemented through successive five-year targets for individual declining species.

The goals and targets would be based on the advice of an expert and independent sustainable economy commission, modelled on the climate change committee, which would in turn report to parliament.

The logical mistake being made here - over and above the one that planning doesn't in fact work - is the failure to realise that the environment is not an absolute good. Sure, we'd prefer not to choke the whales, we'd like not to boil Flipper and we're eager the beasts of the fields  multiply. But how much would we prefer, how much would we like, how eager are we?

That's a balancing match there. For our other consideration - among many others perhaps - is human utility. That we 7 billion of us get to enjoy this life and planet to the maximum amount we can without actually bursting from the joy of it. We therefore need to understand the cost of the varied desirable things.

Fortunately we have a method to do that. Those markets so derided in fact. Yes, it's true, there are some things which markets don't contain - the answer is to put them into markets with Pigou Taxes. Absolutely not to try and plan, even the Stern Review pointed out that that was the wrong way to do it.

Crowbar the price system if we must, but how much pollution, resource use, biodiversity, we have is an outcome of the rest of the world, not a plan which can be imposed upon it.

Passport to free trade

In this week's Madsen Moment, Dr Pirie takes on the issue of why a global and free trading Britain should be happy to buy its passports from the highest quality and lowest price bidder – no matter where in the world they are. 

De La Rue's passports and the political allocation of contracts

De La Rue is complaining bitterly that someone else - that is, not them - is getting the contract to print the new post-Brexit passports. There're a number of things that can be said about this:

The passport manufacturer De La Rue is set to announce it will challenge the government over its decision to manufacture new blue British passports in France.

The company will formally launch an appeal against the decision to award the £490m contract to the French-Dutch firm Gemalto on the grounds that it believes it had the best offer on quality and security, though not on price, according to the Financial Times.

...

The Home Office has previously said changing the contractor would save UK taxpayers £120m but the decision has been met with a storm of criticism from Brexit-backing MPs, as well as Labour and trade unions.

...

De La Rue’s chief executive, Martin Sutherland, has previously expressed outrage at the decision to award the contract to the rival firm, telling the BBC that Theresa May should “come to my factory and explain to my dedicated workforce why they think this is a sensible decision to offshore the manufacture of a British icon”.

One thing to say is, well matey, if we're to say that something British must be printed in Britain then where does that leave your global contracts to provide both passports and money for other countries then? You'd be happy to lose all of those contracts to their national champions would you? 

But enough of the snark. What this really shows us is how bad politics is at allocating contracts. It's just a bad way of deciding economic matters. Sure, we don't know how this is going to turn out, don't know if the government will cave to the shouting here. But look at what the political demand is.

The taxpayer should be gouged for an extra £120 million because politics. Politics being the only argument actually there to justify that extra gouging. That is, having failed at every other argument, like cost, efficiency and so on, politics is being appealed to.

Now think on the implications of that for every politically awarded contract. It's not an efficient manner of producing goods and services for the consumer, is it? The very point of using politics to assign being to award to the politically favoured, those who would lose out under any consideration of price or efficiency.

Obviously, there are some things that simply have to use the political process but that very definition of it, that it is subject to other than cost effectiveness arguments, means that we should only use it where we must.

A stunning finding - low pay is less than average pay

We'll all be most shocked by this finding, that low pay is less than average pay. No doubt about it really, that just is a stunner. Although perhaps we might think that the part worth remarking upon is that anyone would make this complaint. Yet here it is:

The government’s own official number cruncher, the Office for National Statistics, also warned the new government minimum falls short of average family spending. It reckons mums and dads working full-time would earn £212 per week less than the average amount spent by all households with two adults and two children last year.

Put simply, the living wage rise is not what it says on the tin.

That is an interesting thing, one worth remarking upon. If the "Living Wage" does not bring all up to average disposable income then it's not a "living wage"?

We do seem to have changed from that original definition of what a living wage is. Something that used the logic of Adam Smith's linen shirt to ask people what people should be able to do in order not to be considered poor in our current society. That was something which only indirectly talked about inequality. We got to a cash number (that £8.75 an hour figure today) which was based upon the populace's gut feel of what inequality in disposable income was fair and/or just.

That has just morphed into the idea that the living wage is not doing its job if disposable income is unequal.

That the poor in a rich society have something is just one of those things society should aim for. That there be none on less than average income isn't something any society has ever achieved. Probably better therefore that it not be set as a goal, eh? Nor used as a complaint?

There should be less BBC in this modern world, not more

An easy to answer question:

Why is the BBC struggling to be more commercial?

The BBC does not face commercial incentives therefore it is not going to act commercially. Incentives do, after all, matter.

The more specific complaint here is that Amazon, Netflix and the like are pouring money into commissioning TV shows. The BBC is thus limbering up to insist that we should all be taxed more so that they, the BBC, can compete:

The fear now driving the BBC is that support for the licence fee could decline as new subscription players flourish. The licence fee is due a mid-charter review in 2022. Some rivals suspect the BBC’s doom-mongering is laying the ground to appeal for an increase as commercial efforts struggle.

The answer to any request for more of our cash is no. Instead, we should be reducing the licence fee, even selling off the BBC itself, turning it over to a subscription system, perhaps.

For why does the BBC exist? In order to provide what a commercially and market driven media landscape will not provide. Now that we've got those things being provided by a purely commercially driven media landscape there's no reason for the BBC is there? 

Sure, and so comes back the argument, but there are still things which commerce doesn't provide and which taxpayers should. We don't believe so, unless "taxpayers should" there is to mean things the respondent likes but no economic analysis would support producing at all. But, OK, take that argument as being fair enough. That means the BBC shouldn't be producing things which compete head to head with those commercial organisations, doesn't it? Because they are already being produced and the BBC exists to produce those things which aren't.

That new tech means billions being poured into content production is not an argument for a larger or richer BBC, it's instead for one that is, at very best, reduced to a rump filling in the remaining gaps of market production. For that has always been the justification in the first place, producing what the market won't or doesn't.

The welfare state already solves that gender pay gap

Society is having a little bit of a wail about the gender pay gap at present, as we've all noted. That it is, as we've been saying for years now, a result of the different decisions that people make when children arrive is being overlooked. That's not all that is being overlooked though. For there's a very strong argument that we already compensate for whatever gap in pay there may be. That compensating system being what we call the welfare state.

Take this from the Fawcett Society:

“These figures show us what we expected – we still see an underrepresentation of women at the top and and overrepresentation at the bottom,” said Sam Smethers, chief executive of the Fawcett Society. “The public sector matters for women because it is women who are overwhelmingly dependent on public services, so getting women into decision-making positions is key.”

Note what the statement is. Men earn more than women. This means, in a progressive tax system, that men pay more tax than women. We've also got that insistence there that the welfare state spends more of that tax money upon women and their interests.

We seem thus to already have a remediation system for that unfairness - perceived as such by some at least - of that lower pay. Sure, we don't know whether that balancing is exact, it might even be too much. That just means we should go and find out the extent once we've accepted the principle.

But this does then give us two options for action. The first is to insist that we're balancing and thus no more need be done. Or, if we regard equal earnings as being of paramount importance, we can strive toward that. And as we gain it we should therefore be reducing the welfare state, that thing which currently balances the unfairness we're abolishing.

Sir Simon, markets work better than nationalisation

Simon Jenkins has the solution for all those churches rotting away across our green and pleasant land. We should nationalise them.

This is the wrong solution:

Nothing will change unless everything changes, and it is clear that everything should. Otherwise most churches will eventually become like England’s castles: ruined echoes of a distant past. Church buildings should be “renationalised”, taken into state ownership, and then transferred to local parish or town councils. They might in turn set up local trusts. These secular bodies would be responsible for subletting churches for community use, which would of course include for Christian worship in whole or part. All denominations would be encouraged to cohabit.

We agree that there are churches rotting away in every corner of our isles. But nationalisation isn't the correct solution for it will rule out entirely what might come to be part of that correct solution - not having the buildings which were formerly churches. Or, to be perhaps less extreme, not having them with those community uses but becoming private.

Nationalisation would petrify the buildings into uses which might no longer be appropriate. At the extreme end it could be, it is possible at least, that here is no community use which anyone has for some of these buildings. Certainly, a goodly part of the complaint is that no one has a use which covers the costs of maintaining those buildings. At which point we'd probably prefer not to have the buildings.

To be less extreme though there is a thriving business in transforming redundant churches into housing. Nationalisation isn't going to allow that non-community use which is why we should rule it out. A market based system will allow it though which is why we should indeed be using markets to deal with this problem.

Not that we expect Sir Simon to grasp this given his own running of the National Trust, something akin to what he's proposing for churches.  

As The Guardian doesn't get, this is the market economy in action

It's obviously difficult to get an idea across to those who willfully misunderstand. But even then it should be possible for Aditya Chakrabortty and The Guardian to understand what it is they're observing. This isn't some oddity, this isn't some aberration of neoliberalism, this is the market economy in action:

This deserted campus was spotted by a not-for-profit company called 3Space, which convinced the landlord to give it the keys until demolition day. Since then it has made it a base for an army of eager startups, who pay a modest rent. This income then subsidises other rooms that go free to non-profits. And one day in 2016, 3Space boss Andrew Cribb rang up a guy he’d met a while back. “Hey, Ande. Remember your crazy green idea?” he said. “Fancy doing it?”

Cribb was wrong: Ande Gregson didn’t have one crazy idea – he had a couple. The green one came from reading about food. He’d see numbers, like the UN forecast that, by 2050, 9.8 billion people would share the planet, and he’d worry: how are we going to feed all of them? Then he’d read how 1.3bn tonnes of food are wasted every year, and he’d think: I’m going to help fix this.

Him. Without government backing or a multinational’s budget. Him. With no background in food or environment. When he was nine, Gregson wanted to be a marine biologist – but as a child of the 1980s he was given a Commodore computer, and from that point it was technology all the way. His CV was peppered with names such as Apple, BT and Sky. What did he know about public sanitation?

That was a big obstacle, which he hurdled with yet more unusual thinking. He opened a laboratory – called Green Lab – which others could use to invent solutions to the looming crisis in food and waste. He wouldn’t employ any of them, but they’d share the space and the hi-tech equipment, and make their own ideas fly.

Green Lab is a makerspace, and Britain has more than 150 of them.

This is being presented as being in opposition to prevaling economic thought and practice, that neoliberalism so deplored. But it's that very thing deplored in action. People spot assets being underused, badly used, not being used. They then employ them to do as they wish.

That is the market economy. Which then goes on to perform one more task for us. Those things which add more value than the expense of the inputs survive and grow, those that don't fail.

Sure, there's green and small scale and not governmentally approved and all that liberally sprinkled around the larger description here but at heart, what is this but that very market economy? Get on with it, as you wish, and see what works. That's not some perversion of neoliberalism, that's the point.

And aren't Chakrabortty and The Guardian going to get a shock when they realise that they're arguing for exactly what we've spent decades insisting upon? Though they may not realise it their solutions for this Brave New World of ours are exactly what we've all spent decades trying to put in place. Leave the planning and direction out of it and open up the economy to the entrepreneurs who try things out.

Are public sector policies keeping women out of the boardroom?

As I’ve mentioned in an earlier post, the public sector and public servants in Denmark are praised very highly by the left, to the extent where they reached a kind of cult status. For example, the Red-Green Alliance (Danish: Enhedslisten) in Denmark is currently campaigning on the Unions’ side of the ongoing collective bargaining, calling the public employees “the heroes of the Welfare State”. The public sector is often invoked as a magical solution to the equality differences between men and women.

Granted, the Nordic public sector did bring about high employment among women by providing jobs by expanding into sectors where jobs are dominated by women, and also by providing services that enabled women to combine work and family. But as Nima Sanandaji points out in a recent paper for the Cato Institute: the employment rate is not the only measure of women’s professional successes. When it comes to a different measure, number of executive positions among women, Sweden lags behind countries such as the US and the UK. How to tackle this problem is heavily discussed in the Nordic countries with quotas being one of the recurring proposals.

But quotas aren’t the answer. In 2003 a gender quota law was passed, requiring 40% of board members of public companies to be women. The law came into effect in 2008 and the consequences were swiftly seen - or rather, they weren’t. According to the Economist, a study in Norway found that quotas had no effect on representation of women in senior management. Changes in female CEOs were small as well, although they did double from 2% to 5%. Hardly the seachange promised by the law’s campaigners. Similar figures are seen in Denmark.

In addition, the otherwise law abiding Norwegians circumvented the new instated law. Although it looked like the publicly listed companies did follow the law and ended up with 40% of the boards being women, this was not the case. 100 of the 500 publicly listed companies changed their status and chose to delist from the Norwegian stock exchange in order to avoid the quota.

According to Sanandaji, the quotas led to firms’ valuations falling by more than 12% with every 10% increase of female board members. Overall, the quotas led to less experienced board members, because the pool of women with the high level of experience expected of board members was, at that time at least, very small in the Nordic countries. It’s been proven that more women on boards add value to companies with bad governance, as well. Board members have several tasks, but most importantly they have to determine which competencies are important. Therefore, effective board members with senior executive experience will know best what to look for in their CEO. In addition, women on boards are not judged by their gender per se but rather on their experience. So when women are put on boards because of their gender rather than their experience, the value of those women will be predisposed by their male board members. Quotas might therefore lead to those women without the senior executive experience to be overall less effective board members and end up giving diversity a bad name.

Instead of trying get more women on boards by compulsion, we should have a look at what is stopping women from getting the proper experience to get those executive positions themselves in the first place.

A big part of the explanation lies in the infamous and ubiquitous Nordic welfare state. In the Nordic welfare system parents are encouraged to participate in the labour market through child support and other publicly funded initiatives, but as we know, there is no such thing as a free lunch. Although these policies have helped women into the labour force, they must be paid for somehow. In the Nordic countries, they’ve decided to fund this through higher taxes, meaning the people in the Nordic countries have accepted a higher tax percentage.

It’s established that women tend to do more household chores than their male counterparts and that higher taxes tend to distort behaviour creating disincentives. Sanandaji draws a scenario of what taxes can do:

For example, highly skilled individuals such as professors often paint their own houses during the summer holidays. But a professor who sets aside an hour a day to paint her or his own house could spend the same time teaching a class. Teaching provides greater economic value because the professor is specialized in the task. It is therefore economically rational to spend the time teaching and pay for a professional painter, but high taxes change this decision. So Nordic professors and other workers are more inclined than their lower-taxed American counterparts to devote unpaid time to domestic work rather than work longer hours in their paid work.

In a study of how income taxes affect time allocation outside of work, they find that when economic rewards for participating in the labour force increase, paid work increases while housework decreases. The study found that high taxes have little to no effect on men. So when women have to decide between paid work or time spent at home doing other productive work, the opportunity cost of engaging in paid work compared to doing other productive domestic activities for women is too high and they choose the latter. In turn, according to the study, expenditures on goods substituting housework increases when incentives to move into work increases.

And being able to buy substitutes for household work is important if we want to see a shift of women to higher earning jobs, according to this study. In the paper, the authors find that temporary foreign domestic workers had a sizeable impact on increasing domestic female labour participation and allowing mothers to go into higher paying jobs.

Another part of the reason women aren’t getting the requisite experience is because of the public monopoly on generally female dominated sectors. Wages in these sectors are set at a flat rate centrally with the possibility of rising in pay mostly available just by rising up through the ranks. There are of course managerial positions but compared to the private sector the possibilities are limited. In addition, the public sector provides favourable deals for mothers, making it more attractive for them to go into this sector and go part-time instead of full-time. Combining this with prospects of long paternal leave, it is effectively making it attractive for women to withdraw from the labour market for long periods of time and inevitably making them lose out on precious experience to their male competitors.

The Nordic model has got a lot of things right in trying to equalize opportunities for men and women. However, it is not necessarily the ideal model as some try to make it out to be. One key aspect is the number of women who manage to reach the top and break the glass ceiling. Today very few women actually manage to do that and a lot of it comes down to the perverse incentives created by the big Nordic welfare states. If we want women to succeed we should enable them to do so by reducing the monopolies in the public sector and reducing taxes on work giving better incentives for women to work more and gain more experience. Overall, this would provide new choices for women to seek bigger and better opportunities for themselves.

The Problems with Local Planning Laws

Yesterday evening, we hosted the LSE's Professor Paul Cheshire who delivered a fascinating talk on the unintended consequences of more restrictive local planning. His recent research has found evidence that planning restrictions result in more empty homes, longer commutes, less affordable housing, crowded shops, and more.

You can view the slides from that lecture by clicking here, and listen to our Facebook Live recording here.