<![CDATA[Economics]]> <![CDATA[Sex work is work: exploding the “sex trafficking” myth]]> I am lucky to have taken up my work as a dominatrix amid a revolution in our thinking about sex work. Writers like Laura Agustín and Melissa Gira Grant have taken apart our sexualised, othered image, and sex workers and allies proclaim loudly that sex work is work. Banal on its surface, that statement is profound in its implications. We all work for a multitude of reasons, good and bad, mundane and heart-wrenching. It is society that frames those reasons differently, based on gender, race, class, and nationality.

Like everyone, I’ve seen the reports of people from foreign lands, brought to the west and forced to do sex work. They are called trafficked women, and are often depicted at the point of a police raid, with flashing cameras shoved in their faces. At best, they’re shown as victims; at worst, as nuisances and criminals. I write today to stand with Agustin, Grant, and Maggie McNeill, who have so powerfully argued that this portrayal, and the very concept of “sex trafficking” that underpins it, is a myth. To say this is not to sideline the coerced; in dismantling this pernicious myth, we put their lived experiences front and centre. Coercion, force, and violence in sex work are very real, but they pertain generally to life as a member of the oppressed, not just to sex work. They must be fought across the world, and the concept of sex trafficking does not help in that fight. Instead, it obscures the fact that many types of workers, from carers to builders, suffer force, violence and exploitation. Insidiously, the trafficking myth also deprives sex workers of agency and identity, as it sexualises and fetishises our lives and bodies.

Our stories can look very different from sensationalised raid reports or racy tell-alls, even with familiar-sounding facts. Originally from Romania, Paula was sixteen when her boyfriend took her to London to work as a sex worker. It was not her idea, but she was in love, and as excited as any new immigrant. She was willing to give sex work, and England, a chance.  Her boyfriend became an abusive drunk and addict, and after nearly a year, she was done. He grounded her by snatching her passport. “I couldn’t go anywhere. . . if you don’t have papers, you don’t exist,” said Paula. She went back to work; when she befriended a pickpocket, he sent his confederates to recover her ID.

Having freed herself, Paula dumped her boyfriend and set up as an independent sex worker, choosing her own working flat and making it comfortable and secure. By 2012, she was well on her way to success, taking an English course and saving up to study nursing. She was a part of the neighbourhood; she had applied for a national insurance number. Then, on 3 September, she was raided.  “When the police came in, they started accusing me of being a pickpocket and a beggar, just because I am a Romanian,” she said. They barraged her with questions and upended her tidy flat in a search for drugs. Although she was entitled to be in the country as an EEA national, she was reported to immigration authorities, and ordered to present her proof at the police station.

On the same day Paula’s flat was raided, police stormed into a number of flats in Mayfair, tearing down notices and harassing sex workers, maids and receptionists. Women working legally were thrown out of their flats and threatened with arrest if they returned to work; no evidence of drugs, minors or trafficked sex workers was found. Paula operated for months under police suspicion, never knowing when police or immigration authorities would approach her – even at her home, where she kept her job a secret. Eventually, she was cleared, but the experience changed her; today, Paula supports and organises alongside her fellow sex workers at the English Collective of Prostitutes.

Her experience is typical. “We’ve always said that anti-trafficking legislation was aimed at stopping women crossing international borders,” says ECP spokeswoman Niki Adams. “Trafficking is used as an excuse and a justification for raids on premises and arrests of immigrant sex workers which are ultimately and actually just immigration raids. It’s a way of enforcing immigration controls in a very repressive and heavy-handed way, but with the veneer of an anti-trafficking initiative and the idea that you’re saving victims. It’s just a con,” she says.

If sex work is work, then sex workers are workers. We face – and fight – all of the intersecting, systemic oppressions faced by workers everywhere. While law enforcement and a well-funded rescue industry contribute to a worldwide attack on our rights, sex workers have long been in the forefront of militancy and organisation. Like workers everywhere, sex workers are best situated to improve safety and working standards. Around the millennium, as women disappeared in a Vancouver neighbourhood, activist Jamie Lee Hamilton established Grandma’s House, which provided food, condoms and safe rental rooms for sex workers. Women were still disappearing when Grandma’s House was raided and closed in August 2000, and Hamilton was charged with running a bawdy house. Serial killer Robert Pickton was not caught until 2002, and was convicted for the murders of 26 women; he told an undercover officer in prison that he had killed 49.

In the United States, authorities have recently closed and seized the assets of MyRedBook, an advertisement and forum site for sex workers and clients. Under the guise of fighting trafficking, prostitution and money laundering, they have shuttered a website with a long history of fostering sex worker solidarity. “It’s a huge loss from a community standpoint,” said Melissa Gira Grant, interviewed for a report published Tuesday. She recalled that the site, which started in the early 2000s, had had forums that were more active than the advertisements section. Much of the site was free to use; with its closure, sex workers with limited funds, arguably the most vulnerable, have lost an essential community resource. Law enforcement also regularly infiltrate and shut down online screening tools, routinely used in America, where clients upload proof of identity and sex workers can verify thems; dissuaded from using these tools, sex workers are left vulnerable to harm and arrest.

The raid on MyRedBook is part of a wider American crackdown on sex workers, whose result may, ironically, be more migration. “It’s almost like breast cancer awareness in its publicity right now,” says Kelly Michaels, an American specialist in tantric sex. Michaels tours to work when her children are with their father. For her, arrest could mean exposure and the loss of her children; touring can keep authorities from picking up the scent, but could equally put her at risk, as she is continually meeting new clients. “The main reason I tour is law enforcement. . .to keep myself a moving target. I would love to be able to book locally and not make myself vulnerable,” she says. For her, today’s media furore about trafficking has proved too much. After six years as a sex worker, and a bitter fight to wrest custody from a whore-shaming ex-husband, Michaels is retiring from sex work, and is making a documentary about her attempt to follow the advice of the rescue industry, supporting her family by other means.

Victor Hugo said that a writer is a world trapped in a person. The same is true of any of us. There is more to Paula’s story, or to Kelly’s, than a body and a job. Theirs are stories of personal success. They’re about the hope and apprehension of a new venture, the universality of domestic violence, and the ingenuity displayed in surviving it. They’re about the joy of building a business, and the fear of its destruction through causes outside of your control. They’re stories about finding your voice. Most of all, they are each a part of the broad, human story of uncertainty, change, and the sometimes bumpy road to building a new life. We may enter sex work out of optimism or out of desperation, and we may love our jobs or hate them. For most of us, our reasons, and our sentiments, fall somewhere in between, but all of us can fall prey to the state and the rescue industry. Capturing and labelling us, they decide our fates; they become the coercers, and can shatter lives. Let our society set them aside, together with the trafficking myth; let sex workers take the lead in debates about our lives and work. We are coming out of the shadows, and demanding our freedom to work, organise, and fight. With that freedom, sex workers ourselves will end coercion in our trade, and we will take our rightful place in the struggle to end it everywhere.

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<![CDATA[They're bulldozing a fifth of Detroit ]]> Bad news for fans of ruin porn: Detroit is hoping to rid itself of its unique collection of dilapidated buildings and elegantly rubbish-strewn abandoned lots, and all within the next five years.

In May, a group ominously titled the “Detroit Blight Removal Task Force” released a report claiming that around 22 per cent of the city’s properties were “blighted” – vacant, damaged or considered dangerous. They also found that, of the 84,000 properties owned by public entities, just over 5,000 were occupied by squatters, making the city of Detroit, the report’s authors noted, “a very large and inadvertent landlord”.

The task force’s proposed solution is to demolish it all over the next five years and start again. Unfortunately, the plan doesn’t extend to rebuilding the properties – it’ll be down to private companies and developers to buy up the land and rebuild.

First on the city’s agenda is removing empty family homes, a move that, paradoxically, is intended to stem the free-fall in the city’s population. In 1950, Detroit’s population stood at 1.85 million, but it’s fallen to 700,000 as residents leave for the suburbs or other cities in the face of the shrinking industry and rising crime.  Cleaning up the neighbourhoods, the thinking goes, will entice suburb-dwellers back to central Detroit.

All this will cost the city around $850m. In total, the plan will cost $2bn – around $3,000 per city resident. That’d be painful enough, even if the city hadn’t filed for bankruptcy in July 2013 with debts of around $20bn, giving it the dubious honour of being the largest US city ever to go broke.

To help take some of the pressure off, the Mayor’s office has also launched Building Detroit, a house auction site, intended to sell some of the blighted homes; the lucky buyers will then be responsible for fixing them up so the city government doesn’t have to. The programme has seen houses sold at anything from the bargain rate of $40,000, right down to the rock bottom price of $1,000. Mayor Mike Duggan has been doing his bit by waving the gavel on his Facebook page.  

This is a preview of our new sister publication, CityMetric. We'll be launching its website soon - in the meantime, you can follow it on Twitter and Facebook.

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<![CDATA[Rise (and fall) of “the rest”: what China, India, Brazil and Turkey tell us about the world today]]> You’ve heard of the “rise of the rest”: the emergence of China, India, Brazil, Russia, Turkey, Mexico and other rapidly developing economies. Emerging markets have become a lifeline for the global economy. As the story goes, these countries will continue to emerge, providing much-needed global growth and leadership.

But they are struggling through severe growing pains, and for many of them the pain outweighs the gain. With 540 million votes cast, India’s recent election was the largest in world history; it followed less than two years after the largest blackout of all time, which left 700 million in India without power.

Other governments have had to contend with their own unwelcome surprises. A fare hike for bus services in São Paulo moved more than a million on to Brazil’s streets last year, and this year’s World Cup ignited another round of confrontation. A plan to cut down a grove of sycamore trees triggered a political fight that produced even larger demonstrations across Turkey last year, and Prime Minister Erdogan seems eager for more conflict. Not so long ago, Brazil and Turkey were considered best-in-class developing countries. Russia’s interventions in Ukraine have driven its economy into a tailspin, but Mexico, despite slowing growth, continues its march towards developed-world status. Finally, China’s uncertain future provides the world’s most important question mark.

Given that developing countries face vastly different challenges with vastly different capacities to respond, we must stop thinking of them as members of a single club. Forget the “rise of the rest”. Some are emerging. Some are stalling. Others are simply falling. For the developed world, this is a serious concern. The world now depends on emerging markets for much of its economic energy and some of its leadership.

Why did these countries rise together, and why are they now heading in such different directions? A close look at Brazil, Russia, India, Mexico, Turkey – and especially China – tells the story.

 

A rising tide lifts all emerging markets

When a World Bank economist coined the phrase “emerging markets” in 1981, he explained what the group had in common: “I came up with a term that sounded positive and invigorating . . . ‘emerging markets’ suggested progress, uplift and dynamism.” An emerging market is meant to grow rapidly while adopting the values, institutions and levels of political predictability found in the west; think Japan in the 1960s. The term has become fuzzier over time. Now it includes some 60 countries that have generated go-go growth in recent years despite their political immaturity.

Emerging markets hit their full stride by 2000. From 1960 to the late 1990s, only 30 per cent of these developing countries increased their per capita output faster than the United States. But from the late 1990s through 2012, 73 per cent of emerging markets outpaced the US – to the tune of 3.3 per cent per year on average. Emerging markets had become the place to go for those willing to accept higher risk for the possibility of higher growth.

This was an unprecedented era of abundance for many emerging-market countries, as commodity and credit booms dovetailed to supercharge growth. Rising commodity prices lifted many resource-rich markets without the need for underlying structural improvements. After the tech bubble burst in the United States in 2001, the US began slashing interest rates, sending vast amounts of capital flowing into these high-growth economies.

Emerging markets’ modest starting point was another common advantage. Emerging-market growth pulled hundreds of millions of people out of poverty: the share of the population in emerging-market countries that lived on less than $2 per day dropped from 65 per cent in 1990 to 41 per cent by 2010. Emerging-market middle classes ballooned in size. Governments postponed painful reforms needed for continued economic development, their necessity buried beneath gangbuster growth.

 

The backlash from a heady decade

After the financial crisis, as commodity prices fell, easy credit dried up and developed-world demand subsided, emerging markets felt the burn. This era of easy growth lifted huge numbers of citizens into the middle class and strengthened ruling parties and leaders’ hold on political power – but today, those larger middle classes are a double-edged sword.

Economists view growing middle classes as a huge plus. But the rising expectations they create for governments can spell trouble. The same people who contributed to – and benefited from – a decade of rapid growth are beginning to value quality over quantity and make more sophisticated demands. They want less corruption, more accountability and transparency, as well as better social services and quality of life, air, food and water. At the same time, new technologies and new tools of communication give citizens better access to information and help them articulate and amplify their demands for change. And leaders bolstered by a decade of explosive economic growth now have less capacity and fewer resources to respond.

An inability to meet these demands has led to enormous street protests in some best-in-class emerging markets. Last year in Turkey, demonstrations against commercial development in central Istanbul – and harsh retaliation from police and Prime Minister Erdogan – motivated over two million people to take to the streets in major cities. This year, anger at Erdogan reignited after leaked recordings of conversations between government officials surfaced on Twitter and YouTube, appearing to expose corruption. Erdogan responded with a heavy-handed attempt to ban these communication channels, platforms that he described as “the worst menace to society”.

The challenges keep piling on. The US Federal Reserve is tapering its quantitative easing, winding down the era of easy liquidity; higher bond yields in the developed world mean less capital flowing to emerging markets in search of better returns. Their growth has waned, leaving political incumbents in an increasingly tight spot. All told, 44 emerging-market countries, representing 36 per cent of the world’s population, have held or will hold elections in 2014. Many of these incumbents will spend more money to boost their popularity and election prospects, compromising their ability to balance the books after the votes are cast.

But even if many emerging markets face similar problems, their capacities, strategies and prospects differ enormously. The divergence between just six of the most important developing economies makes clear just how misleading the term “emerging markets” has become.

 

Major emerging markets are fundamentally different

It’s impossible to group China, Brazil, Russia, India, Mexico and Turkey together as emerging markets. Their energy needs and political and economic systems run the gamut, contributing to a huge divergence in their interests and priorities.

First, they are divided by energy. Russia is hugely reliant on energy production, natural resources comprising 70 per cent of its exports and over half of its government revenue. A spike in prices is a windfall for Moscow. Turkey, on the other hand, is deeply dependent on energy imports (see page 27), which provide about 90 per cent of the oil and gas it uses; the country’s energy demand is expected to double by 2030. Brazil’s abundant supplies of oil and ethanol make it energy-self-reliant, but its infrastructure problems continue to weigh heavily on growth. Mexico is an oil exporter, but one with declining production levels that have forced historic reforms to open the petroleum sector to foreign companies and investment. India, now the fourth-largest net importer of oil in the world, depends on foreign sources for 80 per cent of its oil. China has surpassed the US as the world’s leading oil importer. In short, on any question that might drive oil and gas prices higher or lower, the governments of these countries have very different sets of interests.

The political and economic systems across these six countries diverge even more than their energy needs. Mexico, India and Brazil are free-market democracies that grapple with corruption and governmental inefficiencies; India is by far the most decentralised. Russia poses as a democracy, but its elections, state institutions and swaths of its market landscape are subject to one-man authoritarian rule. In Turkey, Prime Minister Erdogan has authoritarian aspirations in what is otherwise a democracy with empowered institutions and a diversified economy. In China and Russia, the state is the primary actor in the economy – state-owned companies account for more than half the total value of the stock market in each. Yet they are heading in different directions. Under Xi Jinping, China is actively trying to liberalise its economy through ambitious reforms, while Vladimir Putin has not made significant strides to reduce the state’s control of key economic sectors such as oil, gas and mining.

The countries’ neighbourhoods and the major powers they rely on are completely distinct, too. In the western hemisphere, Brazil and Mexico are almost entirely insulated from geopolitical conflict; Mexico’s deepest security concerns come from drug-related violence within its own borders. But the two differ immensely in terms of their reliance on the United States. Mexico sends 80 per cent of its exports to the US, from which it receives roughly half of its imports. According to some estimates, a 1 per cent rise or fall in the US economy moves Mexico’s economy 1.2 per cent in the same direction. Brazil’s trade and investment relationships are much better diversified: in 2009, China surpassed the United States as its largest trading partner.

Turkey can benefit from economic opportunities in Europe as well as the Middle East, but its neighbourhood comes with a steep geopolitical price tag. It borders volatile Iraq, sanctioned Iran and Syria, from which it has absorbed more than 750,000 refugees. But over the next decade, the risk of political, commercial and military confrontation is highest in Asia, which accounts for a growing percentage of global growth, competing rising powers and a lack of multilateral institutions that can manage the resulting security risks. A rising China is sending shock waves through the region, provoking conflict in the East and South China Seas. North Korea remains a wild card: the regime will ultimately collapse, but when and how will make all the difference. For India, China and Russia, Asia is a profitable – but volatile – arena.

Finally, demographics and size differentials matter. China and India each have more than double the populations of Russia, Brazil, Turkey and Mexico combined. But China already has the largest elderly population in the world (more than 130 million Chinese are over the age of 65) and a fertility rate of just 1.55: well below the replacement rate of 2.1, and the lowest among the six. A recent government agency survey forecasts that the share of China’s population aged over 60 will grow from 12 per cent in 2010 to 34 per cent by 2050 – and China’s working-age population began to shrink in 2012.

Russia is also ageing, with just 15 per cent of the population under 15 years old, whereas Mexico and India are youthful at 29 and 31 per cent, better than the global average.

 

. . . and they’re heading in completely different directions

Though all of the external factors matter – the US Fed’s taper, the end of the commodity super-cycle, new demands from and communication channels for citizens – the governments themselves are the main reason these markets are emerging no more. Do these six countries have the willingness and capacity to make the hard choices that can put their economies on a healthy long-term footing? Their ability to deliver on much-needed reforms varies enormously.

Turkey and Russia are likely down and out for the foreseeable future. In Turkey, Erdogan has used the country’s growing polarisation to his political advantage, but at the expense of its long-term economic outlook. He remains favoured to become his country’s first directly elected president in August, setting him up to (mis)govern the country through to 2024.

In Russia, President Vladimir Putin is buttressing his popularity with an aggressive and costly campaign to derail Ukraine’s attempt to move towards Europe. The ruble and stock market plunged after the annexation of Crimea. Already depressing growth forecasts have been revised downward, sanctions have been imposed and $50bn in capital flight occurred in the first quarter alone (which matched all of last year’s). Longer-term, Putin is undermining his best geopolitical and economic weapon: energy. Europe is accelerating its long-term diversification away from Russia, and the US is moving towards exporting liquefied natural gas (LNG). Russia’s tremendous overreliance on state revenue from energy exports – and its lack of effort to rebalance before it’s too late – is a big part of what makes Russia a “submerging market”.

Efforts by India and Brazil to restructure their economies may prove slower-moving than many are hoping. After Narendra Modi’s historic landslide election in May, many expect him to bring his successful “no red tape, only red carpet” approach from his home state of Gujarat to the national stage. But unlike in China or Russia, power in India remains substantially decentralised, and the (now opposition) Congress Party remains the dominant force in India’s upper house of parliament. We won’t see quick legislative reforms on sensitive issues; changes, at least for the near term, will be more incremental, even if India’s longer-term outlook remains a question mark. In Brazil, Dilma Rousseff faces a tough re-election battle; with a weaker mandate on the back of softer approval ratings, she wouldn’t be able to push through big-bang reforms in her second term. Economic policy would likely improve, but only incrementally.

Mexico is a rare bright spot for sustained reform. Last year, President Enrique Peña Nieto approved key economic measures on tax reform, regulatory framework changes to promote competition and an energy-sector overhaul. Continued progress on reforms is still on track, even if there remains much to be done and it won’t happen overnight.

Unfortunately, Mexico’s success may be the exception that proves the rule. Unlike most emerging markets, Mexico was largely on the sidelines during the boom of the 2000s. It didn’t leverage the commodity super-cycle. It experienced low growth, declining oil production and less of a dip in poverty (the rate was 52.4 per cent 20 years ago and dipped as low as 42.7 per cent in 2006, but in 2012 poverty went up again to 51.3 per cent). Whereas other emerging markets have been plagued by complacencies born from the success they enjoyed during that decade, the urgency for adjustment has grown steadily in Mexico.

 

China is the true outlier

China is the real game-changer. It is simply too big, too different from any other country and too crucial for the global economy to be considered a part of anyone else’s club. Its economy is bigger than those of Brazil, Russia, India, Mexico and Turkey combined, and it continues to grow at a faster clip than any of them. According to International Monetary Fund forecasts, China will account for roughly a quarter of total global growth over the period 2011-2014.

More importantly, there is no other country with a more uncertain future.

As Beijing undertakes its most ambitious economic reforms in decades, the potential outcomes provide the single biggest worry for the global economy.

China can’t keep growing the way it did for the past 30 years – on the back of state-driven investment and cheap labour. Xi Jinping understands that China must shift to a more consumer-driven, liberalised economic model. He has begun taking the transformative first steps with an ambitious reform agenda around the environment, the financial sector and inefficient state-owned enterprises.

In the near term, the prospects for reform look good. Growth has slowed at a modest pace – that is part of what building a more sustainable model requires – and there has not yet been strong political pushback from powerful figures who don’t want change.

But China’s economic transformation is unprecedented in terms of the scope and the stakes. It will require an enormous transfer of wealth from large domestic companies, many of them state-owned, to Chinese citizens, who will increasingly demand a more open and accountable political system. Success will threaten the vested interests of all the influential leaders who have enriched themselves off the status quo for decades. And the leadership is undertaking these reforms at a time when hundreds of millions of Chinese are now online. In an environment where ideas and information flow at an unprecedented rate, dissent and unrest can emerge and grow in unpredictable ways.

Moreover, a liberalised economy will create greater competition, from foreign firms among others. Coupled with a necessary gradual economic slowdown, that will force companies to cut costs – and even employees. We are already witnessing an escalation of worker protests and a surge in labour unrest, with the largest strike yet occurring in Guangdong Province in April this year. If a future economic slowdown proves unmanageable, it could provoke cascading bank defaults or a major credit crisis. Or an unanticipated foreign policy or environmental crisis could shock the system and put citizens on the streets, too.

As Leo Tolstoy said, “All happy families are alike; each unhappy family is unhappy in its own way.” That’s a good rule of thumb for the shift in emerging markets’ fortunes between the 2000s and today. China will soon boast the world’s largest economy. When it does, it will still be poor, and thus potentially unstable. It will be far from ready to take on global responsibilities appropriate to a country of its size and influence. Beyond China, virtually all these countries rose on a fortuitous tide of historically unusual circumstances. Now they are going their separate ways – and just at the moment when they have begun to matter. 

Ian Bremmer is the president of Eurasia Group and the author of “Every Nation for Itself: Winners and Losers in a G-Zero World” (Portfolio, £9.99)

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<![CDATA[When it comes to arts spending, it’s London vs the rest of the UK]]> There is a parochial myth that outside London’s metropolitan centre exists a breed of Neanderthal Northerners who, clutching a Greggs pasty and standing in a bleak milieu worthy of a Shane Meadows film, have no desire to access the arts. This image, combined with the startling figure from last year that cultural spending amounted to £69 per head in London and just £4.50 per head elsewhere, illustrates the London-centric nature of UK arts funding. For this reason, there was a collective intake of breath this week as Arts Council England (ACE) announced the funding for 2015-2018. Surely, arts programmes across the regions cried, the budget discrepancies couldn’t get any worse? Surely the rest of the UK would get their fair share, rather than being lumped together as simply “Not-London”? Alas, it was not to be. The ACE reiterated once again that when it comes to culture, it is London vs The Rest of the UK, with the capital snatching 47 per cent of the total budget.

Elitism is an accusation bandied about the art world, from Saatchi to opera, but the label of exclusivity transcends galleries and genres with simple geography. The ACE have the arrogance to declare that London vs the rest of the UK is an equal match worth fighting, and one in which funds can be distributed equally between the two. The extensive nature of their report proves that despite their attempts to disguise the vicious nature of the cuts with a garish pink font, the ACE cannot claim ignorance about the existence of a 14:1 imbalance of London’s arts budget compared to the rest of England. The existence of both an “ACE National” Twitter account and an “ACE London” Twitter account is telling and leads to the question of why two accounts are even needed when “Arts Council England” is now synonymous with just London.

As councils across the UK ruthlessly scrap their arts budgets – such as Newcastle City Council halving their already pitiful culture grants –  it’s the job of the ACE to represent not just London but all of England (as – spoiler alert! – their title would suggest). Far from meeting the challenge of helping failing regional arts companies, predictably and depressingly, they have continued to adopt their policy of cutting London budgets by a snail pace of 2 per cent and in doing so they maintain the London-centric status quo. The ACE’s budget accounts for just 0.5 per cent of government spending and while this should be higher, crucially, it should be distributed fairly. The current idea that art can be justified only if it provides revenue is toxic, but even more so if it that cannot be accessed by 86 per cent of the population who do not live within reach of an Oyster card. The bold scope of London’s cultural projects cannot be denied, yet their work does not have to come at the expense of projects outside the capital.

On the surface, the council’s decision to decrease London-based funding by £6.6m while increasing that to the rest of the UK by £9.5m surface appears to be a heroic,  Robin Hood-esque action of taking from the rich to give to the poor. Unfortunately, while cuts have been made from cultural fat cats like the English National Opera, the Southbank Centre, and the Royal Shakespeare Company, increases in funding to the Manchester International Festival, the Northern Ballet, and Mima (Middlesbrough’s Modern Art Gallery) are still anomalies. It goes without saying that Whitehall is biased towards London, but coupled with the similar inclinations of the National Lottery and individual philanthropists – 90 per cent of their donations go straight into London-based projects – the picture gets even bleaker. The ACE drastically needs to reform their funding so that they can help struggling companies instead of the already successful.

Despite the headlines about their supposed “shake up” of arts funding, little change has been made. At a time when local authorities and the central government are both reluctant to provide grants for the sake of cultural prosperity, the ACE should be distributing their portfolio as evenly and fairly as possible. As it stands, it feels like we’re being presented with an ultimatum: move to London or you’re on your own.

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<![CDATA[Sorting fact from fiction: jobs in London vs. rest of UK]]> The final report in Lord Adonis’s Growth Review has been making waves today, but not entirely in the way Labour likely expected.

The former Labour Transport Secretary’s “Mending the Fractured Economy” report has been widely commended for its ambitious plans for regional devolution in the UK to combat the economic growth bias in London.

This need to bolster growth in regions outside the capital is partially based on, and most strikingly illustrated by, a somewhat questionable statistic, however.

The report states that “four fifths of all net jobs created since 2010 are in London”. The figure comes from a report by the Centre for Cities, an independent research organisation, published this year but which refers to job figures between 2010 and 2012.

The four fifths figure quoted also refers to private sector, rather than all, job creation in the Centre for Cities report.

Although the statistic has caught the imagination of the public and been widely shared on social media today, updated figures from the Office for National Statistics (ONS) paint a rather different picture of regional job creation under the current government.

The ONS shows that 75 per cent of all new private sector jobs have in fact been created outside of London, a fact brought to my attention by the number of Conservative MPs quoting it on Twitter.

I’ve checked the CCHQ maths so you don't have to (though if you want to, you can download the datasets here; table 7 contains all regional private sector job figures since 2008), and the ONS figures show that since 2010, 1.63m private sector jobs have been created outside the capital, compared with 570,000 in London.

Admittedly the ONS data is based on surveys that  measure employment by place of residence, so are likely to undercount the number of people who work in London but live elsewhere. Meanwhile the Centre for Cities figure is based on data from the Business Register and Employment Survey (BRES), which looks at employment by workplace, so will accurately reflect the geographical location of new jobs.

But the ONS datasets are released quarterly, so they are far more up-to-date than those based on BRES, which is published annually and has not yet released its 2013 figures.

Centre for Cities chief executive Alexandra Jones said: “While no dataset is perfect, BRES data gives a more accurate picture of where jobs are located, rather than where employed people live.”

David Gauke, Tory MP for South West Hertfordshire and Exchequer Secretary to the Treasury, was nonetheless piqued by Labour's use of the Centre for Cities statistics, tweeting earlier:

Other senior Tories have been griping that the government has already adopted many of the conclusions in Adonis’s report.

One Conservative source pointed out to me that the key proposal to allow cities and county regions to keep more of their tax revenues is already part of the government’s City Deals scheme, which allows cities like Manchester to retain some of the tax revenues they generate through local growth, which they can then invest in local infrastructure.

On the BBC’s Today programme this morning, the similarity between the recommendations in Adonis’s report and those in Conservative Michael Heseltine’s regional growth plan, which have been accepted by George Osborne, was pointed out.

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<![CDATA[Merging income tax and NIC: the Chancellor's calculations ]]> George Osborne is planning to merge income tax and national insurance, according to a report in today’s Times.

The move would increase transparency of the tax system and likely raise pressure for tax cuts, because rolling the two together would help workers to see the scale of how much they contribute to the state.

The total sum paid by workers on the basic rate of income tax, for example, would rise from 20 per cent to 32 per cent. The amount paid by those in the higher bracket would rise from 40 per cent to about 52 per cent, with 2 per cent added to earnings above £42,000.

National insurance is the exchequer’s second-largest income source, raking in £104.5bn in 2012-13. Income tax contributed £152bn.

The political calculations made by No 11 and No 10 (said to be actively considering the proposal) are interesting. The Tories are willing, assuming they make it back into government next year, to risk accusations that they have raised the overall tax rate.

Some allegations would be incorrect and based merely on perception. Incidentally, that risk hints at the work the government would have cut out for itself in creating a public-awareness campaign which explains the amalgamation.

Other accusations would be true, reflecting the closure of quirks and loopholes in the national insurance system if it were merged with income tax. The self-employed, for example, would pay more in the new system because generally speaking they pay less national insurance than employees.

So why would Osborne risk the fallout? The gamble is offset by the Conservatives’ hope that greater transparency of the scale of individuals’ contributions to the state will incline voters towards tax cuts, which are on the cards given that public finances look set improve in the next parliament.

Another hidden benefit is that rolling national insurance contributions and income tax together will undermine the contributory principle, making it easier to slash welfare.

Because national insurance is, of course, a social insurance scheme, which entitles people to specific social security benefits – known as “contributory benefits” – through a history of contributions to the scheme made by themselves and by their employers.

First proposed by David Lloyd George in the People’s Budget of 1908, it was introduced in 1912 to create a national system of insurance for working people against illness and unemployment.

While a portion of the national insurance fund is set aside for the NHS, the rest funds contributory benefits. So to do away with national insurance will further harm the contributory principle that is a key defence of welfare.

On the other hand, to give due weight to the downsides national insurance, it is true to say that its rates have become opaque and difficult to calculate. It is because of this opacity, and therefore the ability for govenments to raise it quietly, that the Chancellor is said to be suspicious of national insurance as a “stealth tax”.

But its contributory principle means that accusations from the TaxPayers’ Alliance, among others, that national insurance has become indistinguishable from income tax, with any division merely “academic”, is wrong.

Overall the plan looks likely to be popular with Conservative MPs and voters. The biggest obstacle, however, is likely to be practical rather than ideological: namely, the risks associated with the ambitious IT system that would be needed to implement the merge.

The prospect is a daunting one following the chain of problems, and attendant bad press, that have occurred in the technology developed for the Department for Work and Pensions’ flagship Universal Credit policy, which has suffered delays and multi-million pound write-offs.

According to the Times, it was only such fears of a Whitehall IT disaster that restrained the Chancellor from announcing the move in this year’s budget in April.

The public-awareness campaign needed to explain the merge would present another challenge, as public misunderstanding would lead to the perception that the government was simply hiking tax rates overall.

Other questions remain too. Will pensioners, for example, whose pension incomes are exempt from national insurance contributions, still enjoy the lower tax rate if they continue to work?

And the million-dollar question: how will the shortfall from employers’ contributions to national insurance be made up? It remains to be seen whether corporation tax would be raised, for example, or whether income tax on employees would have to cover it.

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<![CDATA[Fishing with dynamite: the big competition myth]]>

Illustration by Sonia Roy/Colagene.com

The cure for banks? Ed Miliband advocates more competition. Need to improve education? Nick Clegg urges more competition between students, between teachers, between schools. The solution to fuel poverty? David Cameron places his faith in competition between the energy companies. From TV talent contests and school rankings to the Olympics and rich lists, our religious faith in competition has promised fabulous efficiencies, miraculous economies and dazzling innovation. Instead we find ourselves gasping for air in a sea of corruption, dysfunction, environmental degradation, waste and inequality. Might there be a connection?

When I interviewed bankers for my 2011 book Wilful Blindness, the brutal pragmatism of a competitive industry was spelled out. “Sub-prime was about ripping off poor people,” one told me. “But we have to employ a sales force. And there was no way we could hire, let alone retain a single good salesperson without letting them sell these high-commission products.

“What were we supposed to do? Sit on our principles and watch as every salesperson walked out the door?”

The financial crisis proved so catastrophic because so many were selling the same toxic products. Classic economic theory may argue that competition is productive because it generates a diverse range of goods and services that benefit consumers and, by extension, society – but in this instance (and many others) it signally failed to do so. Belief in the theory underpins Cameron’s and Miliband’s touching faith that competition, and being more easily able to switch between banks or energy providers, will somehow liberate consumers from price-gouging. In fact, it seems more likely that it will just encourage companies to copy each other’s dodgy innovations at a faster rate. Competition frequently fails to deliver its theoretical promises. Intense competition inside and between institutions generates dysfunction, corruption, waste and the unwinding of the social fabric.

In organisations, competition for permanent jobs, bonuses and promotions can erode trust. Many companies formalise this through forced ranking, a system in which employees are assessed and rewarded for their position within a standard distribution. The top 10 per cent are winners, the bottom 10 are losers and are encouraged to move out, and those in the middle are (at least temporarily) safe. At Enron, this was known as “rank and yank”, at Intel “Focal” and at Microsoft “stack ranking”. The system is a crude form of social Darwinism, inspired by the hope that a need to survive will promote great work. In fact, it has just the opposite effect: people sabotage each other, appearing to be courteous while keeping back just enough information so that colleague-competitors can’t excel. Pleasers and politicians thrive, gaming a system that no one takes responsibility for; if you’re a winner, the system works for you – and if you’re a loser, it’s not your problem. Microsoft recently announced that it was abandoning the system but most large corporations still use it, and then wonder at their inability to innovate.

Competition can’t deliver the creativity these managers need because it specifically disables collaboration. If I’m being judged in comparison with my peers, why would I help them? That these executives are the products of competitive education systems only exacerbates the problem: they bring with them a lifetime of being trained to compete for class rankings, prizes and places. In the United States, where class rankings are still common, parents advise their children not to help one another, on the grounds that doing so may jeopardise their winning the top spot. Here in the UK, primary school teachers observe “competitive friending”: parents’ attempts to ensure that their kids make the right friends to enable acceptance in the right social networks.

In both the UK and the US, the emphasis on competition and ranking encapsulates the same message: everyone is a rival. This does little to teach the subtle habits of collaboration but much to focus any child’s mind on results. If grades are all that matters at school does it matter how you get them? The past decade has brought an explosion in cheating, plagiarism and the use of drugs to enhance exam performance. At the Institute for Global Ethics, the late Rushworth Kidder estimated that, by the time they reached college, 75 per cent of students had cheated – which is why many universities now run students’ essays through Turnitin software to check that they haven’t been copied or stolen.

In the world of science, a well-honed competitive mindset has produced what many leading researchers are calling a crisis: a culture in which the open exchange of ideas, data and theories has all but stopped. Crick and Watson may have considered themselves to be in a race – but their success hinged on the shared insights, data and debates of colleagues. They would find today’s labs very different: in 1966, 50 per cent of scientists said they felt safe talking about their research, but by 1998 that number had fallen to just 14. Science is a necessarily accretive process but from Harvard and Washington to London and Berlin, ambitious scientists wanting to be superstars share with no one. Rivalry and the fear of being scooped stop them from pitching in.

Progress for a scientist is measured in publications, citations and research awards – and as the competition for both has increased, so have fraud, plagiarism and what scientists call “normal misbehaviour”: secrecy, sabotage, data slicing and culling. At the University of Washington, Ferric Fang has grown particularly concerned about the increasing numbers of scientific papers that have to be retracted because they are rushed into print too fast, with inaccurate, incomplete or fabricated data. The number of articles published in the past decade has increased just 44 per cent but retractions of scientific papers have increased tenfold – and most scientists believe this represents the tip of the iceberg.

The cost of this is inestimable; flawed papers lead researchers down dead ends and deflect others from promising avenues. The fraud of the prize-winning physicist Jan Hendrik Schön (who falsely claimed spectacular advances in the field of nanotechnology between 2000 and 2002) cost numerous scientists years of fruitless work and wasted resources.

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The tournament that is modern science has produced what scientists call “the Matthew effect”, according to which the well-funded scientists (winners) get more funding and those with little (losers) get less. This might be a great way to run a game show but it is an especially poor way of promoting discoveries because picking winners is so difficult. The history of science is replete with cases of stunning breakthroughs made by the least likely of people, from the Augustinian monk Gregor Mendel to the “surfer pothead” Kary Mullis, whose invention of the polymerase chain reaction (PCR) transformed the science of genetics.

The costs of competition in business are sometimes obvious – fraud, corruption, sabotage – but many are more oblique. The measure of a company’s success (or the status of its CEO) is size, and the pursuit of growth is routinely pursued with high-risk strategies whose true cost may be apparent only years later. This is what the legal scholar Lynn Stout calls “fishing with dynamite”.

The quickest way to grow a company is through mergers and acquisitions, an old headline-grabbing favourite of high-profile CEOs even though research shows a failure rate of anywhere between 40 and 80 per cent. Under John Browne, BP grew fast by buying Amoco in 1998, Atlantic Richfield in 1999 and Burmah Castrol in 2000. Theoretically this should have generated economies of scale but it created debt, which ushered in an era of cost-cutting.

Similarly, the quest to make RBS the world’s biggest bank left it with the biggest loss in British corporate history and, in 2012, with a balance sheet the size of the UK’s economic output. Many working at RBS sensed that the acquisition of the Dutch bank ABN Amro in 2007 was driven by Fred Goodwin’s desire to pull off the biggest deal in banking. The quest for scale delivers not just huge risk, but also vast complexity. Supersizing companies always comes at a cost because competitive instincts don’t stop until they fail. To this day, RBS is in a tangle that people working there don’t believe they can fix.

Competition for market share is typically pursued by lowering prices. This race to the bottom might look great to consumers – dresses for £5, cashmere jumpers for £40 – but the costs have to go somewhere and usually they are pushed down to the most vulnerable. We may imagine this is a relatively new phenomenon but it isn’t. The Triangle Shirtwaist Factory fire in New York in 1911 (146 deaths) was echoed a century later by the collapse in 2013 of the Rana Plaza factory in Bangladesh (which made clothing for brands such as Matalan, Primark and Walmart), in which 1,129 died.

Globalisation didn’t invent the race to the bottom but firms such as Li & Fung accelerate it. Acting as a broker between low-wage factories and the companies that use them, Li & Fung’s “Little John Waynes” scour the world from Vietnam to Bangladesh to sub-Saharan Africa in search of ever cheaper labour. This is no small business – in 2012 Li & Fung earned $20bn – and, in theory, the brokers monitor working conditions. But its suppliers have had several disasters, including a factory fire that killed over a hundred workers.

Whether you’re making clothes, fast food or cheap books, competing purely on price drives down labour costs, producing a casualised workforce whose greater needs are either ignored or met by the state: a form of corporate subsidy that companies rarely acknowledge but happily accept.

The true costs exacted by a harshly competitive culture can be seen in the flood plains of North Carolina, the epicentre of the global meat industry. It isn’t just the ten million hogs (concentrating in just one state waste equivalent to that produced by the entire human population of Canada) which make this region remarkable. Rapid consolidation of family farms threw people off the land with nowhere to go. Industrialisation didn’t bring in money or create jobs but left the predominantly African-American families living off food stamps, stranded in a wasteland dotted with lagoons of animal excrement, afraid to protest the high levels of ammonia, hydrogen sulfide, acetic and butyric acids emanating from the facilities.

As large meat conglomerates moved into eastern Europe, a tradition of silence made consolidation easy: within ten years, 600,000 hog farms in Poland and 90 per cent of Romania’s independent farms had vanished. Horse meat is a sideshow, compared to the damage done to the social fabric of such places.

Economists may call these “perverse outcomes” but they are the predictable outcomes of competition. If we place our faith in it, we shouldn’t be surprised by such antisocial effects. After all, if my win is secured at the cost of your failure, what connects us? In a society that believes in winner-takes-all, how can competition fail to generate increasing levels of inequality?

Competition enlivens routine with drama, but when the stakes are high, so are the costs. The ubiquitous metaphor of our age – sport – demonstrates how destructive competition is, when it comes to playing for the big prizes and huge rewards that professional athletes now pursue. Travis Tygart, the head of the US Anti-Doping Agency, and the man famed for bringing down Lance Armstrong, has long agonised over the increasing rates of doping and corruption that characterise elite sport. His research showed him that although people still valued sport for the lessons of fair play, collaboration, integrity and discipline it could teach, in reality they believed that all that really mattered was winning. “In a climate in which corporate executives fabricate financial records, citizens evade taxes, professional athletes commit felonies . . . cheating and unethical behaviour appear to pay off,” Tygart’s research concluded. “Is our nation well served by a citizenry that learns to prize winning and extrinsic rewards at any cost as the values held most dear?”

It’s a recurring question. How can we create schools, companies and communities characterised less by competition and driven instead by an intrinsic passion for innovation, problem-solving and collaboration? Crowdsourcing companies – Kickstarter, Airbnb, SnapGoods, RelayRides, TechShop and many more – start from the premise that it is pooling, not hoarding resources, that creates opportunity. These businesses are typically celebrated for their technology, but their true daring resides in their reliance on the human desire to work together.

More conventional businesses such as W L Gore and Arup have proved successful and resilient because they focus intently on building social capital – trust, reciprocity and shared values – both within the company and with all the other businesses they work with. This isn’t marginal; it is central to everything they do. W L Gore is known for producing Gore-tex but should be more famous for the way it runs its business; you succeed at Gore because people want to work with you, not because you’ve bested them in a contest.

The structural engineers at Arup have been able to build some of the most challenging structures in the world – the Bird’s Nest stadium in Beijing and the ArcelorMittal Orbit – because the firm nurtures a work environment in which people eagerly share expertise and where hierarchy and status contests are of negligible importance. That these companies are also owned by their employees isn’t the single driver of collaboration but consistent with a mindset that sees shared respect and commitment as the necessary conditions for progress.

The Business Secretary, Vince Cable, and others have been keen to champion employee ownership structures as making a difference to the way companies behave. They are right to do so but wrong to think ownership alone will immunise companies against the ills that competitiveness spreads. We have seen the Co-op mired in scandal and fiasco because its ownership structure proved insufficient to ward off the conventional allure of mergers and acquisitions, the quest for scale for its own sake.

There is a lesson here for nations also. While presidents and prime ministers posture on the world stage, comparing their standing in GDP league tables, it is the smaller countries, such as Finland and Singapore, that prove most agile. They have to be great partners because they don’t have the size or market heft to protect them. They export more, plan further ahead and learn quickly. Knowing they can’t win through dominance, smaller countries have had to develop the capacity internally to be excellent collaborators externally. Not surprisingly, their high-achieving school systems seek success for every child, because they don’t believe they can afford to waste anyone.

Larger nations find it increasingly difficult to adjust to a world in which partnerships, alliances and trust represent the best social and political capital. Britain’s agonised relationship with the European Union demonstrates just how poorly we have developed the ability to contribute the best of our talents to the best of our partners.

If we are to find new ways to live and work together, we need to develop and prize high levels of trust and give-and-take: elements that competition so subtly corrodes. We need to celebrate the individuals and institutions that produce the greatest opportunities for the largest number of contributors. Many companies around the world continue to prove the human capacity for this way of working and measuring collective success.

Yet many politicians, wedded to gladiatorial combat and the rankings mania of opinion polls, have signally lost the capacity to think beyond the narrow confines of a very short race. Our politics are stalled because our problems are complex and our means of addressing them are often crude and rigid.

In the looming face-off between business, governments and society, a competitive mindset can frame the contest, but accepting this could destroy the mental maps that might show the way towards a solution. The problem is a failure not of the imagination, but of courage: the willingness to relinquish fantasies of winning in exchange for the bigger prize of joint achievement and shared progress. l

Margaret Heffernan is the author of “A Bigger Prize: Why Competition Isn’t Everything and How We Do Better” (Simon & Schuster, £14.99)

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<![CDATA[The best currency for an independent Scotland would be Norway’s kronor ]]> Scotland’s referendum debate has so far centred mainly on practical issues and medium-term choices like currency, new entities' share of public debt, and membership of the EU.

Far less has been said about how the different players influenced by the outcome will be affected in the longer term. It is well worth considering how independence would eventually affect the Scottish and UK economies, particularly in relation to North Sea oil. The reality is that this constitutional change could alter the macroeconomic foundations of the political map of Europe.

Aside from the UK, Norway and Denmark are the two other countries which now explore the North Sea. In 2013 the total proportions of North Sea oil produced by these three countries were 27%, 66% and 7% of the total respectively. By my estimates, Denmark’s oil sector provided around 5% of the country’s GDP, once you include petroleum production and dependent industries such as petroleum services, pipelines, refineries and so forth. For the UK it was somewhere approaching 20%, while for Norway it was 23%.

Oil and European integration

There is a strong correlation between these oil sector figures and each country’s economic and political choices. Norway stays out of both the EU and European monetary union. It has its own independent currency, whose rate of exchange is determined by the market.

At the other end of the spectrum Denmark is a member of the EU and is part of European Exchange Mechanism II (ERM II). The Danish krone’s exchange rate is tied to the euro, making it practically another form of euro. The UK is in the middle: a member of the EU but not in ERM II or the euro.

If Scotland votes for independence, it will create a completely different economic context for the two new countries that emerge. This new macroeconomic framework will work against the currently declared goals of both countries' governments.

The economy of an independent Scotland would of course be much smaller than the economy of the new UK. This means that with the same absolute oil extraction, you can estimate that the sector would contribute more than one-third of Scotland’s GDP. In the new smaller UK, on the other hand, it would only contribute something like 1% (coming from the mainly gas fields off east England).

Future choices for Scotland and the UK

This suggests that it would suit the two countries to make completely different economic and political choices. If North Sea oil dominates the Scottish economy to an even greater degree than in the case of Norway, it would suggest that it would be even less inclined towards the EU and euro than the latter country.

The logic behind this point is that oil changes the economic cycle of a country. The easiest way to think about this is to reflect on the effect of the oil price. If the oil price is high, a country that heavily relies on oil production does well and non-producers tend to do less well, because they are paying higher prices for their fuel. When oil prices are low, this reverses.

Anyone who had a passing interest in the eurozone crisis will know that the problems between the Mediterranean periphery countries and their northern neighbours were partly caused by the fact that they needed different levels of interest rates to suit their economies. An independent Scotland would suffer a similar fate, albeit for different reasons. The more that oil dominates an economy, the less well suited it is to European integration.

For the same reason, the rest of the UK would be inclined much more towards these European institutions than beforehand. The Danish experience suggests that it might lead not only to membership of ERM II but also even to adoption of the euro.

In turn, this would also lead to changes in the EU. The sheer size of the new UK would enhance the core of EU international member states, greatly increasing GDP for example. At the same time, the relative strength of socialist-inclined France would be reduced, raising the prospect of a more Atlanticist free-market approach to European unification.

On the other hand, Scotland and Norway would be naturally pushed closer to each other. They might be joined by Sweden and Iceland – Iceland and Norway share fishing interests, while Sweden and Norway’s economies are closely aligned. This could lead to much closer political co-operation between these countries, plus a kind of monetary co-ordination, if not monetary union.

Some might dismiss these arguments, pointing out that Scotland has aspirations towards the EU and that England is increasingly eurosceptic. But such people should remember the example of the UK’s brief membership in the first European Exchange Mechanism in 1990-91. The lesson was that no matter the political will, the economics will be fundamental in determining how situation evolves.

In view of these observations, it is hard not to reach several final conclusions. The Scots are not making a choice in September that is fully informed in economic terms. And the UK and EU do not seem to be fully aware of the possible long-term consequences either.

The ConversationPiotr Marek Jaworski does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

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<![CDATA[Paul Mason: what would Keynes do?]]>

Low's caricature of Keynes for the NS, 1933

In 1930, while the world was still reeling from the impact of the Wall Street crash, John Maynard Keynes published a remarkable essay: in “Economic Possibilities for Our Grandchildren” he imagined a world where, as he put it, mankind’s “economic problem” has been solved. By 2030, barring unforeseen wars and given the population did not rise too fast, a combination of technological advance and rising wealth could leave enough for everybody.

This would be quite a big change, he pointed out, because the entire history of humanity has been determined by there not being enough for everyone.

“For the first time since his creation,” Keynes wrote, “man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”

Scarcity had been the basic assumption of economics. As Léon Walras, the founder of marginalist economics, put it: “There are no products that can be multiplied without limit. All things which form part of social wealth . . . exist only in limited quantities.”

Walras’s book is currently available in the unlimited quantity of one from Google Books; Keynes’s essay exists as a PDF on Yale University’s website, also free. And although the smartphone in your pocket is not free, if it’s an Android its operating system has been created open-source; and anyone googling “Walras” is using a free service that invariably leads to a free ency­clopaedia, Wikipedia, which makes all commercial encyclopaedias impossible. The web server you’re communicating with runs on software nobody is allowed to own. That is adding another dimension to economics. It casts Keynes’s original prediction about abundance in a new light.

It was the economist Paul Romer who in 1990 stated the earth-shakingly obvious: information goods are infinitely copiable and, if the normal laws of the market operated on them, their price would rapidly decline towards the cost of production, which is zero or near zero.

Even as we grapple with the aftermath of our own Wall Street crash, we are facing a new problem: the rise of information goods whose abundance is probably the indirect cause of – and solution to – our current state of low growth, high inequality and growing social unrest.

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Keynes imagined and fought for a society based on liberalism and aesthetics. The market would eventually provide for all and create a confident, socially adventurous leisure class, whose purpose was to understand and create beauty – and to work as little as possible. That view had been dented by the First World War and would now be shattered by the Depression. So the “grandchildren” essay stands as almost the last utterance of Keynes’s pre-Depression world-view.

Even in March 1930 he was still confident that the world was just going through a process of adjustment to higher productivity. Interest rates are too sticky, he wrote: not falling fast enough, and employment patterns are not adjusting fast enough to automation and rising productivity.

So, as with all insights into the future, Keynes’s essay is full of misunderstandings about the present. (In 1930 the great wave of bank insolvencies that triggered the Depression lay 12 months ahead. Herbert Hoover was in the White House, no developed country had yet left the gold standard, Ramsay MacDonald was still in Downing Street and the Nazis held just 12 of the 491 seats in the Reichstag.) Its underlying tone is: don’t worry, these are growing pains; the market will – with the help of governments – create the solution. And that was wrong.

Yet there is something breathtakingly far-sighted about the “grandchildren” essay. At its heart is the proposition that one day:

• capitalism will grow into something else;

• if that happens the cause will probably be technology;

• we will have a major psychological problem adjusting our lifestyles to a situation where money is not important;

• the love of money will come to be seen as a disease;

• economics will become as mundane as dentistry.

Keynes looks into the future using three yardsticks: the rate of technical innovation, the growth of population and the growth of capital through compound interest. He estimated that productivity would safely grow at least 1 per cent per year, and that capital would grow by 2 per cent per year. If so, it was safe to assume that by 2030 the standard of living in advanced countries could be four to eight times what it was in 1930 – and if technology improved faster, eight times could be an underestimate.

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So, what happened in reality? Take just the case of the UK. According to the Maddison Project data on global GDP, which measures historic output in terms of 1990 US dollars, British GDP per head in 1930 was $5,441. It took until 1972 to double, to $11,294.

If we switch to modern data, from Trading Economics, we can reset UK GDP per capita, adjusted for inflation, at $20,000 in 1973. It doubles to $40,000 by 2008, falling back to just under $38,000 today. That leaves us at below four times the output per head in 1930. So, to hit Keynes’s target, it has to double again in the next 15 years to $80,000. The chances of this happening are few. Even if GDP per head grows as fast as it did between 1992 and 2008 ($1,000 a year) it will take until about 2054 to achieve the target.

You will be thinking: but we feel so much better off in material terms. What about all the plastic toys that clutter our own grandchildren’s bedrooms? What about the iPods? And what about China and Mexico? But first, what got in the way of Keynes’s predictions for the developed world?

Obviously, first, the Depression, which lasted most of the 1930s. Keynes’s caveat – no major wars – was confounded. And the population did grow significantly. There were 45 million people in Britain when he wrote the essay; there will be 70 million by 2030. Yet these changes alone do not explain why what he called “the power of compound interest” failed to deliver.

If we take a very broad overview of economic history since the “grandchildren” essay, we could say: after the war, you get 30 years of high productivity combined with relatively low real rates of return on capital, because the inflation implicit in the global system Keynes designed helps suppress the returns on financial capital.

In fact, as Carmen Reinhart and Belen Sbrancia pointed out in their celebrated paper for the National Bureau of Economic Research in 2011, financial repression – as it has been called – left real interest rates negative for at least half of the postwar boom.

Then – from about 1992 to 2008 – we experienced an era of high returns on capital but suppressed productivity growth. GDP per capita rose relentlessly but an ever greater part of social wealth in developed countries is devoted to state-provided incomes and services, and this creates a debt problem for states, soon followed by a debt problem for consumers.

If you wanted to be cruel, you could say that two legacies of Keynes got in the way of his ultimate vision for capitalism: first inflation, then the social state. This is not to suggest that the social state should not exist, or that it should be smaller: just to state that it was 30 per cent of British GDP in 1930 and is 45 per cent now.

Here we have to recognise that another of Keynes’s assumptions didn’t hold: the assumption that rising wealth brings equality. As the French economist Thomas Piketty has pointed out in his book Capital in the 21st Century, the middle of the 20th century was a period of flattened inequality. It was logical to assume that development and innovation would go on flattening out inequality, but it hasn’t.

In the late 1970s the ruling elite of the west decided that capitalism could not coexist with organised labour. Their project – beginning in Japan, then Britain and the US and pulling in Germany by 2002 – was to weaken labour’s pricing power strategically. The result is rising inequality in developed societies: every recovery brings a new rise in income for the rich but not the poor. The middle class is hollowed out.

Under these conditions even rapidly rising GDP can lead to the increase in poverty among growing parts of the population. You get the oligarch’s yacht alongside the food bank, for ever.

Seen on this basis, the future does not look bright. Demographic ageing in countries like ours will place a huge strain on pensions, health and social care. As a result, the ratings agency Standard & Poor’s believes that by 2050, even with the post-crash austerity measures, ageing will turn 60 per cent of all sovereign nations’ bonds to junk: not safe to lend to.

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However, inequality and low growth, alongside high returns on financial capital and challenging demographics, are not the fundamental problem. If they were, there would be a solution – albeit one that seems too radical for the political centre now: a global rules-based currency system that would make the mercantilist strategies of Germany, Japan and China impossible and rebalance the world economy; a new repression of financial profit, a new swing of distribution towards labour and away from capital, and a phase in which technological innovation would create new demand faster than the old wants are satisfied.

The fundamental problem is abundance of two things: information goods and labour – but coupled with mechanisms that artificially constrain the supply of information and force the work of the majority to become ever more intense.

In 1990, in his paper for the Journal of Political Economy, Romer pointed out that the natural state of an information economy was to create monopolies: only monopoly could prevent the market forcing the price of information goods towards zero. He wrote this when Windows 95 was still on the drawing board, before Nokia built and destroyed its 40 per cent market share, before iTunes built its 95 per cent market share of online music and saw it eroded, before Android phones took 70 per cent of all handsets sold. It was a great insight.

Conventional economic theory said monopolies were an anomaly; they would be eroded naturally by information, or patents, or skills, spilling over into the public domain, becoming essentially free. But modern information companies’ entire business model is based on monopolising these spillovers. A growing number of heterodox thinkers – economists, lawyers, technologists – are convinced that such monopolies are doomed. They will be replaced with an economy where large amounts of information are produced and exchanged at negligible real prices, if not for free.

Alongside conventional production for the market, and provision by the state, a third kind of activity is growing up: non-managed, peer-produced, non-market activity based around information. Some, like the Harvard law professor Yochai Benkler, or the French economist Yann Moulier-Boutang, see this as a new kind of capitalism – a cognitive capitalism – as different from industrial capitalism as that was from the mercantilism of the 17th and 18th centuries. The internet, Moulier-Boutang writes, is “both the ocean and the galleon” of this new economy: it provides the way and the means to find the new El Dorado. Others, myself included, believe the change is even more fundamental: that there is great social utility embodied in information, but not enough value in the market sense, and that once the monopoly model is eroded this is going to be like the conquest of the Americas, but without the gold.

Take a concrete example: iTunes. Technically we could all own every tune ever recorded. We would not need to own them, because they all exist on a server in Cupertino, California. We would just need an equitable means to listen to the ones we like.

Should the price be zero? Probably not, but how many perfectly playable vinyl records can be picked up for a penny? Should it be 99p per track? Did the Beatles make the record so that Apple could charge 99p per download for it long after they were all dead, passing to their estates a maximum of 33p and pocketing two-thirds?

A better question is: would the break-up of Apple and the rise of a music-sharing and renting model deter a modern-day group from writing great music? Every rock band or pop singer you talk to complains that information technology is eating into their revenue, and they have to go on the road to sell merchandise in order to make money. They often say this is because of piracy. But, in a sense, rock bands are just facing the same problem as journalists, magazine writers, literary novelists face. The pricing power of their artistic labour no longer depends on a technological bottleneck: the publishing house, the record label, the printing press. What they don’t lose to pirates they lose to the rentier class – firms such as Apple or Amazon, which demand a hefty distribution payment as the price of selling your wares via the internet.

Twenty-first-century kids who want to make a lot of money by their artistic labour do so by creating things you can’t copy and that you have either to own or rent: computer games, TV drama series, contemporary visual art and jewellery. Now, what applies to the pure information product also applies to the information content of real things.

A veteran aircraft engineer told me he and his colleagues did 12 different stress tests on the tail fin of a Tornado jet in the 1970s, and for its replacement, the Typhoon, they did 186 . . . million. They built it virtually and flew it on a computer 186 million times.

With modern aircraft the entire process of manufacture is simulated and then the built object is flown on a computer; a little virtual man with a screwdriver walks up to the wing to see if he can get his hand in to adjust a virtual nut. A modern airliner, once built, cannot be flown without a computer and generates a stream of information to its makers in real time that is essential to the economics of running an airline.

Everyday products are alive with information in the same way as an art gallery is alive once you’ve rented one of those audio guides. A lecture is not just an analog event but a virtual conversation, as people tweet about it. Familiar objects suddenly have an information content.

We are living through a revolution in technology that is altering the relationship between information and physical things, but it is not being measured by conventional economics. Accountancy still sees the information as a dead design, sitting on the balance sheet like an asset. Economics has barely begun to ask: what is information?

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Consider the social implications: if the cost of information goods tends towards zero, and the ability to standardise and virtualise the manufacture of real things also rapidly reduces their cost, the real price of labour will also fall because a) supply exceeds demand and b) the input costs fall.

That is what I think underpins the surprise outcome of the neoliberal revolution: the impoverishment of the developed-world working class. It looks like the outcome of class struggle and defeat, but it may also be the product of a one-time technology event.

The idea was that technological progress would create fresh demand, so that even as the price of today’s goods got cheaper (because of productivity) there would always be new, more complex human needs created that require higher-valued things and a higher-skilled workforce to create them. That has been capitalism’s get-out-of-jail card for 200 years, confounding Malthus, Ricardo and Marx, each of whom in his own way believed there were limits to capital.

It happened spectacularly in the Progressive Era, the second industrial revolution, when Victorian-era cities were suddenly populated with Arts and Crafts-style pubs, cinemas, libraries, automobiles, electric lighting . . . prompting Virginia Woolf to declare that “on or about December 1910, human character changed”. And sure enough human character is changing again, under the impact of technology. This third industrial revolution is having a different effect, however: certainly there are more complex needs being created, but it’s not obvious how they will be commercialised.

“Information wants to be free,” said the hippie-ideologue Stewart Brand – to which the open-source movement added: “free as in freedom”. If physical goods are getting cheaper the drivers of demand are of course energy (which has to get dearer) or services. But services, too, can be automated. And so what we may be left with is the nightmare the French writer André Gorz envisaged: that just as it tried to privatise water in the 1980s, capitalism is forced to privatise and commodify simple human interaction. That just as we have sex work now, we might have affection work, sympathy work, anti-loneliness work in the future.

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Yusuf Yerkel, an adviser to the Turkish PM, assaults a protestor in Soma, 14 May. Photo: AP

Recently the news headlines were dominated by a striking image: a Turkish political adviser in a suit kicking the relative of one of 301 miners killed in the Soma disaster, as the man lay on the ground and was restrained by two security guards. Some saw the image as symbolic of the situation in Turkey. I think it is a metaphor for the global situation since the fall of Lehman Brothers.

The bargaining power of labour was already low – hence the stagnation of real wages in many economies, the disappearance of high-skilled work, the return of slave-style work intensity and surveillance at work. Trust in politicians is minimal, hence the tendency for unpredictable social crises and protest movements to break out repeatedly. When they do, ordinary people face a scale of repression, even for stepping off the pavement, that would have seemed to Keynes’s generation simply fascist.

The most symbolic figure in the picture is the man in the suit. He represents the essence of oligarchic power. For him, the added bonus was that he hurt his foot and was given a week’s sick leave; for the miners who went on strike for a day in memory of their colleagues, there were, naturally, two days’ pay docked.

In late neoliberalism, profit has become primarily rent. The art of making money has become the art of cornering the supply of something, repressing its workforce, rigging politics in your favour so that pleas for better regulation are blocked and registering your company in such a way as to avoid paying tax. Anybody who objects can be kicked.

The present situation breeds not only a widening inequality of wealth but an inequality of power not seen in Keynes’s time except in Fascist Italy or Stalin’s Russia. I think it may all end in tears again – with unchecked oligarchic governments such as those of Vladimir Putin and Recep Tayyip Erdogan repressing their population with tear gas and arbitrary detention, while the democratic-world elite stands by, once again convinced that its economic interest lies in supporting dictators against their own people, and increasingly prepared to use repression, surveillance and arbitrary power against their own populations.

If we avoid this dire outcome, it will because the forces for good, for understanding and knowledge and restraint are also being strengthened by technology. I think we should imagine new technology creating the world of abundance Keynes longed for, but it is likely to be decoupled from the question of pure GDP growth and compound interest.

It won’t happen by 2030. It will not be the transition Marxists imagined, led by the state suppressing market forces, but a transition based on the controlled dissolution of market forces by abundant information and a delinking of work from income. I call this – following economists as diverse as Peter Drucker and David Harvey – post-capitalism. In making it happen, the main issue is not economics but power, and it revolves around who can envisage and create the better life.

Keynes’s critique of Marxism was that by basing itself on the working class it asked too much of the intelligentsia. He wrote in 1925: “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above bourgeois and the intelligentsia, who, with whatever faults, are the quality of life and surely carry the seeds of all human achievement?”

Well, now (thanks to education and technology), we have a mass intelligentsia: yes, for sure, spoon-fed tick-box learning on degree courses whose intellectual level Keynes would have scorned. But they have shown themselves willing to stand somewhere between the mud and the fish, and able to create science and art and ideas that make this a thrilling time to be alive. It was they who launched the Arab spring, the Quebec spring, Occupy, Taksim Square and the Russian democracy movement.

When I look at the picture of the miner’s relative and the man kicking him, I find it hard to prefer the fish to the mud. I suspect that Keynes, placed for one hour in a Rolex store, or in any of the yachting ports where British politicians frequent the vessels of Russian oligarchs, might also begin to find this whole “fish v mud” thing not so useful. But we have gone beyond the proletariat and the bourgeoisie. We have an educated demos alongside an underclass, and we are all toiling in a social factory where every act of production, consumption and leisure sucks us into a system of value creation based on debt, finance, monopoly.

By 2030, according to the Oxford Martin School, 47 per cent of all US jobs, mainly in retail and services, will be automated. Automation used to mean the replacement of physical labour by machines; now it means the replacement of mental labour by software – and software is just a machine that never wears out and costs nothing to reproduce. Unless whole new industries based on whole new sources of economic demand grow up, the purchasing power of the majority will fall; and ultimately there is only so much money you can print, and only so many asset bubbles you can stimulate, until it comes to a full stop.

Keynes imagined a future where rising wealth led to falling inequality. Instead, economic wealth has grown more slowly than he imagined but physical and information wealth has grown faster and begun to detach itself from the value system. The moment is coming where we have to recognise this and redesign society as boldly as Keynes’s generation did in the mid-1940s.

I think a modern-day Keynes would be obsessed with how to decouple work from income, production from price, organisation from ownership. We know what he achieved in practice: a workable system that revived global capitalism. But he also dreamed of something better than a system based on the pursuit of money.

Amid the pressing challenges – Eurofascism, repression, stagnation, political mistrust – the true Keynesian thing to do is to imagine a humanist future based on abundance and freedom, and explore what tools we have that might make it come about. There is no better time to imagine it.

A new international award, the Charleston-EFG John Maynard Keynes Prize, was launched on 23 May at the inaugural Keynes Lecture, given by Paul Mason

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<![CDATA[Graduate prospects are improving, but some may already have left Britain for good]]> Finally some good news for British graduates: employers expect to hire 18 per cent more university leavers this year as the economy continues to strengthen.

The bullish prospects for the graduate job market were revealed in an annual report by employment researcher Incomes Data Services (IDS) and will come as a boost to recent university leavers and students sitting finals this summer.

For many of those who graduated in the depths of the recession over the past few years, however, the upturn has come far too late. Certainly many of my peers have given up on gunning for an elusive graduate job in Britain, deterred by relentless rejection. With more than 60 applications for every vacancy last year according to IDS, you can hardly blame them.

Abandoning a fruitless and demoralising job hunt in the UK rarely means neglecting the search altogether, however: the favoured solution for many graduates has been simply to hop abroad. Figures published by the Higher Education Statistics Agency last year reveal that one in ten British graduates emigrates for work.

The general trend towards emigration certainly appears to be on the rise in the UK. Statistics published by the Office for National Statistics last summer indicate that the number of UK citizens flocking abroad each year has increased by a fifth under the Coalition, to reach 154,000 a year. The trend for emigration among Brits is clearly an upwards one, and the brain drain appears strongest among recent graduates.

So where are young Brits relocating? As the economic powerhouse of Europe, Germany is a natural option for many British émigrés. Boasting a strong economy and a youth unemployment rate of just 7.7 per cent, according to the latest figures released by Eurostat last month, opportunities are far more plentiful than in the UK. The start up culture in Berlin, in modern times a thriving tech hub, holds a particularly strong draw for cyber savvy grads.

Even more enticing than that, however, is the comparatively cheap cost of living. Rental prices in London are a staggering 175 per cent more expensive than in Berlin, according to city price comparison site Numbeo. Eating out in London is 50 per cent more expensive, and groceries 30 per cent more costly, than in Berlin. The nub of it is that you can afford to have a much better time on a far lower wage in the German capital than in the British one.

That, in essence, seems to be the key to the British trend of graduate emigration: a better quality of life overseas for less money. The analogy does not only hold true for Berlin, where the rental market is especially cheap and the job market strong. Young Brits are also heading to southern European nations with weaker economies, because whether or not they can win better jobs, they can certainly live more pleasant lives in countless Mediterranean destinations.

With unemployment among 15 to 24 year olds higher than 50 per cent in Spain, according to Eurostat, promising career opportunities may look scarce, for example, but at least the rent and sangria are cheap in most Spanish cities (compared to the UK) and there is the glamour of sunshine and the excitement of new experiences.

Of course working behind a bar may not have been the dream while reading, say, anthropology at Durham, but at least doing it in an exotic new environment abroad beats being stuck in Blighty, having moved back in with your parents.

Start-up costs for a new life abroad can be as low as you are dare – no one could call it lavish to buy a one-way flight on a low-cost airline and book a stranger’s sofa via Couchsurfing. Europe's open border policies also make the bureaucratic element of moving abroad a doddle in most instances.

The emigration trend is unlikely to reverse soon, because young Brits do not appear to recognise that their career prospects are improving at home. According to a recent survey by Small Earth, a youth travel and work organisation, perception of the job market in Britain remains poor, with more than half (54 per cent) of young people deeming the UK job market “bad” and less than 30 per cent ranking it as “good”.

Almost all of my friends who have moved abroad are having a thrilling time, with few planning to return home anytime soon. It makes me wonder, will the generation of graduates who have sought their fortunes abroad end up returning to British shores at all?

 

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<![CDATA[The last thing we need is oligarchs’ money flooding into Britain]]> The international response to the crisis in Ukraine has been depressing to watch. It is hard to avoid the conclusion that the west has so far been comprehensively outmanoeuvred by Russia, whose old-school, facts-on-the-ground tactics have been met by a series of feeble and poorly co-ordinated half-measures.

The diplomats dismiss such pessimism. In today’s financially globalised world, they say, there is more to the projection of power than conferences and UN resolutions. As the real measure of their strategy’s success, they point to the revival of modern Russia’s most chronic economic ailment – capital flight.

In the first three months of 2014, $51bn exited Russia, compared to half that a year earlier. In other words the financial markets are doing the diplomats’ job better than they ever could. Investors are voting with their feet. Every dollar of capital fleeing the country is another nail in the coffin of Putin’s policy in the “near abroad”.

The idea that internationally mobile capital has the power to discipline governments – and that this power is benign – is an old one. In the west, it usually crops up in the context of economic policy. The idea is that governments are prone to spend beyond their means and to dole out contracts to their backers and that they generally fail to take the “tough decisions” necessary for long-term economic success. Voters get to punish them for such misdemeanours only every four or five years. The financial markets, by contrast, do it in real time. Their X Factor panel sits in judgement 24 hours a day, with the price of a government’s bonds keeping track of the score.

The diplomats’ excitement is not be-cause they think that Russian capital flight shows up the shortcomings of the Kremlin’s latest budget plans, however. For them, it signifies something much bigger: a major counterweight to Vladimir Putin’s political power. In short, a powerful force for democratisation.

This, too, is an idea with a distinguished pedigree. In the 18th century, Montesquieu observed that since the invention of the bill of exchange – the prototype of the bonds, stocks and currencies traded on today’s international financial markets – Europe’s monarchs had become “compelled to govern with greater wisdom than they themselves might have intended”.

His contemporary the Scottish economist James Steuart put it even more bluntly. The ever-present threat that capital might flee the country, he wrote, was nothing less than “the most effective bridle [that] ever was invented against the folly of despotism”.

The diplomats in Washington and Brussels agree. Yet they should pause before engraving Steuart’s maxim over the gates of the US state department and Berlaymont, the home of the European Commission. Neither the economic nor the political benefits of the international free movement of capital are quite as simple as they look. Both rest on questionable assumptions.

The economic argument relies on the premise that markets accurately assess where capital can most profitably be deployed. The theory suggests, for example, that capital will tend to flow from rich countries – where it is plentiful and therefore earns a low return – to poor ones, where it is scarce and therefore highly productive. What could be more logical than that?

The reality is exactly the opposite. Over the past two decades, capital has tended to flow from poor countries to rich ones and, as the years leading up to the 2008 crisis showed, often into investments that are egregiously wasteful, too. There is, in other words, no economic law of gravity that ensures that capital flows to wherever it would be most productive. In the real world, other factors trump pure financial rationality and so capital often flows uphill.

The political dividend from international capital mobility is more ambiguous still. The unspoken assumption here is that the markets are in essence democratic, while the governments they undermine are corrupt – that’s the reason to applaud the fixing of the bridle to the despot.

What if it is the other way round? What if it is the government that is representative and the forces of capital that are not? Everything hangs on the distribution of wealth. In countries where the ownership of capital is widely dispersed, it may be a fair assumption that investors are a democratic force. But where wealth is concentrated among a tiny elite, it may not hold true at all. Russia is a good example: it is the capital of the country’s oligarchs that is fleeing abroad. The budget option open to the average Russian without a banker in Zurich or an estate agent in London involves a much less exotic itinerary: she buys dollar bills and sticks them under her mattress.

Two hundred and fifty years ago, international capital mobility may indeed have been an innovative force for the eradication of bad government. Today, it is just as often the means for multinational companies to dodge sales taxes or developing-world kleptocrats to siphon off their unearned wealth.

There is also another consideration – particularly for us here in the UK. For every country that capital is fleeing from, there has to be somewhere it is fleeing to.

This month, it was announced that penthouse D in the One Hyde Park development in London has been sold for £140m – unsurprisingly, newspapers reported that the buyer was “thought to be from Ukraine or Russia”. Just a few days earlier, the deputy governor of the Bank of England had warned that the UK’s booming housing market is “dangerous” and “the brightest light” flashing on its dashboard of risks.

An increase in Russian capital flight, I imagine the Bank would agree, is the last thing the UK economy needs.

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<![CDATA["Tax Freedom Day" comes earlier for the rich than the poor]]> Today the Adam Smith Institute is marking this year’s "Tax Freedom Day". For those unfamiliar with the concept, "Tax Freedom Day" is defined as "the day when average Britons stop working for the Chancellor and start working for themselves". In other words, tomorrow marks the day where every penny you earn goes straight into your pocket, and not to the pesky taxman. Sounds good right? Well it gets even better. This year your "freedom" comes three days earlier than last year, three whole days.

If you’re not cartwheeling round the room at this unexpected financial boon, it’s possible you’ve worked out that Tax Freedom Day is, in fact, utterly meaningless. The celebratory nature of the Day only highlights that it is an obvious and cynical wheeze, intended to frame tax, in all forms, as a malign force. Tax is no longer a mechanism to provide your children with an education, to protect you from illness, or to make sure the roads are paved. Instead it is an imposition, the government taking what is rightfully yours.

The concept of Tax Freedom Day becomes even more bizarre when you examine how it is measured. According to the Adam Smith Institute it is "calculated by comparing general government tax revenue with Net National Income (NNI). The total of all government tax revenue – direct and indirect taxes, local taxes and National Insurance contributions – is calculated as a percentage of NNI at market prices. This year it comes to 41.09%. That percentage is then converted to days of the year, starting from 1 January."

In other words, the date of Tax Freedom Day is found by determining the fraction of the UK economy "captured" by taxation. This fraction is then used to determine a date in the calendar that is an equivalent fraction of the year.

The question is, does this method work, and can it really measure when an "average taxpayer" can expect to be "free" of taxation? The answer is, not really. For a start, nations clearly don't pay personal income tax.

Despite this, a more relevant Tax Freedom Day can be worked out. More precisely, Tax Freedom Days can be worked out. Equality Trust analysis has found that when all taxes on income are taken into account, the richest 10 per cent pay 35 per cent of their income in taxes. However, the poorest 10 per cent actually pay more – 43 per cent. Taken as a fraction of the year, this means that the day someone in the richest 10 per cent stops contributing to tax, or their "Tax Freedom Day", is actually on 9 May. The poorest on the other hand are still waiting for their Tax Freedom Day, which will not come until 5 June, nearly a month after the richest 10 per cent. 

In this sense, Tax Freedom Day can actually teach us something. By at least one important measure, our tax system is still hopelessly regressive. People may not always find themselves hugely motivated by the prospect of paying tax, but it is an important and widely accepted part of our life. We pay tax to receive certain public services, many of which have a social value far greater than their financial cost. Tax Freedom Day seeks to pervert this obvious truth by convincing the public that tax only harms them, and that it can be avoided without cost. What we need is not to demonise all forms of taxation, but to have a clear and honest public debate on whether our tax system is fair, whether it protects the most vulnerable in society, and whether it really places the greatest burden on those with the broadest shoulders.

John Hood is media and communications manager at The Equality Trust, where this piece originally appeared. 

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<![CDATA[The Pfizer / AstraZeneca takeover bid – the story of what Labour did and why]]> Pfizer’s audacious bid to takeover AstraZeneca is dead for the moment. Had Pfizer succeeded, it would have been the largest takeover in UK corporate history. Whatever impact the deal would have had on the two companies involved, it would have also had profound implications for British science, exports and jobs in one of the most important sectors of our economy. As well as important private interests being at stake, there were also clear and distinct public interests in the deal. 

Having been engaged with many of the principle actors in this drama – from the chief executives and boards of both companies to key figures from across British industry – I became convinced that this takeover was being pursued for the wrong reasons, that it would be bad for AstraZeneca, and that it would be bad for Britain. 

I am pleased that the AstraZeneca board remained clear-headed in the face of intense pressure and that, in this case, it was the board that rebuffed the offer.  I remain of the view that, for the most part, it should be the existing owners of a company – the shareholders and their agents – who should determine future ownership. Here the system appears to have ‘worked’.

However, there is more that can be done to support greater rationality in the conduct of takeovers.  It is why Labour would introduce reforms to ensure that, once announced, takeovers do not generate their own unstoppable momentum – from carpet-baggers buying shares or from advisers who stand to gain from the deal – but are always decided in the long-term interests of the company.  

It is why we will clarify the legal protection boards have to make decisions based on what they think is best for the long-term health of the company, not just on the value of the offer on the table. 

The experience has also confirmed in my mind the need to review the legal framework governing takeovers so that legitimate public interests in exceptional transactions of this kind can be properly taken into account where they are not aligned with private interests. 

Our world-class science base has taken many years, and much public and private investment, to develop. It is from this base that we can secure more of the well-paying jobs that generate broad-based prosperity and a stronger, better balanced economy.  It is a national asset, a public good as critical to our economic future as our physical infrastructure.  So a Labour government would not stand back and allow this source of long-term competitive advantage to be put at risk for narrow, short-term gains. 

That is why we would change the law so that, should the need arise and as a clear signal to all, it is not left unprotected any longer by extending the grounds on which ministers can block a transaction in the public interest to cover exceptional deals which would have a material adverse impact on the UK's science and R&D base.  We would set up a standing body of scientists and business people to provide an independent assessment to Ministers and, if the advice were that the proposed deal would have a material adverse impact, a Labour government would block the transaction.

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So this is the story of how and why we reached the view that the proposed takeover of AstraZeneca deal should be subject to such a public interest test on the grounds that it posed a real risk to our national economic interest. It is the story of how the government misjudged the situation, was seduced into becoming cheerleaders for a deal which ministers mistakenly viewed through a narrow, political lens as an endorsement of their tax policy. It is also about how Labour and others helped energise a broad coalition of voices from across politics, business and science to raise legitimate questions about the deal for the companies involved as well as for Britain.

Before the arrival of the current CEO, Pascal Soriot – a biologist – in 2012, AstraZeneca had been somewhat struggling. Patents on a number of existing drugs were set to lapse and the pipeline of new drugs did not look promising.  But since then, the company’s fortunes have experienced a sea change. Soriot has focused on simplifying the organisation, and as the true potential of its drug pipeline has become apparent its stock has risen in value by 40 per cent in the last six months.

In November 2013 Pfizer’s chairman and chief executive Ian Read made an initial approach to AstraZeneca’s chairman Leif Johansson. Pfizer subsequently made a more formal approach on 5 January 2014, valuing the company at around £60bn. A week later the AstraZeneca board rejected the offer as “very significantly” undervaluing the company, offering too little cash (30 per cent), and being too risky in terms of execution.

Like many, first became aware of Pfizer's courting of AstraZeneca when the original story reporting that approaches had been made appeared in the Sunday Times on 20 April, Easter Sunday.  The significance of this potential transaction was not lost on me.  The £60bn price tag would have made it among the largest transactions in UK corporate history. 

On 26 April, Pfizer made a second approach, which was also rebuffed.  With the deadline imposed by the City Code on Takeover & Mergers fast approaching, Pfizer made two further offers on the weekend of 17 May, eventually valuing the company at almost £70bn in what was a final offer.  Again, these offers were rejected by the AstraZeneca board without reference to shareholders. Under the Code, Pfizer then had until 26 May to 'put up or shut up' with a firm offer.

The significance of the deal went far beyond the price tag. The potential transaction went to the heart of the debate about the quality of jobs in the UK and the need to reform our economy so it is better balanced and more sustainable in the long term.

We must build an economy that gives everyone a ladder up to get on and meet their dreams and aspirations. That is not the kind of economy we have right now. We are a country of great promise with an abundance of talent but our economy is simply not producing enough of the high paid, high skilled jobs to meet those aspirations, raise living standards, and make people's dreams a reality. Of course, any job is better than no job but a good job that is secure and pays a wage you can live on is better still. There are only four other countries in the OECD with a higher share of low-paid jobs. To change this and to generate more, better-paying jobs we must grow our world-leading and innovative sectors, like pharmaceuticals.

When people ask me on the doorstep what we are hoping to do to help their children to go on and do better than the older generations in their family, I want to be able to point to companies like of AstraZeneca as the vehicle through which we can achieve this brighter future. As a company, it accounts for 3 per cent of our manufacturing exports, directly employs around 6,700 people, and supports many more thousands of jobs indirectly through an extensive supply chain. As a share of its overall revenue, in 2013 AstraZeneca spent almost 50 per cent more on research and development than Pfizer.  It is companies like AstraZeneca which will provide the opportunity for our  children – not only to go on and do well for themselves, but to make history playing a part in producing life saving drugs.  So we need a business environment that nurtures more firms like AstraZeneca, not fewer.

When I heard of Pfizer’s approach on Easter Sunday, the fact it was a US company was a complete irrelevance.  Having visited Jaguar Land Rover's Gaydon plant and other foreign owned UK operations, I have seen for myself successful British companies thriving under foreign ownership.  The question was whether the purchase – foreign or otherwise – of AstraZeneca would strengthen the company over the long-term.  Would it help grow our world-leading pharmaceuticals industry and would it expand our research, science and skills base? If not, would it have such a material and adverse impact on our economy that it would necessitate government action to safeguard the national economic interest? These were the questions we sought answers on from scientists, business leaders, and Ministers alike.

Before coming to a view, I spoke to leading people in the sector and British business, including both firms involved with the deal, first Pfizer then AstraZeneca. Ed Miliband and I met Pfizer’s Ian Read after his appearance before the BIS select committee on 13 May and I met AstraZeneca’s Pascal Soriot the day after following his appearance at the Science and Technology select committee.  Industry groups in the pharmaceutical sector were not able to express a public view, given the need to be neutral as regards their members. But privately many expressed concerns to me about what was proposed – nobody positively made the case for the deal to go ahead. 

What perhaps surprised me most were those who would not usually argue for government involvement in the economy who were now vigorously making the case to me that the government should act to safeguard the national economic interest in this case.  Others urging action included the leading businessman and former Science Minister, Lord Sainsbury, who went public with his concerns, as did the former CEO of Standard Chartered Bank, Lord (Mervyn) Davies. Lord Heseltine expressed his reservations too, along with the Chief Executive of Aberdeen Asset Management. 

There has been an attempt by people in government to paint those raising objections as protectionists or advocates of a 1970s style socialism - but this had no credibility given the record of the individuals concerned who were raising the alarm.  They are no more 1970s-style socialists than those advocating a laissez faire approach to the deal are anarchists. The Director General of the British Chambers of Commerce, John Longworth, put it well when he said: “we must remember that there’s a lot more to being an open economy than saying ‘yes’ to every takeover”.

Then there was Pfizer's record of acquiring other companies, intellectually asset-stripping them, cutting R&D spending, and shutting down research facilities with large consequent job losses. This was the experience at Warner-Lambert and Wyeth in the US and at Pharmacia in Sweden since 2000. I know this because during the course of this story, I spoke on the phone with my SPD colleagues in Sweden who outlined to me the devastating impact Pfizer's actions at Pharmacia had had. Despite paying in excess of $200bn for these acquisitions, the entire market valuation of Pfizer now stands at substantially less, suggesting significant value destruction or extraction.  This did not inspire confidence, especially when taken together with Pfizer's actions at its historic research facility in Sandwich, Kent – which developed Viagra - where jobs were cut in 2011.

So the worry in the science and business community in light of all this was for the long term future of the company and the sector. In spite of this, the initial response of the government looked to the short term. It seemed that the prospect of being able to boast of bringing one of the world's largest companies on to the Exchequer's books in the clouded their judgement on the longer-term consequences of the deal.

Sources close to George Osborne had said the bid was "a massive vote of confidence" in the UK and Grant Shapps said the takeover could be "a great Anglo-American tie-up". Treasury Minister David Gauke said the deal showed how, "[t]he UK is now very much top of the list for foreign companies looking to increase their activity in the UK.”

In his eagerness to take ownership of the deal as an endorsement of government policy, the media were briefed that the Prime Minister had appointed Cabinet Secretary Jeremy Heywood and senior Treasury official John Kingman to “negotiate” with Pfizer. In doing so, it both undermined the AstraZeneca board who had so far rebuffed Pfizer and gave the impression that the government were driving the deal. Ed Miliband’s accusation that David Cameron was “cheerleading” for the takeover at PMQs on 7 and 14 May clearly hit home, and this impression was reinforced when AstraZeneca Chairman Leif Johansson was reported to have asked the government to take a more neutral stance.

In seemingly promoting the deal, the government found itself out of step with the business and science communities, and on the wrong side of the argument. Ministers also failed to appreciate the extent to which the desire to use tax inversion in the US was driving the deal – tax inversion being a loop hole in US law where a company can re-incorporate overseas in order to reduce the tax burden on income earned abroad.  Ian Read – who started off in the accounts department at Pfizer – admitted in his evidence to the BIS select committee that one of the principal rationales for the deal was tax planning.  Sir David Barnes, former CEO of AstraZeneca, put it well in an email he sent to myself and the Business Secretary when he said: “whilst all companies should manage their tax affairs efficiently, tax should not be the driving imperative for such a transaction. Whilst there is potential (substantial) tax advantage for Pfizer through tax inversion, that is a narrow basis on which to build an enduring and constructive business partnership”. I had made the same point I had in exchange I had on the deal with the Science Minister David Willetts on the Today Programme.

Pfizer asserted at the Select Committee hearing on 13 May that the US was unlikely to act to end the use of tax inversion. No sooner did they do so than numerous powerful US senators – Democrat and Republican – were demanding action to stop it the day after. Now, Michigan Democrat Senator Carl Levin has introduced a bill to place a moratorium on corporate inversions for two years while the US tax code is reformed.

The 26 May deadline has now passed and AstraZeneca has fought off the current threat from Pfizer. Under the rules, Pfizer will be prevented from making another attempt to buy AstraZeneca for at least another six months.  But others may try before that, and the threat of similar takeovers in the pharmaceuticals sector and elsewhere in the future always remains.

~

Britain has benefited enormously from inward investment which – along with the money – has also brought new ideas and ways of working to our shores. We must remain resolutely open to business and as an attractive destination for investment – not as a global tax-avoidance wheeze, but because of the positive benefits we offer innovative companies.

And we must be hard-headed about this. We want to generate the jobs of the future and make the UK an investment destination for all the right reasons. To do this we must continue to invest in our science base, improve our skills base, and develop our innovation eco-system. But if we are making these investments, we must also ensure that the right legal framework exists that can preserve the benefits of these investments – not just for next company passing, but in perpetuity.

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<![CDATA[That big Financial Times story on errors in Piketty's data is overrated]]> Usually, the Friday afternoon before Memorial Day is the perfect time for a political news dump. The Financial Times used it to drop a major investigation into the data behind Thomas Piketty’s hit book, Capital in the Twenty-First Century. For those on Twitter who hadn’t left yet for vacation, it was the top story. “Not so fast with that Nobel,” Clive Crook tweeted. From Quartz economics writer Tim Fernholz: “This is big, if true: Piketty's data flawed?”

But the errors that the FT finds, while significant, do not materially change Piketty’s conclusions or disprove the economic theory behind his work. Chris Giles, the economics editor of the FT, reviewed Piketty’s data set and found multiple occasions where the French economist had miscopied numbers from one data set into his published spreadsheets. Piketty also averaged data for France, Sweden and Britain without making any population adjustments. Effectively, that makes every Swedish citizen carry the same weight as seven British and French citizens, according to Giles. In his spreadsheets, Piketty also makes adjustments to the numbers that seem arbitrary. “In the US data, Prof Piketty simply adds 2 percentage points to the top 1 per cent wealth share for his estimate of 1970,” Giles writes, providing a screenshot to prove it. It’s unclear what to make of these adjustments.

“[O]ne needs to make a number of adjustments to the raw data sources so as to make them more homogenous over time and across countries,” Piketty writes in a response posted to the Financial Times. “I have tried in the context of this book to make the most justified choices and arbitrages about data sources and adjustments.”

Piketty doesn’t specify these adjustments with his data sets and Giles points out other times where certain data do not have sources. Piketty should have done a better job explaining his adjustments and specifying his sources, but few economists in the world have been as open and transparent with their data as Piketty has been with his. It wouldn’t make much sense to distort the data and then release the incriminating evidence to the public. In addition, Scott Winship, an inequality scholar at the Manhattan Institute and frequent critic of Piketty, has used Piketty’s U.S. data extensively and understood all of his adjustments.

“Having looked at the U.S. inequality spreadsheet quite a bit, I definitely knew what he was doing in that spreadsheet,” Winship said.

But the data errors that Giles are found are real nonetheless. Do they materially change Piketty’s results? Giles thinks so: “The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war. The investigation undercuts this claim, indicating there is little evidence in Prof Piketty’s original sources to bear out the thesis that an increasing share of total wealth is held by the richest few.” For Britain, this seems to be true, but it does not seem to bear itself out for France, Sweden or the United States, assuming more errors do not come to light.

 

Giles constructs alternate series using other sources of data to compare and improve upon Piketty’s work. For France and Sweden, Giles’s data is almost identical to Piketty’s:

Financial Times
Financial Times

The largest differences are for Britain, where wealth inequality for the top 1 percent and top 10 percent are considerably greater under Piketty’s original data:

britain
Financial Times

Finally, for the United States, Giles’s data show, at most, that wealth inequality stayed constant over the past few decades, while Piketty’s show a slight increase:

usa
Financial Times

It’s important to remember that wealth data is subject to significant error. For instance, economists do not agree how to factor capital gains into wealth data: Do you include capital gains as they accrue or only when they are realized? In addition, further back in time, the data becomes even more unreliable.

“These numbers are just imprecise to begin with. The numbers that Giles has come up with are imprecise,” Winship said. “Piketty’s original numbers were imprecise. Piketty probably, in places, talked about the numbers in a way that deemphasized the imprecision and I think it’s fair to whack him for that. But when I look at these charts, to me, if you imagine margin of errors around any of these data points, it sort of looks like nothing has changed much.”

Even if you believe that Giles’s findings dramatically change Piketty’s results, they have little bearing on his economic theory. Giles makes a passing comparison to economists Carmen Reinhart and Ken Rogoff (R&R), who drove a significant part of Republican austerity agenda, but saw their findings disproven in 2013. Liberals celebrated when Thomas Herndon, a graduate student from UMass Amherst, discovered a spreadsheet error in R&R’s results that invalidated their main finding. But unlike Piketty, Reinhart and Rogoff largely had no economic theory to ground their argument that national debt crises occur when a country’s debt level surpasses 90 percent of GDP. Once their data fell apart, their theory had no legs to stand on. On the other hand, Piketty fits data to this theory, but does not depend on it. Piketty’s theory—right or wrong—is largely unaffected by these results.

This piece originally appeared on the New Republic's website.

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<![CDATA[The UK has more billionaires per head than any other country – which is bad news]]> According to this year’s Sunday Times rich list, there are 100 billionaires living in Britain. This means that the UK has a higher proportion of billionaires per capita than any other country. You might think this is a good thing: perhaps the UK really is “open for business”, perhaps these billionaires are pumping lots of money into the economy – shopping in Harrods, buying up mansions, sending their kids to private schools and occasionally giving multi-billion donations to arts foundations. Maybe some of that money will trickle down. Even if you think inequality is bad, should you be bothered by a hundred or so super-rich? Well yes, you should. Here’s why:

1. It shows we’ve got our tax system all wrong

Unlike America, China and India, we don’t grow our own billionaires, we import them (two thirds of our billionaires are foreign-born). It’s not just big companies such as Amazon and Starbucks that structure their financial affairs across multiple countries to minimise their tax bills - and for a billionaire having a base in the UK makes a lot of tax sense. Provided you are registered as non-domiciled for tax purposes (“non-dom” in accountant speak) you are only taxed £30,000 on your non-UK income (or £50,000 if you’ve been resident in the UK for over 12 years.)

Now you have to be pretty wealthy for these tax arrangements to make financial good sense. But if you do happen to be a multi-billionaire with a second (or tenth) home in London, you have a strong tax incentive to keep as much out of your money as possible out of the UK. Thankfully, for billionaires, we have some great tax lawyers to help them structure their wealth “efficiently”, taking advantage of the capital’s close links with offshore tax havens.

 

2. Most billionaires are putting money into the UK economy – but it’s going in all the wrong places

Wealthy non-doms are partly to blame for the rocketing prices of central London property. And, once a billionaire buys a Mayfair mansion there’s a very strong tax incentive for him to keep it empty for most of the year: if they spend too much time in the UK, they lose their non-dom tax status and their tax bill shoots up.

There are other ways in which billionaires pump money into the UK economy: they employ a range of household staff, keep Bond Street boutiques and art galleries afloat and splash their cash in central London restaurants and clubs. And yet industries that depend on the patronage of the super-rich enjoy a precarious existence. As the journalist Robert Frank explains in his 2011 book High-Beta Rich, the incomes of the world’s richest has never been so volatile, because unlike the big business owners of the past, most modern billionaires have their money tied up in stocks and shares. When billionaires fortunes are booming, everyone’s happy, but when they go bust it sends shockwaves through the many industries catering to the super-rich. Do we really want large chunks of the British economy so tied to the fortunes of a few hundred individuals?


3. They are exerting far too much influence on British politics

Billionaires can exert an outside influence on Britain’s politics through their donations. If you give more than £50,000 you can get a dinner with the PM, and to a billionaire, £50,000 is small change. Of the 43 big donors that dined with Cameron in the first quarter of 2014, four were listed as billionaires by the Sunday Times.  

Even though billionaires get a good tax deal in the UK, they still contribute significantly to the government’s coffers through tax. The average non-dom pays £55,000 in tax a year, which is 22 times the UK average. Ten years ago, the wealthiest one per cent paid 20 per cent of the UK government’s income tax. Now it’s 30 per cent. As the Sunday Times points out: in the 2012-13 tax year, sales of prime homes in the boroughs of Westminster and Kensington and Chelsea generated £708m of stamp duty, which is £73m more than the residential stamp duty receipts for Northern Ireland, Wales, Scotland, the northeast, northwest and Yorkshire and the Humber put together.

In some ways this is good – the government, after all needs the money – but it’s also problematic. The UK government’s solvency is increasingly dependent on the incomes of a small number of individuals – who can choose to move their money elsewhere at any time, and whose incomes fluctuate with the stock market. 

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