The problem with Uber is that there's no there there

That Uber, the limo and taxi replacement application, has just been valued at $17 billion ($18.2 after the cash actually hits) as they raise another round of investment is all terribly exciting of course. It's also evidence of the vibrancy of technological change at present. The company is only four years old, after all. And it's further evidence of the way that the Silicon Valley ecosystem, especially its financing, enables companies to gain the capital they need to expand.

However, there is a certain amount of headscratching going on. Because there's really no "there" there. What is it that Uber has that is worth so much?

No, we don't mean the basic business model itself: that's just dandy. It disintermediates around the regulation and taxation of the current limo and taxi systems, this is good. Just the idea of electronic hailing increases capacity utilisation and thus overall system efficiency, this is also good. Passengers pay less, drivers earn more, Uber gets its slice, these are all good things.

But wherre is Uber's edge? Fo9r what appears to have been forgotten here is the most basic point about business and competition. A great business model is not the same thing as a great economic model for a business. That latter is something that achieves the above: makes producers and consumers better off at the same time, we really love these sorts of things. But a great business model does this and also protects itself from competition. And that's the thing Uber cannot do.

It's easy enough (as hundreds of companies are showing) to write the basic app that performs the heart of the service. Most drivers in any one of them are in several of them at present. There's not much reason for consumers to be loyal to any one or other of these services. There seems to be no way to stop competition once the value of the basic model has been proven.

Of course, for all of us this is just great: who cares about the producers? We care about the consumption opportunity and as that competition brings the prieds down and down again then we will all benefit.

But it appears that people are valuing Uber for the joy and genius of the model itself, not for what is actually important for a business, how much of that value can they appropriate for the business from that model? And in the long term it's very difficult indeed to see that competition won't reduce margins down to the cost of providing the srvice. Or, as often happens in feeding frenzies over new ideas, below it.

We the consumers make out like bandits of course but it's odd to see this same mistake being made over again by investors. There's no patent lockin, no network effects, no protection from comt#petition. So why the gargantuan valuation?

Retrospective taxation and the rule of law

The UK is considering legislation to prevent people creating multiple trusts in order to pass wealth on to their family free of tax. Setting up a tax-exempt trust as a way of avoiding inheritance tax is very common – particularly when the tax is levied at 40%, and now that rising house values are taking so many families into the tax.

New HM Revenue & Customs rules will make it no longer possible to set up several trusts, each with its own tax-free allowance of up to £325,000. The new rules will come into force in 2015. But in order to prevent a rush of people creating new trusts, the reforms will apply retrospectively to all trusts established since June 6.

Well, there you go again. It is quickly becoming obvious that the rule of law does not apply to UK taxation any more. Already, schemes under which people arrange their affairs in 'tax efficient' ways that are perfectly in line with the UK's (absurdly long and complex) tax code, are being struck down by HMRC, simply because they are arrangements designed to reduce a person's tax bill. And now, it seems, HMRC can now make up new rules and make them apply to actions that take place even before the rules are put in place.

This is a mediaeval attitude to justice, redolent of the age of Morton's Fork. That was the ingenious design of John Morton, Archbishop of Canterbury in the 15th century, who argued that a man living modestly must have plenty of money saved and could therefore be taxed, while a man living extravagantly was so obviously rich that he could easily afford to be taxed.

Retrospective legislation is not confined to tax law. A 2013 House of Commons Standard Note, Number SN/PC/06454, lists many examples, all since 1996 – covering tax on caravans, compensation for mesothelioma, British activities in Antarctica and wireless licence fees. Retrospective liability for war crimes was introduced in 1991. The Conservative minister Nick Herbert used emergency legislation to reverse a High Court ruling on detention. And the Conservative Health Secretary Jeremy Hunt in 2012 retrospectively validated the authority of clinicians to detain people under the Mental Health Act.

Most of these measures were done for good reasons (rather than to raise money, as the tax changes have been). That does not make them any less of an affront to justice. You cannot be guilty of something that was not a crime at the time. The detention of a person by an unauthorised official does not become legitimate by backdating that authorisation. Unless the law is known and certain, there can be no justice. I predict, not a rush of new family trusts being formed, but a rush of tax advisers petitioning the High Court on this very point.

Organic is both bad for you and the environment

Organic food often tastes better, this is true: but it's also often worse for you and the environment as well. This leaves it entireoly up to you aws to what you wish to prioritise. Save the planet and yourself or go down with the smile of the well and tastefully fed?

That we're all told something different, that organic is better for the environment and for us is just one of those great lies of the modern world. The most obvious manner in which it's worse for the environment is that it requires more land. Thus for any given amount of land to feed any given number of people there's less land we can leave wild for nature itself to play with. But the organic practices themselves can also be dangerous to both the land and us:

That hits on a critical issue for organic farming, as noted in a 2012 analysis of more than 100 studies of farming methods across Europe: Getting the same unit production from organic farming tended to lead to "higher ammonia emissions, nitrogen leaching and nitrous oxide emissions." And while organic farming tends to use less energy, it also leads to "higher land use, eutrophication potential" -- that's the dead zones mentioned above -- "and acidification potential per product unit."

And as ever, those "chemicals" left on food as a result of conventional practices. 99.9% of the pesticides in any and every piece of food are the natural defences of the plants to parasite and symbiote attacks. What may or may not be there as a result of human action is so small as to be immaterial.

Organic: opften tastes better, is worse for the environment and possibly worse for you:

Some types of organic production, notably the use of manure concentrations, actually lead to higher levels of toxins in food. One study in Belgium found that organically cultivated winter wheat had higher levels of lead and cadmium than conventionally grown wheat.

Entirely your choice, of course.

So that's the housing shortage solved then

This is just excellent news, the Labour Party seems to have figured out what's wrong with the UK housing market.

Sir Michael Lyons told the Guardian he had identified protracted delays in the release of land as the single biggest cause of Britain's housing crisis.

Hurrah!.

We have no shortage of land in the UK, only 3% of the country is housing and under 10% is developed in any manner whatsoever. So there's plenty of room to increase housing by, say, 25%, for that would take some 1% of the country. This really isn't a land shortage.

However, what we do have is a shortage of land that people are allowed to build housing upon. It is this which makes housing itself so expensive: the scarcity value of the permission slip to build a house on a particular piece of land. So, issue more permission slips more quickly and that scarcity value will fall.

Yes, we know, we've been saying this ad nauseam this past decade. You're getting sick of hearing it and we're getting very bored with saying it. But if even the Labour Party's housing investigation committee is now coming around to this idea than obviously our repetition has not been in vain.

If not enough permission slips to build houses makes housing expensive then the answer is to issue more permission slips.

It's so simple an idea that even Labour are managing to get it.

Jackie Ashley has seen the future of the NHS and it works!

I think it's quite lovely that Jackie Ashley of The Guardian has been able to see the future of the NHS. Not just that, she says that it works!

It's in a sprawling house in Twickenham, west London, housing a staff of 30 in former bedrooms. It doesn't look much like the future of healthcare in Britain, but at a time when the debate rages about NHS charges, privatisation and scarce resources, this organisation could provide part of the answer.

Excellent, so what is it that they're doing? Well, there's a charity which provides some health care that the NHS doesn't, or which it provides not very well. They get some cash from the NHS itself, some from various people who think they're doing good stuff and none at all from patients. So, free at the point of use health care but not being provided by the monolith of the NHS. You know, just like hospices which most agree do a pretty good job as well.

So now here's the rub. How is INS financed, and how can it be spread nationwide? Its founding principle is that treatment is free to all of those who need it. It receives £250,000 a year from the NHS, and the salary of the chief executive, Ann Bond, and one of the two fundraisers are paid from the Big Lottery fund. As it happens, the charity's contract comes up for renewal in a year's time. If Big Lottery doesn't renew this funding it would be a big mistake.

Excellent we could say.

At the core of this success story is flexibility – what the patients want. There is no talk of outcomes, waiting times, service provision and the rest of the NHS jargon. Above all, there is no talk of profit. Profit is the last thing that would motivate staff – their reward is seeing the progress of their patients, and in simply continuing, year on year, to provide that help. This is absolutely not a privatised service, unlike Hinchingbrooke hospital in Cambridgeshire, run by Circle group. INS started from the bottom – two therapists who saw a desperate need in the community. It has been nurtured by the local community, with many volunteers helping to raise funds. Ultimately, it will only be sustained by NHS contracts, lottery money and community spirit. Surely, until the great British public is prepared to pay high enough taxes to fund the NHS properly, it is part of the future.

Well, actually, it's exactly what the current reforms of the NHS management system are trying to encourage. Other providers, whether charitable, for profit, even state owned, offer services which are then paid for by the tax take that funds the NHS. Allowing exactly this sort of experimentation outside the centralised management structures of that NHS.

What would Confucius have made of UKTI?

Far be it for me to belabour the UK Trade and Investment quango: I seek only to help.  In that context my attention was drawn to UKTI’s 1st Edition of “Doing Business in China”, their 164 page guide.  It would not have impressed Confucius.

Quite soon (p.24) the novice SME exporter gets to this advice:

Do you know the answers to the following questions before you start venturing into China:

• What are the unique selling points to [sic] your business proposition? • Will there be a market for your product and services? • Are there any legal barriers to your business model? • Where in China would you start? • Do you have sufficient resources (management time, project finance and expenses) to fund your China projects? • Who will be leading the project within your company? • Do you need to work with a partner in China to succeed? • Can you communicate with them effectively? • Have you evaluated business risks (such as protecting your IP) and conducted research and due diligence? • Do you know how to secure payment and get the right quality products? • Would Hong Kong be a safer place to start?

It seems that no British SME should even consider visiting China, soon to be the largest market in the world, without knowing the answers to all those questions. How on earth could a novice exporter answer those questions without visiting China? What world is UKTI living in?

None of the producers of this guide are Chinese and, although the usually admirable China Britain Business Council have had a hand in it, there is no sign the producers have any relevant experience.  There is no bibliography which might point novice exporters to China guides with better foundations.

We should not belabour UKTI but try to help.  And especially try to help them focus their limited resources in the most productive way.  They could begin by burning this book and starting again.

Tim Ambler is a co-author of Doing Business in China, published by Routledge (2010, 3rd edition).

Perhaps we should be scientific rather than all of this chaos of markets?

As we all know there are plenty of people out there who think that we should do away with this chaos and disorder of markets and properly plan things. This scientific socialism idea, that clever people acting altruistically will be able to determine what we should all be doing. It's not so much that such people don't grasp the point of markets, it's that they're not doing very well in understanding science.

From The Science of Discworld IV:

There is a common misconception of the scientific method, in which it is argued that there is no such thing because specific scientists stuck to their guns despite apparent contrary evidence. So science is just another belief system, right?

Not entirely. The mistake is to focus on the conservatism and arrogance of individuals. who often fail to confiorm to the scientific ideal. When they turn out to have been right all along we hail them as maverick geniuses; when they don't, we forget their views and move on. And that's how the real scientific method works. All the other scientists keep the individuals in check.

The beauty of this set up is that is would work even if no individual operated according to the ideal model of dispassionate science. Each scientist could have personal biases- indeed, it seems likely they do- and the scientific process would still follow a universe-centered trajectory. When a scientist proposes a new theory, a new idea, other scientists seldom rush to congratulate him or her for such a wonderful thought. Instead, they try very hard to shoot it down. Usually, the scientists proposing the idea has already done the same thing. It's much better to catch the flaw yourself, before publication, than to risk public humiliation when someone else notices it.

In short, you can be objective about what everyone else is doing even if you are subjective about your own work. So it is not the actions of particular individuals that produce something close to the textbook scientific method. It is the overall activity of the community of scientists, where the emphasis is on spotting mistakes and trying to find something better. It only takes one bright scientist to notice a mistaken assumption. A PhD student can prove a Nobel prize-winner wrong.

It occurs to me that you'd only have to tweak that a little to make it a description of markets. The "market" is the community in which things are tried, we use profit (as a synonym for satisfying consumer desires) instead of reputation but other than that it's remarkable how similar the two structures are. Given which we can thus see why that centralised planning doesn't work. For to gain either useful science or a useful economy we need to use that try it and test it method of working out what does actually work.

As an example, Lysenko was just as damaging to Soviet biology as GOSPLAN was to the Soviet economy.

More on how inheritance is becoming less important

One of Piketty's little insistences is that inheritance already plays a much more important part in who is rich that it used to in mid-century. And, of course, that this is bad. And thus our little picture of Ms. Hilton. For as far as I know she's famous for being an heiress. But also, at least as far as I know, she's not inherited. She has however made her own fortune by being known as a future heiress. Which doesn't really support Piketty all that much.

Further, via Marginal Revolution, we get this:

Using estate tax returns data, we observe that the share of women among the very wealthy in the United States peaked in the late 1960s at nearly one-half and then declined to one-third. We argue that this pattern reflects changes in the importance of dynastic wealth, with the share of women proxying for inherited wealth. If so, wealth mobility decreased until the 1970s and rose thereafter. Such an interpretation is consistent with technological change driving long-term trends in mobility and inequality, as well as the recent divergence between top wealth and top income shares documented elsewhere.

It is of course possible that all sorts of dire things will happen in the future but shouldn't we be asking for at least some evidence that they are going to happen, that there are really some trends likely to make them happen, before we drive the rich into penury just because lefties like doing so?

Will more govt spending on childcare really help?

The UK government is expected to make childcare free of charge. Parents with young children in the UK spend on average a third of their household income on childcare, compared to just 13% in other countries, according to OECD figures, and 25% of parents in severe poverty in the UK have given up work, and 33% have turned down a job, because of high childcare costs.

However, UK already spends more of its GDP on government support to families than any OECD country except Denmark and France. State-funded childcare in the UK starts at three, or two for lower-income families, but it is limited to 15 hours per week. Some 10% of government support for families goes towards maternity and paternity leave, compared to 17% in Denmark. Around 26% goes on day care, compared to 49% in Denmark. Another big concession is tax credits, which Denmark does not use.

In Denmark, 97% of children aged three to five, and 92% aged one to two are in day care. While around 55% attend centres, the rest are looked after by registered childminders in private homes. Generous parental leave, flexible working hours and the absence of long-hours culture all help families with young children to be able to manage. But childcare is not free. In Denmark, families pay up to 25% of the cost of day care, with those on low incomes or single parents paying less (for the poorest, nothing), with discounts for siblings, and with the government funding the difference.

There is a case for subsidising childcare, if it makes parents able to take a job, rather than depending on state benefits. A paying job is the best welfare programme for families yet devised. But such support should go to the parents who need it, rather than in subsidies for the childcare industry. In our 1995 Pre-Schools for All, we proposed that poorer families would be given vouchers to cover the full cost of a pre-school place, with families on basic and higher-rate taxes receiving proportionately less. "Because the pre-schools provide integrated education and care," wrote our author David Soskin, "access to them would give many parents the choice of going out to work, reducing dependency on benefits." The government heeded this advice, but unfortunately, experiment with childcare vouchers became a bureaucratic nightmare – which it need not have done.

There are of course other possible models. In our 1989 report Mind the Children, we argued that employers should be able to provide childcare facilities or vouchers without employees having to pay extra tax on the benefit. We have also argued that the restrictions on home-based childcare are too onerous, raising the cost to unaffordable levels, and discouraging informal arrangements between parents.

If we are to make childcare available to all, instead of trapping poorer families on benefit dependency, then we need to address the costs of regulation and taxation, and to employ market principles and competition rather than dash towards indiscriminate subsidy or become swamped in bureaucratic red tape. Not an easy task for any government.

The UK's income inequality is regional inequality

We've long said here that inequality in the UK really just isn't quite what we're all told it is. It's not that we have plutocrats in every part of the country, lording it over the surrounding peasantry. No, our high overall inequality numbers are as a result of wages being very much higher in some regions of the country (and the living costs in those parts are higher too, substantially decreasing consumption inequality). And this all works in a manner unlike any of the other european countries, London and it's economic dominance, and higher wages, being quite unlike what happens elsewhere.

Which makes these numbers from the Resolution foundation, funded by the Rowntree folks, so interesting:

Cities in the south of England – such as London, Reading and Milton Keynes – tend to have the highest levels of wage inequality and employment polarisation. The Gini coefficient of wages (a measure of inequality) is 0.337 in London, the most unequal city.

Smaller cities and those that have experienced industrial decline – such as Sunderland and Burnley – tend to have the most equal labour markets. The most equal city, Sunderland, has a Gini coefficient of only 0.237.

The main driver of urban inequality is affluence. Cities with higher average wages and knowledge based economies tend to be more unequal. Cities with weaker local economies generally have lower levels of wage inequality and employment polarisation.

Just to give you a couple of benchmarks, the market wages gini for the UK as a whole is some .45, .46 or so, that of Sweden about the same. The post tax and post benefits numbers for both countries are around .33 and .25.

Even in the most unequal area in the UK the market gini is substantially below the gini for the country as a whole. This is showing us that it is indeed regional differences, not a generally widespread inequality, that is to blame. Further, in the most equal parts of the UK the local inequality is actually less, even at market wages, than the post tax, post benefits, inequality in Sweden.

There really is something substantially different about inequality in the UK. If you look at US inequality then you find that the wage inequality in each State is not that different from the inequality across the country as a whole. It would not surprise me at all to find that being true of much of Europe. But it simply isn't the case here. We really are different: and it's London that makes us so.