IPR Blog

Expert analysis, debates and comments on topical policy-relevant issues

Topic: Economy

Spring Budget 2017: T-levels, apprenticeships and industrial strategy

📥  Economy, education, future, labour market, policymaking

Dr Felicia Fai is Senior Lecturer in Business Economics and Director of Widening Participation and Outreach at the University of Bath's School of Management

In many ways, there were no real surprises in the Spring Budget, with many of the initiatives having been announced in the Autumn Statement, which focussed more specifically on science and industry. The point of greatest novelty (although still not a complete surprise) was the focus on the longer-term future pipeline of talent in the workforce and the need to raise productivity in the UK. There is some attempt on the government’s part to more comprehensively approach the issue of the future workforce, and to provide an alternative but equally prestigious and valuable route into education and careers to the standard ‘A-level + Bachelor’s degree’ route. The government will create the ‘T-level’ for 16-19 year-olds, in which formal training hours will be increased by 50% over existing options and include a minimum 3-month placement in industry to ensure school leavers are ‘workplace ready’. This is in addition to other vocational initiatives that the previous parliament established, such as the creation of 1,000 degree apprenticeships, plus implementation of the new apprenticeship levy that will commence in April 2017. Beyond the 16-19 T-levels, loans are to be made available on a similar basis to existing support for university degrees to study at the new institutes and technical colleges the government intends to create. Further, at the highest educational levels, there is £300m funding support for 1,000 PhDs across all STEM areas.

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The announcement of T-levels and a commitment to apprenticeships is welcome. The UK has long suffered from having too few clear and well-recognised (by both applicants and employers) alternative routes into skilled and high-paid work except for university degrees – and it is clear to me, as a university lecturer, that a degree structure and the forms of learning and knowledge testing used as standard forms of engagement in degree-level programmes do not suit all learners; nor is it always the most appropriate way to develop skills. As a senior admissions tutor for undergraduate programmes, I consider applications from mature applicants in their early- to mid-20s who state that, whilst they have progressed in their careers since leaving school, they now realise their ability to advance in their careers further is blocked by not having a formally recognised degree. I do wonder whether the decision to attend HE is the right one for them.

Sometimes, people are not ready emotionally or intellectually to deal with university-level education at 18, so choose not to apply for entry straight after school. Coming in later would seem appropriate, and we welcome them as they are more likely to succeed now than they would have been had they tried to come earlier. Others may have avoided university because they recognised early on that they did not want to, or were not able to, think in the particular ways in which we require students to think in order to achieve good marks in academic institutions driven by a strong research culture. For example, a recurring weakness in exam performance is the failure of students to answer the specifics of the question set – as opposed to displaying the general breadth of their knowledge – and an ability to make connections between the content they experienced on one subject and the content in the subject the specific exam is testing. The latter is looked for more generally in coursework or dissertations, but is not always appropriate in examination settings. There have been times in my career when I have seen the promise of an individual in the workplace setting and known that they will be a truly amazing employee, manager or future leader precisely because of their ability to see the ‘bigger picture’; yet, in the classroom and in written coursework and exams, they do not reveal the academic skills and precision that would get them the marks which signal their potential. Being ‘book smart’ is different to ‘street smart’, but our current system of HE is highly skewed towards the former.

The T-levels will offer a more streamlined pathway, with focused routes into 15 different areas, and have the potential to offer a different and equally valued and prestigious route into a career; but will their potential be realised? Leaving specific content aside, one of the key problems is the low profile, poor advertising and opacity associated with alternative routes into a career. The most well-established path is GCSEs, A-levels then university degrees. Chancellor Philip Hammond noted in his speech that 13,000 vocational and technical qualifications exist. How many of these are well-recognised and valued by HE institutions and employers? How much advice can cash-strapped schools and colleges provide on these qualifications to individuals looking for a career path that does not involve attending university for a bachelor’s degree? Arguably among the most well-established and widely recognised vocational qualifications are HNDs, NVQs and BTECs; how will these fair with the introduction of the new T-levels? Will the T-levels be a complementary or alternative offering to these existing qualifications, and, again, how will under-funded schools and FE colleges cope in terms of resourcing them? Whilst the Chancellor is keen to maintain choice, in reality will this mean cutting back on the provision of existing vocational qualifications?

Even if there could be a smooth introduction for T-levels, there is the question of how they would lead to more training and qualifications. One can envisage that T-levels could lead either directly to an apprenticeship, or to a place on one of the new degree apprenticeships that should emerge in the next few years, much like A-levels are the most commonly accepted way of accessing bachelor degree programmes. However, again, the pathway of this route is not as smooth as the one into existing degrees.

Whilst the government proudly announces its claim about 1,000 new degree apprenticeships being formed, the system that alerts people to these opportunities is hard to find and tricky to navigate. The chances of a person finding the right degree apprenticeship for them is remote – at least without a significant personal investment of time and research effort trolling through university or employer websites. The UCAS website provides basic information about apprenticeships, questions to consider and how to apply. It also lists employers with current schemes and links through to the government’s apprenticeship website – but from there the application process proceeds on a case-by-case basis because applicants are considered to be applying for jobs. Degree apprenticeships should grow quickly in the next few years, given the compulsory levy, and assessing these entirely on a case-by case basis is likely to become increasingly bureaucratic and cumbersome for both the employer and the university partner – who both need to be satisfied the applicant meets their respective requirements. The T-levels, alongside the better-recognised and better-established vocational qualifications, could be used as publicly available entry criteria by the universities providing the degree apprenticeships on the UCAS website. The applications should be made through an expanded UCAS service so that one application could be sent to multiple degree apprenticeships. From there, universities could select applicants who meet their academic requirements in a first round of consideration, and then this subset could be forwarded for consideration by the employing organisational partner in a second stage of the selection process; together, these actors could make a decision as to the suitability of the applicant. This would streamline the process for applicants, universities and employers alike, reducing the opacity and confusion of a currently complex pathway between school, post-16-19, further education, higher education and beyond.

The announcement of T-levels is an interesting proposal, and a welcome one at that – but there needs to be deeper and more systemic policy-thinking about how its introduction and implementation, as well as that of the apprenticeship levy, will lead to a greater proportion of the future workforce having the requisite skills to raise UK productivity.

 

How could a global public database help to tackle corporate tax avoidance?

📥  big data, Economy

Dr Jonathan Gray is Prize Fellow at the IPR. This post is based on a newly published research report which he contributed to.

The multinational corporation has become one of the most powerful and influential forms of economic organisation in the modern world. Emerging at the bleeding edge of colonial expansion in the seventeenth century, entities such as the Dutch and British East India Companies required novel kinds of legal, political, economic and administrative work to hold their sprawling networks of people, objects, resources, activities and information together across borders. Today it is estimated that over two thirds of the world’s biggest economic entities are corporations rather than countries.

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Our lives are permeated by and entangled with the activities and fruits of these multinationals. We are surrounded by their products, technologies, platforms, apps, logos, retailers, advertisements, publications, packaging, supply chains, infrastructures, furnishings and fashions. In many countries they have assumed the task of supplying societies with water, food, heat, clothing, transport, electricity, connectivity, information, entertainment and sociality. We carry their trackers and technologies in our pockets and on our screens. They provide us not only with luxuries and frivolities, but the means to get by and to flourish as human beings in the contemporary world. They guide us through our lives, both figuratively and literally. The rise of new technologies means that corporations may often have more data about us than states do – and more data than we have about ourselves.

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Shipyard of the Dutch East India Company in Amsterdam, 1750. Wikipedia.

But what do we know about them? What are these multinational entities – and where are they? What do they bring together? What role do they play in our economies and societies? Are their tax contributions commensurate with their profits and activities? Where should we look to inform legal, economic and policy measures to shape their activities for the benefit of society, not just shareholders?  At the moment these questions are surprisingly difficult to answer – at least in part due to a lack of publicly available information. We are currently on the brink of a number of important policy decisions which will have a lasting effect on what we are able to know and how we are able to respond to these mysterious multinational giants.A wave of high-profile public controversies, mobilisations and interventions around the tax affairs of multinationals followed in the wake of the 2007-2008 financial crisis. Tax justice and anti-austerity activists have occupied high street stores in order to protest multinational tax avoidance. A group of local traders in Wales sought to move their town offshore in order to publicise and critique the legal and accountancy practices used by multinationals. One artist issued fake certificates of incorporation for Cayman Island companies to highlight the social costs of tax avoidance. Corporate tax avoidance came to epitomise economic globalisation with an absence of corresponding democratic societal controls.

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Image from report on IKEA’s tax planning strategies. Greens/EFA Group in European Parliament.

This public concern after the crisis prompted a succession of projects from various transnational groups and institutions. The then-G8 and G20 committed to reducing the “misalignment” between the activities and profits of multinationals. The G20 tasked the OECD with launching an initiative dedicated to tackling tax “Base Erosion and Profit Shifting” (BEPS). The OECD BEPS project surfaced different ways of understanding and accounting for multinational companies – including questions such as what they are, where they are, how to calculate where they should pay money, and by whom they should be governed.

For example, many industry associations, companies, institutions and audit firms advocated sticking to the “arms length principle” which would treat multinationals as a group of effectively independent legal entities. On the other hand, civil society groups and researchers called for “unitary taxation”, which would treat multinationals as a single entity with operations in multiple countries. The consultation also raised questions about the governance of transnational tax policy, with some groups arguing that responsibility should shift from the OECD to the United Nations to ensure that all countries have a say – especially those in the Global South.

While many civil society actors highlighted the shortcomings and limitations of the OECD BEPS process, they acknowledged that one of its main coups was to obtain global institutional recognition for a proposal which had central to the “tax justice” agenda for the previous decade: “Country by Country Reporting” (CBCR), which would require multinationals to produce comprehensive, global reports on their economic activities and tax contributions, broken down by country. But there was one major drawback: it was suggested that this information should be shared between tax authorities, rather than being made public. Since the release of the the OECD BEPS final reports in 2015, a loose-knit network of campaigners have been busy working to make this data public.

Today we are publishing a new research report looking at the current state and future prospects of a global database on the economic activities and tax contributions of multinationals – including who might use it and how, what it could and should contain, the extent to which one could already start building such a database using publicly available sources, and next steps for policy, advocacy and technical work. It also highlights what is involved in making of data about multinationals, including social and political processes of classification and standardisation that this data depends on.

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Exhibition of Paolo Cirio’s “Loophole for All” in Basel, 2015. Paolo Cirio.

The report reviews several public sources of CBCR data – including from legislation introduced in the wake of the financial crisis. Under the Trump administration, the US is currently in the process of repealing and dismantling key parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including Section 1504 on transparency in the extractive industry, which Oxfam recently described as the “brutal loss of 10 years of work”. Some of the best available public CBCR data is generated as a result of the European Capital Requirements Directive IV (CRD IV), which gives us an unprecedented (albeit often imperfect) series of snapshots of multinational financial institutions with operations in Europe.

The longer-term dream for many is a global public database housed at the United Nations, but until this is realised civil society groups may build their own. As well as being used as an informational resource in itself, such a database could be seen as form of “data activism” to change what public institutions count – taking a cue from citizen and civil society data projects to take measure of issues they care about from migrant deaths to police killings, literacy rates, water access or fracking pollution.

A civil society database could play another important role: it could be a means to facilitate the assembly and coordination of different actors who share an interest in the economic activities of multinationals. It would thus be not only a source of information, but also a mechanism for organisation – allowing journalists, researchers, civil society organisations and others to collaborate around the collection, verification, analysis and interpretation of this data. In parallel to ongoing campaigns for public data, a civil society database could thus be viewed as a kind of democratic experiment opening up space for public engagement, deliberation and imagination around how the global economy is organised, and how it might be organised differently.

In the face of an onslaught of nationalist challenges to the political and economic world-making projects of the previous century – not least through the “neoliberal protectionism” of the Trump administration – supporting the development of transnational democratic publics with an interest in understanding and responding to some of the world’s biggest economic actors is surely an urgent task.

This piece also appeared on openDemocracy.

UK Industrial Strategy – Mirage or Destination?

📥  Economy, labour market

Dr Felicia Fai is Senior Lecturer in Business Economics and Director of Widening Participation and Outreach at the University of Bath's School of Management

The UK’s Industrial strategy green paper was released on Monday 23rd January 2017. It is founded on 10 pillars that the government predicts will drive productivity and balanced economic growth – but its reception has been mixed, with some business leaders giving a lukewarm and others a more resounding welcome.

A dirty term

To reiterate what Carolyn Fairbairn, Director-General of the CBI said, it is better to have an industrial strategy than not, so it is good to see the UK government explicitly embracing an industrial strategy – something of a dirty term in previous governments of the last 3 decades, among whom a non-interventionist philosophy has prevailed. If we look at emerging economy challengers such as China and India, however, it is common to have 5-year plans and to prioritise the industries that will receive investment and support – automotive and aerospace, pharmaceuticals, etc. Furthermore, as an academic working out of a Management School, I know that no organisation operates without a strategy; thus it seems strange to observe previous governments’ aversion to the term.

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The reluctance to embrace industrial strategy proceeds, in the case of the UK, from having been burnt by such an approach in the 1970s – when the government attempted to ‘pick winners’ and failed miserably. However, modern academic definitions of the policies arising out of industrial strategy are much broader and more comprehensive:

“[Industrial strategy] comprises policies affecting ‘‘infant industry’’ support of various kinds, but also trade policies, science and technology policies, public procurement, policies affecting foreign direct investments, intellectual property rights, and the allocation of financial resources. Industrial policies, in this broad sense, come together with processes of ‘‘institutional engineering’’ shaping the very nature of the economic actors, the market mechanisms and rules under which they operate, and the boundaries between what is governed by market transactions, and what is not”[1].

This contrasts with a definition provided in a recent House of Commons Library Briefing Paper[2]:

“’Industrial strategy’ refers to government intervention which seeks to support or develop some industries to enhance economic growth”.

The latter definition appears to prevail in the minds of the public, and explains the rather mixed reception of the green paper. If our understanding of the purpose of industrial strategy is to support some industries, then it is unsurprising that industries which are specifically mentioned – such as the creative industries and aerospace – have welcomed it, whereas others perceive the green paper as merely reiterating what the government is already doing with little added that is new. It has also been criticised for being a broad, discursive paper with little insightful direction. To be fair, it is a green paper, not a white one – and in that sense fulfils its purpose: to engage discussion and seek feedback from those potentially affected by its proposals, and to inform future policy formulations. However, it seems that the government has moved to a definition of industrial strategy that is closer to the broader definition. What if we interpret its breadth and apparent reiteration of existing policies and initiatives as deliberate? How do we assess it then?

Safeguarding innovation

As an academic with a background in evolutionary economics and an interest in the role of systems, the fact that much of the content looks familiar is comforting to me, not disappointing. Most innovation is incremental rather than radical; knowledge progresses cumulatively. Radical shifts in policy are disturbing to industry, not reassuring (although maintaining stubborn adherence to an inappropriate path would be irresponsible). The ‘exogenous shock’ is of course Brexit, which does require a strong response from UK industries who look to the government for guidance. The steer the government has given in its proposed industrial strategy is not radical in itself, but the methods by which it will be pursued are more multifaceted than they have been in the past two decades – and their delineation clearer.

The green paper might be called ‘broad’, but a kinder interpretation is that it is seeking to be ‘comprehensive’. Much of it is encouraging. It continues with the horizontal support that has proven popular in the last three decades (albeit with some new initiatives – the Industrial Strategy Challenge Fund, for example), potentially allowing all industries to benefit. Importantly, however, the paper also signals a willingness to re-engage in vertical support for some industries, so far identified as ultra-low emission vehicles, life sciences, industrial digitalisation, nuclear energy and the creative industries. The paper recognises the need to increase productivity and the quality of human resources with improved basic education in STEM and more business-led vocational routes. It also recognises the role of capital in raising productivity – both physical capital investment in infrastructure for transport (rail, road and air) and digital infrastructure. Further, in its identification of the need for ‘patient capital’, it acknowledges the importance of financial infrastructure – particularly that targeted towards the commercialisation stage of innovation processes.

While the UK has always been a great trading nation, the pillar ‘encouraging trade and inward investment’ takes on particular significance in the Brexit and post-Brexit era. Addressing the gap in basic skills to raise productivity, thereby driving our comparative advantages in science and innovation, is critical if we are to ensure that our capabilities are augmented to the point that they compensate for any higher costs companies might face when trading from the UK with the EU in their international value chains. In this way, the UK can remain attractive as a location for inward direct investment. Simultaneously, the government is using industrial strategy as a tool to address the underlying reasons behind Brexit – inequity in wealth creation and disparities in regional growth. The pillars on ‘developing skills’, ‘upgrading infrastructure’ and particularly ‘driving growth across the whole country’ resonate with earlier rhetoric to improve the UK economy for all and achieve more balanced growth across regions.

The move to devolved regions makes sense. Regional economic geographers and scholars of innovative clusters all find the formation of relationships and knowledge creation, diffusion and transfer operate best when there is physical proximity between different organisational players. The emphasis on regions also reflects influences from EU policy based on the SMART specialisation of regions. Having conducted the first Science and Innovation Audit in 2016, the government’s understanding of the industrial basis upon which various UK regions might build industrial strength is much clearer and the variance highlights why a one-size-fits-all approach will not work.

At the same time, clusters – when completely localised – can lose their energy, inspiration and relevance. They need to be connected to other clusters and the wider global economy. These connections can be created through the presence of multinationals in the economy. These are often, but not always, large corporates – academic work on international new ventures and born-global companies attest to the rise of technology-based SMEs which operate globally. Therefore, the sections in the green paper stressing the importance of anchor organisations and the supporting role they play, the importance of supporting start-up businesses, and, crucially, the importance of encouraging trade and inward investment are integral. Anchor firms have the capability to embed local SMEs into their global supply chains. The small firms can be supported by anchor firms through their growth stages via mentoring support, and their financial security ensured through procurement contracts – but this requires the UK to have strong SMEs with ambitions to be international in the first place.

Policy to practice

Nevertheless, as managers are well aware, strategy – while useful as a broad plan of action – is one thing, its implementation and the fulfilment of strategic objectives another. So whilst the outline proposals for UK industrial strategy are reassuring, it is still an open question as to whether this strategy will come to fruition.

In part, it depends on how the 10 identified pillars will influence the UK, as well as its regions and industries, as systems (national, regional and sectoral innovation systems). In the evolutionary economic perspective, systems consist of both ‘nodes’ and, critically, their relationships. Indeed, within the green paper there are lots of ‘nodes’ – the involvement of private firms (large and small, manufacturing and service based), universities, colleges and schools, government departments and supporting institutions. They are each being asked to undertake multiple tasks, roles and responsibilities which may be challenging for some. The role of relationships between the nodes seems to be recognised in several ways. For example, creating the right institutional support that helps the sharing of knowledge, establishing contacts for businesses and representing their collective views, encouraging organisations to come together to seek support from the government to ease the regulatory environment and so on.

The importance of relationships is also reflected in the green paper’s emphasis on the regions, and this is perhaps the greatest novelty in the proposed industrial strategy. Whilst we know the benefits and potential pitfalls of localised economic activity from regional economic geography and innovative cluster research, these agglomerated effects have emerged rather organically. How to purposively foment these same changes by implementing a place-based strategy within devolved government is a new challenge of which the UK has little experience beyond the level of the four nations within the UK. You can create the institutions to support the growth of industries, small businesses and regions, but whether they operate effectively to raise productivity and economic growth is another matter.

Financial commitment from the government will also affect its ability to deliver the strategy. Whilst big announcements about increased investment for UK science and technology and the establishment of various funds for horizontal support are welcome, local governments and LEPs face tight budgetary constraints – so although it would be politically popular, giving greater autonomy at the regional level might put additional strain on resources.

Another significant challenge is the timeframe. To implement this proposed industrial strategy requires a long-term commitment from the government – and successive governments. Political challengers to the incumbent government may not look substantial at present, but there must be a degree of continued support for these various initiatives in future.

Overall, this green paper is a stage in a process. The government appears to be genuinely seeking a coherent and consistent strategy which will led to the formulation of a set of policies that are designed to improve the performance of the economy. Time will tell whether this stronger embracing of industrial strategy is any more successful than its predecessors.

The green paper is open for consultation until 17 April 2017.

[1] Cimoli, M. Dosi, G. and Stiglitz, J. E. 2009. Industrial Policy and Development: The Political Economy of Capabilities Accumulation, Oxford, Oxford University Press, pp1-2.

[2] Rhodes, C. (2016) “Industrial strategy”, House of Commons Library Briefing Paper, Number 07682, 14 October 2016.

 

Abolishing the Autumn Statement, Sticking with the Treasury View

📥  Brexit, Economy

If the Autumn Statement was meant to deliver on the Prime Minister’s Chamberlainite ambitions for improving working class living standards while intervening to restructure the economy towards higher productivity, investment and exports, it has disappointed. Post-Brexit referendum downgrades to growth forecasts have increased borrowing and forced the Chancellor to push deficit reduction further out into the future. But there was very little in the way of extra support for low-income families and no increase in planned public spending on the NHS, social care or childcare. Meanwhile, tax changes – increases in the Personal Tax Allowance and higher rate income tax threshold – favour households in the top half of the income distribution.

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The new National Productivity Investment Fund is the biggest spending item in the Autumn Statement, but at less than an average £5 billion a year, it is small beer when compared to the scale of the challenges the UK faces. The UK’s business investment is falling, productivity is catastrophically low, and we are not paying our way in the world. Huge regional disparities persist.

This is what the Office for Budget Responsibility report has to say on a number of these key issues. On business investment:

“The latest data show that business investment in the first half of 2016 was down 1.4 per cent on a year earlier. We expect that weakness to continue, with heightened uncertainty following the EU referendum causing investment to fall further in the second half of 2016 and for growth to remain subdued in 2017. Overall, we expect business investment to fall 2.2 per cent in 2016 and 0.3 per cent in 2017, before annual growth returns in 2018.”

On productivity:

“In March we revised down our productivity growth assumption, as we put slightly more weight on the post-crisis period of weak productivity growth relative to the pre-crisis historical average. Nothing in the recent data would lead us to change that judgement about the rate of trend productivity growth that the economy can ultimately return to. But we do expect uncertainty to reduce investment and productivity growth in the run-up to – and in the transition phase after – the UK’s exit from the EU. We have therefore made a further downward adjustment to trend productivity growth over the next five years.”

On the UK’s twin deficits:

“the concurrence of large fiscal and current account deficits has been a feature of the UK economy in recent years. This means that overseas investors are ultimately – if not directly – financing the UK’s budget deficit. This could pose risks if those investors’ confidence in the UK economy was damaged by uncertainty or changes in policy. That could lead to a sharper fall in sterling and a more abrupt demand-led narrowing of the current account deficit”

On household deficits:

“The persistence of a household deficit of the magnitude implied by our forecast would be unprecedented in the latest available historical data, which extend back to 1987. Other datasets extending back to 1963 also suggest little evidence of large and persistent household deficits, with the household surplus negative in only one year between 1963 and 1987. A household deficit of the size and persistence we expect over the forecast period might be considered consistent with the unprecedented scale of the fiscal consolidation and the extremely accommodative monetary policy upon which our forecast is conditioned. It nevertheless demonstrates that the adjustment to the fiscal consolidation is subject to very significant uncertainty, and alternative adjustment paths are quite possible.”

The Brexit vote could have led to a more substantial reckoning with these persistent weaknesses in the British economy. So far, it has not done so. A slow decline, rather than a sudden crisis, means that dominant orthodoxies in the Treasury have not been dislodged. The Chancellor may have abolished the Autumn Statement, but he has not changed the Treasury view.

 

Three Facts about Debt and Deficits

📥  Economy, Public sector

Professor Roger Farmer is Distinguished Professor of Economics at the University of California, Los Angeles (UCLA) and Research Director at the National Institute for Economic and Social Research (NIESR). 

The Chancellor of the Exchequer, Philip Hammond, will present his Autumn Statement to Parliament on Wednesday. In the heated debate over austerity, this piece offers three facts about debt and deficits which, I hope, will help shed light on the issues he will face.

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Fact Number 1: UK Public Sector Debt is Not Large

The UK public debt is equal to £1.7 trillion and it is increasing at a rate of £5,170 per second (National Debt Clock UK). But although government debt is increasing at a rapid rate, that fact does not pose a threat to the solvency of the UK Treasury.  Government debt should not be measured in pounds; it should be measured in GDPs. When GDP is high, so are tax revenues, and so is the ability of the government to repay.

Chart 1 shows the ratio of government debt to GDP for every year beginning in 1692. Notably, this ratio has been as high as 250% – during the Napoleonic War – and almost as high again at the end of WWII.

Chart 1: UK Public Sector Debt

Chart 1: UK Public Sector Debt

Fact Number 2: Governments Do Not Repay Debt: They Grow Out of It

Chart 2 reproduces the debt-to-GDP ratio from Chart 1, but the time scale is limited to the years from 1920 to 2015.  Public sector debt is the upper solid line, measured on the right scale as a percentage of GDP.  The line marked by circles, measured on the left scale, also as a percentage of GDP, is the value of the public sector deficit, smoothed by averaging adjacent values. A positive number indicates that the public sector spent more than it received in revenue.

On average, the public sector borrowed more in every year from 1920 to 2015. Nevertheless, the debt-to-GDP ratio fell continuously from the end of WWII to the early noughties. The public sector borrowed more – but its debt, properly measured, fell.

Chart 2: Debt, Deficits and Interest Rates Net of NGDP Growth

Chart 2: Debt, Deficits and Interest Rates Net of NGDP Growth

George Osborne, former Chancellor of the Exchequer, planned to bring the government budget into surplus by the year 2020. That plan represented a break from UK post-WWII policy. A surplus of public sector borrowing is neither necessary nor sufficient to reduce government debt when debt is measured as a fraction of the government’s ability to repay.

Fact Number 3: Government Debt Should Not Be Zero. Ever!

Nation states borrow to provide public capital: rail networks, road systems, airports and bridges, for example. These are examples of large-expenditure items that are more efficiently provided by government than by private companies.

The benefits of public capital expenditures are enjoyed not only by the current generation of people, who must sacrifice consumption to pay for them, but also by future generations who will travel on the rail networks, drive on the roads, fly to and from the airports and drive over the bridges that were built by previous generations. Interest on the government debt is a payment from current taxpayers, who enjoy the fruits of public capital, to past generations, who sacrificed consumption to provide that capital.

To maintain the roads, railways, airports and bridges, the government must continue to invest in public infrastructure. And public investment should be financed by borrowing, not from current tax revenues.

Chart 3 shows that investment in public infrastructure was, on average, equal to 4.3% of GDP in the period from 1948 through 1983. It has since fallen to 1.6% of GDP. There is a strong case to be made for increasing investment in public infrastructure. First, the public capital that was constructed in the post WWII period must be maintained in order to allow the private sector to function effectively. Second, there is a strong case for the construction of new public infrastructure to promote and facilitate future private sector growth.

Chart 3: Public Investment as a Percentage of GDP

Chart 3: Public Investment as a Percentage of GDP

The debt raised by a private sector company should be strictly less than the value of assets, broadly defined. That principle does not apply to a nation state. Even if government provided no capital services, the value of its assets or liabilities should not be zero except by chance.

National treasuries have the power to transfer resources from one generation to another. By buying and selling assets in the private markets, government creates opportunities for those of us alive today to transfer resources to or from those who are yet to be born. If government issues less debt than the value of public capital, there will be an implicit transfer from current to future generations. If it owns more debt, the implicit transfer is in the other direction.

The optimal value of debt, relative to public capital, is a political decision. Public economics suggests that the welfare of the average citizen will be greatest when the growth rate is equal to the interest rate. Economists call that principle the golden rule. Democratic societies may, or may not, choose to follow the golden rule. Whatever principle the government does choose to fund its expenditure, the optimal value of public sector borrowing will not be zero, except by chance.

Recommendations for the Autumn Statement

What can we learn from these three facts and what should we look for in the Autumn statement?

We should not be too concerned about a debt to GDP level approaching 100%. We have been there before and we will go there again.  We should be concerned that public spending has shifted away from investment on the capital account and towards the current account.

Economics has the reputation of being the dismal science. It is a dismal reality that there are diminishing returns to the prolongation of life. As we invest an increasing share of resources into advanced drugs and new treatments, the additional benefits, measured in extra weeks of life, will shrink.

As the population ages and life expectancy increases there will be an increasing burden on pensions and the National Health Service. These expenditures are predictable and can be planned for by stabilising the deficit on the current account either through limits on expenditures or through increased taxes. Our politicians must choose how much, as a society, we spend on health. And this choice must be presented to the electorate.

Capital account expenditures should be separated from the current account and increased back to 1960s levels. Work by Paul Romer, the new Chief Economist of the World Bank, suggests that these expenditures have the potential to pay for themselves. He advocates the creation of new charter cities and the expansion of existing cities. The last coalition government’s proposal to create a ‘Northern Powerhouse’ is an example of an investment of this kind.

There are also strong economic arguments to consider education expenditures at all levels – primary, secondary and tertiary – to be a capital expenditure. Education is an investment in the British people from which we all gain. But as with all capital expenditures, investment in education should be targeted towards the areas that have the highest potential for social impact.

 

On November 22, Professor Farmer will speak at an IPR public lecture entitled Prosperity for All: How to Prevent Financial Crises.

This post originally appeared on the NIESR blog.

 

 

Cost over quality: sexual health in an age of austerity

📥  Economy, health, policymaking, Public sector

Dr Frances Amery is Lecturer in British Politics at the University of Bath and Co-Convener of the PSA Women and Politics Specialist Group.

Sexual and reproductive health (SRH) is a hugely important yet neglected area of public health. From access to abortion and contraception to treatment for HIV, SRH services are an essential part of efforts to address inequality. Yet SRH provision has been severely impacted by the NHS restructure precipitated by the 2012 Health and Social Care Act and by subsequent cuts to public spending.

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The policy background

Department of Health guidance on SRH provision is set out in A Framework for Sexual Health Improvement in England, published in 2013. The Framework was published amid widespread uncertainty about what the upcoming reforms to the NHS would mean for SRH services and calls for the government to clarify its approach, while responding to evidence of inequalities in the sector. In particular, campaigners and medical organisations called for a life course approach to SRH which takes into account the ways in which men and women’s needs change with age.

The Framework appears to address these concerns. Equalities issues are foregrounded throughout: the document draws attention to the need to tackle discrimination and stigma surrounding sexual health matters, to ensure equality of access to services, to promote good body image and self-esteem, and to raise awareness of issues surrounding consent. Throughout, the different needs of different social groups and identities are highlighted. Calls for a life course approach are also addressed in a section titled ‘Sexual health across the life course’.

On paper, there has been a clear attempt to respond to demands of various advocacy groups. But as many equality policy researchers have observed, good intentions on paper often do not result in equality in practice. Indeed, the Framework has come under fire from SRH providers and campaigners for putting forward ‘ambitions’ without setting in place strategies to achieve them.

Inequalities remain in sexual and reproductive health

In spite of the high-flown ambitions found in DH guidance, huge inequalities in service provision and access remain. A 2012 report by the All-Party Parliamentary Group on Sexual and Reproductive Health (APPGSRH) found evidence of some local authorities barring women over the age of 25 from accessing contraceptive services, and sexual health charities suggest that this situation has not improved. There are also regional variations in the coverage of abortion services, with Scottish women facing significant barriers in access, while abortion law in Northern Ireland remains incredibly strict. Many women are not able to access abortion and contraceptive services under one roof, meaning that the quality of the care they receive is compromised.

Meanwhile, clinics around the country face the threat of closure due to budget cuts. An example is the proposed closure of the genitourinary medicine clinic at Whipps Cross Hospital, which campaigners say will have a disproportionate impact on black and Asian men living with HIV. While closed clinics usually have their services integrated into a larger clinic at a different site – as is planned for the Whipps Cross clinic – there is often still a negative impact on the community as patients lose access to local services. Some patients may not be willing or able to travel the longer distances now required of them.

Particular difficulties exist regarding trans people’s access to services. Demand for trans services is booming, yet there are only a handful of gender identity clinics in the UK. Waiting times are astronomical, with some clinics predicting that new patients will have to wait four years for their first appointment.

Among all this, race is a cross-cutting issue. Black, Asian and minority ethnic (BAME) communities tend to suffer worse health outcomes than the general population, and sexual health is no exception: BAME communities bear a disproportionate burden of HIV, and BAME people can sometimes face more stigma and greater barriers when accessing sexual health services. This problem is worsened by the closure of clinics servicing local communities. There is also a lack of representation in service provision: for example, BAME trans people might never meet another trans person who shares their background when attending treatment and support groups.

Why aren’t we delivering adequate services?

The government’s ‘ambitions’ regarding SRH provision and related inequalities are hindered, in large part, by fragmentation in commissioning and service provision. Lack of centralised, top-down direction is not necessarily a problem for healthcare, and local networks can be key players in advancing healthcare services. But in this case, fragmentation has been accompanied by a lack of accountability within commissioning structures resulting in gaps in service provision. This was already the case before the Health and Social Care Act 2012 came into force, but has been worsened by the subsequent restructuring of the NHS.

The Health and Social Care Act abolished the existing structures responsible for commissioning services and replaced these with new Clinical Commissioning Groups (CCGs), as well as establishing new national bodies. Responsibility for commissioning the various services making up sexual and reproductive healthcare – including abortion services and HIV treatment – is now spread out among CCGs, local authorities and the national commissioning board, although the lion’s share of responsibility rests with local authorities. The APPGSRH argues that this has resulted in a further loss of clear lines of accountability, which means that commissioners are not able to work together effectively. These commissioning silos can mean that it is not possible to deliver integrated services under one roof, since abortion and contraceptive services, for example, are commissioned by different bodies. Public Health England, the new executive agency with responsibility for SRH (among other aspects of public health in England), has ‘reducing health inequalities’ as a key part of its stated mission, but little role in policy formulation. Initial claims that the body would ‘speak truth to power’ appear to have been forgotten, and it has so far shown an unwillingness to challenge government policy.

This has all been compounded by the politics of austerity and in particular by cuts to local government budgets. Since November 2015, local authorities’ public health budgets have been separated from the budget for NHS England. This means that they are not protected from the latter’s budget ring-fencing, and public health spending has dramatically fallen as a result. While local authorities receive their own ring-fenced grants for public health, there is evidence that these are being diverted towards threatened services in other areas. Austerity has promoted unequal health outcomes directly, as clinics and services close or relocate as a result of budget cuts. Some contracting models appear to prioritise cost efficiency over quality, further compromising the services on offer.

Cuts to SRH services are a false economy – they result in drastically increased spending due to unintended pregnancies and STI infections. We should be more concerned, however, with the adverse impact of cuts on disadvantaged communities. While Theresa May has expressed an interest in social justice, it remains to be seen whether she will address the trends set in motion under her predecessor.

 

Comparing Basic Income Experiments: Lessons and Challenges

📥  Economy, living wage, research, universal basic income

Dr Jurgen De Wispelaere is a Policy Fellow at the IPR, as well as Visiting Research Fellow at the University of Tampere. As part of the latter role, he plays a part in the Kela-led research team preparing the upcoming national basic income experiment in Finland.

Experimenting with basic income: a unique situation

In Europe we are faced with a unique situation: in 2015/2016 not one but two countries started down the road of piloting a basic income experiment. There are important similarities between the experiments planned in Finland and the Netherlands. All going well, both countries hope to get started in early 2017 and run the experiment for two years - and in both cases, for a variety of reasons, the plan is to pilot an experiment limited to social assistance recipients. In short, Finland and the Netherlands will be simultaneously conducting an experiment on a broadly similar target population.

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There are of course also important differences. First and foremost, the experimental design in both countries is very different. For example, Finland will pilot a national randomised controlled trial with a single basic income model, while in the Netherlands different municipalities will experiment with a variety of models. There are also very interesting differences in terms of the political process associated with the basic income experiments: where Finland’s experiment was initiated by the Finnish government and is therefore highly centralised, the Dutch experiments were pushed onto the policy agenda by local NGOs or municipal decision-makers against considerable resistance from the central government. Finally, Finland and the Netherlands are very different types of welfare states, and we can expect variation in welfare institutions and processes to affect both the political decision-making process and the actual design of the proposed experiments.

Why compare?

This combination of two experiments simultaneously taking place in countries that differ in important respects is a unique situation that opens up the possibility of engaging in serious comparative research. Why compare? There are three reasons why both projects should engage in close collaboration and why we should adopt a comparative approach to studying what happens in Finland and the Netherlands.

The first reason is practical. Piloting a basic income scheme is a complex endeavour and those involved in designing and implementing the experiment run into a lot of problems along the way. There is much to learn from experiments carried out in the past in the US and Canada as well as, more recently, Namibia and India. But the lessons to be learned from those experiments are limited by the fact that they took place several decades ago — the world has moved on quite a bit since the 1970s — or that they operated in an environment that is very different from that of an advanced welfare state inside the EU. For this reason it makes sense that the experiments about to take off in Finland and the Netherlands may be able to help each other more than any of those that took place before. Exchanging information about hurdles encountered, as well as proposed solutions, may offer key guidance that could benefit both experiments.

A second reason for thinking comparatively relates to building up cumulative knowledge about basic income design, implementation and effects. Despite a massive increase in media and policy attention, we actually don’t know that much about basic income. Many arguments doing the rounds run the gamut from “reasonable expectation” (when grounded in good theory or analogous reasoning from other policy areas) to wild speculation (in other cases). There is a simple reason for that: basic income has not been implemented in a way that allows for robust insights.

The recent interest in pilots and experiments offers a great opportunity to (partly) rectify this problem, provided we adopt an approach that allows for systematically comparing design, implementation and results, as well as the underlying policy process. There is little to be gained from experiments that make it impossible to compare results in any meaningful way. Streamlining experimental design as much as possible to facilitate valid comparisons during and after the pilot — e.g., by standardising baseline surveys, indicators and measurement instruments where possible — is of immense importance in terms of furthering our global knowledge about basic income policy. Although experiments will always have important variation built into them, given the specific context in which they operate, when carefully coordinated they will tell us how to interpret design differences and their effects on the outcomes. And this, in turn, helps us understand which outcomes are unique to a specific experimental setting, and which can be generalised across and reflect common results of instituting a basic income.

A third important reason pertains to the politics of basic income pilot experiments. The dramatic increase in media and policy attention in the span of a mere three years has taken everyone — advocates and critics alike — by surprise. We know next to nothing about the factors that explain why basic income has suddenly become politique du jour amongst the political elites (Sure, we all have out little pet theories, but without systematic analysis and evidence, that is exactly all they are!). Equally, if not more importantly, we are only beginning to understand the political drivers of basic income policy development more generally. Against this uncertain background, the experiments play a crucial role in uncovering in a systematic manner the policy and political processes that have brought us to where we are now. Understanding these underlying processes, of course, is also critically important in thinking about where to go next, and how to make use of basic income experiments and their results in due course to move policy development along.

Having experiments taking place in two countries as diverse as Finland and the Netherlands offers a unique opportunity to study the political forces at play — an opportunity not to be wasted. Two intriguing aspects of these jurisdictions merit particularly careful examination. First, comparing the top-down approach adopted in Finland with the bottom-up approach that characterises the Dutch context allows us to examine closely the complicated political process by which an idea moves onto the policy agenda and — hopefully — soon enters the implementation phase. Real world policy development of the basic income proposal will have to make sense of the multi-level nature of its design and implementation. Second, there are important lessons to be learned in terms of framing the basic income debate: where Finland has embraced the experiment as a natural continuation of several decades of intense and complicated debate about basic income, in the Netherlands the experiments proceed while strategically avoiding any connotation with the basic income idea. Understanding the framing process will help political strategy in overcoming public and political resistance of the basic income idea.

Challenges to adopting a comparative approach

There are challenges to adopting a comparative approach to basic income experimentation. Some of the challenges are related to each experiment as an individual — e.g., maintaining the political momentum to carry out the experiment in a manner that produces reliable results — while others pertain to the demands of coordination between experimental teams. Examples of the latter include the need to adapt the research design and experimental setting to maximise comparability, the sharing of information and regular communication across jurisdictions — keeping in mind that each project is highly politicised! — and the building of a cross-country collaborative research network dedicated to supporting and evaluating ongoing and future basic income experiments. There is much work to be done, but the opportunity is there for grabbing.

 

This piece draws on information from a workshop entitled “Experimenting with Basic Income: Finland and Netherlands”, which was hosted by Kela with the aim of exchanging views between researchers involved in the planning of the Finnish basic income experiment and researchers from the Netherlands currently preparing the experiments planned for early 2017 in Utrecht, Wageningen, Tilburg and Groningen.

The presentations given at the workshop were recorded and can be viewed here. This piece has also been published on the Kela website.

 

Citizen's Income: the long history of an inevitable idea

📥  Economy, Finland, future, living wage, policymaking, political parties, research, Switzerland, universal basic income, Welfare

Dr Malcolm Torry is Director of the Citizen's Income Trust and a prolific author on the subject of Citizen's Income.

On Tuesday 11 October the Institute for Policy Research hosted a seminar on the desirability and feasibility of a Citizen’s or Basic Income: an unconditional and nonwithdrawable income for every individual. An account of the seminar is available on the IPR’s website. I shall not here repeat what was said at that seminar: instead, I shall begin with a different seminar.

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Following the publication of its report on Citizen’s Income, the Royal Society of Arts hosted a seminar on the history and prospects of the Citizen’s Income debate. In his presentation Karl Widerquist, Co-chair of BIEN, the Citizen’s Income international umbrella group, recounted the history of the idea from the 18th Century onwards, and made suggestions as to the different ways in which the debate might now develop.

The subsequent discussion recognised that the more intense debate of the past two or three years has a variety of causes: think tank engagement with the issue, represented by the RSA’s and Compass’s reports, and interest at the Adam Smith Institute; successful pilot projects in Namibia and India; planned pilot projects in Finland and Holland; a referendum in Switzerland; political party interest in the UK (with the Green Party and the Scottish National Party supporting the idea, and Labour interested) and in other countries too; new trade union interest; and perhaps even the Citizen’s Income Trust’s 30 years of research and publications.

The current debate already has its own history, constituted by three phases: discussion of whether giving everyone a Citizen’s Income would be desirable, interest in whether it would be feasible, and discussion of which would be the best way to implement the policy. There are no firm boundaries between these three phases (if a Citizen’s Income could not be implemented, for example, then it would not be feasible – and if it wasn’t felt to be desirable then it wouldn’t be feasible either), and each new phase has been in addition to a previous phase or phases, rather than being a replacement – but the progression is significant because it is evidence for the increasingly serious nature of the current debate. The think tank reports listed above belong to the ‘feasibility’ phase, as does my own recent Institute for Social and Economic Research Euromod working paper and recent book. A significant contribution to the new focus on implementation will be an Institute for Chartered Accountants consultation on the subject in November.

Where will the debate go now?

Luke Martinelli’s recent Institute for Policy Research blog discusses the diversity of the current debate in terms of, firstly, the diverse political ideologies of some of the players, and secondly the diversity of Citizen’s Income schemes discussed. A Citizen’s or Basic Income is always the same thing. It is always an unconditional and nonwithdrawable income for every individual. But there are of course a wide diversity of different schemes, with each scheme specifying the levels of Citizen’s Income for different age groups, and the changes that will be made to the existing tax and benefits systems when the Citizen’s Income is implemented. Compass called a scheme that retains means-tested benefits a ‘modified’ scheme. It is not. The Citizen’s Income is a genuine Citizen’s Income, so the scheme is a genuine Citizen’s Income scheme.

There is a history to this diversity. As with the three phases of the current debate, so the longer-term debate has evolved by addition rather than by replacement. Thomas Paine’s suggestion, that those who no longer have access to expropriated commons should be paid compensation, has been a continuing theme, represented today by Guy Standing’s campaigning scholarship. Today’s most high-profile representative of the libertarian argument for a Citizen’s Income is Philippe Van Parijs, and Charles Murray represents well the extreme version of this tendency, which would like to scrap all other welfare provision on the implementation of a Citizen’s Income. But this is to suggest – as Martinelli’s blog post does – that arguments for Citizen’s Income, and accompanying preferred Citizen’s Income schemes, can be located in clear ideological categories. I suspect that this is less and less the case. There are no longer clear categories, and there are no reliable spectra on which positions can be located. Our age is increasingly one of radical diversity. My first book on Citizen’s Income, Money for Everyone, discussed political feasibility in terms of identifiable political ideologies. The following book, 101 Reasons for a Citizen’s Income, simply offers 101 different reasons, recognising that for each individual a particular bundle of reasons might be significant. A handful of the reasons offered are framed in terms of political ideologies, because for many people those are still salient – but most of the reasons are simply listed in such broad categories as ‘economy’, ‘society’, ‘administration’, etc. My most recent book, Citizen’s Basic Income: A Christian Social Policy, recognises that we are a community of communities, and that particular communities might have their own distinctive reasons for supporting or rejecting Citizen’s Income. As the Citizen’s Income debate becomes increasingly mainstream, we shall find the same tendency that we find with other current issues: that they will become political footballs – that is, they will be pushed around by political considerations, rather than in relation to their own characteristics. The Shadow Chancellor, John McDonnell, has for a long time recognised that we shall one day need a Citizen’s Income, and that the idea needs to be carefully studied by government. He spoke at the Citizen’s Income Trust’s conference in 2014, invited the Trust to organise one of his People’s Parliament events, and since becoming Shadow Chancellor has reiterated his interest. Jeremy Corbyn, Leader of the Labour Party, has also been clear about his support. During the recent Labour Party leadership campaign, Corbyn’s opponent Owen Smith stated his view that Citizen’s Income wasn’t credible. Whether he had read any of the research I don’t know – but it certainly appeared that the motive for his objection was that his opponent had supported it. It is regrettable when positions are taken for reasons proceeding from a personal political career, or for factional advantage, rather than on the basis of evidenced and reasoned argument – but incidents such as this are useful because they signal the fact that an idea is understood, and that it is understood to be significant. What is then required is a sustained emphasis on the idea’s feasibility.

The Feasibility of Citizen’s Income understands feasibility as multifaceted, and recognises that specifically political feasibility is just one aspect of feasibility. In order to be implemented, a Citizen’s Income scheme would need to pass two kinds of financial feasibility test, with regard to both the feasibility of paying for it and the need to avoid imposing losses on low-income households at the point of implementation; it would need to pass psychological, behavioural, and administrative feasibility tests; and it would need to be able to negotiate the complex policy process from idea to implementation. The book concludes that there are Citizen’s Income schemes that could achieve all of that. A conclusion that might have been more explicit is that conformity of the scheme to a political ideology or ideologies might be fairly unimportant. A conclusion that is drawn matches one that Martinelli draws: that deeply embedded convictions, relating to reciprocity, deservedness, and so on, will need to be recognised at the implementation stage, because only those implementation methods that could achieve public approval can be regarded as feasible. The popularity of both the NHS and Child Benefit suggest that unconditional benefits fit the British psyche just as much as ideas of reciprocity and deservedness do; so as long as age groups generally felt to be ‘deserving’ are the first to receive Citizen’s Incomes, psychological feasibility should not be too difficult to achieve. Governments can move ahead of public opinion if they are moving in the same direction – recent examples are the ban on smoking in workplaces and public places, and the legalisation of same-sex marriage – and legislation can sometimes shape public opinion (as equalities legislation has done). This suggests that any government that saw good reason for implementing a Citizen’s Income scheme would be able to do so, as long as it started with age groups generally believed to be deserving – that is, children, retired people, the pre-retired, and the 16+ age group.

Martinelli suggests that the Citizen’s Income debate will exhibit a variety of different Citizen’s Income schemes, with each kind relating to a different set of political convictions. I’m not so sure. It is a reasonable assumption that for the foreseeable future any initial Citizen’s Income scheme in a developed country will need to be revenue neutral, and possibly strictly revenue neutral (in the sense that only tax allowances related to earnings would be reduced to help to pay for the Citizen’s Income). Microsimulation research at the Institute for Social and Economic Research has shown that a revenue-neutral Citizen’s Income scheme can only avoid imposing unacceptable losses on low-income households if current means-tested benefits are left in place and are recalculated to take account of each household’s Citizen’s Income and changes in net earnings. Recently updated figures show that a working-age adult Citizen’s Income of £60 per week could be paid for on this basis. This is not large, but neither is it insignificant. Compass’s recent report takes a similar approach. The RSA report does not – but neither has it tested its proposed scheme for low-income household losses at the point of implementation. We look forward to the results of current IPR microsimulation research. We are now more aware than before that although it is possible to construct a wide variety of Citizen’s Income schemes in theory, in practice only a narrow range of that diversity could ever be financially feasible in both senses of that term. If the debate about Citizen’s Income remains mainstream, and if it becomes increasingly so, then any infeasible scheme will be put under considerable pressure (as the Green Party’s proposed scheme was before the 2015 General Election) – and the result will be convergence on a narrow range of revenue-neutral schemes that would not impose losses on low-income households at the point of implementation.

The increasingly flexible and diverse nature of the employment market, family structures, and society and the economy generally, and the way in which the proceeds of production will continue to accrue to capital rather than to labour, mean that sooner or later we shall need a Citizen’s Income – and that we shall need to find some means of paying for it. But that could still be a very long process. Maybe by this time next year everybody will have lost interest, and the idea will have to await another upsurge in interest in a generation’s time; or maybe there will be both developing and developed countries taking the first steps towards implementation. More likely, we shall experience a situation somewhere between those two. Whatever the debate is like next year, it will have been important for high-quality research to have facilitated it. For this reason it is a pleasure to see the Institute for Policy Research contributing to the research that we shall need, and to the widespread debate that is now required.

This blog post develops on themes discussed by Dr Torry in a recent IPR Seminar. You can view the seminar and slides in full on our online lectures page, or listen to the podcast on our Soundcloud playlist.

Cooperating for Africa: two challenges to meeting development goals

📥  development, Economy, Foreign aid, International relations

Seung-Jin Baek is an Economist at the Renewal of Planning Section of the United Nations Economic Commission for Africa (ECA), based in Addis Ababa, Ethiopia, and is studying on the IPR's Professional Doctorate programme.

Currently, Africa faces a great challenge, in that the considerable development objectives that the continent must meet are being tackled through addressing two separate agendas. At the regional level, Africa has her own long-term development framework – Agenda 2063 – that aims to achieve an integrated, prosperous and peaceful Africa. Then, at the global level, the 2030 Agenda for Sustainable Development – adopted in September 2015 – sets out Sustainable Development Goals (SDGs) that are comprehensive and promise to rally global partners in support of Africa’s development.

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Under these two agendas, Africa is now confronted with a dual transition: the global-level transition from the Millennium Development Goals (MDGs) to the SDGs, and the continent-wide implementation of Agenda 2063. The numbers of goals, targets and indicators involved in each plan reflects just how complex this dual transition is: Agenda 2063 has 7 aspirations, 20 goals and 34 priority areas, 171 national targets, 85 continental targets and approximately 246 indicators, while the SDGs comprise 17 goals, 169 targets and 230 indicators. Implementation will be no easy task for African countries.

These two agendas will provide a foundation for Africa’s inclusive growth and structural transformation. To achieve this, both African countries and development partners need to scale up their commitments to the implementation of the plans by leveraging synergies among them. Two factors are critical in this regard: engagement on Africa’s part with emerging partners, and a commitment from Africa and its partners to prioritise KID – knowing, integrating and domesticating both agendas – to make its goals achievable.

Africa’s engagement with development partners

The first area to be addressed is emerging partnerships, which will provide the financial framework within which development agendas can be achieved. Undoubtedly, global partnerships have been playing an important role in Africa’s development during the MDG implementation era, through bridging financing gaps for development and building policymaking and technology capacities. There is, however, still a considerable gap in addressing the special needs of African countries – such as the promotion of inter- and intra-continental trade, infrastructure development, and governance improvement as well as environmental management.

The most effective channel of such partnerships is trade, which has been a major commitment from development partners. Recent World Trade Organization international trade statistics, however, show that the share of Africa’s exports declined from 3.3 per cent in 2013 to 3.0 per cent in 2014 and 2.4 per cent in 2015. This is partly due to unfavourable movement in global commodity prices, which have a significant impact on investment and economic growth on Africa, given its heavy dependence on natural resource products for export.

Another essential channel is official development assistance, or ODA. Based on analysis of the OECD development statistics, Africa has maintained its position as the largest recipient of ODA over the past three decades with regional share of about 43 per cent – meaning that almost half of world ODA was injected into Africa. It should be noted, however, that most OECD-DAC countries do not meet their ODA commitments to provide 0.7 per cent of their countries’ GNI. In fact, the total ODA from the DAC group reached only 0.29 per cent of the combined GNI – implying a delivery gap of 0.41 per cent. Because this huge gap is unlikely to narrow in the near future, the quality of ODA and its use have to be seriously taken into consideration.

Role of emerging economies in Africa’s development

In the light of these global partnership trends, there are a number of action points for both Africa and development partners. First of all, it is imperative that African governments strengthen macroeconomic sustainability and public management of natural resource revenues, and leverage such funds for the transformation of their economies.

Given the substantial delivery gap in ODA commitments, it is also extremely important for Africa to develop and strengthen partnerships with emerging economies such as the BRICS (Brazil, Russia, India, China and South Africa) as an alternative, but very important, source of financing, learning and technology. For instance, according to Oxfam International’s Africa-China Dialogue Platform, China has emerged as the largest trading partner to Africa over the past five years: Africa’s trade volume with China reached US$225 billion, which is twice that the continent shares with the United States. Furthermore, Chinese foreign direct investment and other forms of development assistance to Africa are substantially increasing.

With this growing role of emerging partners, in addition to that of traditional development partners, the international community all together should work closely with African governments to strengthen capacities for domestic resource mobilisation and particularly to curb illicit financial outflows. According to the ECA’s study on illicit financial flows, Africa is currently losing more than US$50bn annually – almost double the foreign aid flowing into Africa – from aggressive tax avoidance practices by multinational companies.

Africa’s dual transition to the SDGs and Agenda 2063

The second point to which I refer is the dual transition that Africa must undertake to address both the SDGs and Agenda 2063. Despite the challenges identified above, recent developments at the regional and global levels point to an increasingly supportive financial environment for Africa. The question now is: what are the challenges associated with dual transition, and which areas of development should both Africa and development partners focus and how? For this, the MDGs to Agenda 2063/SDGs Transition Report 2016 clearly identified challenges and opportunities.

Implementation of both agendas requires advocacy for and sensitisation to the details of both frameworks to ensure awareness of their mutual relevance to national development and the relationship and synergies between them. In this context, the 2030 Agenda for Sustainable Development should be understood as an attempt to respond to the global dimensions of Africa’s development challenges, while Agenda 2063 should be viewed as a response to continent-specific development challenges and aspirations, many of which overlap.

With the sheer volume of goals, targets and indicators embodied in each of the agendas, there is inevitably significant convergence between them. In this regard, an integrated set of goals, targets and indicators – along with a harmonised review and reporting platform to develop a core set of continental indicators – is required to effectively track progress on both agendas. Such arrangements need to take into account the levels of development of individual countries.

While convergence between the two agendas is significant, integrated and coherent implementation of both agendas into national planning systems will be an operational challenge as significant as it is vital. In recognition of this challenge, the ECA has developed a draft toolkit that maps the 2030 Agenda for Sustainable Development and Agenda 2063 at the goal, target and indicator levels and provides a diagnostic tool for integrating both agendas in national planning frameworks.

Capacity matters most

In effect, successful implementation requires strengthened capacities for policymaking and the analysis of inter- and intra-sectoral impacts of policy initiatives. Even with the adoption of the SDGs alone, countries will require an integrated approach that simultaneously addresses the economic, social and environmental dimensions of sustainability in a balanced way. This is an area where evidence-based analysis of the structural effects (tradeoffs and synergies) of key policies is needed.

In the past there has been a tendency to consider immediate benefits above all else; the economic benefits of increased oil production, for example, were not adequately weighed against the possible negative environmental and social costs. Therefore, there should be a significant effort to identify the most appropriate institutional architecture that individual countries can use to facilitate effective implementation of the two agendas. Invariably, the role of planning agencies will be paramount in ensuring that the economic, social and environmental dimensions of policy decisions are reflected in a balanced manner in all aspects of programme and project execution.

In this new age of Africa’s development, multi-stakeholder partnerships remain one of the most critical means of mobilising internal and external resources. Furthermore, the active participation of emerging partners is required to address Africa’s challenges of dual transition and to support its operationalisation. In this regard, traditional partners and emerging nations need to establish ways of partnering and cooperating with each other towards supporting Africa in realising its development aspiration, particularly for the areas of KID:

[K]nowing about both agendas to simultaneously address the three dimensions of sustainability with strengthened evidenced-based policymaking capacities

[I]ntegrating both agendas to harmonise frameworks and establish common mechanisms of implementation and follow-up architecture

[D]omesticating both agendas in national planning frameworks with strengthened institutional capacities for effective institutional coordination and arrangements

 

 

This blog is mainly derived from Seung-Jin’s presentation during the Oxfam International Conference, which took place in Addis Ababa on 28 September 2016, and from the MDGs to Agenda 2063/SDGs Transition Report 2016, a joint publication by the ECA, African Union Commission, African Development Bank and United Nations Development Programme which was launched in the United Nations General Assembly on 21 September 2016. The views expressed in the blog are his own, and do not necessarily reflect the views of the United Nations.

 

Exposing a fragile coalition: The state of the basic income debate

📥  Economy, employment, living wage, political parties, universal basic income

Dr Luke Martinelli is Research Associate on the IPR's universal basic income project.

Is it time to move beyond the polarised views that characterise the basic income debate? Universal basic income (UBI) may be an attractive solution to a host of policy problems – but advocates must recognise that moving from abstract concept to reality will involve significant trade-offs and political barriers.

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Gaining traction, growing support

In recent weeks, there have been a number of developments which appear to demonstrate the movement of UBI towards the political mainstream: in the UK, the influential Trades Union Congress (TUC) has endorsed social security reform that embodies the principles of basic income; in Canada, the Government is moving forward with concrete plans for a basic income pilot, adding to those upcoming in Finland and the Netherlands; the French region of Aquitaine is consulting on the idea; and in Germany, the single issue party Bündnis Grundeinkommen (Basic Income League) has just been established. These trends seem to suggest that UBI is gaining traction that will lead inexorably to widespread implementation.

After all, UBI is not just a good idea; it is an increasingly good idea in a world in which the nature of work, family and society is rapidly changing.  Automation of production processes, both in manufacturing and, increasingly, services; large and growing wage gaps between ‘lousy’ and ‘lovely’ jobs (Goos and Manning, 2007); the growth of zero-hour and temporary contractual arrangements; and long-term unemployment among disadvantaged groups are all problems which urgently need addressing. Nuclear families have given way to the emergence of complex and unstable family structures, and the ‘new social risks’ of lone parenthood and gaps in the provision of care for children and the elderly threaten vulnerable sectors of society.

All of these factors are feeding into the widespread failure of existing social security systems to achieve equitable and efficient settlements for growing numbers of people – exactly what UBI claims to be able to provide.

Yet despite (or perhaps because of) intensified interest in basic income, the debate has become more polarised than ever. It is an elegant balance of justice and liberty; it is the worst of all possible worlds. It is the saviour of the welfare state; it will destroy it. It can be implemented tomorrow; it is a vague and distant utopia.

All things to all people

When considering these polarised views on basic income, it is worth noting that UBI is best considered as a family of proposals, rather than a specific policy per se.

The core characteristics of UBI as an idea are that payments should cover the entire population, and eligibility cannot be conditional on income, work history, or behavioural requirements. Beyond this, there is a great deal of variation between plans in terms of a number of important aspects  – including, crucially, the level at which payments should be made, and how the basic income fits into the wider constellation of welfare and tax policies.

These design features vary in relation to the precise goals that basic income is intended to achieve, which themselves are contested. Although it can be seen as a prosaic way to simplify a complex welfare system, alleviating administrative costs and bureaucratic intrusion while reducing marginal tax rates – and thus eliminating the poverty and unemployment traps that pervade means-tested systems – it has also been touted as having the potential to fundamentally alter how we think about ‘work’. Releasing individuals from the compulsion to enter paid employment – and the exploitation and domination this entails – in order to survive, and liberating them to pursue a variety of socially valuable and creative activities, UBI has been mooted in radical terms as “a capitalist road to communism” (Van Der Veen and Van Parijs, 1986).

Multi-partisan support

The protean nature of basic income helps to ensure that the concept appeals across traditional party lines. One of the striking things about this idea is the wealth of favourable theoretical arguments which appeal across the political spectrum, leading to the popular description of UBI as 'not right or left, but forward'. In isolation, these arguments apply to other ways of organising social security – but few if any such systems so effectively marry the priorities of the social democratic left (equality, solidarity and redistribution) with those of the libertarian right (small government, freedom and efficiency). By both left- and right-wing proponents, UBI is viewed as the saviour of a broken welfare system which is stigmatising and intrusive yet unfit for purpose.

For basic income advocates on the left, the focus is on the failure of the system to provide security for all in an adequate and dignified fashion, as socio-economic conditions have made the Beveridgean system increasingly untenable. Gone are the days – if they ever existed – when male breadwinners provided for their families with stable, well-paid jobs. The Trente Glorieuses, that period of yet unmatched growth and prosperity following WWII, gave way to deindustrialisation, structural unemployment, rising wage inequality, and the increasing prevalence of precarious employment.

For the right, the welfare system is seen as the cause of dependency and societal breakdown, as the complex array of means-tested benefits reduces work incentives and discourages family formation. The bloated government bureaucracy which administers the intrusive work tests and financial conditions creates higher taxes, which act as a drag on the efficiency of the economy as a whole.

Basic income, perhaps miraculously, seeks to balance these competing goals and priorities. But does this congregation of political views mean that it is universally and normatively desirable? Clearly not.

Cross-party opposition

There is an equivalent (and possibly more significant) meeting of minds across the political spectrum that finds basic income a deeply discomfiting notion. Social democrats believe that welfare should be generously available for all, and those on the right that it should be a residual safety net – but both agree that the right to an income comes with a responsibility to work (however this responsibility is actualised). Notwithstanding the claims of political philosophers such as Philippe Van Parijs that “even surfers should be fed”, Bowles and Gintis (2000) demonstrate that people “support the welfare state because it conforms to deeply-held norms of reciprocity and conditional obligations to others”. Of course, this goes beyond the simplistic equality of contributions and receipts – but the belief that everyone has an obligation to contribute to society if they can, and that only those unable to work through incapacity, involuntary unemployment or caring responsibilities are deserving of state support, provides a philosophical foil to the arguments of basic income advocates (Anderson, 1999). Bay and Pedersen (2006) show that support for universal welfare drops when respondents consider the possibility of foreign immigration. Data on attitudes to welfare, which have hardened in recent years, appear to uphold these insights – as analysis of the British Social Attitudes Survey by Eleanor Taylor and IPR Director Professor Nick Pearce serves to demonstrate.

For progressive opponents of UBI, welfare should be restricted to those most in need, since the wealthy do not need it; if you are going to spend more on welfare, why not make payments more generous for the poor? Thus, basic income is likely to be seen as ineffectual by the progressive left, as demonstrated by reactions to Compass’ UBI proposals stating that “a powerful new tax engine will pull along a tiny cart”, and that feasible UBI schemes are “not generous enough to achieve the aim of replacing wages in an increasingly automated world; or they are not funded properly; or both”. The concept of uniform benefits also appears to conflict with the principle that levels of support should correspond to the needs of claimants – which are complex and varied, and therefore might be seen to justify an equally complex range of benefits.

At the same time, conservative opponents argue that UBI would be prohibitively expensive, require huge tax rises, and significantly damage work incentives. Although the unconditional nature of UBI leads to lower marginal effective tax rates (as the benefit is not withdrawn as income rises), if payments were pitched at subsistence level or higher, there would be a significant negative labour market response as individuals opt for more leisure.

Thus, while basic income has supporters across the political landscape, it also has detractors – and the large family of basic income proposals provides a wide target at which to direct criticism.

A fragile coalition

The multifaceted nature of basic income enables detractors to criticise the least desirable type of basic income (from their particular perspective). Thus, basic income’s association with ‘undesirable’ political views permits left-wing opponents of basic income to attack UBI as an alternative to decent public services and a project to dismantle the welfare state, while simultaneously allowing right-wingers to criticise it for inflating the role of government in welfare provision and dampening incentives for self-provision.

Exacerbating the political challenge of UBI is what De Wispelaere (2015) calls the “problem of persistent political division” among supporters. While agreed on the general principle, UBI advocates on each side of the political divide have different ideas about the key parameters. When UBI is operationalised in a specific scheme, divisions appear; as De Wispelaere observes, a residual scheme such as that proposed by Murray (2006) is “entirely unacceptable to anyone supporting basic income on progressive grounds”. At the same time, libertarian UBI advocates would only support basic income schemes that sought to replace the entire welfare system. Thus, support from the ‘opposite’ political side may taint the concept of basic income by association: progressives cannot get behind a policy supported by right-wingers, and vice versa.

Although steps to realise basic income show signs of progress, therefore, this ultimately hinges on the extent to which meaningful coalitions of interests can be built and sustained around concrete proposals. This prospect is a lot more distant than appears at first glance; the apparent unity of the basic income movement masks a multitude of deeply divided actors, and a highly fragile coalition.

To end on a more positive note, these political difficulties are not necessarily intractable – but it may be that advocates have to sacrifice their broad coalition in favour of congregation around specific schemes. This would give lie to the idea that basic income is ‘all things to all people’, but it might garner new and more enthusiastic supporters as well.

 

References

Anderson, Elizabeth S. (1999). "What Is the Point of Equality?" Ethics, 109(2): 287-337.

Bay, Ann-Helén, and Axel West Pedersen. "The limits of social solidarity basic income, immigration and the legitimacy of the universal welfare state." Acta Sociologica 49(4): 419-436.

Bowles, Samuel, and Herbert Gintis (2000). "Reciprocity, self-interest, and the welfare state." Nordic Journal of Political Economy, 26(1): 33-53.

De Wispelaere, Jurgen (2015). "The struggle for strategy: On the politics of the basic income proposal." Politics (2015): 1467-9256.

Goos, Maarten, and Alan Manning (2007). "Lousy and lovely jobs: The rising polarization of work in Britain." The review of economics and statistics, 89(1): 118-133.

Murray, Charles. (2006). In Our Hands: A Plan to Replace the Welfare State. Washington, DC: American Enterprise Institute Press.

Van Der Veen, Robert J. and Philippe Van Parijs (1986). "A capitalist road to communism." Theory and Society, 15(5): 635-655.

Van Parijs, Philippe (1991). "Why surfers should be fed. The liberal case for an unconditional basic income." Philosophy and Public Affairs, 20: 101-131.