The Meaning of Trump

Kevin Albertson

Trump means Trump!

The only thing surprising about Trump, is the surprise
Last week the world woke to the news that Donald Trump was to be the 45th president of the United States of America. Many were surprised at this result, as indeed they had been by his nomination; others the more savvy, had forecast a Trump victory. However, as we will see, a victory by Trump or, if not in 2016, in 2020 by a Trump-like candidate was more inevitable than unthinkable.

The change in the political climate
Ten years ago, the Stern Review on the economics of climate change warned that, if we failed to overcome our short-term thinking on how we exploit the environment, catastrophic climate change would result. The costs of failing to address the causes of ecological change will be far greater than the costs of addressing the causes.

Similarly, in 2005 the economist Ben Friedman identified a change in the socio-political climate resulting from the application of short-term economic policies. In The Moral Consequences of Economic Growth, Friedman argued that the progress of society, and the legitimacy of liberal values (for example, tolerance) would decline unless the benefits of economic growth are shared by all. However, over the last four decades, the so-called ‘American Dream’ had become impossible for most people to accomplish.

Likewise, in the UK, there are many regions which never recovered from the industrial ‘reforms’ of the last five decades. People of those regions feel disenfranchised by the traditional political process and blamed by society at large for the impact of globalisation on their lives. Globally, the evidence of increasing inequality has also been established, for example, by French economist Thomas Picketty in Capital in the 21st Century. The negative impacts of inequality on social wellbeing are also well established.

As with ecological change, persistent failure to address the causes of socio-economic change is proving very costly. And, like climate change, it is not as if we do not know how; what is missing is the will.

The warning of history
In 1989, the political scientist Francis Fukuyama interpreted the end of the Cold War as The End of History? Fukuyama felt “the century that began full of self-confidence in the ultimate triumph of Western liberal democracy seems at its close to be returning full circle to where it started” and “Western liberal democracy [is] the final form of human government”.

The evidence tends to indicate Fukuyama was correct, in the 1990s the political economic debate was indeed returning to that of the late Victorian era; however, this is not necessarily a good thing. As we have noted before on this blog, in 1906, Winston Churchill wrote about his concerns over “unregulated casual employment” and that “we see the riddles of employment and under-employment quite unsolved”.

In the 1930s liberal economists warned (sadly, too late) of the social unrest which follows adherence of laissez-faire – the free-market doctrine. In The Good Society, Walter Lippmann (the original neo-liberal), for example, wrote

The latter-day liberals became mired in status quo by the political dogma of laissez-faire which held them to the idea that nothing should be done [about social injustice], by the confusion of the classical economics which held them to the idea that nothing needed to be done. … It was foolish to tell the victims that no relief or reform could be given and that none was needed; that the system was just even though it seemed unjust to them.

As populations in the 1930s turned away from the exploitation inherent in the free-market globalised economy of the day, they looked to nationalist leaders to protect them. Those who recognised this cry for help, and responded by at least promising reform eventually came to power. It would appear, the first step along The Road to Serfdom, was not, as Hayek argued, the call for a planned economy, it was rather the failure of the unplanned economy. Mass social exclusion appears to lead to nationalism.

Can we return to progress?
This year in the UK and the USA we have seen once again the practical outworking of the establishment’s failure (refusal?) to consider the best interests of the economically vulnerable. As forecast by Ben Friedman in 2005 we have seen liberal values decline and western economies stall as a result.

Business as usual is not an option

As the implications of climate change become more obvious, world governments are beginning to take the first faltering steps towards ecological sustainability. It remains to be seen whether western governments will begin to address the implications of socio-economic change: not simply with warm words, but with appropriate policy.

In the meantime, perhaps Walter Lippmann’s (1938) analysis of the problems of the 1930s seems equally appropriate for today:

In a rich society the psychology of the rentier tends in some measure to supplant the psychology of the entrepreneur. … unless the excess savings are publicly invested they will be hoarded and wasted. … they represent wealth withheld from use, and this withholding, … is accompanied by the unemployment.

And his solution:

To divert excess savings from the hoards of the rich and to plough them back into the improvement of the quality of the people and of their estate is, therefore, required not only by the long view of the imponderable national interest, not only as an expedient to allay discontent, not only as a matter of social justice, but as a requisite for preserving the equilibrium of the exchange economy itself.

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Kevin Albertson is a Professor of Economics at Manchester Metropolitan University and co-author of the Haynes Manual, How to Run the Country.

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University.

This blog was first published on the Metropolis web site.

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Selling the Country Short

Kevin Albertson

Whither Steel?

A disturbance in the forge
The news that Tata Steel (UK) (formerly British Steel) is to shed 1200 jobs in the UK, this news coming on top of SSI’s closure of Teeside’s last iron and steel plant, are the latest symptoms in a story of long-term decline in the UK’s manufacturing capacity. They might well cause us to wonder whether or not it is possible to “rebalance” our economy, a long-touted goal of UK governments of various stripes.

It might appear we can restore UK competitiveness and rebalance our economy simply by depreciating the £UK exchange-rate with our trading partners: And some would argue this is the policy which China is pursuing in its recent depreciation against the US$. However, the UK exchange rate “floats” against other national currencies. Therefore market forces will ensure the UK is always in balance with the rest of the world.

A Capital Problem
Despite our floating exchange rate, it is clear the UK labours under a balance of trade deficit, other things equal, this should cause the exchange rate to depreciate, however, the difference between exports and imports is made up in the capital account. Although the supply of, and demand for, foreign exchange are about even, because of capital flows, the UK does not earn all of the foreign exchange which we attract.

Loans for lifestyles
For example, we can borrow from overseas in order to maintain our lifestyles as incomes stagnate or fall. This only works in the short-term, of course. This situation may well get worse before it gets better (if it ever does): The Office for Budget Responsibility has forecast that, by 2020 UK household borrowing will rise to a level even greater than that which we saw prior to the onset of the financial crisis of 2007. On top of this, we have private sector business and government borrowing. To the extent that loans attract foreign exchange to the UK, the exchange rate appreciates and our exports become less competitive in world markets.

Enterprises for electronics
Alongside of loans, the UK attracts foreign currency by selling off domestic industry. Since 2004 over £400Bn of UK companies have been bought out by foreign owners; other things being equal, this has “crowded out” an equivalent amount of our exports.

Property for playthings
It is not only the title deeds of industry we are inclined to export; we also sell our real estate overseas. Estimates of the precise amount vary, but it is clear foreign ownership is an increasingly common feature of the UK property market. In many cases such “investors” keep their purchases vacant, thus exacerbating the national housing shortage. As we export the title deeds to British housing, the exchange rate appreciates, British manufacturing is crowded out of world markets – and Britons are crowded out of affordable housing.

Investment for imbalances
Along the same lines, we might also highlight the perverse effects of foreign investment in the UK. For example, if China invests hundreds of millions in: Manchester Airport, and/or HS2 and/or nuclear power, this inflow of foreign exchange will cause the exchange rate to appreciate, once again disadvantaging our exports. In practice, Britons invest in other nations as well, of course, partly cancelling this effect. However, we are neither investing enough at home or abroad to offset all these capital inflows.

We should bear in mind, Britain might be better off overall as a result of this investment; it cannot be denied that foreign ownership has saved the UK’s car industry, for example. Better, however, if we learned as a nation to invest in and run our own businesses. If it is possible for foreign governments to make money out of investing in the UK, why is it not possible for our own government to do so?

Oil – the slippery slope

A symptom of Dutch disease?

On top of this, the UK has generated foreign exchange through the export of North Sea oil and gas. When we “earn” money selling such non-renewable resources, the exchange rate appreciates and, as above, we relatively disadvantage other exports. As Sir Michael Edwardes of BL Ltd (aka British Leyland) argued in 1981, if the cabinet of the day did not have the wit or imagination to keep oil revenues from hurting the UK economy, it should “leave the bloody stuff in the ground”.

One government which apparently had wit and imagination was that of the Norwegians, who used their oil revenues to establish a sovereign wealth fund. By investing overseas, the Norwegians prevented excess appreciation of their currency. According to some estimates, the UK could have accumulated between £400Bn and US$1Tn (£650Bn) if we had likewise invested our petro-currency windfall. As it is, hundreds of billions of £s of UK exports have been priced out of world markets.

Stopping the buck
Ultimately, it is reasonable to conjecture, that the relative uncompetitiveness of the UK’s exporting industries has less to do with how hard we work, and a lot more to do with our national and political ideology. Oriented, as we are, to short-term over long-term, we could do more to make sure our businesses and property serve British rather than foreign interests.

The steelworkers of Stocksbridge may be the latest casualties of our national lack of foresight, but they won’t be the last – and they are most certainly not solely to blame for the national policies (or lack thereof) which undermined their prospects.

If we wish to address our unbalanced economy, we must stop selling our country short.

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Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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Can Corbyn help the UK avoid the Ice-cream Seller Problem?

Kevin Albertson

There is an example of market failure in Economics called, as the title of this blog suggests, “The Ice-cream Seller Problem” (a.k.a. Hotelling’s Law). Consider a long strand of sand evenly covered with holidaying people. A reasonable proportion of which would pay good money for an ice-cream, but walking too far is a disincentive. The market thoughtfully provides a vendor, let’s call them Sam, who analyses the situation and decides that the best place to set up is the middle of the beach so as to be as close as possible to as many as possible.

Decisions, decisions

Suppose another vendor, let’s call them Jo, is attracted by the prospect of super-normal profits. (In micro-economics anyone earning more than a subsistence level is making super-normal profits – in the long-run, free market competition drives all profits and wages to a subsistence or break-even level. That is why in a free-market, high pay does not follow the social worth of the job, or even the level of productivity of the workforce, but reflects how successfully an industry keeps out the competition. It is more difficult to become a banker than a nurse, hence bankers are paid more.)

Anyway, back to ice-cream. Knowing people will always walk to the nearest ice-cream seller, Jo, the new vendor will always set up as close as possible to Sam, the incumbent vendor, in the centre of the beach. This is because, if Jo sets up markedly to the left (for example) of the Sam, Jo has already lost half the market – everyone to the right of the centre. Meantime, some of those to the left of centre will still be closer to Sam.

Ultimately, we are left with a beach uniformly covered with ice-cream desirous holiday makers where both ice-cream sellers are clustered in the middle. This is inefficient because, if Jo and Sam were to distribute themselves more evenly across the beach, they could maintain market share while reducing their distance from the customer. In fact, sales might actually increase as people at the extreme edges of the beach who were previously desirous of ice-cream, but couldn’t be bothered to walk the distance to the centre, might now be served. In economic parlance, any change leaving at least one group of people better off without leaving anyone worse off is called a Pareto improvement. It is, in short, something for nothing! There is, however, no market mechanism to achieve this more efficient outcome.

In sum, the Ice-cream Seller Problem describes how the market produces sub-optimal and inefficient clustering.

Turning now to politics, we see Hotelling’s law implies that the Labour Party, however much they decry Conservative policies, might consider to set up anywhere other than the centre reduces their market share.

However, what is overlooked is that, in politics, it is often not the getting into power which is important, it is the offering of alternatives. UKIP is unlikely ever to form a government of the UK, for example, but their very presence has shaped the debate on migration and the EU. Similarly, in his recent budget, the Chancellor apparently attempted to recast the Conservatives as the “workers’ party”, adopting many of Miliband’s policies. Clearly, it is possible to have an influence, even in opposition. Corbyn, if he becomes leader of the Labour Party, might well motivate the Conservatives to consider his approach to political-economy. He might even redefine what “the centre” actually is.

Thatcher once claimed her greatest triumph was New Labour. However, the people of the UK are ill-served if they face no real electoral choice: Simple economic theory suggests that having a choice increases utility, which is what economists call the experience of satisfaction. Whether or not one agrees with Corbyn, the Labour Party will be doing the nation a great service actually to demonstrate that There IS An Alternative (and always was).

And, who knows, it might well be that, in 2030 (when we are finally enjoying our 15 hour working week), we find ourselves raising a glass to the greatest legacy of Corbyn, New Conservatism. Stranger things have happened!

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Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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Dis Utilities

Kevin Albertson

Electrical charging

Keep the home fires buringKeep the home fires burning | From Wikimedia Commons, the free media repository

In the media last month we read the unsurprising news that privatised utilities corporations are not necessarily putting value for money for their customers ahead of their pursuit of profits. Apparently, they have “overcharged” (whatever that means) their domestic customers by as much as 5%, and small businesses by as much as 14%, amounting to £1·7Bn each year.

There has been a predictable storm of criticism over this, which will doubtless have as much impact as last year’s storm, the storm of 2013, 2012, 2011, 2010 and so on. In short, most years, if not every year, since privatisation there has been concern that Jo and Sam public are being short-changed by privatised corporations.

The role of business and the role of the state

However much we might complain, we cannot blame privatised multi-national corporations for doing what they are set up to do, maximise profits. If we expect anything else of them, surely it is we who are being naïve. As the economist Milton Friedman points out in his 1962 book Capitalism and Freedom[1]:

there is one and only one social responsibility of business, to use its resources and engage in activities designed to increase its profits so long as it … engages in open and free competition, without deception or fraud

Compare this to the legitimate object of government which is, according to Abraham Lincoln[2]:

to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves in their separate, and individual capacities

In short, business  and legitimate government have different goals. These goals will only coincide if, by incredible coincidence, the shareholders of the corporation and the voting public are identical groups of people, and each with an identical number of shares. Otherwise, we cannot expect private corporations to operate in the best interests of the British public. This is, of course, especially true where such corporations are foreign owned – in which case we might conclude it is unrealistic to expect them even to act in the best interest of the UK.

It’s a business out there

The suggested remedy to this overcharging is, so we are told, to rely on the famous self-correcting market. Apparently, it is up to Jo and Sam public to call large multi-national corporations to account by being continually vigilant about their pricing policies and frequently changing provider.

The difficulty with this is, how far can we take it? Suppose Jo and Sam do the decent thing; they shop around, only to find that they should not have trusted the price comparisons on the web. Rather than supporting Jo and Sam, it seems some comparison websites are being run in such a way as to undermine, not support, the (so-called) competitive process.

This need for care is indicative of Jo and Sam’s having to make a general lifestyle choice. To avoid being over-charged, Jo and Sam must learn how to operate, not only as energy economists, but also as pensions experts, insurance brokers, mortgage consultants, educational economists, health economists, &c. &c. &c. In short, Jo and Sam, if they don’t want to be over-charged, must become experts at everything and exercise constant vigilance. In return, the state will subject them to surveillance, as they can’t be trusted either.

A trusting person and their money are soon parted

Jo and Sam’s requirement of engagement with the drudgeries of life is in accord with the modern responsiblisation agenda, under which the public are expected to shoulder the “freedom” of not being able to rely on the state to protect their interests. A lack of mistrust can cost one dearly in this world; not only will Jo and Sam be to be offered poor or over-priced service, but they must also take the blame for not being careful enough.

This is a hopelessly inefficient system. As Adam Smith observed, it is in specialisation and the division of labour that the market works best, not by all Britons determining to become a financial analyst (alongside their ‘day job’), simply to protect themselves.

Adam Smith
We need more of this sort of thing

In any event, it is by no means clear everyone can develop all the economic analysis and financial skills required. In practice, some people are better at that sort of thing than others. The elderly, for example, are less likely to be Internet-savvy and are therefore less likely to access relevant information. In such a situation, economic theory would seem to indicate those with below average financial skills (and bear in mind, half of all people are below average) will wind up subsiding the economically astute. This would certainly explain why the financially gifted might be in favour of such a system as we have.

What is this thing called ‘efficiency’?

Privately owned utilities are often assumed to be more efficient than publicly owned utilities – that is the rationale of privatisation. However, there is little, if any, evidence of this for the UK; rather the reverse. This is the case, even if we ignore the costs of constant monitoring outlined above.

In any event, it is a false comparison because the efficiency of a private corporation is measured by its profits (by whatever means they are achieved); conversely, the efficiency of publicly run utilities is measured by their social output. Social output might include,  for example socially responsible tariffs and employment policies.

We are not saying here that privatisation does not benefit anyone, simply that as a whole, privatisation of UK utilities does not appear to benefit the people of Britain. And, if Milton Friedman is right, this is exactly what we might have expected.

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1 Friedman, M. (1962) Capitalism and Freedom, Chicago: University of Chicago Press

2 Lincoln, A. (undated) Fragment on Government, in Basler, R.P. (ed.) (1953) The Collected Works of Abraham Lincoln, Vol.2, p.22021

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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Desperately Seeking Kuznets

Kevin Albertson

What goes up …

In 1955, the economist Simon Kuznets[1] put forward the hypothesis that, as an economy develops, market forces first increase, then decrease inequality – or at the least, that is what many suppose his hypothesis to be.

Kuznets’ analysis considered data from the USA, the UK and Germany, and he concluded that there were two drivers of increasing inequality – the concentration of savings in the upper income brackets (in other words, the wealthy can afford to save, and therefore invest more than the vulnerable) – and the disparity in incomes between urban and rural workers. However, Kuznets argued, as an economy develops inequality will eventually decrease. This postulated inverted “U” shape became known as the Kuznets Curve.

 photo Kuznets_zpsbdsqjobs.jpg

Other economists have similarly argued a Kuznets’ style effect in pollution[2], a so-called Environmental Kuznets Curve. This hypothesis suggests poor nations have no alternative but to increase, for example, green-house gas emissions as they industrialise. However, as they become more wealthy, nations can afford to “invest” in a cleaner environment; therefore emissions will stabilise and decline.

Kuznets’ original analysis appears to justify the speculation of Adam Smith[3] who argued:

They [the rich] are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants

and the monetarist economist Milton Freidman[4] who speculated:

the free market system distributes the fruits of economic progress among all people

What goes down …

Others beg to differ from this optimistic point of view. Winston Churchill, for example, wryly commented[5]

The inherent vice of capitalism is the unequal sharing of blessings

Mind you, that not mean we should dispense with capitalism; as he also noted:

the inherent virtue of socialism is the equal sharing of miseries.

Recent evidence is rather on the side of the naysayers. Rather than an inverted “U” shape, in the English speaking world at any rate, there is evidence that inequality first declined then increased over the last century. (Those readers of a New Zealand persuasion might like to speculate what happened in 1999 which might have disrupted this trend).

 photo Ushape_zpscsk0u4k9.jpgSource: Max Roser (2015) – Income Inequality. Published online at OurWorldInData.org.

Similarly, while there is some evidence nations are relatively less focussed on heavy industry as they become more affluent, however on a world scale affluent nations cause more pollutants to be emitted (per capita) than poorer nations[6], there is no significant evidence of an Environmental Kuznets Curve. In general developed nations are relatively successful in out-outsourcing their carbon footprint (that is, relocating polluting industries to less well developed nations): this is, of course, not the same as reducing their carbon footprint.

The externalities of growth

It would seem that economic growth is no panacea to the problems the free-market produces. This is because pollution and inequality are what economists would call negative externalities; unwanted side-effects of otherwise desirable activity. Simple economic theory shows, where a market produces externalities, that market fails to be efficient and may even become unsustainable.

In the same way that global pollutants can build to a point where the world eco-system is endangered because there is no corrective mechanism inherent in the market, so inequality can increase to the point where the world economy is endangered. This is the point we have reached, according to analysis by economists at organisations such as the OECD, the IMF and the World Bank. In short, economic sustainability and growth is jeopardised as inequality increases. The UK economy, for example, grew at an average annual rate of 3% in the three decades ending 1978, compared with only 2·6% per year in the three decades ending 2008. Average annual growth since 2008 has been even less impressive.

From economy to political economy

We come, however, to praise Kuznets, not to bury him. The unforeseen increase in inequality does not disprove his hypothesis, merely the interpretation that some commentators put on it. Kuznets did not suggest it was solely economic forces which reduced inequality, but rather political-economic forces. For example, as nations prosper, workers unionise, and demand that government acts to reduce the externalities (including inequality) which arise from capitalist industrialisation. In democratic nations, voters may likewise pressure their representatives to ensure the benefits of growth do not accrue disproportionally to the economically powerful.

It may well be that the events of the 1980s, the decade which saw inequality reverse its decline and begin once again to increase, were triggered not by economics, but rather by political change. At this time many Western nations adopted policies based on what is sometimes called the Washington Consensus (sometimes also known as monetarism or neo-liberalism). It should be noted that, in their original form, many of the policy prescriptions of the Washington Consensus made good economic sense. Over time, however, those policy prescriptions tended to emphasise limiting the power of democratic governments.

As Western governments sought to limit their own powers (and, to limit the power of trades unions), so the democratic check on the increase in inequality became undermined; the drivers of the downwards part of Kuznets’ postulated curve were removed and inequality once again began to increase. Conversely, those nations which tended rather to emphasise the social-democratic role of government were less likely to see an increase in inequality. It is worth noting that many of these nations began the 20th century with even more unequal distributions than the UK.

 photo Lshape_zpsemwb9gvj.jpgSource: Max Roser (2015) – Income Inequality. Published online at OurWorldInData.org.

In sum

Increasing inequality, like environmental degradation, is an unfortunate side effect of economic growth. This does not mean we have to put a stop to growth. However, economic growth, on its own, is not the answer to the problems it creates. If our economy is to deliver sustainable prosperity, we must find the political will to address these side-effects, as many nations did prior to the adoption of neo-liberal policies in the 1980s.

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1  Kuznets, S. (1955) Growth and Income Inequality, The American Economic Review, 45(1), 1-28

2  Grossman, G.M., and Krueger, A.B. (1991) Environmental impacts of a North American free trade agreement (No. w3914). National Bureau of Economic Research

3  Smith, A. (1759) The Theory of Moral Sentiments, 6th ed. (1790), London: A. Millar. Available at http://www.econlib.org/library/Smith/smMSCover.html

4  Friedman, M. and Friedman, R. (1980) Free to choose: A personal statement, Harcourt Brace Jovanovich

5  Churchill, W. (22 October 1945) Demobilisation, speech in the House of Commons. Available at http://hansard.millbanksystems.com/commons/1945/oct/22/demobilisation#column_1703

6  Peters, G.P., Minx, J.C., Weber, C.L., & Edenhofer, O. (2011). Growth in emission transfers via international trade from 1990 to 2008, Proceedings of the National Academy of Sciences, 108(21), 8903-8908.

A version of this blog previous appeared on the MetroPolis website.

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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How to Run the Country on Video

By Kevin Albertson
Last month, on the 21st of April to be precise, the authors of the How to Run the Country Manual gave a series of short talks outlining their thoughts on the challenges facing the UK.

  • Gary Pollock (Head of Sociology, MMU) discussed findings from a major European research project on “Young people, politics and populism”. You can watch Gary’s talk here.
  • Dr James Meadway (of the New Economics Foundation) considered “Bombs and bombast: the UK economy in the 21st Century”. You can watch James’ talk here.
  • Kevin Albertson considered “Social policy for the 21st Century”. You can watch Kevin’s talk here.

We hope you enjoy the videos.
HtRtC

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Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University and its staff.

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Don’t mess with the NHS

By Kevin Albertson

Ambulance in Motion
Blurred lines? Meddling with the NHS is an accident waiting to happen. Benjamin Ellis, CC BY

Britain’s National Health Service is a key battleground for the general election campaign. But politicians must beware tinkering with their thinking on health, whether in the pursuit of votes or for ideological reasons.

In 2014, The Commonwealth Fund, a New York and Washington DC-based think tank, published a report on the state of the American healthcare system. Based (largely) on 2011 data, the report found the UK’s NHS is the best healthcare system in the industrialised world, beating even the Swiss system into second place. The US health system was the worst of the 11 nations considered – which also included Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway and Sweden.

In 2012, British health spending per head of population was the equivalent of $3,647 while the US spent $8,895 per person. (At December 2012 exchange rates that amounts to £2,289 and £5,582 per person). That makes the US system nearly two-and-a-half times as expensive as the UK system. On top of that the US has worse health outcomes than the UK: life expectancy at birth is three years less in the US than the UK, for example, and the maternal mortality rate in the USA is three-and-a-half times the rate in the UK.

However, the benefits of the NHS don’t stop at the level of economic efficiency. The NHS, largely free at the point of use, is more democratic than a market-based system.

The democratic NHS ethos

In a market economy the worth of an individual is often based on their wealth or financial resources. However, it is reasonable to hold to the point of view that, to each person, a dignified and healthy life is of equal value in and of itself. At the heart of the NHS ethos is the understanding that provision of life-saving or life-enhancing treatment is based on need, rather than financial clout. In this sense the NHS is a more socially just institution than a private sector model.

Psychiatric help
Cost? Relatively Peanuts. Jarawee S., CC BY-NC-SA

There is, however, a downside to the NHS. Simple economic logic implies consumers have no upper limit of demand for what is provided without cost at point of use. However, the solution to the insatiable nature of demand for health services is not to make people pay – or at least, not unless inequality is somehow eliminated (good luck with that) and we all have the means to pay – but rather to be bold enough to determine and stick to the provision of socially efficient healthcare for all.

The task of determining what is and is not socially efficient is taken on by the National Institute of Health and Clinical Excellence (NICE). Sometimes the decisions reached by NICE might appear callous where they concern our own health and that of our relatives – however the other alternative is to break the system though insatiable demands.

But isn’t choice good?

It has sometimes been argued by free-market economists that competition and choice in healthcare will drive down costs and increase efficiency. It is an idea that has also appealed to the odd British politician. However, if Jo or Sam Average were asked whether they would rather pay £2,289 per person per year through their tax for the industrialised world’s best health service, or £5,582 per person per year out of their after-tax income for a less efficient market system, one might speculate that they would choose the efficient and cheaper healthcare package.

This is indeed the observed determination of the British people. Certainly, where people have observed both the US and British system in action, there is evidence of preference for the UK system. (This also illustrates the point that tax cuts are not everything when it comes to running an efficient nation – we need to consider what we are getting for our taxes – and what we will lose if they are cut.)

How long would it take to get a hug from your primary care physician, though?
Competition in action in San Francisco. Ted Eytan, CC BY-SA

Fortunately, if people prefer choice, there is nothing to prevent Jo or Sam Average, having paid for a national health service with their taxes, purchasing medical insurance and becoming private patients. And here is an intriguing wrinkle to the debate which isn’t talked about much; this is still cheaper than having to rely solely on private provision. Because the NHS is so efficient, it keeps down the cost of private provision. A typical average family medical insurance cost in the UK was between £700 and £1,650, the equivalent in the US (in 2014) was $23,215 (about £14,000).

No meddling

This is not to say there should be no role for the private sector in healthcare provision: There will be some treatments that NICE considers should not be provided at their current price, for example. Similarly, the NHS might choose to subcontract out the provision of some of its services to private sector providers and still provide free treatment at point of use. However, there is some evidence that outsourcing has failed to improve services – rather the opposite.

It follows that we should be very careful with our world-class NHS. If ever a secretary of state for health wanted to tinker (but why would they?) they might perhaps look to the second-best system (the Swiss) for good practice (for example, in the localism of services), but certainly no further afield than that. “If it ain’t broke, don’t fix it”. The quality of all our lives depends on this simple, obvious – and economically sensible – maxim.

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This blog first appeared on the Conversation.

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University and its staff.

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How to Run the Country

In the last wee while you may well have wondered what had happened to “Economics without the con”; perhaps you might not have noticed our pause in analysis. Well, whether you missed us or not, we are back, and with a book, or rather a manual, published by Haynes. This is not a Haynes Manual that tells you how to fix your car: It is a manual on How to Run the Country.

The manual is co-written by Kevin Albertson, Dr James Meadway (of the New Economics Foundation), Ian Rock (of Zennor Consultants and a Haynes regular) and Prof. Chris Fox (of MMU) and lots of help and support from the Eomists at MMU. Our aim is to move on from taking the con out of economics to taking the con out of politics as well.

Over the next few weeks, we will be publishing a series of blogs based on material in the book, hopefully with a view to de-conning the election campaign. You can find information on the book here. We hope you enjoy it.

~~Kevin Albertson

HtRtC

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Neoliberalism: dangerous myths and/or frightening realities? Part 4

A blog in four parts by Paul Kennedy: MMU Visiting Research Fellow and formally Reader in Sociology – with Kevin Albertson

Part 4. Pondering the imponderables

In our series of blogs [1, 2 and 3] we have questioned the sustainability and efficiency of the Neoliberal socioeconomic approach, discussed whether anything truly worthwhile can result from pure greed and attempted to sort those individuals who gain from Neoliberalism from those who do not. Here, we consider the costs and benefits of the privatisations which often result from the national embrace of Neoliberal doctrines.

Private assets, public goods

The privatization of public assets has been a notable and frequent Neoliberal policy practised by Western governments. Though begun several decades ago and continued by the last Labour government, Britain’s Conservative Coalition since 2010, for example, has pushed downsizing, selling-off and outsourcing almost to an art form. Recently this even included selling the nation’s Royal Mail at a shamelessly undervalued price.

According to Owen Jones, writing in the Guardian, in 2012 alone, the British government spent £4 billion on paying Serco, G4S, Atos and Capita for “servicing” a number of Britain’s public agencies from prison management to administering and distributing a number of welfare benefits including to disabled people. In effect, according to Jones, much of Britain’s public sector has ‘become a funding stream for profiteering companies’ (ibid.) . However, there is mounting evidence that the companies involved in this process have often conducted their business practices shoddily, inhumanely and above all without producing much ‘value for money’.

The official justification for these policies is the importance, especially at a time of national indebtedness, of reducing the tax burden on citizens while cutting out the unnecessary and inefficient practices that were allegedly rife when these services were publicly owned. Some have suggested these inefficient practices included: the wasteful process of paying decent, living wages to workers while providing permanent work and reasonable pension prospects – and this at a time when many private sector employees must make do with zero-hours contracts .

Despite the savings in labour costs (not including the salaries paid to managers and CEOs, dividends to shareholders, payments to PR advisors, marketing and advertising companies, various consultants and all the other necessary adjuncts of private enterprise) neither the quality and effectiveness of the services provided nor the cost gains to the exchequer seem to square with the promises. Is it possible, then, that some additional or alternative agenda is at work? Here are a few possibilities readers might like to ponder.

1. Keeping the Neoliberal faith

Despite the damage inflicted both on society and on capitalism itself – given the rise in indebtedness and therefore the risk of further financial chaos plus the problem of under consumption as wages fall – ideological zeal, even a quasi-religious respect for the virtues of the (so-called) free market, leaves Neoliberalism’s believers precious little wriggle room for policy flexibility. Privatisation is what they “do”. And one must do something if one hopes to run a nation.

2. Easy capitalism

When former public sector services are contracted out to private corporations the latter are provided with a soft and almost guaranteed market because this involves work which is funded out of tax revenue and which governments are legally and democratically bound to carry out in any event (at least for the time being – see below). Out-sourcing offers Neoliberal governments an excellent opportunity to hit several birds with the same stone. They can: foster and subsidize the wonders of the market, shrink the dreaded state – though not its spending needs – and create comfortable capitalist niches for old and new business partners, including, perhaps, some pals of the political, media and bureaucratic elites who run the country.

We might suggest that any government that was genuinely serious about strengthening the long-term national economic base would be struggling to encourage investment in a cluster of far more complex and large-scale projects. Re-establishing a range of advanced manufacturing industries, building infrastructure for the twenty-first century on a vast scale and investing in the industries and wider practices associated with developing alternative energy sources would facilitate a return to sustainable growth. However, this would require a quality of entrepreneurial leadership, joint collaboration, scientific expertise and massive long-term investment commitments which would

  1. require a parallel range and depth of government support that is anathema to Neoliberals and their political supporters and
  2. be as far removed from the kind of soft business activity of out-sourcing and contracting as the ecology of a garden fish pond is to the Pacific Ocean.

3. The end of public service

A third possible explanation is that the long-run intention of many governments and political parties, including the British Tories, is to engage in much deeper attempts to down-size the state through privatizing far broader swathes of the public sector. It is possible, for example, government obligatory services, including the NHS, might not only be put out to private tender but might be sold off entirely to private capital. At a stroke, such policies would reduce government spending and create new arenas available to the market. But at the same time, if current experience is any guide – including the story of private medicine in the USA – such privatization of public services will mean citizens end up paying a lot more in private insurances, fees and prices than they ever paid in tax. The role of government cannot simply be to reduce its own spending. If that were its sole goal, why have a government at all?

If services such as the NHS are privatised, many of the least well-off will be unable to afford such services, therefore inequality will spiral out of control even more rapidly than during the last twenty years. There will be knock-on effects throughout the economy: many citizens will have far less money to spend on other goods and services; this will hurt some branches of business even while it profits service providers.

Since many economists, business leaders, politicians and their advisors are aware of the likely crowding out of private consumption by the need effectively to subsidise private health care, it is not clear why such a policy might be pursued. Perhaps the intention to go ahead with mass privatization regardless of the damage it may inflict on society and large parts of the capitalist economy is seen by its protagonists as just too ideologically ‘right’ to ignore. Or it may simply be that many of the political class have links to private medical corporations. To believe in Neoliberalism one must, after all, believe in the pursuit of self-interest.

4. You’re all in this together

But there is another possible explanation. In theory ‘real’ privatization will genuinely allow tax cuts to be implemented, especially if welfare benefits continue to be ruthlessly reduced at the same time. If welfare is not reduced, those financially disadvantaged by privatization might require support, which would drive government spending up again.

For the average citizen, as already indicated, the financial gains of tax cuts will likely be more than outweighed by rising prices of the privatised service. But what about the rich and super rich? They can already afford to pay for their own family’s health, educational, old age and other needs out of private wealth and high incomes – and many send children to private schools, use private health practices and nursing homes &c. The main portion of government spending from which they benefit directly relates to facilities such as national defence, the police and fire service, road maintenance and so on. For them, therefore, ‘real’ privatization would translate into a considerable increase in their personal income streams: taxes will decline, and the quality of public services will decline, but then again, perhaps they did not enjoy public services anyway.

But if this particular aspect of Neoliberal policies are directly beneficial to the wealthy – we are surely entitled to speculate whether much of the Neoliberal policy discourse is little more than a smokescreen designed to divert our attention from the interests of the rich while seemingly deepening existing inequalities and protecting those who benefit most from this.

To conclude

Those who have the gold make the rules, so it is said. Suppose you had both the gold and the power to make the rules – which rules would you make? Which policies would you promote with your gold? Policies to get more gold perhaps. Certainly, in the marketplace for ideologies, Neoliberalism is going to provide a good return on investment. Perhaps that explains its long lasting appeal – to some.

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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Neoliberalism: dangerous myths and/or frightening realities? Part 3

A blog in four parts by Paul Kennedy: MMU Visiting Research Fellow and formally Reader in Sociology – with Kevin Albertson

Part 3. Follow the money

In last week’s blog we considered the topic of motivations and their role in social institutions, including the market. In the following we assess who are the winners and who are the losers from financial crises of the type which began in 2007/8. It hardly needs to be said, if those who suffer most from such crises have no hand in bringing them about, and if those who do bring such crises about do not suffer the consequences, there is no incentive mechanism which can prevent such crises recurring in the future.

The advantaged and the disadvantaged

One of the most inexplicable policies peddled by Neoliberal governments, and especially by the UK Coalition government since 2010, has been to heap opprobrium on to the poorest and most vulnerable groups in our society. These are people who, even a brief moment’s consideration would show, are clearly incapable of bringing down the world financial system – they simply do not have the resources. And certainly, they do not have the motivation.

While blame is heaped on the blameless who are in no way responsible for macro financial problems or the current crisis, the “masters of the universe”, those who clearly do have the power to do much good, or cause much ill, face little more than a modicum of re-regulation and the need to attend a few committees. To be fair, the crisis might have been less severe had not the government hurried to bail out the banks and return them to business as usual. Conversely, in Iceland, as the IMF has noted, the recovery was rapid as the government and the IMF sought to “ensure that the restructuring of the banks would not require Icelandic taxpayers to shoulder excessive private sector losses”.

Conversely, in Neoliberal economies, the austerity policies ostensibly imposed to cope with the government deficits which resulted from bank bail-outs in 2008 have become a vehicle for furthering policies designed to shrink the state and punish the poor for their (supposed) entrepreneurial incompetence and need for welfare compensation. Worse, with the assistance of an often vicious tabloid press, those same disadvantaged people have been persuaded to turn on each other or on those living next door who are even more disadvantaged than themselves: the low paid worker in receipt of tax credits and housing benefits, for example, blaming the disabled person down the street or those currently without any work at all for the nation’s deficit and economic malaise.

Entrepreneurs of the self

The rationale for this apportioning of blame on those who have not succeeded arises from the Neoliberal insistence that all individuals can and must all become entrepreneurs in control of our lives and destinies through the miracles of the market. This allows those who succeed to take sole-credit for their success (in some cases at least, success has rather resulted from their parents income, social contacts and their private school education). Similarly those who are less successful must take the blame for their own predicament – their laziness, or lacklustre success at school, unhealthy living style or wrong choices concerning work opportunities are clearly to blame for their poverty and work insecurity.

Those who allowed themselves to be persuaded by the self-entrepreneurship argument not only feel that they are entirely responsible for their own situation but also that there is no reason to help the vulnerable; given the market has promoted an abundance of wealth, if some have chosen to turn away (for whatever reason – who can guess at individual motivations), well, they ought to endure deprivation to incentivise better decision making in future. Such an attitude legitimises a reduction or removal of the welfare help previously available. This is mean and uncharitable in any country, but especially so in one whose values – so we are given to understand – are solidly Christian.

Even if everyone struggled with every resource available to them to seek the golden path of self-entrepreneurship most would ‘fail’ in relative terms simply because the rewards available, top jobs and salaries, are few. In the UK two-thirds of all families require state benefits of some form, yet it is not possible for everyone to be in the top one-third.

It hardly needs saying, not everyone is capable of gaining a doctorate in advanced mathematics or running a four-minute mile. Even if they were, there would still be winners and losers given the shortage of prizes (some people can run a four-minute mile faster than others). This is the nature of competition. In business, as in sport or any arena where people are pitted against each other, the ‘success’ of some requires the ‘failure’ of the many. This might be a valid model for business, Neoliberalism asks us to accept this is a valid model for our society.

Winners and regular people

Those who do not win this incessant competition – those who are made redundant, who are only eligible for the lowest paid wages or the most insecure working conditions, whose qualifications are a fraction lower than their peers and who therefore do not gain promotion – are not to blame for their relative lack of success. The system itself guarantees the creation of a pool of those who miss out. Most of them have done no wrong, committed no crime; they are simply the casualties of a competitive system they did not create or desire and from which they cannot escape, especially in today’s world of expensive technology, ever higher skill level requirements, vast corporate monopolies and global markets. Certainly, they should not be punished or belittled for providing the minor characters and stage props – as competitors, workers, consumers and taxpayers – who make it possible for the entrepreneurial ‘winners’ to action their ‘superiority’.

In any case, the inherent arbitrariness of the competition ‘game’ and the vast unavoidable inequalities between the players – inequalities that both predate its onset and are created by it – means it is hardly surprising that many of the most deprived people in the play conclude that, since they can never win or benefit very much, there is no point in striving. If they do struggle to participate they will have to accept the likely humiliation of failure, the perception of being someone who lacks merit, who is despised and who has no choice but to pick up the scraps lying under the table.

We are fortunate that the billions across the world who find themselves in such a position do not respond with greater anger and violence and/or by channelling their insecurities and frustrations into criminal activity on a greater scale than they already do.

To be continued …

In the ultimate part of our episodic blog, we ponder the fetish for privatisation which generally is apparent in those nations which adopt Neoliberal dogma.

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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