How hysterically funny about Mazzucato's "Entrepreneurial State"
You will recall that a central theme of Marianna Mazzucato's book, The Entrepreneurial State, is that all this gee whizz techno shiny shiny that we see around us really comes from stuff that the government has originally subsidised, invented, come up with or otherwise spirited into creation. And of course, the outcome of this is that all your money belong to us.
And one of the examples she gives is the way that the British government subsidised the work that made Apple's iPhone a possibility. Specifically, on touch capable screens able to understand dual movements (things like "pinch and zoom"), something crucial to the technology.
Ah, sadly no, as my sometimes colleagues over at The Register reveal. In fact, a plucky British inventor did come up with the idea, did indeed go to the government and they screwed around so much and for so long that another inventor got there first and was bought up by Apple.
Fentem submitted a funding application to Nesta in January 2003, while he continued to work on new prototypes. "When I first approached Nesta I was told that I would receive a funding decision within 6 weeks," he says. "However, it took Nesta a year to just write the contract. To put that in perspective, it took Apple only 2 years to conceive, develop and commercialise the entire iPhone."
It's worth reading the whole five pages at Andrew Orlowski has done an excellent job there. And the truth is that Nesta, the British government, did not in fact develop multitouch screens. In fact, they managed to cock up the development process so badly that someone else developed it. An advertisement for government direction of innovaiton this is not.
And it also rather guts Mazzucato's basic contention.
One problem, as I see it, is that it is in fact true that invention doesn't happen in isolation. We're all standing on the shoulders of giants after all. But what that means is that the next incremental improvement in whatever it is is ripe, ripe for the plucking as a result of all of the thousands of years of science and technology that we already have. That in turn means that to pluck it one needs to move quickly. And quick movement is just not something you're ever going to get when the State is involved.
Basic scientific research? Dreaming in ivory towers? Sure, the results will be public goods and there's a good argument for some tax funding there. But it's just not going to work in developing actual products and technologies. As the screens for the iPhone show, whatever the stories that Mazzucato is telling.
The start of a political meme
A small exercise in trying to spot where a political meme starts out. For this little story is making its way around the web and I am sure that it will become a standard part of the talking points over the minimum wage in the US. It's this idea that servants today are being paid less than servants were in 1910 America. It comes from this piece by David Cay Johnston:
Consider the family cook. Many family cooks now work at family restaurants and fast-food joints. This means that instead of having to meet a weekly payroll, families can hire a cook only as needed. A household cook typically earned $10 a week in 1910, century-old books on the etiquette of hiring servants show. That is $235 per week in today’s money, while the federal minimum wage for 40 hours comes to $290 a week. At first blush, that looks like a real raise of $55 a week, or nearly a 25 percent increase in pay. But in fact, the 2013 minimum-wage cook is much worse off than the 1910 cook. Here’s why: The 1910 cook earned tax-free pay, while 2013 cook pays 7.65 percent of his or her income in Social Security taxes as well as income taxes on more than a third of his pay, assuming full-time work every week of the year. For a single person, that’s about $29 of that $55 raise deducted for taxes. Unless he can walk to work, today’s outsourced family cook must cover commuting costs. A monthly transit pass costs $75 in Los Angeles, $95 in Atlanta and $112 in New York City, so bus fare alone runs $17 to $27 a week, eating up a third to almost half of the seeming increase in pay, making the apparent raise pretty much vanish. The 1910 cook got room and board, while the 2013 cook must provide his or her own living space and food.
There's an amusement at complaining that the cost of government has gone up there.
But given that these numbers are broadly correct what is the problem with the basic argument being made? That servants are now paid less well than their comparators 100 years ago?
For this certainly isn't something we would expect to see at all. Inequality now is no higher (at the very least it is no higher) than it was then and the median and mean wages have very definitely risen over that time span. So, given what we do know about wages in general of the past century how can we reconcile this?
The answer is of course that in looking at a cook Johnston is not looking at a fast food worker now. Yes, they both prepare food but a cook in 1910 was a senior and important part of the servant household. It was a position reached only after many years of work at a lower level. The cook was, along with the housekeeper and the butler, very much part of the management of the household and part of, to use a very strange phrase indeed, the servant aristocracy. You would also only find cooks in a grander house. To compare such to current day fast food workers is just being historically obtuse.
The correct comparison for a current day fast food worker would be to the sort of serving jobs that an untrained teenager might hope to get in 1910. And in the cooking side of things that would, in 1910 terms, be scullery maid. Who would, in London, have been paid perhaps £10 a year, or at the exchange rate of the time, some $50 a year.
And yes, I do think we can support the contention that today's fast food workers do make more than that $50 a year as adjusted for inflation.
But there we are, of such tricks are political memes created.
Our reaction to the Autumn Statement
Here were my comments on what I thought were the key points of the Autumn Statement:
- Raising the pension age sooner than previously planned will be unpopular, but it is the right thing to do. With an ageing population we will experience a fiscal crisis unless we raise the pensions age and, ultimately, move to a system of private pensions savings accounts so the system is robust to any demographic shifts.
- Borrowing has been £111bn in 2013/14, which is equivalent to £304m/day or £12.6m/hour. It’s great that the deficit is falling faster than previously (though not originally) projected, but the numbers are still staggering.
- The economy is recovering, but compared to this point in previous recoveries, growth is still sluggish. The Bank of England’s mandate is muddled and should be replaced with a single target to stabilise aggregate demand and return nominal GDP to the level it was growing towards before the financial crisis. This would also offset the effects of government cuts, stopping the cuts from having any negative macroeconomic impact. (Ben Southwood, Head of Macro Policy, comments further below.)
- The cap on total welfare spending seems like a PR stunt. It will be modified every year and doesn’t make much sense in any case: what happens if/when negative economic shocks create lots of unexpected unemployment?
- The development budget was heralded, but the best tool for development is letting in more immigrants from poor countries, because immigrants send money home – indeed, they sent 3 times as much money to poor countries as was sent in total official aid last year. And this is good for our economy too.
- It’s bizarre to give LIBOR fines to charities. It simply makes no sense. What's the connection between LIBOR and military charities?
- The pensions triple lock is about buying votes. Many pensioners don’t need more money and there is no real reason to redistribute wealth to them over other groups in society.
- Help to Buy and other expanded mortgage subsidies completely miss the cause of expensive housing. If more houses are built (increasing supply) then prices will fall. This will happen if we liberalise the planning system. Throwing money at the housing market will drive prices up and do little to increase supply. Rolling the Green Belt back by one mile would free up enough land to build one million new homes.
- Corporation tax is a terrible tax and, though the government’s cuts are welcome, it should be abolished altogether. Corporation tax largely falls on workers’ wages and as such it is an invisible and regressive tax on earnings.
- The Chancellor’s confirmation that the personal allowance will rise to £10,000 is good news, but the government should go further and peg it to the minimum wage rate to reduce the tax burden on the working poor and help to make work pay.
- Cutting employers’ National Insurance contributions for workers under 21 is a good move and highlights the cost of employer NICs to jobs. Employer NICs are a jobs tax and the government should be aiming to abolish them altogether.
- Ultimately, there was no mention of reform to planning, immigration or monetary policy – the three things most important to Britain’s economic prospects. The Chancellor has done a good job at balancing the books but he should look to making significant structural reforms that would really get the country booming: liberalising planning to allow hundreds of thousands of extra homes to be built; scrapping the net migration cap to allow talented immigrants to work here and fee-paying foreign students to study here; and giving the Bank of England a new mandate to target Nominal GDP to ensure a stable macroeconomic environment.
Ben Southwood, Head of Macro Policy at the Institute, also commented:
"It's understandable, now that the economy looks finally to be recovering, that the chancellor has moved his focus away from monetary policy, but it's also worrying.
"Economies can absorb financial crises but they cannot absorb inconsistent monetary policy and massive drops in demand. We need George Osborne to change the Bank of England's remit, requiring it to stabilise demand according to strict rules.
"A rule-based monetary policy will stop the economy from overheating into unsustainable booms, and dive-bombing into harsh recessions."
Digital Conversations
Last week I went to an event put on by the Meetup group 'Digital Conversations'. Hosted by the digital agency Reading Room, the theme for the night was "Society, Government and Public Life". Six speakers gave a range of short but varied and interesting talks, bringing together people from digital design, non-profits and the government.
The topics ranged from software design to government snooping via community engagement and smarter government services. It has become cliched to talk about these last two, especially alongside phrases like 'the data revolution' and 'people power'. What's less clear is if these ideas really mean something and in practice help forge better outcomes. In this way it was interesting and encouraging to see what people in a range of different jobs were doing within the intersection of technology and government.
Despite the breadth of topics, certain themes ran throughout the night. One was the use of digital technology to amplify the 'soft' power which citizens posses through traditional civic engagement. Will Perrin from kingscrossenvironment.com gave his experience of holding government to account using methods from the humorous - sticking council logos on dog mess and blogging them - to the serious - using freedom of information requests to spark a corporate manslaughter investigation into TFL. The ability to use digital to empower citizens was shown to be even stronger within less developed and transparent states. For example, a basic app of the Nigerian constitution has allowed citizens to learn and assert their rights, and has been downloaded over 8 million times.
The event also highlighted the importance of the micro and designing for humans. Websites such as 'What Do They Know' and 'They Work For You' are popular because they take chunks of information and display them in a way which is easy for people to understand, informing and empowering them.
Designers should make sure the systems they create are designed with the user's habits and needs in mind, instead of forcing them to tackle rigid and unintuitive systems. Similarly, whilst the concept of big, open date may be brilliant, it is essential that this data can be manipulated by all. Many potential users aren't programmers or statisticians, and giant datasets which need APIs to navigate them can hinder as well as help analysis.
Government services benefit from this re-imagining. Dominic Campbell spoke about the Patchwork app designed to provide better collaboration within child protection services, and which was designed in response to Baby P's case and the total failure of the incumbent ContactPoint system to prevent it. Despite retaining huge swathes of data on every single child from birth till 18, the expensive system raised serious privacy concerns, failed in its objectives and was ultimately scrapped. In contrast, Patchwork allows professionals to 'group round' children and share information only when necessary and in a way which is clear and intuitive.
It was interesting to see what attendees and speakers thought the future would hold for government. Some ideas were rather libertarian-friendly- for example, the goal of efficient 'invisible' government, which would do things like automatically create and process visa applications with the purchase of flight tickets. It was also encouraging to hear a speaker insist that a world in which 14% of the health budget comes from the sale of narcotics on a government version of Silk Road is not inconceivable!
However, some other ideas - such as government gathering social media data to create a 'community hive mind' -were rather more alarming. Most remarkable was the level of complacency of the organisers and attendees regarding mass government surveillance. One speaker's entire presentation was summed up by a slide saying "NSA am I bothered? Not really LOL :)" Of course, not everybody is going to find the recent revelations earth-shattering, but it is unnerving to hear people working within these sectors have such little regard for civil liberties and privacy concerns.
When those responsible for designing government systems (and ultimately the use of citizen's information) seem not to perceive potential abuses of state power and trust, it is hard to be enthusiastic about new government initiatives. With tech companies tightening security and encryption in response to Snowdon's revelations, I don't want well-meaning and forward-thinking designers to be asleep on the job, and dismissive of questions about the proper power balance between citizens and the state. This aside, it was really good to see such smart and engaged people talk about the exciting work they do.
The Modern Slavery Bill is going to be absolutely appalling
I know that I shouldn't giggle over such things but the revelation that the three "slaves" recently found were in fact the remnants of a Maoist commune well known to social services (indeed, housed by the local council) does provide a certain amusement as we see various leftish types suddenly running away from the story. However, now onto something a great deal more important. Theresa May and various campaigners are going to use this to try and pass an extremely bad law about modern slavery. And it's worth our all complaining very loudly about this now, as the bill is being drawn up, not later when it is too late.
That May is going to use this story as a basis for her new law is obvious here:
We still don’t know the facts behind the case in London this week. Details are still emerging, the investigation is ongoing and must be allowed to take its course. Whatever the outcome, the one positive is that it has raised awareness of the issue of slavery in the public and media mind. The first step to eradicating the scourge of modern slavery is acknowledging and confronting its existence. The second is accepting it is the responsibility of us all to abolish it once and for all. Because modern slavery is an affront not just to the dignity and humanity of the individuals crushed by it, but of every single one of us. Tackling this abhorrent crime is a personal priority for me.
As well as improving the way victims are identified and supported, I want to prevent future victims. And the best way to protect and reduce the number of victims is to disrupt, convict and imprison the criminal gangs behind much of the modern slave trade. That is why I have made combating trafficking central to our Serious and Organised Crime Strategy and a priority for the new National Crime Agency. And it is why I am introducing a Modern Slavery Bill to consolidate and strengthen legislation. The Bill will be the first of its kind in Europe. It will increase the maximum sentence for trafficking offences to make sure the worst perpetrators get a life sentence. It will introduce trafficking prevention orders to restrict the activity of offenders when they are released so that they cannot cause further harm. And it will create an Anti-Slavery Commissioner to hold everyone involved in stopping this crime and helping victims to account.
The link is not just obvious it is explicit. And given that all of us are indeed against slavery why would anyone at all complain about the idea of a Modern Slavery Bill?
Well, allow me to introduce myself, Tim Worstall, someone who is very much against what I am certain will happen to this bill. For what is going to happen here is what happened with the Poppy Project and their research into sex slavery. What led to Dennis MacShane's absurd claim that there were 25,000 sex slaves in the UK. They're going to lie to us to bring in the most draconian laws.
Yes, I know, strong stuff but bear with me a moment. As I've mentioned elsewhere there are two meanings to the word "trafficking". Here I explained them in the context of sex slavery:
...the two meanings of “trafficking” that are used in the debate. Those two meanings are as follows:
1) The transport of unwilling people (usually women, but of course can at times be either men or children) into forced prostitution. This is of course illegal everywhere: it’s repeated rape just as a very start. It is also vile and we should indeed be doing everything possible to stamp it out.
2) The illegal movement of willing people across borders to enter the sex trade. Strange as it may seem there really are people who desire to be prostitutes. People would, other things being equal, similarly like to be in a country where they get a lot of money for their trade rather than very little. Given these two we wouldn’t be surprised if people from poorer countries, who wish to be in the sex trade, will move from those poorer countries to richer countries. And such is the system of immigration laws that many of them will be unable to do this legally: just as with so many who wish to enter other trades and professions in the rich world. You can make your own mind up about the morality of this but it is obviously entirely different from definition 1).
...
We might paraphrase the two definitions as the “sex slavery” definition and the “illegal immigrant” one. I would certainly argue that the first one is a moral crime crying out to the very heavens for vengeance while the second leaves me with no more than a heartfelt “Meh”.
In terms of slavery of the first type, whether sexual or not, of course I'd be, along with everyone else, delighted to have strong and effective laws to fight it. Something we do actually have of course: slavery is illegal and anyone caught enslaving anyone will indeed go to jail. However, I'm entirely unhappy about having strong new laws about the second type of trafficking. Sure, people who smuggle illegal immigrants can be and should be punished as and when caught. But that's the crime there, not slavery.
My worry is that they will use everyone's instinctive hatred of that first definition to impose horrendous punishments for that second definition. As an example, here's one of the things they are planning:
The Home Office announced that powers will be introduced to help police ‘hunt the assets of traffickers’ and give some of the money to the victims. The money will be used to help victims of modern slavery return home. This measure might end up in the modern slavery bill announced early in August by the Home Secretary, Theresa May. The modern slavery bill is expected to increase the conviction rate for traffickers in the UK, which is currently one of the lowest in Europe. Powers to recover overseas assets already exist in the Proceeds of Crime Act but they are not effective and the amount of seized money is very low compared to the scale of serious and organised crime.
Under that first definition of trafficking I'd have no problem. Under that second a great big girt problem arises. Because "trafficking" now means illegal immigration we thus end up with a law whereby the government can take the financial assets of someone who employs an illegal immigrant. You think this won't happen? Believe me, this is exactly what will happen. Such an extension of confiscatory powers will indeed lead to that sort of thing: it's inevitable.
At this point of course I need to show that they are indeed going to be using that wider, more inclusive, definition of trafficking rather than the one that really does mean slavery. Ms. May:
I have asked Anthony Steen, chief executive of the Human Trafficking Foundation, to undertake a series of overseas visits to look at how we can improve our approach both domestically and internationally.
That foundation says this about sex slavery:
Trafficking for Sexual Exploitation: The scale of trafficking for sexual exploitation remains largely unknown worldwide since its very nature demands secrecy and reliable statistics are therefore not forthcoming. In the UK, there are some clues as to its scale. For example, in a recent ACPO report, 2,212 brothels were identified in London alone, and the police estimate that up to 50% of those working in the brothels may have been trafficked. Traffickers take virtually all the earnings from their ‘slave’ and move them around the country so they are not associated with any particular area.
This is at the Dennis MacShane, Julie Bindel end of loonieness on the subject. As Operation Pentameter found out, after every police force in the country tried to search out and find sex slaves they found not one single case in the entire country that they were able to prosecute for the crime.
That is, the police went looking for slavery, type 1 definition of trafficking, while this foundation is using the type II definition of illegal immigration (or, to get to that 50% number, simply of immigration, legal or not).
Oh, and Eaves is involved. They were the people behind the Poppy Project. Which, laughably, claimed that evidence of foreign born women working in brothels in London was evidence of trafficking. Guess all those foreigners working in The City are slaves then, eh?
Just to make this entirely clear here. These campaigners (and that includes May here) are going to use our revulsion of the type I trafficking to pass extraordinarly severe laws against the type II stuff. Up to and including life imprisonment and confiscation of all financial assets. Yet it is only type I that is in fact slavery. Type II is more normally defined as the employment of an illegal immigrant.
Anyone really want life imprisonment for employment of an illegal immigrant? Someone who, entirely of their own volition, tried to make their lives better by breaking the law to come to this country is now going to be defined as a slave?
OK, by now everyones' certain that Worstall has lost it. Seeing something that just isn't there. Ms. May again:
Some victims do not even recognise that they are victims or have been trafficked.
She's certainly arguing for a pretty extensive definition of trafficking if there are people who don't actually realise that they have been enslaved.
Fortunately, there is in fact something we can do about this. We can insist that the law, whatever it actually says will be done to the modern slavers, should in fact only refer to slavers and trafficking. We can do this by insisting that the bill use the United Nations definition of trafficking:
Article 3, paragraph (a) of the Protocol to Prevent, Suppress and Punish Trafficking in Persons defines Trafficking in Persons as the recruitment, transportation, transfer, harbouring or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation. Exploitation shall include, at a minimum, the exploitation of the prostitution of others or other forms of sexual exploitation, forced labour or services, slavery or practices similar to slavery, servitude or the removal of organs.
That will restrict everything to the type I definition of trafficking and I think all of us are reasonably happy with the idea that people who enslave others should indeed have the book thrown at them. And, of course, by their actions we shall know them. The more those preparing this bill whine and bitch about how it's all more complicated than this, that the definition needs to be wider, the more we shall know that they're not in fact talking about either trafficking or slavery at all, but instead about illegal immigration.
The lessons of Obamacare
If Amazon included uncompleted shopping baskets as "sales," Jeff Bezos would go to prison http://t.co/inFR4NeEK3
— David Burge (@iowahawkblog) November 12, 2013
I will admit to rather enjoying the ongoing trainwreck that is Obamacare. It's just so wonderful to see so many of my prejudices being validated.
The first, and the one that will explain that tweet up above, is the way in which the numbers are being openly manipulated to make it look as if tractor production is rising. Given the disaster that has been the website, the website that the Federal Government only spent $600 million on, there is a certain urgency to being able to show that no, really, lots of people are signing up.
The fight over how to define the new health law’s success is coming down to one question: Who counts as an Obamacare enrollee? Health insurance plans only count subscribers as enrolled in a health plan once they’ve submited a payment. That is when the carrier sends out a member card and begins paying doctor bills. When the Obama administration releases health law enrollment figures later this week, though, it will use a more expansive definition. It will count people who have purchased a plan as well as those who have a plan sitting in their online shopping cart but have not yet paid.
Quite: us private sector people would indeed be in jail if window shoppers were to be counted as sales.
But there's a larger point here too. It's entirely obvious that the people building the websites weren't entirely top of the programming class. Similarly, that the managers trying to manage the project were less than entirely competent. And that's something of a problem for all the policy wonks who like to think up complicated ways for government to solve problems. Perhaps, maybe, if we put aside our Hayekian objections to anyone really being able to design an economy, there really are plans and schemes that can be constructed, Heath Robinson style, to produce great government works.
But let us take the lesson of Obamacare to heart and note that we don't exactly have the A-Team implementing these plans for us. The programmers will be those who couldn't use Google Maps to find out where Silicon Valley was, the managers those that Ford or GM felt would never rise above chief filing clerk. This isn't a promising workforce with which to implement complex plans. They might be able to administer a flat tax system, or a very simple regulatory system that insisted "don't kill people". But complexity may well be beyond them which is just another argument in favour of that simplicity we all desire anyway.
Or, as I wish I'd originally said myself when some statist was waffling on years ago about the nationalised industries. His point being that there was nothing wrong with said form of ownership, or the unions, government interference. It was just that the management of the nationalised companies was terrible. To which one answered well, so you agree then that nationalised companies can only attract the terrible managers then? And that thus nationalisation isn't a good idea?
The chocolate covered pickle version of why politicians get it so wrong
Don Boudreaux is of course correct here. Well, of course he is, he's Don Boudreaux:
Asymmetric information of the sort that many professional economists get worked up over might in principle be discovered and spread more widely by government regulators. But information about people’s subjective preferences can never, not even in principle, be known by government regulators. And yet much government regulation is proudly justified by politicians, regulators, and intellectuals on the grounds that people allegedly will value X by amount $Y once they actually encounter X. In private markets such guesses are harmless.
A private, unsubsidized firm that guesses that enough consumers will value, say, its new-fangled jar of chocolate-covered pickles by at least $4.00 per jar will actually find out if its guess is accurate or not because each individual has the choice of actually forking over $4.00 per jar (and getting a jar) or not forking over that sum (and not getting a jar). When government acts, in contrast, no such discovery procedure is available to test politicians’ guesses about people’s subjective preferences. People must pay for what government foists on them. And no process of knowledge discovery or information revelation is available to cure politicians’ and regulators’ inevitable ignorance of the subjective preferences of the very people that they pretend they are seeking to help.
I not only agree in theory I can tell you, as someone who has actually had a chocolate covered pickle (Don means here a gerkhin, of the type served with a hamburger) that that combination of vinegar, salt and chocolate is indeed, to a certain palate, delicious.
But, as ever, I would take this point much further. I have, in my working life, had some interaction with politicians. And bureaucrats as well. I have even sat across the table from a trio of North Korean generals trying to explain why, well, no, we didn't trust the North Korean state and yes, we really would like a letter of credit from them (one which their bank then refused to issue on the grounds that they didn't have any money).
That further point I would take it to being that the asymmetry of information is not in favour of those Godlike beings who pretend to rule us. It is in fact in favour of us, the people who know what we're doing, not in their favour. Just as with journalism (everyone who ever reads a newspaper piece on their speciality finds things wrong with it) so with politicians and bureaucrats. In my particular world of real expertise I've seen the US Congress stampeded into action by the insistience that China has 30% of the world's reserves of rare earths.
Indeed, it does, but all then thought that that meant that China had 30% of the world's potential supplies of these vital metals: not so. It means only that China has 30% of what anyone has bothered to map out, drill, test, check and prove that it could be mined at current prices and with current technology. Everyone in the world of rare earths ended up sniggering at the politicians. Couldn't they understand this very basic point about what the phrase "mineral reserves" means? Well, no, they couldn't: and so it is with anyone else with real world expertise who examines what our leaders seem to believe about things.
I accept entirely The Boudreaux's point about no one except the consumer understanding the consumer's desire or utility. But as I say, I take it further and insist that politicians and bureaucrats do not understand reality, the nuance and specialist knowledge of anything at all.
Sadly, we do need to have them as there really are things that need to be done that can only be done with the coercive force that government can bring to bear. But it is precisely that asymmetric information, that ignorance of our rulers, that means that we should and must limit their influence to only those things that both must be done and can only be done by government. For the rest of it we know more than they do so we should be left to get on with it.
Thatcherism, trade unionism and all that
There have been many retrospective analyses of Margaret Thatcher and her influence and legacy since her death on 8th April 2013, but I doubt that any of them have given her sufficient credit for her greatest achievement - the taming of the trade unions. In this short piece I want to ensure that this omission is fully rectified.
During her premiership Margaret Thatcher faced external and internal threats. The main external one was from Argentina in 1982 when that country attempted to take over the Falkland Islands; and the main internal one was from the trade unions which seemed to many people to have been running the country for some time when she became Prime Minister. She told the Conservative backbench committee in 1984 that ‘the Falklands were the enemy without, but the miners were the enemy within, more difficult to fight, but just as dangerous to liberty.’ It wasn’t that the trade union threat had gone unrecognised, because all of MT’s three predecessors as Prime Minister – Wilson, Heath and Callaghan - had tried and failed to reform trade union law. In fact Harold Wilson had famously told Hugh Scanlon, President of the Amalgamated Union of Engineering Workers, to ‘get your tanks off my lawn’. But the trade union tanks remained on the Downing Street lawn, and Arthur Scargill was a more ruthless and dangerous foe than Hugh Scanlon.
Margaret Thatcher was elected to the office of Prime Minister in 1979 because of the preceding Winter of Discontent. Consequently her priority from that moment was trade union reform. But nearly everyone knew that was impossible because the trade unions had record high levels of membership and they had faced down her three predecessors. So how could our first female Prime Minister succeed where the men had failed? Clearly she had to have a toughness of character that was lacking in others. This had to include a willingness to take risks and to play for high stakes, knowing that many of the men would be delighted if she failed. It was often said, rightly in my view, that MT was the only minister around the cabinet table with balls. What must it have been like for her to sit at that table, surrounded by Tory wets, understanding that she couldn’t govern without them, but that they probably didn’t fully support her? But that was the situation she faced in 1979 and she had to come to terms with it.
Well aware that Ted Heath’s ‘at a stroke’ trade union reforms in 1972 had been a disastrous failure, MT decided to proceed with caution. Her policy, by contrast, was ‘step by step’ or ‘softly, softly catchee monkey’. That suited James Prior, her first Employment Secretary, who doubted that fundamental reform was possible. But MT understood that implementation of that policy required the right people in charge. James Prior was duly replaced by Norman Tebbit, one of the few true Thatcherites in her cabinet, and he (and his successor Tom King) moved the legislative reform process rapidly forward, the key pieces of legislation being the Employment Act 1982 and the Trade Union Act 1984. These reversed the Trade Disputes Act of 1906, which had put trade unions above the law for 76 years, and showed that the elected government, not the trade unions, were now calling the shots as far as the legislation was concerned
Trade union law had been reformed, but the coal miners were itching for a fight, led by the Marxist Arthur Scargill who had been elected President of the National Union of Mineworkers in 1982, and MT knew that this battle, too, had to be won. She had backed away from this fight in 1982, because she was not ready for it. But by then she was already ordering that coal stocks should be built up in preparation for this titanic struggle and in September 1983 she appointed Ian Macgregor, a tough businessman who had proved his competence on both sides of the Atlantic, as Chairman of the National Coal Board. Meanwhile on 2 April 1982 Argentina invaded the Falkland Islands at a time when MT’s popularity was at a low ebb because of high unemployment. This was a major test of character, and she came through it with flying colours. But, as suggested above, the miners would be an altogether more formidable foe, led by Arthur Scargill and backed by every left-wing politician and journalist in the country. Scargill, as a young official in the NUM, had made his name during the oil crisis of 1974, when he closed the Saltley Coke Depot, Birmingham with thousands of flying pickets. The police there were simply overwhelmed, and this was a tactic which he seemed to have perfected. No doubt he thought he could repeat this tactic as President of the NUM and he brought his members out on strike, ostensibly about the closure of uneconomic pits, in March 1984 with no holds barred.
Given the build up of coal stocks, it might be thought that the miners’ cause was hopeless. Actually that was not the case at all, and between October 1984 and March 1985, when the strike ended, there were several occasions when it seemed likely that the lights would go out and the government would be defeated. The government was unwilling to test its new employment laws, and it was often touch and go as to whether the government or a militant trade union would prevail. That raises the question of ‘What would have happened if MT had been unwilling to face down the National Union of Mineworkers in 1984-85?’, and my answer is that we would have had a situation in which there would have been some degree of civil unrest and a clear recognition that the trade unions, rather than the elected government, were running the country. Given Arthur Scargill’s political views, isn’t it likely that the country would have quickly become ungovernable? And if so, shouldn’t we recognise that Margaret Thatcher not only saved our economy, but also our democratic political system?
As David Owen, now Lord Owen, wrote perceptively in The Times on 19 April 1989 two weeks before the tenth anniversary of Margaret Thatcher’s premiership:
Her most fundamental, far-reaching and sustainable success is the trade union legislation. Not only will that legislation stay on the statute book well into the21st century, but, though she will hate the word, she has achieved a consensus in this area which embraces a far broader constituency than that of the Conservative voter. Paradoxically, she achieved these reforms not by a bold and radical stroke, but by a series of steps building upon each other in a logical and indeed evolutionary manner. But the legislation would, of itself, have been insufficient. A successful confrontation with mindless militancy was the essential buttress. Until Arthur Scargill was soundly and humiliatingly defeated, the spectre of 1979’s winter of discontent hung over the country. It was Mrs Thatcher who, virtually alone, understood this.
So Margaret Thatcher not only reformed trade union law in a way that her predecessors had tried but failed to do, but in Arthur Scargill she faced a more ruthless and dangerous foe than her predecessors and succeeded in proving that a democratically elected government could prevail over a mindlessly militant minority who were trying to hold the country to ransom. Truly a prophet is not without honour except in his, or her, own country and especially in Oxford University whose members denied this most distinguished alumnus an honorary degree.
Despite the Thatcher reforms trade unions remain especially powerful in the public sector of the UK economy, much helped by the kowtowing of New Labour to its public sector paymasters. In this regard we need to keep the crucial achievements of Margaret Thatcher constantly in mind, and build upon them in the future.
Charles Hanson is the author of Taming the Trade Unions, Macmillan, 1991. He was Special Adviser to the House of Commons Employment Committee 1980-81 and had numerous papers published by the Institute of Economic Affairs and the Adam Smith Institute 1973-1993.
Does the existence of intangible goods mean we shouldn't maximise wealth?
The proposal I made last week—that we abolish parliamentary democracy and turn over decision-making to a a set of betting/prediction markets—faces a number of serious objections. In this post I will deal with the objection that national wealth in principle misses out several important contributions to welfare like liberty, love or other intangibles. I have four further serious objections, which I will attempt to tackle in a third and final piece.
What makes us happy, and helps or allows us to satisfy our desires and preferences, may not be wealth alone. A millionaire who desires only a dishwasher is no better off for all her wealth if she is unable to buy one. A world in which dishwashers are harder to get hold of—perhaps due to a ban—is worse than one in which they are widely available, for a given amount of wealth.
But introducing "for a given amount of wealth" might be begging the question. Our measure of wealth, to be a good one, will include some correction for changes in prices (like the official measure). Even under our current system of drug prohibition there are measures of illegal substance prices. Similarly, if we banned dishwashers, perhaps in some bizarre return of the lump of labour fallacy, they might still exist, albeit underground and more costly. In this way the measure would show an expected dip in real wealth in the prediction market for the national wealth effects of dishwasher banning.
And many other restrictions on liberty that we'd have independent reasons against would also depress our wealth, e.g. racist employment regulations, restrictions on travel. Even something like the ability to marry could be factored in—if people want to have marriages, they will have a higher demand for housing in areas where marriages are allowed. However this faces a lot of difficulties in a world where so many goods are unpriced and thus we cannot measure all of these effects. And it's unclear whether all of the cost to an individual of, for example, restrictions on marriage would be fully capitalised into house prices. So there might be some reason to expect a wealth maximising state to be less liberal than the ideal happiness-maximising state would be.
Further, typically unmeasured goods like love—which many people see as one of the most important—may not be measured by any element of the wealth markets. While current parliamentary systems don't necessarily directly consider what effect policies will have on aggregate love in the country, were it to be significantly effected by a (proposed) policy they would be able to factor it in. But a pure national wealth-driven system would not.
This is certainly a difficult objection for the model of government, but it isn't necessarily fatal. After all we know there are devastating problems with the current system, including distorted incentive structures, but even more than that public ignorance. We'd want evidence that not only would maximising expected wealth tend to cut the amount of aggregate love in society—it would do so to an extent that outweighed the improvements in policymaking down to an unbiased, properly incentivised and dispassionately rational decision-making system.
We'd need particularly robust evidence to overturn the strong established empirical connections between wealth and happiness (which presumably takes into account the effect of love on happiness). This means the love objection is not telling on our account without much further exploration. As suggested above, there remains the objection that some liberty contributes to happiness without contributing to wealth, or being fully accounted for in wealth measures, and this stands, and should be weighed against the other benefits gained from the wealth-maximising state. And the wealth-maximising state may well be more liberal than current parliamentary arrangements, given what we know about free markets and long-term growth.
A new governing paradigm—maximising national wealth
How should governments decide on policy? One answer is that policy should follow a particular ideology, such as libertarianism or socialism. Another answer—direct democracy—is that policies should be arrayed in front of the populace at large so they can pick. Another is that the people at large should choose people who vote on policies from options selected by a third group of people—roughly the Westminster system. Absolute monarchy would give a family and their descendants control of policy. But an under-considered method of choosing policy is via markets.
Here I don't mean getting rid of social democracy and having most or all goods provided by the market; instead I mean choosing policies—whether free market or interventionist, right- or left-wing—with respect to the result of a hypothetical prediction market, specifically, one looking at some measure of national wealth.
Why wealth? Well what we really want to do is make people have better lives—increase their well-being. But measuring well-being directly is controversial and difficult. The two leading theories of well-being are that well-being consists in happiness/pleasure and that well-being consists in satisfying one's desires or preferences. We know wealth makes people happier, particularly when they are poor, but even when they are already well-off, and we know more wealth means more ability to satisfy most different preferences.
Thankfully, both measures (like the official ONS statistic) and proxies (like the total market capitalisation of, FTSE All-Share firms, which make up 98% of total business wealth) of wealth are fairly widely available. Of course, these happen after the fact—so while we could easily judge past governments by their effects on these metrics, we couldn't judge current policy proposals. But that needn't hold us back! We already have markets in future RPI inflation in the UK (and CPI inflation in the US), called TIPS spreads. These take the price differential between RPI-linked and regular gilts or T-bills to work out what the market expects inflation will turn out to be. We know this because if it didn't represent the market opinion, then traders could buy and sell bonds to achieve a higher expected return (i.e. take arbitrage opportunities).
Even a simple, TIPS-like market in national wealth would help us rationally guide policy. It's not exactly clear whether central banks check TIPS markets, but if they did, the markets would give them advance guidance on whether their policy would help them hit their target level of inflation, based on reactions to policy changes, suggestive speeches, and explicit forward guidance like the Carney or Evans rules. In the same way, important policies would shift the wealth markets, and governments could use that as evidence for doubling down on wealth creating policies and for getting out of wealth-destroying moves.
However there are important distinctions between the Bank of England's role in stabilising the nominal side of the economy, and the government's role in making policy that makes it likely that lots of real wealth is generated. The best nominal policies, like NGDPLT, focus on stabilising, or ensuring the stable growth of, some nominal variable. The optimal result is extremely reliable stable growth. But that's not what we want in real wealth. When it comes to real wealth, the more the better. That a policy boosted the markets' expectations of national wealth by 10% in five years would not prove it was an optimal, or even good policy, if there was an alternative that could boost wealth by 50%.
So when it comes to national wealth we need conditional prediction markets. We need markets that tell us what would happen if we implemented a given policy. The specifics of implementing these sorts of markets become quite complex and difficult, as we do not want to restrict the policy choice too much, but it may also not be practicable to open up a gilt market for every permutation of every major political idea. But if we could start conditional prediction markets up, we'd have a range of policy options with very interesting and suggestive evidence of what is best for the country's social welfare.
I think there are some persuasive objections to the results of these markets, and—further—to running policy in any rigidly-linked way to these markets. But I also think they can all be plausibly dealt with, and I will attempt to do so in a blog post tomorrow.