Privatisation can teach us a lot about preparedness

In 1989, England’s government-run water utility was split into regional companies and privatised.

The timing was unfortunate. A year later, England was gripped by a two-year drought, the worst in 100 years. The new water companies were reduced to rationing water, banning all but essential uses, putting standpipes in the streets and running water tankers to the most affected towns and villages. Complaints abounded, and naturally, privatisation was blamed.

Shortly after, I met the Chief Executive of one of the new companies. As is the way of these things, running a water utility is a specialist job, and like many of his colleagues, he had worked in the old government-run service. I asked him about the crisis.

He looked rather wistful. “When we were in state ownership,” he said, “we were geared up to survive a one-in-five-year drought without imposing emergency measures. Now we are in private ownership, we realise that surviving a one-in-a-hundred-year drought isn’t good enough.”

Today, Covid-19 is the biggest killer since Spanish Flu in 1918. Like droughts, pandemics happen periodically, and we need to be prepared for when they do. Were our health and social care managers—public employees just as the old water board managers were—prepared for this one? Plainly not. After this is all over, the management—and the manageability—of our healthcare system needs urgent reform.

A small note on level playing fields

It appears that the Brexit negotiations - or rather, that having already happened, those on what the trading relationship should be now that it has - are hitting a roadblock, this insistence upon a level playing field.

At the end of the third round of talks between Brussels and the UK, David Frost, Britain’s chief Brexit negotiator, said discussions had stalled because of disagreements over the EU’s demands on the so-called level playing field.

In slightly more detail:

Following a week of talks conducted by video conference, the major stumbling block is over the EU demands requiring the UK to apply similar standards to the EU on areas such as the environment and labour law even after Britain’s standstill transition period expires at the end of this year.

The Commons Library has a nice explainer of the issues here.

The essential demand being that there are rules about how things may be done. In order to have free trade all must be using those same rules. This being that level playing field and this also being an entirely incorrect insistence. For trade, market activity, can and should be trade across different ways of doing things.

For example, it is possible to make bread from rye, from barley and from wheat. A set of rules that insisted that only bread made from wheat could be bought or sold would not be a free market. It would also make us poorer, depriving us of the rye and barley varieties. This is obvious.

But this is also true of things made using different labour laws, or different environmental regulations. Or, to use an example currently in the news, different methods of attempting to reduce food poisoning from chicken meat. We can imagine trying to keep the entire growing chain free from, say, salmonella. We can also imagine trying to clean the meat once butchered. Either might work, either might not. This being one of the functions of a market, of trade, to work out which produces the greater utility for the consumer. One method might be the cheaper one of producing that consumer utility, chicken to eat without being poisoned.

A level playing field in that there’s the same punishment for poisoning the consumer makes that market work better. A level playing field in the insistence that chlorine washed is not OK makes it work worse - for we’ve now not got a level playing field in methods of producing that consumer utility.

That is, the insistence on the one side on this “level playing field” is an insistence on the wrong kind of it. An insistence upon the same broad brush outlines of outcome, don’t poison the customers, is fair enough as not poisoning people is an entirely reasonable goal of public policy. An insistence upon the same rules of how we get there isn’t. Because, quite obviously, there are many different methods of not poisoning people and one of the aims and benefits of a market economy, of competition, is the trial of all of those different manners of achieving the goal through that trial and error. And may the best method win - this being the point of the exercise, to find out.

It is not necessary - indeed it kills off one of the major benefits of competition - to have a level playing field in methods and modes of production. Therefore we shouldn’t have such either. Which does rather neatly deal with this impasse in the negotiations. Given that our very aim here is to have free trade, that variety in production methods, we don’t want to have an agreement anyway, do we? Not if they’re insisting we can’t have the very point of having free markets in the first place.

The Observer might have got the wrong end of the stick

Tomorrow’s Observer front page claims that “Rightwing thinktanks call time on austerity era”. The piece says that the Adam Smith Institute, among others, have “endorsed public spending increases to confront the coronavirus outbreak and state-funded investment to boost the recovery”.

On the former point, this is totally unremarkable. There is a role for temporary state spending during the emergency stages of a pandemic. We have repeatedly said that the furlough scheme and business loans are sensible policies to maintain as much productive capacity as possible while swathes of the economy are closed. In a call with the Observer I explained that all this spending is possible today because of the responsible reduction in public deficit spending over the last decade. For some reason this did not make it into the article. 

On the latter point about infrastructure spending, this is an absurd misrepresentation of my position and at no point does the story quote me supporting infrastructure spending. In fact, I made the point to the journalist in question that state-spending tends to be directed towards politically favoured projects rather than what is economically beneficial. That’s why my colleague, Matt Kilcoyne, repeated our opposition to the wasteful white elephant HS2 project in April. 

The article also quotes me backing the Bank of England’s loose monetary policy and “temporary and short-term” support for Government borrowing. This is sensible during the crisis. But, as I made clear to the Observer, the Government extending their overdraft with the Bank of England, which they intend to repay by the end of the year, is not a long term solution. The Bank cannot, and knows it cannot, fund state spending indefinitely. It would be extremely inflationary if continued. There is still no magic money tree.

This has been an extremely busy time for the ASI. We have been mentioned in the media thousands of times, released four major and timely reports, and written dozens of opinion pieces.  We have pointed out the colossal extent of state failure during this crisis, especially when it comes to Public Health England’s catastrophic approach to testing, the excessive focus on ‘protecting the NHS’, and how centralised PPE procurement has been problematic.

We have also been fervent advocates for a plan to reopen the economy when it is safe to do so (even reported in The Guardian). We have also released polling that found three-quarters of respondents (72%) think that the Government should reduce taxes after the lockdown to try to increase economic growth and jobs. We have also been part of debates about privacy and contact tracing, freedom of speech, and much much more.

Over the coming weeks and months we will have a huge challenge on our hands to reboot the economy. The ASI have been and always will be emphatic supporters of entrepreneurialism, reducing taxes and regulatory barriers to businesses large and small. The Observer buries the lead in the final sentence of their article:

The four thinktanks continue to believe the Treasury should examine tax-cutting measures to promote innovation and entrepreneurial activity, saying that over the longer term, Whitehall was poor at allocating funds to the economy in the most effective way.

We will have much more to say on this topic in the coming week. Don't you worry, we'll be setting the record straight.

The furlough scheme has a cost and must come to an end eventually

Like other countries, the UK is subsidising jobs during the virus crisis. Now, the Treasury is finding that it’s much easier to give money away than to stop giving it away. But that needs to happen, and fast. 

One reason is cost. The government’s interventions may end up costing a third of the national income. That means higher taxes—which will choke off job-creation and recovery—or cuts in public service spending, or a massive rise in public debt.

Another is that the scheme promotes inactivity. We have fruit and vegetables waiting to be picked but seasonal workers can’t get here to pick them. Yet we have 10m domestic workers being paid to do nothing.

The scheme also prevents businesses adapting to the crisis situation. Sure, we’ve seen restaurants turning into takeaways, and taxi drivers running deliveries. But rather than developing new ways of working, some 900,000 businesses have simply taken the money and sent their workers home at taxpayers’ expense.

After this crisis, our economy will look very different. Jobs in travel, hospitality and retail may be gone forever. It would be far better to let businesses and workers adjust to that reality now, than to keep them idle for six months, only to discover that their jobs have gone anyway.

This all seems slightly pettifogging

It is indeed true that the rule of law is important. And yet quite how that rule should be enforced can be muttered about. Possibly not this way:

The British government has been ordered to pay the European commission’s legal costs after being successfully sued for granting City traders a tax break without EU permission.

The European court of justice ruled that the UK breached an EU directive by failing to notify Brussels of a zero rate of VAT given to commodities traders over the last four decades.

The UK is now expected by Brussels to seek the authorisation of the 27 member states or drop the policy, which it is claimed has unfairly boosted the City of London at the expense of other EU financial centres.

To give a rough background. When the UK joined the EU certain - 11 of them - commodities exchanges were able to trade derivatives without VAT being charged upon the transactions. Over the decades since then new exchanges have opened, new contracts are traded, should they be charged VAT, those transactions upon and in them, or not?

The EU says, well, permission is needed.

The court’s judges, led by a French jurist, Jean-Claude Bonichot, agreed with the commission that the lack of notification did amount to a breach of the EU’s directives. The court added that the judgment held no sway on whether authorisation should be given if it was sought.

Note what this isn’t about, whether VAT should righteously be charged or not. It’s about whether permission was asked.

The English, fueled by the Common Law, approach is, well, commodity futures are unVATed, these are commodities futures, what’s the problem? The EU legal system demands that permission. That is, largely the difference between a legal system that works on basic structures and compares like with like to equalise the law over similars and one that depends upon official documentation from the centre, the bureaucracy, to operate.

We can’t help but think that a legal system trying to cover 450 million people using that second approach is going to end up being overly pettifogging.

Paying for the COVID-19 lockdown

Imagine if you were handed a bill amounting to a quarter or even a third of your annual income. You’d think: ‘How on earth can I pay that?’

Well, that’s the bill the government faces for the cost of its crisis measures, such as the Job Protection Scheme. And they are asking the same question.

The first possibility is to raise taxes. That’s popular with the Left , who imagine that ‘the rich’ will pay most. But tax is paid by ordinary people when they earn or spend. ‘The rich’ simply aren’t numerous enough to make much difference. Meanwhile, the higher taxes will discourage people from creating the new jobs we will need after this is all over.

The second possibility is public spending cuts. Well, I’d love to see bureaucracies and prestige projects being cut back. But again, the biggest spending items by far are healthcare, pensions, welfare and education. That’s what would suffer most.

No, it needs to be borrowing that takes the strain. I usually oppose government borrowing because politicians use it to promise us goodies and pass the bill to future generations. But in World War II we borrowed heavily to defeat Hitler, and it makes sense in this crisis to borrow—much less—to defeat this hidden killer.

Is Behavioural Science a science at all?

Clearly the understanding of how we react to stimuli presented by governments, marketers and others trying to change our behaviour, is important. 

Prime Ministers like to make out that they govern objectively and according to balanced assessment of evidence, or rather as is now common parlance: “guided by the science”.  Advertising agencies likewise use research to sell campaigns to their clients but they recognise advertising is a craft, not a science. Some techniques work better than others and experience shows how modest ideas can be crafted into great campaigns. Governing and advertising may borrow terms from science but that is just part of their persuasion, sugar-coating the pill.  

In both cases “behavioural ‘science’” is a favourite. But just what is behavioural science? The Encyclopaedia Britannica says:

“Behavioural science [is] any of various disciplines dealing with the subject of human actions, usually including the fields of sociology, social and cultural anthropology, psychology, and behavioral aspects of biology, economics, geography, law, psychiatry, and political science.”

And that excludes business studies, notably marketing and advertising. BS, as it is otherwise known, is offered in courses at some 22 English universities. Not a single Russell Group university offers it though. Almost all universities offer social science degrees of some kind, such as PPE at Oxford, and those taking them have been alleged to have better job prospects: “Some 84.2% of social science graduates were employed three years after graduating, compared with 79% of arts and humanities graduates and 78% of graduates with science degrees.”

“Science” is a collective noun for a large number of academic disciplines which share a standard methodology:

Conjecture/theory -> experiment -> proof/rejection -> fresh conjecture/theory cycling on.

Different people correctly conducting the same experiments should, if it is a true science, get the same results. One essay considering whether sociology should be considered a science concluded that “controlled scientific experiments cannot be carried out on society and although many of the areas that are studied in sociology, such as human behaviour, are useful when trying to understand society, there are many different view points on each subject and therefore no one conclusion is drawn from every experiment carried out.”

In August 2013, the perhaps biased, but certainly well-informed Barry Ritholtz published ten reasons why economics is an art not a science. Experiments are hard, if not impossible, to conduct, behaviour is inconsistent, and announcing the predictions can affect what actually happens, to name but three.  For all the maths and equations, my own view is that, like advertising, economics is neither an art nor a science but a craft – a valuable craft for sure but a craft just the same.  Observing what happens is helpful if only to avoid making the same mistakes again.  The potter at his wheel does the same.  But if you cannot explain why the phenomenon happens, predict what therefore will happen, and conduct an experiment to prove it happened as predicted, it is not science.

Even the most far out and extreme thinking in theoretical physics today, including the likes of 11 dimensional M theory which is untestable right now, is set up so that as technology progresses it can tested and either varified or falsified. That is not true for the components of behavioural science listed above. It is not “a science” or even a collection of many sciences.

The uncomfortable truth is that practitioners add the word “science” to their chosen way of thinking to posh it up — “domestic science” sounds far more prestigious than its previous title, “household skills”, for example. So it is that when government claims it is guided by “the science”, it is merely poshing up whatever course of action it intends to take. Dig deeper and you will find claims that behavioural science is being employed and proves the rightness of the policies being deployed.

Be not fooled: it is not science but it is propaganda for the government’s chosen course. It is an appeal to authority. Like any form of advertising, the propaganda may have been tested to see what changes our behaviour more effectively and that may well be good for us and the country as a whole but it is a rhetorical device just the same.

The potter spins his wheel and the politician spins his message but they are craftspeople, not scientists.

Yes, this is what a fall in GDP means

There’s a distressing lack of knowledge concerning reality on display here:

Councils in England fear they will have to make budget cuts of 20% and face a social care funding shortfall of £3.5bn due to the coronavirus pandemic.

Labour claims local authorities are facing a £10bn black hole as they encounter spiralling costs while revenue streams such as parking charges dry up amid the lockdown.

Cuts of up to 21% could be needed to balance the books, according to the analysis by Labour, seen by the Guardian.

This is just what a fall in GDP means. Forget money for the moment, that’s just vouchers showing who gets what. The important thing is the underlying what there is for people to get. That’s what GDP is, the value added, the value produced, within an economy. That has fallen by 5 or 6% just in March and the likelihood is that our April figures, when they arrive, will show a fall of 20 to 30%.

There is, at that rough guess, some 20% less of everything to be had. Therefore everything gets cut by 20%. This is as true of social care as it is of haircuts, beer and motor cars. There are simply less of all those things around - everyone can therefore have fewer of them. This is just what it means to have a fall in GDP.

Of course, there is an answer, open up the economy again, spiced with lot more of that capitalist free marketry red in tooth and claw, and watch GDP bounce back. At which point, and only at that point, will we have the resources to have the level of social care that we used to have. Or the number of haircuts, beer and motor cars. For it is by definition true that richer places can have more of all those things and we are currently poorer, therefore we can have fewer.

Once again we find ourselves agreeing with George Monbiot

It really is appalling the level of education these days. People just don’t seem to get the most basic - and most important - things about the world we live in. Of course, we do slightly differ over what it is that people are ignorant about:

The issues about which most people live in ignorance are, by contrast, matters of life and death.

I don’t blame anyone for not knowing. This is a collective failure: a crashing lapse in education, that is designed for a world in which we no longer live. The way we are taught misleads us about who we are and where we stand.

We agree so far. Monbiot then goes on to tell us that economics is wrong and ecology is where it’s at. Something that would carry more weight as a critique if his knowledge of economics included a little more finesse. Or even knowledge:

In mainstream economics, for example, humankind is at the centre of the universe, and the constraints of the natural world are either invisible or marginal to the models.

The entire subject starts with the observation that human beings want lots of things but we happen to be in a universe of scarce resources with which to sate them. That concept of scarcity is central to the entire intellectual edifice. In fact, items for which there is no scarcity are non-economic goods. Quite how the very subject that studies the allocation of scarce goods is not cognisant of resource constraints is difficult to understand.

In an age in which we urgently need to cooperate, we are educated for individual success in competition with others.

We are only solely in competition with others for things which are in fixed supply. Where we cooperate we manage to increase supply. This is one of the arguments in favour of economic growth - we cooperate, increase supply and so are not trapped in a zero sum competition.

Large numbers of people now reject this approach to learning – and to life. A survey reported this week suggests that six out of 10 people in the UK want the government to prioritise health and wellbeing ahead of growth when we emerge from the pandemic. This is one of the most hopeful results I have seen in years.

If only those basic concepts of economics were understood. The assumption is that humans desire to, strive to, maximise their utility. This includes such concepts as health and the limited meaning of wellbeing used by Monbiot. It is also that larger sense of wellbeing - whatever it is that the individual concerned thinks maximises their wellbeing in this world of constrained and scarce resources to apply to that wellbeing.

This is the time for a Great Reset.

Which is where we come back to agreeing with Monbiot. Yes, let us have that great reset. We could start by in insisting those advocating a change in the economy, in the teaching of economics, gain a clue concerning the subject under discussion. Wouldn’t that be a nice change, a nice place to start the conversation - dealing only with these who already grasped the basics?

Just one of those damned things about people

We have to admit that we thought this amusing:

For the French capital and the rest of the country, it was a case of “back to abnormal” as thousands of shops, businesses and schools re-opened after two months of lockdown; but things were not quite as they once were.

Paris transport authorities had insisted social distancing would be respected but outages overnight leading to a 40-minute delay made a mockery of stickers on the floor supposed to keep passengers safely apart.

“It’s a catastrophe,” said one commuter. “The trains are totally packed without respecting the measures our leaders decreed. I should have known it.”

How nicely that plays to every English prejudice about the French, excitable Latins who won’t do what they’re told etc.

Except, of course, it’s not actually about the French at all, nor even Latins, excitable or not. It’s about people. For one of those great truths about us human beings is that we’ll do what seems best to us at the time and in the circumstances. What we’ve been told to do comes rather a distant second to this self-calculation of our own interests.

This always coming as a surprise to those who would plan society, people just don’t do as they’re told. Or, more accurately, the telling will only succeed when what is forced upon people is what they already agree is concordant with that self-calculation of own interest.

The implication of this should be obvious. It’s not possible to produce that planned society in any detail. It is possible to set fairly broad outlines - don’t murder and if we do we’ll get you - but anything at the level of don’t put paper in with the plastics recycling is doomed to failure. Therefore, if we want a set of rules that work - in the sense of their being obeyed and thus reaching the desired outcome - we can only have rules that everyone largely agrees with already.

Sure we can have the planned society, the rigid rules for the economy. Only not very many of them and only reinforcing what everyone does already.