Tag: Economics

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Looking from left to right, and right to left

A couple of articles this week on perspective, and especially why those on the political left often state a marked distaste for those on the right.

The Adam Smith Institute’s President Madsen Pirie makes the case that the real difference between the two is not attitude but method:

The left typically favour the use of state power through high taxation, nationalization and the fixing of prices.  The centre-right typically favour relatively free markets, private enterprise, and prices that respond to changes in supply and demand.  Their case is that these usually achieve more sure and more rapid economic growth than can be attained by collectivist planning and state controls.  The left pursue greater equality, whereas the centre-right seek to promote greater opportunity.

In Wednesday’s Times, Daniel Finkelstein takes issue with the left’s disdain (“True socialism always ends with the Stasi”):

Hatred of Conservatives is common currency on social media, and at Labour conferences you can buy mugs with the words “Never kissed a Tory” on them.

… Not unreasonably, many Conservatives are quite hurt. It’s never nice to be thought evil by someone. And the misunderstanding, that Tories are like Mr Burns out of The Simpsons, is quite frustrating. There is also something quite amusing about people who check someone’s position on free schools before they kiss them.

Both worth a read.

 

 

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Heroes of the Sovereign Professional, Uncategorized

Ronald Coase – hero of the Sovereign Professional

Eighty years ago, in The Nature of the Firm, Ronald Coase (1910 – 2013) explained why firms exist. His answer (transaction costs) both explains the recent rise in the number of sovereign professionals and highlights the challenge faced in building a high-value sovereign professional business.

Essentially, Coase argued that firms exist where the cost of contracting individual tasks becomes too burdensome. It is relatively cheap and easy to contract simple tasks in the open market, such as taking a taxi or paying a window cleaner. However, the myriad subtle responsibilities of, say, a personal admin assistant are more effectively met by hiring someone on a contract of employment.

The rise of technology, especially smartphones, the web and cloud computing, has dramatically reduced transaction costs on both sides. Size matters less and it is easy for an individual to market themselves, to be found, engaged and for all the requisite admin to take place. Those relatively concrete transaction costs are clearly lower as a result. One could imagine such relationships reaching a new equilibrium where it is now economical effective to contract out a larger set of “tasks” to sovereign professionals.

However, building on Coase’s work, Sanford Grossman and Oliver Hart described two types of rights over a firm’s assets: specific rights, which can be contracted out and residual rights which cannot. The more a sovereign professional works on a client’s strategic projects, the closer he or she comes to those residual rights. At that point, as The Economist describes in Coase’s Theory of the Firm “a merger would make more sense” – i.e., that work may be better done by an employee.

The challenge for the sovereign professional is to build the sort of “trusted adviser” relationship that gives access to strategically important (and therefore valuable) projects while maintaining independence.

Both papers are worth reading and digesting;

The Sanford and Hart paper, The Costs and Benefits of Ownership:
A Theory of Vertical and Lateral Integration, (which is on my “to read” pile) is here.

 

Image: GNU

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Atlas and Albion – @TheEconomist

The Bagehot column in this week’s Economist contemplates an Atlas Shrugged-like future for Britain.

The combined result of Brexit and Corbyn could be the dystopia that Rand warned about: a stagnant society driven by resentment of the successful. The flight of talent will not only have a knock-on effect on the wider economy, as high earners who would have spent money in London or Leeds start moving to Paris or Frankfurt. It will also reduce the state’s revenues, since the top 1% of earners pay almost 30% of income tax and the top 10% pay nearly 60%.

 

Image source: https://commons.wikimedia.org/wiki/File:King_Alfred_Statue,_Winchester.jpg

 

 

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Taxes hurt people, not just “business” – @ASI

The Adam Smith Institute’s Eamonn Butler posts a useful reminder:

But taxes, tariffs, quotas, regulations, licences, trade restrictions and all the rest do not cost business. They cost people. People like you and me, even those of us with no business interests. And they cost us far more than the £x price-sticker suggests.

It’s too easy to assume that “business” or “the rich” or just simply “they” can afford it, or even deserve it, whatever the “it” of the moment happens to be.

As Butler says,

Most businesses are small businesses, as small as one person, and most of a country’s commerce goes through these small operations. Something that costs “business” in fact costs millions of these same people, from the local farmer to the budding software developer.

Read the full post, here.

 

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Self-employed drive UK public finance surplus

The UK’s accounts had an unexpected monthly surplus in July – the first July surplus since 2002 – driven by unexpectedly large tax receipts from self-employed individuals (see The Telegraph, here).

Such news helps highlight the growing importance of self-employment and the Sovereign Professional.

Of course, because of the B2B nature of their work, many Sovereign Professionals will actually be employees of their own limited companies and related tax payments will not form part of these figures.

 

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Immigration, facts not fiction – Adam Smith Institute, @ASI

The Adam Smith Institute’s Executive Director, Sam Bowman, summarises the facts on UK immigration in this useful post.

It is a response to an article that misquotes the ASI’s position, but Bowman’s point-by-point tear down makes for a useful reference in its own right.

It troubles me that the UK is where it is because of misinformation, miss-selling and misunderstanding. Generations of politicians (on left and right) have failed to make the case for immigration, just as the right has failed to make the case for free markets.

This chart is particularly telling: the lower our net migration, the higher our national debt.

 

 

Photo by José Martín on Unsplash

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Rebooting the Conservatives? – @RuthDavidsonMSP

There are some great points in this essay from Ruth Davidson, leader of the Scottish Conservatives.

I’m not sure if I agree with absolutely everything, but she is eloquent on the case for free-market,liberal democracy:

Extreme poverty is being routed. Infant mortality has halved. Literacy rates are climbing. After two centuries of increasing global inequality, developing world growth has reversed the trend. In short, the world is a richer, healthier, better educated and more equal place than at any time in my lifetime.

And, she makes a compelling plea for our government to get its act together and start leading:

It is not enough for government to facilitate a discussion about where next for Britain, it has to actually lead.

Definitely worth a read and a ponder.

Here’s Wikipedia’s article on Davidson.

Image: Getty

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Happy birthday, Adam Smith – @ASI

Eamonn Butler at the Adam Smith Institute celebrates Smith’s birthday with a summary of his work and influence, including the following quote:

Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

The invisible hand, the benefits of free trade (instead of the then prevalent mercantilism) and the Theory of Moral Sentiments. A remarkable legacy.

 

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What does the UK’s election turmoil mean for the Sovereign Professional?

What does the UK’s post-election turmoil mean for the sovereign professional? Here are a few thoughts.

Greater and prolonged uncertainty

Uncertainty is never a good thing for business. For the sovereign professional, it will likely mean clients with tighter budgets and slower buying cycles. The risk is an increase in your days un-billed.

A more business-friendly government?

With various media reports suggesting the Chancellor Philip Hammond now exerting greater influence, we may see more attention paid to the impact upon, and the needs of, business … which, after all employs people, sells goods and generates one way or another almost all the tax paid to government.

We should also anticipate an end to those nauseating “citizens of nowhere” speeches.

In fact, today’s Times anticipates a much more pro-business Mansion House speech, this evening:

In his annual address to City leaders at Mansion House today, Mr Hammond will say: “Investors need certainty in order to continue to support the UK economy and create jobs as we leave the EU.

“That is why we will fortify the vital financial support that helps businesses to grow — from cutting-edge start-ups right through to large-scale infrastructure projects.”

A softer Brexit?

Democracy is a blunt instrument. There is plenty of speculation that the election result was a vote for turning away from the stated path of Hard Brexit. That’s not at all clear, however.

Was the unexpected surge in Labour’s vote really a vote against Hard Brexit? Both Labour and the Conservative party had stated goals of leaving both the European Union and the Single Market. The Single Market is generally held as a border between hard and soft. By contrast, the only party that actively promoted a different, softer approach – the Lib Dems – failed to recover from the distinct kicking they got in 2015. Leader Tim Farron announced his resignation last night.

Was the Youth Vote for Labour a vote for Soft Brexit? Or, more likely, was it a positive response to the party’s promised bribes of cancelling university fees?

Interestingly, the BBC reports that while there was a marked increase in graduates voting for Labour, there was also an increase in less-well-educated voters (those with only a GCSE exams, generally taken at 16) voting Conservative, and against Labour’s tradition of supporting the working class.  Was this the post-UKIP vote calling for a hard line on immigration and, therefore, for a Hard Brexit?

I can’t see any clear sign in all of this that there was any true call for a softer approach. Daniel Finkelstein outlines the challenge is his column in yesterday’s Times:

Extraordinarily we have produced a parliament that, when it comes to the terms on which we leave the EU, has no majority for anything. Or for its opposite. The moment you depart from those vague and useless terms “hard Brexit” (boo) and “soft Brexit” (hooray), you are left with nothing.

I doubt there is a majority for staying in the single market, or for departing. And you might think that logic dictates that there literally had to be a majority for one of the three options of leaving without a deal, approving a deal or not leaving at all, but no. I really don’t believe that there is.

It is, however, fairly certain that MPs themselves, the overwhelming majority of whom supported remaining in the EU, would favour a softer approach that kept the country’s access to valuable markets and skills. We desperately need more not less immigration. Our high tech businesses need talent and our greying population needs healthcare workers. Our farmers need fruit pickers and, vitally, our coffee shops need baristas.

 

But opportunity, too

Turmoil and uncertainty breed innovation and opportunity. If your business is supplying short-term, B2B services (as an interim manager perhaps, or a consultant) then you can offer an on-demand service free from long-term commitment. You can help clients deliver on their existing strategy, while they consider how to respond to a changing environment. Or, you can offer fresh, objective, real-world experience to help shape their thinking.

Stress and uncertainty, but opportunity too. Carpe Diem.

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Freelancing

Freelance workforce predicted to rise to 43% by 2020 – @Due #freelancing

Here’s a great overview of the Gig Economy, from Due.com. It’s US-centric, but the findings are transferable. UK readers will just need to translate the tax and pension information.

Many Americans are saying goodbye to the traditional 9-5 lifestyle in favor of a much more flexible schedule that works around what they need. In 2016, nearly 53 million Americans were freelancers, that’s 34% of the workforce!

Much of the recent press in the UK has centred on the negative aspects, particularly of large “employers” possibly bending the rules to define workers as self-employed to reduce the employers’ cost base.

We shouldn’t ignore the very real benefits that the growth of freelancing brings for willing workers and for the economy as a whole.

Well worth a read.

Image credit: https://unsplash.com/@alejandroescamilla