Vulgar libertarianism, and The Mind of the Market - 1 comment

There's a great review of this book over at the Mutualist Blog. It's always a refreshing blog to read because it's built on actual philosophy and economics, and is thus free of assumptions about what and who are 'left' or 'right', and discussions about the 'characters' of individual politicians and potential leaders. You might point out that this detachment from 'everyday' politics is an unaffordable luxury; then again, it beats the current wave of Labour factionalism, and the attempts to define (or, more likely, resurrect) policy frameworks off the tops of people's heads, largely concerned as they are with reshuffling public spending, and marked by a lack of a consistent philosophical backing.

Anyway, who or what is a "vulgar libertarian"? Essentially, one who ostensibly supports the extension of - and removal of restrictions upon - economic and political liberty, but who does so assymetrically: (generally) targeting trade unions and those on state benefits, but allowing other powerful institutions, e.g. large companies, certain favoured institutions and individuals, to maintain those privileges unhindered. A Thatcherite, you might well say. So (my bold):

Shermer asks why people reject Adam Smith's theory of economics, despite its being so profound and proven. The answer just might be that the rhetoric of free markets, so closely associated with Adam Smith, has been misappropriated to defend a system of corporate power far closer to what Smith condemned than to what he supported. Adam Smith, like the other early classical liberals, was a revolutionary thinker who attacked the entrenched privileges of the landed oligarchy and the mercantile capitalists. It's almost impossible to go to a mainstream "libertarian" website these days without seeing the thought of Adam Smith misappropriated to defend the modern institution most closely resembling the landed interests and privileged monopolists of the Old Regime: the giant, state-subsidized, state-protected corporation.

As I suggested earlier, most people who display egalitarian reactions against existing inequalities and concentrations of wealth may well believe that what they hate is the "free market." But that's only because the rhetoric of "free markets" has been perverted, for the most part, by apologists for those concentrations of wealth which result from privilege and other forms of state intervention. [...]

Read the whole thing.

House price reports - 3 comments

According to the BBC:

The Royal Institution of Chartered Surveyors' (Rics) said that 78.5% more surveyors reported a fall than a rise in house prices in March.

Sounds dramatic: I wonder if anyone thought that meant that 89.25% reported a fall, and 10.75% a rise (89.25 - 10.75 = 78.5)? Or else that 78.5% reported a fall?

In fact, if we take the article at its word, and assume that no surveyors reported no change, it turns out only 64.1% saw a fall, 35.9% a rise (64.1 / 35.9 = 1.785). Let's assume that 20% actually saw no change at all, which doesn't seem too unreasonable: that would take the fallers down to 51.3%, and the risers to 28.7%. That wouldn't be dramatic, unless there really was a sound reason for an inexorable rise in the asset in question, and it says nothing about the size of any increase or decrease.

I'll assume that the BBC doesn't have an agenda to shock, and didn't spin the figures for maximum effect, but whoever pitched the story did. The question is, as Chris Dillow and others have asked, Why Worry? I'd like to see the focus of economic policy shift away from the preservation of the domestic housing market back to things that matter to the entire population, not just those lucky enough to have acquired a phoney wealth by buying or selling their house at the right time: investment in businesses; education, training, working practices, employment, and productivity; the free movement of capital and labour; and international trade.

Economic freedom II / Chávez - 6 comments

My Monday post, on John Pilger and Hugo Chávez, has come in for a bit of criticism. Not so much for the post itself, which largely consisted of a large quotation from Hayek arguing that the existence of a democratic mandate does not in itself stop power being wielded arbitrarily by states, but for this extract from my follow-up comment:

In Venezuela, Cuba, and so many other countries, the top priority for their governments is (sic) to open their economies, cede political power, tackle corruption, and stop blaming the country's problems on internal and external enemies. [...]

Obviously I meant 'should be', rather than 'is', but I can't deny that's a fairly succinct, though hardly nuanced, expression of my view.

Tom from NewerLabour has left a couple of lengthy comments, and Citizen Andreas has also posted, so here's my response.

Firstly, when I refer to 'opening' one's economy - reducing state control of industry, dismantling tariffs, allowing the free movement of capital and labour, etc. - I don't mean to imply an 'off-the-shelf' solution with any guaranteed economic and political return, in any particular time frame, just that economic openness is correlated with greater individual rights and more economic wealth, less exploitation of the population by monopolists, and a reduced scope for political corruption. Note that this is not a specific point about capitalism, it's about the economic freedom of individuals from the state and from monopolies of labour or capital, and insofar as posited socialist or other future economic systems respect the individual, this analysis will apply just as much to them.

I can't make any similarly general point about the likelihood of an egalitarian distribution of income: only governments and powerful economic actors can claim to have the power to alter this - whether they really have the ability to deliver is another matter altogether, but consider this, as I quote for a second time from Hayek's The Road To Serfdom (Chapter 14), and try to imagine I'm not a starry-eyed 17-year-old Thatcherite who wears a suit to college [my emphasis]:

The refusal to yield to forces which we neither understand nor can recognise as the conscious decision of an intelligent being is the product of an incomplete and therefore erroneous rationalism. It is complete because it fails to comprehend that the co-ordination of the multifarious individual efforts in a complex society must take account of facts no individual can completely survey. And it fails to see that, unless this complex society is to be destroyed, the only alternative to submission to the impersonal and seemingly irrational forces of the market is submission to an equally uncontrollable and therefore arbitrary power of other men.

Tom continues:

There already exists a party which is meant to give us liberalism and nothing further (though I would argue that they are only liberal where it hurts poor communities and authoritarian in many other aspects. [B4L: presumably the Tories?] They may fail orthodox liberalism as Labour fails orthodox socialism). We need a party that offers more than liberalism: justice. That should be Labour.

Well, of course there has to be justice. Markets can't create justice: they have to work within the rules of justice that it is the state's responsibility to devise and enact. These can take an infinite number of forms. Only systems of justice that allow individual freedom, private property, and enforceable contracts are compatible with free markets, but this still leaves us a tremendous range: as law-makers we can try to reflect a society that enjoys risk and accepts wide variations in outcomes; one that is risk-averse and prefers strong and ample safety-nets; we could quite easily raise inheritance taxes to such a degree that inheritance was practically impossible, if society so desired. So equality of outcome can be tackled without substantially imposing on economic freedom. All of this, however, requires that the state sticks to the agreed laws and system of justice, and not penalise or promote people at its whim. This is the Rule of Law.

Too often, self-proclaimed socialist regimes have taken root within states that glorify nationalism and have contempt for individual rights, or have attempted to shift opinion in that direction. This means that, as far as justice is concerned, all bets are off. The erosion of individual rights that makes it progressively harder for people to organise outside the state represents a second reason why aspiring dictators cannot be allowed to continue far down the road to autocracy. It's all the more unfortunate when the government in question appears to have a genuine commitment to aiding a previously disadvantaged social group, as in Venezuela.

Returning to economic nationalism, Tom says:

What you seem to be saying is that it is impossible to tackle the priorities of the Venezuelan people [...] without allowing multinationals from other states to take control of certain industries.

No, not necessarily. It needn't make any substantial difference what country a particular company 'comes from', and while 'faceless multinationals' are a minority in the world economy, one compensation for homogeneity and hierarchical organisation is exposure to international labour standards.

The 'take control' reference is also crucial: whatever the economic system, my view is that the cases where society is not best served by monopolistic companies (whether in the public or private sector, foreign or domestic) being open to competition, belong in the textbooks. Free economies should not permit domination, let alone 'control' of industries, nor ought they to be as susceptible to this kind of abuse than those where state control provides companies with opportunities for corruption and collusion. Of course our favoured politicians are of unimpeachable morals, but our freedoms shouldn't depend upon the character of a few good men.

Tom also argues that:

nationalism is often progressive where the intentions of outside actors are regressive in character [...]

I would very much disagree with the 'often', and I find even qualified support for nationalism mystifying. I concede that it might bind a population together sufficiently to overthrow a tyranny, but unless that unifying force is swiftly replaced with more rational economics and politics, a generation of domineering politicians will take root, backed by the dead hand of the military, with the population stifled.

A final point on liberal institutions: the idea that Chávez (and so many before him) should have domestic restrictions tolerated on the grounds that their domestic achievements would otherwise be overturned by powerful domestic or foreign forces is, I'm sure, very persuasive for the left. Democracy's greatest weapon might not literally be 'people power', but Cuba demonstrates how those who claim to 'protecting the revolution' have created themselves a job for life. Chávez's best chance of protecting his social programmes (which I'm not going to analyse in detail) is to liberalise his economy and state, to ensure the state's monopoly of force, to break up power blocs, allow a free press and media, have a trusted legal system, and to avoid acting in such a way that prevents his government winning international friends from mainstream political parties.

Update (29/08): There are currently 6 comments stretching to approximately 3500 words, so clearly I'm not going to be able to respond "in full", but I will try to pick out a few topics and deal with those. If you want to comment yourself, please be concise and read what's been said earlier on!

Suppressing the BNP - 5 comments

This is almost too ridiculous for words: six companies will withdraw advertisements from Facebook on the off-chance that a non-BNP supporter will visit a BNP (Wikipedia) group page and decide that the same advertisements they see randomly appearing on every other page on the site imply, in this case, some kind of corporate endorsement, or acceptance, of BNP policies. If anyone owns shares in First Direct, Vodafone, Virgin Media, the AA, Halifax, or the Prudential, now might be the right time to sell, if those companies are so quick to make fruitless political gestures that allow additional exposure to their competitors, while doing nothing to thwart the BNP except offer them additional publicity and swelling their victim-complex. If the named companies decided they didn't want BNP supporters as customers, or were prepared to campaign against the party, that would be different altogether, but their corporate image is hardly worth us bothering about. More here, and here.

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The BNP might almost have been invented to distract good, principled, intelligent people from the international fight against bigotry, intolerance, and religious/ethnic/racial victimisation, towards a single struggle against a tiny party that can hardly be separated from the murky world of thugs and madmen (remember Derek Beackon?) that makes up the extremities of the political world. The tragedy is that, by ducking the substantive moral and policy issues, opponents' emphasis on (say) racism appears to shift from to being a moral abuse to, as this new Facebook group argues, a 'terms of service' violation. Forcing the hand of advertisers and open social networking sites, so that poor ignorant members of the public can be insulated from the BNP's extreme views, can't help opponents to mobilise the population against them.

I can't think of any cause that is so critical, or infectious, as to justify the population being kept in ignorance. An account of the atrocious record and (occasionally criminal) behaviour of BNP councillors in office would surely carry more weight. Furthermore, a grown-up analysis of their policies - a plausible-looking summary of which appear here - would allow us to go beyond the word 'fascist' to say that they are morally wrong, inegalitarian, and opportunistic; that they breach universal human rights; and that their mishmash of authoritarian economic policies - culled from both traditional left and traditional right - would make people poorer both here and abroad, just as they have failed under every other government that has ever tried them. Are we unsure that we can win these arguments among the electorate? Ministry of Truth takes some of them on here, but this is rarely done.

So, while I'm sympathetic to the old adage that the only good BNP activist is one holding a steak over his eye, we should allow parties we despise to organise on Facebook within its rules, just as Facebook allows us to organise within its rules, and concentrate on promoting our own, positive message, and criticising stupid and damaging views - with our sights on the electorate, not on ourselves.

The Benn decade - 6 comments

Surely one of the silliest articles ever posted at Comment Is Free, Neil Clark - or, most likely, a child making their first, tentative foray into political writing - fantasises about the possibility of a three-term Labour government headed by, of all people, Tony Benn.

Tom H says what needs to be said, but the piece is so inane I hope he didn't spend too long on the critique.

In a similar vein, here's an interesting site that tries to judge the Labour government's adherence - in 2007 - to the "statements and conference decisions of 1992-4". Interesting it may be, but if the plan is to show how Labour has "sold out" (how else do people's minds change?) since the last "democratic/legitimate" setting-out of aims, then it's a ridiculous one. We're not talking about fundamental moral principles, but about - often - specific economic policies. I know economic understanding isn't evenly distributed, but surely 15 years is a long time in that business?

The appropriate baseline for future policy is today, not 1997, and not 1992. We should be asking the peddlers of policies past to justify their contemporary relevance - which is not necessarily difficult - rather than resorting to absent-minded dreams of Utopia.

Volunteers, and Participation Inequality - 3 comments

I'm on the lookout for volunteer organisers from among Labour bloggers. The target is for, perhaps, a dozen of you to give up some of your free time on a regular basis to develop our network, and boost political blogging (contra this).

What's in it for you...

• Being an active part of an organisation.
• The chance to arrange meet-ups with other bloggers.
• Incentives to succeed: the more effective you are, the more interesting life will be: more social events, better links with the political community where you are, and so on.
• A small symbol of your status is available - from central funds (i.e. my pocket).

If you don't read Jakob Nielsen's Alertbox newsletter on Web usability, you should look in from time to time. This edition, from October 2006, concerns inequalities among online groups:

All large-scale, multi-user communities and online social networks that rely on users to contribute content or build services share one property: most users don't participate very much. Often, they simply lurk in the background.

In contrast, a tiny minority of users usually accounts for a disproportionately large amount of the content and other system activity. [...]

User participation often more or less follows a 90-9-1 rule: 90% of users are lurkers [...]; 9% of users contribute from time to time [...]; 1% of users participate a lot and account for most contributions:

Jakob speculates that this situation could be improved to 80-16-4. Perhaps - it would be great: one advantage of decentralising is that it increases the chances of someone finding that key and passing the knowledge back.

My expectations of volunteers...

• You must have a vision in mind of how blogging can help the Labour Party, help society, and make for a healthier political culture.
• You should invest some of your own time, or hand over to someone who will - it's the only way. However, you'll be completely free to say how much time, and when. You'll be your own boss, in other words.
  
• You should build links with Labour bloggers in your area and make the case for (ethical and thoughtful, ideally) political blogging. You should also encourage party members you know - plus potential members and other supporters, and especially councillors and other elected members - to give blogging a try.
• As social events will help here, you should arrange and promote these (perhaps quarterly), or else add a segment to existing party meetings, perhaps getting together before or after the main feature.
• Our network can do more when we have regular, and decentralised funding: so you should encourage donations.
• You should report on progress using the forum, as and when necessary.
  

These are all things I try to do, and perhaps should do more, but I cannot hope to adequately cover the entire UK. It won't work, and (arguably) it hasn't worked. Anyone who knows me well must realise that it's only a matter of time before I go under a bus, whether on Borough High Street, or Church Road, Hove. I don't want to sound egotistical, but who would take the lead then? The least I can do is decentralise to others, and help get them up and running. The alternative is that many of these fine ambitions will not be realised, and we'll be sitting around in two years wondering why not, spending our Friday afternoons checking Bloglines, or setting up Facebook groups and websites to try to bind together something long since dissolved.

In some ways this is a problem of economics that I'm hoping to solve in a non-financial way, by encouraging "public spiritedness", rather than individualism.

"Territories"...

I would like each organiser to cover a particular region; a county; or perhaps even a city, when Labour bloggers has a strong presence there (e.g. Manchester, Oxford, London, Brighton & Hove, perhaps), and make it their own. I don't think sharing an area would work. Alternatively, a volunteer could take on the role of building links with a Labour (or allied) party from another country (e.g. Australia, Ireland).

In summary, if you're interested in becoming a volunteer organiser, or helping out in other ways, simply get in touch, or post on the forum.

Update (05/04): Nobody at all interested??

Budget/Poverty thoughts - 5 comments

This is mainly a collection of Budget- and poverty-related thoughts, the former only about a week late, thanks to endless editing and the fall-out from my newly-reimposed discipline of 6.20 am wake-up calls. I'll also deal with a few points raised elsewhere, especially those I haven't seen answered satisfactorily.

Firstly, on the Budget, here's the Institute of Fiscal Studies's summary, via Tom Freeman, if you haven't already seen it:

• Sensible tax reforms with revenue recycled to minimise losers
• Higher-rate tax-payers unaffected, 65+s paying tax gain, hard to generalise about others
• Tax credit rises for low-income families generally exceed income tax losses
• Around a fifth lose, two-fifths gain, two-fifths largely unaffected
• As usual, low-income families with children gain, but still much to do to hit 2010 child poverty target
• Overall impression of Brown’s record unaffected
• Highly redistributive, especially to families with children and pensioners

Effectively replacing the 10% tax band with increased Working Tax Credits [WTCs] - that work rather like a negative income tax, and whose take-up is currently poor - still strikes me as odd. Neill Harvey-Smith at the rather fine Vote NHS blog argues that this is an unwelcome move away from individual self-reliance. In contrast to those welfare systems that operate a Citizen's Income (that is to say, none), dependency can only be prevented by carrots and sticks, within systems - such as our own - that are based upon reported or assessed need, and potential recipients who prefer to be self-reliant must miss out in many ways. To single out WTCs therefore seems to miss the bigger picture. I still can't say I entirely understand the idea behind the Chancellor's move; that being the case, does anyone have a possible explanation other than the cynical hope that take-up will be low and benefits unclaimed, that is ascribed to Mr. Brown by political opponents?

With all the arguments over benefits, lower tax bands, minimum wages, and withdrawal rates, let's not forget that being out of work - and being kept out of work, whether by macroeconomic policy, poor skills, a lack of mobility, high withdrawal rates, or wage floors - is the most damaging scenario the poor face, and we should not forget what we rightly argued in the 1980s and 1990s, that increased unemployment is not something we should lightly play off against, say, higher statutory minimum wages for easily-replaced workers.

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There's been a lot of recent attention given to the apparent increase in the number of children in poverty. What appeals most to me, politically, are significant increases in the quality of life and the number of opportunities opening up to the poorest and thereafter to others, working up through the wealth/opportunity/power scale. The "60% of median income" poverty line is a statistical measure, that guides policy but also distracts. It tells us nothing about opportunity, or power, or job security, let alone health or education, and it tells us things about higher earners, as any average must.

There must be statistics, but misunderstandings will arise when those who use the statistic argue with the majority, who determine poverty subjectively, using both senses intermittently, such as at this David Osler post. Using the 60% measure of poverty it is indeed almost impossible to escape it while on benefits. Probably only a recession, or a large increase in the basic rate of taxation can lower median income sufficiently to raise a single parent on benefits from being poor to 'not poor', and that without a penny of extra money being spent on them, but with prices continuing to rise. Undoubtedly a perverse way to escape poverty. And the more the effort to alleviate poverty is focussed on the most disadvantaged groups, the smaller the effect on the total number of poor.

If the term 'poverty' is to remain a condition that encourages Labour supporters to advocate the most urgent preventative action, it must be an accurate guide to the disadvantage that traps and restricts people and causes suffering, and to any injustices that bring this about - one which doesn't simultaneously try to measure income inequality. A measure like the Human Poverty Index, while including a relative income element, also factors in long-term unemployment, literacy levels, and life expectancy. A richer measure like this would be more likely to identify disadvantage, and potentially a figure could be calculated for each socio-economic group or income quintile. Of course there can be no substitute for looking for the Budget's effects on individuals themselves, particularly those at the bottom, to see how the people are affected materially, what problems the measures solve, what problems they create or leave standing, and how they affects the people's prospects and ambitions for the future. It might also encourage politicos to pay more attention to the effectiveness of public spending, rather than its scale.

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I notice some bloggers have used the cut in the main corporation tax rate to introduce "city bonuses" to the conversation. I'm not going to whitewash that issue, but I feel I ought - once again - to interject to tackle a bad and misleading argument, before the two concepts become one in people's minds. So here's an alternative hypothesis: that companies employ workers, and might - as a result of the cut - be able to employ more in the future, for more hours, and for more money, just as companies are able to do in healthy economic conditions, and not in recessions.

Thinking of benefits as only affecting the poor, income tax the middle class, and corporation tax the rich, when they are - as are we all - interdependent, has (had) an unfortunate effect on left-wing attitudes to government spending in the UK. It might well be responsible for the popular idea on our side that - whatever you or I think about current rates - income taxes cannot be acknowledged as being close to "too high" while poverty and social problems remain, even though those same taxes affect most of us. I fear that this tax anxiety is not simply a product of the "Blairite" imagination, or (insert something about Murdoch), the real challenge being that both poverty and politically unsustainable taxes may coexist, and the issues of rising expectations and the effectiveness of public spending must be looked into, by those who are serious about tackling poverty but know they cannot do so from the Opposition benches.

Minimum wage rises - 1 comment

Chris Dillow attacks the futility of today's announced increases statutory minimum wage within the current benefit framework (my bold):

[...] Of this £6.80 rise, they'll [those affected] pay £2.24 in income tax and national insurance. And they'll lose £2.52 in working tax credit and £1.73 in housing benefit and council tax benefit. That's a deduction rate of 95.5%. Details come from table 1.6d of this massive pdf.
For sure, I'm taking an extreme case - though isn't it scandalous that such ones exist at all? But a single childless person faces a deduction rate of 70%, and some lone parents one of 89.5%.
So, the benefits to many low-paid are tiny - smaller than the gains to the Treasury in many cases. And for this, the low-paid face an increased risk of losing their jobs or getting their hours cut.

If a government is going to enact laws that affect the employability of approximately 1.3 million workers, the least it can offer in exchange for making them less employable (all other things remaining equal) is a significant rise for those who don't have their jobs or hours cut. It seems to me that, while the poverty trap remains, minimum wage rises like this give us the worst of both worlds. I had intended a longer post on this topic, but suffice to say that this obsession with wages rather than incomes is costing the poor more than the low-paid.

Sorry for "giving succour to the enemy", but that's the price we have to pay for continuing with - and not scrutinising - ropey policies, when we have ambitions to make substantial improvements to people's lives. Perhaps also for dismissing welfare reform proposals out-of-hand, in order to promote our preferred alternative leadership candidate and preserve the tax and benefit model to which we're attached.

More on bonuses - 5 comments

I had planned to comment on Peter Hain's plea (actually, it was a veiled demand) a fortnight ago that City firms donate "two-thirds of their bonus pots to charity rather than giving employees six-figure bonuses", but I didn't take it seriously. However, city bonuses seem to have become a cause célèbre for politicians who seem to have lost the will to talk about genuinely egalitarian politics.

Chris Dillow cites Ian Gibson MP's recent comments [via]:

I don't think people should have bonuses at all. They are unacceptable. I think it’s got worse. If the Labour Party recognised this problem then they would have more support today.

Well, why might bonuses be offered? Sure, there are fiddles, but the most plausible reason is to make it worth workers while to work harder (without compulsion), to improve the running of their organisation, take responsibility for its success, and to come up with ideas for making it more efficient. Without making it too obvious which one is which, I will have worked in:

1. An organisation so large that my personal contribution couldn't possibly affect my bonus.
2. A tiny organisation, unable to offer any incentive at all for a greater contribution.
3. A small organisation that was able to offer large bonuses in successful years.

Clearly the incentives are non-existent in (1) and (2), but where they do apply - in (3) - do they promote greed? Well, not necessarily. I don't see why any of the above would not apply just as strongly in a future socialist economy/society, characterised by cooperatives, a one-off equalisation of wealth, and controls on inheritance. People need reasons to do anything, and to make it impossible for them to benefit from their actions is a nail in the coffin of the legitimate economy, whatever economic system is in place. In the case of City bonuses, The Treasury/charities might be lucky enough to earn a windfall in Year 1, but the fund will swiftly dry up, reappearing elsewhere in a different form.

The real danger comes about when these "bonuses" are entrenched, allowing the recipient to gain economic or political power in this generation, or giving their offspring an undeserved head-start in the next - but these abuses can be tackled in other ways (inheritance tax, for one), as they very well should be.

Tom S lists a number of practical objections to bonuses in a comment left at Chris' blog above, and to deal with one of those here: of course we hope that human beings would work hard and innovate for the sheer love of the State it - their colleagues, their profession, the public they serve, their community, and so on. Perhaps this is an impulse it's harder to imagine existing if you believe that work is "alienating" (in the Marxist sense). Surely, though, our society should benefit as a result of human benevolence, rather than being dependent upon it.

So the challenge as I see it is to find some way of encouraging (or perhaps, rediscovering) benevolent and charitable behaviour - a feeling in people that they ought to contribute to society because it makes for a more contended place for all, rather than leaving this decision entirely to governments, and concealing your wealth whenever you have enough of it. I don't accept this is just a "City" problem: the lack of benevolent behaviour ("greed", if you like) is not the preserve of the super-rich - it increases with income, from a low base, and particularly affects the non-religious - even though the sums involved here are huge. Moreover, for too many on our side, "the City" is a place of fear, mystery, and conspiracy, and it's too tempting to single it out rather than tackle a society-wide problem.

Yes to road pricing - 6 comments

Vote now - we need to catch up the other lot. [Via].

Here's my argument, and there are more here.

Economic nationalism v. self-determination - 1 comment

I was going to post about this anyway, but Tom Miller's comment on my Iraqi Oil post gave the plan some added impetus.

The issue there was whether a population's chances of economic self-determination (the ability to act freely) are improved by an industry - or the economy in general - being owned/managed by their government, rather than by foreign companies (I should add that the most obvious alternative - ownership by domestic companies - wasn't mentioned explicitly). There is a sense in which that desire for self-determination could have been intended to apply to the country as a whole, but that idea really takes us back to a model of countries on a war footing, desperate to secure "strategic" resources. That's something for aspiring despots like Chávez to worry about, and isn't helpful for a discussion that should focus on open economies, and differences in economic power within those economies.

I don't think we can, or should generalise about the economic freedom/autonomy of individuals solely on the basis of the ownership of the largest economic assets. Incompetent or corrupt governments can - and do, throughout the developing world - subjugate their own populations, and deprive them of the means (legal, material, social, etc.) to enjoy economic freedom, just as others can - and do - expose them to the predation of private companies. That those companies might be owned, or based abroad, doesn't in itself alter the motivation to take advantage of the economically powerless.

The idea that people cannot enjoy economic autonomy - either individually or collectively - without state ownership, "strategic resources", "national champions", or widespread restrictions on economic activity, is both prevalent and destructive, and reduces our ability to explain and to tackle our own economic inequalities, let alone those in the developing world.

Or, for rather more lucid and persuasive coverage, try this - Cooperative Islands in a Capitalist Sea? :

If everyone capable of benefiting from the alternative economy participates in it, and it makes full and efficient use of the resources already available to them, eventually we'll have a society where most of what the average person consumes is produced in a network of self-employed or worker-owned production, and the owning classes are left with large tracts of land and understaffed factories that are almost useless to them because it's so hard to hire labor except at an unprofitable price. At that point, the correlation of forces will have shifted until the capitalists and landlords are islands in a mutualist sea--and their land and factories will be the last thing to fall, just like the U.S Embassy in Saigon.

And much more. I don't agree with all of it, but it offers a model of economic empowerment that no amount of grant or subsidy can conjure up.

Update (21/01): fixed typo

Iraqi Oil - 1 comment

Few arguments are more likely to kill an intelligent conversation on world politics than the one that sets out that the toppling of Saddam Hussein was "all about oil", especially as to retort with a political (whether well-, or poorly-intentioned; well-, or poorly thought-out) or moral argument is to be derided as hopelessly naive. Also popular is what I would call the "blood and oil" argument, namely that a country's natural resources are for the sole "use" of that country's inhabitants, and that the involvement of foreigners (especially Westerners) can be construed as "raping" a country's land/assets, etc. Of course there's an environmental case for leaving natural resources where they are, but generally when we have an asset we try to use it, extracting from it the greatest possible economic value we can. Given that we can't drink oil, or build houses out of it, we can either refine it ourselves, or sell it to someone who can do a better job, if they'll make us more money, cause less waste or damage in doing so, invest in local facilities, recruit and train local workers, and so on.

Economic nationalism, however, is one of the basic economic errors that causes governments to allocated assets to individuals, or to companies, who share the same nationality, when there are foreigners willing and able to make better or more profitable use out of them. The dangers of nationalism are even more expensive in developing countries, where scrutiny is weak, when a government takes control over the use of the resources, providing opportunities for it to use the revenue corruptly, to siphon off revenue, manipulate employment, curtail investment, or to top-up falling revenue elsewhere.

Economists can suggest and exhort policies, however, there's a time and a place to raise objections like these - and higher priorities. Reflecting this, a new petition has been set up at the Downing Street site, headlined:

We the undersigned petition the Prime Minister to not allow the privatisation of Iraqi oil, against the wishes of the Iraqi people.

The key point is "the wishes of the Iraqi people", which is why you should consider signing this one. Here's a back-of-an-envelope order of policy-making precedence:

1. The policy must be: Democratically approved
2. The policy must be: Transparent and accountable
3. The policy must be: Economically aware/well-informed
4. The policy must be: Efficient
5. The policy must: Reflect public biases
6. The policy must: Reflect public biases abroad
   

I don't know that the Iraqi people have actually voted on who should process their oil, but once the arguments have been put forward, they must approve any policy. Besides, the petition states that Tony Blair gave assurances about the dispersal of oil revenues back in 2003. The next priority is that revenue doesn't subsequently disappear into the government machine, to be used corruptly - the effects of that would be worse than any economic policy. If we're OK with (1) and (2), the next priority should be that the government at least researches the opportunities available to it, and then that it attempts to maximise revenue and minimise waste, and it's at this stage that any privatisation decision can be made. Far less important a consideration must be the nationality of oil firms, and even further down the scale is the question of whether the decision appears to armchair critics to be a defeat for America, a victory for imperialism, etc.

So if, as the petition suggests, Western corporations really are pressurising the Iraqi government into making a decision other than what is in the best interests of Iraq, that's totally unacceptable. It's another good reason to sign the petition, and support democratic forces in Iraq (which will be a first time for quite a few people), which could really do with not losing legitimacy in the face of what looks like a stitch-up. Nonetheless it would be a shame for Iraq if future economic decisions had to be made on the basis of what was necessary for national cohesion, and what minimises the chances of a backlash against foreigners. It may be essential in the medium term, but closing the economy can only make it poorer it in the long term, and this isn't a happy situation for anyone.

Road pricing and stealth taxes - 6 comments

Could have been a contender has alerted me to the fact that the road pricing (or "travel tax" - whatever) e-petition at the Downing Street site has attracted a bit of interest, with the number of signers now over 300,000 (something like 50,000 have been added in the past day, if you think that's credible). The petition's statement is as follows:

The idea of tracking every vehicle at all times is sinister and wrong. Road pricing is already here with the high level of taxation on fuel. The more you travel - the more tax you pay.

It will be an unfair tax on those who live apart from families and poorer people who will not be able to afford the high monthly costs.

Please Mr Blair - forget about road pricing and concentrate on improving our roads to reduce congestion.

Let me summarise why the petition is flawed, and the 300,000 people wrong to waste precious Government bandwidth, starting with the principle of road pricing.

That principle must be to solve the economic problem wherein the financial costs that drivers pay are not the same as the cost of the entire driving experience - from vehicle ownership, to parking, maintenance, fuel, the taking-up of road space, the damage caused by vehicles and drivers, the clearing-up of dumped vehicles, and the emissions produced - that impacts on society, and which is not immediately quantifiable in terms of money. Because the societal costs are almost certainly far higher than the money costs, and because traffic jams and additional tonnes of pollutant cost drivers no money, not only is there no incentive for individuals to reduce their emissions or reduce the road congestion, the lack of pricing information makes it impossible for drivers to know exactly what price they are paying as a result, and even for voters to know the social costs or benefits of any policies they might advocate for reducing car usage, building new roads, etc.

So the primary purpose of road pricing must be to collect the information, and devise the formula, by which we can determine the cost to society of an individual's driving experience. This will be more complex than calculating the cost of someone's use of public transport, though this must also be done, given that a Government keen to reduce emissions must know that increased public transport use will not actually harm society (it's hard to believe this could be so, but it's best not to have to guess). Once we can determine these costs the Government/local authorities can charge drivers an amount of money that's as close as possible to the 'hidden' social cost that they've been imposing on society. Once that's done, the economic problem has been solved, and drivers will able to make an informed decision about their vehicle use, it being a pretty good bet - and borne out by the evidence so far - that the increased cost will encourage them to switch to public transport, reducing congestion and emissions.

At no point have I had to say anything about the total tax take. That could either rise or fall, depending upon how individuals' behaviour changes. If Governments decide to increase or decrease tax revenue, by making driving cheaper or dearer than it should be (the total cost to society), perhaps because they want to dramatically reduce emissions, then that's nothing whatsoever to do with the principle of road pricing. Nonetheless this diversionary argument will be used time and time again to distract from - as well as politicise - what should be a pretty mundane and uncontroversial (hate to break it to you...) debate about road pricing.

Personally, I'm fine with the idea that road pricing could be 'rolled-out' and run in a revenue-neutral way, with the cost of vehicle licensing reduced to better represent the cost to society of that vehicle simply existing and being parked, with the revenue from emission charges increased to match.

So what does the petition say about the principle?

The idea of tracking every vehicle at all times is sinister and wrong.

Well it's patently not wrong - pricing, whether it's applied nationally using tracking, or implemented in (hopefully more and more) cities, solves a problem that causes jams, accidents, pollution, has serious health implications, and damages our economy. There's nothing inherently sinister about tracking by GPRS, if this kind of tracking is even required, and if you use your free choice to start your engine. It could be sinister if run by a sinister Government (and who says it has to be?), in which case you may have more worries than this one.

It continues:

Road pricing is already here with the high level of taxation on fuel. The more you travel - the more tax you pay.

I've already shown this is wrong. It only covers one cost of driving - and besides, if drivers were charged the full social cost, the need for the Government to charge fuel duty would be lessened - and ignores the fact that jams can be extremely costly even though the distance travelled can be very short. Needless to say it doesn't answer the question of why non-drivers must pay the price of polluted air, of having our cities clogged with traffic, and of being run over by drivers, whether drunk, drugged, speeding, or just unlucky (to say nothing of the victim).

It will be an unfair tax on those who live apart from families and poorer people who will not be able to afford the high monthly costs.

I must say that I did make allowance for this in my earlier piece on carbon trading, where I argued that poor people with polluting vehicles would be penalised by road pricing, on the basis of their relative inability to sell/replace the vehicle, and suggested that the Government compensate the poor prior to launching such a scheme. On the other hand, I happened to reach the chapter in the Undercover Economist that has a nice graph (admittedly a few years old) that clearly shows that in the UK - in clear contrast to the USA - the proportion of income spent on fuel increases with income, rather than decreases, therefore road pricing (the fuel component, at the very least) would in itself redistribute money towards the poor, making a compensation scheme unnecessary.

Please Mr Blair - forget about road pricing and concentrate on improving our roads to reduce congestion.

I think the credibility of the petitioners is pretty threadbare by now, but we can add a veiled threat, and a policy suggestion which - when implemented on its own - has been thoroughly discredited. There's absolutely no reason why road improvement could not take place alongside, and without conflicting with road pricing. Therefore to suggest the two policies are in opposition is illogical and diversionary, along the lines of "How can you even think of doing when there's much poverty in the world?".

I'm not hearing much in the way of reasoned argument from the opponents of road pricing - though I'm all ears (you can also discuss it here, or here) - which inclines me to believe this petition is being promoted by pricing opponents in order to 'scare off' what they believe to be a timorous Government, and to attract a bit of tabloid publicity. There are other criticisms here, some of which are obviously silly, but we could discuss those if there's sufficient interest.

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I've actually heard the term "stealth tax" applied to road pricing, and perhaps you have too if you read the Evening Standard or suchlike, but this couldn't be more wrong. Road pricing adds information that couldn't be quantified before, and makes the component parts of the social cost of driving clear. The only "stealth tax" here is the one that drivers inflict upon society every time they switch on their engine.