Adam Smith Institute

David Lidington MP, Shadow Foreign Minister, was our guest at a Power Lunch in Westminster this week. With oil now more than $130 a barrel, and half the world's cranes busy building new hotels and apartments in Dubai, it was no surprise that much of the discussion focused on the Middle East. Lidington, of course, is expert on the subject, and had recently come back from a top-level visit to the region.

The discussion was off the record, so I can't go into the details of who said what, but it does seem that the main concerns in the region have changed, from primarily strategic (notably issues around Israel and America's interests) to economic. Middle-Eastern countries see themselves as developing rapidly – on a par with China as the future economic powerhouse of the world. And yet, outside a few countries, the region's political structures have not developed fast enough to give this new, market economy the framework to really grow. The Gulf region imports 90% of its food; water is in short supply for agriculture as for much else; and Egypt has had bread riots. But when you try to fix the price of bread as Egypt does – so you can make more money selling it for animal fodder than human food – what would any economist really expect?

And economic development itself will pile up the political pressure. Economic development has allowed education to expand, and in particular more women are now getting an education. That will stoke up rising expectations in the region's predominantly young population. We can't expect that overnight there will be American-style constitutions, free elections and bright new democrats bursting into the majority. But I would say the UK needs to do more to help political reform by encouraging the understanding and discussion of democratic culture and institutions, and in particular the rule of law. Britain is, of course, the home of those principles. But since our nanny state is tearing them up at home these days, one cannot be optimistic that we will make much of a job of exporting them abroad.

Dr Bill Emery, Chief Executive of the UK's Office of Rail Regulation, was our guest at a Power Lunch this week. At present the rail regulator is much absorbed by the next 'five year plan' for the railways. The view from the whole industry that such long-term planning is necessary if people are to invest in new track, equipment and rolling stock. But to me, that sounds like engineers talking. People in free markets (which rail isn't) also have to make long-term plans – but be prepared to change them when the market changes, as it does day by day. These long-term regulatory planning periods just make the stakes high all round, and make mistakes inevitable.

One of the odd things about UK rail is that it has become almost too successful since privatization. Whatever you think of the old Railtrack, the fact is that privatization gave the railways an enormous boost as operators looked to get people travelling again. Sure, the regulatory regime encouraged them to cram more people into the same trains rather than running extra services, but that has now changed and the system is still booming. Experts forecast a whopping 30% growth in rail travel over the next five years, and more freight is being carried too. At the same time, rail users are demanding higher and higher service standards. It's quite a challenge.

But is the present structure up to it? The infrastructure company, Network Rail, is entirely a child of government, with a board that supposedly represents everyone but in reality represents no-one. It has certainly spent hugely on safety and got a grip on the major projects, though it has been rightly condemned (and fined)  for cost and time overruns. Its costs are about 30% higher than those of other comparable bodies in Europe, so these are things it ought to get right.

Some chance. The fact is that Network Rail's money comes mostly from the government. That's why it seems to have scant regard for the interests of the travelling public. If politicians are determined to subsidize rail travel, they should subsidize the customers, not the producers – then the producers would be scrambling to please their customers rather than their political masters.

Earlier this week I heard Derek Scott, formerly Tony Blair's Economic Adviser, speak at the Economic Research Council (whose events are well worth a look).  His subject was "Reform: Past, Present and Future" and his insights were very interesting.

He said that the Thatcher reforms were huge, albeit incomplete. Two things helped her: (1) she came to power at a real turning point in British history, when everyone knew things needed to change; and (2) her election manifesto had been very clear on what she wanted to do, which gave her real authority.

That second point was particularly important. Although Tony Blair had a much larger majority than Thatcher, his manifesto had been very vague and so his authority was diminished. But despite this, and the Labour Party's left-wing 'intellectual baggage', Blair was determined to carry forward the Thatcher reforms, particularly in public services.

The problem was, said Scott, that Labour tried to drive reform from the top down, making services more accountable to the government, rather than to users. There was lots of change but not much reform. Now, he said, the government needed to really focus on putting patients in charge of education, patients in charge of healthcare, and local communities in charge of policing.

Labour's centralization was accompanied by a huge spending splurge, with success increasingly measured by inputs, not outcomes. Scott criticized Gordon Brown for taking the UK from a healthy surplus to a large and growing deficit. We need a good atmosphere for entrepreneurs, Scott said, and Brown's tax, borrow and spend approach has undermined it. He suggested that the government establish a new fiscal rule: public spending as a proportion of GDP must fall from 43% to 35% in the next ten years.

All of which was music to my ears. On this evidence, it's a shame Derek Scott wasn't running the Blair government's economic policy, rather than just advising on it.

Peter Luff MP, head of the House of Commission Business and Enterprise Committee, was our guest at a Power Lunch in Westminster yesterday. Round the table we had a number of regulators, lobbyists and businesspeople, mainly from the telecoms, mail, and energy sectors, so it made for a wide-ranging discussion.

Luff's topic was how far we might streamline the workings of the Department for Business, Enterprise and Regulatory Reform. Quite a bit, I would say. Rather a lot of its work involves simply replicating what private agencies do already. It seems to delight in devising all kinds of taxpayer-supported special schemes for this sector or that, this activity or that, as the political wind blows. It would be much better off standing out of the sun and letting businesses grow under the light of lower taxes and lighter regulation.

One topic that did come up at the discussion was the independent review of postal services that is currently underway. This could be quite radical in its findings. There is certainly a strong case for privatizing the Royal Mail, as we explained in our report Privatization - Reviving the Momentum. Indeed, with many other national mail carriers now in private hands, and with the growth of private carriers in the UK, the case is getting stronger. The political problem, of course, has always been what to do with rural post offices. Privatization brings transparency, and transparency is the enemy of the sort of cross-subsidies that keep rural post offices open today.

On the other hand, many of the rural post offices have gone already. More banking, benefits, licensing and other traditional post office functions are now done online. So maybe the problem is getting smaller. And maybe the question of whether some rural village really needs a post office or not should be up to the local authorities – not a decision made by some distant bureaucrat in London.
 

Do you want to learn about Freedom?

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Freedom Week is a one week free seminar for thirty students about the principles of a free society based on the free market and individual liberty. It is taught by eminent academics and supported by the main UK free market think tanks.

Freedom Week 2008 will take place at Sidney Sussex College, Cambridge, from 7 to 11 July 2008. To apply, please email to This e-mail address is being protected from spambots, you need JavaScript enabled to view it and include:

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The absolute deadline for applications is 3 June 2008. Please apply asap.
Hope to see you in Cambridge! 

We had the April meeting of our next generation group this week at our offices in Westminster. The guest speaker was Phil Booth (pictured), the national co-ordinator of the influential NO2ID campaign.

Sticking to the strict 10-minute time limit, Phil took us on a whistle stop tour of the database state, making clear the important point that it's not just about having another piece of plastic in your wallet. The real problem is the massive and intrusive identity database that will back up the ID cards and further shift power away from the citizen and to the state.

That's bad enough on civil liberties grounds, but when you consider the government's record with data security and IT projects, the possibilities are horrifying. Moreover, even the government admits the minimum cost of the project will be £5.8 billion! That's a lot of money for something which won't stop criminals or terrorists, or prevent fraud or illegal immigration, or do any of the things the government claims.

The event was very well attended and made for an excellent evening. Anyone interested in attending future next generation meetings should click here to sign up the email list or click here to join our Facebook group.

Lord Razzall, the LibDem spokesman on business in the Lords, came in for an Adam Smith Institute Power Lunch this week. He's unusual among parliamentarians - a legislator who believes there is too much legislation. Quite so. Every year there are about thirty or more bills in the Queen's Speech. Ministers reckon it's a macho thing to get their department's pet bill on the agenda, and people think they are weak if they don't manage it. We've had nearly thirty bills on industry and employment issues in just a decade. Have they made us better governed - or safer, healthier, better educated? I think not.

And we're over-regulated too. Most regulation is actually home based, only a minority comes from the EU. But once UK lawyers get their hands on it, asking governments to define exactly what particular rules mean and when they will apply, the rule-book gets fatter and fatter. Like us, the LibDems propose sunset legislation on regulations - they fade out unless specifically renewed each year. But we have other ideas too, as readers of our report on regulation will know.

However, that sunset policy may come up against the fact that House of Commons scrutiny of bills and regulations is inadequate. Thanks to timetables and guillotines - and the vast queue of bills all jostling for time - measures like the competition bill have gone through the House of Commons without being properly looked at. Asking parliamentarians to stay up until midnight to vote on regulations (there are just so many of them) might be asking a lot.

Another area that our discussion alighted on was the future of the Business and Regulatory Reform department. The LibDems argued that the old DTI should be broken up, with most of the business promotion stuff being put into the Foreign Office, and most of the consumer protection side being done elsewhere. I agree that this makes sense. Dare one say that officials have sometimes promoted business at the expense of consumers? Several of our experts round the table though that the regulators certainly had - with bills rising at the same time that utilities' share prices began to soar.

Maybe the LibDems have a point - there is a lot wrong in politics. But there's just as much wrong with the system by which politics operates. If only we could get them to trust the market.

Libdem MP Phil Willis was our guest at a Power Lunch this week. As Chair of the Innovations, Universities and Skills Select Committee, he chose to raise the question whether labour (small L that is) was a global commodity or a national asset.

Many politicians think about skills in terms of producing the future skills that Britain will need. But Willis takes the view that we should be producing the skills that the world will need. I think that's a fair point. We live in what my colleague Madsen Pirie in an ASI report called a 'people economy' where your best productive asset is people and their brains and skills - and people are much more mobile than land or factories or machines. So we should think globally about them. Every knows that 600,000 people have migrated to the UK, mostly from Eastern Europe, and joined the workforce in the last year or so. But then there are more than four million Brits working abroad. We get around – and that's quite right.

We don't need to be self-sufficient in skills any more than we need to be self-sufficient in bananas. We can buy skills from the world, and they can buy ours. We're talking about building four new nuclear power plants – but the expertise to build them won't come from the UK alone, they will come from Japan and lots of other places which have the right people with the right skills.

I guess the policy conclusions are first, that we need to develop skills for the global marketplace, not just the skills that we think we need here and now. And second, if we are going to get all these skilled people to come to the UK and undertake the work that we can't do ourselves, we have to make the UK an attractive place to live. That means a relaxed, open, tolerant society, with good public services and low taxation. Unfortunately (as any non-dom will tell you) the present government seems to lack the skills to produce that happy prospect. Back to school for them.

Freedom Week director, Jean-Paul Floru, was guest of honour at the ASI's launch of Madsen Pirie new book, "Freedom 101."  The book is a refutation of 101 "common errors," many in daily currency.  In his opening speech Jean-Paul praised the scholarship and commitment which had made the ASI so influential over the years.

Madsen then explained how the book and its title had come about.  He said that not only was 101 the designation for US university introduction courses, but was also the number of the room in Orwell's "1984" where people encountered whatever they feared most.  In this case it was what left-wingers feared most – the truth.  The reason why each error was refuted in 300 words, Madsen explained, was that this length occupied a computer screen without scrolling.  He told how a predecessor called "The Book" had similarly been designed to fit neatly into the back pocket of jeans.  Ideas were important, but so was marketing.

The hope was, said Madsen, that people would use "Freedom 101" to reinforce their own views and to undermine those of others.  He concluded by welcoming suggestions for further common errors for a possible "Freedom 202."  

The book will be available from this weekend on Amazon at £5.95, and will at some stage be available to download from the ASI site.