Free market?

I’ve been reading quite a lot of articles and comments about the recent Comprehensive Spending Review (CSR) and there is – as you would imagine – a wide variety of different views. What I find quite interesting (to put it politely) are those people with what I think of as right wing (or conservative) views who seem to believe that the state should be smaller and that there should be more of a free market approach to how to provide things in society. The kind of things that I’ve read are along the lines of “get money out of the public sector into the private where it can work to generate wealth”.

What I would really like is for someone to explain (without using the typical rhetoric that uses words like “waste” and “efficiency”) why a smaller state with services being provided through a free market would be better than what we have now. Let me lay out, in general, the reason why I find this free market ideology confusing in certain circumstances. I assume that most people accept that there are some things that should be provided by the public sector. Examples would be the military, policing, etc. There are others, such as education and healthcare, that are probably amongst the kind of things that some would like to see provided by the private sector, rather than by the public sector.

Here’s where I get slightly confused – and hence would like someone to explain the free market ideology to me. If we consider healthcare, it has a total cost of something like £100 billion per year and makes up about 15% of public spending. We could presumably privatise healthcare, reduce public spending by 15%, and return £100 billion back into the marketplace (assuming that we actually do reduce the deficit). Let’s assume that the goal is to continue to provide healthcare for all, but just to do so through the private sector rather than the public. How do we achieve this? To first order, providing healthcare for all must cost about the same whether done through the private or public sector (any efficiency savings will probably be cancelled out by the fact that some profits will have to be made for those who have invested). The cost per person will therefore be about £1500 per year and the cost per family will be something like £5000 – £6000 per year. Currently 50% of jobs in the UK pay £19000 per year or less and 50% of household have income of £25000 per year or less. Given that very little of the £100 billion that is returned to the private sector will go to the lowest earners, how are these people meant to suddenly start paying for healthcare?

One option is that the private sector redistributes wealth so that everyone in employment can afford healthcare. The other is that it is provided directly by employers, although this then begs the questions of what happens to the unemployed and those who are retired. What I want to know is how this is significantly different from what we already have? Roughly £100 billion a year will be spent providing healthcare for people in the UK. This money isn’t going to be available for anything other than providing health coverage, so how does it suddenly generate wealth in the private sector when it supposedly wasn’t when in the public sector?

Possibly my initial assumption is wrong and that those who want a reduced public sector actually do not believe that everyone should get reasonable healthcare. Maybe the idea is that providing health coverage through the private sector would introduce choice. You could choose to have no healthcare, pay very little and get very basic healthcare, or pay a lot and get the best possible healthcare. Presumably this then implies that the unemployed would have no coverage, the lowest earners would only have basic coverage, and only the highest earners could afford coverage similar to what we all get today. If this is what is essentially being suggested by those who support small government, then they are probably correct that the total cost of healthcare will be less than it is today and some money will be consequently available for other, potentially wealth creating, enterprises. What is possibly not recognised, however, is that having a healthy workforce is, in itself, a way of creating wealth (or at least of creating more wealth than a comparable society in which many do not have health coverage).

The third possibility that I can imagine is that those who want small government and more private sector involvement in providing services, really haven’t given it much thought at all and simply believe all the rhetoric that is being thrown around by various conservative thinktanks. You can probably work out that my view, at this stage, is that providing services like healthcare and education through the public sector is preferable to providing it through the private sector. I’m more than happy to accept that some kind of savings could be made and that there may well be inefficiencies in the system, but I’m not – at this stage – convinced that it would be significantly different if it were in the private sector. I am, however, genuinely interested in having someone explain – including all goals and assumptions – why providing certain services through the private sector is preferable to providing it through the public sector.

The “greatest macro-economic mistake in a century”

Interesting article in the Guardian today about David Blanchflower’s views on the upcoming cuts. David Blanchflower was, until recently, a member of the Bank of England’s Monetary Policy Committee and is known for being something of a maverick; regularly voting in the minority.

Essentially Blanchflower thinks the government is making a huge mistake in making cuts of this magnitude and are, in fact, being extremely cowardly. As the title of this post indicates, he has also described the proposed cuts as the “greatest macro-economic mistake in a century”. I hope he’s wrong, but my gut feeling is that he is not. What I think makes perfect sense is his comment that even though you do need to cut the deficit, there is no economic theory that says you have to do it extremely quickly. Why is there an insistence that it has to happen within this government? I’m getting somewhat tired of hearing government ministers insisting that there is no alternative and that it is all the previous government’s fault (although there is some merit to the latter). It’s clear that the longer it takes, the greater our total debt will become. However, if we cut too fast and too deep, we risk another recession, reduced revenues and having to borrow more money anyway.

I notice that Alan Johnson, the new shadow chancellor, has now released his plan for cutting the deficit. He is proposing a combination of cuts and tax rises – aimed primarily at the banking sector. It’s probably a little too late, but I much prefer this to the government’s plan of reducing the deficit mainly through cuts. Firstly, I think that the cuts are going to influence a number of things that are fairly crucial to the UK’s well being. Higher education and research funding being things that influence me directly, but the benefits system and policing are two other areas that may be severely affected. There is a second reason why I think tax rises are justified together with cuts.

A cut of £83 billion is equivalent to 3.3 million people earning an average salary (£25000). I’m not necessarily suggesting that 3.3 million people will lose their jobs, but 10% unemployment is not necessarily unlikely. The cuts also mean that £83 billion has left the UK economy, it hasn’t simply gone back into private industry. Private industry is unlikely to suddenly generate £83 billion in wealth overnight. Private industry is also unlikely to reduce profits and the salaries of those in employment simply to reduce unemployment levels (they can’t really employ more people without finding the money to do so). The unemployed are therefore likely to remain unemployed for quite some time. Combining cuts with tax rises means it’s more likely that we will be able to manage a smooth transition from the public to the private sector. I know the CEOs of major corporation will argue that this will inhibit growth, but I’m not convinced. What is more, essentially insisting that 10% of the working population are forced into unemployment so that the wealthiest can continue to get wealthier seems entirely wrong. That doesn’t really feel as though we’re all making equivalent sacrifices for the future of the UK. I hope the government rethinks its strategy before Wednesday’s CSR announcement, but I doubt it.

Science Advisors cont…

I posted a comment about the firing of David Nutt (here) in which I suggested that it was probably justified in the sense that his position was no longer tenable. I have learned a little more since then and it does appear that he was treated very badly by the home secretary, but I don’t think my general view has changed. I think he should have resigned earlier, although forcing the government to fire him has brought the role of science advisors into the spotlight, which is certainly a good thing. The fact that David Nutt is now forming an Independent Scientific Committee on Drugs (outside of government) is, however, something I find slightly worrying. It seems incredibly arrogant and the concern I have is that David Nutt’s arrogance will lead to him to do something that will ultimately undermine the position of future government science advisors. I’m sure he must have some enemies who are just waiting for him to fail. I think he should slip quietly into the background for a while and let the process evolve without him. He’s already done his bit by getting fired.

What motivated this post was, however, a comment by Adam Afriyie during Tuesday’s CaSE Science and Engineering Policy Debate to the effect that government ministers should be allowed to fire advisors whenever they like. This has received quite a lot of coverage (here and here) and in general it appears that most are critical of this view. I must admit that although I don’t think much of Adam Afriyie, I tend to agree with him on this. Assuming that he is referring to unpaid advisors, then I see no real reason why ministers shouldn’t be able to get rid of them at will (this may not be entirely relevant to the David Nutt case as – I believe – he was chair of statutory body, rather than simply a science advisor) . The caveat, of course, is that this should be done publicly and ministers who regularly ignore advice or fire advisors for no good reason should pay the ultimate price. We, the electorate, have to be willing to not re-elect people who do not listen to well founded advice and who are willing to fire people whose advice they don’t like. Giving ministers this freedom also means that the process will be more honest and they will be more likely to give away their true views and will give us a chance to judge them accordingly.

CaSE Science Debate

I watched and listened – last night – to the Science and Engineering Policy Debate between Adam Afriyie (Shadow Science and Innovation Minister), Paul Drayson (the current Minister for Science and Innovation) and Evan Harris (the Liberal Democrat science spokesman).  The debate was organised by the Campaign for Science and Engineering (CaSE) and was chaired by Roger Highfiled, the editor of New Scientist.  I was a bit disappointed as I was rather selfishly hoping that the STFC situation would be discussed in more detail and that there would be more discussion about including the assessment of “impact” in future funding decisions.   Both of these were covered, but only briefly, and the debate was explicitly steered towards more of a discussion about future science policy, rather than a discussion of existing issues, and each candidate was pushed to give their partys’s views on various topics.  This was okay, but it did mean that a broad range of topics were covered and that nothing was really covered in any detail.  The three speakers were all extremely polite and complimentary about each other, so nothing particularly exciting happened.  Adam Afriyie even commented that Paul Drayson was a good Science Minister who was probably in the wrong party. As good as Paul Drayons may or may not be, I’m somewhat disturbed by the fact that the he is unelected, and the fact that one can qualify to be a government minister by being made a Lord seems somewhat archaic and undemocratic.  The same is true for Peter Mandelson and the less said about that the better.

Overall I thought Adam Afriyie was a little benign.  Didn’t say anything that I particularly liked or disliked.  Paul Drayson was disappointing.  I quite like the fact that he’s on Twitter and that he seems to be trying to listen to others and to actually take on board what they are saying, but whenever I listen to him I get the impression that he really doesn’t get the subtleties of scientific research.  He also seems to be spouting more and more of the standard party rhetoric and had to be pushed to use the word “cuts” rather than “efficiency savings”.  He still regurgitates the rather simplistic arguments about why including impact statements is a good thing and that it won’t have a negative impact on fundamental research.  He also stated that the government needs to fund more applied research in order to help the economy as if this was obvious and didn’t really merit much discussion.  I don’t have a problem with applied research at all, but nothing the government does now regarding research funding (apart from possibly using a Keynesian approach and increasing it) is going to fix the current recession, so increasing funding for applied research to help the economy now is almost certainly not going to work.   Another issue I have with increasing the amount of government funding for applied research is that it could further discourage industry (which in my view is where a lot of applied research should take place) from investing in research.  The government should really be putting more pressure on industry to take more risks, not spending taxpayers money on research that will be of short or medium term benefit to industry.  As decent as I think Paul Drayon is trying to be, I personally don’t think he’s a particularly good Science Minister and I’m not particularly confident about the outcome of his review of STFC that is due to be completed by the end of February (although I am at least pleased that he has recognised that there is a problem).

Evan Harris, on the other hand, was fantastic.  He was very well informed and a lot of comments were hard-hitting and direct.  He was also hilarious.  Maybe he shouldn’t try quite as hard to be funny, but he is pretty good at it.  Could almost be a comedian.  I was really impressed by how he performed and by what he presented as the Liberal Democrats’s views about how science should be funded and what kind of role it should play in society.  I particularly liked his argument that politicians who misuse data and statistics should be hammered for doing so.  I’m really hoping that the Liberal Democrats do well in the upcoming elections, but am not particularly hopeful.  The media seems to largely write them off as having no hope and I’m not quite sure why this is.  I’m starting to suspect that the various media outlets are too strongly tied to individual political parties and as a result the different parties are not getting objectively represented (I may be saying something patently obvious here).  I suspect the fact that the Liberal Democrats are unlikely to form the next government gives them the freedom to say what they like and to make promises that they might never have to keep, but I’m not sure we should hold that against them and I’m quite prepared at this stage to take them at face value.  Labour and the Conversatives have proven that when they’re in government they can’t keep their promises, so maybe it’s time to give the Liberal Democrats their chance.  Really can’t be any worse, can it?

Merry Christmas to one and all

I was tempted to write a new post about what appears to be the UK government’s view on how to fund Higher Education and research, but I can’t really be bothered. I’m feeling somewhat drained and others (here and here) have written about it more eloquently than I think I can at the moment, and have pretty much summarised my general views.

So, I hope everyone has a wonderful Christmas and a great New Year (or at least enjoys the break even if you don’t observe Christmas as such). I would like to think that things can only get better next year, but I’m afraid I can’t bring myself to believe that that will be the case. Maybe we need to consider enlisting some celebrities (Bono, Joe McElderry, etc.) since these seem to be the only type of people that the current crop of politicians pay any attention to. Maybe if Jordan says that Higher Education and fundamental research are important for the future of the UK, things will start to improve (maybe Jordan’s a bad example, but I couldn’t think of another celebrity name).

Science funding after the next election

While following the #stfc comments on twitter, I noticed that someone made a comment along the lines of “who’ll vote for the Labour party now”. To a certain extent, I agree. I certainly have no desire to see Labour win the next election. They have ultimately managed to do immense damage to some very productive areas of British science, and the UK doesn’t appear to be a better place to live now than it was before Labour came to power in 1997 (as an aside, my father – who left the UK many years ago – commented, when visiting recently, that politicians used to say “continue to serve” but now shamelessly say “remain in power”).

Something that concerns me, however, is the impression I have that many people’s automatic alternative to Labour is the Conservatives. The reasoning seems to be that the only other possible party is the Liberal Democrats, but they’ve never been in power and so the Conservatives are the only viable alternative. This really doesn’t make sense to me. As far as I’m aware the pre-1997 Conservative government was at least as bad as the current Labour government, if not worse. We surely cannot want the next government to contain any of those who were involved in the pre-1997 Conservative government (I’m referring here to ministers rather than backbench MPs). Admittedly I suspect very few – if any – of the current Conservative shadow ministers were in the pre-1997 cabinet, in which case they have as much experience as any of the Liberal Democrat shadow ministers. Therefore why is there a general assumption that the Conservatives are capable of running the next government, while the Liberal Democrats are not. It’s true I guess that there are currently more Conservative MPs than Liberal Democrat MPs, but all (or at least most) of those who would actually be in the next cabinet are probably currently experienced MPs.

As far as current performance is concerned, I think the Liberal Democrats have been quite impressive. Vince Cable seemed to have a good handle on the financial crisis well before either Alistair Darling or George Osborne. Evan Harris, the Liberal Democrat Science Minister, seemed to perform quite well in an event discussing the future of UK science, certainly better than the Conservative Shadow Minister Adam Afriyie (there’ll be another debate in late January). Phil Willis has also, in my view, been a very good Chairman of the Science and Technology Committee (what used to be known as the Select Committee on Innovation, Universities, Science and Skills). In fact, it was their report on STFC that prompted me to write this post. Maybe I’m biased, but the report seemed remarkably honest and straightforward and pretty much confirmed what many people had been saying. In particular, it essentially confirmed that a primary issue is that STFC was not formed with sufficient funding to maintain current programmes, saying

We remain concerned that the former PPARC community has been saddled with a £75 million (at 2006/07 prices) funding deficit derived from CCLRC to meet the additional running costs of Diamond and ISIS TS2, despite assurances from the Government that STFC would be formed without any legacy issues. We conclude that the combined budget of PPARC and CCLRC was never going to be sufficient for STFC to manage Diamond, ISIS TS2, the other large facilities and all the PPARC research programmes. This was noted by the National Audit Office in January 2007, and therefore the Government should have known and should have acted upon it. The fact that it did not has had unfortunate consequences. We believe that the Government should ensure that its original commitment to leave no legacy funding issues from the previous Councils is honoured.

Somewhat surprisingly, for what is essentially a government report and might normally be expected to be somewhat restrained, it was also very critical of the way in which STFC was being run, stating explicitly

Substantial and urgent changes are now needed in the way in which the Council is run in order to restore confidence and to give it the leadership it desperately needs and has so far failed properly to receive. This raises serious questions about the role and performance of the Chief Executive, especially his ability to retain the confidence of the scientific community as well as to carry through the necessary changes outlined here.

Of course, some changes have been made, but I suspect many would argue that these changes weren’t sufficient. The Science Minister – Paul Drayson – has now agreed in a recent press release that there are problems with the structure of STFC and intends to find a solution within a few months. My suspicion is that a solution to the structural problems will be found (even one that we may be happy with), but no real attempt will be made to resolve the legacy funding issues.

I guess this post started with a discussion of which party may end up forming the next government and has ended up back with a discussion of STFC. Let me finish by saying that I’m not arguing that everyone should choose the Liberal Democrats, rather than the Conservatives, as an alternative to Labour, or even that people shouldn’t vote Labour. I don’t belong to the Liberal Democrat Party and, in fact, am not a fan of party politics – I think the Three Line Whip is completely undemocratic. I am, however, worried that we’ll end up with a Conservative government primarily to punish Labour, rather than because everyone who voted for the Conservatives believes in their policies (maybe I’m not giving the general British public enough credit though). I also think that, as far as science funding is concerned, a future Conservative government may result in us harking back to the good old days of Labour. In truth, since party politics is here to stay I would actually rather we had three strong parties, than two parties who seem to be essentially the same as each other, or at least very similar. I might even be happy with a hung parliament. They can spend more time booing and hissing at each other in Westminster and less time messing about with things more to suit their political goals than to really make things work more effectively.

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.

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.