The explosive importance of that free part of free markets

It’s possible to argue that no market has ever been truly free as there have always been rules. Which is true. But the important meaning of free in free markets is that the ability to enter the market is free - people are free to try their hand at producing what people might desire to have.

Technology advances, human tastes and desires change. So there’s a constantly changing universe of things that can be done, also of what it is desired be done. Free entry into that market - anyone and everyone gets to try whatever - is what sorts through, in the most efficient manner possible, to that meeting point of the Venn Diagram. What people want to have done out of what can be done.

The entrepreneur in all of this is, in the strict definition, the person who takes extant economic assets and combines them in some new manner.

The weapons are thought to be Soviet-era RKG-3 anti-tank grenades with 3D-printed tail fins attached to stabilise their fall.

First introduced in 1950, the grenade is designed to be thrown by hand against tanks and armoured vehicles.

….

The RKG-3 grenade has been renamed the RKG-1600 when the 3D-printed fins have been added. The new weapon weighs about 1kg.

Tests have shown the stabilised grenade can hit a 1m target from a height of 300m (900 feet).

Videos released by Aerorozvidka show Ukrainian-made octocopter drones with two RKG-1600 bomblets mounted beneath them.

The tank is around a century old. That grenade, some 70. Those drones are two or three years old as cheap and reliable machines. The combination of two of them solves that third problem.

This is entrepreneurialism in everything. Extant economic assets have been combined in a new manner to solve a problem.

The free part of free markets really is important. It’s free entry that really matters.

Exports don't have to be manufactures

There’s a line of thought in developmental economics that a country must do manufacturing, must export manufactures, in order to be come rich. That there aren’t sectors in which a currently poor country can do so means that poor countries never can become rich.

Yes, that’s a rather extreme characterisation of the argument but it really is one that’s out there.

We insist that this is not true. It’s might well be helpful, probably will work - industrialisation and manufactures exports that is - but it’s the insistence that it’s necessary we disagree with:

Freshii is coming under fire for outsourcing virtual cashier jobs to Nicaraguans paying $3.75 per hour.

The restaurant chain replaced some of its in-store cashiers in Ontario with workers in Central America who run the cash through a video link, as reported by The Toronto Star. Some of these workers are reportedly being paid less than the price of the food chain's dishes.

Manufactures might be a good way to bundle up the embedded labour so as to export it. But anything that adds value to labour, over and above that in the domestic economy, and is able to export it does exactly the same job. It adds value to domestic labour and exports that value.

That is, manufacturing isn’t a necessary part of the development process at all. We’d even put down a claim, a marker - soon enough there will be entire economies that develop purely by producing and exporting services.

Adding value is development, whatever adds value is development.

Do you know the Knowledge?

Our new research paper has been generating some forthright conversation this week. Of particular controversy is our proposal that the ‘Knowledge’ topographical test should be scrapped as a requirement for taxi cab drivers in London.

Before you join the ranks of taxi unions in berating us, might we invite you to first undertake the following quick quiz (answers below). 

When was the knowledge introduced as a requirement for taxi drivers? 

a) 1902

b) 1865

c) 1950

How many people fail the first stage?

a) 99%

b) 65%

c) 30%

Taking the test can cost up to…

a) £10,000

b) £5,000

c) £1,000

How long on average does it take to pass the test? 

a) 5-6 months

b) 3-4 years

c) 6 months-1 year

If you answered most of the questions correctly, congratulations—you are clearly aware of the ridiculous demands placed on aspiring cabbies. If you did not, then welcome to the reality of applying for a taxi licence in 21st century Britain. 

Channel 4’s documentary on this subject, The Knowledge: The World’s Toughest Taxi Test Test highlights the difficulty of taking the test. One young man explains that he has been studying for many hours a week for 18 months—and that’s just to pass the first stage. The man in question deserves to be commended for his dedication and desire to improve his life: the regulatory system which requires him to do so does not. 

This requirement is outdated. So outdated in fact that it was established a full 21 years before the first motor car, let alone the satnav, was invented. This is perhaps unsurprising, considering that British regulations have historically held back innovation in the automobile industry. Prior to the 1896 repeal of the Locomotives on Highways Act, legislation dictated that engine-driven vehicles be restricted to driving at walking speeds and that two people had to accompany the engine. This may have been logical for steam driven traction engines moving between fields and encountering horses, but it was a serious impediment to petrol-engined cars, which were much faster. In contrast, the French benefitted from fewer restrictions and dominated car development in the years leading up to 1900 as a result. 

Abolishing the knowledge is not about unduly attacking a particular trade; on the contrary, it makes applying for a taxi licence a far less exclusionary process. This is something that needs serious consideration—the average age of taxi drivers is getting ever higher, whilst the rate of new licenses is slowing down. Making the profession more accessible benefits both aspiring drivers and the consumer. 

Answers:

1 (b)
2 (a)
3 (a)
4 (b)

We're entirely in favour of this fake - sorry, microbial - meat

The Guardian tells us that if more people ate microbial protein then the forests would be saved. Well, that’s nice, we’re generally in favour of forests, the climate, the environment and all that:

Replacing 20% of the world’s beef consumption with microbial protein, such as Quorn, could halve the destruction of the planet’s forests over the next three decades, according to the latest analysis.

The move would also halve emissions from the global food system, by reducing the razing of trees and the methane emissions from livestock. Previous studies have found meat alternatives have lower environmental footprints but this latest analysis is the first to assess what impact that could have in the world.

Go make it, put it on the shelves and see who eats it. Some will enjoy that flavour and difference. Others will preferentially partake to do their bit for those forests and the environment. Some other group will still insist upon bovine provenance.

The end result will be that mixture of what people desire to do. All of which is entirely as it should be. Our aim, task, in having an economy is that more people get to do more of what those people desire to do - this is also known as them getting richer.

Making proteins from yeasts and making them available is, by that very increase in choice and matching to desires, making people richer. Good, we approve.

The only insistence we have is that the consuming, or not consuming of, must be voluntary. It is the choice itself which is that increase in wealth. But then of course that doesn’t really need to be said, does it, for no one at all is stupid enough to try and make this sort of change mandatory, are they?

Freeing up ride-hailing and paratransit

The new ASI paper, “A Fair Shake,” by ASI researcher Maxwell Marlow, has called for a complete overhaul of the UK approach to ride-hailing. Specifically, the new paper calls for the abolition of outdated regulations that now serve to limit entry into the activity, to restrict access to new technology and new practices, and to impose costs that increase the prices that passengers have to pay. The famous ‘knowledge,’ for example, that costs would-be black cab drivers thousands of pounds and years to complete, restricts the numbers going into the profession and acts to restrict competition thereby. In the days of satnavs, it seems there are viable and less costly alternatives. Competition, says the ASI paper, is the key. It can allow innovative technologies to make inroads into established and expensive practices, and to bring greater flexibility and lower costs into the activity.

Reform of the licensing and the regulations which currently restrict ride-hailing could open up the activity, generate many thousands of jobs and give a shot in the arm to areas that need a boost economically. For example, it notes that the current system takes fulltime investment and employment to provide transport that typically peaks during the morning and evening rush hours, and is underused for the rest of the day.

Reviving a proposal that the ASI first put forward in 1980, the new study calls for the introduction of a new tier of passenger vehicles in the shape of the paratransit light vehicle. Used in many other countries around the world, these are typically 8-15 seater vehicles that offer shared rides to passengers who hail them from the street or catch them at designated pickup points, rather than from fixed stops. Instead of working to fixed timetables, these vehicles use numbers instead to provide a frequent service that picks up passengers from the curbsides, and drops them off at places they request. Fares are cheap because of low operating costs and multiple passenger numbers.

The new paper will undoubtedly ruffle feathers among established operators, just as the automobile shook up the coaching industry. Indeed, the requirement for motor cars to be preceded by a man carrying a red flag was inserted at the behest of the coaching lobby. However, the attractions of the new offerings were sufficiently strong that the public successfully clamoured for the industry to be freed up. The ASI is confident that the same will be true of the proposals it makes today.

We are very amused by calls for a windfall tax

BP reports a $20.4 billion loss for the quarter and this is taken to show the excessive profits of the oil companies which must therefore be taxed away. At which point someone is very confused here and it’s not us.

BP’s profits more than doubled to $6.2bn (£5bn) in the first three months of the year, adding to pressure on ministers to impose a windfall tax to aid households struggling with soaring energy and fuel bills.

For that is operating profit and also that’s at replacement cost. Which isn’t how corporations are taxed.

BP wrote down the value of its business in Russia, and including the resulting $24bn charge, reported a quarterly headline loss of $20.4bn, its biggest ever.

That’s actually the relevant figure. A useful proof of that being that in the actual announcement the company carefully makes the difference between the pre-tax writedown and the post-tax effects of it.

We strongly suspect that the tax take - even a windfall tax - on a $20 billion loss is going to be not very much.

This is before we even begin to discuss the abject stupidity of the base idea. In a time of dearth taxing supply and subsidising demand is, we’re sorry to have to point out, abject stupidity.

A windfall tax - wrong in principle and wrong in detail. But then this is politics, isn’t it, it’s not supposed to make sense.

Reversing Parkinson’s Law

C. Northcote Parkinson was 49, and a history professor at the University of Malaya, when the Economist published his “law” that work expands to fill the time available. The Sydney opera house was supposed to take four years to build, it took 14. But the version the government needs to consider is his Law IV: "The number of people in a working group grows regardless of the amount of work to be done." There were about 384K UK civil servants in 2016 and there are 508K today. The work, now we are through Brexit, has not substantially changed.  Indeed, removing the time spent dealing with Brussels and our EU partners should have substantially reduced it. 

Law IV was based on Parkinson’s experience in the armed forces in WW2. When work is novel and hard to specify, resources seem unlimited and the more people you have under your command, the more you get paid, Law IV will seem unstoppable. 

Here is the cure: the CEO has to summon the head of the department needing the treatment and inform him that the Chairman was told by someone he was playing bridge with at the club that his equivalent department only needed many fewer staff.  The number should be the largest credible, maybe 50%, maybe 90%. “Can’t give you names, old boy.  This was at his club. What we need to do now is to see what your team is doing now and would not be able to do in future if we chopped the numbers likewise.  We need to list all the things. And we need the effects on completion dates.” 

The full picture is needed because otherwise the junior will suggest eliminating, or delaying, the CEO’s favourite items. 

What happens next depends on the relationship between the two parties. When it is a new CEO who arrived as part of a hostile take-over, the junior will be in fear of his or her own job and miracles will be achieved. Conversely, if it is all too cosy and the CEO is just going through the motions, nothing will happen.  

The difficulty in the civil service is that, even if the ministers decide radically to prune their departmental headcount, the permanent secretary probably will not agree and there may be nothing the ministers can do. Permanent secretaries may answer to their ministers but they are not directly managed by them. Permanent secretaries are line managed by the Head of the Civil Service, usually the Cabinet Secretary. What that means in practice is that the Prime Minister and Head of the Civil Service need to agree that the current 508K headcount must be cut to 400K and that all permanent secretaries must agree their contributions with their ministers.  Not doing so would be a sackable offence, possibly impacting pension rights.  That should get their attention. 

The road from Delors to Brexit

In September 1988, Jacques Delors, then President of the EU, spoke to the UK Trade Union Conference in September and outlined a socialist future of the European project. He won the support of the TUC by pledging to use the EU to impose workers’ rights, collective bargaining, strengthened trade union power, and all the paraphernalia of a centrally directed, statist vision of Europe.

He achieved his aim in the short term of winning TUC support for UK participation in the EU’s drive for “ever closer union.” But he also brought to the surface many of the fears that others were beginning to feel towards the new political dimension the EU was exhibiting. The UK had joined what it thought was a free trading bloc that was called at the time the “European Economic Community.” But the EU was by now showing a self-aggrandizing movement towards concentration of power in its hands at the expense of those of its constituent members. It looked as though it was in the process of becoming a centralized authoritarian body that could override the wishes of European electorates.

Delors’ speech to the TUC confirmed this, and the response was not long in coming. Ten days later in Bruges, Prime Minister Margaret Thatcher made a speech that questioned the Delors agenda to “introduce collectivism and corporatism” and to “concentrate power at the centre of a European conglomerate.” She went on to assert opposition to the centralizing and collectivist programme that had moved on from its original “charter for economic liberty.” She set out her determination to oppose it.

“We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at European level, with a European super-state exercising a new dominance from Brussels.”

Her speech lit a fuse that burned its way steadily and remorselessly towards the UK’s vote to leave the EU 28 years later. The Bruges Group was founded immediately after her speech, and campaigned over the years against the ever-growing powers of the EU bureaucracy. The growing electoral support for and success of Euroskeptic candidates finally forced the issue onto the political agenda.

The rest is history, and there is little doubt that many future historians will draw a straight line between the speech of Delors to the TUC, and the subsequent UK withdrawal from the EU. It is even possible that Jacques Delors himself, now aged 96, might reach the same conclusion.

Just to remind, incentives matter - even for professionals

British General Practitioners - the gateway to the services of the National Health Service - get paid through capitation fees. An amount per person who is on their patients list.

More than a third of GPs refused to offer routine appointments during the last year, a poll has revealed.

Covid absences, unprecedented demand from patients and staff shortages have created significant pressures in primary care, GPs said.

More than 800 family doctors were surveyed by Pulse and 35 per cent reported that they had stopped taking bookings for routine appointments at some point in the last 12 months.

One GP in Liverpool, who asked to remain anonymous, said his practice had switched off the online booking system overnight and at weekends due to the overwhelming demand.

He told the magazine the workload level would be “unsafe” to operate and the practice still sometimes turns off the booking system during the day.

The incentive therefore is not to actually see - or treat, heavens above no - patients. It is to have a list of patients who may or may not get seen - or treated.

As we’ve been known to point out the first of the two things that everyone should know about economics is that incentives matter. It’s possible to muse that incentives are misaligned here.

Possible even to go further and suggest that the incentives be realigned. Pay GPs for actually seeing patients - or even, wonders, treating them - and marvel as behaviour changes to match the new incentives.

After all, none of us has great problems in getting in to see a lawyer, who are indeed paid by the time they spend actually dealing with us. So, yes, why not pay doctors as we do lawyers, they both claim to be professionals, why not pay them the same way?

GPs are currently paid not to see patients. Is it really any wonder that it’s difficult for a patient to see a GP?

The big (government) cheese

Observers of the British media might form the conclusion that politics in the UK is somewhat cheesy. In the United States, however, government is literally cheesy. In underground cellars, converted limestone mines, and caves kept at an exact 36°F are stored 1.4 billion pounds of government-owned cheese.

Government started the scheme of buying surplus milk products to help dairy farmers by maintaining their prices. It mostly consists of processed cheese and dehydrated milk powder because these have the longest life spans. US processed cheese is typically composed of various different types of cheeses blended together with other ingredients such as emulsifiers. It was widely used by the US military in World War II, and in US schools since the 1950s.

There was a UK Government cheese in World War II when it was officially decreed that as part of the war economy and rationing, only cheddar cheese made in a certain way would be broadly available to consumers on a national scale. It was unofficially known as “government cheddar,” and was rationed. This was phased out after the war ended, but US Government cheese goes on.

When Ronald Reagan became President in 1981, he ordered the distribution of 560 million pounds (250,000 metric tons) of government-stockpiled cheese. It went to welfare beneficiaries, food stamp recipients, and the elderly receiving Social Security in the United States, as well as to food banks and churches.

The surplus has built up again, however, and is currently given out regularly to prevent the stockpile growing ever larger. In 2016 the government decided to distribute approximately eleven million pounds of cheese worth $20 million, to give aid to food banks and food pantries from across the United States. The purpose was to reduce a $1.2 billion cheese surplus that had been at its highest level in thirty years, and to stabilize farm prices. Currently eligible senior citizens over the age of 60 are provided with one 2-pound block of processed cheese every month, supplied by participating dairies.

The policy is controversial because the processed cheese is high in saturated fat, cholesterol and sodium, and is regarded as unhealthy by many food scientists.  In a difficult-to-believe scenario, the US Department of Agriculture has run campaigns promoting greater consumption of dairy products, while the US Department of Health has run campaigns urging less consumption of them.

Although US government cheese reportedly melts readily and is therefore easy to cook with, its taste and texture are regarded with disdain, even by those not already disdainful of American cheeses. Its production has nothing to do with demand, but is down to the lobbying of the American Dairy Association.

The US government cheese stockpile is what happens when government interferes in the market to ‘protect’ producers. It calls to mind the EU’s once infamous butter mountains and milk lakes, and its current mountain of milk powder. Unfortunately, many of the countries that face food shortages have populations with a high degree of lactose intolerance, ruling out the obvious solution.

One unnamed official of the US Department of Agriculture reportedly suggested that the best thing that could be done with the surplus cheese would be for the government to dump it all in the ocean and not buy any more. It would perhaps be preferable to the current policy.