New millionaires
Credit Suisse has just issued its Global Wealth Report, which showed that 5.2 million people became dollar millionaires in 2020, despite the economic damage caused by responses to the pandemic. In 2020, more than 1% of adults worldwide became millionaires for the first time, taking the world total to 56.1 million people. Total global wealth, which took a hit at the start of the pandemic, had recovered by the end of the year to record an increase of 7.4%. Nannette Hechler-Fayd'herbe, chief investment officer at Credit Suisse, said:
"There is no denying that actions taken by governments and central banks to organize massive income transfer programmes to support the individuals and businesses most adversely affected by the pandemic, and by lowering interest rates, have successfully averted a full scale global crisis."
Since the year 2000, the worldwide number of people with fairly modest assets of between $10,000 and $100,000 has more than tripled from 507 million to 1.7 billion.
It should be noted that the Credit Suisse estimates include non-investable assets such as the value of owner-occupied homes, and are therefore higher than comparable surveys that do not. Undoubtedly a large part of the increase in global wealth has come from low interest rates. Government and banks have pumped out money, and the ultra-low interest rates have pushed people out along the risk curve into assets such as stocks and property as they seek to make some worthwhile returns.
Will it last? The answer is that probably a proportion of it will. When interest rates rise and make bonds more attractive, the pressure will ease on asset prices, and they may dip in response. But some of the gains will stick.
Is it a good thing? It undoubtedly is. When people have more assets behind them, they have funds to back new business start-ups, and the collateral to borrow for new ventures. These are the major source of future wealth-creation and future jobs. And a wealthier world is one better able to survive external shocks than a poorer one.
Is there a limit to it? The optimists, who include myself, say that there is not. A large part of humanity now lives at many times the living standard of their predecessors of 250 years ago. We used to set the international poverty line at a dollar a day minimum. Currently we set it at $1.90 a day, and there is no reason why it should not continue to rise. Future generations could easily live at many times the living standards of current ones.
To be a dollar millionaire is no longer to be in the top 1% of the world’s richest. And as economies make up the slack of the pandemic downturn, the number of them will increase further.
Can the world support such wealth? Yes, it can. There will be pressure on resources, so we’ll invent new ones. And we can make the environment cleaner using ingenuity rather than reverting to poverty. These are problems, and solving problems is something people are rather good at.
So, let us welcome the new millionaires and hope to welcome many more of them in the future.
Environmental regulations can sometimes do more harm than good
Contrary to popular perceptions, all around the world, environmental conditions have improved dramatically in recent decades. There is less air pollution and more widespread access to clean water than ever before. Anyone who wants to learn more about this astounding progress should read Stephen Pinker’s Enlightenment Now and Hans Rosling’s Factfulness. These environmental performance gains are largely due to the global spread of economic freedom, because – as numerous studies show – environmental standards are far better in economically free countries than in unfree ones.
Of course, sensible environmental regulations have contributed to these gains. Even the most enthusiastic proponents of capitalism, champions of the free market such as Friedrich August von Hayek and Milton Friedman, have always argued that governments should define the rules of the game – the legal framework – for the economy. But, and this is usually forgotten, it is often the case that rather than achieving their well-intentioned goals, environmental regulations often lead to the exact opposite.
The world’s dumbest energy policy
For a prime example of how the road to hell is paved with good intentions, you need look no further than Germany’s environmental and energy policies. In the 1970s and 1980s, German environmentalists had one main aim: to consign nuclear energy to the history books. When a coalition of Social Democrats and Greens formed a government in 1998, they didn’t waste much time in putting together a plan to phase out nuclear energy and, in 2000, concluded an agreement to that effect with the various operating companies. In 2002, the German Atomic Energy Act was amended to incorporate the terms of this contract. In 2010, Angela Merkel’s government decided to extend the operating lives of the country’s nuclear power plants, although this decision was revised in 2011 in the wake of Japan’s Fukushima disaster. The last German nuclear power plant is scheduled to go offline in 2022.
However, this decision to phase out nuclear power is one of the main reasons why Germany, despite extensive efforts in other areas, is no better off in the fight against climate change. In fact, the country now emits more CO2 than it would if nuclear power was still part of the national energy mix. France, for example, while doing no better than Germany on a range of other environmental performance measures, increased the share of nuclear power in the nation’s energy supply to 70% at the same time as Germany was progressively shutting down its nuclear power plants. Today, Germany ranks 10th in Yale University’s 2021 Environmental Performance Index (EPI) and France ranks much higher, in 5th place. The difference in the two countries’ overall EPI rankings must be due to nuclear energy, because in the EPI’s more specific Climate Protection Index 2021, Germany ranks a lowly 14th, in contrast to France in 4th.
In the most diplomatic terms, Yale University’s researchers explain that “some analysts” believe that Germany’s nuclear phase-out is hurting the country’s progress on reducing CO2 emissions. Less diplomatically, but more accurately, the Wall Street Journal in 2019 accused Germany of having the world’s dumbest energy policy.
In seeking to justify the phase-out of nuclear power, much has been made of the potential dangers associated with nuclear energy. The problem with this scaremongering is that the risks have been exaggerated beyond measure. Tens of thousands of coal miners around the world have died in underground mines, but only a small fraction of that number have died in accidents involving nuclear power plants. Again and again, opponents of nuclear energy have created the impression, either explicitly or by being deliberately vague, that 20,000 people died in the reactor accident in Fukushima in 2011. The number 20,000 is correct, but the victims died as a result of the tsunami, not because they were exposed to radiation. The fact that the latest generation of nuclear power plants are safer than earlier plants is hardly ever raised in public discourse – most people have no idea about the improvements that have been made in recent years.
Populism and ideology
Nevertheless, it was in response to the Fukushima disaster that Angela Merkel’s government, in a lightning move, decided to shut down Germany’s nuclear power plants much earlier than originally agreed. And yet it was not the accident itself (which did not even cause Japan to turn its back on nuclear power), but the fact that there were elections in the German state of Baden-Württemberg roughly two weeks afterwards that led to Angela Merkel’s swift policy shift. In the heated pre-election atmosphere, Merkel wanted to rob the Greens of one of their key election issues. But even that did not work and the Greens attracted a record number of votes and, for the first time in German politics, a German state elected a Green politician as minister president.
This example shows that government intervention in the economy, even when environmental protection is given as a motive, is often not driven by rational environmental considerations, but by populism and ideology. This does not mean that governments should never introduce regulations to protect the environment, but it does prove that economic freedom serves much better overall to protect our environment than top-down dirigisme.
Rainer Zitelmann is the author of The Power of Capitalism.
It is just so joyous to solve another problem, isn't it?
Whatever our view of climate change itself, its severity, cause and all that, it is obvious that if we power civilisation without carbon dioxide emissions then it’s not a problem. Or, even, it was, or could or might have been, but now isn’t. Because the cause of the problem, the carbon dioxide emissions, now is solved.
Which does appear to be the case:
Almost two-thirds of wind and solar projects built globally last year will be able to generate cheaper electricity than even the world’s cheapest new coal plants, according to a report from the International Renewable Energy Agency (Irena).
The agency found that the falling cost of new windfarms and solar panels meant 62% of new renewable energy projects could undercut the cost of up to 800 gigawatts (GW) worth of coal plants, or almost enough to supply the UK’s electricity needs 10 times over.
Solar power costs fell by 16% last year, according to the report, while the cost of onshore wind dropped 13% and offshore wind by 9%.
In less than a decade the cost of large-scale solar power has fallen by more than 85% while onshore wind has fallen almost 56% and offshore wind has declined by almost 48%.
As has been noted elsewhere - and this is derived directly from the IPCC work - those gloomier predictions of imminent disaster were derived from a model in which coal consumption increased off into the future. This is not now going to happen. Therefore nor are the gloomier predictions even if they were true to start with, it not being obvious that they were even possible, let alone true, to start with.
That is, assume that the entire canon of climate change is true. The solution is cheap, non-emittive, energy generation. The claim at least that is being made here is that this now exists, cheap and non-emittive, and it that it will naturally be installed as the option of choice off into the future.
Excellent, so, to the extent that we believe what we’re being told about climate change it is now solved, isn’t it?
What problem shall we try to solve next then?
Understanding conservatism
The same term “conservatism” is applied to both a temperament and a political tradition, with a distinction that the former is usually spelled with a small “c,” whereas the latter usually merits a capital “C.” The temperament was described by Lord Hugh Cecil as “a disposition averse from change.” Those who share this preference like to keep things as they are because they feel comfortable with the familiar, and think that change might put at risk the value they derive from them.
The status quo that “conservatives” seek to preserve can vary widely from culture to culture. One can be a “conservative” ayatollah in Iran, or a prince in Saudi Arabia, or a trade unionist in the United Kingdom. It simply denotes a preference for keeping things as they are.
The Conservative political tradition has always been more complex than a simple aversion to change. It has opposed those who seek to make society what they think it ought to be like, preferring instead to have society evolve spontaneously into what its members between them make it become. It prefers planning to be done individually at the periphery, rather than collectively from the centre. It prefers people to have the opportunity to make choices, rather than be channelled into choices made by others.
In other words, it wants changes to be spontaneous and evolutionary, rather than preconceived and revolutionary. The Conservative political tradition seeks to preserve the spontaneity of society, or to restore it if it has been lost. It does not oppose all change or seek to preserve any particular status quo, but rather to preserve the process by which changes occur. Edward Heath, in sticking with the centre-left postwar consensus, was certainly more “conservative” than Margaret Thatcher, but she, in moving society away from dirigisme and central planning, was a great deal more “Conservative.”
Conservatives are happier with Popper’s “piecemeal social engineering” than they are with attempts at the wholesale transformation of society to turn it into what the planners think it “ought” to be like. They point out, as Adam Smith did, that people are not wooden chess pieces to be moved around the board by the outside hand of a player, but that “in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”
This leads to a political divide in which those on the Left seek an outcome they think can be rationally planned and brought to fruition. They are suspicious and even resentful of a global economy of free exchange and markets, and want to control and restrict business. Conservatives, by contrast, are happy with a genuine capitalism that promotes investment, production and trade. They, like the Left, oppose the phoney, crony version in which large corporations lobby governments for political favours that allow them to make money that genuine markets would not give them. But Conservatives, unlike their Left-wing counterparts, do not wish to control or limit genuine businesses that compete with each other to satisfy customers and attract their trade.
The difference hinges on the Conservative acceptance and even embrace of spontaneity, and the Left’s desire to impose a planned and preordained order conceived in human minds. Conservatives think that people interacting freely will produce an overall order superior to a planned one, and will bring more satisfaction to more people. They are strengthened in this stance, by the fact that free markets and free trade deliver the goods, creating more wealth and uplifting more lives with opportunities than any of the planned systems have managed.
Conservatism, as a political force, favours societies that emerge, rather than ones that are imposed. It is anchored firmly in the real world of people who develop and change, and who change society as they do so. The political tradition conserves the process, not the outcome. Hayek wrote his essay, “Why I am not a Conservative,” because he thought Conservatives wanted to conserve postwar socialism. In reality it was “conservatives” of all parties who wanted to do that, and “Conservatives” who later changed it.
Is capitalism to blame for hunger and poverty?
Before capitalism, most of the global population were living in extreme poverty. From 90 percent in 1820, the rate has now fallen to 10 percent.
Most remarkably, since the end of communism in China and other countries in recent decades, poverty has declined faster than in any previous period in human history.
Many people who believe that capitalism is to blame for hunger and poverty have an entirely unrealistic notion of life in pre-capitalist societies. Johan Norberg, the author of the book Progress, was himself an anti-capitalist in his youth. He admits, however, that he had never really given much thought to how people might have lived before the Industrial Revolution. He had basically imagined this entire epoch of human history similar to a trip to the countryside.
Fernand Braudel, the famous French historian wrote a definitive work on the social history of the 15th to 18th centuries. People’s diets, he revealed, largely consisted of porridge, soup and bread made from low-quality flour, which was baked in batches every couple of months and was often moldy and so hard that it could only be cut with an axe. Most people, even in cities, had to get by on 2,000 calories a day, with carbohydrates making up well over 60 percent of the total. Food was often nothing more than a lifetime of eating bread and bread again, or mush and porridge. People back then were lean and small in stature – throughout history, the human body has adapted to inadequate caloric intake.
Some people rave about the harmonious pre-capitalist world, in which everything was so “decelerated.” This slowness, however, was mostly a result of physical weakness due to permanent malnutrition. It is estimated that 200 years ago about 20 percent of the inhabitants of England and France were not able to work at all. At most, they were only strong enough to walk slowly for a few hours each day, which condemned them to begging for their entire lives. The “possessions” most people owned were limited to no more than a few items, as seen in contemporary pictures: a few stools, a bench and a barrel that served as a table. Even these descriptions only refer to Western Europe, which was home to the small number of countries where people were best off at the time.
I have described this in such detail here so that you can more fully understand what it means when people say that 90 percent of the world’s population were living in extreme poverty before the emergence of capitalism. In other parts of the world, living standards were far worse than they were in Western Europe. The British economist Angus Maddison, who specialises in analysing historical economic data, used a series of complex calculations to estimate the historic gross domestic product per capita for a range of countries around the world. In 1820, this amounted to 1,202 international dollars (a unit of measurement based on the year 1990) in Western Europe. The figure is similar in other Western countries, such as North America, Australia and New Zealand. In the rest of the world, however, GDP per capita at the same time was only 580 international dollars, or about half as much.
The impact of capitalism is evident from a longer historical comparison. In the first year of our common era, GDP per capita in Western Europe was 576 international dollars, compared to 467 international dollars for the world as a whole. That means that in Europe, GDP per capita doubled in the pre-capitalist period, between year 1 and the year 1820. In the much shorter period from 1820 to 2003, GDP per capita in Western Europe then rose from 1,202 to 19,912 international dollars and in the other capitalist countries of the West it climbed as high as 23,710 international dollars.
But the same progress was not replicated everywhere. In Asia, for example, in the 153 years from 1820 to 1973 GDP per capita only increased from 691 to 1,718 international dollars. And then, in just 30 years, from 1973 to 2003, it rose from 1,718 to 4,344 international dollars.
So what happened? These incredible developments in Asia are mainly due to the fact that China progressively introduced free-market principles after Mao Zedong’s death in 1976. As late as 1981, as many as 88 percent of the Chinese population were still living in extreme poverty; today it is less than one percent. Never in world history have so many hundreds of millions of people been lifted out of abject poverty and into the middle class in such a short time.
Capitalism has done more to overcome hunger and poverty than any other system in world history. The most devastating man-made famines over the past 100 years all occurred under socialism – in the 1930s alone, according to a range of estimates, between five and nine million people died in the Soviet Union from famines caused by the socialist collectivisation of agriculture.
The end of communism in China and the Soviet Union was a major factor in the 42 percent reduction of hunger between 1990 and 2017.
In North Korea, however, one of the world’s few remaining socialist states, several hundred thousand people died in famines from 1994 to 1998.
The Heritage Foundation’s Index of Economic Freedom reveals that the world’s most capitalist countries have an average GDP per capita of $71,576. That compares to $47,706 in the “mostly free” countries. At the other end of the scale are the “mostly unfree” and “repressed” countries, where the GDP per capita is only $6,834 and $7,163, respectively.
Rainer Zitelmann is the author of The Power of Capitalism.
And if Arwa Mahdawi were an economist
That folks don’t know about economics is fair enough - there are blindspots among economists about football, needlepoint, literature and how to get the tops off jars - but there do sometimes occur those moments where economists get told what they already know:
I am not an economist, but it seems to me that one way companies can end the labour shortage is by paying people more and treating them better. A few forward-thinking employers are trying this unusual strategy. For the most part, however, companies seem to be demanding that the government bail them out by creating conditions that give them their pool of desperate and easy-to-exploit workers back. The US’s largest lobbying group, for example, is trying to pressure the government to end unemployment benefits.
Even in the US no one is arguing for the end of unemployment benefits. Rather, the end of the extra payments, the widened definition of who qualifies, which leads to some 25% (some say 50%) of the American workforce having higher incomes from not working. As Richard Layard has been known to point out, if you pay people not to work then people will not work.
But to the larger point being made. When there’s a shortage of labour then why not pay people more? Well, yes, this is what Karl Marx was rabbiting on about with his reserve army of the unemployed. If there are those crustless waifs a’wailin’ outside the factory gates then the capitalists never do need to raise wages in order to gain more labour. Thus improvements in productivity and profits accrue solely to the capitalists.
The moment full employment is reached - something that depends upon the structure of the labour market as to what actually is full employment - then in order to gain more labour to exploit, to expropriate from, the seeker after more labour must offer a better deal than can be got elsewhere. Further, that better deal needs to be on offer to the current workforce to stop their leaving for it elsewhere.
This is the very mechanism by which wages rise with productivity over time. This is the how and why of rising living standards. This coming with our usual observation that if even an economist as odd as Marx can get this right then the rest of us should find it easy enough.
The observation works the other way too. The number of those quitting their jobs for others is a good guide to how close to full employment we are. Which is why the number is tracked in a monthly report. Graphed even. And, if we’re getting a record high number of quits - that indicator of full employment - while we still have an unemployment rate of 5.8% - which isn’t full employment - then we must be doing something to screw up the structure of the labour market as to what actually is full employment.
Seeing one sign of full employment while not having full employment is indeed that signal that something is wrong. Actually, it’s the proof required to start muttering about how the expansion and extension of unemployment insurance benefits needs to be curbed.
That not everyone knows economics is just fine, as with knowing how to take the tops off jars. But it does grate when the “what if?” supposition is exactly the point that economists have considered, have thought through and have come up with an answer to.
Why does the US have record quits and also a high unemployment rate? Because unemployment benefits are currently too high.
Funding residential care
Roughly 1 in 25 of the total population aged 65 and over live in care homes, a figure that rises to nearly 1 in 7 of those aged 85 years and over. Residential social care is expensive, though most people will not need it. The majority of those who are in care homes suffer from dementia or severe memory loss.
As people are living longer, there is pressure on governments to ensure that it is adequately funded, and several different approaches have been suggested to achieve that to ensure that everyone who needs residential care will receive it.
One proposal is to copy the NHS, and have a state-run service paid for out of taxation and free at the point of consumption. A problem with this is that the cost in higher taxes might be more than people are prepared to pay, and more that they are prepared to vote for. There is the added problem that if it were done in this way, demand would rise, perhaps steeply. People currently ready to make sacrifices to care for elderly relatives in their homes would expect the state to take care of them instead. There would probably be self-selection as people opted to receive the free state care, and perhaps even “granny dumping” as people shifted the burden of care onto the state. The costs, like those of the NHS, could be expected to spiral.
An alternative method, proposed by Theresa May’s government, would be to have those with assets and incomes, including their homes, above a certain level, paying towards the costs of their residential care. The proposal was reckoned to have been an electoral disaster because elderly people want their assets to be handed down to their children rather than being consumed in what might be years of residential care. Their children, not surprisingly, take a similar view. The plan, dubbed a “granny tax” was reckoned to have contributed to Mrs. May’s loss of her Parliamentary majority, and future plans incorporating the same principle are unlikely to find favour with politicians.
Another method could be to have residential care funded on an insurance basis, with people paying premiums throughout their working lives to cover residential care should they later need it. It would have to be compulsory to prevent non-payers who needed care becoming a state liability. Such insurance would have to be handled by private providers rather than government, or it would simply become taxation by another name, and subject to all the drawbacks that has.
More attractive still might be a plan like a pension fund that people would build up over their working lives, so that it could pay the care home costs of those who needed it, while remaining the property of those who did not. For the most part, the people funding their residential care if needed would be themselves when younger, in employment, and paying into their fund. It does involve people paying more out of their earnings to build up the funds, but unlike taxation they would not see it as money taken from them because it would remain their property and would be passed on as part of their inheritance when they died.
The difficulty lies in the transition to such a system. It might be fine for young and middle-aged people to build up such funds, but some provision has to be made for those approaching the time when they might need residential care but haven’t had time to build up sufficient funds. There is no easy answer to this, but a massive sell-off of state assets, especially land, might be used to pay into people’s funds to build them up quickly to an adequate level.
There is also the political problem that this is a long-term solution, whereas politician have time horizons that reach only to the next election. Politicians might find it easier to offer people money that will be paid for by future earners long after the present politicians have moved on. And those private funds might well attract future Chancellors looking hungrily for new taxes.
Busting the 'pull factor' myth
Listen to any Parliamentary debate on the question of whether to allow asylum seekers to work in the UK and the principal objection is immediately clear; doing so will create an economic pull factor for illegal migrants, who will jump on a small boat or the back of a lorry and immediately start making money at the expense of British workers, whilst adding to the backlog of asylum claims. This argument is underpinned by the assumptions that the majority of asylum seekers are in fact economic migrants who choose to move to the UK to enhance their employment prospects, and that they have enough detailed knowledge about each individual country’s asylum systems to make informed choices about destinations, a concept otherwise known as ‘asylum shopping.’ These predications form the basis of current Home Office policy guidance which prescribes ‘a clear distinction between economic migration and asylum that discourages those who do not need protection from claiming asylum to benefit from economic opportunities that they would not otherwise be eligible for.’
So determined is the Home Office to remove any such pull factor out of the equation that, since 2002, the UK has notably been the only country in Europe to enforce a 12-month ban on asylum seekers’ employment rights; in Germany there is a wait of three months and in Italy only two. Even after the 12 month period, they are restricted to occupations listed in the Government’s Shortage Occupation List, which includes professional ballerinas and numbered orchestral string players, rendering their access to the labour market superficial.
You might be sympathetic to this policy if it had any real grounding in empirical research. It does not. First of all, when discussing reasons for irregular migration, an understanding of push factors is arguably far more imperative. There is clear evidence that conflict is the single most significant factor associated with asylum claims in Europe. Considering this, it is not surprising that qualitative studies have shown that many asylum seekers, particularly women and young men, do not even know their final destination when fleeing conflict, this being decided either by their families, smugglers, or other agents.
More importantly, the perceived pull factor of superior career prospects does not factor in asylum seekers’ decision making when fleeing to the UK. In fact, studies which have looked into the links between European asylum policies and the number of asylum applications received in each country have found no correlation between labour market access for asylum seekers and an increase in asylum applications. In actuality, asylum seekers have reported little to no knowledge of the UK’s asylum policies on arrival, despite the longevity of the 12-month ban, and assume that they will be expected to work in order to support themselves. Many do not know how to claim asylum, and some do not even know what asylum is until they arrive. Such limited knowledge of UK asylum policy clearly disproves the notion of asylum shopping; removing the permission to work has had no demonstrable impact on asylum seekers’ decisions to seek refuge.
It’s also worth pointing out that an abundant availability of illegal work is likely to be of far greater attraction to irregular migrants who have no legitimate claim to asylum than legal labour market access to those awaiting a decision on their claim. The OECD has cited the illegal employment of foreign workers as a major pull factor for irregular migration, calling for labour market and migration policies which facilitate legal pathways to work. Ironically then, by refusing to allow asylum seekers to work, the Government is creating its own pull factor.
Well might the Government insist that its remaining work ban on asylum seekers is an appropriate policy response to the refugee crisis. However, it is a policy response to the perceived anti-immigrant feeling amongst the voting public, (which is in itself a fallacy considering 71% of people polled by Refugee Action agreed that people seeking asylum should be given the right to work), rather than a response to well-evidenced research. Moreover, this policy encourages, rather than dissuades, illegal migration by those who see economic opportunities in the informal sector, which only serves to undermine the ‘pull factor’ argument. It is surely time for the Government to see sense; to halve the waiting time to sixth months and to dispose of the inadequate Shortage Occupation List. To do so is to listen to the real evidence.
Now let us all praise the achievements of Bolivarian socialism
Socialism - by which we mean the proper thing, not simply some intense form of social democracy - never does actually work. At which point a certain hat tip to The Guardian. Over the years their opinion pages have been full of laudations and paeans to that Bolivarian socialism imposed in Venezuela. How the arrival of a properly democratic economy, the full use of Modern Monetary Theory, fixing prices to make sure that food is properly affordable, sticking it to those Damn Yankees, have or will, real soon now, create a paradise upon Earth. Their news pages have, at the same time, reported rather more faithfully on what has actually been happening:
The continuing exodus of millions of Venezuelans is reaching “a tipping point” as the response to the crisis remains critically underfunded.
More than 5.6 million have left the country since 2015, when it had a population of 30 million, escaping political, economic and social hardships.
A useful guide to the success or not of a polity is to look at the direction of the population flow. Of course, individuals might move in either direction for any number of reasons. But if the net flow is outward then we can assume that there’s something that socioeconomic system isn’t offering which other places are. If inward then something is being done right. When 20% of the population walk out of the place it’s a reasonable assumption that something or other isn’t on offer.
Funny how those migration flows have tended to be out of those socialist places really, isn’t it? Almost as if the system doesn’t produce something that humans find desirable.
Still, in that spirit of finding silver linings wherever possible we do have to admit that the Anti-Fascist Protection Rampart doesn’t have the machine guns pointing inwards.
Yet.
Cutting the regulatory deadwood
It was Milton Friedman who told us that nothing is so permanent as a temporary government programme. The same can be said of government regulations. They accumulate as new ones are added and the old ones stay in place. This is often true even if the old ones have been rendered obsolete by technological developments or changes in practices.
Regulation is a cost, even when it is a worthwhile one. It makes production more expensive and often reflects itself in increased prices. In many cases the tight regulations imposed on one country can make its goods unable to compete internationally against those from countries with more sympathetic regulatory regimes.
As the UK government seeks to take full advantage of its new status outside the EU and not having to accept regulations imposed from afar, there are several approaches it might take to hack away at the accumulated deadwood built up over the years that now burdens its businesses.
One involves the use of “sunset” clauses, under which when a new regulation is introduced, a termination date is set upon it so that it will expire on that date unless it is renewed. Even if it is renewed, the process of doing so brings it up into question, and provides the opportunity for evaluating its effects, and for introducing possible modifications that will lighten its load without losing any of its advantages.
A second way to reduce the regulatory overhang is to institute a policy of “one in, two out,” which specifies that a new regulation can only be introduced if two old ones are deleted. This motivates those seeking a new regulation to lobby for the repeal of old ones no longer seen to be as necessary as they once were. In pursuing this strategy, it is important to guard against the possibility of repealing only minor regulations of little consequence to make way for ones that have serious impact.
A third way was pioneered by Dan Quayle, who served as Vice-President under George H Bush from 1989 to 1993. He headed a Council on Competitiveness established by President Bush in 1989 to review regulations issued by Federal agencies, with the aim of ensuring that they did not unduly harm the competitiveness of American business. The Vice-President’s Council attracted the ire of Federal agencies and would-be lawmakers in Congress. It was described as “the roach motel of Congressional bills” after a popular pest control product of the time that lured cockroaches into a cardboard box and poisoned them. It was called a roach motel, and the TV ads featured the voice of Mohammed Ali saying, “they check in but they don’t check out.” It happened to regulations and bills that were deemed anti-competitive by the Council.
All three of these approaches could play a key role in a post-Brexit deregulatory strategy. Certainly a UK version of the Council on Competitiveness could provide a useful tool to explore and debate the anti-competitive aspects not only of proposed new regulations, but of existing ones as well. It might protect us from ill-thought-out new proposals, as well as clearing out the deadwood of past ones.