Oxfam's inequality mistake

Every year Oxfam releases a report criticising the wealth of the richest in the world while ignoring the growth in welfare of the poor. This is a mistake. Sam Dumitriu, Head of Research at the Adam Smith Institute said this means the report is, as ever, exceptionally misleading and misses the point:

"Oxfam’s annual eye-catching wealth inequality stats always paint the wrong picture. In reality, global inequality has fallen massively over the past few decades. As China, India and Vietnam embraced neoliberal reforms that enforce property rights, reduce regulations and increase competition, the world’s poorest have received a massive pay rise leading to a more equal global income distribution.

"Oxfam’s mistake is to see wealth as a fixed pie. More wealth for Zuckerberg and Bezos does not mean less wealth for you or me. In fact it’s the opposite, in a free market individuals can only amass wealth by fulfilling the wants and needs of others. Work and trade does pay out for everyone involved. 

"But we don’t really care about inequality, we care about poverty. Every day for the past 25 years 138,000 people have been lifted out of extreme poverty. It's the countries that rejected free markets that have bucked the trend. In Venezuela, the move to socialism under Chavez and Maduro has meant that more than 75% of the population now live in poverty with many unable to afford basic necessities like food and medicine, despite having the world's largest proven oil reserves.

"What we should care about is the welfare of the poor, not the wealth of the rich."

But if it is inequality that we're really concerned with then we have to understand how the figures have come about. 

"There is one aspect of the recent rise in wealth inequality that we should be concerned about. Matthew Rognlie, Assistant Prof at Northwestern University, found that recent rises in wealth inequality were driven by housing. As land-use regulations have prevented construction of new homes creating artificial scarcity, housing has become increasingly unaffordable. Reforming planning and zoning law would likely be an effective way of reducing wealth inequality."

For further comment please get in contact with Matt Kilcoyne, Head of Communications at the Adam Smith Institute, via phone (office: 02072224995; mobile: 07584778207) or email (matt@adamsmith.org) 

Rising evidence for universal basic income

New report suggests a Universal Basic Income (UBI) is the answer to large-scale change from globalisation and automation

• New trials in countries such as Canada, Finland, Uganda and Kenya highlight growing interest in Universal Basic Income across the world
• Automation, the gig economy and global trade could deliver massive improvements in standards of living but also risk populist backlash from those hit by creative destruction
• Luddite regulation and protectionist tariffs, backed by Trump and Corbyn, risk economic stagnation. Basic Income could deliver popular consent for globalisation and technological change
• Ahead of Davos, the ASI calls on the world's policy makers to back free trade and innovation, and urges more governments to conduct experiments on Basic Income

Current welfare systems are ill-suited to adapt to the challenges presented by automation and globalisation. That's the view of a new paper from the Adam Smith Institute ahead of the World Economic Forum meeting in Davos next week. Governments should look to Universal Basic Income experiments around the world as they seek to address the risks posed by large-scale changes to the labour market while retaining the benefits of trade and technological progress.

While politicians like Trump and Corbyn might suggest a move to more interventionist and protectionist policies, the paper argues that economic theory and empirical evidence show there are good reasons to believe that a “hands-off” approach would produce superior outcomes.

Fresh experiments are being carried out in several countries to test Basic Income feasibility and how it could be implemented successfully. In Ontario, Canada, the local government is trialling payments to 2,500 people that ensure a minimum income level of at least C$1,320 a month, regardless of employment status. In Finland, 2,000 unemployed people across the country are being trialled with an universal basic income of €560 a month for two years, with expansion to a further 1,000 for 2-3 years if initial results suggest success. In Silicon Valley, Y Combinator (early backers of AirBnb and Dropbox) are funding a long-term study of 2 to 3 years which will ultimately include up to 3,000 individuals. 

Yet UBIs are not just limited to rich western countries, small non-means tested payments systems have been trialled in the developing world. In Uganda, the Belgian charity Eight are funding a two-year project in Fort Portal with payments to 50 households of $18.25 per adult and $9.13 per child each month. While in Kenya, GiveDirectly (backed by Facebook co-founder Dustin Moskowitz) is aiming to pay 6,000 people the equivalent of £18 a month over a 12-year period; while at present the scheme reaches just under 100 people it promises to be the largest Basic Income experiment in history.

The paper says countries should see large scale automation not as a threat but as an opportunity, a chance that with Basic Income would ensure that ‘capitalism and efficient redistribution can be vindicated in equal measure’.

The idea of a Universal Basic Income is not a new one. First touted as far back as 1792 by Thomas Paine, the idea is that government provides a regular modest income without any means-testing. Support comes from across the political spectrum. Thinkers like Hayek and Friedman, Martin Luther King and tech superstars Elon Musk and Mark Zuckerberg have all advocated the policy, and even Labour's John McDonnell supports the principle.

Organisations in the UK such as the Buchanan Institute, the Citizen’s Income Trust and Royal Society for the Encouragement of Arts, have called for the idea to be put into practice.

Technological advances, such as driverless trucks, could disrupt the haulage industry but also reduce emissions, road accidents and prices for ordinary people. Basic Income is both politically feasible and financially sustainable, the report argues, smoothing the transition for workers displaced by automation. Short-termist regulations designed to protect jobs from competition risk economic stagnation and mass retraining schemes rarely live up to their lofty promises. 

Basic Income could help secure popular support for the changes that automation and globalisation will bring, while cash transfers allow the unemployed and retain the dignity of personal choice. More experiments in how to provide it could help secure the gains of growth for the decades to come.  

Sam Dumitriu, Head of Research at the Adam Smith Institute, said:

“New developments in machine learning, from driverless cars to AI medical diagnostics, will change the way we live, work, and play for the better. But they also risk disrupting traditional professions and career paths, from lorry drivers to lawyers. To avoid a populist backlash, we need to design policies for those left-behind by creative destruction. Attempts to protect jobs through luddite regulation will backfire and mass retraining schemes have a shaky track record. Cash transfers are our best bet at ensuring the benefits from coming technological change are felt by everyone.

“We now need to experiment with different ways of doing it – should we tweak the tax credits system, should we introduce a ‘Negative Income Tax’, or is a Universal Basic Income the best approach? And, if we’ve decided on the best way of doing things, what should things like the withdrawal rate be? This paper is a welcome contribution to the debate around welfare reform in the UK and puts evidence at the front and centre of improving policy, just as it should be.”

Otto Lehto, author of the paper, said:

"The theoretical case for unconditional cash transfers over command and control solutions has been strong ever since the birth of welfare economics. Now we have increasing empirical evidence from global field studies to corroborate the desirability of granting people a modest, universal income floor.

"A UBI streamlines the provision of welfare services and improves the autonomy and incentives of individuals. Allowing poor people to spend their money as they see fit stimulates bottom-up market solutions and cuts down on bureaucratic red tape. All this pulls resources away from wasteful rent-seeking into wealth creation."

Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07584 778207.

The report "Basic Income Around the World’’ is available here.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Rave on!

With the announcement today by Sajid Javid that the government will adopt as policy John Spellar's private members bill Agent of Change, the Adam Smith Institute says it's great news for the night-time economy and potentially those looking for new developments too.

Daniel Pryor, Head of Programmes at the Adam Smith Institute, welcomed the move saying:

"Today’s announcement that housing developers, not music venues, will now be responsible for addressing noise issues is fantastic news for the night-time economy.

"Our music venues provide entertainment for millions and contribute £4.4 billion to the economy, but current rules damage the success of this vibrant industry by imposing unfair compliance costs on noise reduction. The Agent of Change reforms, brought to the House by Labour MP John Spellar and announced to be government policy today by Sajid Javid, are eminently reasonable and show bipartisanship at its best. If you want to develop near a long-standing music venue, you should be the one to address potential noise issues.

"It will also benefit those struggling to pay rent, and potentially those looking to get on the housing ladder. Easing the burden on music venues will also encourage them to support development in local areas, since they no longer have to bare the cost of noise reduction or threats of closure. This will give a boost to housing supply at a time when it’s sorely needed."

If you'd like to arrange an interview please get in contact with Matt Kilcoyne (via email matt@adamsmith.org) or phone (07584778207). 

Outrage over executive pay is overegged

Following the High Pay Centre and CIPD's annual report on executive pay Sam Dumitriu, Head of Research at the Adam Smith Institute, finds little reason for outrage in the figures:

“It is a mistake to fret about executive pay packets. In fact, given how important the decisions a CEO makes are to the success of a firm, it would be shocking if they were not extremely well paid. When Burberry’s CEO Angela Ahrendts announced her departure, it wiped £536m off Burberry’s value. Similarly, when Steve Ballmer resigned as Microsoft CEO, the firm’s value jumped by £20bn. Is it any wonder that firms invest heavily in attracting top talent?

“The long-term trend suggests that CEOs are more valuable to firms now than ever before. Unexpected CEO departures are leading to ever bigger share price movements. If shareholders, and that includes anyone with a private pension, want a return on their investments then hiring the right chief executive is essential.

“The High Pay Centre are wrong to link high pay at the top with low pay at the bottom. Poorly performing CEOs are bad for shareholders but worse for workers. Microsoft’s failure to invest big in smartphones not only reduced profits, it also meant they created fewer jobs. Politicians should be careful, bashing CEO pay may sound good on the stump but if British businesses lose out on top talent to the US and Europe, British workers and savers will pay the price.”

If you would like to arrange further comment or an interview please do get in contact with Matt Kilcoyne via email (matt@adamsmith.org) or phone (mobile: 07584778207, office: 02072224995).

We must resist Lord Bew's moves to curb free speech and innovation

Sam Dumitriu, research economist at the Adam Smith Institute, reacts to Lord Bew's recommendations that would see social media platforms become liable for content posted by their users. 

"Punishing Twitter and Facebook for what their users post will reduce competition, deter innovation, and threaten the free flow of ideas online. The risk of being fined or prosecuted will lead to even more over-enforcement and have a chilling effect on free speech. Accounts with politically unpopular opinions could end up being incorrectly reported for abuse and banned by risk averse social media companies afraid of being fined."

"This move would entrench major tech companies and stifle competition by burdening innovative start-ups with massive entry costs. It is hard to imagine the next Facebook, Twitter, or YouTube receiving early stage investment when the potential liability from letting users freely exchange information online is astronomical."

"Lord Bew's proposal is illegal under EU law. If Britain is to succeed outside the European Union, it needs to preserve an innovation-friendly regulatory environment. Imposing even more regulation than the EU will make it unlikely the next big tech firm will be founded in the UK."

To arrange an interview with a member of the institute or further comment please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (office: 02072224995 and mobile: 07584778207).

100 Years on from revolution: new book reveals poverty of Soviet diet

Detailed academic study of Soviet economy and society details how poorly Soviets ate and the gruelling difficulty of everyday life in the postwar USSR:

• Soviet citizens only ate a sixth as much meat and a third as much fish as Americans, and the meat was much lower quality
• The Soviet diet relied heavily on bread and potatoes, even in the 1960s and 70s when famines were a thing of the past
• Soviet citizens also ate six times less fruit and vegetables, as well as a drastically more limited range due to trade restrictions
• Waste and inefficiency far higher under communism

While most now agree the Soviet Union was a failed experiment, with horrifying economic, social and human circumstances, many believed that they at least kept their citizens fed in the post-Stalinist era. This common view is wrong, according to a reevaluation of the data released by the Adam Smith Institute, part of a major new study into the economic history of the Soviet Union.

Previous assessments, relying too heavily on credulous acceptance of official data, held that the Soviet plate was actually more generous than the American equivalent, the study shows. But CIA data consistently overestimated the living standards that communism provided. Of course, Soviet citizens actually needed more than Americans, because many more worked on farms or in factories, and it is much colder.

Soviet diets were not only relatively meagre, compared to what most people could afford in the West, they were narrow and lacking in eggs, cheese, fish, meat, fruit and vegetables, the study shows. What’s more, the Soviets didn’t even achieve equality—after the 1970s the poorer sections of society had rapidly declining meat consumption.

And contrary to claims of capitalist waste, the paper shows, the Soviet Union actually wasted far more food than the US. The USSR was the world’s biggest milk producer, and yet only 60%  made it to the kitchen table—compared to 90% of milk produced in the USA. Internal Soviet estimates showed that meat production would have been 15% higher, and fruit and veg production 40% higher, without spoilage during production and storage.

One hundred years since the fall of the Tsars, there are still some advocates for communist solutions to social problems, and many apologists arguing that the USSR was successful after the death of Stalin. But the new study shows this is untrue on every major measure.

The paper also reveals that:

• In 1976 only two thirds of Soviet families had a refrigerator—the USA hit two thirds in the early 1930s. Soviet families had to wait years to get one, and when they finally got a postcard giving notice they could buy one, they had a fixed one hour slot during which they could pick it up. They lost their chance if they did not arrive in time
• In the same period, the USA had nearly 100m passenger cars. The USSR? Five million. People typically had to wait four to six years, and often as long as ten, to get one.
• There was 30x as much typhoid, 20x as much measles, and cancer detection rates were half as good as in the United States
• Life expectancy actually fell in the Soviet Union during the 1960s and 1970s
• The USSR had the highest physician-patient ratio in the world, triple the UK rate, but many medical school graduates could not perform basic tasks like reading an electrocardiogram
• 15% of the population lived in areas with pollution 10x normal levels
• By the US poverty measure, well over half of the Soviet population were poor
• Around a quarter could not afford a winter hat or coat, which cost an entire month’s wages on average (the equivalent of £1700 in UK terms)

After a century defined by the communist experiment, it is fading out of the mind of new generations—author Jose L Ricon’s book reminds us why we ought to keep it in our imaginations.

Sam Bowman, Executive Director of the Adam Smith Institute, said:

“One hundred years on since the November Revolution many people still do not really know what life was like in the Soviet Union for ordinary people. This is a work of scholarship that shows, for the first time, a comprehensive picture of just what a misery communism was for the people forced to endure it – not “just” poverty, not “just” slow economic growth, not ‘just” political repression and the gulags, but a failure to provide people’s basic needs on almost every level.”

Ben Southwood, Head of Research at the Adam Smith Institute, said:

“We all know about purges, famines, gulags, and democides committed by Lenin and Stalin, but the sheer bland drudgery of regular Soviet life is shocking in a different way. Communism did not just fail in the big ways, it failed in the small ways too.

“And it’s not as if communism traded off poor living standards for perfect equality, environmental stewardship, and a focus on the important things in life. 

“They frittered away billions on unproductive military research, destroyed the fourth largest lake in the world, had the worst ever nuclear disaster, polluted their air to an incredible degree, and despite all of this, only achieved a distribution of income and status that was somewhat more equal than the rest.”

Read the full report here!

Notes to editors:
For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07584 778207.

Grayling steams ahead in our estimations

With the news that the Government is to try a visionary new combined model of track and train provision, the Adam Smith Institute releases a welcoming comment from Head of Research Ben Southwood. 

This proposal is remarkably similar to one that Ben Southwood has examined before. You can read his words on this subject here.

In response to today's announcement he says:

"The government’s plan to try out a new combined model of track and train provision is visionary. 

“The franchising system has been an effective part of privatisation, which led to huge improvements in the UK rail system, but it has key problems in the bidding process, and it requires continual government investment injections. We are now ready for the next step.

“Britain’s railways were built privately under the track and train model, and it was government that mothballed half the lines. Now we can again build a globally renowned network by a return to unified private control. This is not pie-in-the-sky thinking. In fact this exact system is what powers Japan’s famously advanced system.

“However, we’ll only get a network that operates well if every moving part works. Ticket prices on new lines must not be over-regulated, planning rules on expansion must be light, and new lines should not require government approval at every juncture. If we do this correctly, we will see private capital flow into the infrastructure we so badly need, not just between Oxford, Cambridge, and Milton Keynes, but right across the UK’s nations and regions.”

To arrange an interview, or further comment, please contact Matt Kilcoyne (matt@adamsmith.org, 07584778207).

ASI in the press after the Budget

The Adam Smith Institute had a bumper set of coverage to our policy suggestion before and reactions to the Budget.

In the run-up to the big day Sam Bowman's Telegraph piece explored how housing reform could be the silver bullet that would solve the productivity puzzle for the Chancellor. In a joint letter, with the Institute for Economic Affairs and the Taxpayers Alliance, to the Telegraph we called on the Chancellor to scrap stamp duty for everyone (something that Guido Fawkes picked up on); we also featured in the paper's day before build-up.

Elsewhere we were quoted on the BBC News website, the Express, City AM, and even the New Statesman has come round to our way of thinking on housing. 

Ben's comments on the Budget featured in The Sun, The Herald, as well as in coverage on The Times, the Independent, and ConservativeHome websites. This morning he was on LBC with Nick Ferrari discussing the imperative of scrapping Stamp Duty for everyone, not just first time buyers. Sam Dumitriu was quoted by ITV online, while Sam Bowman gave his thoughts in The Times Red Box, he spoke to Jeremy Vine on Radio 2 just ahead of the budget, and today joined the post-budget #SkyDebate on Sky News.

To arrange any further comment, or an interview of a member of the institute, please contact Matt Kilcoyne (matt@adamsmith.org, 07584778207).

Adam Smith Institute reacts to Budget 2017

Responding to Philip Hammond's Budget today the Adam Smith Institute welcomes the fact that the Chancellor appears to be identifying the issues that Britain faces. 

Ben Southwood, Head of Research at the Adam Smith Institute, says:

"Philip Hammond’s budget today was unambitious, but it showed that a grown-up is in charge of the country’s finances. With Jeremy Corbyn and John McDonnell across the chamber, uncertainty about the Brexit deal, scandals plaguing every level of government, as well as very bad productivity and growth forecasts, it’s nice to see a budget avoid all major potential policy mis-steps and properly diagnose Britain’s most serious problems.

"The Chancellor showed that he understands that the UK’s housing shortage is because of planning controls stopping development in the places people want to live and showed welcome restraint on empty homes, land banking and council housing, despite huge pressure for bad, kneejerk crackdowns that would make the housing market even more dysfunctional. His focus on densifying areas around existing train stations and investigating the regulatory barriers to longer leases in the private rental market, in particular, echo policies that the Adam Smith Institute has been proposing for years.

"A stamp duty cut is welcome but should be across the board, not just first-time buyers. The big problem with stamp duty is that it stops older people from downsizing and freeing up larger homes for new families, and often these will not be first time buyers. We hope that next year’s budget sees this cut broadened to apply to the whole market, as a move towards total abolition of this destructive tax. Similarly, the announcements today will not be nearly enough to boost housing construction in the most in-demand parts of the country, like London’s underdeveloped outskirts and the Oxford-Milton Keynes-Cambridge corridor. We need major planning liberalisation and a review of the green belt to tackle these problems. But in general, Hammond has shown that being sensible and dull can be a very welcome thing in turbulent times."

To arrange an interview with a member of the institute or further comment please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (office: 02072224995 and mobile: 07584778207).
 

Time to update employment law

On the news that Uber have lost their employment tribunal appeal and that Uber drivers will be classified as workers and entitled to sick pay, holiday pay and the minimum wage, Sam Dumitriu, Research Economist at the Adam Smith Institute said:

“Uber drivers choose to use the app because they want the freedom to pick when they work and which trips to take. Granting drivers worker status may force Uber to schedule shifts and cut pay at peak times, leading to less choice for drivers and longer wait-times for consumers."

"It may also discourage rivals to Uber, like Lyft and Taxify, from coming to the UK hurting competition."

"Today's ruling reveals the problem of relying on employment legislation written before the word 'app' even existed. Minicab drivers have been traditionally classified as self-employed, but drivers who are able to choose their own hours, trips and simultaneously use a rival app are now classified as workers. We should update the law to take into account the added flexibility that gig economy platforms like Uber bring."

For further comments or to arrange an interview contact samd@adamsmith.org or call 020 7222 4995