March 27, 2006

Zimbabwe, Pensions and Governance

Yesterday’s Times had an article on the deteriorating condition in Zimbabwe under Robert Mugabe. There are poorer countries in the world, but with GDP growth at -13.6% in 2003, -8.2% in 2004 and -4% in 2005, Zimbabwe seems a textbook example of how to reverse progress.

IN ONE hand Frank Wiggill holds his monthly pension statement and in the other a 500 gram packet of salt. It is the only thing in the supermarket that his pension will buy, unless he prefers to splash out on two eggs.

When Wiggill retired after 38 years as an engine driver on the Zimbabwean railways, he looked forward to enjoying his twilight years in comfort. Instead he and his wife Jeanette depend on monthly food parcels from well-wishers and handouts from their son in South Africa. The collapsing currency combined with the world’s highest inflation — estimated at more than 1,000% a year — has cut their pension to 13p a month.

“It’s embarrassing,” said Wiggill, 79. “I worked all my life and here I am living on food parcels of milk powder and toilet paper.” His monthly pension of Z$49,000 is less than the cost of a newspaper (Z$50,000) or a loaf of bread (Z$70,000). It would take him two months to buy a pint of milk (Z$89,000) and nine months to afford the cheapest pack of four toilet rolls (Z$440,000).

Read in full here.

In this (pdf) paper, Daniel Kaufmann of the World Bank comments on changes in the quality of governance across 209 countries between 1998 and 2004. Governance is defined by the World Bank as “the set of traditions and institutions by which authority in a country is exercised”. Zimbabwe is one of only 3 countries that have seen a significant worsening in a) the level of civilian voice and political accountability, b) regulatory quality, c) the rule of law and d) the control of corruption. It’s mismanagement on a gross scale with no sign of reversal.

March 22, 2006

Drug Use & Performance

BusinessWeek author Michael Mandel comments briefly on attitudes toward steroid use. (via Dynamist Blog) He states that strong views against steroids exist in certain camps only because those groups have no need for such substances. If there were a drug that could enhance other characteristics, opinions may be moderated.

But would we be quite so horrified, I wonder, if we were talking about "smart pills" or memory pills instead of steroids? Suppose that a pharmaceutical company was selling a pill that would improve your memory by 30% or your IQ by 30%, with the same sort of side effects as steroids. Would you be willing to take them for 3 or 5 critical years in your career? What if you knew that everyone else was taking them? What if you knew that the Chinese or the French were taking them?

Read the post here.

An initial reaction may be to deem a hypothetical ‘smart pill’ a form of cheating; a dishonest way of getting ahead. However the playing field in the real world isn’t equal. If the ability of others to speak multiple languages, play multiple instruments and excel in sport wasn’t earned, why should anyone feel guilt over taking a pill that merely improves the cards dealt by the Gods?

Similarly with competitive sport. Many team games are appealing because of the competitive element. It’s enjoyable to see not just exceptional individual performances, but how a group cooperates to achieve some goal. So long as the mismatch between the opposing teams isn’t too great, and the result remains unpredictable, all is well. The use of anabolic steroids wouldn’t eliminate that competitive element. Ronaldinho wouldn’t be any less exciting to watch if his talent derived from a pill as opposed to natural talent.

As Mandel states, the problem lies in the potential coordination problems and averse health effects. We could end up in a world where everyone is taking performance enhancing pills yet each individual would like to stop – IF they could be sure others would do otherwise. This unfortunate state of affairs requires some critical level of people to begin using such pills in the first place. Below this level, one isn't disadvantaged enough to make the pill worthwhile. If the health effects are significant, one would expect pills to be used by a small group of die-hards. The lower the health risk the more widespread the use and the more likely we are to see a coordination problem. But with lower health risk, the harm done by this coordination problem is lessened anyway. I’d guess that for a given level of risk, a ‘smart pill’ would be less prevalent than anabolic steroids in the sporting world. After all, there aren’t million pound contracts and sponsorship deals riding on the job performance of most academics, writers and students. There’s less at stake from poor performance relative to others, and less to gain from superior performance.

March 20, 2006

Patents on Nature

Author Michael Crichton writes about the practise in patent law of assigning ownership of observed scientific patterns or fact. He describes an upcoming Supreme Court case against medical firm who used a patented fact in a publication. What was the patented fact? – "Homocysteine (an amino acid associated with heart disease) is correlated with a vitamin B-12 deficiency."

Crichton says,

But what the Supreme Court will focus on is the nature of the claimed correlation. On the one hand, courts have repeatedly held that basic bodily processes and "products of nature" are not patentable. That's why no one owns gravity, or the speed of light. But at the same time, courts have granted so-called correlation patents for many years. Powerful forces are arrayed on both sides of the issue.

He goes on

For example, the human genome exists in every one of us, and is therefore our shared heritage and an undoubted fact of nature. Nevertheless 20 percent of the genome is now privately owned. The gene for diabetes is owned, and its owner has something to say about any research you do, and what it will cost you. The entire genome of the hepatitis C virus is owned by a biotech company. Royalty costs now influence the direction of research in basic diseases, and often even the testing for diseases. Such barriers to medical testing and research are not in the public interest. Do you want to be told by your doctor, "Oh, nobody studies your disease any more because the owner of the gene/enzyme/correlation has made it too expensive to do research?"

Read in full here. (via Reddit)

There are no doubt ways to justify this. However, besides the cost of time and effort required to uncover some facts or products of nature, nothing obvious comes to mind. Intuition suggests patent claims should require some value-added; some element of novelty or creativity. For example, you shouldn’t be able to point to a worm and claim it as your own. You perhaps verify the existence of a worms, then go on to devise a novel way of testing for their presence. Or maybe you could patent a unique manipulated form of worm (and the process that allowed the manipulation). But to claim rights over observations/facts/naturally occurring matter without going any further seems pretty opportunistic.

March 15, 2006

School choice documentary online

In this post, I mentioned a John Stossel programme on public schools and the potential gains to be had from allowing greater choice within the system.

Courtesy of YouTube, it’s online here. (Via Heavy Lifting ).

March 11, 2006

Response to Twenty Years of the Trickle–down Effect

A few comments this interesting post from John Kahn.

The Myth at the heart of the dominant system – For over two decades, followers of the neo-liberal doctrine prescribed by economists such as Milton Friedman, and practised devoutly by Margaret Thatcher and Ronald Reagan have insisted that there is no need for active and progressive, redistributive measures: wealth will essentially redistribute itself. The idea is that prosperity will gradually ‘trickle down’ from the spending of the rich towards the poor, as money is spent. Yet this central tenet of the dominant economic model of our times is baseless, discredited and elitist.

The myth is a caricature of a reasonable person would say. Neither Friedman nor Thatcher would posit an inevitable drift towards equality of outcome. 'Trickle down' is not a phrase I've heard uttered in my 3 years within the economics department. Academics and textbooks state clearly the desirability of active transfers.

Advocates of tax cuts would say say excessive focus on redistribution isn’t necessarily in the long run interests of those groups deemed vulnerable. Whether or not one sees the profits and income of the wealthy as deserved, they ultimately contribute most to the welfare state in absolute terms. Hostility to wealth reduces incentives to acquire any in the first place and encourages businesses and individuals to go abroad and/or stick their money into elaborately tax shelters. There may be a better balance between welfare spending and the prosperity of businesses but let’s be explicit about what we forego by focusing on the former.

The relentless pursuit of higher profits, tax cuts for the rich, government spending cuts, deregulation, privatisation and competition has been pursued under the theory that such policies will actually benefit the entire population. Yet twenty years of neo-liberal recipes and the ‘trickle-down effect’ have only brought greater inequalities and further injustice. The gap between the rich and poor has increased wherever neo-liberal policies have been applied.

How does this alleged increase in injustice square with the UK’s experience over time? We have an education system guaranteeing universal access to primary and secondary schools, things that one upon a time were reserved for the so called elite. We have the NHS which along with the pharmaceutical industry has raised life expectancy to record levels for men, women and minorities, lowered infant mortality, reduced deaths from cancer and other life threatening ilnesses and is free at the point of use. Yet the welfare of the UK’s poor has fallen over time? I’m not a huge fan of many things our government does but the vision of wholesale exploitation and destitution you put forward makes a mockery of the progress we’ve seen; particularly when a large proportion of the world’s population wouldn’t mind coming to a country where even those classed as poor probably own a car, television and mobile phone.

I personally don’t equate inequality with injustice. I see injustice in barriers to achievement. An income differential of £30k in today’s society is certainly a barrier but I doubt it’s one inherent in every market society. Its importance is exacerbated by an education system that doesn’t perform as well as it’s more independent competitors. Another barrier would be the low thresholds at which low earners begin to pay income tax. Unfortunately there’s no consensus as to what constitutes a barrier that is worthy of correction.

By 2001, the three richest people in the world possessed a fortune greater than the sum of the Gross National Products (GNP) of the forty-eight poorest countries, a quarter of the countries in the world. In more than seventy countries, between 1979 and 2001, average income has actually decreased. Almost three billion people, half the population of the world, live on less than two Euros a day.

Is it because Bill Gates, Warren Buffet and Paul Allen have lots of money that others don’t? As mentioned earlier, you can’t decide a ‘correct’ level of societal liability on the basis of posterior observations of successful businessmen. The majority of new businesses fail. Many do OK. A minority do extremely well. Gates and Buffet are anomalies relative to the full set of businessmen and their existence doesn't indicate a flawed system; just as you couldn’t look at the millions of businesses and businessmen (all potential taxpayers) who've gone bankrupt and conclude that levels of taxation are too high.

The development of China and India thus far hasn’t led to an equal and opposite effect elsewhere. Wealth can be created. There's a huge body of literature stressing the impact of geography, quality of governance, transparency, law, property rights and ethnic/resource based internal conflict. To lay the blame for falling incomes/poverty elsewhere on any single factor is incorrect.

Bear in mind that those who’ve suffered at the hands of the IMF and World Bank loan conditionality approach these organisations because the status quo was yielding problems. It isn’t the case that all was hunky dory until the discredited Washington Consensus nor is it credible that the harm done is the sole reason for poor performance today. Even Joseph Stiglitz, former World Bank chief economist and fierce critic of past policy in this sphere, lays blame not on the inherent folly of the ideas, but on very crude mechanisms of implementation and lack of regard for individual country characteristics. This period in history and countries like Argentina are a cautionary tale. They cannot be used as proof of the folly of economic conventional wisdom without also explaining why the UK, US, France, Germany, Italy, Switzerland, Belgium, Singapore, Hong Kong etc seem to do fairly well.

Ignoring the clear majority of global public opinion, neoliberal globalisation threatens to replace the diverse cultures, landscapes and political systems of the globe with a single McWorld, or monoculture.

Cultural practices and language have never remained static. Greater connectedness has made it easier for those here to experience foreign food, music and film. The same will be true of those abroad. Globalisation increases the availability of aspects of culture previously limited to the more developed world. Lets be frank here; you’re no real evidence to suggest that all countries at all points in time will tend towards the prevailing culture in the UK or US, assuming these cultures can be well defined. It’s an assertion. It’s no less valid for me to state that globalisation will enhance diversity within countries. A branch of McDonalds in Bangalore isn’t successful by pure chance. Its success or lack thereof will be driven by the desires of consumers. Whether or not one thinks it’s desirable for fast food to be popular abroad is frankly irrelevant. It’s what has been chosen by the individuals, so be it.

As an aside, the article lined to within the post, entitled Trickle-Down Economics: Four Reasons Why It Just Doesn't Work is odd. The author arrives at the conclusion that “Bush's top-bracket tax cut is an ineffective attempt at stimulus that will not cause any growth”. It considers changes in economic, wage, and income growth together with change in job creation over time as the top rate of tax has fallen. It’s odd because its analysis is supposed to be statistical rather than verbal. If you’re going to do that, you may as well do it properly. No fancy regressions here. No attempt is made to control for, or even consider interest rates, inflation, unemployment, exchange rates, foreign shocks, productivity growth, etc. The author deduces causation on the basis of trends, and rejects causal links on the basis of corellation coefficients. Not to mention the underlying assumption that tax cut advocates mean cutting income tax solely for the rich; as opposed to corporation tax, direct taxes on the poor/middle classes and indirect taxes. The conclusion reached may be correct, but the reasoning doesn’t support it.

March 05, 2006

School Choice in Minneapolis

A good article on school choice in Minneapolis from the Washington Post

…in 2003–04, black enrollment [in state schools] was down 7.8%, or 1,565 students. In 2004–05, black enrollment dropped another 6%. Black parents have good reasons to look elsewhere. Last year, only 28% of black eighth-graders in the Minneapolis public schools passed the state's basic skills math test; 47% passed the reading test. The black graduation rate hovers around 50%, and the district's racial achievement gap remains distressingly wide. Louis King, a black leader who served on the Minneapolis School Board from 1996 to 2000, puts it bluntly: "Today, I can't recommend in good conscience that an African-American family send their children to the Minneapolis public schools. The facts are irrefutable: These schools are not preparing our children to compete in the world." Mr. King's advice? "The best way to get attention is not to protest, but to shop somewhere else."

They can do so because of the state's longstanding commitment to school choice. In 1990 Minnesota allowed students to cross district boundaries to enroll in any district with open seats. Two years later in St. Paul, the country's first charter school opened its doors. (Charter schools are started by parents, teachers or community groups. They operate free from burdensome regulations, but are publicly funded and accountable.) Today, this tradition of choice is providing a ticket out for kids in the gritty, mostly black neighborhoods of north and south- central Minneapolis.

Read in full here.

Again, the issue of vouchers / more choice within the state system choice isn’t one of public sector vs. private sector. Whether public or private, some schools are great, some average, some poor. Advocating more choice is to acknowledge that poor state schools exist and that under the status quo some have no choice but to attend them. They can certainly improve but while they’re trying to do so, why not make it easier for other parties (charities, businesses, parents, religious groups, etc.) to step in. While education secretaries promise imminent turnaround, the future of many students is being affected in a non-beneficial way. Our goal is good quality education. Who it's provided by is secondary. The quoted article illustrates that it’s not just well-to-do families who are willing to look into better alternatives for their children and new schools wouldn't cater soley children deemed wealthy and bright.

March 01, 2006

Physics and Interrogation

Cosmic variance has a non-physicist friendly explanation of one component of a story on Quantum Computing released earlier in the week.

From the,

A quantum computer at a US University has solved a computational problem without running a program. Scientists at the University of Illinois at Urbana-Champaign gleaned the answer to an algorithm by combining quantum computation and quantum interrogation (a technique that makes use of wave-particle duality to search a region of space without actually entering that region) in an optical-based quantum computer through a process called "counterfactual computation".

The explanation –

Quantum mechanics, as we all know, is weird. It’s weird enough in its own right, but when some determined experimenters do tricks that really bring out the weirdness in all its glory, and the results are conveyed to us by well-intentioned but occasionally murky vulgarizations in the popular press, it can seem even weirder than usual…

Let me make a stab at explaining, perhaps not the entire exercise in quantum computation, but at least the most surprising part of the whole story — how you can detect something without actually looking at it. The substance of everything that I will say is simply a translation of the nice explanation of quantum interrogation at Kwiat’s page, with the exception that I will forgo the typically violent metaphors of blowing up bombs and killing cats in favor of a discussion of cute little puppies.

Read in full here. (via

A-level physics was interesting, but sadly no university offered Physics minus math as a option.

February 27, 2006

Hospitals and Misdiagnosis

The NYT writes about how rates of misdiagnosis in US hospitals haven’t fallen over time despite great improvements in technology.

With all the tools available to modern medicine — the blood tests and M.R.I.'s and endoscopes — you might think that misdiagnosis has become a rare thing. But you would be wrong. Studies of autopsies have shown that doctors seriously misdiagnose fatal illnesses about 20 percent of the time. So millions of patients are being treated for the wrong disease.
How can this be happening? And how is it not a source of national outrage?A BIG part of the answer is that all of the other medical progress we have made has distracted us from the misdiagnosis crisis. Any number of diseases that were death sentences just 50 years ago — like childhood leukemia — are often manageable today, thanks to good work done by people like Dr. Bergsagel. The brightly painted pediatric clinic where he practices is a pretty inspiring place on most days, because it's just a detour on the way toward a long, healthy life for four out of five leukemia patients who come here.

But we still could be doing a lot better. Under the current medical system, doctors, nurses, lab technicians and hospital executives are not actually paid to come up with the right diagnosis. They are paid to perform tests and to do surgery and to dispense drugs.

Read in full here (Free subscription) (via Reddit)

My knowledge of medicine is limited to Scrubs, Grey’s Anatomy & House M.D. In any case, the real world must deal with which medical practitioners who are stressed, limited by the finances of hospitals and limited in the time they can devote to any one case. This necessitates shortcuts and thus errors. Consistency in errors doesn’t in itself signal a crisis. However, the article’s claim that doctors should receive greater feedback seems fair. That feedback may be produced internally (e.g. internal audits), or via the market (e.g. payment by results). Without feedback, incentives to learn and correct mistakes are limited. Autopsies are a means of generating feedback; a means of comparing causes of death to prior diagnoses. This article states that autopsy rates in the US need to be increased significantly so as to uncover systematic errors. I don't know details, but this piece from the president of the Royal College of Pathologists suggests the UK isn't too dissimilar.

Despite the obvious value of autopsies, the proportion of deaths (disregarding those investigated at the request of a coroner) subjected to this highly informative medical investigation has fallen steadily during the last few decades. Now, even in UK teaching hospitals, the autopsy rate is usually below five per cent. This has serious implications for clinical governance and audit, for the detection of unexpected adverse effects of medical interventions, and for undergraduate and postgraduate medical education. Regrettably, many doctors are now graduating from UK medical schools without ever having witnessed an autopsy.

February 21, 2006

Parliamentary Reform Bill

Edward Cooper earlier linked to an article about the Legislative and Regulatory Reform Bill. Here’s another piece from yesterday’s Times.

I don’t know enough to add anything worthwhile, though it’s easy to see why the proposals are causing concern. has a transcript of a very interesting though extremely long Commons debate on the issue. What comes out of it is the gains that could be had from easing the regulatory burden on businesses. Something the current system makes difficult, and the primary problem the Bill is intends to solve. Conservative MP Oliver Heald says the following

Other measures, such as the International Institute for Management Development's "World Competitiveness Yearbook", show that the UK has fallen from ninth to 22nd since 1997. The London School of Economics recently warned about "concerns that tougher competition could be undermined by increasing regulation".

The CBI has said: "Many businesses believe regulation is damaging the UK's attraction as a place to invest . . . the burden has grown and expect it to increase further."

The Library has shown that there are 3,887 regulations a year on average under this Government—15 every working day. That is a 50 per cent increase on what happened under the last Conservative Government.

Still, good intentions and economic benefits must be weight against ambiguous and lax safeguards as compared with the status quo. Lib Dem MP David Howarth says this

Obviously, I welcome, as we all do, the Minister's assurances that his test of whether something is controversial or highly controversial, and the mechanism of the Committee veto, will offer extra safeguards, but the problems are clear with those two safeguards. There is at the moment no definition of "controversy" in the Bill and the Committee majority mechanism does not deal with the controversy point. It is possible for a matter to be highly controversial with only a minority of members. A Committee could easily decide in favour of taking the order through the procedure introduced by the Bill, even though the matter was highly controversial in other parts of the House.

Read the whole debate here.

It may be ill-considered to boldly declare this Bill the end of parliamentary democracy. Nonetheless, it undoubtedly requires further delegating of authority, and increased trust on the part of MPs and constituents. One’s level of concern will vary with the extent ministers are deemed to be reactionary, self interested and overconfident about their opinions and abilities.

February 18, 2006

Employers & Employee Benefits

The Independent writes about comments made by Wal-Mart CEO to a disgruntled manager. The manager in question wanted to know why such a large company wasn’t doing more for its low-wage employees.

The manager had asked Mr Scott why "the largest company on the planet cannot offer some type of medical retirement benefits?" Mr Scott replied: "Quite honestly, this environment isn't for everybody. There are people who would say, 'You should take the risk and take billions of dollars out of earnings and put this in retiree health benefits and let's see what happens to the company'. If you feel that way, then you as a manager should look for a company where you can do those kinds of things."

Scott’s ‘take it or leave it message’ certainly won’t do anything to help the firm’s already run-down reputation. That said, Scott has a point, which is bolstered by an observation about the problems facing General Motors he makes in the full letter here.

GM has seen failing demand for its products over time and has underestimated its pension liabilities. Its future as a firm is sometimes questioned. For more, see this NYT article

"The thing that annoys me about GM is that when I retired I had a letter that said I would receive health care for life at no cost," said Chester Clum, 79, a former sales and service manager at GM who retired in 1981 after 38 years of service. "They never brought up that they could change that at will." But, in fact, the change has been long in coming. While there are exceptions in industries less subject to intense competition, GM is like many other once impregnable American corporate titans in arguing that reducing the burden of caring for retirees has become essential to compete against foreign companies with lower benefit costs and domestic rivals with younger work forces and less generous benefit packages.

With retirees living longer and accounting rules forcing companies to more honestly reflect their full costs on their books, the corporate-sponsored social contract is no longer sustainable. Something else, experts say, needs to replace it.

"It was easy to offer these things 40 years ago because they were cheap," said Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute, a nonpartisan group in Washington. "They're not cheap anymore."

Wal-Mart could certainly pay it’s staff more and contribute towards healthcare plans but it comes at the cost of a) taking on fewer people in the first instance b) being more vulnerable to competitors c) being more vulnerable to economic changes that affect all companies. The effects of the first are more immediate whereas the latter two get ignored because they’re non-tangible probabilities. None of these things are good for the groups who’re supposed to gain from higher wage/non-wage benefits. Of course the scale of the benefits granted by the ailing GM may dwarf those Wal-Mart’s employees are asking for; after all, many firms offer good packages without any problems. The main point is that one-sided accusations of greed and exploitation are unfair.

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