Even union economists accept cutting penalty rates creates jobs

Even union economists accept cutting penalty rates creates jobs

by Aaron Patrick, Australian Financial Review

Even the brains behind the unions' penalty rates argument believe that lowering the cost of employees on Saturdays and Sunday will create jobs. All that the experts involved in the case disagree on is how many.

"There may be some small [positive] employment effect in the sector," says Professor Jeff Borland, a Melbourne University economist who spent six hours in the stand at the Fair Work Commission fighting the change on behalf of the United Voice union.

The Labor Party and Australian Council of Trade Unions don't accept that cutting regulated wages can create jobs. They have mounted a ferocious campaign against the Fair Work Commission's modest reduction in penalty rates on weekends in restaurants, bars, hotels, shops and pharmacies.

Reducing the standard rate for full-time and part-time staff from 175 per cent of to 150 per cent on Sundays (casuals are unaffected) will damage the economy by shifting profits from staff to employers, they say, an argument that is being used to attack the Turnbull government.

Union leaders are now shifting their attention to the ACTU's attempt to increase the minimum wage by $45 a week to $37,420, which ACTU secretary Sally McManus proposed last week at the National Press Club.

"A low minimum wage provides a big incentive for employers to destroy good, steady fairly paid jobs by outsourcing them, cancelling agreements and using labour hire," McManus told the press club in Canberra last week.

Mixed messages

The economic arguments made by the unions' experts, in some cases, contradict the messages from leaders of the labour movement and Labor Party.

In a study cited by shadow finance minister Jim Chalmers to attack the government on Sunday, the Australia Institute, a left-wing thinktank, suggested some businesses would struggle to find staff at the lower rate. It didn't acknowledge that they could just pay more than the award minimum.

"The point you make about an increase in jobs is not proven," Chalmers said when asked about the jobs benefit on the Insiders show. "There is not any evidence of that."

Even staunch left-wing economists such as John Quiggin from the University of Queensland accept that a reduction in penalty rates could create jobs – he just doesn't think there will be enough to make the change worthwhile.

"There is an effect but most evidence is that it isn't large," says Quiggin, who was also a union witness in the penalty rates case.

Some people will refuse to work on weekends at the lower rate because they don't need the money that badly, according to the unions' economists. In essence they argue that the market will keep wages above the minimum regulated rate, and therefore there is no or little benefit from cutting it.

"You can't assume wages will come down all the way [because of the decision]" Borland says. "The unions and the Labor Party wouldn't like that argument."

The argument is based in part on a survey by Professor John Rose at the University of South Australia of 472 people who work in restaurants and shops. It found they expected to be paid at least an extra 50 per cent to work Sundays, or $32.10 an hour.

Why business hires:

Economic theory holds that demand for labour increases when the cost is low, and decreases when the cost is high. Workers will be hired if they can increase profits, the theory says, and that won't happen if a company is forced to pay more than the financial benefit they bring to the business.

The theory is used by policymakers to oppose penalty rates and a high minimum wage, which is politically popular and advocated by unions and welfare groups. A paper written in 2015 by a visiting scholar at the San Francisco Federal Reserve estimated that the US minimum wage, which at the federal level is $US7.25 ($9.67) an hour, had cost 100,000 to 200,000 jobs.

The ACTU doesn't accept a higher minimum wage will cost jobs. Because many Australians are working less than they want to, paying them more will get more to turn up to work, according to an ACTU's submission to the Fair Work Commission.

Counter-intuitively, the poor aren't the main beneficiaries of the minimum wage, which covers many people affected by the Sunday penalty rates decision, A study in 2005 by economist Andrew Leigh, who is now Labor's shadow assistant treasurer, found that the poor mostly did not rely on the minimum wage because many of them did not have jobs.

The average minimum wage earner, and even those who earn less than the minimum wage, are members of the middle class, his research found. Presumably that's because they have other sources of income, such as government payments or families.

(Contacted for comment, Leigh says that in families containing at least one worker, the typical minimum wage worker was in the 39th percentile of household income, which he regarded as low income.)

Jobs for the low skilled:

Economists who helped business lobbyists convince the Fair Work Commission to reduce penalties say they want to create more jobs, especially for people with few skills.

"My sympathy is for workers and I don't want to see people unemployed," says Phil Lewis, a veteran labour economist from the University of Canberra, who was a witness for the restaurant, cafe and catering industries. "I think Labor and particularly [leader] Bill Shorten have been particularly opportunistic here."

Lewis presented a picture to the commission very different to the common perception of the penalties debate, which is that hundreds of thousands of the lowest paid are going to suffer from the reduction.

Not many people in hospitality and retailing are paid weekend penalty rates, Lewis says. Small businesses use family members, and pay in cash, or not at all, and some big businesses have negotiated down penalties for higher full-time wages with the shop assistants' union.

Squeezed in the middle are medium-sized businesses. "They have to pay $36 an hour when Woolworths are paying $22 an hour," Lewis says.

To back up its campaign, Shorten is using a Melbourne hotel cleaner, Margarita Murray-Stark, as an example of a victim of the penalty rates decision. But Murray-Stark is a union activist who doesn't know if her employer will cut her wage, according to another newspaper.

The Labor Party blames Prime Minister Malcolm Turnbull for the decision, even though it was made by an independent arbitrator whose president, former ACTU official Iain Ross, was appointed by Shorten when he was employment minister.

Ross, who is never mentioned in Labor attacks on the decision, rejects the arguments put by his former colleagues.

"The evidence of business owners and operators in these proceedings supports the proposition that the current level of Sunday penalty rates has led employers to restrict trading hours, reduce staff levels and restrict the services provided," he says in the judgment.

"The evidence also supports the proposition that a reduction in penalty rates is likely to lead to: increased trading hours, an increase in the level and range of services offered on Sundays and public holidays, and an increase in overall hours worked."

Earth Hour is bad for the poor: Bjorn Lomborg

Good eco-intentions are no excuse for extending energy poverty.  

March 24, 2017

At 8:30 p.m. on Saturday, in the U.S. and around the world, around one billion people are expected to switch off their lights for one hour as a political statement against climate change and fossil fuels, and in support of carbon cuts and renewable energy.

This feel-good exercise not only does absolutely nothing for the planet, but it ignores the reality that what the world’s poorest need right now is more light and energy, much of which will be powered by fossil fuels, not darkness.

Started by the WWF in Australia in 2007, Earth Hour has expanded to a global event, with public spaces going dark, and in some places, people gathering with lit candles instead.

According to the organizers, “Earth Hour shows how each of us can be heroes for our planet.”
This grandiose statement overlooks the fact that the political campaign saves, at the most, the equivalent amount of carbon emissions as China halting its CO2 emissions for less than four minutes.
And that is with some incredibly generous assumptions. In fact, a small decline in electricity consumption does not actually translate into less energy being pumped into the grid, and therefore does not reduce emissions. While any significant drop in electricity demand means a temporary reduction in CO2 emissions, this is partly offset by the surge from firing up coal or gas stations to restore electricity supplies afterward.

Those ‘environmentally friendly’ candles that many participants light? They are a fossil fuel — and burn almost 100 times less efficiently than incandescent light bulbs. (That’s why you won’t ever find a modern hospital using them instead of electricity). Using one candle for each switched-off bulb actually cancels out even the theoretical CO2 reduction; using two candles means that you emit more CO2.

Earth Hour is largely celebrated in rich, urban areas. Around the world, there are around 1.3 billion people living in the developing world who will not get a choice whether to participate or not. That’s because they will be living without reliable electricity on Saturday night, just like they do every other night.

Increasingly, the world’s rich nations insist that these people — the world’s poor — should have no new fossil fuel access. Foreign aid is increasingly tied to renewable energy projects such as building solar and wind power capacity, or tiny “off-grid” energy generators. This has a real cost — and it’s the world’s worst-off who pay.

This appears rather hypocritical: The rich world relies heavily on fossil fuels, getting just 10% of its energy from renewables. Contrast that to Africa, which gets 50% of its much lower energy consumption from renewables.

Clearly, renewable energy means something different if you’re living in a remote part of Africa than if you’re a well-meaning environmental campaigner in the U.S. Owing to poverty, almost 3 billion people around the world still cook and heat their homes with wood, twigs and dung. And more than 4 million die prematurely each and every year because of the resulting noxious fumes and indoor air pollution.

When the proponents of Earth Hour celebrate renewable energy, they are envisioning modern wind turbines or solar power stations. But the reality is that wood and dung used by the poor are by far the largest renewable energy source on the planet.
Even in the rich world where most solar and wind power has been built, solar and wind make up just 1% of total energy, according to the International Energy Agency. Instead, wood makes up more than half of all renewable energy in the rich world, with hydropower contributing a third. Wind and solar is just one-tenth of renewable, which itself is one-tenth of all energy.
So why hasn’t solar or wind energy taken over the globe? Despite constantly hearing that it is cheaper or close to being cheaper than fossil fuels, the technology is still not efficient, cheap or reliable enough to compete. That is why we have to hand out more than $115 billion in subsidies to solar and wind this year. With an electricity price that is typically lower than 10 U.S. cents per kWh, we subsidize each kWh from solar at 27 cents.

An analysis by the Center for Global Development found that that by investing $10 billion in renewable energy, we could lift one person out of darkness and poverty for about $500. Using gas electrification would be more than four times cheaper. Insisting on renewables instead of spending that $10 billion on fossil fuels means deliberately leaving more than 60 million people in darkness and poverty.

And surveys of the world’s poor show that what they really want is grid electricity — just like the rich world has. For the foreseeable future, that will be mostly powered by fossil fuels — just like it is in the wealthy countries.

What the planet needs isn’t a futile, brief-lived, feel-good political gesture like Earth Hour, but sustained, greater investment in research and development of green energy. Only when solar and wind power are effective and competitive will the entire world be able to afford to make the switch away from fossil fuels.

Celebrating darkness over light is a fitting metaphor for a global environmental movement that has lost its way, and is not arguing for the smartest prescriptions for the world’s poor, or for the planet.

Bjorn Lomborg is director of the Copenhagen Consensus Center, author of The Skeptical Environmentalist, Cool It, and The Nobel Laureates’ Guide to the Smartest Targets for the World 2016-2030, and a visiting professor at Copenhagen Business School.

Why the Liberal government lost so badly on March 11

Forget the ‘It’s Time’ argument that both the Liberal and Labor parties are using to explain the crushing defeat for the Liberal government on March 11. It’s simply not true.

As politicians and political commentators have said for a long time, oppositions don’t win government, governments lose government. Of course, opposition parties have to show they have competent people and relevant policies to do a good job of governing should they win, but I’m not aware of a competent, effective, unified government that has lost an election at state or federal level in Australia in recent decades.

The reason why Barnett and the Liberals lost the election is because, in their second term, they were an inept government:
* Roe 8 should have been started 2 or 3 years earlier, not 6 months prior to the election
* the partial sale of Western Power should have been fully explained to electors over a year or more
* Barnett should have jettisoned Troy Buswell rather than wait for the troubled MP to implode
* the public should have been invited to suggest names for Elizabeth Quay
* Joe Francis should have paid his defamation penalty out of his own pocket
* problems at the new children’s hospital should have been resolved prior to the election
* there was a total failure by government to explain where the $40 billion of state debt was being spent and
* Barnett should have stood down about a year ago to give his replacement time to develop a profile and learn the ropes (and to avoid the spectacle of WA business leaders conducting their own polling and realising that a change of Premier was needed).

The preference deal with One Nation didn’t help, of course. Many Liberal supporters were appalled at Pauline Hanson’s racist attitudes and her temporary opposition to vaccinations. Of the 13% of voters who were intending to vote One Nation 3 weeks prior to election day, the preference deal caused almost two thirds of them to desert the party and, rather than return to the Liberal fold, they voted for Labor in protest at both parties involved in the preference deal. The unimaginative and ill-informed Liberal Party lay party executive as exemplified by president Normal Moore should have ‘arranged’ for individual Liberal candidates to negotiate their own preference deals: the outcome was likely to have been largely similar to the formal deal struck between the two parties but it could have been sold as an outcome determined by the grass-roots of the Party, not the executive.

Two other factors are important in explaining Saturday’s disaster. The first is the lack of lay members within the Liberal Party, the people who work at polling booths handing out How To Vote cards and who attend dinners and other fund-raisers to help their local candidate pay for election campaigns. The low lay party membership base also meant that fewer people were involved in policy development and fewer people provided feedback to the Party and MPs on topical or important issues. In turn, party powerbrokers had an easier task of gaining support for themselves and their candidates because they had fewer people needing to be influenced.

As an example, I shared an office in Parliament with Family and Children’s Services Minister Rhonda Parker for 3 years in the late 1990s. Current powerbroker Mathias Cormann was her chief of staff and I have never witnessed a senior party member as rude, as arrogant and as verbally obscene as Cormann. I remain perplexed how a minister as sensitive as Parker could have allowed someone like him to be on her payroll.

The second factor in explaining the March 11 drubbing is that the Premier had a team of very ordinary, lacking in talent and lacklustre MPs to choose from. In 2008 when Barnett was given the poisoned chalice of Liberal Party leadership, no one in the party anticipated an early election, let alone a Liberal win. Because of Alan Carpenter’s early election call, the Liberal Party chose candidates in a rush, with powerbrokers choosing lots of sycophants and party hacks of mediocre abilities. When Barnett then won the election, he had very few people of talent and energy to choose his ministers from. As Gareth Parker said in The West Australian of March 13, “Barnett was too often asked to do so much because those around him contributed so little.”

As further proof of the low or dubious quality of sitting MPs, look at Albert Jacob, a member of his church’s executive which expels people with mental health issues. And Peter Katsambanis who left an inexplicably arrogant and insensitive message on Rob Johnston’s phone at 2.50am on the morning after the election.

Now, I never thought I would say anything good about Troy Buswell but I’ve been advised that he was the only person in cabinet to argue against further capital expenditure, saying that state debt needed to be controlled. That he was overruled by Barnett without his fellow ministers backing the then treasurer says a lot about the Premier’s dominance over and control of cabinet, something that understandably led to accusations of arrogance.

The one positive to come out of the loss of so many Liberal seats on March 11 is that it will give the party an opportunity to find new, quality candidates and preselect them well in advance of the 2021 election. If the party’s powerbrokers are kept in check and a larger lay party membership involves itself more with policy development and candidate selection, the party will be a stronger, more representative political organisation able to show to the people of WA that it is once again capable of governing well for all citizens.

In the meantime, we have the Mark McGowan Labor government for the next four years. Many of his team have serious talents and abilities. They should be capable of governing well provided they stand up to what are likely to be the excessive claims of the union movement. I was elected to Parliament in 1996 at the same time as the new Premier and I consider him to be an honest and capable person. Whether he has the strength to stand up to the unions is unknown, but here’s hoping that McGowan’s first four years as Premier are better than Barnett’s last four years in the top job.

We must defend the legacy of the West

http://www.theaustralian.com.au/opinion/columnists/jennifer-oriel/we-must-defend-legacy-of-the-west/news-story/cd5ac36e702231217025ff4c8e04a1c5

·         JENNIFER ORIEL

The new movement to save the West from its enemies is so young it doesn’t have a name. Its democratic core has been maligned by the Left in a torrent of PC propaganda. The political Right, too, is wary of the movement that has produced Brexit, Donald Trump and a raft of democratic nationalist parties across the Western world. Republicans have declared they are the true conservatives and excluded Trump from the category. The Liberal Party has distanced itself from new Right leaders such as Senator Pauline Hanson and Senator Cory Bernardi’s new Australian Conservatives. So who are the true conservatives of the 21st century and why does it matter?

The starting point of Western civilisation gives conservatism a 2000-year legacy. Such a legacy enriches the life of the mind and spirit while fortifying the free world order. But it complicates politics when citizens are not educated in the continuous Western tradition. In an age dominated by sound bites, social media and a public keen to learn but time poor, a central conservative challenge is to define clearly the meaning of conservatism and why it matters.

There is an abundance of literature on conservatism, but few clear definitions. Among the works I have read on the meaning of modern conservatism, three stand out for their philosophical breadth and clarity. They are Russell Kirk’s The Conservative Mind, Samuel Huntington’s The Clash of Civilisations, and Roger Scruton’s The West and the Rest. Daniel Mahoney’s The Conservative Foundations of the Liberal Order is instructive also.

The Conservative Mind sparked the post-war conservative intellectual movement in America. In it, Kirk provides a definition of conservatism that comprises four substantive doctrines. The first conservative doctrine, “an affirmation of the moral nature of society”, rests on the belief that virtue is the essence of true happiness. The matter of virtue is family piety and public honour. Their consequence is a life of dignity and order.

Kirk’s second doctrine of conservatism is the defence of property. He defines it as “property in the form of homes and pensions and corporate rights and private enterprises; strict surveillance of the leviathan business and the leviathan union”.

The third conservative doctrine is the preservation of liberty, traditional private rights and the division of power. The absence of this doctrine facilitates the rise of Rousseau’s “general will”, made manifest in the totalitarian state.

The final doctrine of Kirk’s conservatism is “national humility”. Here, Kirk defines the nation state as vital to the preservation of Western civilisation. Politicians are urged to humble themselves in the light of the Western tradition instead of indulging in cheap egoism by promoting policies that buy them votes, but weaken the West.

English philosopher Roger Scruton identifies the political, pre-political and civil components of Western civilisation that sustain the free world. They are rooted in the uniquely Western idea of citizenship, which is influenced by Christianity. The core components of Western citizenship are: the secular democratic state, secular and universal law, and a single culture cohered by territorial jurisdiction and national loyalty. Like Huntington, Scruton analyses the core foundations and animating principles of Western civilisation in contrast to Islamic civilisation.

Conservatism stands in contrast to both small “l” liberal and socialist ideas of culture, society and state. Its central tenets are: moral virtue as the path to happiness, supporting the natural family, promoting public order and honour, private enterprise, political liberty, the secular state and universal law. The central tenets of conservatism are sustained by a single culture of citizenship that enables the flourishing of Western civilisational values.

Conservatism remains the only mainstream political tendency whose core objective is the defence and flourishing of Western civilisation. In its federal platform, the Liberal Party defines its liberal philosophy as: “A set of democratic values based upon … the rights, freedoms and responsibilities of all people as individuals.” There is no discussion of Western civilisation or Western values. However, it shares with conservatives the principles of limited government, respect for private property, political liberty and the division of power. And conservative prime ministers from Menzies to Howard and Abbott have led the defence of Western civilisation in Australia against its greatest enemies: socialists, communists and Islamists.

It is on the questions of immigration, transnational trade and supranational governance that the primary distinction between conservatives and the new Right is drawn. For example, there is growing tension fuelled by the belief that mass immigration, especially of Muslims, constitutes a demographic revolution that threatens Western values. Mainstream conservatives, including Cory Bernardi, reject the idea of a ban on Muslim immigration. But it is clear that policy resonates with many.

Last year, an Essential Poll showed 49 per cent of Australians thought Muslims should be blocked from the country. Chatham House has published survey results that confirm a wide gap between the political class, the media and the people on the question of Muslim immigration. Among 10,000 people polled across 10 European states, 55 per cent want migration from Muslim countries stopped.

In various polls, people cite the refusal to adopt Western values as a core reason to cease immigration from Muslim states. The defence of Western values is a core conservative position, but only the new Right parties, including Hanson’s One Nation, propose a ban on Muslim immigration.

I have tried to define conservatism by standing on the shoulders of giants and offering some clarity for people tired of hollow words from hollow men. The task of definition is urgent. Unless a well-defined, muscular conservatism emerges, the best of Western civilisation will not survive the 21st century.

Tension between nationalism and liberal democracy is not what is haunting us today.

Friedman's Weekly

March 1, 2017 By George Friedman

Nationalism and Liberal Democracy Tension between nationalism and liberal democracy is not what is haunting us today. Nationalism is rising in the Western world, and many view it as the enemy of liberal democracy. The basis of this view is not unreasonable, as European wars fought from 1914 to 1945 were among the most barbaric in history. Those wars were fought between nations, many of which had rejected the principles of liberal democracy. Some saw the proliferation of nations as causing a rise in tyrannies, destruction of liberal democracies, and a war fought to recover liberal democracy in Europe. The view that Europe’s wars originated in nationalism became common, along with the belief that nationalism gave rise to fascism, and that the preservation of liberal democracy required nationalism’s suppression. From this, the European Union emerged as a moral project, along with the idea that a re-emergence of nationalism would return Europe and Euro-American civilization back to barbarism. Historically, that may be a persuasive argument. But it fails to understand that nationalism – however distorted it might become – is the root of liberal democracy, not only historically, but also morally. The two concepts are intellectually inseparable. West Berliners crowd in front of the Berlin Wall on Nov. 11, 1989 as East German border guards demolish a section of the wall to open a new crossing between East and West Berlin, near Potsdamer Square. GERARD MALIE/AFP/Getty Images Liberal democracy as a political doctrine arose in the 18th century as a challenge to monarchy. At the time, monarchies were based on the idea that kings and emperors had a divine right to rule. Maps of 18th century Europe, and even before, show the outcomes of this approach. The holdings of a monarch or lesser nobility were built by war, money and marriage, and the subjects likely consisted of many nations. Many nations, in turn, were divided between the different monarchies. Therefore, kingdoms and nations did not necessarily coincide, and regimes were not connected to the people, neither in theory nor in practice. Nineteenth and 20th century history involved the struggle of nations to extract themselves from monarchies and empires to take their fragmented parts and make them whole. A European uprising in 1848 was a result of nations seeking the right to be free from empires. For the most part, they failed at this goal but succeeded in another: Nationalism became a moral imperative. Nations emerged from the chaos of World War I after four empires collapsed. To a great extent, this was due to the guidance of Woodrow Wilson at Versailles. Then, in 1991, more nations emerged from the collapse of the Soviet empire. After World War II, as European empires collapsed, nations – and frequently entities pretending to be nations – emerged from the rubble to assert their right to national self-determination. Whatever Adolf Hitler and Benito Mussolini would have done, advocates of liberal democracy celebrated the global emergence of nations that would govern themselves. A nation is a group of people who share history, culture, language and other attributes. It is the existence of a common identity, a coherent sense of self and nationhood that make self-government possible, because it is that sense of self that permits self-government. A random collection of people without a core set of shared values cannot form a coherent regime, because nothing would hold the regime together or prevent internal chaos. The principle of the right to national self-determination can be universalized, but the practice of national self-determination must be rooted in the nation. Without this commonality, a nation could tear itself apart. We saw this happen in Yugoslavia and when Czechs and Slovaks gracefully divorced. We saw the chaos of the former European empires as nations once divided from each other by imperial borders and forced to live together with strangers were enveloped in constant turmoil. Without people who have self-identity, the right to self-determination cannot exist. Without the democracy that flows from it, liberal democracy cannot exist. Liberal democracy makes two core assertions. First, there is a right to national self-determination. Second, this self-determination must manifest in a type of popular rule, and the people, in ruling themselves, have the right to select and approve the form and substance of government. The important point is that democracy is comprehensible only through the prism of the nation. The centrality of the nation derives from its irrelevance to the old regime. Monarchies did not recognize the right of people to rule themselves, and they didn’t see the concept of a people as important. To challenge despotism, a political instrument that could be wielded as a powerful weapon had to be created. From a political point of view, the only coherent political force to oppose monarchs was the nation. The American Revolution was the rising of a nation crafted as colonies against the English monarch. The French Revolution was the rising of a French nation, as fragmented as it was, against the French monarch. Liberal democracy also has an obvious inherent danger: It celebrates democracy and liberalism, a system of values that defines the individual as the moral core and guarantees him liberty. This is the core tension in liberal democracy. On one hand, liberal democracy demands the right of people to determine their own government. On the other, it demands that people respect liberalism. In other words, liberal democracy wants the people to rule, but it insists that if the people understood the moral universe in which they live, they would always vote a certain way. Contemporary tension in liberal democracy is not with the nation, but rather between democracy and liberalism. If people have a right to self-determination, then they have the right to elect leaders with values they prefer or share. The problem is that some people will object to leaders being selected who violate the principles of liberalism. The battle is between the right of national self-determination on one side, and a faction of people who are appalled at the path the people have chosen on the other side. Nation after nation is being torn apart by those who embrace liberal democracy being usurped by others making democratic choices. The American founders understood this problem and sought to resolve it by limiting democracy in a number of ways. The most important of these limitations was the Constitution, and its purpose was to define how the state works and checks itself, what inviolable rights all citizens have, and what system would make changing the Constitution enormously difficult. The issue with a constitution is always whether the people will respect it and whether tyrants will overturn it. Democracy and liberalism live in dangerous tension with each other. Democracy can destroy liberalism if the majority wills it. And liberalism has a tendency to want to limit democracy if it reaches decisions that are offensive to it. The key to a liberal democracy is a powerful constitution – powerful in the sense that the people, over generations, respect it with an awe approaching worship. The point here is that tension between nationalism and liberal democracy is not what haunts us today. Rather, what haunts us is the tension between liberal principles and democracy. The only thing that can contain that tension is a constitution that brooks no challenge. Without that, everything breaks down. In the end, designing a constitution is the most fundamental decision a self-governing nation must make. Of course, the constitution must be worthy of its authority.

Brexit could be the best thing that ever happened to the UK tech industry

Brexit could be the best thing that ever happened to the UK tech industry.

HARRY BRIGGS, The Telegraph 
18 FEBRUARY 2017

My job means that I meet about a dozen entrepreneurs every week. I am often
blown away by how much they can achieve in just a few months: founders like
Roland Lamb, who has brought together 100 of the world's most talented
hardware and software engineers to create ROLI, revolutionising the way we
make music. Certainly, there is nothing like the energy and buzz of a
"start-up" on a mission, the thrill of growing 100pc to 200pc or more for
several years, making bold decisions, turning a mere idea into something
extraordinary: a global brand. Yet at some point, all "start-ups" lose that
magical momentum. The growth slows. Politics sets in. You start to hear:
"That's not my job," or "That'll never work". The office is empty by 6pm.
People forget the mission, and the customer. Start-ups become
"institutions". 

The EU used to be a start-up on a mission. The first mission was peace,
after two world wars in four decades. Then food security. the single market.
eastern expansion. the euro. It achieved extraordinary things. But at some
point it grew too big. It did not know what its mission was any more. It
caught "institutionitis". To quote Yuval Harari in his book Homo Deus: "As
bureaucracies accumulate power, they become immune to their own mistakes".
How do I know this? Well, when your second largest customer, sorry, country,
gives you a vote of no confidence, and instead of resigning or promising
reform, you continue exactly as before and "punish" it for its "mistake",
you have a clear case of institutionitis. When two million migrants enter
your Schengen zone illegally in a single year, stoking an alarming rise in
the Far Right, and it takes you years to do anything about it, you have
institutionitis. 

When four of your member countries still have youth unemployment of more
than 40pc five years after the financial crisis, and you say it's not your
problem, you have institutionitis. 

In companies, the cure for institutionitis is the market. Companies that
stop caring about their customers will be killed off by a new disruptive
company (hopefully one backed by my VC fund) turning up and stealing their
customers. The old companies change, or they die. It's healthy. 

In government bodies, the cure for institutionitis is democracy. If a
government is doing a lousy job, we throw it out and replace it with new
leadership and bold policies. That is healthy. It clears out the bureaucrats
who have forgotten their purpose. But there is no way to "throw out" the EU
if it does a lousy job. 

What is worse, our national governments, whom we can throw out, increasingly
find they cannot make the dramatic change which people are calling for
because the EU has tied their hands. So we, too, get infected by EU
institutionitis. We cannot behave like a start-up any more. Which brings me
to Britain, and our tech sector.

I voted firmly to Remain in last year's Brexit vote, but the EU's response
has forced me, uneasily, to re-think. Most of us in the UK tech sector have
blithely assumed the EU is "a good thing" because it gives our companies
access to fantastic pools of talent, and untrammelled access to the world's
biggest single market. But what about all that fantastic talent outside the
EU? Is it really fair that if I am Polish or have an Italian grandma then I
get access to the UK willy-nilly, but if I am Indian or Zimbabwean I have to
pass stringent tests and arduous visa renewals every year? 

Tech City & Nesta's Migration survey, published this week, shows that non-EU
nationals make up a higher share of the UK's tech sector than those from the
rest of the EU - and they are more likely to have a Master's or PhD. ROLI is
a case in point: it has 60 Britons in its team, and 17 people from the rest
of the EU, but nearly twice as many, 33, from the rest of the world. They
include Chinese product designers, Ecuadorian engineers, Korean material
scientists, American execs. ambitious companies think beyond the EU. At
Oxford and Cambridge universities right now, we have more than 11,000
students from non-EU countries such as the US, China and India, against
6,000 from the rest of the EU. Yet our EU bias means we send most of those
brilliant nonEU students back home at the end of their studies. 

There is no doubt that extracting ourselves from the EU is going to be an
almighty and expensive pain in the neck. Yet Brexit could prove to be a
fabulous chance to simplify our immigration policies, so that the most
brilliant enterprising people from every country, Asian, African, European
or American, have a fair chance to work in the UK, and to nudge our most
ambitious entrepreneurs to think beyond the Atlantic, the Mediterranean and
the Black Sea in terms of talent. And perhaps the upheaval of Brexit might
even cure us of institutionitis, and free us to become a truly "start-up"
nation. Harry Briggs is a partner in BGF Ventures

Globalization has hurt people and changes are needed

Globalization has left people behind. This is what we should do about it 

Diane Coyle, Professor of Economics, University of Manchester

It’s recently become fashionable to worry that the fabric of democracy is being undermined as people feel left behind by globalization and automation. I think these fears are to some extent well founded. But this isn’t a new problem: it goes back at least as far as the 1980s. Our failure to recognize it then, and act on it since, is why it has now reached crisis proportions.

Are there lessons we could learn from those decades-long failures of policy? Yes. Will we learn them? Perhaps not, although there are a few promising signs.

The most fundamental lesson is that to address a problem, you first need to notice it. One of the striking features of the Brexit vote, and the response in some other places to various manifestations of rising populism, has been the surprise of many voters in wealthy, cosmopolitan cities at discovering how differently some of their fellow citizens are thinking.

These tend to be people living in towns and smaller cities where traditional jobs began to disappear a generation ago and have never been adequately replaced. Whole communities have experienced their real incomes stagnating or falling since well before the financial crisis.

A decade ago, Benjamin Friedman made the case in The Moral Consequences of Economic Growth that democracy requires a growing economy to lubricate the necessary give and take. When people see their own lives improving, they tend to be sanguine about others’ lives improving more quickly. However, when their own living standards have declined, and they expect their children’s to be even worse, resentment against others who are doing better is inevitable.

For at least three decades, since automation and globalization started radically changing industry, whole swathes of geography have been struggling even as economies have grown overall. For the most part, this has barely registered on policy-makers’ radars.

Statistics existed that could have alerted us to the brewing crisis — but nobody was looking. It took Thomas Piketty, in his 2014 work Capital, to put in the huge amount of effort necessary to make the data clearly tell the story of how many workers were being left behind.

But all Piketty has done is start the conversation: we still need to develop a serious policy response. It’s not too late to start doing what we should have been doing since the 1980s — essentially, taking regional policy much more seriously. I see three main elements to this:

Infrastructure

Large cities will always be the best incubators of economic growth, because the more people you have in one place, the easier it is for their knowledge to spread to each other. But we can narrow the natural disadvantage of smaller cities and towns by improving the infrastructure that connects them to each other.

This recommendation implies making fast broadband universal, but it also points to the need for better transport, like high-speed rail, because virtual and physical communication are complements, not substitutes.

Education

I claim no expertise in how we should be educating our children for the technological state of the world they will face when they graduate, but I am fairly certain we’re currently getting it wrong. Most schools still resemble factories for turning children into expensive and not very good computers.

One obvious and much discussed improvement would be teaching more coding — something we struggle with, partly because we don’t have enough teachers with the necessary skills. Another improvement would be to help children develop the human skills that machines seem furthest away from mastering, such as creativity in problem solving.

Devolved power

Every region is different in terms of what jobs it could create, and the kind of education it needs, which brings me to the final priority: giving local levels of government more power. If education policy is being set by a bureaucrat in a distant city, it can’t reasonably be expected to equip students with the appropriate skills for the local economy.

The same is true of other policy areas. One clear lesson of last year’s electoral shocks is how many people felt a lack of agency. They see decisions that shape their lives being taken by people who aren’t like them, in places that feel far away, whether in central banks, multinational boardrooms or booming capital cities, and seem disconnected from their hinterlands. During the UK referendum campaign the slogan that resonated most was the promise to “take back control”.

If part of what’s undermining democracy is people feeling disconnected from power, part of the answer must be looking for ways to return power closer to people.

Public sector investment and political will

All of this is easier said than done. It would require a very serious redirection of resources to create opportunities in the regions or towns that have been left behind — high quality education and infrastructure do not come cheap. In addition, the initiative needs to come from the public sector, because public capital is the only kind of capital people in left-behind regions can access.

Some may see this as unrealistic given current fiscal challenges, but the problem is less about resources than political will. Get serious about ending tax breaks for corporations and wealthy individuals and the money for investment could be found.

Technological change also presents opportunities to ameliorate the societal disruptions it is creating. The Fourth Industrial Revolution can improve everyone’s lives, if we govern it wisely.

There are some, tentative signs — in the UK, at least — that politicians may be starting to understand. It is encouraging to hear the phrase “industrial policy” being mentioned again. A new acronym is gaining currency, the “JAMs”, describing people who are “just about managing”. It may sound inelegant, but at least it helps to name the problem.

History shows that when a significant proportion of people feel pessimistic about the future, crises that might otherwise be manageable can quickly spiral out of control. We can’t afford to take several more decades to get policy right.