Educational reform


“The solution to some of the gravest problems we face as a society lies on reforming the way we educate our children”, wrote Alan Greenspan in his 2006 memoirs. For a change, I wholeheartedly agree with the man. Educational reform in the UK, along with restoring fiscal credibility, is of preeminent importance to the cause of securing long-term growth prospects for the UK.

As we slowly climb out of recession (although apparently at a faster rate than the rest of the EU), standards of education and widespread availability of high quality schools, colleges and universities will form a key part in creating what needs to be an increasingly flexible labour market.

The current centralised state sector, supposed to guarantee the availability of quality schools across the country, has produced some of the highest inequalities of educational opportunities in the developed world. A recent OECD report, ‘Economic Policy Reforms: Going for Growth’, states that educational achievement in science, mathematics and reading is extremely uneven. The standard deviation of student performance, a measure of how far individual cases deviate from the average attainment, is higher in the UK than both the OECD and EU-wide averages.

The current state system is becoming increasingly clunky, bureaucratic and cumbersome, an abject failure for thousands of youths across the country leaving high school with nothing to show for it. The talent and experience of teachers is systematically precluded by top-down proclamations of what counts as learning. The best teachers I had at school where those who ignored OFSTED’s view of ‘quality teaching’ in favour of a more flexible and spontaneous approach, responsive to the classes needs. The in-classroom know-how developed by teachers must be unleashed. Competition is key to ironing out the regional differences in educational standards.

I’ll reserve my judgement as to which party can best deliver such reform, bearing in mind the likely resistance to be faced from teaching unions, but it must be a top priority for whoever takes power. Educational standards are a key input in determining economic productivity, labour flexibility, innovation, growth, crime rates and many other indicators of a countries’ progress; little else is of comparable importance.

On corporate capture


The problem, as we all know, with having a network of subsidies for this and that is that said network gets captured by those receiving the subsidies. Even if, as is possible at least in theory, the subsidy is a good idea (for some public good for example) in practice the entire structure veers off into an orgy of rent seeking and producer troughing to the expense of all the rest of us.

As an example, consider US subsidies to cotton farmers. It's possible, in theory, that the US really should have domestic production of cotton. Just think what would happen if there were not the ability to produce t-shirts from All American sources! However, these subsidies obviously impact upon cotton farmers in other parts of the world and Brazil, for one, has taken the US to the WTO court over the impact of such sibsidies on Brazilian cotton farmers. And won the case.

So what would a rational policy be at this point? You or I would say that, well, yes, we the US signed up to the WTO and agreed to be bound by the rules so, yes, we'll stop the subsidies then. This shows how little you or I know about politics. The actual solution is subtly different:

What could be more outrageous than the hefty subsidies the U.S. government lavishes on rich American cotton farmers? How about the hefty subsidies the U.S. government is about to start lavishing on rich Brazilian cotton farmers?

That's how you do politics. If subsidising only US cotton farmers is illegal why not subsidise Brazilian cotton farmers with money from US taxpayers?

It's very difficult indeed to reach any conclusion other than that politics simply isn't a good way of dealing with the real world.

Dull, limp, lifeless*


First up, if I hadn’t been reviewing the debate on CNBC, there is no way I would have sat through last night’s debate. Political commentators are spinning it as a victory for democracy, and a lot of people seem enthusiastic about it, but to me, it was just three men standing on a stage pontificating and rolling out their favourite soundbites. A real debate would have drawn the party leaders on their plans for Britain, and subjected them to cross-examination and scrutiny – we would have switched off our TVs knowing a lot more about what electing each of them would mean. The ITV debate, by contrast, was nothing more than an exercise in presentation skills.

So how did the candidates fare? Well, Nick Clegg was judged the winner by the commentariat, and opinion polls back them up. I don’t disagree – his anti-politics, ‘let’s-be honest here’ shtick worked well – but Clegg still left me cold. For Clegg is not what he claims – a new kind of politician – but rather just a fresher face in a different tie. And despite his party’s liberal heritage, Clegg is every bit as statist as his opponents. His policy platform is grounded not in principle, but in crude, bash-the bankers, soak-the-rich populism.

What of Brown? It wasn’t a disaster, certainly, but I can’t imagine he won over any swing voters. He only really had two lines of attack, which quickly wore thin. First was his ‘I agree with Nick’ stuff, trying to co-opt Lib Dem support on almost everything. Trouble was, Nick didn’t agree with him and told the audience as much – ‘there’s nothing to agree with’. More annoyingly, Brown just wouldn’t shut up about the £6bn the Tories were going to ‘take out of the economy’. Cutting this 1% of public spending (little more than a rounding error, in fiscal terms) is apparently enough to trigger a double-dip recession, cost thousands of jobs, and decimate public services. Right…

What Brown is seemingly incapable of understanding is that cutting public spending is not ‘taking money out of the economy’: it is leaving money in the private sector where it belongs. The British state, which now accounts for half our GDP, isn’t stimulating anything; it’s just a parasite sucking the life out of productive enterprise. Government does many things it shouldn’t do at all, and the rest it does wastefully and bureaucratically. It desperately needs to be cut down to size, and fast.

So is Cameron the man to do it? His performance was smooth and polished, and he said some nice things that few could disapprove of. But for all his Obama-lite, ‘hopey-changey’ rhetoric, there wasn’t much passion or urgency on display, and few signs of ideological conviction. But then maybe those aren’t things that win elections these days: perhaps it really is all about seeming a lovely fellow and not frightening any horses.

But if that is the case then these debates are emphatically not victory for democracy. In fact, they are little more than a perpetuation of the staggeringly shallow status quo.

* Unlike Cheryl Cole's hair extensions.

nef hypocrisy


Amongst the many fallacies and contradictions I noticed in this new economics foundation report, there is one that particularly stands out as having more holes than a Taleban base that’s been hit by a fleet of US Air Force A-10s. They propose a General Tax Avoidance Rule to earn our Treasury another 10 billion per year, allegedly needed to pay for some disastrous Keynesian spending plans.

They say such a rule has worked well in several other jurisdictions, including Hong Kong (s61A of the Inland Revenue Ordinance) and Jersey (mentioned explicitly in their report). Of course, they can’t answer why, if these low-tax jurisdictions have such effective anti-avoidance measures, the nef and their statist comrades insist on calling them ‘tax havens’ and claiming that the opportunities they create for tax avoidance are a threat to the British Exchequer. Surely, if these countries’ anti-avoidance rules are so effective, they can’t offer many tax-avoidance opportunities for British citizens.

Simply put, generalised laws rarely work well, and generalised tax avoidance rules work less well than most. Anyone who spent any time looking at these laws knows full well that the courts in Australia and Canada have seriously weakened, if not downright emasculated them. After all, no law means anything until interpreted by judges, no matter how well-meaning the intentions of those who drafted it. The only way to consistently reduce tax-avoidance is a system of low, flat taxes that is simple to understand and comply with – something the nef obstinately refuses to countenance.

However, the one aspect of this proposal that really gets to me is the fact that I can’t help but think that it is really hypocritical. The nef is a registered charity. Registered charities get significant tax breaks. Although they are set up as non-profits to confer a public benefit, and this clearly has a bearing on why the Charity Commission agrees to register them as charities, this itself is not relevant to the motivations of the nef in pursuing charitable status. The reason they wish to register as charities is to avoid paying tax.

Therefore, if all measures designed chiefly for the purpose of avoiding tax were outlawed, can anyone from the nef explain why they should not be subject to their own law, and forced to pay tax accordingly.

Crosland’s call


Apart from his well-publicised profanities regarding grammar schools, former Labour Minister, Tony Crosland – who died in 1977 – is also remembered for his prescient invocation to local government - ‘The Party is Over.’

At the time, it had the same resonance as John Reid’s more recent conclusion that the Home Office was ‘not fit for purpose’. But Crosland’s words are particularly relevant today at a time of severe economic stringency and on the back of the massive increase in local government expenditure over the last decade.

The next Government needs to get a real grip on local government expenditure, in particular by compelling Local Authorities to become far more efficient. Post the General Election, major cost reductions – partly through job losses – seem inevitable. Birmingham City Council and Nottinghamshire County Council are amongst those widely expected to announce major job cuts shortly. Because both include several marginal constituencies, public debate on the issue has been constrained.

Apart from reducing the perennial over-staffing of local government, its higher echelons should also become subject to a cap on emolument levels. After all, some Local Authority employees are earning over £150,000 per year for undertaking essentially administrative roles. Far more detailed information should also be available about how wage inflation has taken off in local government over the last decade. Furthermore, high-on-the-hog local government expenditure should be eliminated. Even if half the stories are only half accurate, the many allegations of wasted money are disturbing.

Two beacons of Local Authority excellence do, though, stand out:

  •  Wandsworth Council in South-West London has delivered improved service levels and demonstrated financial efficiency for over a generation.
  • -Hammersmith and Fulham Council, under Conservative control, has managed to cut its Council Tax by 3% per year for four successive years.

Why can’t other Local Authorities nationwide emulate them?

Movies futures trading


Two American companies,Veriana and Cantor, have announced plans to offer futures trading on the potential gross takings of Hollywood movies. However, they have faced strong opposition from the Motion Picture Association of America (MPAA) and several lawmakers from both side of the aisle. None of who seem to understand exactly how futures trading works, or the benefits it can bring to the industry.

Speculators, as Madsen Pirie wrote in Freedom 101, exist to help manage risk. "They offer people certainty and security now, in exchange for a higher return for themselves in the future", providing they make the right decisions. That is their function in the marketplace, and it is this very beneficial effect that Veriana and Cantor are showcasing.

However, cashing in on the theme of the moment, the MPAA, which represents the major film studios such as Universal and Paramount, and other groups, said that the new markets would "create a risk of rampant speculation and financial irresponsibility". There is something very disingenuous about the MPAA’s claims. Either the speculators are just online gamblers, like people who play roulette in online casinos. Or, they are analogous to the omnipotent bankers who apparently nearly destroyed the world. They can’t be both at the same time, and yet I am pretty sure they are neither.

The futures markets are very clearly not casinos, because it is with careful research and good timing that one can make money – not random luck. No matter how much careful research you conduct to find trends in roulette numbers, you cannot consistently predict where the ball will land. Moreover, the kind of ‘gambling’ that the MPAA say they are against is already allowed, on the Internet or in gambling shops. If we are free to go to a bookies to bet on who will be ‘Christmas Number 1’, then betting on box office receipts is no different. Crucially, these new futures exchanges will offer a regulated and transparent system in stark contrast to that found on the high street.

Nor, however, are the futures markets anything to do with the causes of the credit crunch. In much the same way that the government foolishly tried to clamp down on short-selling and hedge funds in the wake of the financial crisis, so the MPAA is seeking to capitalise on general resentment of all financial markets to push through their agenda, without focusing on specifics. The Futures Industry of America made this point quite forcefully in arguing on Veriana and Cantor’s behalf, by saying that ‘one of the lessons of the financial crisis is that the futures markets performed flawlessly’.

In all, the MPAA is acting in a manner that is not only misinformed, but also self-defeating. These companies are attempting to provide a useful service, but are being stalled by the very industry that could benefit from the risk-management they would provide.

Tesco: In defence of the consumer


Tesco are selling electronics products like CDs and DVDs from the Channel Islands where there is no VAT to pay. In doing so, they are undercutting the prices of retailers based on the British mainland. This practice used to be done from Jersey, but the government there blocked it because it was apparently giving the island a bad reputation. Yesterday, it was announced that Tesco had consequently switched to selling from Guernsey.

British retailers selling on British high streets are understandably annoyed that their prices are undercut by quasi-foreign competition. Frankly, I think they have a point. However, their angst, channelled through Grauniad articles like this one, is aimed squarely at the wrong people. It is, after all, the Westminster government, not Tesco, that creates this loophole for Tesco to exploit – by levying such a high VAT on British businesses. It is the fact that the British government arbitrarily hammers British vendors that means Tesco can graft a competitive advantage by avoiding it.

New Labour has made much of the benefits of globalisation over the last 13 years. However they usually try to ignore the fact that the internationalisation of trade and the Internet Age have both resulted in the realisation that such high taxes are, frankly, wasteful. This realisation could only have come about because places like Jersey and Guernsey, so close to the UK mainland, maintain low taxes. As Dan Mitchell of Cato has argued persuasively, this ‘tax competition’ has been enormously beneficial in keeping high tax countries from becoming very-high tax countries, extorting their populace still further. If the left-wing press and the British government are able to shut down such schemes by forcing the hands of the Channel Islands’ governments, they will have eroded yet more of the processes by which a free people can keep their government honest and responsible.

Furthermore, The Grauniad article ignores some of the more tangible, less lofty benefits of Tesco’s policy. It argues that we should focus on those high street retailers who have lost out because of Tesco’s scheme. Whilst I agree with the sentiment, to do this exclusively would be to focus on only the ‘sell side’ of the buy-sell equation. What is forgotten is the ‘buy side’ – the fact that consumers now have 17.5% (actually about 14.9% if you do the math properly – 17.5 is 14.9% of 117.5) more money to spend on other goods or services, which will in all likelihood be bought from the British High Street, creating more jobs in the British economy etc.

Indeed, the Guernsey example should be celebrated, not condemned, by the people at large. Unlike complicated tax avoidance schemes run by highly paid accountants and lawyers, which largely benefit only incredibly wealthy individuals or corporations, Tesco’s scheme enables anyone and everyone to benefit from reduced taxation, by paying less for products they want to buy.

The big society


The Conservatives’ new ‘big idea’, the unifying concept that underlies and connects the policies contained in their manifesto, has turned out to be something of a damp squib. For all of the talk of a ‘Big Society’, where every man, woman and child is part of some semi-state voluntary body, in reality it expects too much from people without any incentive for them to take part.

Some of the thinking behind the ‘Big Society’ idea is actually sound: different parts of the country have different needs in terms of state services, and allowing them to organize themselves will promote increased competition between areas. The problem with the current ‘postcode lottery’ is not simply that some areas are have better public services than others, it’s that worse areas have no incentive to improve themselves except in exceptional circumstances. As Hayek argued in The Constitution of Liberty, decentralizing the execution of state services promotes experimentation between areas and increases the likelihood for good practices to emerge.

The problem with the Conservatives’ plan is this: by thinking about society and the market as different things, they are disregarding the immense contributions to society that people make with their jobs. This makes the Conservatives think that they can get something for nothing by getting people to carry out volunteer work in state co-operatives out of a guilty feeling that they contribute nothing to society in their jobs.

The ‘Big Society’ banks on people not recognising the social value of their jobs and feeling morally impelled to volunteer through state-sponsored activities. The Conservatives need to recognise that the free market rewards contributions to society far more than the state, and the only people who will take part in their state co-operatives are busybodies who want to control others.