Give Lord Price a megaphone

Lord Price, previously CEO of Waitrose, was appointed Trade Minister at UKTI, now the Department for Trade and Investment, in April 2016. Finally the government had appointed someone to lead our exports who really knew something about business. For the preceding 20 years, UKTI had seen a near-annual churn of ministers and ill-judged policies. The churn was stirred essentially by mandarins who thought they knew more about exporting than exporters did. Yet just eighteen months later Lord Price was gone too.

This week he gave an interview to the Daily Telegraph calling for government to hand export promotion to "a German-style network of chambers of commerce". He is right because exporting successfully as a start-up is not a matter of mathematics, digital analysis or micro-economics but of personal human contact. Exporters and importers need to meet and know each other. The best people to show the way are those who have already 'been there and done that' - not civil servants in Whitehall and embassies.

The idea is not new: the British Chambers of Commerce (BCC) have been pushing it for some time. In 1991, Michael Heseltine, then President of the Board of Trade, proposed something similar also based on the German network of chambers of commerce. It was called “Business Link”.  BCC not only failed to grasp the opportunity but opposed the whole idea. 

Reviewing the matter 20 years later, Heseltine stated that the BCC: “should have gone to Government and said, look you've got all these services, work with us and create the one stop shop. That's what they should have done. We did it for them. I think they regarded Business Link as an intrusion into their fiefdom. But the reason we created Business Link was because the Chambers weren't doing a good enough job."* In the event, Whitehall mandarins appointed themselves to the key Business Link positions so that was a disaster too.

Lord Price’s argument is cogent and no-one is better placed to outline the way forward. Remarkably, instead of welcoming what could be regarded as their own proposal, the BCC's response was to grumble about who should pay for it. Lord Price suggested businesses pay “a small levy – say £100 to £1,000”. Adam Marshall, the Director General responded that such a levy would be seen ‘as a “tax on business” and turn the chambers into quasi-governmental organizations that would be less free to argue fearlessly for business interests.’** Even by BCC standards, this is a miracle of contrariness: he is claiming that members paying dues to a private club, or trade union, for representation, and the provision of services, would thereby inhibit that club from so doing.  

It is unfortunate that funding is muddying the water at this stage. The government export department costs around £400 million p.a. but there is little reason why it shouldn't focus solely on things only government can do (treaties and such like) with a majority of that £400 million, i.e. £1,600 or so per exporter, released to fund BCC’s export services and those of its overseas partners. No new levies or taxes would be needed. 

While Heseltine’s issue that chambers aren’t yet doing a good enough job, we could always suggest the possibility that government should pay chambers by results. A scorecard would need to be agreed and a scorekeeper (perhaps a business school with strong international marketing expertise, to collect and publish the scorecard) but this is not an insurmountable obstacle. Some chambers are excellent and are already helping the members to export in significant ways. Inevitably some chambers are better than others and, overall, they are not up to the standards strongly exporting countries like Germany. It is no criticism to say that they could do better: every organisation in the country could do better. Suggesting complacency, or that helpful opportunities are being opposed, is not a criticism I would make. 

We can be sure that the mandarins will oppose Lord Price’s suggestion and ministers will claim to be pre-occupied by Brexit, forgetting that a key rationale for Brexit is the very freedom to export to which Lord Price is opening the door.  We know this because Lord Price must have outlined his thinking before leaving office after a mere eighteen months.

To take his proposals forward he needs to set up his own working party with the BCC, other business groups, experienced exporters and academics. The House of Commons International Trade Committee should discuss the proposal. It needs to be refined until business speaks on it with one voice. Then give Lord Price a megaphone and government will have to listen.

* Forte, Elliot (2011). Intervention: The Battle for Better Business. Lulul. pp. 252–264. ISBN 978-1447863236.

** Daily Telegraph, ibid.

Open access on HS2?

As the cost of HS2 continues to rise at an alarming rate there needs to be far more detailed analysis over its benefits. With wider time savings negligible, the project’s only real raison d'être is a much needed boost in capacity. The existing ‘West Coast Mainline’ which connects Scotland, NW England and the West Midlands to London is currently running close to capacity threatening future growth without new lines.

The current tender for the new West Coast franchise incorporates both existing and new HS2 services into one single operation giving an even bigger monopoly than is currently the case. Given the eye watering cost of constructing HS2 the government is keen to claw back as much fare box revenue as possible from the winner of the incorporated franchise bid through hefty premium payments totally undermining potential for competition. Given HS2’s limited time saving - owing to the relatively short distance – maintaining the status quo let alone improving services on the existing line could prove financially disastrous to the government’s proposed franchise model. 

When trains from East Kent to London transferred to HS1 in 2009 fast services on the existing route were axed. Passengers from Ashford to London had the choice of either accepting an increase in journey time of 44% or paying a 24% premium to travel on HS1.
If this framework was adopted on HS2 - and I strongly suspect it will – there is a real risk that competition will be further undermined. Whole swathes of the NW of England and Scotland will be left paying significantly more than Virgin’s already grossly inflated ‘walk on’ fares. Manchester to London currently costs £338 for a standard class peak return; add 24% and this becomes and eye watering £419 standard or £600 first class. 

If the classic route becomes 44% slower - roughly 3hr from Manchester to London vs the current 2hr - we will have the worst of both worlds. Many other locations along the existing route such as Warrington, Stoke on Trent and Coventry risk coming off even worse with the loss of fast direct services to London without an HS2 replacement. In Lancashire and Cumbria there is talk of no direct trains at all. With the 2nd phase of HS2 only being constructed as far north as Wigan, trains will then have to transfer to the classic route onward to Scotland. To compensate for the slower line speed the current plan is to largely omit intermediate stops.

To enhance HS2 new operators need to be granted access to the existing 125mph line through ‘Open Access’ agreements. On the East Coast route this model currently works well even though it’s limited to only a few stations. Where head to head competition exists fares have fallen and passenger satisfaction has risen. HS2 provides a golden opportunity to scrap the unpopular franchise system on the West Coast route and replace it with a system that delivers real choice for passengers. 

Uber, but for ambulances?

A few months ago, I needed to head to A&E. My condition wasn’t serious enough to warrant calling an ambulance, but as a recent graduate living in London I don’t own a car: so I ended up getting an Uber. According to a new study from University of Kansas economist David Slusky and co-author Leon Moskatel, I’m not the only one who’s been in this situation.

The paper (which is currently undergoing peer-review) examines how ambulance use rates changed when Uber began operating in US cities, and looks at data from 2013 to 2015. During that period, the authors found that ambulance use rates declined by an average of 7% after Uber (specifically UberX) began operating in a city. They argue that this can be explained, at least in part, by low-risk patients substituting ambulances for Uber. If this is the case, ridesharing services are cutting healthcare costs for low-risk patients by reducing the need for expensive ambulances. More significantly, Uber and other ridesharing platforms would be freeing up ambulances for those who need them most: reducing their waiting times and potentially saving lives. Following this logic, some U.S. hospitals have considered formally partnering with ridesharing platforms for low-risk patients.

Although the study doesn’t compare cities that got Uber to cities that didn’t, the prospect of declining ambulance use being explained by regional trends is unlikely. The map below shows that Uber’s entry into major US cities was “reasonably randomly distributed across the country, with no obvious pattern by region, city area, or population”:

A more pressing objection to the study’s conclusions is that the Uber could reduce ambulance use via an entirely different mechanism - a reduction in DUIs and assaults. My colleague Sam Dumitriu has previously explored the evidence supporting this argument:

...the rate of vehicular accidents falls quite dramatically when Uber enters a city, with traffic fatalities declining by 16.6 per cent over a year. This can be explained by both a reduction in the number of people driving under the influence, as well as the fact that the people most likely to use Uber (i.e. millennials) are terrible drivers and anything that keeps them off the road is a good thing.

Second, [evidence suggests] declines in arrests for both assaults and disorderly conduct. This may be because Uber reduces passenger wait times, lowering the risk of someone being attacked while waiting for a cab.

However, ambulances dispatched to respond to assaults and DUI incidents are unlikely to make up the vast majority of ambulance use in America. It is unlikely that reductions in assaults and DUIs explain away most of the reduction in ambulance use once Uber enters a city. Either way, ridesharing services are potentially saving lives; this study is a valuable indication that Uber might be doing so in a completely different way.

Great minds think alike

In today's City AM, I argue that it is right for train fares to rise by 3.4%. Part of my argument is that it is wrong to subsidise rail users who are, on average, better off than other commuters. But I make a further argument. In fact, cutting rail fares may not even help most commuters.

"If fares were to fall on the Brighton Main Line then I may consider commuting from Hove, but landlords would anticipate this and raise rents. Homeowners and landlords in commuter towns may welcome the windfall, but it is hardly reasonable to expect taxpayers to pay for it."

On Twitter, Tom Papworth (author of The Green Noose) points out that I am far from the only person to make this argument. Winston Churchill in 1909 wrote:

"Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings offended the public con-science, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!"

Great minds eh...

We must do as Polly Toynbee says, we should be more like Sweden

A depressing truth about our world - people don't value things which are free:

Missed hospital appointments cost the NHS almost £1 billion a year and deprive patients of vital care, the health service’s top nurse has said.

As the service heads into what is likely to be the busiest week of the winter, Jane Cummings, the chief nursing officer for England, called for the public to be more responsible about wasting time and resources.

A million more cataract operations or 250,000 hip replacements could be funded if the NHS did not have to pay for appointments that people failed to attend, she said.

Official figures show that 7.9 million appointments were missed in 2016-17, meaning that patients do not turn up to one in 15 of the 119 million scheduled. At an average cost of £120 per slot, this indicates that doctors’ time worth about £950 million was wasted last year.

This is, of course, a pure economic waste. We are being made poorer by this amount simply because people are not turning up to those "free" appointments. This is, equally of course, something that we'd like to change.

We could, yet again of course, just insist that all should buck up and do their duty. Or we could follow Polly Toynbee's constant and consistent mantra, that we should be more like Sweden. That is, have a little judicious application of economic incentives.

The overall costs of an appointment there are about as they are here, perhaps 1,800 to 2,000 SEK, or in that £160 to £180 range. Given government accounting that is pretty similar to our own costs. But the Swedish insist that the patient - or would be patient perhaps - must personally cough up in the £10 to £20 range for the service. 

No, this isn't some charge to pay for the system at all, it's purely an incentive for someone to turn up when they say they wish to turn up, it's a management of the capacity of the system charge, not a revenue raiser. In much the same manner as we pay a prescription charge in fact. Larded around with all of the exceptions as well, people who need many prescriptions/visits pay a reduced or capped amount.

The thing being that people value more what they've got to pay for. Even at a 90 to 95% discount, people still value such things more if they've got to cough up for them.

Or as we could also put it, as those socially democratic Swedes do it, at least one solution to the problems of the NHS is to stop it being free at the point of use.   

The NHS is an historical relic, not a Wonder of the World

Given the anniversary we're going to get an awful lot more of this sort of rhetoric:

The NHS will celebrate its 70th birthday in 2018, after a difficult decade since the global financial crisis culminating in one of the most testing years in our history. The terrorist attacks in London and Manchester, along with the Grenfell Tower tragedy, saw all emergency services, including NHS staff, respond with skill and bravery.

Our health service, while still ranked among the best in the world, has never been busier. The NHS sees almost 1.5 million patients every day in England alone. So as well as celebrating its many achievements, in our landmark year we must also reaffirm our commitment to a taxpayer-funded service, based on clinical need and not the ability to pay.

In 1948, at the NHS’s founding, there were no routine antibiotics, anti-cancer drugs or blood pressure treatments, and infectious diseases were common. This has all changed, thanks in part to British science, which has brought the world vaccination, penicillin, IVF, stem cell transplants, artificial hips and MRI scanners, and knowledge of the structure of DNA.

But our greatest innovation by far, with the most far-reaching impact on the health of our nation, has been the NHS. It embodies the British social conscience. Since resources are very stretched, some may question the funding model, and suggest the NHS is not fit for the future. Nothing could be further from the truth. Scientific advances mean it is needed more now than ever before.

Certainly British science has informed what the NHS does. British science has also informed what all other health care systems do, so Bully for British Science! Yet the science of everywhere else has also informed what the NHS does - science is, after all, a public good.

However, what is really being celebrated here is the unique manner in which the NHS is organised, something thought so basic that it has replaced the CoE as the national religion.

The truth being - a useful, not complete, truth - that health care systems around the world are fossilised into whatever the favoured structure was in each country at the time that a health care service became a useful thing to have.

It is harsh but roughly true that pre-WWII the major function of hospitals and all was to provide bed rest. After WWII we began to have that scientific revolution which meant that active treatment of ever more conditions was likely to be successful. Exactly and precisely those vaccines which killed off many of the infectious diseases, the antibiotics, near any treatment for cancer other than hacking away and so on.

That we've got this wondrous science being applied to our health is just fabulous. But as we should be able to note this happens in all of the rich countries, it's something that is independent of the precise manner in which it is organised. Germany, France, Switzerland perhaps, rely upon state supported insurance, the US (and badly) on a more bureaucratic and also market approach (the combination of the two never likely to work well), our own NHS on a near Stalinist state provision model. These are just the ideas which were around in the varied places in the 40s and 50s when that science meant that a comprehensive health care system was viable and desirable.    

That Singapore, coming very much later to the game, has a very different structure (essentially, state run and paid for catastrophic care, forced savings accounts for routine) is really a reflection not of the underlying society but that we all knew more about the incentives that drive health care structures when it was designed. 

Leave entirely aside, for a moment, what we think the structure of a health care system should be. As all around us leap with joy over this anniversary we need to recall that the current NHS structure is only, really only, a reflection of how 1940s Britain thought things should be arranged. 1940s other places had a different ruling ethos which is why they have different health care structures. And there's absolutely nothing at all in the evidence since then to tell us that 1940s Britain had it right.

Far from being the Wonder of the World the NHS is an historical accident. Other places do it differently- it might be worth our considering whether that decision taken 70 years ago came to the right conclusion.

So why in the heck are we doing this in the first place?

The short answer here is that the planners screwed up. The longer answer is that the planners screwed up by trying to plan rather than use markets - appropriately guided by a crowbar stuck into them.

Policies aimed at limiting climate change by boosting the burning of biomass contain critical flaws that could actually damage attempts to avert dangerous levels of global warming in the future. That is the stark view of one of Britain’s chief climate experts, Professor John Beddington, who has warned that relying on the cutting down and burning of trees as a replacement for the use of fossil fuels could rebound dangerously.

As varied reports have told us burning such wood biomass after it has been transported thousands of miles increases, not reduces, emissions. So, how did the political process get it all so wrong? 

Leave aside the whole question of whether anything should be done and concentrate only on what should, if anything. As Nick, now Lord for having said it, Stern pointed out the solution is a carbon tax. Not, repeat not, attempts to plan any response in detail.

The reason being that markets and the economy are complex things. It is impossible to calculate the effects through multiple iterations and third and fourth level effects. Thus, if intervention there is going to be that intervention has to be a simple one, a change to the price system. So that we can then use the price system and those markets as our great calculating engine.

Doing this, a tax upon the carbon emissions from what is burnt, from transportation and so on, would have immediately told us that, given this lever in the price system, wood biomass on this large and trans-continental scale does not work, does not solve the perceived problem.

What did they do instead? They tried to be clever, tried and failed to navigate and calculate through the effects. Thus we end up with something entirely counterproductive, something both more expensive and also with higher carbon emissions. Not the point at all.

And all the result of the fools thinking that we can plan something as complex as an economy. It really isn't just a failure of this particular plan, it's a failure of the very concept of detailed planning in the first place. 

As we've been saying, competition really does lower prices

This is one of those little stories which should really be read the other way around:

Families in the countryside are having to pay almost £3,000 a year more for essentials such as groceries and petrol than those in towns and cities, a study has revealed.

It's one of those cod surveys designed to get the name of the sponsoring firm into the papers but still, consider the point being made. Retail things cost more out in the countryside than they do in the cities.

We know very well that rents are higher in the cities, also that turnover of any one shop is likely to be lower out in the boonies. But as we say, this story should really be read the other way around, not that the country is more expensive, but that the cities are cheaper.

The cause being of course that the cities have many more retail outlets. All competing with each other for our custom. The end result being that prices fall as price is one of those ways - most certainly not the only one - in which people compete for that custom.

That is, we've here proof perfect that competition reduces prices to consumers. By squashing the amount producers can lift from our wallets.

True, this isn't a particularly grand finding, it's one page two or three of every economics textbook already. But it is still worth pointing out. Most especially to those who insist that national monopolies are the way things ought to be done. Say, on the trains, the health care sector, some even arguing for it for housing. Even if we're paying through taxes not directly, competition still reduces the amount that can be lifted from our wallets by the producers.

If Nick Boles is right here then there's nothing to worry about, is there?

Nick Boles tells us something which means that there is no problem with the idea of a universal basic income. Of course, that's not quite how he puts it but we're happy that we're able to point out the true implication of his assertion:

“The main objection to the idea of a universal basic income is not practical but moral,” he writes.

“Its enthusiasts suggest that when intelligent machines make most of us redundant, we will all dispense with the idea of earning a living and find true fulfilment in writing poetry, playing music and nurturing plants. That is dangerous nonsense.

“Mankind is hard-wired to work. We gain satisfaction from it. It gives us a sense of identity, purpose and belonging … we should not be trying to create a world in which most people do not feel the need to work.”

This is proof - if the assertion is true of course - that there is no such worry about a universal basic income.

For the concern is that if we do all have the basics catered for then none of us will do anything. Or at least nothing economically productive that is. This is to assume that we only work in order to gain access to those basics, of course.

If this were true then those basic income experiments that have taken place would see substantial falls in the hours of market labour being offered by those who receive it. This isn't how those experiments have worked out. Certainly not substantial falls.

Thus the assertion seems to have some truth to it, we don't work simply to earn ourselves the basics. But look at what the implication of this is. Perhaps it is that we are hard-wired to work. Perhaps it's just that our desires are for more than the basics. But what it does mean is that if the basics are covered then we'll still work. 

There is therefore no moral problem of the type being described.

We can and should take this further, too. For this covers the worries about automation itself. So, the machines do ever more - what will people do with their lives, what will they work at? The answer being "something else." For, as we've asserted, humans work anyway. So, if some set of human desires are being covered by the machines, just as with the basic income, humans will still work to cover some other set of human desires. This only ceases when all human desires are satiated - and wouldn't that be a terrible world?  

Nick Boles' assertion is that humans are hard wired to work. If that is so then we, they, don't need to be driven to work by deprivation. We'll, they'll, work anyway. Thus there is no moral or even economic problem with either automation or the universal basic income.

Assuming the assertion is true, obviously.

The IPPR's report is based upon a very basic error

The IPPR tells us that we're all off to hell in a handbasket therefore capitalism must be fundamentally reformed. We too think that are useful things which can be done to improve matters but we do tend to base our ideas in a knowledge of the present. Unlike some:

The rise of the machine economy risks social disruption by widening the gap between rich and poor in Britain, as automation threatens jobs generating £290bn in wages.

Their underlying analysis is here. And they claim that the profit share, or capital share if you prefer, is getting larger. Given the unequal distribution of capital ownership this increases inequality. QED.

Except, if you look at figures 1 and 2 you will see that they are using two entirely different measures of the labour share. One is all going to labour, total compensation, the second is wages and salaries. Such confusion does not bode well. For if we insist, as we do, upon paid holidays, automatic pensions and the rest then the compensation share will stay static while the wages share falls. Such non-wage costs are of course incident upon the wage packet.

It gets worse we're afraid. They measure the peak of the labour share as being the mid-70s. Entirely true. But this is not a useful point to be making, for at that time the profit share wasn't even large enough to cover depreciation. The country was eating its own capital as the capital sector as a whole was making losses. We simply shouldn't use that time as a comparator - except of what not to do.

And worse again. They actually give us no evidence that the profit or capital share is increasing. They simply tell us that the labour share is decreasing and the assumption made is that the capital share is the mirror image. It isn't. Obviously, if we look only at the wage share, it isn't, we must add back in the other costs of employment (yes, including increased NI contributions, taxes upon employment) to gain the true labour share. But even that's not enough.

There are four sectors to the national income, capital, labour, mixed income, subsidies to production and taxes upon consumption. Mixed income has risen as there are more self employed about. This reduces the labour share while not changing the profit share one iota. Taxes and subsidies - well, think on VAT, a tax on consumption, this has risen substantially over the decades. So too has the amount of subsidy to production - think of all those feed in tariffs, this is where they appear in the national income.

 We would not swear to this in detail, our research into this matter was done a few years back. But the general view is indeed that after the recovery from that unsustainable position of the 1970s, the capital or profit share is around its long term average for this country. The labour share has fallen, entirely true. But what has risen is self employment and taxes and subsidies on consumption and production.

The capital share just isn't the mirror of the labour share, the capital share hasn't been rising as the labour share declines, therefore the entirety of the analysis being presented is simply flat out wrong.  

This ain't a great starting point for an attempt to plan the economy really. We having found that starting with reality is something of a boon.