Devolution and Super-Councils

As Scotland looks set to receive an ‘unprecedented’ collection of powers from Westminster, it is time too for the English regions to benefit from devolution. The lack of what Hayek would call ‘perfect information’ is a weakness intrinsic to a centralised states – surely local councils have a greater understanding of problems that face their local areas than Whitehall? As one of the most centralised states in the world, the UK is ripe for devolution in a variety of policy areas. One such example is taxation. Rather than simply being bankrolled by central government, local authorities should be able to raise their own revenue. This would encourage greater fiscal responsibility from councils, as they would have to justify spending to their electorate, discouraging the waste that has been all too characteristic of local government.

Another possible area of devolution is healthcare: councils should be free to innovate in response to local problems. The savings that this would result in would contribute to the £22 billion of efficiencies in the NHS that Simon Stevens, the Chief Executive of NHS England, has highlighted as necessary by 2020-21. Furthermore, patient satisfaction will improve: the Institute of Economic Affairs has pointed to Switzerland’s decentralised healthcare system, which provides a responsive service with high life expectancy and patient approval ratings.

Having greater powers would also give councils more clout when they bid for major infrastructure projects. London has reaped the fruits of much central government support, with the Greater London Authority securing £4.7 billion from the Department of Transport to fund Crossrail. If all councils had the same bidding powers, government spending would more effectively match the infrastructure needs of the local area – instead of grandiose projects such as HS2, more Crossrails could be built, creating the ‘Northern Powerhouse’ that George Osborne strives for.

How will this devolution create a freer UK? Firstly, councils being forced to raise their own money deters excessive spending, lest councillors be punished by the local electorate who are paying for it. Secondly, healthcare efficiencies mean a smaller burden on the taxpayer to pay for the NHS, while the patient will likely be more satisfied with a service suited for local needs. Finally, this devolution will result in more focussed, efficient infrastructure spending. In short, ‘super-councils’ can reduce the burden on the taxpayer, and create the conditions for a flourishing free market.

Alan Petri is runner-up in the Under-18 category of the ASI's 'Young Writer on Liberty' competition 2015.

Against reform of the House of Lords

This probably won't be all that popular among those who insist that democracy is the be all and end all of a political system. But we think that the current proposals to reform the House of Lords are a bad idea:

Rogue peers should be subject to immediate suspension from the House of Lords when scandals break, a senior Labour peer has said.

Lord Soley, a former chairman of the Parliamentary Labour Party, made the call in a letter to Lord Speaker Baroness D'Souza in the wake of the allegations against Lord Sewel.

Well, no. we don't kick an MP out of the House of Commons because a scandal has broken. They do have to leave if they are found guilty of a criminal offence and are then sentenced to more than a minimum amount of jail time. And then there's this:

Peers should be forced to retire when they reach old age to ensure the House of Lords remains "fit for purpose", the Lord Speaker has suggested as she ordered a review into the code of conduct. Writing in The Daily Telegraph, Baroness D'Souza warns reform is “vitally necessary” if the body wants to retain public support in the wake of the Lord Sewel scandal.

Again, no, we are not persuaded.

It's entirely possible to have a very different conversation about whether there should be a House of Lords at all, we should have a unicameral system, one with an elected second house, one selected by sortition, any number of variables. But the real point of a second house at all is to have one that acts as a limit upon the enthusiasms of the mob that directly elected politicians are subject to. And for that limiting to be effective there must be no way to remove those not convicted of some criminal offence of some specific level of gravity. For, given how many things are illegal these days there's absolutely no one who cannot be accused of breaking some law or another. And wouldn't it be remarkable if it were those who were being particularly bloody minded about opposing the executive of the day who were so accused?

After all, at least part of this outrage about Sewel was that he was doing something entirely legal: consorting with ladies of negotiable affection. Something that really is entirely legal in this land, however much it might not be to your or our taste.

Being able to throw peers out because they were a bit doddery, or because a newspaper disapproved of their activities, would greatly weaken the House's ability to be independent of the whims of the passing society. And given that that's what they're there for, to limit the impact of passing fads, we oppose such a change.

What a pity Professor Krugman doesn't explore this logic completely

We have long been making the point that there's two aspects to Paul Krugman. The outstanding economist and excellent essay writer, then there's the New York Times columnist rather in the tank for one specific political view of the world. that second world being where government tells people how to live their lives better. But there's still flashes of the underlying economist around:

Politicians who preside over economic booms often develop delusions of competence. You can see this domestically: Jeb Bush imagines that he knows the secrets of economic growth because he happened to be governor when Florida was experiencing a giant housing bubble, and he had the good luck to leave office just before it burst. We’ve seen it in many countries: I still remember the omniscience and omnipotence ascribed to Japanese bureaucrats in the 1980s, before the long stagnation set in.

We see this in the development economics of Ha Joon Chang and others too. S Korea grew so therefore the policies that we like that they followed must be implemented elsewhere so they can have growth. Our point is that the reality is rather different:

This is the context in which you need to understand the strange goings-on in China’s stock market. In and of itself, the price of Chinese equities shouldn’t matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market — and are in the process of demonstrating that, China’s remarkable success over the past 25 years notwithstanding, the nation’s rulers have no idea what they’re doing.

We tend to think that no government ever knows what it is doing. This is partly Hayek, pointing out that it can never have enough information to plan things, partly our own observations of how governance actually works in detail. We know lots of the people who do actually run the government. Some of them are even very nice people but we'd not describe any of them as the Wise Solons who know the answer to every, or even any, of the nation's problems.

So what have we just learned? China’s incredible growth wasn’t a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we’ve known that for a while. The big news here isn’t about the Chinese economy; it’s about China’s leaders. Forget everything you’ve heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they’re doing.

China's stunning growth since 1978 is not an illusion. The country has gone from being roughly as rich as England in 1600 (as measured by per capita GDP) to about the UK in 1953, 1955 or so. That's pretty good for simply stopping the adherence to Marxist and Maoist idiocies. But that's what it was: the rulers stopped following idiot policies.

And thus why we are minarchists. There are indeed some things that both must be done and must be done by government. But given the paucity of knowledge, of competence, among those who would govern that's all that government should attempt to do. The only further ambition they should have is to not do stupid things. Which, given those who become the governors, means nothing over what must and can only be done by government.

Perhaps a closer connection with reality might be in order?

We will admit to being fascinated by the coming car crash that is the Labour leadership competition. While we're intensely political here, we're not party political. But we do think that perhaps a slightly closer connection with reality might be in order. Here's Jeremy Corbyn's latest policy idea:

“Under these plans Labour 2020 will make large reductions in the £93 billion of corporate tax relief and subsidies.

“These funds can be used to establish a National Investment Bank to head a multi-billion pound programme of infrastructure upgrades and support for high-tech and innovative industries.

That £93 billion comes from a paper discussed here. That £93 billion also has no connection to this universe that we inhabit. But despite a certain amount of to and fro between the report's author and your current humble scribe it simply was not possible to convince that report's author that depreciation is not a subsidy to business. He really is under the impression that capital allowances mean that the government buys stuff for companies to use: rather than just not taxes them on the money they use to buy them for the obvious reason that companies are taxed upon their profits. And the cost of buying something to use to make stuff is obviously a cost of business.

Yet only a couple of weeks after the publication of a report of such obvious fatuity we've got it as the cornerstone for a national economic policy after the next election.

All most amusing but we might recommend just a slightly closer connection with reality.

Not that we want to defend Donald Trump but this is outrageous

Donald Trump is not, to put it, mildly, quite our flavour of politician. Yet it is necessary to defend him in this instance. What is being proposed is outrageous:

Mr de Blasio's administration was already conducting a legal review into the possibility of severing the many contracts with Mr Trump currently on the city's books. That review was opened after Mr Trump described illegal immigrants arriving in the US from Mexico as "rapists" and drug dealers during his campaign launch in June, when he declared he would seek the Republican presidential nomination. "My impression is that unless there has been some breaking of a contract or something that gives us a legal opportunity to act, I'm not sure we have a specific course of action," Mr de Blasio said on Monday, "but we're certainly not looking to do any business with him going forward."

An ideological Turing test in order to do business with the City of New York? Say something that Bill de Blasio doesn't like or disagrees with and never have lunch in that town again?

The test of whether a politician, a political structure, should have a specific power should be, well, how happy would you be if one of your ideological opponents, one of your enemies, had that power? And this isn't a power that we want someone to have therefore, is it? Our own opinion is that Trump is somewhere between a blowhard and a fool but he does still have the right to say stupid things in public without the government of anywhere discriminating against him. As do we all in our own moments of foolishness.

A Budget of wasted opportunity

Tory MPs cheered wildly as Chancellor George Osborne unveiled his budget proposals, and Iain Duncan Smith punched the air in delight as the government committed itself to a "living wage" by 2020.  Yet more dispassionate observers watching from afar sighed in disappointment as the Chancellor took not one of the opportunities he had to reshape the economic and political landscape.

It was a very political budget, and it did not need to be.  Five years before an election, the Chancellor could have left his mark by improving the way in which Britain is governed and taxed.  He could have given the country an economic budget to transform its future, but instead he decided to score political points.

If circumstances limited his scope for action now, he could at least have laid down markers for the future basis of a sound economy attractive to investment and promising raised living standards.  Cutting Corporation tax first to 19% then to 18% is good, but he could have announced his intention to later lower it to the Irish level of 12.5%.  That would have sent a clear signal to investors.

The Chancellor made modest changes to tax thresholds, raising the starting level for the basic 20% rate to £10,600 - well below the minimum wage.  What he could and should have done was to simplify the tax system by having only two rates, 40% and 20%, and cutting out many exemptions.  

His lifting of the minimum wage to £7.20 per hour next year and £9.00 by 2020 used the language of the left's "living wage," for a political coup, but the reality will be lost jobs for low earners, 60,000 of them according to the IFS.  Osborne's calculation is that those in minimum wage jobs will thank him, whereas those who now fail to enter minimum wage jobs will not tag him as the author of their misfortune.

Raising the threshold for the death tax (IHT) on housing to £1m for a couple looks good, but will put more pressure on house prices.  It should have applied to all assets to avoid sucking money into housing, and the level should have been £2m. 

The Chancellor could have helped millions by ending stamp duty on shares.  This would have given pension funds a boost, and increased the capital available to firms to expand and create jobs.  

Instead Mr Osborne's budget plans to raise an additional £9bn in tax revenues by 2020, making this a clear tax-increasing budget.  He could have proposed a tax-cutting, tax-simplifying, spending-cutting budget.  Instead he raised taxes and played politics.  He wasted the opportunity, and there may not be another.

The Financial Misconduct Authority

I never expected to feel sorry for Martin Wheatley who, last week, resigned his position as Chief Executive of the Financial Conduct Authority, but I do. George Osborne gave him a non-job and Wheatley tried to make the most of it, thereby alienating too many people. The history of this is simple. A few months before the 2010 election, George Osborne, then Shadow Chancellor, announced that he would abolish the Financial Services Authority which had grown massively to 3,500 people, too many of them lawyers, who wasted everyone’s time with “compliance”, achieved nothing and signally failed to anticipate, still less prevent, the 2008 financial crisis. Their defence that this was all outside their control, being US driven, was nonsense. The Canadian financial sector is far closer to Wall Street than London is, and, by traditional banking properly supervised, the Canadians slid by gracefully.

Although Osborne was right to axe the FSA, he, being new to the game, failed to recognise the problem created by not explaining what would follow and how supervision would be maintained. FSA executives did not wait to pass “go” and accepted the lucrative offers coming their way. The City does not like uncertainty and panic ensured.

To bring calm, Osborne then announced that no one should fear for their jobs as he would replace, going one better than Hydra, the FSA with three new quangos: The Prudential Regulation Authority, The Financial Conduct Authority and the Money Advice Service. In addition we had the Financial Ombudsman Service and The Financial Services Compensation Scheme (both established by Gordon Brown in 2001). By the PRA becoming part of the Bank of England, the BoE regained its traditional City supervisory role. The Governor’s June encyclical, the Fair and Effective Markets Review, promotes that wider Bank responsibility.

Wheatley’s problem was that we never needed the FCA in the first place (see “Do we need the FCA?” (May 2015)  and “FCA should be 'terminated at birth’, suggests think tank” (October 2012)). The work for which the FCA took credit was largely conducted by consultants who could have been commissioned by any one. The rest of their “make work” could be done, if it is necessary at all, by the Financial Ombudsman Service, which also needs reform, the PRA and the competition authorities roosting in the myriad branches of the Business Interference and Skills department. It would be easier to reform the Financial Ombudsman Service if they had full responsibility for the job they are supposed to do.

Osborne, faced by dealing with the wrong man in the wrong job, has once again made the wrong decision. The FCA should have been axed, not poor Mr Wheatley. The question now is whether HMT has learnt anything from this experience. One fears not.

MPs in the dark about key policies helping entrepreneurs

The Entrepreneurs Network has released its 2015 Parliamentary Snapshot, which provides insights into the views of MPs about entrepreneurship, and gives the entrepreneurial community a useful perspective on the legislative landscape. The first main finding is that many views on policy that would impact entrepreneurs are firmly set by party lines. Take, for example, membership of the EU: 58% of Conservative MPs think Brexit would be good for entrepreneurial activity, but only 1% of Labour MPs think likewise. This is a key finding with broader repercussions: some political commentators have claimed that Labour MPs are as Eurosceptic as Conservative MPs, but this suggests that Labour MPs see the benefits of continued membership while Conservative MPs see opportunities for leaving – at least when it comes to entrepreneurship. This is reinforced by MPs' views of the impact of EU business regulation: 90% of Conservative MPs think exempting the UK from EU business regulation would be positive for entrepreneurs, but only 10% of Labour MPs agree.

This isn't to say that Labour and Conservative MPs are at complete loggerheads when it comes to pro-entrepreneurial policy: 80% of Conservative MPs and 66% of Labour MPs agree that making it easier for entrepreneurs to move to the UK would benefit the UK's entrepreneurial landscape. In fact, this was the second most popular policy across the House of Commons.

The second main finding regards MPs knowledge of existing initiatives to support entrepreneurs in the UK. This year's Parliamentary Snapshot gives us a woeful image of an under-informed legislative body. Although Conservative MPs are in favour of tax cuts, most were unaware of the tax incentives already in place - for example, the Seed Enterprise Investment Scheme. Most Labour MPs support increased spending to support entrepreneurs, but are oblivious to initiatives, like Innovate UK, already in place.

This has consequences for MPs' sense of how effective these initiatives are. Many in the entrepreneurial community see the Enterprise Investment Scheme (EIS) as essential to the UK's entrepreneurial success – but Conservative MPs' support for the scheme dropped from 68% last year to 45% this year, with the remainder largely unaware of it. This policy is widely lauded by entrepreneurs who have raised funds to grow their business.

It's clear that entrepreneurs need to be more vocal about what works for them, so that MPs are better informed about the challenges the community faces and why supporting entrepreneurs is so essential to support the British economy. To this end, over the coming months and years, The Entrepreneurs Network will ensure that entrepreneurs' preferences are heard loud and clear in corridors of power and beyond. If MPs don't know what policies work best on the ground, there's a serious risk they'll scrap the policies that have made Britain one of the best places in the world to start a business.

The impact of interest groups on public policy

Madsen's lecture, as Senior Visiting Fellow in the Department of Land Economy at the University of Cambridge, has now been posted on the ASI site.

The topic deals with the way in which interest groups impact upon public policy in ways that might be to their own advantage, though not necessarily conducive to the general good.  Madsen identifies with the various ways in which they exert influence on legislators.  He goes on to show how policies can be crafted to deal with their influence and turn it to advantage if possible, and circumvent it if necessary.  He gives examples throughout.

The full text of the lecture can be seen here.

There's things that are true but entirely unimportant

It's a standard part of the analysis of government that there's some things that must be done and there's also a group of things that only government can do. Government activity, in our view at least, should be limited to those things which are in both groups. Only government can declare war on EastAsia, but that doesn't mean that it must be done. A criminal justice system for 65 million people must be done and only government can do it. We can use much the same logic to divide things into those that are true and those that are important. The false, those that are untrue, we can reject of course, but we should also not worry about that fourth quadrant, those things that are true but which are unimportant:

France’s ecology minister, Ségolène Royal, has rankled the company that makes Nutella by urging the public to stop eating its chocolate hazelnut spread, saying it contributes to deforestation.

“We have to replant a lot of trees because there is massive deforestation that also leads to global warming. We should stop eating Nutella, for example, because it’s made with palm oil,” Royal said in an interview late Monday on the French television network Canal+.

“Oil palms have replaced trees, and therefore caused considerable damage to the environment,” she explained.

We're perhaps not quite as worried as many others about the replacement of one kind of tree by another. But let the argument made stand. Palm oil's not a good thing. So, how important is Nutella in this?

A quick google around tells us that there's 365,000 tonnes a year of the gooey goodness consumed. It's 20% palm oil, meaning some 74,000 tonnes of palm oil contained. Global production of palm oil is 50 million tonnes a year or so. Thus chocolate hazelnut spread is some 0.14% (yes, that's 0.14%) of whatever the problem is. Or, unimportant.

This simply isn't something that government should be spending its time considering. Nor politicians that we (or our French cousins in this instance) have to pay for. Just as government should be limited to those things that both have to be done and can only be done by government, it should be limited to those things that are both true and important.

Excellent, so that's some 90% of what government currently does ruled out as being something that government shouldn't be doing, minarchy here we come!