Stumbling and Mumbling

Centrists against freedom

Manu Macron’s plan to reintroduce forced labour – which is what national service is - reminds us of an awkward fact - that many (some?) centrists are no friends of freedom.

We can read his proposal alongside some UK facts such as New Labour’s creation of thousands of new criminal offences and big increase in the prison population, the Lib Dems support for a sugar tax and minimum alcohol price, “Blairite” Caroline Flint’s recent call for “an end to freedom of movement”, and the fact that Chris Leslie’s recent description (pdf) of six core values of centrism contained much more talk of responsibilities than of freedom.

Of course, this is not to say that all centrists hate freedom. They don’t. But it does show that there is an illiberal strand within many versions of centrism – more so than in my (not that idiosyncratic) conception of Marxism.

Why? Here’s a theory. One feature of centrism has long been a blindness to the less pleasant aspects of inequalities of power. Keynes, for example, thought the notion of class struggle to be a “frightful muddle”, and his theory that full employment was a matter of technocratic macroeconomic management served to displace earlier ideas such as guild socialism and hence maintain hierarchical capitalism.  

In a similar vein, centrist thinking – from New Labour’s forgotten Respect Action Plan (pdf) through the Taylor report to Leslie’s proposals – has tended to neglect ways of empowering ordinary people and workers, especially collectively. Sure, centrists sometimes want people to have more say as individuals – to be more like customers in public services. But generally, people are regarded as passive objects of policy, not active creators of it (except, perhaps when we must heed their “legitimate concerns” which are always about immigration and never anything else.) For centrists, politics is usually about what “we” can do for (or to!) “them”.

There is of course a class aspect here. If you have the mindset of the ruling class, you will assume that power will be exercised wisely as long as the right people are in charge. Blair and Brown consistently fawned over bosses because they believed that leadership was generally benign.

From this perspective, centrists don’t worry about giving lots of power to governments, any more than they worry about bosses’ power over workers.

But they should.

Labour: the party of business

“Fuck business”. These words of Boris Johnson should be as great a propaganda coup for Labour as Liam Byrne’s equally stupid “I’m afraid there’s no money” note was for the Tories.

This is because it is the final nail in the coffin of the idea that the Tories are the party of business. Which poses the question: how might Labour exploit this?

Of course, politicians should not be in hock to cronyist big monopolies. But the overwhelming majority of businesspeople are not grasping plutocrats but rather people who are struggling to get by, much like ordinary workers. Of the 5.7 million businesses (pdf) in the UK, 4.3 million have no employees and only 41,000 have more than 50.

And the interests of these small businesses are often opposed to those of bigger ones. Smaller firms face high rents (and often upward-only rent reviews) from landlords; banks that deny them finance and sometimes actively try to destroy them; rip-off and unreliable utility providers; the huge buying power of oligopsonistic supermarkets; competition from big firms that can hold costs down by dodging tax; and massive losses if one of their big clients (such as Carillion) goes belly-up. If you want to hear anti-capitalist attitudes, forget Momentum and just ask a small business owner what he thinks of bankers. 

It would be very easy for Labour to position itself as the party of business by championing smaller firms’ interests. For example, more infrastructure spending, not least on broadband. The IoD’s call for more and better infrastructure spending could pretty much be cut and pasted into a Labour manifesto. Also, a national investment bank (pdf) would provide the finance for small firms that banks sometimes deny them, and have the extra virtue of relaxing the grasp of banks over their clients simply by providing competition. And a switch from business rates to a genuine land value tax might help shift the balance of power between firms and landlords; if empty properties were taxed as much as occupied ones, landlords would be incentivized to cut rents.

You might object here that John McDonnell’s talk of the need for “new forms of ownership” and control are anti-business. I’m not so sure. For one thing, it’s possible that some changes to what Diane Coyle calls our “ridiculous IP laws” would help start-ups at the expense of monopolies. And for another, the main problem with ownership is not that of smaller firms but of bigger ones. Kathleen Kahle and Rene Stulz have shown that the number of stock market-listed firms has shrunk in recent year and that those that are listed invest less than they used to. This might be because dispersed outside shareholders do a lousy job of monitoring management; it’s insufficiently appreciated that the financial crisis was due at least in part to a failure of ownership. Looking for alternatives to stock market-type ownership is therefore perhaps compatible with – and even conducive to – the thriving of many other types of business.

You might also object that Labour’s plans for higher taxes are anti-business. Only up to a point. For many small businesspeople, the chance to pay more tax would be a fine one: Labour’s last manifesto promised higher taxes on incomes over £80,000 which is a fortune for many small business owners. Insofar as Labour offers more sensible ideas on fiscal policy and Brexit, it will increase profits. Sure, the state will take a bigger chunk of these, but net some businesses might well benefit.

In principle, therefore, even (especially) a quite radical Labour party could – with only the smallest of effort – present itself as a party of business. I suspect that what is stopping it doing so – and what’s stopping such a presentation from being very plausible – is tribalism and history rather than current actual policies.

The Infinite Desire For Growth: a review

What’s so good about economic growth? This has been a tricky question ever since Richard Easterlin pointed out (arguably (pdf)) that there is no connection between GDP growth and a nation’s overall subjective well-being. In The Infinite Desire for Growth, Daniel Cohen proposes an answer to this question. It’s that economic growth helps to legitimate societies:

Growth is more important than wealth for the functioning of our societies; growth gives everyone the hope, short-lived but always revived, of rising above one’s psychological and social condition. It is the promise that soothes worries, not its fulfilment.

This echoes Adam Smith:

The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining, melancholy.

Cohen places this in a wider context. The Enlightenment, he says, replaced the Christian hope of redemption in the next world with the hope of progress in this one.

This is consistent with – and a complement to – Ben Friedman’s observation that slower economic growth breeds intolerance and racism: when people lack hope, they get meaner. This is perhaps the single most important fact about western politics today. 

And herein, of course, lies the problem. We are, says Cohen, “experiencing an industrial revolution without growth.” Whereas earlier industrial revolutions saw workers leave agriculture to work in capital-intensive factories where they became more productive, today’s revolution is bumping workers out of such jobs and into less productive ones; this is a natural effect of Moravec’s paradox. Sure, tech giants such as Apple and Facebook are very productive. But they are too small a part of the economy. As Cohen says, “if a worker’s individual productivity does not increase, growth is necessarily weak.”

Whereas growth offers hope for all, its absence has, says Cohen, led to an increase in management by stress; rewards for a few, the sack for others. There’s more stick, less carrot. Again, Cohen places this into a deeper context. Whereas the Enlightenment offered freedom and autonomy for all, these values are denied to people in capitalistic workplaces.

All this poses profound questions. Could decent growth resume? Cohen is pessimistic (though personally I'd have liked him to stress the shortcomings of neoliberal capitalism more than digitization and environmental constraints). If it cannot, he says, we need different types of progress. As John Stuart Mill said, a stationary state of incomes “implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress.”

It’s here that Cohen disappoints me. He offers few suggestions of what such progress might be, and how we might rekindle the legitimating hope societies need. Like Roger Betancourt, I found the end of the book a letdown.

This, however, is only a minor criticism. In a short book, Cohen has packed in countless thought-provoking insights about the links between growth, technical change and society. I suspect that many English readers will share my humility at just how much he has read that I haven’t.

And Cohen is at least posing questions that most of the political class in the west are not even considering. Societies, he says, are “demonstrating an astonishingly weak capacity to project themselves into the future.” In a country whose rulers are debating how to project us into the past, Cohen’s book is a much-needed breath of fresh air.

Measuring competition

How do you measure competition? I ask because on yesterday's PM programme Lynsey Hooper claimed (15 min in) that Amazon's broadcasting of some Premier League games next season means that "competition is now fierce."

I'm not sure this is right. Amazon will broadcast all ten Boxing Day games, This means it is a monopoly provider of live coverage then: if you want to watch a live match  on that day, you've no choice but to pay Amazon. Similarly, today Sky and BT are monopoly providers of live coverage of particular games. If you get cheesed off with the inane chunterings of Robbie Savage or Michael Owen you can't switch to watching the game on Sky. Nor, in many cases, are games substitutes for each other: West Ham vs Bournemouth is no substutite for the Manc derby, for example.

Yes, broadcasters are competing. But they do so via bidding wars for the right to particular monopolies - much like rail franchises. That's great for Premier League clubs and players who get higher revenues.But it's not obvious that customers get a good deal. It's quite possible that by the time you've paid Amazon, BT and Sky you are paying more to watch football than you would if Sky broadcast all games*.

The point here is one that competition economists have known for some time - that you cannot necessarily measure competition by the number of firms in an industry: the Herfindahl index, for example, can be a bad measure.

One reason for this can be that industries are actually hard to define. If we think of Premier League broadcasting as an industry, there'll be five firms in it from August 2019; three live broadcasters, plus BBC showing highlights and BBC and TalkSport offering live radio commentary. But if we think instead of live TV broadcasting of the Liverpool vs Arsenal game, there's only one provider.

This can matter. It doesn't much matter if there's monopoly in one industry if that industry faces competition from another. if the tinned pilchard industry wre a monopoly we wouldn't worry if it faced competition from sellers of tinned sardines or sild, but we would if it didn't. Similarly, if fans were happy to wait to see only highlights of a game, monopoly provision of live coverage would not be so bad. More seriously, rail monopolies would be more tolerable if buses were a decent substitute for rail, or if it were easy for commuters to respond to bad service by moving nearer to work.

A single provider can be acceptable if the market is contestable - that is, if there are potential entrants or substitutes. Equally, more providers needn't be evidence than customers get a better deal. For example, a market of (say) ten sellers in which switching is difficult can be less competitive than one of (say) five providers where it is easy.

But if you cannot measure competition by the number of firms, how can you?

One alternative, proposed (pdf) by Jan Boone, is profits elasticity. The idea here is that if profits fall sharply in response to a rise in marginal costs then the industry is competitive but if they don't then it isn't. A competitive market is one which punishes inefficiency.

Even this, however, has problems. What if marginal costs don't change much? What if there's uncertainty about whether a firm's cost and price rises are permanent or not, which deters potential entrants from entering the market? Or what if there are threshold effects such that customers will tolerate small price rises but not larger ones?

The point here is simple. Competition is hard to define and measure. For this reason, I fear, the word can be misused in popular discourse, with "competition" being used to justify what is in fact a near-monopoly.

* One could argue that multiple broadcasters have led to an improvement in the quality of its coverage, but most of this, I suspect, came when Sky first entered the market in 1992.

Britain's open borders policy

Whilst cycling the other day, I crossed the Leicestershire-Rutland border. And I was shocked to see…nothing. No border controls, no passport checks, no customs officials. Here in Rutland we have an open borders policy. Any riff-raff can move in. I know: I was that riff-raff.

This is weird. A lot of the adverse effects that are claimed for migration into the UK should also apply to migration into Rutland. If people who move to the UK depress the wages of natives (they don’t, mostly) then surely people moving into Rutland depress Raddlepeople’s pay. Migration into Rutland also increases congestion (getting out of my road takes longer than it used to); puts pressure on local services (it’s harder to see a doctor); and has led to a combination of higher house prices and to new builds on greenfield sites.

What’s more, Rutland is a smaller fraction of the UK’s population than the UK is of the world’s population, so on this count there’s more danger of us being swamped.

Despite all this, however, there is absolutely no demand in Rutland for immigration controls. Nor is there any hostile environment policy: even people from Peterborough are tolerated.

Which poses the question: why the difference between Rutland and the UK?

It’s not, I think, because we are a lightly-populated county that won’t miss one or two fields, or that we have especially good ways of adapting to immigration. What’s true of Rutland is true of most areas. Mancs don’t want to control immigration into Manchester, except perhaps from Liverpool; people in Staffordshire don’t oppose migration from Derby; and so on.

Yes, a few areas have bans on people buying second homes. But that’s a complaint about a lack of immigration. And Cornwall and the Isle of Wight have faintly derogatory terms for outsiders – but these are regarded by most other people as expressions of a backward, even inbred, outlook.

Mostly, we have an open borders policy within the UK and almost everybody is happy with this.

Why, then, have migration controls between the UK and other countries when we don’t have them between Rutland and other counties?

You might say it’s because the UK has much higher incomes than much of the rest of the world which means that we’d simply attract too many migrants. This, however, doesn’t explain why the numbers of high-skilled migrants is limited: such people could earn good money in other countries. Nor does it explain why so many support controls on immigrants from other wealthy countries

Instead, of course, there are simple reasons for the difference. One is a fear that high immigration will somehow change the character of the country whereas Raddlepeople aren’t much bothered that folk from Nottingham will change the character of Rutland. The other is that people want governments to be in control; this explains the popularity of Brexit and even perhaps austerity. Nobody, though, wants Rutland council to be in control of very much.

I don’t want to take a view on the merits of these feelings here: they are, I think, feelings more than articulated arguments but that alone doesn’t make them wrong. What is the case, though, is that economics is not the issue. Economicky arguments for migration controls are just distractions and, I suspect, often dishonest ones.

Why the MPC needs experts

There’s no doubt that Jonathan Haskel is an excellent appointment to the MPC. What we should be asking is rather: isn’t he over-qualified?

What I mean is that not much hangs upon interest rate decisions. The Bank’s own work estimates that a quarter-point rise reduces output only by around 0.15%. Granted, it’s possible that the economy might now be more sensitive than this to rate changes now. But even so, the cost of interest rate mistakes are small.

Put it this way. For a monetary policy error to have had the same cost as fiscal austerity or Brexit, interest rates would have had to rise to well over 10%. It doesn’t require somebody of Haskel’s intellect to see that that would be a stupid idea.

I suspect that the ratio of intellectual input to the stakes of the decision is greater for monetary policy than it is for any other decision in public life.

Which poses the question: why does the MPC need someone of Haskel’s expertise?

The question gains force from two considerations. One is that a lot of the job of setting interest rates requires you to interpret noisy high-frequency data and, arguably, to have market feel. Academic economists don’t have a comparative advantage here. The other is opportunity cost. If Haskel is thinking about whether to change rates by a quarter-point or not, he’s not doing other work, where he might well do more good.

There is an answer here. It starts from the fact that the MPC lacks direct democratic legitimacy. Of course, the inflation target is set by governments (and there’s been surprisingly little political debate about it) but the MPC itself is unelected.

And yet it has some power over us. Even the most modest rate rise destroys some jobs; that’s how it reduces inflation. And on the other hand, the lack of a rate rise means millions of savers forego some interest income. What legitimacy does it have to take such decisions? Governments have a licence to wreck the economy because that’s what voters want. The MPC has no such justification.

Which is why it needs experts. The job of MPC members is not merely to make interest rate decisions. It is to give legitimacy to the MPC by having the ability to explain monetary policy thinking to a sceptical audience of other economists, and to appear to the public as wise technocrats. Paul Tucker calls this “legitimacy through credibility”.

It was for this reason that Ben Broadbent’s remark about the “menopausal” economy attracted such attention. Technocrats acquire legitimacy by being grey and sober; ill-judged language detracts from this.

A decent trading-floor economist might well be able to take interest rate decisions as well as Haskel. But he wouldn’t have the authority with outsiders that Haskel has, nor – no doubt – the ability to construct genuinely interesting economic arguments.

Which brings us to a problem. Even the most genuine expertise, such as Haskel has, is not the only potential source of legitimacy. It’s also the case sometimes that people want decision-makers to be representative of those whose lives they affect – hence the complaints that the MPC is too male (and we might add, too white and too posh).

Now, I’m honestly unsure how much force these complaints have. What is clear, though, is that unelected policy-makers need some form of legitimacy; this is true not just of the MPC but of judges, quangos and so on. Expertise is one source of such legitimacy - maybe in most cases the best – but it’s not necessarily the only one. Unelected policy-makers should be chosen not just by their ability to take decisions, but by whether they enhance the authority of their office.