Back in the USSR: What life was like in the Soviet Union

A hundred years ago, the October Revolution brought about the biggest social experiment ever: The Union of Soviet Socialist Republics. Since its demise two decades ago, much has been written about its origin, and its politics, economics, and history more broadly. The field of Sovietology, once highly relevant to interpreting the USSR from the West, is now slowly dying, as its great scholars retire.

Almost everything that can be said about the USSR has already been said. Since the opening of the Soviet archives and the enactment of Glasnost, it has been known that the statistics now available to the world were the same statistics used by the Soviet leadership themselves to plan their economy. Long gone are the days of statistical trickery, common in Stalin’s times.

But there remain some historical questions that are of great interest to a curious reader. This book attempts to highlight some key aspects of the USSR to answer those questions. Some of those questions are probably familiar: How good was life there? Were there queues to buy food? How good were Soviet appliances? How advanced and powerful was their military? How did the USSR industrialise so fast? Was there poverty, unemployment, or inequality?

As mentioned, this book is explicitly not a general survey of the state of the art of Soviet history. While the content itself is state of the art, it is deliberately not general in scope. Each chapter addresses one question and one question only, drawing on every source available to answer it.

This book is accessible without prior knowledge, but it will be better enjoyed if the reader has previously read some introductory material. I recommend Red Plenty by Francis Spufford. While not academic, it does a good job in conveying the bigger picture. Broader in its scope, and extremely detailed, I recommend The Socialist System: The Political Economy of Communism, by János Kornai to understand how a socialist regime, in generic terms, has worked historically.

For textbooks about the history of the Soviet Union in general, I suggest The Rise and Fall of the Soviet Economy (Hanson), and Economic History of the USSR (Nove).

This book is divided into two sections. Section One is dedicated to the (in Marxist parlance) “base” of the USSR: its productive apparatus. Section Two explores some topics about its “superstructure”, such as food consumption or healthcare.

Due to the breadth of the topics covered, it is only possible to provide a relatively brief overview of them, and so some chapters may feel too dense for some readers. At the end of the book is a bibliography, so the interested reader can expand upon the themes explored in the book, and find some claims in their proper context.

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).

Read the book here.

Beyond the Call of Duty

  • There is about £7.5 trillion worth of property in the UK, but we tax it in strange and inconsistent ways: residential council tax is regressive and its valuation system hasn’t been updated since 1993; businesses pay at high rates; and homeowners pay rapidly escalating transactions taxes (stamp duty land tax), but private residences are part-exempted from inheritance tax and exempted from capital gains tax.
  • Transactions taxes are widely seen as especially damaging levies by economists: a representative Australian government review found their stamp duty destroyed 75p of wealth per £1 raised.
  • This makes stamp duty land tax around 4x more harmful per pound than income tax and 8x more harmful than VAT; some alternative taxes, like a carbon tax, would have small economic benefits rather than harming efficiency.
  • Taxing housing transactions keeps people in houses that are either too small, too big, or too far away from jobs, which are especially harmful when the housing supply is so tight, as it is in the UK today.
  • In the short term the Treasury should abolish SDLT and replace the lost revenues by reforming council tax – fixing the regressive top end of the system with a more proportional, or even progressive, tax on rental and imputed rental values would bring in the needed revenues easily, with far smaller economic costs.
  • Eventually the UK should rationalise its property taxation system by abolishing SDLT altogether, and then rolling council tax, and business rates into one system, with everyone paying the same rate, set at roughly 20% of imputed rental income, comparable to extending VAT to property services. This would be roughly fiscally neutral on a static analysis, but may lead to large increases in revenue over time, which should be used to reduce other taxes.
  • The UK should consider decentralising property taxation, but this is a separate step which does not need to be considered simultaneously. Abolishing SDLT is attractive whether or not the overall local taxation and governance system is reformed.

Read the whole paper.

Making​ ​Sense​ ​of​ ​the​ ​NHS

Exactly how much the Treasury should provide the NHS is a political decision, based on the state of the UK economy, international comparatives, the coherence of NHS strategy and the competing demands for support. But there is wide agreement that exactly how those funds should be allocated should not be a political decision.

The cross-party convention proposed by Norman Lamb, or the Royal Commission proposed by Lord Saatchi, could help create this division of responsibilities. They should consider five major NHS structural changes to realise its potential:

  • NHS England is too big to manage. It needs to be split into six autonomous NHS Regions—run as independent public corporations like the Bank of England or BBC, not by a vast central Whitehall staff.

  • The limits of NHS provision—at present open-ended—must be identified. Only then can resources be focused on their most urgent uses.

  • Patient co-payments, common in almost every other healthcare system (and already current in NHS dentistry and prescriptions), needs to be extended, with care, to reduce marginal and unnecessary demand on NHS services.

  • Our ageing population means that the number of GPs and geriatricians must be increased, particularly geriatricians, whose numbers are outstripped by demand.

  • The 12% of the UK population with mental health issues need greater prioritisation and specialist resource.

The benefits of this clearer, more manageable strategy include:

  • Improved morale, recruitment and retention of a workforce that feels more valued and able to achieve identified aims, rather than having to deal with continual crisis.

  • Localised autonomy to innovate, reduce waste and learn from others.               

  • Better balance of NHS resources with demand, which is outstripping supply because (a) they are free, (b) an older population needs more geriatrician care, (c) mental health needs more specialists and (d) a wealthier population demands more healthcare in general.

  • Improving the quality of healthcare and balancing the books by focusing money, personnel and equipment on their most cost-effective uses. More skills need to be pushed down the line: consultants to primary care, GPs to nurses and pharmacists.

Read the full paper here.

No Stress III: The flaws in the bank of England's 2016 stress tests

  • The Bank of England uses its stress tests to reassure the public that the UK banking system is safe. However, the Bank’s reassurances lack credibility and are contradicted by the evidence.

  • Rightly interpreted, the stress tests demonstrate the opposite of what the Bank claims they do: they demonstrate that UK banks are still financially weak and far from resilient. The UK banking system is an accident waiting to happen.

  • The conclusion that UK banks are weak is confirmed by an analysis of their capital positions and is further confirmed by banks’ market values being less than their book values. Low market values indicate problems with the banks that the stress tests did not pick up.

  • The Bank made a number of mistakes in its stress tests. Among these: it relied on book values instead of market values, relied on unreliable metrics such as risk-weighted assets and Tier 1 capital, relief on a single stress scenario and used insufficiently demanding pass standards. The Bank’s stress model also produced implausibly low projected losses and so failed a basic reality check.

  • More generally, the stress tests are based on a series of imprudent judgments that led the Bank to miss obvious problems with UK banks.

  • Regulatory stress testing is a highly imperfect tool with a track record of repeated failure in other countries, is compromised by conflicting objectives and by the Bank’s poor forecasting record. It is also compromised by basic Public Choice economics, i.e., that public agencies act in accordance with their own interest.

  • It also creates invisible systemic risks by pressuring banks to standardise their risk management practices to conform to the Bank’s view of the risks they face.

  • Far from providing a credible assurance that the banking system is safe, the stress tests are worse than useless because they provide false comfort, suggesting that the UK banking system is safe when it is clearly not. In this sense, the stress tests are like a ship’s radar system that cannot detect an iceberg in plain view.

  • The stress test programme is therefore dangerous and should be scrapped.

Read the full paper here.

The Millennial Manifesto

Several analysts have pointed to what they perceive as unfair treatment of young people in the UK relative to how the population in general is treated. The feeling that insufficient attention is paid to the problems and difficulties they face is reportedly widespread among young people themselves. Some opinion polls have suggested that dissatisfaction among young voters was one of the reasons why the government lost ground in the 2017 General Election, instead of improving their position as they had been widely predicted to do.

Commentators point to the triple lock that state pensioners enjoy, with the promise that their pensions will rise with inflation as measured by the Retail Price Index, or with the growth in average wages, or at 2.5 percent, whichever of these three values is the greatest. They contrast this with the sluggish growth since the Financial Crisis is the wages that non-pensioners have to live on. Indeed, some groups of workers have seen their spending power decline as wage increases have been outstripped by inflation’s price increases.

It has been regarded as a truism by politicians that the older age groups are more likely to vote than their younger counterparts, and that there are also more of them. This has given older people more political clout than that exercised by young people, and is reckoned by some to have caused politicians to pay more attention to the problems and needs of the old than to those of the young.

It is a common complain that ‘the young are being heavily taxed to provide benefits for the old.’ And it is true that tax-supported services are in general used more by the old than by the young. Pensioners receive free travel passes and a winter fuel allowance; the young do not. While young people under 25 can buy a railcard to cut their train costs by a third, senior citizens can enjoy the same privilege, often for a longer period. Institutions that offer discounts to young patrons usually offer similar discounts to senior citizens.

It really does seem to young people that any perks and privileges available to them pale into insignificance compared to those on offer to the elderly. Many of those who say they speak for the young claim that society is tilted against them.

Read the whole paper.

YIMBY: How To End The Housing Crisis, Boost The Economy And Win More Votes

  • It has become widely accepted, including by the government, that the UK is in the midst of a “housing crisis”, where prices and rents have rocketed in key locations.
  • There are a range of policies that would solve this, and many of them are well known. But none have been implemented because they have not been able to generate support from existing homeowners and the residents of areas that would see increased building.
  • We propose three policies that would hand power back to residents; ways of solving the housing crisis that will also win political parties votes. Each would make a huge difference alone; together they could have a transformative effect on the housing situation in Britain:
  1. Allowing individual streets to vote on giving themselves permitted development rights, to build upwards to a maximum of six storeys and take up more of their plots.
  2. Allowing local parishes to ‘green’ their green belts, by developing ugly or low amenity sections of green belt, and  getting other benefits for the community in turn.
  3. Devolving some planning laws to the new city-region mayors including the Mayor of London. Cities could then decide for themselves if they want to expand and grow and permit extra housing, or maintain their current size and character.
  • Not only do young tenants and aspirant homeowners stand to benefit from a building boom that delivers more housing, but the economy could get a major jolt at a time of slow growth and difficult productivity.
  • Evidence suggests that GDP per capita would be 30% higher—we would produce and earn nearly a third more every year—in just 15 years if we built enough homes in the right places. That’s £10,000 extra on the average household income.
  • Politicians can solve the problem if they are willing to think big and propose policies that make reform work for everyone. Reforms that make most voters worse off have little chance of happening.

Read the full paper.

Discussion paper: Updating student finance

The current system under which university education in England is financed via student loans has been accompanied by controversy since its inception. The 1998 Teaching and Higher Education Act was introduced by the recently elected Labour government under Tony Blair. It brought in tuition fees, with loans available for students to pay towards their fees, and also replaced maintenance grants by loans for most students.

Tuition fees were raised to £3000 per year in 2004, and in subsequent years to £9250. The increases were marked by student protest and street demonstrations, amid claims that this would discriminate in favour of middle class students and those from well-to-do backgrounds. The Labour manifesto pledge to scrap tuition fees altogether was reckoned by many analysts to have contributed to a large proLabour vote among young people.

Many claimed that tuition fees financed by student loans represented a shift from finance of university education by older taxpayers to finance of it by a cash-strapped younger generation which enjoyed few of the state benefits available to its older counterparts.

The replacement of maintenance grants by maintenance loans was seen by some as part of the same process, with these rising for the year 2016/17 to a maximum of £8,200 for students living away from home outside London, and more for those studying in the capital. For a typical 3-year course leading to a degree, this has meant that students upon graduating could face a debt burden in excess of £50,000 (according to the Sutton Trust, the average student debt at graduation was £44,000 in 2016). It causes disquiet among many students that they are starting their working life with such a huge overhang of debt.

The calculations of repayment liability and of interest charged are dauntingly complex and impenetrable, and the system has been charged several times with failure to process information rapidly, or to correct overpayment collected. The current basis for most is that interest will be charged at the Retail Price Index for salaries up to £21,000 and at RPI + 3% for salaries of £41,000 and over. Debts are written off after 30 years, no matter how much or little graduates pay back, and once you have paid off your debt you no longer make repayments. Graduates who go abroad for 3 months or more have to complete an Overseas Income Assessment Form so that repayments can continue to be made, although there are obvious difficulties in some cases of enforcing collection

Read the full discussion paper here.

Chlorinated Chicken - why you shouldn't give a cluck

  • The EU has banned the import of chicken disinfected with chemical rinses for two decades.
  • Liberalising US poultry imports is expected to be a key feature of US-UK trade talks.
  • Americans safely eat upwards of 156 million such chickens each week.
  • Adults would need to eat 5% of their bodyweight in chlorinated chicken each day to be at risk of ill health from poultry alone.
  • US methods produce fresh chicken at 79% of the price of equivalent birds on British supermarket shelves.
  • British trade negotiators should be authorised to permit the import of chemically disinfected poultry from the US in return for a rapid free trade agreement.

Today in Washington teams from the UK and the United States will begin talks that both sides hope will end up in a trade deal between the two countries after Britain leaves the European Union.

Trade deals require pragmatism, they require compromise and they require the parties involved to look at their own regulatory frameworks and see if there are areas they can improve. With the UK leaving the European Union it can look again at restrictions on imports that the EU has imposed. Importantly these can be done through an evidence-based-policy lens.

Chlorinated Chicken is one of the areas that the UK can look at again as we enter talks. It is a safe treatment mechanism for meat practiced regularly in the US poultry sector. Importantly it is banned for import into the EU despite the European Food Safety Authority saying four types of chemical rinse, including chlorine dioxide, ‘would be of no safety concern’.

In fact a person would have to eat around 5 per cent of their body weight in chicken every day (nearly three whole birds a day for the typical British man) to reach the safety limit, according to European Commission data. Drinking water poses a far greater risk, making up 99 per cent of the disinfection byproducts consumed in a typical daily diet.

It does, however come with significant benefit. Immersing poultry meat in chlorine dioxide solution of the strength used in the United States reduces prevalence of salmonella from 14% in controls to 2%. EU chicken samples typically have 15-20% salmonella.

But why is this important? Because it's been a stumbling block on US-EU trade talks to date, with the USA likely to make increased access for American poultry exports to the UK market.

The UK can show it is serious about being open for business by striking a deal with the largest economy in the world and can simultaneously show it bases regulation on scientific evidence. That sounds like a win-win.

Read the whole piece here.

Children of When: Why housing is the solution to Britain's fertility crisis

Andrew Sabisky discusses the increasing difficulty that young couples are having in having children when they want to and having as many of them as they want. The biggest driver of this effect is the rise in housing costs and fall in house sizes, which constrains family sizes and is driving the country towards a demographic crisis.

  1. In the UK and across the developed world populations are rapidly ageing and total fertility rates are substantially below replacement level—meaning a falling ratio of workers to dependents.
  2. In recent decades, immigration has propped up the supply of workers and kept the population pyramid in shape, but in the wake of Brexit, and an expected decrease in immigration, there is a clear need to raise birth rates.
  3. The nation’s low birth rate is not just an economic problem. International survey data indicate that many women across the developed world are not able to have as many children as they would like.
  4. International evidence shows that housing markets have substantial effects on fertility: rising house prices may boost fertility for homeowners, but slash fertility amongst renters — between 1996 and 2014 157,000 children were not born due to the cost of living space.
  5. In little more than a decade, home ownership rates have collapsed among young people, as house prices and rents continue to rise. If current trends are maintained we may expect fertility to fall even further.
  6. Free-market reforms to housing regulations could help raise fertility and improve the country’s long-term economic and social prospects. 

Read this paper.

Instrumental Variables: How the UK can become a world leader in medical innovation

A little under a year ago, the New York Times reported on do-it-yourself insulin pumps. Tech savvy people, mostly parents to diabetics, were pairing glucose sensors with insulin pumps. These would allow caregivers to constantly monitor glucose levels. Some even made what are, in effect, artificial pancreas, with the glucose sensor triggering the insulin pump, automating insulin delivery.

In September, the FDA approved MiniMed 670G, a mostly automated insulin pump, for sale to the general public. The device was made available spring 2017. The device is only available in the US, and Medtronic, the device manufacturer, has stated there is no timeline to bring it to other markets—diabetics can only access the years old previous version.

Automated insulin pumps illustrate two important aspects of drug and medical device regulation. First, existing regulatory systems have been slow to adapt to changes in the development of new medical devices, and medical innovation more broadly. Second, safe and effective medical devices are often unavailable in the UK, while British newspapers abound with stories of life-saving drugs unavailable in Britain.

Brexit gives the UK the opportunity to tackle both challenges and to become a leader in medical innovation. The European Medicines Agency (EMA), as well as the Medicines & Healthcare products Regulatory Agency (MHRA), the UK’s own regulatory body, were both designed for a different era.

They were created for big medicine, when large, multi-national corporations were the primary drivers of innovation. The world is in the early stages of changes in the nature of medical innovation. The era of big medicine will soon be behind us. To take full advantage of the coming changes in the structure of innovation, regulatory policy must adapt.

The UK has two advantages which could allow it to lead the charge in medical innovation.

First, the UK has a well-educated population, even relative to other developed countries, scoring near the top of the pack in maths and science, according to the multi-national TIMSS exams. It also has disproportionately strong higher education, with more universities in the world top 10, top 50, and top 500 than any country except for the US, according to most rankings. It has the human capital 2 necessary to be at the cutting edge of innovation.

Second, Brexit caused a large regulatory shock. Most regulatory changes take substantial time because of slow moving bureaucracies. Because of Brexit, the UK must make rapid changes. The question is, what type of changes should they make?

Read the whole paper.