Independent schools

I was quite surprised to read about Michael Gove’s recent
speech in which he makes the argument that the domination of many high-profile positions in the UK by privately educated people is morally indefensible. I largely agree with what he said but was surprised to hear him make these statements, especially as he was giving a speech to independent school headteachers at an independent school in Brighton. I wasn’t that surprised to then find that George Monbiot had very quickly written a response in which he accused Michael Gove of being disingenuous.

I must admit that I have given the issue of private schools some thought recently as one of my children starts high school next year and we considered, briefly, trying to get a place at a private (fee-paying) school rather than our local high school. We didn’t consider this for long as we probably can’t afford it and our local high school is very good. I do, however, also have an issue with the advantages that one seems to get from attending a private school as opposed to a government school. I should acknowledge, however, that I don’t really have an issue with parents sending their children to a private school as it is their choice and parents are entitled to do what they think is best for their children.

I have two main issues. One is that I think the state school sector would be better if there were essentially no private schools. Everyone would have a stake in the state sector and there would be an incentive to have as good a state sector as is possible. In the US, private schools aren’t common. Most people go to state schools. I also recently read an article arguing that one of the reasons that the school system in Finland was so good was that there were no private schools (I haven’t checked if what was quoted in the article was correct though). There would be consequences, but I suspect the country as a whole would benefit.

Given that we have a private school sector, my other issue is how much credence we give to what I think of as the added value of a private education. The confidence, social skills, etc that a private education typically bestows on its pupils. These are all perfectly good attributes and I wish the state sector was better at building these kind of skills. However, I have a sense that in many cases these “skills” make someone appear much more competent than they probably deserve. If we were better at judging a person’s actual skills and competences, the added value of a private school education would become less significant.

It is possible, I guess, that a private education is so much better than a state education that we just have to accept that the best people to become judges, government ministers, business leaders, etc are those who have been privately educated. I just don’t believe that this is correct in the first place. If – by some chance – it is, we are then doing our country a huge disservice. To be selecting our leaders from the minority who are privately educated means that we are missing out on many potentially talented people who are, through no fault of their own, educated in the state sector.

Private vs public (again)

I got a little riled this morning by a comment at the bottom of Zoe Williams’s article about privatisation of public sector services. I thought the article
was excellent and asked some insightful questions. It seems that a significant fraction of the new private sector jobs are simply jobs created by the outsourcing of public sector jobs, in which case we’ve essentially saved nothing (or more correctly, these new private sectors jobs don’t indicate any real private sector growth).

The comment that annoyed me was this one which is essentially the fallacious argument that the private sector creates wealth and public sector soaks up wealth. It’s complete nonsense and I’ve blogged about this before. Essentially, as far as I’m concerned, the primary difference between the private and public sector is that the main goal of the private sector is to make a profit while the main goal of the public sector is to provide public sevices at a cost that fits within a preset budget. Many people assume that making a profit equates with wealth creation, but it does not. Wealth creation can lead to increased profits, but increased profits does not necessarily lead to wealth creation.

If we were to provide healthcare in a manner similar to that in the US, the total cost of healthcare would increase from about £100 billion to somewhere between £200 and £300 billion (this is assuming that we didn’t simply decide to not provide healthcare for the lower half of the income distribution and to simply let poor people die when they become ill). In this scenario there would be many companies making substantial profits. If this increased spending on healthcare resulted in the UK population becoming incredibly healthy and so able to work without taking days off and allowed everyone to be more productive, the increased spending could potentially generate wealth. Judging by the typical health of an American, this seems unlikely. This increased spending would, essentially, destroy wealth. Hundreds of billions of pounds that could have been spent on food, holidays, cars, or any kind of luxury would now be spent on healthcare.

Sure, there’ll be plenty of healthcare companies making substantial profits but essentially they will be providing a healthcare system similar to what we have today for 2 to 3 times the cost. Essentially my argument is that wealth creation requires efficiencies and it needs to be relative to previous costs. We need to work out how to provide services at the lowest cost that doesn’t damage quality. The public sector is a crucial part of this process as it provides education, healthcare and infrastructure that allows the private sector to then go and make their profits. Wealth creation is about more than simply making a profit and it’s time that people started to realise how important the public sector is in providing a foundation for wealth creation.

Full Fee UK students

I thought I would make a quick comment about this Guardian article suggesting that the government is considering the possibility that UK students could get a place at the university of their choosing if they were willing to pay – up front – the full fee. They would be paying the same as international students (i.e., not home/EU) and this is generally significantly higher than the fees currently proposed for local students (£12000 or higher).

This proposal is supposedly alright since these students would only be accepted if they satisfied the entry requirements for the degree programme to which they had applied. This sounds fine, doesn’t it? If they could get in anyway why not let them do so. They will pay more than other UK students and so will help to effectively subsidise other students. There are two reasons why this is disingenuous. Firstly why would anyone directly pay up to double what they need to? Sounds too good to be true. Secondly, most universities (or at least Oxbridge and the Russell Group) are selecting. This means that they have a minimum entry requirement (i.e., what prospective students would at least need in order to cope with the degree programme) but generally select students with grades significantly higher than this minimum.

What the government is presumably suggesting is that these full fee students would satisfy this minimum but could well have grades (and presumably ability) well below the typical for the degree programme onto which they have been accepted. If I really believed that students, who would be selected on merit alone, might be willing to pay much more than other students on the same programme, I’d be all for this. Since I don’t believe this is likely to be the case, I think this is an absolutely shocking suggestion and I hope universities show some backbone and refuse to allow this to happen.

Gross Domestic Product

I was in the process of writing a post about science becoming an election issue, but have been somewhat distracted by an article in the Guardian by George Monbiot. The basic idea of the article is essentially that we are so fixated on growth that some people now believe that we should consider using all the resources on our planet if it allows us to then explore other worlds. What I found interesting was, however, the discussion of Gross Domestic Product (GDP), in particular the use of GDP growth as a measure of an economy’s success.

I’ve always had a bit of a problem with using GDP as a measure of a country’s wealth. Although I’m not an economist, it seems a little simplistic to just use this, especially since it gives no real indication of how the wealth is distributed. It is simply a measure of a country’s total economic output. I have argued before (here) that we should really use something like the Gini coefficient (indicating wealth distribution) and GDP, in order to optimise a country’s wealth together with how it is distributed. We could consider accepting a lower GDP if the wealth is more evenly distributed, especially since there doesn’t seem to be any strong evidence showing that giving excessive amounts of money to a select few ultimately benefits everyone.

What I found interesting in George Monbiot’s article was the suggestion – which came from a paper published by someone called Sir Parth Dasgupta – that another problem with GDP is that it doesn’t take into account the effect of GDP growth on a country’s resources. A country with a rapid growth in GDP could be doing this by depleting its resources in an unsustainable way so that even though GDP is growing, the total effective wealth is decreasing. Maybe we need to consider total wealth, GDP and how the wealth is distributed when trying to determine the strength of an economy. Maybe we also need to stop being so fixated on growth and start to consider how sustainable our economy’s are. As the current financial crisis has shown us, rapid growth is unsustainable and we would probably have been much better off if the financial sector had been more cautious and accepted a lower growth rate that would have been more sustainable (we probably can’t get rid of boom and bust completely, but we can probably minimise the amplitude of the perturbations).

Although I’m pleased to see more discussion about how a country’s economy is measured and would personally be very in favour of us considering how wealth is distributed and how sustainable our economy’s are when determining the wealth of a country, I’m not convinced that we are going to be seeing any paradigm shifting changes in the near future. It’s not really in the interests of today’s business leaders (who probably have a great deal of influence with our political leaders) to change the way in which we measure a country’s economic strength, especially if – in order to have an sustainable economy that would ultimately be of long-term benefit to the country, and possible even the world – this would involve them accepting a smaller fraction of the total wealth.

The tax burden

Fascinating article in the Guardian by Polly Toynbee , called
cooling the cutting fisticuffs – take a long, hard look at tax . What the article claims, and what I found particularly interesting, is that the bottom 10% of earners pay 46% of their income in tax, while the richest 10% pay only 34% of their income in tax. What is more, the top fifth of earners take 51% of the national income while the bottom fifth take 3%. This comes from a report by a centre-left pressure group called Compass , and I have no real reason to doubt its veracity.

Apparently the reason for this discrepancy is that the highest earners can take some (or most) of their income in the form of capital gains which is only taxed at 18%. So even though their salary is taxed at a high rate, their actual salary only makes up a small fraction of their total earnings – most of it coming in the form of capital gains. When I first read this I immediately thought that although this may be true, most low earners effectively recover what they lost through taxes in benefits, but I think this doesn’t really make a difference. The public sector makes up something like 40% of the UK’s economy. If we want to sustain what the public sectors offers people in the UK, we have to roughly recover 40% of the total income. We could of course decide that the public sector should only make up 30% of the UK economy which we could achieve by privatising some parts of the public sector, but I happen to believe that this would not be improve things in any way.

So assuming that we accept that the public sector is going to make up about 40% of the UK economy, how do we fund that? Well a simple way would be to take 40% of everyone’s income. This could be through both direct and indirect taxation, but at the end of the day we need this to fund the public portion of the economy. What you could then choose to do is to take a slightly higher fraction of the top earners’s income, leaving those on lower incomes with more money. You can even give some of money back to the lowest earners through benefits since they take such a small fraction of the total income, that this won’t really have a significant impact on government revenue. What you certainly don’t do is take less than 40% of the highest earners’s income. They take such a large portion of the total income that this will have a huge effect on the total amount of government revenue. How can we possibly expect to both sustain the public sector – which I think we should be doing – and draw down the deficit if we don’t at least tax the the highest earners at a rate that will give the government sufficient revenue.

In some sense this isn’t even a discussion about what is fair or not, it seems logical that the simplest way to ensure that government revenues are sufficient is to start by making sure that the highest earners are taxed appropriately. If not enough is recovered from the highest earners, it becomes increasingly difficult to get the remainder of what is required from the lowest earners since they take a smaller fraction of the total income. It seems ridiculous that we are only taking 34% of the total income of the top 10% of earners in a country that intends to have a public sector that makes up 40% of the economy. The top earners presumably would argue that they don’t rely on the public sector to the same extent as the lowest earners, but this is nonsense. Also, in an average sense, something like 40% of their income presumably comes from the public sector. In fact, since they take such a large fraction of the total income, more than 40% must come from the public sector and so taxing them at a higher rate, to a certain extent, is simply recovering public money.

Domestic extremism

A couple of interesting but potentially disturbing articles in the Guardian about how the Police monitor and investigate what is sometimes referred to as domestic extremism. The basic idea seems to be that the Police are collecting information about many activists who have been or may be involved in domestic protests or who attend political meetings. I am quite in favour of intelligence gathering as a means of determining what may happen in the future, with the caveat that the intelligence should be collected properly and interpreted correctly. The explicit goal of such intelligence gathering should be to prevent possible criminal activities.

What is concerning in the case of “domestic extremism” is the possibility that the Police are actively collecting intelligence on people who are highly unlikely to carry out any criminal activities. Even worse is the possibility that the implication that simply being a political activists makes you a potential future criminal (or even that being active in this way is implicitly criminal). I personally find this extremely disturbing. If anything I believe we should be doing exactly the opposite and encouraging people to become much politically and socially active. We’re supposed to be living in a democracy. How else are our political leaders meant to get a sense of what the general public feels if we don’t stand up for what we feel strongly about. Even if the above interpretation is wrong and the intelligence gathering is simply to identify true criminals, the impression that being an activist could lead to you being on some Police database will almost certainly discourage many.

It is slightly ironic that I’m writing this since I’m personally fairly poor at being particularly politically or socially active. Even though I am writing this anonymously, I did wonder if by writing this I could end up on such a Police database, but since noone seems to be reading my blog that seems highly unlikely.

Arrogance personified

The Guardian has reported that the vice-chairman of Goldman Sachs, Lord Griffiths, has given a speech at St Paul’s cathedral in London about morality in the marketplace in which he argued that society (the British public) should “tolerate the inequality as a way to achieve greater prosperity for all” . Not only do I disagree with the premise that giving lots of money to a few people will make everyone else more prosperous, it also seems as though his primary argument is that if we don’t accept this, banks will relocate overseas.

I didn’t see the speech and haven’t read a transcript so don’t know if there was more to it than that suggested above, but it doesn’t seem like a particularly moral argument to me. Give us what we want or else. Personally I think we should stand up to these kind of threats. I don’t believe that there are any strong arguments in favour of the trickle-down effect. There must be some kind of conservation in the system: the more the bankers keep the less there is for the rest of us. What is more, since banks don’t really build anything or invent any new technologies, the more money they keep the less there is for industry to work with.

There’s no question that banks do provide a valuable service, but is it quite as valuable as they seem to think. I agree that at the moment individual banks may be forced to pay ridiculous salaries in order to retain good staff, but there is no real reason why we as a society cannot push for a global change such that this is no longer the norm. It seems as though banks pay much higher salaries to a much larger percentage of their staff than other comparably sized business. Although banks may well have a larger percentage of highly-trained staff than many other industries, this still doesn’t seem to justify such huge salaries. If anything, if more of these bright people were encouraged to go into other industries that may develop technologies that can change the way we live – rather than being seduced by huge salaries in the banking sector – we may all benefit.

Although I am pleased that Alistair Darling, the Chancellor, has criticised the banks for paying huge bonuses so soon after being bailed out by the government, I have to admit that I suspect that this is more for political effect than because he truly believes it is wrong.

The Wealth Gap

I have recently become quite interested in the wealth (or more accurately income) distribution in the UK. This was partly motivated by a couple of what I thought were interesting articles by Polly Toynbee in the Guardian. In the first article (which I can no longer find – maybe it wasn’t Polly Toynbee) a group of people are asked if they believe that a wealth gap exists in the UK. Most answered that they did, but when asked to guess the salaries of some top earners (solicitors, investment bankers, etc.), they generally guessed salaries significantly lower that what these top earners typically earned.

In the second article (which you can find here ) a group of high earners are again asked some questions about the wealth distribution in the UK. More than 50 % of people in the UK earn less than what this group thought was the poverty line, and less than 1 % earned more than what this group thought would put you in the top 10 %. Essentially these two articles illustrate – or supposedly illustrate – that the lowest earners believe there is a substantial wealth gap, but don’t realise quite how big it is, and the highest earners believe there isn’t really a substantial wealth gap, but only because they don’t really realise how little most people earn.

Although I haven’t investigated this in extensive detail, I have looked up some numbers related to the distribution of wealth in the UK. When considering any distribution it is quite important to understand the difference between things like the median and the mean (Stephen Jay Gould has an excellent book called Full House that explains some of these statistical terms extremely clearly). In the UK in 2004/2005 the mean annual income (pre tax) was about £23000. This, however, can be distorted by a small proportion of the population earning extremely high salaries. A better measure is the median which tells you, in some sense, the middle salary (i.e., 50 % of the population earns less than the median and 50 % earns more). In 2004/2005 the median, pre-tax income was about £16500, significantly less than the mean.

Although the median income has increased somewhat since 2004/2005, to something around £18500, I still find it quite remarkable that 50 % of the British working population earn £18500 per year or less. If, rather than considering indivduals, one considers households, it is slightly higher, but not by much. The mean household income for 2004/2005 was £31800 while the median was £24700. Again, these numbers will have increased slightly in the last couple of years, but I still find somewhat disturbing that 50 % of households survive on about £25000 or less, but does this indicate the presence of a wealth gap in the UK? Certainly, trying to run a household on less than £25000 per year must be pretty tough. That the top 1 % of earners have salaries more than 17 times greater than the bottom 10 % may suggest that a gap does indeed exist.

None of these numbers, however, convincingly illustrates that there is a substantial wealth gap in the UK. I then found a figure from the government’s office of national statistics which illustrates to a certain extent how wealth is redistributed. The figure (which you can read more about here) shows the average annual household income broken up into 5 groups (bottom 20 %, next 20 % etc. – known as quintile groups). The dark blue columns are the original annual household incomes and the light blue columns show the annual household incomes after tax and benefits. The bottom 20 % more than double their income to about £ 15000 per year, while the top 20 % lose almost 30 % of their income. The median (which would be roughly the 3rd quintile group) have a household incomes of just over £20000 per year which isn’t affected much by tax or benefits. The figure suggests that the top 20 % have average household incomes only 3 times greater than the bottom 20 %. The figures also suggests that the top 40 % of households end up with about 60 % of the total amount of money earned in a year, and the top 20 % end up with about 37 % of the total. Does this suggest an unfair distribution – I don’t really know. My first impression was that it actually looks quite reasonable.

Having started this post expecting to illustrate that there is indeed a wealth gap in the UK, I am finding myself now less convinced than I was when I started (interestingly Polly Tonybee was on the BBC news this morning stating once again that the UK – along with the US – does indeed have a very big wealth gap). Having said that, I do still find it disturbing that most households survive on less than about £25000 per year (after tax and benefits). I have also been using wealth here to mean income, so this doesn’t really illustrate how the actual wealth is distributed. Most of the numbers here are also based on taxable income. What I also don’t know is how much of the country’s income is given out in a manner that allows the receiver to avoid tax and therefore isn’t included in the analysis here. I was going to continue and talk about the Gini index which is an index for illustrating how income/wealth is distributed in a country but, since this is already quite long, I will leave it for a later post.