On the buses

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altLast month, the Office of Fair Trading announced that it has – once again – pressed its nuclear button by referring the local bus sector to the Competition Commission (CC). This decision will not exactly put fear into the minds of the five UK bus companies who dominate the market – Stagecoach, First Group, National Express, Arriva and Go-Ahead. For many in the City, CC enquiries are normally of little interest – they are often dominated by its members poring over out-of-date figures and proposing remedies that are consistently ignored.

Of course, for Stagecoach, the CC – and its predecessor, the Monopolies and Mergers Commission – is a second home. Legendary tales of bare-knuckle competition in Darlington, Thanet and Carlisle will be long remembered. Yet, the fact remains that privatisation of the bus sector has brought considerable benefits, although some rural dwellers would vehemently disagree. In recent years, bus fleets have been modernised, partly due to environmental factors, whilst travelling numbers in major population centres are holding up well.

It should also be recognised that solid bus revenues have helped finance the bids for railway franchises: without them, there would have been precious few bidders for these franchises. Stagecoach was the first credible rail privatisation bidder – for the South Western franchise, whilst National Express – the key bus operator in the West Midlands – has been very active on the railways. Its spectacular over-bid for the East Coast main-line franchise will not be forgotten.

To be sure, 10%+ operating margins on UK bus operations outside London are attractive. But the reality remains that the reform of transport markets would be far better directed elsewhere. The BAA/Heathrow shambles remains unresolved. And, on the railways, urgent action is needed to sort out the much-criticised franchise system and to bring Network Rail under greater financial control.

Are these issues not more important?

Charlotte Bowyer joins the ASI

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Having finished 6th form at James Allen’s Girls’ School where I received A-levels in Politics, Economics & English, I am honored to be taking a Gap Year placement with the ASI. Following this I intend to go backpacking before heading off to university where I hope to study PPE at Oxford or Government and Politics at LSE.

I have spent the last two years ranting to uninterested classmates and left-leaning teachers about the wonders of capitalism and a government’s innate ability to squander money and complicate any economic difficulty. I’m therefore very happy to work at a place where my views are supported and I have the ability to voice them. In such an economic climate I think it’s incredibly important that Britain does not turn to the government in hope of economic and social salvation. Today’s government has created an untamable national debt as taxpayer’s money is wasted in unprofitable uses, a bloated public sector weighed down with bureaucracy and a slow and steady erosion of citizen’s freedoms. All of this suggests that no government - be it Labour or Tory - can hope to make Britain a better place without dispensing with megalomania and handing economic and civic freedom back to the public.

In my spare time my interests include eating and lying in bed, djing, taxidermy and learning to crochet.

Cruel and unusual punishments

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There seems to be no limit to the cruel and unusual punishments that Britain's government can dream up. Now the Business Secretary Lord Mandelson wants to disconnect internet users who download copyrighted material. The interesting thing about this current proposal is that those it is supposed to protect, such as musicians, are universally opposed to it, and have written to the Times to say so.

Of course, there's s a law of copyright, and as long as any law stays around, people should face penalties for breaking it. Traditionally we have used fines, or imprisonment in the more serious cases. And the principle has been that the punishment should be proportional to the transgression. The punishment should indeed fit the crime – but not in the style of the Mikado, which ministers don't seem to have realized was a joke.

In the last decade, however, all sorts of unrelated punishments have been dreamed up – withdrawing welfare benefits, scrapping people's cars, and 1001 (or more) different proscriptions under Anti-Social Behaviour Orders (which can land you in jail without trial if you break one of them).

The mechanics of cutting people off – when innocent people might use the same internet connection – seems about as impractical as Tony Blair's idea of marching young troublemakers off to cashpoints to extract on-the-spot fines. And about as just.

Here's another Mikado-style punishment plan for Lord Mandelson. People who cheat on their mortgages should have their houses demolished. I know one person who would be out on the street, for sure.

An election debate - no thanks

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Sky News proposes a televised election debate between the three main party leaders, They have written to them, saying that if anyone declines, the debate will go on with an empty chair. That would make them seem frit (if the equal-time laws didn't thwart the plan).

David Cameron and Nick Clegg have jumped at the chance to debate. They have everything to gain from more TV exposure, of course. No answer yet from Gordon Brown, though: he has nothing to gain from bringing himself down from the level of statesman to that of mere candidate. He does not want a debate.

The odd thing is, neither do I. Politicians know that they have to re-connect with the public, but if they think that pontificating on TV will achieve that, they have seriously misunderstood the problem. A TV debate would just reinforce the presidential style of politics that has grown up in the UK. We are not voting for the head of an Executive Branch as the Americans do when they vote for a President. We are voting for Members of Parliament – who are there not just to represent us, but to protect us from a powerful Executive.

A debate would further bolster the role of Downing Street, with all the centralization of power which that entails, at the expense of an already weakened Parliament. The Prime Minister has much of the power that George III did. We ought to be stripping that power away, not boosting it by setting our party leaders up as if they were modern kings. We should be glad to have a majority party that was well managed by an effective leader, however mild-mannered or self-effacing. If the test is that the majority leader has to be a presidential-style superstar whom everyone fawns over, then we have little chance of re-gaining the liberties that the centralization of Executive power have already taken from us.

Spending on Scotland

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In his Daily Telegraph column yesterday, Simon Heffer stated that, "As far as one can tell... the subsidy from other parts of the Kingdom (ie, England) to Scotland is currently at least £22 billion a year." This is something you often hear English people saying, much to the annoyance of many Scots, who insist it isn't true. Who is right? Well, the truth – as usual – is slightly complicated.

On the one hand, Heffer is right: Scotland does get 22 percent more public spending per head than England. Indeed, it even gets more spending per head than comparatively poorer areas of England, such as the Northeast. Interestingly, this disparity is not explained by higher levels of welfare dependency in Scotland – if you were to exclude spending on 'social protection' then the public spending gap would rise to 28 percent. It is simply a matter of government being bigger and less efficient north of the border.

But on the other hand, if you factor in Scotland's geographic share of North Sea Oil revenues (about 83 percent), then Scotland pays just about as much in tax as it receives in spending. That isn't to say that public spending in Scotland isn't too high (it is) or that it is sensible to base current spending on natural resources revenue (it isn't) – but those are separate issues.

So perhaps Scotland is – just about – pulling its weight at the moment. However, this should not distract from the fact that it won't be able to for much longer. North Sea Oil production peaked in 1999, and is now declining at an increasing rate. Meanwhile, Scotland's public sector wage bill has risen by 55 percent since 1999, with 1 in 4 Scots now directly employed by the state. Public spending has risen from 50 to 56 percent of GDP in the same period, and on current trends is set to reach 67 percent by 2012/13.

According to the Centre of Economic and Business Research, that would make Scotland the third most state dependent country in the world, after Iraq and Cuba. And what a sad accolade that would be for Adam Smith's homeland!

Phasing out the incandescent lightbulb

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Hoarders are reportedly stocking up on 100 watt and pearl lightbulbs as the phased EU-ban on their supply comes into force. Like the plastic bag, filament bulbs are an easy target for governments, since we all use them and politicians can be seen to be doing their bit for carbon reduction. But this is gesture politics at its worst. Domestic lighting (for that is all that the legislation covers) does not represent a major component of the UK's carbon dioxide emissions, but it is a soft target.

Many people have criticised the replacement bulbs, the so-called compact fluorescent lamps, despite their lower energy use and longer life. For one thing they will not fit all existing lights, and for another they give a light which is different in quality from the familiar tungsten light. On top of this, they contain mercury, so bringing more of this toxic element into homes just as it has been phased out from thermometers.

But don't take my word for this. Charles Clover, ex-environment editor of the Telegraph now writes a column for the Times. His latest contribution is called Dim thinking behind the new lightbulb laws.

In this, he comments on the reality that many people simply do not like the new bulbs, despite the fact that the head of Osram's consumer products division claims that nobody can tell the difference. Given the lower energy use, it's pretty clear that consumers would be flocking to use the new bulbs if there was no disadvantage. That politicians have to resort to compulsion and manufacturers have to lie to make the change happen speaks volumes. As Charles Clover and others have pointed out, a much more suitable technology is now viable and should soon be available at a more competitive price: the light-emitting diode or LED.

Encouraging the uptake of good new technology is one thing, but forcing people to use a flawed technology which may soon be obsolete does not reflect well on policy makers. But, in the world of environmental politics, few things do.

Why greed is good

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FSA chief Lord Turner, interviewed recently in Prospect magazine, calls much of the banking industry “socially useless", attacking its “excessive activity and profits." The City’s response to these criticisms has been sensible, but bankers have been afraid to make explicit the crucial counterargument: that making money is, in itself, socially useful.

The argument is so simple as to be trivial: firms, provided they are subject to laws preventing theft and violence, can only gain revenue by selling things that people want; they can only make a profit if they sell these things for more than they cost to produce; and in the process of production they employ people who prefer that job to any other they could find. That is, profit-making firms create wealth (in the broadest sense of the word) for their customers, owners, and employees. They take wealth from no-one.

Turner talks vaguely of the banks failing to be ‘socially useful’. The truth is this: any industry that makes money is ‘socially useful’, in the very concrete sense that it makes all those involved better off. Banks made enormous amounts of money over the last decade because they promised something extremely useful: the efficient distribution of capital and risk. The wealth they created was found in the share prices and dividends of banks, the welfare of their customers, the pockets of their employees, and the coffers of the exchequer.

This is not to say that the usefulness of an activity should be judged solely by the profit it makes, nor that people never behave recklessly and make costly mistakes. It’s true that bankers’ remuneration packages were ill-designed, some financial instruments were poorly understood, and the financial sector grew larger than proved to be viable. But the problem with the banks was not that they sought income, nor that they made profits, but that they made poor decisions, and eventually suffered huge losses. In regulating the banks, the government will make a huge mistake if it sees profits as the enemy rather than the goal. The government should ignore Turner’s suggestion to “reduce the size of [the banking] sector or apply special taxes to its pre-remuneration profit," and instead allow it to seek profit, through intelligent regulation, disposal of nationalised firms, and minimal taxation.

The desire to generate profit has long driven men and women to find mutually beneficial trades, to innovate, to compete, to generate wealth and to better the lot of society. We must harness this desire, not constrain it. “The point is," in the memorable words of Gordon Gekko, “that greed -- for lack of a better word -- is good." This fact lies at the heart of capitalist society, its truth is evidenced by our prosperity, and we must not shy away from defending it in these difficult times.

Regulating pay: A step backwards

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With the recent economic recession many governments have taken it upon themselves to rescue private businesses, pumping them full of taxpayer money. Governments around the world have decided that it would be best to save companies that could not survive in a free market system and in so doing they have intensified the economic uncertainty in the market. Almost immediately, the government starting capping CEO pay, and regulating bonuses, to protect taxpayer’s money that should not have been there to begin with.

The problem is that without incentives to perform, a high-quality CEO will leave to a company that can afford to pay him more. If a failing business is not able to attract superior management to itself by paying more then it will most certainly continue on its path towards complete failure. The government should mind a lesson practiced regularly in the world of sports.

According to Sports Business Daily the average annual salary for a football coach in the National Football League in America was just under $3 million with only 13 coaches making less than the average. The interesting point is that of the 13 coaches that make less than the average only 1 has ever made it to the Superbowl. In college sports the story is not much different; according to the NCAA the average salary for football coaches has increased to over $1 a year and bonuses for winning a single game can reach as high as $450,000. No one would argue the fact that coaches indeed make a difference on how well a team performs, and clearly the best coaches are paid the most. The government doesn’t attempt to cap coaches’ salaries in publicly funded universities because they understand that a coach that can win will fill the stadiums and gain a profit for the University. The same is true in the world of business.

According to an article published in the Journal of Managerial Finance titled CEO Pay and Company Performance authors Kevin J. Sigler and Joseph P. Haley found, “a positive and significant connection between the pay of CEOs and the performance of their respective firms."  They further stated, “From our results it appears that CEO pay is used to align the interests of shareholders with company CEOs, reducing agency costs within the firm." Those in charge of determining CEO pay are those that have the most to lose, the shareholders. Deciding how much to pay a CEO is a simple matter of economic trade-off between compensation and expected performance.

Just as I assume the lowest paid coach will likely not have a good season, I also assume a low paid CEO will not bring in a large profit margin. Incentives to perform need not be tampered with if the government would keep out of private business. Let any company pay its CEO however much they desire, and if it doesn’t work out then let the company go under. The best way to regulate CEO pay is to allow the free market to punish and reward decisions by shareholders on the matter.