What the OECD really said about child poverty in the UK

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Yes, you've seen the reports. The Coalition is undoing all that excellent work done by Labour in reducing child poverty. Must be true, the OECD said so.

Well, yes, and no, for that's not really quite what the OECD said. What they did actually say includes:

In 2007 the UK spent more on children than most OECD countries, at just over 138 000 pounds sterling per child from birth up to the age of 18, compared to an OECD average of just under 95 000 pounds.

That is, that we spend more than most other places, certainly more than average, but don't seem to get all that much for it. So it isn't in fact how much is being spent, it's what it's being spent on which is the problem. They go on to praise the Coalition in fact:

 To this end, the plan outlined in the UK Child Poverty Strategy to extend the 15 hours of free early education services to disadvantaged children as young as 2 is a positive step for well-being of these children and the job prospects of their parents.

And yet they go on to point out that there's still a rather large problem:

 Nonetheless childcare costs can remain a barrier to work for parents higher up the income scale, and there is room in UK policy for an effective childcare supplement for working parents.

Now, how could that problem have arisen? Oh yes, that would be the imposition of layers of regulation upon child carers, wouldn't it?

So, what the OECD really said is that we spend lots and lots on children but don't get much, certainly not as much as we should, for what we spend. Further, that Iain Duncan Smith is doing some good things. And finally, the implication that we really ought to sort out child care. The simplest method of doing so would seem to be abolishing the regulatory straightjacket put around it by the previous government.

The rich get richer: and so the poor

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It's a common enough trope: the rich get richer, the poor get poorer. As we know, this most certainly isn't what's been happening in recent decades: hundreds of millions of the world's poorest are no longer poor. Something that shows we've been getting at least something right in this economics lark in recent decades.

A version of the first argument is that, in the US at least, it's only the rich that have been getting richer. For the median household, income has been entirely static for decades. Again, this is a common trope and again it's wrong:

The full paper is here. The point being that stagnating US median incomes is an artefact of the way that US statistics are calculated. One of the most obvious is that by measuring household income no adjustment is being made for the change in household size over those decades: yes, it is substantial. Further, measuring money income does not include benefits in kind (or total compensation) so that health care, a very important part of the US working package, isn't included. And yes, the amount of health care offered has been going up over those decades.

As a general rule we have to be very wary indeed of US statistics on incomes, poverty and the like. They're all prepared in very different ways to those of most of the rest of the world and simply aren't directly comparable. For example, our numbers of people "in poverty" are those in poverty after we've tried to help them with tax credits and benefits in kind. The US numbers are those who would be in poverty if there wasn't any attempt to help them with tax credits and benefits in kind. The before rather than the after picture.

While, of course, you should never trust a politician bearing a number, let alone a statistic, this is even more true of the US than many other places.

For while the rich are indeed getting richer and the rich are getting richer faster than the poor are, it's still true that the poor are indeed getting richer.

Does economic growth reduce poverty?

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The OECD’s annual Society at a Glance report was released this week. The TUC’s Touchstone blog had a post up earlier, highlighting the OECD’s claim that economic growth has not reduced poverty:

However, economic growth and poverty have not been strongly related within the OECD in the past generation. There is little evidence of a relationship between poverty and household income growth in either a positive or negative direction. For example, Ireland has had very rapid income growth over the period and a large rise in poverty, while income growth has stagnated in Belgium in combination with a considerable reduction in poverty.

There are a few problems here. The first is the puzzling assertion that Belgium has “stagnated” in the last generation. The OECD’s own figures (XLS file) say that Belgium’s per capita GDP has grown by about 50% since 1980, adjusted for inflation and purchasing power parity ($19,000 approx in 1980 to $30,000 approx in 2010, in 2000 prices). Ireland’s has grown by about 200% ($11,000 to $31,000), but it started from a base about a third smaller than Belgium’s. Belgium’s growth rate was certainly a lot lower than Ireland’s, but they’ve converged on roughly the same point.

A bigger problem is the definition of poverty, which is relative and considered within single countries. It’s quite misleading to claim that Irish economic growth didn’t reduce poverty. The OECD uses a relative definition of poverty – the "percentage of persons living with less than 50% of median equivalised household income". Poor people in Ireland (and Belgium) are a lot less poor than they were thirty years ago with regard to the options they have available to them. The gap between them and the rich might be wider, but this matters less to most people than their life expectancies, economic security levels, and other absolute values. Saying that economic growth made poor people a lot richer but rich people even more rich is quite different to saying that “economic growth and poverty have not been strongly related within the OECD in the past generation”.

But let’s set aside debate over absolute vs relative definitions of poverty and take the relative definition for granted. Why is relative poverty only considered within one country and not globally? Comparing a poor Irish person’s wealth level to a poor Bulgarian person’s wealth level over the last thirty years would give quite a different picture. Maybe, say, Ireland’s economic growth attracted large numbers of immigrants who were still earning far more in Irish “poverty” than in “wealth” in their own country. The figures would show an increase in Ireland’s relative poverty level, even though by any measure everybody was better off than before.

The standard measure of inequality, the Gini coefficient, gives Tanzania and Malawi a more “equal” score than New Zealand and Japan. I know where I’d rather be, rich or poor. The measure of inequality itself is not worthless, but defining poverty as inequality within one country certainly is. By any measure of actual outcomes, economic growth is good for the poor. And if a measure of poverty doesn’t reflect that, it’s a bad measure. 

Squatters' wrongs

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Squatting in London seems to be on the rise, with a spate of high profile cases including the occupation of a building owned by Guy Ritchie. Out of curiosity, I visited one. The walls outside were plastered with posters denouncing capitalism and calling for an end to public sector cuts. Inside, I found a group of largely courteous, well-educated and well-dressed students living in musty but comfortable conditions. I had expected people struggling to get by and occupying someone else's property as a last resort, but the iPods and laptops suggested otherwise.

These squatters were well-organised and seemed to be very aware of the law. They had been there before, been evicted, and returned after some months to find the place totally untouched: "It was surreal, like some sort of time capsule," said one, an Oxbridge graduate. I asked what they thought about the Ritchie occupation and they said it had been a case of bad research on their part – it certainly wasn't an isolated case, as they were largely the same people. I asked about using utilities, wondering whether they knew that the owners could get them for theft if they refused to pay. One frowned, but explained that they certainly paid for the electricity they used.

Given they professed to have reclaimed the place for the people, I tried to explore. However, I was stopped when trying to go upstairs: it was apparently "private". I complained that this surely contradicted the whole justification for occupation but was told "if you're going to be like that, you can f*** off then". So much for "property is theft". In fact, the tone of the visit changed drastically at that point – a few started to view me as a threat and soon after some kind of leader came down to tell me that they were locking up for the night and visitors would have to leave.

I complied and was shown to the door. I'm not entirely sure how they could justify throwing me out under their principles, but one thing is clear: they have occupied buildings in the name of the public, but only selected members are allowed to stay. Hypocrites or not, squatting may soon become recognised as a criminal offence and the social phenomenon may disappear. Unlike the destitute on the streets, I'm not so sure the people I met will have much of a problem finding or paying for alternative accommodation.

On the paradox of choice

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The idea that there is "too much choice" and that this makes us unhappy appears to be entering modern conventional wisdom. It certainly rings true: after all, if presented with hundreds of pension plans, I'm probably more likely to put off the decision and not get one at all. The most persuasive case seems to have been made by Barry Schwarz in this TED talk from six years ago.

He may be right. Too much choice could well make us very unhappy. The problem is that the assumption by many seems to be that we should get government to limit our choices. However, by entrusting this sort of decision to government, we're allowing someone else to decide what's in our best interests without much of a say in how those interests are defined. Even if we agree with that view of what's good, chances are somebody else doesn't, but will still have that choice forced upon them. Leaving it up to faceless bureaucrats or politicians could even mean leaving us with no choice at all.

Schwarz uses the caricature of someone asking "is there a phone that doesn't do too much" in a shop and being answered "no". However, in a market system, this sort of problem is seen as an opportunity. If we really do want less choice, the entrepreneur has every incentive to meet this new and evolving demand. In fact, unlike a government-suppressed system of one-cap-on-choices-fits-all, niche markets and products can be created to cater to everyone's individual preference for decision reduction.

Using his other examples, when given the difficult choices of healthcare plans or jeans, why can't we employ healthcare consultants or style gurus to choose the best ones on our behalf? We can even choose which experts we want to place our trust in. In fact, the uncertainty creates whole new markets and industries for expert choice-makers like healthcare plan consultants, style gurus, maybe even lifestyle coaches. The possibilities are endless and unpredictable. Ironically, given the origin of his complaint, it seems that Schwarz has forgotten how the market innovates to meet demands.

Anton Howes is a co-founder of the Liberty League, a network for UK-based libertarians.

Parton pours herself a cup of ambition

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The singer Dolly Parton is extending her Imagination Library scheme to cover all of Scotland. Having already established itself in various communities in the UK and North America, the project distributes a free book every month to children under five. Unlike Philip Pullman, who campaigned to maintain taxpayer funding for libraries, Mrs Parton is demonstrating that government doesn't have to provide all services. Whilst admittedly working with local authorities, funding comes from local businesses, schools, education foundations and other civic organisations.

The Imagination Library is a key example of how communities and society can self-organise to care for some of the most disadvantaged in society. It's also an example of how celebrities ought to be acting. Instead of dismissing the whole idea as "patronising nonsense", Dolly Parton is acting on something she's passionate about, putting her money where her mouth is and encouraging others to volunteer their efforts too.

But imagine if the government had tried to provide this scheme itself. Instead of relying on the voluntary contributions and passion of individuals and groups, it would have been funded through taxation, the costs dispersed over the entire population. There would have been little or no incentive for Mrs Parton to try to move the organisation to Scotland.

Politicians would also not have quite the same passion and drive for providing the service - after all, it's not their own money they're spending, so it's not as if it holds the same value to them as a voluntary investment. Trying to increase funding would then mean taking more money from people rather than encouraging them to volunteer it, further limiting the scope for expansion and innovation.

This dispersal of costs through taxation is particularly significant - statists and socialists often argue that we have a moral obligation to pay taxes. But really, arguing for higher taxes and public spending is arguing for us to disperse personal moral responsibility for others, onto others. The tax system removes us from any direct emotional attachment to those who benefit from our money. It transforms a very personal investment of compassion into an impersonal financial burden. Dolly Parton is just one of many examples showing we don't have to.

Anton Howes is co-founder of the Liberty League, a network for liberty-minded students in the UK.

Make fostering and adoption easier

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I was frustrated to read this week about the Christian couple, Eunice and Owen Johns, who can no longer care for foster children due to their moral opposition to homosexuality. I was most struck by the bizarre standards the equality laws force on prospective foster and adoptive parents.

Let’s be clear here, the Johns are not zealously anti-gay or seeking to impose their views on sexuality on anyone. They simply refuse to compromise their religious values to fall in line with the 2007 Equalities and Sexual Orientation regulations. It’s not enough that the Johns said they would love any child irrespective of their sexual orientation. These regulations state that homosexuality must be endorsed and failure to do so is effectively harmful for foster children.

Given that there is a shortage of 10,000 foster families in the UK, it seems bizarre that the Court would rule to ban the Johns from fostering, especially when they have successfully done so in the past. Foster care provides children with respite from their abusive, unstable and damaging home environments. Turning down good foster carers like the Johns is essentially depriving such children the safe home, security and love they so desperately lack.

Having worked with children from vulnerable backgrounds and daily had to hand them back to their unpredictable, alcoholic and abusive parents, I can safely say that it is vastly more harmful for the State to make fostering more difficult than it is to allow people with unfashionable or outdated opinions to foster. Ultimately, children who are adopted and fostered into any sort of family do better than ones who are institutionalised or stuck in abusive environments.

It’s time the political-correctness zealots recognised that their equalities agenda must sometimes be overridden for the greater good. Certainly, we need to screen foster parents to ensure that children do not fall into dangerous hands, but at the same time it is ridiculous to try and shelter them from any carer who holds any sort of prejudice. It’s time we made it easier for British families to foster and adopt, and gave more children in the UK a better start in life.

Think piece: A smarter approach to the welfare state

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The welfare state is out of date. The principle of 'Free at the point of delivery' must be replaced by 'Paid for at the point of delivery', so that those who can afford to pay for their healthcare and children's education do so in proportion to their earnings. The result, argues Ross Harvey, would be huge savings as market efficiencies are introduced to moribund sectors, without leaving the country's poorest behind.

After the Second World War, few people had a bank account. They were about one third as rich, had ten years less life expectancy, penicillin was the most expensive drug and a hip operation wasn’t even the stuff of sci-fi yet. So the state had to contrive a cashless system for the nation’s welfare and ‘free at point of delivery’ was born. This required a bureaucracy that over the years has fed on itself and is now so large that there is no template for its management and its expense devours funds needed at the coalface. It is a property of technology that it replaces people but change is the only constant and the only serious alternative to wider mpoverishment.

The sacred formula ‘Free at point of delivery’ must be stood on its head to become the next big idea ‘Paid for at point of delivery’ – except for those whose income tax returns entitle them to get it for free. Whatever the cost, the amount you pay will depend upon last year’s income tax return.

"Smartcard" technology has recently made great strides. The French are experimenting with giving every individual a smartcard with their complete medical history on it. This, in the land of the grand projet, is surely a more practical approach than our own absurdly grand projet of a centralized computer database that has already cost billions and is, apparently, still nascent. Such a smartcard could link to Inland Revenue records of last year’s income tax return and so access a new reading every year. This is not a measure of net worth* as it entails no further intrusion than has already been undertaken to tax one. [Continue reading]

Pension scaremongerers

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Scaremongering in defense of privilege is apparently no crime. Even Tories are doing it.

On Saturday, The Observer published warnings from Baroness Eaton, the Conservative chair of the Local Government Association, that plans for public-sector workers to make higher pension contributions will result in a massive opting out of their scheme with “disastrous economic consequences.” In short order, the GMB union pipes up that a very precise 39% of its members would opt out of the local government scheme if higher contributions were imposed.

What balderdash!

Under legislation by the previous Labour government and maintained by the current Lib-Con coalition, virtually every employee in the land must be enrolled in a pension scheme, starting in 2012. And such schemes must contribute at least 8% of salary into the scheme of which at least 3% must be by the employer. Even if public sector workers actually went through the hoops of the opting-out process, would they really find another scheme that would be more generous than what they have now? Not bloody likely.

We might have expected the reaction from the GMB union but Baroness Eaton should have known better.

Yes, pension costs are rising. Yes, employees need to set aside more for a comfortable retirement. Yes, employers’ payroll costs will rise. We all know that – it’s probably the biggest long-term challenge facing mature democracies everywhere. The days of a free retirement are over, unless you’re a public sector worker of a certain age. Muddying the waters with inflammatory and ill-founded hysteria is of no help. Just look at the wasted energy expended by over 120 outraged comments on The Observer’s website in denial of the truth.

Scrap the minimum wage for young people

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Youth unemployment in the UK is at a record high, with nearly a million 16 to 24-year olds out of work – 20.5% of that age group. Around 600,000 of them have never worked at all.

Youth unemployment is particularly worrying. If young people cannot get a job and learn work skills, and the basic habits of work, it blights their whole lives. Sadly, too few youngsters are not getting into the work stream but instead are getting drawn into the welfare stream. Instead of learning about life in work, they are learning about life on benefits.

Youth unemployment – and the same is true of immigrants and other minority groups – is always worst when times are hard. Employers keep the best workers and shed the labour they do not value so much. And the fact is that young people are just not worth as much to employers as older workers. They may have no marketable skills. They will have little or no experience of how workplaces operate. They might, after a decade and a half of state education, even lack basic life skills.

And yet government regulation forces employers to pay not less than £4.92 per hour for 18 to 20-year-olds and £5.93 for those 21 and above. It is plain that many employers think a large proportion of young people are just not worth that amount of money to them. Particularly when other employment legislation adds to their costs even more, and makes it almost impossible to get rid of workers they find they don't need. No wonder they aren't hiring.

It's time to scrap the minimum wage for young people. It just prices them out of jobs, so does them no good at all. For them, low-paid work is a way of building up some human capital that will make it easier to find a better job. But we stop them even getting that work at all – and all in the name of protecting workers.