Stumbling and Mumbling

(When) do co-ops work?

Paulie asks a good question: do co-ops work?
The answer's yes - in some cases.
The great merit of worker co-ops is that they can solve the problem of how to motivate workers. In businesses where workers can't be monitored closely, giving them a share of profits can inspire them to work hard, and to encourage their colleagues to do so.
This is why law and accountancy firms and vets and medical practices are typically partnerships. The success of these ventures depends upon employees working well. That effort is best inspired by giving them control of the firm.
Another benefit of co-ops - or at least of profit-sharing - is that they can promote economic growth without inflation. If a conventional firm is to hire another worker, it sometimes has to raises wages for all workers, to attract the additional employee. That naturally causes a trade-off between growth and inflation. However, if the additional worker is paid a share of the profits, this trade-off is softened. This was the theme of Martin Weitzman's idea of the "share economy", which was briefly influential in the 1980s.
Maybe it's no accident that the rise of profit-sharing in the UK since then has coincided with a fall in the NAIRU.
There are (at least) three drawbacks to co-ops.
1. They don't work in physical capital-intensive firms where worker effort can be monitored. Here, the key to success is getting machinery to run well, rather than getting workers to do well. Car plants, for example, are better run by capitalists, not workers.
2. Co-ops have less incentive to expand, because the profits from expansion are spread more thinly. It's probably no coincidence that the Co-op (a consumer, not worker co-op) has lost market share.
In worker co-ops this problem can be mitigated by hiring workers on lower terms than full partnerships. But this moves them away from the co-operative ideal.
3. Co-ops' often lack access to capital with which to expand, even if they want to. This is because they work best in human capital intensive businesses. But such businesses find it hard to post collateral and so get bank loans.
For this reason, co-ops might have to sell equity to outside owners - thus diluting the co-operative principle - if they want to expand.
Goldman Sachs provides a nice example of this. When it was a human capital-intensive business selling advice it was wholly owned by its partners. But when it wanted to expand its proprietary trading activity - which required capital - it had to sell equity.
Mention of Goldmans' raises a paradox here. We think of co-ops as a left-wing ideal. But in fact they have for years been both employers and suppliers to the rich.
Many wealthy Londoners are partners in law firms, save with the Nationwide or through hedge funds, and shop at Waitrose and Peter Jones - and then tell us how wonderful capitalism is.
More: here are two rigorous papers on the economics of co-ops.

The state as exploiter

How should the "left" react to Brown's call for a freeze on real wages in the public sector?
The knee-jerk response will be to support public sector workers.
But it's not so simple. In a sense, state workers exploit private sector workers. So cutting their pay, relative to the private sector, would reduce the rate of exploitation - which the old left should welcome.
Put it this way. Marxists allege that workers are exploited by capitalists. Workers must, in effect, work part of the day to make an income for capitalists rather than for themselves. But private sector workers must also work longer than necessary, to pay taxes to support public sector workers.
There's therefore a close anology between taxes and capitalist exploitation.
So, how can the old left claim that there's a difference? Two answers won't do:
1. "Workers get something from the state - healthcare, education - that they don't get from profits."
This is doubtful. Profits are reinvested, which creates more and better jobs and new products. So workers do benefit.
The argument between the old left and anti-statists then become merely an issue in cost-benefit analysis.
2. "Capitalist exploitation is more intrusive. Workers must turn up for dull, alienating work. But they only have to (at worst) write a cheque to the state."
This won't do. If workers don't like a particular employer, they can change jobs. It's much harder to escape the state.
There are, I think, two paths for the old left here. If you find exploitation offensive, you should oppose the big state (at least) as much as you oppose capitalism.
Or you could stop worrying about exploitation as John Roemer argued in this great book. However, whilst this move is necessary to support a big state, it is not sufficient.

Equality and liberty

Danny Kruger makes a claim of jaw-dropping cretinism:

Equality was discredited with the fall of communism.

This is moronic on at least two levels. First, the USSR wasn't particularly egalitarian. Not only was there no equality of political freedom, but income inequality was probably comparable to the west's in the 1970s. Second, even if the USSR had been egalitarian, it's collapse was a rejection of several hypotheses (most obviously "centralism works") not a single one; has Kruger never heard of the Duhem-Quine problem?
No sensible egalitarian was troubled by the fall of the USSR.
So, why does a man as smart as Kruger say something so stupid? It's because he begins from a false premise - that the equality-liberty dichotomy is the the same as the state-individual or left-right splits:

In British politics, imagine this division as a single axis, running between two points. On the left stands equality, and on the right stands liberty. These two principles are the signatories to the social contract that has underpinned our democracy since 1688. They are simple principles to grasp, for each is the function of a single, identifiable agent: equality is the function of the state (the representative of all), and liberty is the function of the individual (one)...
Over the last century or so, the state has acquired further responsibilities beyond its role as guarantor of the rule of law, from the provision of public services to the more or less direct management of the economy. These new responsibilities have pitted equality against liberty in a battle that echoed through the 20th century, and still resounds today.

This ignores an important political position - that of we left-libertarians (as described here and here and critiqued here), who claim that liberty and equality are compatible to a greater extent than generally supposed.
To statists, we say: you can increase income equality by shrinking the state. Big government is an obstacle to equality. Cutting spending on (among other things) corporate welfare could pay for tax cuts or benefit rises for the poor.   
To right libertarians, we say: if your opposition to state intervention is to be any more than hot air, you've got to meet the calls for income equality. Show, for example, that a citizens' basic income is superior to minimum wages. If you can take equality off the agenda - by addressing it through a simple basic income and tax system - you'll remove the (alleged) justification of many state interventions, that they are to "help the poor."
This position has been ignored - I think for discreditable reasons - by our ruling class. But this is no reason for intelligent people like Kruger to pretend it doesn't exist.
More: Tom Freeman has a different reply to Kruger.

Racism, rationality and property rights

Anthony raises a question: is it racist to say Africans have a lack of respect for property rights?
Here's a possible answer - not only is it not racist to say so, it's traditionally been rational for many Africans not to have private property rights.
Put it this way. Africa has a high land-labour ratio. Land has therefore been very cheap. The gains to any individual to appropriate it for himself  have therefore been small relative to the costs of fencing it and policing it. And if you're herding animals, it might just be more efficient to let them roam wherever, rather than keep them on a privately-appropriated plot.
Indeed, where land is abundant, an efficient solution to the tragedy of the commons might not be private ownership or stinting, but just moving on, as nomadic tribes do.
In this book, Douglass C. North writes:

Because land commands little value in sub-Saharan Africa, private property rights in land have not become well established and therefore social stratification in rural communities based on land ownership has not evolved as it has in population-abundant land-scarce Asia (p75-76).

This illuminating short paper (word doc) says:

For much of history – and for much of the world today – individual ownership is not the only type of property right one encounters.  Often groups of individuals – a village, an extended family, a serf and a lord – may share rights to use a piece of property, as with common grazing land.  Such group rights tend to prevail in a variety of situations: where agriculture makes extensive use of land, as with herding; where the cost of fencing or of registering title to land is high; where low land values reduce the benefits from establishing individual rights; and where groups maintain rights to property.  They are particularly common in current day Africa.

Perhaps, therefore, the norm of respecting private property is weak in Africa because, for many Africans, private property has been inefficient.
This gives us westerners a dilemma. If we say "Africans are just like us - they respond rationally to incentives" we are accused of intellectual imperialism, of imputing economic rationality to everyone. But if we say "some cultures are different - some don't respect private property" we are accused of racism.

Little thanks to you, Gordon

Gordon Brown says:

Even during these turbulent months the British economy has been showing a capacity to withstand its share of these global shocks.
In every other decade, an oil shock by itself would have threatened a return of the traditional British “stop-go”. But once again our economy is demonstrating the resilience that has given us the longest period of unbroken growth and stability in our history.

If Brown wants to take credit for this, he's wrong - it's got little to do with him.
For one thing, the resilience of output to the oil shock has, of course, been a worldwide fact, not a UK one. Indeed, the sector of the UK economy most exposed to oil prices - manufacturing - has actually underperformed. Since December 2003 the oil price has risen 132%. During this time euro zone manufacturing output has risen 6%, US output 12.8% and UK output just 0.6%. 
What's more, there are (at least) four  reasons why output has been so resilient to this oil shock, and only one has anything to do with Brown. They are:
1. This oil shock is the counterpart of a positive shock. A major reason for high oil prices now is that demand for oil from China and India has been so strong. In this sense, high oil prices are the counterpart of a positive supply shock - an increased supply of cheap labour and goods. This oil shock is therefore very different from those of 1973-74 or 1979-80 which were more pure adverse supply shocks.
2. Oil is less important. During the last 20 years, UK oil demand has risen just 12% - from 1.65mbd in Q1 1986 to 1.85mbd in Q1. In this time real GDP has grown 66%.
3. Credit is easier. In the 1970s, anything that reduced consumers' disposable income, like a rise in energy bills, cut their spending on discretionary items. This was because many were unable to borrow. Today, freer credit means people can respond to higher oil prices by borrowing money to maintain spending.
4. Central bank credibility. The oil shocks of 1973-94 and 1979-80 led to a battle of the mark-ups as workers, fearing higher inflation, pressed for higher wages which bosses resisted. Today,  the threat of accelerating inflation is less, so there's less need for wage militancy. Thanks to point 1, among other reasons, there's also potential for it too.
Now, I reckon Brown can only claim a little credit for point 4. I say a little, because the start of inflation targeting in 1992 helped reduce inflation expectations, and because lower inflation expectations (compared to the 70s) are due to global forces as well as to the Bank of England's credibility.
This means the UK's resilience to the oil shock is little thanks to him.

Happiness and control

Paul Moloney is good on the reactionary political agenda underpinning Richard Layard's Happiness:

The preoccupation with "happiness" may be convenient for a government keen to appear caring while seeking to avoid social expenditure. In this context, the commandment to "be happy" amounts to a form of insidious social control, in which we are encouraged to look inwards (and to blame ourselves) for the causes of our troubles.
Far from being an undesirable trait, the ability to feel and give voice to psychic pain may turn out to be an essential asset: one of the few clear signals that all is not well with our world. We need to develop a greater ability to help people articulate their distress and make this the first step to making their world a more tolerable place. This is a political task: the superficial nostrums of the kind favoured by Layard and New Labour can only be a distraction.

One aspect of this political task - which Layard ignores - is the abolition of workplace hierarchies. Bruno Frey has shown that the self-employed are significantly happier than workers, because they feel moe in control of their fate.
This is consistent with Mihaly Csikszentmihalyi's "flow" theory of happiness. The activities that make us happiest, he says, are those where we can identify with our task - which the self-employed can do better than alientated workers - get unambiguous and immediate feedback, and stop worrying about what others think. Activities like playing sport or a musical instrument are great for happiness.
Such "flow" came, or comes, from traditional craft work. But it's disappeared from the deskilled workplace.

Two worlds of tacit knowledge

I've just bought my stepsister a birthday card. I write it, and then realize - I haven't the foggiest idea of her address. But I know where she lives. I've been there dozens of times, and could easily drive there without a map.
My knowledge of where she lives is tacit. I know it myself, but I can't communicate this knowledge to the postman.
The thing is, most of what I do relies upon tacit knowledge - the phrase comes from Michael Polanyi. Mundane things like tying my shoelaces, or important ones like playing the guitar or earning a living, are tasks I couldn't meaningfully instruct someone else to do.
And here's the dichotomy.
On the one hand, our everyday lives depend upon knowledge that incommunicable. We know more than we can tell.
However, the ideology that rules us - managerialism - supposes that knowledge can be easily transmitted.
Every time your boss calls a meeting, or a politician calls for a "debate", they're assuming we can convey what we know to others. But it ain't necessarily so.
Worse still, this unthinking faith in the communicability of knoweldge has real costs:
1. Next time you're in a meeting, just calculate the cost of it. If 10 people earning £30,000 a year meet for one hour, the cost will be over £300. How many such meetings generate £300 of benefits?
2. It can squeeze out entrepreneurship. A good businessman often just has a gut feel about what'll sell. If he tries to articulate this, or to justify it by reference to "market research", he'll be unable to do so.
3. It can displace genuine craft skill. In elevating communicable knowledge, the managerialist devalues non-communicable skills. This can be especially nasty around the times of corporate "restructurings" where people have to justify what they do. It's not the necessary jobs that get saved, but the articulable ones.

Reading Marx (and Smith)

Brad De Long makes a couple of good points about reading Marx. But let's be clear - they do not invalidate Marxism.
Point 1 - it's just silly to read Marx "line by line, paragraph by paragraph (at least in the early chapters), discussing and arguing over every page."
True. To get the most out of Capital vol I - for Christ's sake don't call it Das Kapital, unless you're in the habit of calling all foreign language books by their original title - you should read it from the middle.
Start with chapters 10-15. Then read part 8. Only then, start at the beginning, if you must. You'll learn the following, among other things:
1. Marx was a great empiricist; the chapters are crammed with facts about the 19th C economy and living conditions. The idea that he's an idle Hegelian arm-waving theorist is plain wrong.
2. Marx was a humanitarian. His hostility to capitalism (which was of course tempered by an admiration of its impact on productivity) was based upon outrage at the barbaric impact it had upon working people.
3. Marx recognized, following Smith, that capitalism's high productivity was based upon co-operation. The question he asked was: how could bosses, rather than workers, seize the fruits of this co-operation? His use of the labour theory of value was just one attempt to answer this question.
4. Capitalism did not emerge from the voluntary transactions of free people. It was founded upon state-sanctioned theft and oppression.
Point 2 - "If you try to ground an analysis of capitalism-in-particular on a feature (the distinction between objects' direct usefulness and their role in social processes of reciprocity, redistribution, or market exchange) that capitalism shares with every other human social system--well, you won't get anywhere."
This too is true. But fretting about the distinction between use-value and exchange value did not start with Marx. Take this:

The word value, it is to be observed, has two different meanings, and sometimes  expresses the utility of some particular object, and sometimes the power of  purchasing other goods which the possession of that object conveys. The one may be called "value in use"; the other, "value in exchange." The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use.

It's Adam Smith (book 1 ch 4 of Wealth of Nations).
And this raises a point that really irritates me. Why is it that so many people think Marx was an idiot for subscribing to the labour theory of value, whilst Smith was a genius even though he subscribed to an even naiver version of that theory?
But then I know the answer, don't I? Smith's in the right tribe, and Marx is in the wrong one. The fact that both men had great insights, and flaws, is irrelevant. Because what they actually wrote isn't the point, is it?

Politicizing crime

I've been trying to work out what it is that I dislike most about Ruth Kelly's speech on "multicultualism."  I've narrowed it down to seven things.
1. Imprecision. What precisely does she mean by integration, cohesion, and multiculturalism? Put it this way. There have always been many Englands; this was a standard trope of Orwell and Priestley. Even white Britain has been multicultural. Just look at Old Firm Derbies, or the north-south divide, or rural-urban divisions. Why then, is integration and multiculturalism a peculiarly political problem now?
2. Tired managerialism. Take this:

The context of today's society arguably poses some of the most complex questions we have ever faced as a nation. Patterns of immigration to Britain are becoming more complex. Our new residents are not the Windrush generation. They are more diverse, coming from countries ranging from Afghanistan to Zimbabwe, from South Africa to Somalia.

This is just boilerplate managerialism. We face unprecedented challenges and complexity. Earlier generations therefore have nothing to teach us. Yada yada.
3. The absence of historical perspective. But they do. Back in the early 1980s, the sons of the Windrush generation were unintegrated and alienated from white society; they were out of work and harrassed by the police. Have we nothing to learn from the issues raised by the Scarman report?
This sums up Kelly's ignorance:

There are white Britons who do not feel comfortable with change. They see the shops and restaurants in their town centres changing. They see their neighbourhoods becoming more diverse....The issues become a catalyst for a debate about who we are and what we are as a country. About what it means to live in a town where the faces you see on the way to the supermarket have changed and may be constantly changing.

Sorry, what year is it? Surely, today, no-one feels uncomfortable about seeing black and Asian faces (which is what she means.) Ms Kelly seems trapped in a Love Thy Neighbour timewarp where Jack Smethurst - the staunch socialist and unionist, remember - raged about nig-nogs and darkies.
4. The unbounded faith in government.

It is clear that we need a controlled, well managed system of immigration that has clear rules and integrity.

What she fails to say is that the Home Office, by Reid's own admission, just doesn't have the ability to manage immigration.
5. The absence of economics. You'd never guess Ms Kelly was an economist. There's no hint at the basic fact of economics - that if you want to change people's behaviour, you've got to change the costs and benefits they face. Even more surprisingly, Ms Kelly never raises the question of urban regeneration. 
6. The politicization of character. Why is it a political problem if people want to live near others of similar ethnic background? We've had Chinatowns in major cities for decades. And just look at Belgrave Road in Leicester, or Stamford Hill in London. What's the problem?
7. The politicization of crime. The questions I've asked all have a common answer, of course. It's the elephant in the room that Ms Kelly contrives to avoid.
Let's be blunt. The subtext of her speech comes straight from the Daily Express: "'aaargh. Darkies want to blow us up."
Even if we grant that this is the case, it doesn't follow that there's a political problem requiring commissions, strategies and "debate." There's just a criminal problem requiring good policing. If we pretend terrorism is a political problem, then the terrorists have won.

Book meme

I'm in demand. Not, strangely, because Kathy, Gillian, Shania and Sarah have responded as I'd hoped to my picture, but because Marcus and Shuggy have tagged me. So here goes.
1. Name one book that changed your life
Countless have influenced my opinions - most strongly those of MacIntyre, Mill, Elster and Hayek. But for materially changing my life, it's George Sabine's History of Political Theory. In showing me how fascinating political thinking could be - an impression no-one would ever get from listening to politicians - it inspired me to do PPE at Oxford.
2. One book you've read more than once.
Many books of non-fiction. Among fiction, I've read most of Dostoyevsky twice (in translation).
3. One book you'd want on a desert island
How to build a boat and navigate by the stars. Failing, that, the Encyclopedia Britannica.
4. One book that made you laugh.
The Code of the Woosters.
5. One book that made you cry.
The ending of A Hundred Years of Solitude gets me:

...everything written on them was unrepeatable since time immemorial and forever more, because races condemned to one hundred years of solitude did not have a second opportunity on earth.

6. One book you wish you'd written.
John Roemer's Theories of Distributive Justice. I wish I was a fraction that clever.
7. One book you wish had never been written.
I can't agree with Marcus's choice of Mein Kampf. Had it not been for Nazism, I wouldn't be here - because if my grandad hadn't joined the RAF, he'd never have met my nan. So I owe my existence to Mein Kampf. For similar reasons, I can't say the Bible.
So, it's a toss-up between the Koran and Middlemarch. We had to read the latter at school. Christ, it was dull.
8. One book you're currently reading.
Russ Barenberg's Bluegrass Guitar is occupying much of my attention. Also, Douglass North's Understanding the Process of Economic Change and Daniel Dennett's Breaking the Spell.
9 One book you've been meaning to read
Evelyn Waugh's Scoop.
10. Now tag five people.
If they're up for it: Tom Hamilton, Matt Murrell, Lisa Rullsenberg (anyone with Gram and Jolie on their iPod must have great taste), Tom Freeman and James Higham.