Transition should allow Britain to shape its place in the world

After David Davis spoke in Middlesbrough this afternoon and demanded that during transition the UK be able to draft and sign new trade deals, Matt Kilcoyne says this is both eminently sensible and a good demand for the EU to accept:

"David Davis is right to demand that the UK should be able to sign new trade deals during any transition period after Brexit. The common commercial policy of the EU is designed for members in it for the long haul, but the UK is very much on the way out. Transition is good for both the UK and EU, providing certainty for business and citizens. But if we're unable to shape our future place in the world during this period then it is time wasted and the EU risks a no deal scenario. 

"Britons need to start seeing the dividends of Brexit and that means more trade with our friends and allies across the world–a more global Britain, with a new outward focus. Deals show how that can happen. If the EU wants a friendly and close relationship with its largest trading partner, it will need to trust the UK to act in good faith in negotiations with third countries. This is a mature and friendly proposal by David Davis, the EU would be wise to heed it."

For further comment, or to arrange an interview please contact Matt Kilcoyne via phone (mobile 07584778207, office 02072224995) or email (matt@adamsmith.org)

Oxfam's inequality mistake

Every year Oxfam releases a report criticising the wealth of the richest in the world while ignoring the growth in welfare of the poor. This is a mistake. Sam Dumitriu, Head of Research at the Adam Smith Institute said this means the report is, as ever, exceptionally misleading and misses the point:

"Oxfam’s annual eye-catching wealth inequality stats always paint the wrong picture. In reality, global inequality has fallen massively over the past few decades. As China, India and Vietnam embraced neoliberal reforms that enforce property rights, reduce regulations and increase competition, the world’s poorest have received a massive pay rise leading to a more equal global income distribution.

"Oxfam’s mistake is to see wealth as a fixed pie. More wealth for Zuckerberg and Bezos does not mean less wealth for you or me. In fact it’s the opposite, in a free market individuals can only amass wealth by fulfilling the wants and needs of others. Work and trade does pay out for everyone involved. 

"But we don’t really care about inequality, we care about poverty. Every day for the past 25 years 138,000 people have been lifted out of extreme poverty. It's the countries that rejected free markets that have bucked the trend. In Venezuela, the move to socialism under Chavez and Maduro has meant that more than 75% of the population now live in poverty with many unable to afford basic necessities like food and medicine, despite having the world's largest proven oil reserves.

"What we should care about is the welfare of the poor, not the wealth of the rich."

But if it is inequality that we're really concerned with then we have to understand how the figures have come about. 

"There is one aspect of the recent rise in wealth inequality that we should be concerned about. Matthew Rognlie, Assistant Prof at Northwestern University, found that recent rises in wealth inequality were driven by housing. As land-use regulations have prevented construction of new homes creating artificial scarcity, housing has become increasingly unaffordable. Reforming planning and zoning law would likely be an effective way of reducing wealth inequality."

For further comment please get in contact with Matt Kilcoyne, Head of Communications at the Adam Smith Institute, via phone (office: 02072224995; mobile: 07584778207) or email (matt@adamsmith.org) 

Rising evidence for universal basic income

New report suggests a Universal Basic Income (UBI) is the answer to large-scale change from globalisation and automation

• New trials in countries such as Canada, Finland, Uganda and Kenya highlight growing interest in Universal Basic Income across the world
• Automation, the gig economy and global trade could deliver massive improvements in standards of living but also risk populist backlash from those hit by creative destruction
• Luddite regulation and protectionist tariffs, backed by Trump and Corbyn, risk economic stagnation. Basic Income could deliver popular consent for globalisation and technological change
• Ahead of Davos, the ASI calls on the world's policy makers to back free trade and innovation, and urges more governments to conduct experiments on Basic Income

Current welfare systems are ill-suited to adapt to the challenges presented by automation and globalisation. That's the view of a new paper from the Adam Smith Institute ahead of the World Economic Forum meeting in Davos next week. Governments should look to Universal Basic Income experiments around the world as they seek to address the risks posed by large-scale changes to the labour market while retaining the benefits of trade and technological progress.

While politicians like Trump and Corbyn might suggest a move to more interventionist and protectionist policies, the paper argues that economic theory and empirical evidence show there are good reasons to believe that a “hands-off” approach would produce superior outcomes.

Fresh experiments are being carried out in several countries to test Basic Income feasibility and how it could be implemented successfully. In Ontario, Canada, the local government is trialling payments to 2,500 people that ensure a minimum income level of at least C$1,320 a month, regardless of employment status. In Finland, 2,000 unemployed people across the country are being trialled with an universal basic income of €560 a month for two years, with expansion to a further 1,000 for 2-3 years if initial results suggest success. In Silicon Valley, Y Combinator (early backers of AirBnb and Dropbox) are funding a long-term study of 2 to 3 years which will ultimately include up to 3,000 individuals. 

Yet UBIs are not just limited to rich western countries, small non-means tested payments systems have been trialled in the developing world. In Uganda, the Belgian charity Eight are funding a two-year project in Fort Portal with payments to 50 households of $18.25 per adult and $9.13 per child each month. While in Kenya, GiveDirectly (backed by Facebook co-founder Dustin Moskowitz) is aiming to pay 6,000 people the equivalent of £18 a month over a 12-year period; while at present the scheme reaches just under 100 people it promises to be the largest Basic Income experiment in history.

The paper says countries should see large scale automation not as a threat but as an opportunity, a chance that with Basic Income would ensure that ‘capitalism and efficient redistribution can be vindicated in equal measure’.

The idea of a Universal Basic Income is not a new one. First touted as far back as 1792 by Thomas Paine, the idea is that government provides a regular modest income without any means-testing. Support comes from across the political spectrum. Thinkers like Hayek and Friedman, Martin Luther King and tech superstars Elon Musk and Mark Zuckerberg have all advocated the policy, and even Labour's John McDonnell supports the principle.

Organisations in the UK such as the Buchanan Institute, the Citizen’s Income Trust and Royal Society for the Encouragement of Arts, have called for the idea to be put into practice.

Technological advances, such as driverless trucks, could disrupt the haulage industry but also reduce emissions, road accidents and prices for ordinary people. Basic Income is both politically feasible and financially sustainable, the report argues, smoothing the transition for workers displaced by automation. Short-termist regulations designed to protect jobs from competition risk economic stagnation and mass retraining schemes rarely live up to their lofty promises. 

Basic Income could help secure popular support for the changes that automation and globalisation will bring, while cash transfers allow the unemployed and retain the dignity of personal choice. More experiments in how to provide it could help secure the gains of growth for the decades to come.  

Sam Dumitriu, Head of Research at the Adam Smith Institute, said:

“New developments in machine learning, from driverless cars to AI medical diagnostics, will change the way we live, work, and play for the better. But they also risk disrupting traditional professions and career paths, from lorry drivers to lawyers. To avoid a populist backlash, we need to design policies for those left-behind by creative destruction. Attempts to protect jobs through luddite regulation will backfire and mass retraining schemes have a shaky track record. Cash transfers are our best bet at ensuring the benefits from coming technological change are felt by everyone.

“We now need to experiment with different ways of doing it – should we tweak the tax credits system, should we introduce a ‘Negative Income Tax’, or is a Universal Basic Income the best approach? And, if we’ve decided on the best way of doing things, what should things like the withdrawal rate be? This paper is a welcome contribution to the debate around welfare reform in the UK and puts evidence at the front and centre of improving policy, just as it should be.”

Otto Lehto, author of the paper, said:

"The theoretical case for unconditional cash transfers over command and control solutions has been strong ever since the birth of welfare economics. Now we have increasing empirical evidence from global field studies to corroborate the desirability of granting people a modest, universal income floor.

"A UBI streamlines the provision of welfare services and improves the autonomy and incentives of individuals. Allowing poor people to spend their money as they see fit stimulates bottom-up market solutions and cuts down on bureaucratic red tape. All this pulls resources away from wasteful rent-seeking into wealth creation."

Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07584 778207.

The report "Basic Income Around the World’’ is available here.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Rave on!

With the announcement today by Sajid Javid that the government will adopt as policy John Spellar's private members bill Agent of Change, the Adam Smith Institute says it's great news for the night-time economy and potentially those looking for new developments too.

Daniel Pryor, Head of Programmes at the Adam Smith Institute, welcomed the move saying:

"Today’s announcement that housing developers, not music venues, will now be responsible for addressing noise issues is fantastic news for the night-time economy.

"Our music venues provide entertainment for millions and contribute £4.4 billion to the economy, but current rules damage the success of this vibrant industry by imposing unfair compliance costs on noise reduction. The Agent of Change reforms, brought to the House by Labour MP John Spellar and announced to be government policy today by Sajid Javid, are eminently reasonable and show bipartisanship at its best. If you want to develop near a long-standing music venue, you should be the one to address potential noise issues.

"It will also benefit those struggling to pay rent, and potentially those looking to get on the housing ladder. Easing the burden on music venues will also encourage them to support development in local areas, since they no longer have to bare the cost of noise reduction or threats of closure. This will give a boost to housing supply at a time when it’s sorely needed."

If you'd like to arrange an interview please get in contact with Matt Kilcoyne (via email matt@adamsmith.org) or phone (07584778207). 

Outrage over executive pay is overegged

Following the High Pay Centre and CIPD's annual report on executive pay Sam Dumitriu, Head of Research at the Adam Smith Institute, finds little reason for outrage in the figures:

“It is a mistake to fret about executive pay packets. In fact, given how important the decisions a CEO makes are to the success of a firm, it would be shocking if they were not extremely well paid. When Burberry’s CEO Angela Ahrendts announced her departure, it wiped £536m off Burberry’s value. Similarly, when Steve Ballmer resigned as Microsoft CEO, the firm’s value jumped by £20bn. Is it any wonder that firms invest heavily in attracting top talent?

“The long-term trend suggests that CEOs are more valuable to firms now than ever before. Unexpected CEO departures are leading to ever bigger share price movements. If shareholders, and that includes anyone with a private pension, want a return on their investments then hiring the right chief executive is essential.

“The High Pay Centre are wrong to link high pay at the top with low pay at the bottom. Poorly performing CEOs are bad for shareholders but worse for workers. Microsoft’s failure to invest big in smartphones not only reduced profits, it also meant they created fewer jobs. Politicians should be careful, bashing CEO pay may sound good on the stump but if British businesses lose out on top talent to the US and Europe, British workers and savers will pay the price.”

If you would like to arrange further comment or an interview please do get in contact with Matt Kilcoyne via email (matt@adamsmith.org) or phone (mobile: 07584778207, office: 02072224995).