How do we just get the regulations we need?
Back in February, the Prime Minister asked three senior MPs, Sir Iain Duncan Smith, Theresa Villers and George Freeman to “identify and develop proposals across a range of areas that will drive innovation and competitiveness, reduce barriers to start-ups and scale-ups, create opportunities for innovation to make the most of cutting-edge technologies, and support growth and dynamism right across the UK economy.” In other words, the brief was to recommend how the UK economy could be grown. Their June 130 page report opens with a letter to the Prime Minister starting “You asked us to look at ways to refresh the UK’s approach to regulation now that we have left the EU, and to seek out opportunities to take advantage of our new-found regulatory freedom, to support innovation and growth.” One might argue they got off on the wrong foot, but I think the Taskforce was absolutely right. Innovation and growth result from making new things happen whereas regulation is all about stopping new things happening. Government needs to encourage the former but engage in the latter. That is where the Taskforce was right to focus.
Of the report’s 94 recommendations, 73 percent concerned regulation. Since regulation stunts innovation and growth, government should minimise it. Madsen Pirie has reminded us of three ways to do that. Sunset clauses automatically remove regulations after they have served their purpose of, like braces for teeth, straightening out business malpractice. Secondly, government can insist departments find two old regulations to cancel for every one they bring in. The first recommendation of the Taskforce is “Reimpose the ‘one in, two out’ regulatory duty on all government departments.” Quite right too but it used to be one in, three out until discipline, or memories, lapsed. Thirdly, some review committees, like the 1989 Committee for Competitiveness in the US, can challenge proposed regulations and reject those that bring more burden than benefit.
There are more draconian methods. Perhaps the best example is the major deregulatory activity in New Zealand during the 1980s. Their then new government was frustrated by civil service obstruction of piecemeal deregulation and opted instead for deregulation en bloc giving the civil servants 12 months to rescue such regulations as were deemed essential. Proceeding one department at a time, the cull was easily managed despite the Sir Humphreys saying it was not. [1]
Sunset clauses are not included by the Taskforce. 20 years ago, Francis Chittenden and I, on behalf of the British Chambers of Commerce, persuaded the Cabinet Office that sunset clauses would be good and they promoted them to departments. Very few have been adopted, mostly for coronavirus, terrorism and emergencies legislation, typically requiring a review after two years. The reason is simple: civil servants love to regulate like professional singers love to sing. It is what they do. They cannot envisage their precious new regulations fading into the twilight even though, once the habits of the regulated have been reformed, the regulatory job has been done. Sunset clauses should be the rule, not the exception.
There are four areas of possible concern with the report: Statutory Instruments (SIs), very few individual regulations are singled out for repeal, regulators and regulatory committees.
Regulation through secondary legislation (SIs) needs to be distinguished from the rules set by regulators because they need quite different reforms. One of the best suggestions in the report is to have Select Committees monitor the regulations arising from their corresponding departments.
Parliament has always had the power to scrutinise regulations using three committees: The Joint Committee on Statutory Instruments, The Select Committee on Statutory Instruments (Commons) and The Secondary Legislation Scrutiny Committee (Lords). There were about 3,000 SIs p.a. from 1990 to 2015 but since then the numbers halved until the pandemic when 457 Coronavirus-related SIs appeared. The three committees must find scrutinising all these SIs immensely boring, not least because few of them will relate to their normal fields of interest. The SI procedure is immensely complicated but falls into two procedures: affirmative and negative. The scrutiny committees cannot reject or revise anything; the most they can do is to have a SI debate in the main chamber of the house. The last time that happened was 1978 in the case of the affirmative process and 1979 for the negative. SIs are simply being rubber-stamped and that is a waste of everyone’s time.
What should happen is that all SIs which are not genuine national regulations, e.g. road closures, should be devolved to local authorities and the remainder should go only, as the Taskforce report suggests, to the relevant Select Committees. They at least should be interested in the topics. Select Committees should have the power to refer SIs back to the originating departments if they have been insufficiently justified in the Impact Assessments.
Secondly it would have been good to have more than the seven regulations recommended for repeal (5.3, 6.1, 6.2, 6.3, 10.5, 13.10, 17.3), VI-1 forms for wine imports for example. There must be hundreds, if not thousands. The report makes many calls for regulatory frameworks to be up-dated. Whilst no one would argue with that, perhaps a more focused approach might have been considered.
Thirdly, regulators should be reduced in number, not increased. Rather than add two more for hydrogen and digital health (recommendations 9.6 and 12.1), why not abolish all government regulators save the admirable Competition and Markets Authority which is needed to keep watch overall?
We all know markets need discipline to keep them honest. Professional organisations do that without government help and so do some commercial sectors, advertising for example. Though the roots are earlier, regulators are relatively new: they were created by Margaret Thatcher’s privatisation of phone communications (Oftel) in 1984.Regulators were seen to be needed to transition state monopolies into competitive markets. When competition was achieved, regulators were supposed to emulate Cheshire cats. Well of course, they found new ways of being useful to government departments, such as taking the blame for the 2020 A level confusion. Regulators are supposedly independent of their departments and their terms of reference and performance metrics are far from clear. It seems they can do what they like and make up the rules as they go along. The Taskforce recommendation to strengthen the Select Committees’ involvement would be enhanced by making regulators accountable to them. That should include plans, with dates, to phase themselves out.
Fourthly, there may be a little confusion over three other regulatory committees: the Better Regulation Executive (BRE), the Regulatory Reform Committee and The Regulatory Policy Committee.
The Better Regulation Executive (BRE) is not mentioned in the report but, apparently, it “leads the regulatory reform agenda across government.” Its annual report shows the additional net business burden from regulation versus the business impact target. In 2019/20 that amounted to £5.7bn. of which regulators contributed £5.6bn“Under the Small Business, Enterprise and Employment Act 2015, a new government must set a target for the economic impact on business of qualifying regulatory provisions made during the course of the Parliament. This is the business impact target (BIT). The Enterprise Act 2016 brought the actions of regulators into the government’s deregulation target.” The government has been too busy of late to set these targets so the BRE has to assume they are zero – not that it matters.
Para 95 of the Taskforce report suggests “that the remit of the Regulatory Reform Committee is expanded to enable the committee to potentially scrutinise any regulatory reform proposal across government, including a requirement that the relevant Minister provide an Explanatory Memorandum16 (EM) on the proposal for the committee to assess.” Unfortunately, that committee now resembles a dead parrot: “The Regulatory Reform Committee ceased to exist on 20 May 2021. The Committee is no longer operating.”That is rather a shame as the report mentions it nine times and recommendation 1.9 reads: “Give the Regulatory Reform Committee a remit to scrutinise all regulators and regulatory reform proposals. Bolster its resources, including with seconded experts, to carry out this expanded function.”
Under these circumstances, the Regulatory Policy Committee (RPC) might take a more important role than the report indicates. This is an independent body made up of non-civil servant experts and the British Chambers of Commerce (BCC). At the March meeting, Dr Marshall (CEO of BCC) described the RPC as a “bulwark against poor and overly politicised regulation” but then went on to complain of lack of discipline, thoughtfulness and joined-up thinking that could have been said 20 years ago. One does not get the impression that the RPC makes much impact on hard-pressed civil servants, even if they have heard of it. On the other hand, the BRE and the RPC need each other and should probably be merged, given more teeth to reject the unjustified ones and report to the Business, Energy and Industrial Strategy Committee. As the report recommends, the unit might need beefing up to some extent.
Where does all this leave us? The Taskforce report has some issues but it is a valuable and important document. Perhaps it adds complication rather than the simplification this area needs but it is a major stepping stone and provides a long list of matters that need consideration.
[1] David Osborne and Peter Plastrik (1998), Banishing Bureaucracy, Chapter 4, Plume (Penguin) Middlesex, 75-90.
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.