Left Outside

Good news, bad news for LGBT asylum seekers

Remember Irina Putilova? She was going to be deported to Russia, despite being a lesbian and likely to face severe persecution. Well, she’s not getting deported. At least not yet. So well done to any of you who actually did anything after reading last week’s post.

To maintain balance, of course, our dark lady Theresa May will be instead deporting Prossie N, a lesbian, to Uganda. There’s a petition here to sign, it seemed to do some good last time so please sign and write to your MP.

Click here for an article on “corrective rape” in Uganda. If you want something shorter and therefore slightly less harrowing  please read this account of Prossie N’s life up until now:

Prossie N has fought hard to escape a lifetime of abuse and persecution. An orphan from the age of 8 years old, the only family she had was an uncle who abused and raped her. At 15, she was outed as a lesbian and forced to live on the streets. It was only through a secret relationship with a well-connected married woman that she was finally able to escape to Britain in 2010.

Now, the Border Agency wants to send her back into danger. The department has already tried to force Prossie onto a flight with Ethiopian Airways, but she bravely protested at the gate, and the pilot refused to take her back. Her new deportation date is set for 12 December, back to a country with some of the harshest anti-gay laws in the world, where she has no family and no support network.

 

Filed under: Foreign Affairs, Society

I just found out that David Cameron and I have a lot in common

Thomas is referring to this interview segment in The Spectator:

Why Nations Fail

Does he have any book recommendations? He singles out Beautiful Ruins, a novel by Jess Walter (‘a brilliant book about Richard Burton’). “Samantha reads lot of novels. Every now and again she says: right, this one is a real cracker. But in fact she didn’t recommend Beautiful Ruins.

But he says he is ‘obsessed’ with Why Nations Fail, by two American academics who argue that a nation’s fate is determined not by the quality of its politicians but on the strength of its institutions — courts, schools, banks, government. ‘Someone said to me: you only like this book because it’s two academics who have written a very complicated book that confirms all your prejudices. I said, well, what’s wrong with that?’

So both David Cameron and I have the same prejudices. Which believe you me, comes as much of a shock to me as anyone. Haven’t got anything to add to this apart from you can use one framework in very different ways. Andy Newman is a marxist. Chris Dillow is a marxist.  I like New Institutional Economics. David Cameron likes New Institutional Economics. No big deal, right? No big deal!?

Filed under: Politics

Karl Polanyi in Beijing: who are China’s workers?

The labour market in China is in its infancy. It is, in fact, incorrect to speak of a labour market in China at all; there are many disparate situations where we find working people. Although discussion will be on industrial workers it should not be forgotten that there are still more than 200 million peasants working the land in China, however for brevity these must be excluded from discussion. The state began allocating labour in the 1950s and continued until the 1980s when the attempt to commodify labour began. However, the creation of a labour market has not seen the state wither away; instead it has turned its already considerable repressive powers towards the task of creating a Labour market. Polanyi argued that the creation of markets involved a dramatic increase in the coercive power of the state; this is in marked difference to others who emphasise the natural germination of markets, which occur where the state withdraws from the economy as is typical with most economists.

In an examination of China, Polanyi’s account is by far the more convincing than that of conventional economists. Chinese workers have been reshaped into commodities. This has first been done by the central Chinese state through the smashing of the “iron rice bowl” and the stripping of state provided welfare from the employed, and the exclusion of China’s vast migrant workforce from what little support remains. Moreover, enforced redundancy and bankruptcy have created vast reserves of the unemployed, “freeing” them to find their wage on the market. These reforms were met by a series of Labour Laws, intended to mitigate their negative effects. However, the laws concerning minimum wages, factory conditions etc. go largely ignored due to a second movement towards commodification.

Local government has received much devolved power; for example, in fiscal terms, China has perhaps the most devolved government in the world. In return for this power, local government is charged with fostering economic growth, this usually entails the circumvention of these labour laws. Sole responsibility for the bypassing of these laws should not be levelled at the local state. For example, 78% of state-owned enterprise employees and 95 percent of state-owned enterprise retirees were to be covered by the state-run pension scheme. This reform replaced schemes run by individual enterprises but will not be honoured because of the fiscal limitations of the central state.

There are obvious benefits to China’s current configuration, Chinese workers no longer need to contend with the repression Maoist state, and there have been notable relaxations since the Tiananmen Square Massacre. However, this internal confrontation has been replaced by an external one; workers now have to combat the combined legal departments of several transnational corporations. For years they have been engaged in intensive lobbying against the extension of further labour rights in China, Arrogantly declaring that the labour laws in place, already largely unenforced, are enough for China’s workers.

The creation of a labour market has required de jure, and some de facto, ending of lifetime tenure. In 1983 state-owned enterprises were ordered to hire new employees on a contractual basis, this began the drive to convert labour into a commodity, to be bought and sold as a commodity, and abolished the socialist conunitment to full employment. This was consolidated in the mid-1990s with large scale redundancies at SOEs. However, those who still enjoy urban state sector employment remain very immobile; the real effects of market reforms have been felt by the vast and growing rural-urban migrants. The dissolution of the communes led to the creation of a vast migrant labour force, which numbered around 50 million in the late 1980s, and over 150 million now.

This process shares similarities with the making of the English working class: peasants, handicraft workers, artisans and small manufacturers all suffered displacement as their livelihoods were destroyed, whether, through land enclosure or market competition from more productive capitalist fawns and factories. However, in England as the attempt was made to commodify labour in Britain a countervailing measure arose to protect society: Polanyi interpreted legislation concerning public health, factory conditions, social insurance, public utilities, municipal services and trade union rights in Victorian England as countervailing measures to check the societal effects of the unfettered expansion of capital.

This countervailing measure is far from obvious in China. The expansion of the state required to commodify labour is described above. However, the application of the commodity fictions has only been partially implemented. The local state, at times, undermines the institutions designed to embed Labour within a social minimum. Deng aimed to refashion workers as commodities, to be bought and sold. However, the appeal of the Chinese economy was not just cheap labour; there is a wealth of the desperately poor in the world. China succeeded because its labourers were healthy, educated and disciplined. A population more literate, more educated, and with longer life-spans than any country with a comparable GDP, entered the world market in the 1980s. This was achieved with meal Communes and urban Danwei which operated as miniature welfare states, providing cradle to grave security.

The communes have long since been dissolved and so, as SOEs are transformed, most working people have lost access to their social safety net, including pensions, housing, health care and increasingly even primary and secondary education. To illustrate, after three decades of reform, healthcare is in freefall and the World Health Organisation ranks China last in terms of equal access to healthcare. Furthermore, China alone is helping to partially refute the idea that “wealthier is healthier.” The marketisation of its healthcare infrastructure has caused improvements in health to accrue more slowly, and less equitably, than in any comparable state in history — the poorest now go without healthcare altogether. As discussed in my last post, the countermovement against the commodification of land is notable for its weakness and for the damage which has been wrought in its absence; regrettably the same is true, to a lesser degree, of labour. Labour laws exist in China; there are a number of rights which have been introduced, from pension reform to minimum wages. However, the Double Movement is not a matter of formal labour rights. If rights such as those above go unenforced, as they do in China, they cannot be described as constituting a Double Movement.

After examining the conditions of workers in China; both their hardship and their lack of protection offers evidence that might be used to refute the existence of Polanyi’s Double Movement. However, informal institutions of embedding have arisen in order to overcome the abusive application of China’s labour laws. This essay will argue that, as with business in China, rural-urban migrants have developed a complex system of guanxi to insulate themselves from the market. The work of Granovetter describes the limits of spot markets between anonymous individuals to transfer information and build social trust. Moreover, it helps us to understand that legal protection and social security are not the only ways in which the economy can be embedded. Within China, informal systems of embeddedness have come to be incredibly important.

A brief description of the origins of China’s migrant labourers is necessary to place them in the correct context. Revolutionary China used a hukou, or household registration system, to all welfare provision to its population. It also constituted an intrusive method of social control, preventing all but a limited amount of internal migration. Initially registering the population was simply about finding out the numbers involved, but hukou soon became a tool to restrict mobility. The hukou system’s weakening has granted labour the freedom of movement around China, but it also prevents migrant workers from claiming the pensions, schooling, unemployment benefits, etc. enjoyed by those who have an urban hukou. In official Chinese parlance peasant workers in urban jobs are not migrants; as it would denotes a more settled status. They are a “floating population,” without the rights that those who possess urban hukou enjoy. It is this group who make the most extensive use of guanxi as it is they who lack the most basic of protections.

Guanxi is an informal set of ties and obligations whose origin can be traced back to Communist China. In contemporary business relations its importance is well documented (and I will discuss it more tomorrow). Granovetter’s study examined the behaviour of individuals within a developed market, and found that they often substituted embedded social relations for rational economic maximising behaviour. A similar and more intense version is employed to glean useful information from fellow migrants to find work, and protect themselves from unemployment. To illustrate, it is argued that because of the guanxi between current migrant workers and potential migrants as few as just five to ten percent of newcomers to Chinese cities could not find work within a week of arriving. The emphasis placed on guanxi  can help us to understand why it is that China’s rural migrants can survive and remain productive in such a hostile environment.

The demands made by the market can prove utterly disastrous for human beings if their basic needs are not protected. However, the Double Movement is more fundamental than this. Guanxi has helped to explain the survival of Chinese workers in a hostile environment, often devoid of the social protection Polanyi argued was essential; however, this only addresses one aspect of the Double Movement. It is also fundamental in embedding economic relations in a legal system that ensures that the commodity fictions are upheld in a market-society. As explained the Double Movement is not anathema to markets, it is a necessary condition.

Fred Block discusses the embedding of the economy in “law, politics and morality,” the economy insist be embedded within reasonable and lawful practices. Thus, even an approximation of a market system requires embedding within a social minimum. The evasion of Labour standards illustrates the weakness of the Double Movement in China. This view, though controversial in Polanyi’s time, is now firmly embedded in the new institutional economics of people like Douglass NorthDaron Acemoglu and James Robinson.

Non-payment of wages is a major problem in China, sometimes used to discipline workers, it is used to ensure workers do not quit, as if they do they risk losing all right to unpaid wages. It is incredibly widespread, in a survey it was reported to have had affected 72.5 percent of workers. It is cited as a major cause of protest in China; but by using it to discipline workers further protests are being prevented. The non-payment of wages is a method used in China by capitalists to enforce discipline and expropriate capital from their workers. This practice is credited with allowing such a large amount of wealth to be accumulated by such a small group, in such a short amount of time.

At times this is discussed as a shocking denial of human rights, the simple right to be paid what one has agreed as remuneration for one’s labour. It is presented as an example of how brutal capitalist development has been in China. But, the true interpretation of this practice is rather different. Capitalist exploitation under a market system involves the sale of labour as a commodity. The theft of labour is evidently not part of this. This practice illustrates again the weakness of the Double Movement in China; it has failed to provide an adequate legal framework to ensure wages are paid on time, or even at all. Without a Double Movement to embed market structures they don’t exist. You don’t get capitalism you get something even more brutal.

In law the situation concerning labour appears far better than that concerning land. However, in practice both appear to be subject to the damaging infliction of commodity fictions. Giovanni Arrighi suggests that the Chinese state has presided over gradual economic reform and met these with countervailing actions to promote a “synergy between an expanding national market and a new social division of labour.” However, this represents an astonishing, though predictable, misreading of what is occurring in China. With regard to labour the Chinese economy tacks not only the protection necessary to ensure wages are paid on time, but reform has also hollowed out the institutions that made the Chinese economy a success in the first place.

Since I wrote started researching China about half a decade ago a lot has changed. It’s a country that moves at an astonishing rate. Over the past decade, China has rapidly expanded the numbers going to university from from 2.2 million in 2000 to 6.6 million in 2010 students. Job creation hasn’t keep pace and there were 100 job applicants in mid-2013 for every 80 jobs which require a university education in China. The scenario was reversed for jobs which don’t require tertiary education, there were 100 applicants for every 125 slots in China. This has led to a narrowing in wages. Since 2009, professional wages have climbed 12 percent annually. In the same period, average wages in manufacturing, agriculture, and construction have risen 14 percent annually. I’ll chalk this one up as a success for Polanyi’s Double Movement and a sign I was probably too pessimistic 5 years ago.

China has been successful in destroying the old institutions, which allowed it to enter the world economy and out perform all previous expectations. However, they have not been replaced with new institutions to guarantee further success, although some elements are improving. On one level this is evident in the endemic non-payment of of wages, and the callous exploitation of the local state. You can also see the frictions in the mass gathering incidents documented by Jamie.

I would argue there are two seams to the protests now occurring in China. These can be used to locate where people feel threatened by China’s Great Transformation. Some occur because some workers have been left to the mercy of the market, protesting against enforced SOE dissolution, low wages, and a scandalous marketisation of basic services; such as healthcare and education. Others occur precisely because the same set of commodity fictions are not enforced, people are robbed of their labour and land because a market has not been instituted inside reasonable institutions. The same is true in the countryside where Chinese robber-barons have seized huge tracts of land. Both stem from the same source, the weak countermovement in China. If action is not taken to embed the market, then the ecological and human damage that will result will be matched by the collapse of China’s economy. We’ve heard lots about China’s capitalists in passing, but I’ll go into more detail tomorrow.

Filed under: Economics, Foreign Affairs, History, Politics, Society, , , , , , , , ,

My plan to screw Noddy Holder and save the music industry

The purpose of copyright is to encourage people to make more of something. So…

Slade frontman Noddy Holder is set to earn £800,000 this year from his band’s festive 1973 hit, ‘Merry Xmas Everybody’.

The cash will come from PRS royalties, which stack up through radio, television, jukebox and shop plays as well as compilation album sales, reports Prezzybox.com

When it comes to music it seems we’ve got the balance incorrect. Nobody writes pop songs with the intention of earning £800,000 40 years hence so any system that encourages that is pretty messed up. At the same time new artists who need some extra money can’t get a start as the revenue from new recording music plummets.

Perhaps we should set up a fund, a Lady Sovereign Wealth Fund, to help new music acts. Older acts like Noddy Holder are expropriated and all their earnings go into a pot. If you’re a music act you can apply for some money and its allocated by lottery. The more you ask for the less likely you are to win like with Royal Mail shares and one act in hundred is audited to stop embezzlement. 

Anyone like/hate this idea?

Filed under: Society

Karl Polanyi in Beijing: why is there so much smog in Shanghai?

To explain why the smog is so bad in Shanghai you can point to air pressure, christmas, temperature etc. But to really understand, like most things, you have to go back at least half a century. You might think its odd that I begin the meat of these posts with land and nature and not people. But until very recently China was an agricultural country. It makes perfect sense to start with the environment.

So, to kick off, I won’t pretend environmental damage wasn’t widespread in Mao’s China. “Political repression, utopian urgency, dogmatic formalism, and state-sponsored relocations affected and distorted Chinese relationships with nature in the Mao years” as Shapiro wrote in her Mao’s War on Nature. Among the most bizarre attacks was an utterly mad attempt to eradicate sparrows, rats, mosquitoes and flies, from the Chinese countryside. Unfortunately, the environmental degradation produced in the Mao years pales in comparison to the damage which contemporary reforms have fathered.

Mao’s death in 1976 ended the lost decade of the Cultural Revolution, but also created a power vacuum and a period of instability in the Communist Party of China. The elevation of Deng Xiaoping to leader offered a welcome solution to the Chinese people, and he entered office with a mandate for change. The change he proposed was described as “market adjustment” and “adjustment by the plan” at the December 1978 Third Plenum. Reform began in urban areas with an attempt to create an urban labour market by allowing selected managers to hire on a contractual basis. The reforms also included provisions to allow state owned enterprises to raise prices and retain profits. In 1981, amid rising inflation and urban unrest, urban reforms were brought to a halt and focus was switched to rural areas.

Rural reforms began not long after their urban counterparts in September 1980. They initiated a major step in the rural reform process; the commune based agricultural system was to be replaced by the Household Responsibility System (HRS). You don’t understand anything about China unless you understand this. The commodification of land began in the countryside; the HRS divided commune land into individual family farming plots, and tied earnings to the yields produced by each family. They had to make compulsory deliveries to the state but anything above that was free to be sold on the market. Within three years 98 percent of peasant households had been incorporated into this new system. Eager to taste the new life offered to them the Chinese peasants were keen to undertake this transition.

Although the land remained communal property, which was leased out to individual tenant farmers, the HRS amounted to a de facto commodification of land in the countryside. As well as abolishing the old order and implementing the HRS, the Chinese state has also played, and continues to play, a vital role in forcibly commodifying land; dispossessing China’s peasants of their plots . Reflecting on the HRS, The Economist credits the spectacular growth in the Chinese countryside to the free play of market forces. However, what Meisner calls the most “economically successful period in the history of Chinese agriculture” can more accurately be described as the culmination of thirty years of successful state led investment. The rise in productivity being the results of a one-off price increase on compulsory grain deliveries that corrected, previously low, state prices.

Most economists would argue that China suffers because of its ambiguous property system — uncertainty prevents long term planning and investment. However, by equating commodification with free-hold, they ignore that the commodification of land can be done largely on a leasehold basis, as it was in London and New York. Within the Chinese context it is important not to equate the commodification of land merely with status as “private property.” Even as commentators denounce China as Communist in name only, domestically the term private property has still not lost its subversiveness. Therefore, in urban areas, land is often traded in “primary” and “secondary” land-markets, while also remaining state property. This essay will argue, for both land here, and labour in the next chapter, that although unconventional, the commodification which has occurred is subject to the same analysis Polanyi used in The Great Transformation.

The Double Movement does not occur in a vacuum, class interests play an active role in fermenting and directing the countermovement. By mediating the enclosure movement in early-modern England, the monarchy and the Church represented the interests of society and prevented it from massive social upheaval. The countermovement against commodifying land slowed the pace of change and allowed new measures to be developed to deal with the new problems which were part of this new social system. After the experiment of Communal life many peasants were keen to taste the new life offered to them by the HRS. Moreover, the CCP officials who oversaw the dissolution of the Communes, often themselves profited directly from this process. Both of these factors may help to explain the initial weakness of the Double Movement in China. Unfortunately, the enthusiasm of the Chinese peasantry and the CCP for reform, has not prevented a catastrophic destruction of the Chinese environment.

The annihilation of the Chinese countryside is not a certainty; there are some embryonic examples of a countermovement. The Western Development Programme was an attempt to demonstrate the government’s commitment to national unity. It is not a simple or straightforward programme with a discernible single aim. Rather than just attempting to eliminate inequality, most of the programme aims at incorporating the underdeveloped Western China into an enlarged home market. However, this would ignore the element aimed at protecting the environment, the “Grain for Green” programme. In essence it asks farmers to refrain from using the land for profit, and instead to return it to natural forests and grasslands. This serves to protect the natural environment from over-exploitation and callous destruction.

However, projects such as the WDP do not alter the fact that the success of Chinese agriculture is threatened by the market. The institutions which had maintained the major works that allowed China to equitably feed the largest nation on Earth, have been dismantled in an effort to commoditise land. This has not been met by new coping mechanisms or new social projects. Polanyi argues that economies which are embedded will be more successful than those which are not. The HRS was the cause of a cumulatively huge one-off increase in the living standards of millions, but was followed by stagnation in living standard and declining grain yields. Grain yields declined because, precipitated by Deng’s call to diversify, many farmers turned to small-scale private business instead of farming. Moreover, most damaging for individual wealth of those Chinese tied to the land the HRS has put a halt to much mechanisation of Chinese agriculture – a centuries long Chinese ambition.

In 1997, it was suggested that China could take advantage of its backwardness, evade chemical pesticides and fertilisers, refuse to make extensive use of automobiles etc. and bypass the most destructive elements of development. One look at Shanghai shows you that this advice was not heeded and the Chinese people and natural environment have paid the price. The market as instituted in China is incapable of delivering the environmentally balanced development essential in China. Polanyi argued that only by mediating the change and embedding the economy, did the enclosure of England not result in social calamity.

The literature on the environmental damage of modern China abounds, but to be succinct we can restrict our discussion to idea of a “Green GDP” which has been considered by the CCP. A simple idea, the “Green GDP” subtracts the economic cost of environmental degradation, from the increase in a traditional calculation of GDP, more net domestic product than gross. Despite the fact that it “used low estimates of environmental damage to health and did not assess the impact on China’s ecology” the new growth calculations were so meagre that they were politically unusable. The CCP could not maintain its economic credibility with such poor growth figures. The commodification of land has caused huge damage; Vaclav Smil estimated that one seventh of China’s potential GDP in the late 90s was sucked up by environmental abuse. Despite, and perhaps because of, this widespread destruction, there have been some recent movements towards a rebalancing countermovement; such as the WDP described above.

I’ve tried to outline and analyse the problems that have confronted the commodification of the Chinese countryside. In light of; the “Green GDP,” the decline of public works, and the stagnation in peasant living standards since the mid 1980s, the foresight of Polanyi’s argument become clear. An embedded economy will be more efficient than a disembedded market. China is experiencing a continent-wide expropriation of social property, but without being coupled with a concerted effort to maintain the standard of the natural environment essential for the well-being of the Chinese people.

The market is systemically unable to deliver economic growth without doing environmental damage. It is possible to price these externalities, but just because it is possible does not mean it is happening. Pricing externalities requires complex institutional design and a class of people to make the case. The people most badly affected by the damage done to the environment are too weak politically to respond. That a pigou tax is possible but not in place strengthens Polanyi’s position that an economy works better when embedded. Wednesday’s post looks at labour and tells a similarly ugly story.

Filed under: Economics, Foreign Affairs, History, Politics, Society, , , , , , , , ,

No, @chakrabortty‎, Britain is not a developing country, we just need to quit hitting ourselves in the face

Moderat_cover1There is a production possibility frontier. That’s the posh way of saying there’s a technological limit to riches. Then I think about developing vs developed countries I think about how can countries get closer to that frontier. Britain is at, or close to that limit. Britain’s challenge is finding new ways to do things and splitting the proceeds of what we can already do.This is why I think Chakrabortty (and by association Larry Elliott) is wrong here:

Let’s admit it: Britain is now a developing country

We have iPads and broadband – but also oversubscribed foodbanks. Our economy is no longer zooming along unchallenged in the fast lane, but a clapped-out motor

Britain has decided through its imperfect institutions that we want to have a little more of the economic pie in the hands of banksters (via bailouts), a little less in the hands of the unemployed and disabled (via cuts) and the rest more directed by the market than by benefits. That’s the consensus policy view since about 2009/10.

Until the 1870s [1] Lancashire was the high-tech centre of the world (stop sniggering at the back). To get richer we had to invent new things and new ways of doing things. That’s what the UK looked like then and its what it looks like now. A developed country needs to think of new ways of doing things to get richer. A developing one (or, to be less more accurate, an undeveloped one) needs to adopt them.

Argument by definition is the worst, but how else can this argument proceed? Britain doesn’t need to adopt new ways of doing things from elsewhere to solve the problems of poor investment in R&D, bad infrastructure, income inequality or gender inequality, that Chakrabortty discusses. We already know how to deal with them we’ve just decided, as a polity, not to.

The coalition slashed capital spending because it looks like an easy short term fix for the deficit, same goes for the disabled and the poor. Bankers got bailed out because they made a convincing case they would drag everyone else down if they weren’t. Manufacturing got dismantled in the 80s and 90s and fixing the UK’s supply chain will be hard because its a bit of a mystery for how we get from here to there. We can’t just set up a factory manufacturing lead toys with “Made in England” on them like the Germans did,  [2] we have to work it all out again.

As to being overtaken by Taiwan or South Korea. Good for them! This is what successful developing countries look like…

Export (1)

…that’s right. They look like developed countries. This is as good as reason to get the champagne out as any.

Chakrabortty has a point about the concentration of economic wealth leading to a concentration of political power. That’s something I’ve been writing about since I started this blog….so…I guess this isn’t a “developing country problem” at all, it’s a problem of power and it will never go away. Relegating the abuse of power by elites to a pathology of poor countries is unhelpful. Britain has problems but they’re problems we have created. We don’t need to learn anything new – the hallmark of a developing country – we just need to quit hitting ourselves in the face.

____

[1] After that things got a bit more complicated ask in the comments for MOAR History if you want.

[2] Okay! You get MOAR history anyway. The first things to carry “Made in X” on them were toy soldiers from, I believe, Sheffield because the Germans had got hold of some machinery and were making cheap knockoffs. The Germans didn’t know how to get richer when they were a developing country, so they adopted processes from us. Britain couldn’t steal back so it invented “Made in England” as a crude and effective branding to protect their business. See how it works?

Filed under: Economics, Foreign Affairs, History, , , , ,

Are Tory MPs really more greedy than Labour?

When I saw the below graph my immediate thought was, “of course Tories want higher pay, they hang out with richer people.! The peer effects plays a big role  in setting how much we think we’re worth. But I also wanted to check one alternative explanation: differences in purchasing power. In the interests of published failed trials (Ben Goldacre would be proud) I submit the following.

Pay by party

George Eaton posted the above chart earlier today showing that all MPs of all parties think they’re currently underpaid and that the proposed new proposed pay settlement is at the bottom of what they wanted. By the way, George if you’re referencing something like a YouGov survey, please link to the pdf. I had to spend 10 minutes extra googling. Anyway, here’s some more detail. There’s one MP I like in particular:

Pay by MP

I thought that there’s a fair chunk of that around £60,000 to £90,000. I also noted that Tories tend to represent more expensive boroughs than Labour. Maybe the difference between Labour, Liberal and Tory MPs can be explained by how far £65,000 goes in different parts of the countries. So I crunched some numbers.

I used some out of date PPP stats for different regions from here, but they’re indicative enough. I used this map to split the regions between the parties. All very rough and ready, but I just want to check the size of the effect. The number in the final column shows the actual purchasing power adjusted salary asked for. Higher indicated more greed.

MP pay PPP

What I found was that Tories are slightly less greedy than they look and Labour slightly more greedy. But no, nothing remotely significant was discovered. The difference in purchasing power around the country is not large enough to explain away why Tory MPs think they’re worth £20k more than Labour MPs do.

For more on MPs pay, I’ll recommend this piece from Mark. He argues that MPs proposed pay increase is tolerable. It clears up a messy pensions system and it is not an 11% pay increase, annualised its more like 2.2%. That’s more than most public sector employees, but less than most executives are getting. He’s in good company, Norman Tebbit agrees with him…

Filed under: Politics

Karl Polanyi in Beijing: what the hell is an embedded economy?

The account of economics provided by Polanyi rests on two connected facts. Firstly, that people rely on their natural environment and each other for their satisfaction of needs. Secondly, that the economy requires institutions, that distribute skills and knowledge, and guarantee the worth of human beings as things other than commodities. Traditionally, the economy is discussed as an autonomous sphere of human activity, in which the social environment plays only a supporting role, and modelled at a high degree of abstraction such that a “pure market” becomes an unreachable platonic ideal. However, Polanyi believed that the economy can only be examined within social relations, and that markets are therefore only useful when embedded within those social relations; they are marvellous servants but terrible masters.

Within the Chinese context it is important to examine others who have expanded on Polanyi’s concept of an embedded economy, most notably Mark Granovetter, and Peter Evans. Granovetter’s work is instrumental in understanding the social ties which have been essential in insulating China’s business and migrant workers from the market. The role of the state in economic transformation is examined in Evans’ Industrial Transformation. As addressed Thursday’s post, while the Chinese state has been central in fostering economic growth, it has failed to create an economy which promotes equitable national development. Their contribution to understanding the thought of Karl Polanyi will be examined later in this chapter.

In an oft quoted introduction Polanyi stated that “the idea of a self-regulating market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society.” Utopian, because a self-regulating economy is an impossible fantasy which can never be realised. Annihilation, because Polanyi believed that equating the economy with the market represented a slight-of-hand which presents an impoverished conception of the economy. The economy is the setting for numerous social interactions, equating the economy with the market ignores its role in reproducing ethics and protecting society. If man’s economic role is reduced to an input in the market “human beings would die of the effects of social exposure.” Polanyi’s theory of history views the expansion of the state apparatus and the creation of markets as intimately entwined.

In all previous societies, Polanyi believed, the economic had been subsumed within the social. “Capitalism” was not a term Polanyi used frequently in any of his works; he preferred the term market society. I think Tim Worstall might approve of this split. Besides a desire to distance himself from Marx, he used the term to draw attention to the idiosyncratic nature of his theory. The term market society does not refer to private property, or the means of production. What was unique, and dangerous, about it, was that land, labour and money were treated as commodities. His definition of a commodity as “not merely as a good exchanged on markets but a good produced for sale on markets” is irreconcilable with land, labour, or money. Therefore, he describes labour, land and money as fictitious commodities, that is to say that “labour is only another name for a human activity that goes with life itself . land is only another name for nature, which is not produced by man, actual money, finally, is merely a token of purchasing power.”

Thus, the attempt to commodify these three fictitious commodities is doomed to failure. For Polanyi it would have meant the destruction of society, of man, and of the natural environment. ‘therefore, the tendency towards the creation of a self-regulating market is met by a protective countermovement. This is what Polanyi dubbed the Double Movement and cannot be examined as anathema to markets, instead being essential in mediating the rate of change and instituting the process in society. “If improvement demands too great a social dislocation, society disintegrates” as Lord Glasman has written. Polanyi examined the attempt to create a self-regulating market in nineteenth century society, and witnessed its collapse into the New Deal, Soviet Five-year plans and Fascism.

Class is also central to Polanyi’s analysis; each class participated in the self-protection of society and at some point stood for interests wider than its own. In Polanyi’s view of history laird was protected by the landed aristocracy and peasants. Labour, or man, and hence the whole of society, was protected by the working classes. Hence they worked to protect the whole of society. Although they were the originators of the market, the middle class itself even turned against the demands of the self-regulating market “in the final instance even capitalist business itself had to be sheltered from the unrestricted working of the market mechanism.” Traditionally capitalist development has been led by a middle class keen to win more freedoms, but in the 1980s that class was missing in China. Now, it appears that business, and businessmen, are content within the embedded business environment of contemporary China.

The countermovement, examined above as a protective movement, describes one way of interpreting the Double Movement. However, Fred Block offers another reading, and argues that Polanyi describes an “always embedded economy,” in which countervailing movements not only act as a protection against the commodity fictions, but also help shape the initial environment for the development of a market society. This creates an economy that is instituted by exchange but is also “embedded in law, politics and morality.” The creation of a labour market by the 1834 New Poor Law was met by Factory Acts, and an education system, to provide the needed skills; farmers were protected from rapid price fluctuations that might force them from the land; and to embed money there was the institution of central banking. The countermovement not only works to create an acceptable level of protection, but is also responsible for embedding the market institutions in practices acceptable to society. However, this does not represent an optimum level of protection, the natural environment may still be degraded, infants may go without secondary education and business, and the economy may perform less well than it could otherwise do.

However, workers in China, specifically those who make up the vast migrant workforce, lack even the level of protection described above. In the context of a reformed socialist economy, and one of such massive size and regional variation, some deviation from Polanyi’s original thought is essential. Mark Granovetter examines the importance of examining social ties when analysing economic relations. As a practice, guanxi (personal relationships or social connections) has spawned a mass of literature in China, and it would therefore be foolish to ignore the influence it has there, even if it falls outside the remit of what was described in The Great Transformation. Guanxi, as an idiom of social trust, appears to have grown out of Communist-era China, and is now essential for the conduct of business in China. This essay will argue that for both workers and businessmen, this represents, not a distortion of a natural market order, but an informal institution of embedding, and one that has arisen directly as a consequence of China’s growth.

Expanding upon Polanyi’s work Granovetter works to dispel the notion that economic activities occur within a vacuum. He attempts to overturn both the “undersocialised” and the “oversocialised” accounts of economic behaviour. He argues that people do not ignore the social relations they find themselves in. They can rarely be described as searching for the most efficient solution to the set of preferences, instead using previous formed social relations rather than form new efficiency maximising ones. However, neither do they find themselves so “overwhelmingly sensitive to the opinion of others… that obedience [to social norms] is not perceived as a burden”  in that, they do not rationally follow a predetermined set of preferences to achieve their aims. Rather, it is proposed, a constant toing and froing occurs, in which preferences are formed and changed. His “embeddedness hypothesis” bears heavily in this essay because of the odd nature of reform, and countermovement in China.

The Double Movement has been read as presenting a minimum level of protection. But, Polanyi’s work has also been drawn upon by other writers to explain and advise economic behaviour and policy. That is to say, the minimum level provided is not an optimum level for, individual welfare, environmental protection or economic development. Most useful for this is the work of Peter Evans on the state’s role in industrial transformation. The function of the state has traditionally involved making war and ensuring internal stability. Evans argues that modern states are also charged with guaranteeing minimum levels of welfare and fostering economic transformation. Evans uses Polanyi as a starting point in describing the role that states have played in shaping their economies, and creating markets.

Evans recommends an active role for the state in directing businesses towards sectors of the economy that produce “multi-dimensional conspiracies” in favour of development. In his study, by directing entrepreneurs towards the information technology industry, states, which in the 1950s had no prospect of developing in this lucrative field, achieved unforeseen successes. Imperative to these successes were the close ties between state and business communities, and the ability of states to remain autonomous; to not become rent seeking cartel builders. Evans reiterates Polanyi’s point that it is useless to talk of “how much” state intervention, it is more useful to discuss how, where, and why, a state intervenes.

Important is the ability to cultivate close ties between both; bureaucracy and domestic business, and between those same individual businesses. Evans examines the most successful “developmental” states — Japan, Taiwan and Korea — and discusses their bureaucracies and industrial policies. He also contrasts them with both Zaire, the archetypal “predatory state,” and with the “intermediate states” of India and Brazil. Zaire, rather than having too many bureaucrats, had too few; everything was for sale, even justice and influence. Rather than being embedded in law, politics and morality Zaire’s officialdom were free to maximise their individual gain through corruption and exploitation. Evans asserts that not only were the benefits of a “coherent meritocratic bureaucracy” confirmed, but links between state and society were shown to be essential as well. Both, with some qualifications, are present in China, but whether or not they can be effective in fostering further economic transformation, remains to be seen.

If we examine China’s history the tradition of bureaucratic examination extends back to the Song dynasty in the seventh century CE. This bureaucratic tradition is supplemented by the close state-society ties created by the system of guanxi described above. Contemporary trends may however, see the domestic economy increasingly dominated by foreign firms, with little domestic integration. The history of China’s development has cast a shadow over what is now occurring. Therefore, Thursday’s post will discuss the dual nature of China’s economy. Dual, because it is embedded within close ties of social relationships, while also displaying systemic weaknesses that stand in the way of domestic upgrading.

There are, of course, difficulties in using Polanyi’s work. It was developed within a specific historical situation, and it reflects its immediate surroundings; Bolshevism, Fascism, the New Deal and Total War. Polanyi presented class as the mechanism for social change; peasants and landed gentry sought to protect land, while the working class ultimately sought to protect the whole of society from the commodification of man. Thirty years of Marxist-Leninist party rule, state ownership of the means of production, and relentless Maoist mass movements, have weakened class relations in China, and this will inevitably alter how they react to the massive upheaval it is currently experiencing.

Sixty years of economic discussion on the limits of markets has passed since the publication of The Great Transformation. However, Polanyi’s work remains important his lessons have not been learnt. The pope would agree. I’ll leave you with that thought. tomorrow we’ll pick this up with a post on the natural environment of China since Deng’s reforms were introduced. For now I’ll leave you with a photo of Shanghai at the moment and a link to the official safety advice.

From Instagram user euro_spring

Smog in Shanghai from Instagram user euro_spring

Filed under: Economics, Foreign Affairs, History, Politics, Society, , , , , , , , ,

Karl Polanyi in Beijing: what is happening in China?

Mao’s China has been transformed – a market society has been created. This week I will be writing about the political and economic consequences of this event. Karl Polanyi dubbed a similar occurrence, that began in England over two centuries ago, The Great Transformation, and I will argue that no less a great transformation is taking place in China. The similarities between the two events are striking. Firstly, the processes of commodifying land and labour, which began two centuries ago in England are underway in China today. So too is the endemic environmental and personal degradation which occured throughout the first industrial revolution. Indeed the similarities continue, both China and nineteenth century earth have populations approaching one and a half billion.

Just thirty years on from the beginning of reform, an economy largely built on society principles has seen such a transformation that it now unarguably operates according to a capitalistic logic. However, this is not an occasion to celebrate. Polanyi argues that the attempt to commodify land, labour and money will only lead to social calamity. As will be be explain in tomorrow’s post, Polanyi insists that the trio of land, labour and money represent only fictitious commodities, because they are not created for sale. Representing the loci of weakness in a market economy they provided the structure for these posts.Tomorrow’s post will concentrate on land and environment the degradation which has resulted in its commodification. Wednesday we will talk about labour and the colossal upheavals as a market was forced upon China’s labour force. On Thursday we will discuss the productive organisation of China. It will examine the close ties between state and society. Friday I’ll try to tie it all together.

Contrary to the liberal fallacy that markets form naturally when humans interact Polanyi insists that “the road to the free market was opened and kept open by an enormous increase in continuous, centrally organised and controlled interventionism.” This is evident in China where state involvement has been central to the creation of markets in both labour and land. Polanyi argues that economic action is at all times embedded in social relations, thus to disembed it – to commodify land, labour and money – is tantamount to “annihilating the human and natural substance of society”. Therefore, to protect society the initial tendency towards the creation of the market is met by a countermovement; this countermovement is not antagonistic to the creation of markets, it is a necessary corollary. Polanyi not only argues that a countermovement is inevitable, but also that, when embedded, an economy will perform more efficiently. To illustrate this point we can examine the manner in which China entered the world economy at the beginnings of the 1980s. It did so not just with a cheap workforce, but with the best educated and healthiest workers in the world for any country of comparable GDP per capita. However, the imposition of the market has destroyed some of the institutions which created this competitive advantage.

As will be discussed, land and labour in China possess very little in the way of social protections, but constitute vital elements in one of the world’s most dynamic economies. This seemingly contradicts Polani’s assertion that embedded economies are more efficient, and will thus need to be addressed. The next post will unpick the theory of Karl Polanyi which will be applied throughout. Stay tuned, next post up at 10.

Filed under: Economics, Foreign Affairs, History, Politics, Society, , , , , , , , ,

In which the @ONS sends me to the pub

The Office for National Statistics is working to improve its website which is great. One of the big advantages the American blogosphere has is the St Louis Federal Reserve’s data website FRED. It is much easier for them to find useful data. For example, I just spent 30 seconds making this graph. It’s the rate at which people quit their job:

fredgraph

This ease of data access makes it easy to tell stories. You can see the recession marked in grey and the recovery. But you can also see that for all the talk of success in the United States people are still more scared to quit their jobs than even the most pessimistic point of the mid-2000s expansion.

Easy access to data makes it easier to tell stories and to stop politicians and the media misleading you. If anyone says “optimism has returned to the US” I can point to this graph and say “eh, I don’t think so.” The ONS’s website is not easy to use but they’re working on making it easier. I wasn’t sure if I could make the above graph from the ONS data so I tried. Come on a journey with me in which I fail and end up in the pub.

I searched for “Quits” on the ONS which sent me to a 2003 pdf of Job Separations. The term “Voluntary job separation” is the ONS term for quits so I searched for that which sent me to this 2009 pdf on “Economic and Labour Market Review” from which I got this graph:

SeparationsUK

That’s not quite what I want. So I kept digging. About 10 minutes in now. But I’ve got a source Labour Force Survey, great! I google “Labour Market Survey” and go to this page:

Useful

Which isn’t particularly useful. If you search Labour Force Survey on the ONS website you get to a long list of search results but eventually get to this page titled “Labour Market Statistics, November 2013” and this page of 66 different data tables across (for no particular reason) three pages.]

I find the labour force flows tables under supplementary tables. It must have been 30 minutes now. I can’t find quits but I do have separations. Well I say that. What I really have is a combination of people moving from employment to unemployment and inactivity from one quarter to another and a bodge to turn that into this roughly analogous graph. It’s not quits, it’s a separations proxy, but it’s all I’ve produced.

UK Separations

Chris has a good post using the same data set here, showing that it’s completely doable to use the ONS website. It’s just not very much fun. What can I tell you from my graph? Not a lot, I can’t be bothered after all that work. I’m going to the pub.

beer

Filed under: Blogging, Economics

Double your donations to the poorest people in the world

GiveWell, the charity rating company, has promoted GiveDirectly to top charity in the world. The Malaria Foundation used to be top but has been finding it difficult to put extra money to use. GiveDirectly doesn’t have that problem and can be scaled up unlimitedly so all donations over the next few weeks will be doubled. Donate!

You’ll remember GiveDirectly as the charity that directly transfers cash to people living in absolute poverty in East Africa. They’re getting a 28% annual rate of return, improving mental and physical health, reducing hunger, reducing domestic violence without promoting anti-social behaviour like alcoholism or gambling.

Good Ventures will match donations to GiveDirectly over the next few weeks, up to a total of $5 million dollars. They don’t have marketing department and at least 90% of your donations end up with the world’s poorest. For the next few weeks 190% of your donations will go through. Beat that for a good deed.

Filed under: Economics, Foreign Affairs, Politics

It is worth pouring an hour of your life into this Adam Curtis piece

While the old institutions that grew up over the past hundred years to protect us now find themselves unable to comprehend or cope with the new systems of power. Politicians, regulatory institutions, intelligence agencies, the mainstream press, the police, the BBC, the colleges of academia- all of them, as McClure said in 1903:

They do not understand

And cut off from the real power struggles – these old institutions are starting to prey on each other. Leaving us both confused and undefended.

One newspaper editor writing about the loss of the independence of the farmers a hundred years ago summed up the new system: 

“The farmers farm the land, and the businessmen farm the farmers.”

Maybe today we are being farmed by the new system of power. But we can’t see quite how it is happening – and we need a new journalism to explain what is really going on.

 

Filed under: Blogging, History, Politics, Society

Stop LGBTQ campaigner being deported to Russia

Via Stavvers, who I’m pretty much just going to repost.  Find your MP’s contact details here and use this  model letter as a minimum. It will take you under a minute. Other options follow in Stavvers post:

Irina Putilova is a Russian LGBTQ activist. She fled the country and sought asylum here in the UK because the persecution of queer people and activists in Russia put her in danger.

Unfortunately, UKBA do not want Ira to be safe from imprisonment, from raids and state harassment, from attacks. Yesterday, she was taken to Yarl’s Wood–the detention centre which deported a witness to institutional sexual abuse. She risks deportation within days, and it is very likely that she will be imprisoned indefinitely if she is sent back to Russia.

Ira’s case is complex, and it is thoroughly inappropriate to fast-track sending her back into danger, even by the standard of the skewed and violent rules created by abusive xenophobes.

There are some things you can do which could help Ira and persuade the government not to send a queer person into a situation which could endanger her life. Please share her story, and make sure it is visible. Ask journalists to cover what is happening. You can also write to your MP asking them to make a statement in support of Ira–there’s a model letter here, and you can get your MP’s contact details here. Tomorrow–the 8th–there will be a solidarity demo at 6pm outside the UKBA offices at London Bridge, which you might like to attend.

And finally, remember that what is happening to Ira is sadly far from unusual. The immigration system is racist, and exploits intersecting oppressions. You might like to become active in “No Borders” work to try to end this system once and for all.

No person is illegal. Ira must stay.

Filed under: Migration

Important paragraph is important

(7) There is a valid “great stagnation” worry, but it is overwhelmingly one of institution design rather than of innovation exhaustion.And here we reach what I regard as the big issue. In the future we are going to want to spend a greater share of our incomes and attention in areas where the market system works less well: information goods, public goods, increasing-returns goods, pensions, health care, education. The market works less well in these areas. But our alternative modes of collective organization, product take some bureaucracy, not exactly cover themselves with glory in these areas either. Thus I suspect that not innovation exhaustion but rather institution design will be our big problem in keeping the pace of true economic growth going into the long-run future.

Filed under: Economics

Did a woman really have a cesarean forced on her by social services?

pregnant-woman-001-e1348432975957On Saturday Christopher Brooker published an article entitled ‘Operate on this mother so that we can take her baby’ in The Telegraph in which he describes how a woman was taken into care after a panic attack, had a cesarean forced on her and then had her child taken into care because she suffered from bipolar disorder. A number of people (Evan Harris, Unity, Adam Wagner, David Allen Green) have raised concern about how this has been reported and have cast doubt on the series of events described.

Earlier today the judgement issued on the case in question was made public. Below I’ll give as honest and brief a summary of the events described in the judgement as possible, although I sincerely hope you’ll take the time to read the whole thing (pdf) which is only about 3,500 words, but I’ll keep this under 1,000 so as many people read the basics as possible. The story that emerges is equally as heartbreaking but not quite as kafkaesque or squalid.

The ruling was issued in February this year but I understand it hasn’t been public until now because procedures were still underway and the family courts are notoriously secretive. At the time of the ruling the child, referred to as P, was under an interim care order and had been since birth. The court was concerned with working out what was best for the child. Under most circumstances that involves being with the parents, but, as we all know that was not the case here.

The mother, referred to as A, is an Italian national, her father, referred to as B who is a Senegalese national. It is unclear whether or not he has the documents necessary to live and work in Italy and because of this he is unable to take part in proceedings. He was given permission to intervene but seems unable to, probably because of his immigration status. The Local Authority brought this case to court because the child needs a steady home and it was judged this needed to be settled before the child was nine months old.

At the time of the cesarean no order to take the child into care had been ordered. The relevant health authority authorised delivering by cesarean because A was “profoundly unwell” and was suffering from “very intrusive paranoid delusions.” It is under these circumstances that the pregnancy was brought to term by cesarean. The story being discussed by the public that the cesarean was performed in order to put the child into care seems incorrect.

At the time of the hearing in February the mother was well, and the judge remarked upon how articulate and collected she seems, especially for someone for who English is not their first language. In the past, the judgement reports, she had not had always taken her medication and this has been responsible for her lapses. She received treatment in 2008 but has not been consistently well since then. She has two other children C and D who live with their grandmother. The judgement reports that they have probably done so since 2011 and that C in particular has been “upset”, “traumatised” and “terrorised” by her mother’s sad illness.

The mother returned to Italy in October 2012 but did not seem well. Indeed, the judge had hoped she would take a part in proceedings in the UK. She subsequently returned in a significantly improved state, had been taking her medication and seemed, by the description given to be a totally different person. On the 28th of February she had contact with her child A for the perhaps first time and it went very well. The mother claims that in a perverse way her child saved her. It is a really heartbreaking judgement throughout.

As the judgement lays out: “The central issue which I have to decide is self-evidently whether P can in a foreseeable and planned way be placed with her family or whether according to the Local Authority’s care plan the only realistic route, safe route, is that she can be placed for adoption.” The mother proposed that a year or so of foster care for P could allow her to prove she was really well and take the child back. But, it is standard practice that delay would be damaging to the welfare of the child. The damage to the parents’ welfare is justified because the child needs to be placed with a stable home soon and there is no-one within the wider family who today can look after the child.

Although original reporting suggested that the mother has been barred completely from seeing her child, the judge specifically says “I very much hope that the mother on whom I concentrate will be able to have an opportunity of meeting the adopters. It is important for P to know that her birth family, as I know they do, will continue to take a continuing interest in her.” I do not know what has happened since February to keep them apart.

This is, as far as I am able, true summary of the details of the case according to the judgement linked to above. The final paragraph of the judgement is, again,  heartbreaking and worth quoting in full:

If in later life P reads this judgment, as she may well do, I hope that she will appreciate that her mother in particular loved her and wished for her to return to live with her and to bring her up. It is not her fault, nor P’s that that was not possible and that a predictable home could only be secured by way of adoption. P should know that the mother very much wished to parent her and bring her up and I hope that that is some small comfort both to the mother and also to P.

Filed under: Politics, Society, , , , ,

Capitalism can be good for your teeth

I hope all my readers are familiar with the idea of the hedonic treadmill and capitalisms relentless push for new markets. The first is the idea that you’re never happy and that each desire fulfilled is soon replaced with a new one. The other describes the way you want an iPad now when before you didn’t because it didn’t exist. Supply creates its own demand but never makes you happy.

torches of freedomSometimes capitalists search for new markets is altogether more sinister. In the 1920s cigarettes were seen as masculine and unbecoming of a lady, associated with louche behaviour and loose morals. Anyone familiar with Adam Curtis’s documentaries will have heard of Edward Bernays. The nephew of Sigmund Freud he turned his uncle’s insights into the  human mind to marketing and successfully got women smoking. A new market was created, new capital and workers were employed and tobacco companies’ bottom line fattened.

That was when capitalism was bad for your teeth. Sometimes it can be good. In India people tend to only brush their teeth in the morning. To brush in the evening just seems a bit pointless. Brushing once a day is better than nothing but you’re still very likely to need teeth pulled and develop gum disease.

Enter Unilever. Unilever is one of the largest firms in the world and they’re in the toothpaste business (not to mention detergent, bovril, petroleum products, ice cream, hair gel…). Just like Edward Bernays planned on doubling cigarette consumption by getting women smoking, Unilever are planning on doubling the amount of tooth paste consumed in India. That, needless to say, is a lot of extra toothpaste to sell and everyone involved in those extra transactions will be very happy.

One four levels this is interesting. Two nominally left wing, two nominally right wing.

First of all, even simple information is “expensive.” Finding out that you need to brush your teeth twice a day and finding out that this information is valuable is difficult. A lot of writing on economics assumes that information is easy to find and distribute but it is not. A lot of public effort in producing and distributing information is necessary. Secondly, behaviour is sticky. I don’t want to bang on about how people are irrational but they are. Even knowing how important brushing is people still don’t. 

Thirdly, the economy is fiendishly complex. Some of you might care about the dialectic but I bet none of you care about the Indian toothpaste market. Hayek had this right, a more distributed approach to collecting information and organising action has its advantages. Lastly, the profit motive is not all bad. Unilever is full of people who care about health but it is also full of accountants. Together they’re able to invest in marketing in India to increase toothpaste penetration and make the world better for everyone.

The hedonic treadmill may roll on and on, but there’s nothing in the world worse than toothache.

Filed under: Foreign Affairs, , , , , ,

What the hell is Boris talking about?

distribution-of-income-2011

That graph atop this post doesn’t look like any bell curve I know. Intelligence is distributed normally. Income isn’t. Connecting the two is stupid, but looks clever. Superficially I can see the appeal, but when you dig down into the mechanisms it just doesn’t work. The superstar effect looks important, but isn’t. No matter which way I turn it in my head I can’t understand what Boris is on about. Boris says that those with IQs below 80 are inevitably poorer and those with IQs above 130 inevitably richer. The mechanisms that drive inequality don’t work like that and the data don’t back him up.

What drives inequality? It varies by time and place. In 1960s America over 94% of doctors were men, since then women have been allowed to enter the field and now only 62% of doctors are men. Since then, 20% of medical productivity improvement can be explained by the entry of more talented women. That study isn’t about IQ but it does show that power plays a huge role in keeping one group well off by harming another. 

Moving back to the issue at hand when we talk about inequality we’re generally talking about the 1%. Who are they? The 1% are Doctors, Lawyers, Financiers, Executives and Entrepreneurs, according to this Economist article. Doctors and Lawyers are clever and earn a lot of money, but aren’t generally super rich. Just appropriately rich, I’m going to leave them. People working in finance and entrepreneurs are the wealthiest but there’s no story about how high IQ could turn into super-high income that correlates with the data.

As The Epicurean Dealmaker points out, genius is not required to make lots of money in investment banking, tolerance for brutal working conditions is:

Investment banking neither seeks out nor requires the allegedly “best and brightest”—whoever the fuck they are supposed to be—for its employees. All we seek are aggressive, ambitious, smart enough young kids to process our ridiculous pitch books, update our standardized models, and generally take our shit while we senior bankers do whatever is necessary to bring in enough revenues to ensure our continued employment and the consequent support of our dependent wives, children, mistresses, and bartenders. [Emphasis in original]

That quote points to the other key reason financiers make so much money: organisational capital. This is the rules, connections and technology that turn a building of arrogant excel-jockeys into a multi-billion dollar wealth creation machine. While it lasts, organisational capital is responsible for a huge amount of value that an individual creates and it has nothing to do with how clever that individual is. The same logic applies to why senior managers make so much money, sure they’re smart, but being super smart won’t have much effect against the background of the rest of the firm.

So that’s a partial pass for Boris for Lawyers and Doctors, but a big fail for Financiers and Managers for Boris’s pet theory. Where Boris’s theory makes the most sense is for the fifth class of the super rich, the entrepreneur. But it only makes sense at a superficial level. Supercleverman has supergoodidea and makes loadsamoney. But no, that’s not how it works.

Having an higher IQ really doesn’t really make you more likely to succeed as an entrepreneur. Most companies fail, and while somebody with an IQ of 150 is smarter than more than 99% of the population, everyone is more or less as equally ignorant relative to the complexity of the economy. Being 50 IQ points cleverer than the next guy doesn’t mean your company will succeed, you’re taking as big a punt as anyone else.

So what was the data I was talking about? The longest longitudinal survey ever conducted was started in 1938 and still going recording the lives of 268 American men. There was no noticeable difference in maximum income earned by men with IQs in the 110-115 range vs. men with IQs above 150. This matches another paper (H/T Chris) which is much larger and also finds very little correlation between IQ and income.

The bottom 16% of people with IQs under 80 will find it very hard to join the 1%. But there’s no explanation in the data to explain why someone with an IQ of 130 or 150 is richer than someone with an IQ of 110. There is some justification for inequality in market income due to differences in inequality, but there is nothing in Boris’s speech that justifies the inequality we actually have. Using intelligence to justify inequality is classic Boris. It looks smart but when you look closely and ask how it works in vanishes into smoke.

Filed under: Economics, History, Politics

People who have died a violent death in UK immigration detention centres

Posted without comment.

People who have died a violent death in UK immigration detention centres (*suicide) Siho Iyugiven (27), 5/10/89*, Kurdish, Harmondsworth Kimpua Nsimba (24), 15/6/90*, Zairean, Harmondsworth Robertas Grabys (49), 24/1/00* Lithuanian, Harmondsworth Mikhail Bognarchuk (42), 31/1/03*, Ukrainian, Haslar Olga Blaskevica (29) 7/5/03, Latvian, Harmondsworth Elmas Ozmico (40) 12/7/03, Kurdish, in hospital from Dover Kabeya Dimuka-Bijoux, 1/5/04, DRC, Haslar Sergey Baranyuk (31) 19/7/04*, Ukrainian, Harmondsworth Tran Quang Tung (35), 23/7/04*, Vietnamese, Dungavel Kenny Peter (24) 7/11/04*, Nigerian, in hosptial from Colnbrook Ramazan Kumluca (18), 27/6/05*, Kurdish, Campsfield Manuel Bravo (35), 15/9/05*, Angolan, Yarl’s Wood Bereket Yohannes (26), 19/1/06*, Eritrean, Harmondsworth Eliud Nguli Nyenze (40), 15/4/10, Kenyan, Oakington Muhammed Shuket (45), 2/7/11, Pakistani, on way to hospital from Colnbrook Brian Dalrymple (35), 31/7/11. Colnbrook Ianos Dragutan, (31), 2/8/11*, Moldovan, Campsfield Khalid Shahzad, (52), 30/3/12, Pakistani, on train from Colnbrook Alois Dvorzac, (84), 10/4/12. Canadian, in hospital from Harmondsworth Prince Kwabena Fosu, (31), 30/10/12, Ghanaian, Harmondsworth Tahir Mehmood, (43), 26/7/13, Pakistani, Pennine STHF Remembering also Joy Gardner (40), 28/7/93, Jamaican, killed by police while being deported Jimmy Mubenga (46), 12/10/11, Angolan, killed by G4S guards on BA flight (via Close Campsfield)

People who have died a violent death in UK immigration detention centres (*suicide)

Siho Iyugiven (27), 5/10/89*, Kurdish, Harmondsworth

Kimpua Nsimba (24), 15/6/90*, Zairean, Harmondsworth

Robertas Grabys (49), 24/1/00* Lithuanian, Harmondsworth

Mikhail Bognarchuk (42), 31/1/03*, Ukrainian, Haslar

Olga Blaskevica (29) 7/5/03, Latvian, Harmondsworth

Elmas Ozmico (40) 12/7/03, Kurdish, in hospital from Dover

Kabeya Dimuka-Bijoux, 1/5/04, DRC, Haslar

Sergey Baranyuk (31) 19/7/04*, Ukrainian, Harmondsworth

Tran Quang Tung (35), 23/7/04*, Vietnamese, Dungavel

Kenny Peter (24) 7/11/04*, Nigerian, in hosptial from Colnbrook

Ramazan Kumluca (18), 27/6/05*, Kurdish, Campsfield

Manuel Bravo (35), 15/9/05*, Angolan, Yarl’s Wood

Bereket Yohannes (26), 19/1/06*, Eritrean, Harmondsworth

Eliud Nguli Nyenze (40), 15/4/10, Kenyan, Oakington

Muhammed Shuket (45), 2/7/11, Pakistani, on way to hospital from Colnbrook

Brian Dalrymple (35), 31/7/11. Colnbrook

Ianos Dragutan, (31), 2/8/11*, Moldovan, Campsfield

Khalid Shahzad, (52), 30/3/12, Pakistani, on train from Colnbrook

Alois Dvorzac, (84), 10/4/12. Canadian, in hospital from Harmondsworth

Prince Kwabena Fosu, (31), 30/10/12, Ghanaian, Harmondsworth

Tahir Mehmood, (43), 26/7/13, Pakistani, Pennine STHF

Remembering also

Joy Gardner (40), 28/7/93, Jamaican, killed by police while being deported

Jimmy Mubenga (46), 12/10/11, Angolan, killed by G4S guards on BA flight

(via Close Campsfield and Alex Marsh)

Filed under: Blogging, Migration

Here’s how you work out how many Bulgarians and Romanians are coming to the UK next year

bulgaria-romaniaConcluding his piece Tom Harris says “No one any longer believes government estimates of how many are likely to come here anyway.” No wonder when our elected representatives refuse to explain why the government was wrong in the past. Instead of publicising pieces attacking migrants MPs like Tom should be educating the public. Instead it is going to fall to me.

The original sin of the last decade’s immigration debate is that UK governments have purposefully underestimated the number of expected immigrants. This persistent myth acts as a golden thread connecting immigrant bashing in the same way as youcan’teventalkaboutit, flood metaphors and the same persistent negative stereotypes.

In 2004 eight ex-communist states joined the EU. Their democratisation has been one of the crowning achievements of the European project and to the UK’s eternal credit as principled liberal democracy the UK was one of the few countries not to impose immigration restrictions on these A8 countries.

Christian Dustmann was the lead author on the now infamous Home Office report which predicted an average annual net immigration of 5,000-13,000 from these A8 countries. Needless to say the report wasn’t very accurate. It massively underestimated the pent up demand of Poles to search for a better life and poorly predicted the behaviour of other EU states. It did so because it lacked good data. Tom Harris is happy to pretend we still don’t know what’s going to happen, but that’s not true.

According to ONS data, annual net immigration of A8 nationals during 2005-06 was 66,000, more than four times higher than predicted. But according to data from the Worker Registration Scheme that was set up in May 2004, the average annual number of A8 workers registering for employment during 2005-06 was 216,000, almost three times the ONS figure because the ONS excludes people staying for less than a year.

This is what happened. In 2004 73 million Estonians, Latvians, Lithuanians, Poles, Czechs, Slovakians, Hungarians and Slovenians gained access to the labour markets of the UK, Ireland and Sweden, a combined population of 74 million. Those were the only three countries to open their doors to their new democratic neighbours, something which Dustmann did not anticipate.

Next year the 29 million Romanians and Bulgarians will be allowed access to the combined labour markets of Austria, Belgium, France, Germany, Luxembourg, Malta, Spain, The Netherlands and the UK, a total of 293 million people.

The average GDP per capita of these counties in 2004 was $8,300, ranging from $6,000 in Latvia to $16,000 in Slovenia. Today Romania’s GDP per capita is $8,000 and Bulgaria is a little poorer at $7,000. The obvious conclusion from these stats will jump out at anyone, January 1st will be a non-event. Half as many people will get access to a labour market four times the size.

Although the UK jobs market is still depressed and in a worse state than Germany’s it is in a better state than southern Europe. A back of the fag packet prediction with much better data and assumptions can get us a realistic picture of what will happen in January. If we had a 200,000 person increase in migration from A8 accession migrants we’ll see an eighth of this.

Conservatives and Labour know they can make hay from immigration. Although they’re both terrified of the public on the subject they know that there are votes in immigration baiting. There’s not much in the numbers and that’s why some in Labour are picking on Roma and David Cameron is reannouncing old immigration policies as new.

I’ll go out on a limb and say that we’ll get between 20,000 and 30,000 more people a year from Romania and Bulgaria coming to work in the UK.  This is a lot less precise but a lot more accurate than anything else you will hear on the topic. Don’t let the scaremongers win on this one.

Filed under: Migration, , , , ,

Everything you never knew you wanted to know about Islamic Central Banking

iran.

This is cool! [1] Hassan Rouhani talking about monetary policy? Could I be any more excited? No.

Despite inventing zero, arabs have no use for it, [2] at least not when it comes to central banking. Lending money at interest is haram in Islamic finance so the use of interest rates to control demand as is normal in the west doesn’t apply. So does this also means that unlike in the UK and the US there is no danger of interest rates going to zero and the economy entering the liquidity trap?

Most reporting on Iran focuses at its very high inflation but nobody is paying much attention to the tools used by the central bank. This is understandable, inflation has skyrocketed and the central bank has no independence and is controlled by the Iranian state. My rhetorical question is largely irrelevant at the moment, but if we look at the tools Iran’s central banks uses the question is likely “yes”. I think we should look a little at the tools of Islamic central banking anyway as they give us a window into a world of central banking with interest rates or a zero rate problem.

To begin, a little history. The first Islamic savings bank was established in Mit Ghamr in 1963 by Ahmad El Najjar, an economist. In the 1960s Nasser was trying to modernise egypt and so the bank kept secret its overtly Islamic nature. Riba – charging interest – is haram so the saving bank operated on a profit share basis. Today, the much larger Islamic finance industry – in 2011 $1.357 trillion of shariah-compliant assets existed globally - has a variety of alternatives to charging interest.

Islamic finance seeks to avoid unearned income, which is seen as exploitative. Instead of lending money and charging interest, which is seen as just transferring risk, risk is shared through a variety of mechanisms; as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar). This can be illustrated with an example: Unlike in western finance a mortgage transaction does not involve interest payments. Instead the bank would arrange to buy the house from the seller and sell it on to the buyer at a profit with payments arranged as installments.This arrangement is called Murabahah and is the most relevant for our discussion of central banking.

Sukuk is also an important concept too. This is similar to a bond in which interest is regularly paid on a principal. However, because riba is haram in Islam it cannot be structured like this. Instead sukuk imply a transfer of ownership and can look like a form of repurchase agreement. You agree to repurchase something at a certain price over a certain period of time. This echoes previous posts of mine of what saving really is. Interest rates are just symbolic, what is really happening is people buying durable things today with an expectation they will be able to sell them on for more in the future. Interest rates are our way of expressing that, Murabahah or Sukuk are another. The latter seems clearer and more honest on the mechanism actually.

(At this point, I do want to point out to all the snooty economists, engineers, mathematicians who mock post-modernism…who’s laughing now?)

So what does all this mean for Islamic central banking? The most prominent method of controlling monetary policy is the control of the profit rates allowed by banks when they lend, the Mudharabah discussed above. Anything from an 18% to 20% on non profit-and-loss sharing arrangements, and slightly lower on profit-and-loss sharing arrangements. In a country shrinking around 5% a year finding a 20% return implies a high rate of nominal GDP growth which is split between negative growth and even higher inflation.

We can see that the implied maximum profit rates require very high growth in nominal incomes and we also see very fast growth in the monetary base. Entering into a profit-and-loss agreement will guarantee you a high nominal return in a low growth environment and monetary growth is high to accommodate these contracts. There is no reason however that the profit share cannot be set to a lower number. This would amount, via the Kalecki equation, [3] to a monetary tightening and NGDP and inflation would both have to decrease to accommodate this lower allowable rate of profit. Weirdly a shrinking of the nominal profit rate could increase it in real terms. Money is weird.

This piece from Cato, caveat lector, says that Iran stopped publishing information on its money supply in March 2011, at the time they showed continued very rapid growth in the money supply. If Rouhani has changed this that’s great. The country’s monetary policy at the moment is chaotic but once the chaos fades it will be useful to bear in mind how Islamic monetary policy works. The details in this post are broad sketches only. I took lots from these documents [12345] and I’m not sure of their quality. This is an area where I don’t even know anyone who might know an expert, so any input in the comments or on twitter is welcome. Likewise please share this as this might get picked up by someone better informed than me.

_____

[1] Yes. Cool. You’re here aren’t you?

[2] Yes. Persian or Iranian is more appropriate but I’ve been looking for a chance to use that line since I drafted this post months ago. UPDATE: As Lorenzo tells me, actually the Indians invented zero as a concept, the Arabs were miles behind. More here.

[3] I’m making the Kalecki equation  [1, 2, 3] do some heavy lifting here, but I think that’s right…

Filed under: Blogging, Economics, Foreign Affairs, Politics, , , , ,

When NGDP is Depressed, Employment is Depressed

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Increase NGDP, Put These People Back to Work

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