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January 21, 2006

Business and Social Responsibility

Yesterday’s One World Week discussion was "Business and Social Responsibility: Do Good Values Equal Good Business?". The list of speakers is here. There was pretty much zero tension between any of the speakers and nothing to really disagree with. They stressed the gains society has seen as a result of the profit motive and that ultimately power is determined by how well they serve the customer. They were also eager to emphasise the role of law and voluntary/mandatory codes of conduct to prevent harm; like individuals not all firms seem to have a conscience. Just a couple of points:

– It wasn’t mentioned, but most people are or will be shareholders of some sort though voluntary savings and pension schemes. With luck, the increased value of such investments will help us fund spending later in life. Some shareholders are already incredibly wealthy, but many others just want some money to fund their retirement, pay for medical expenses and help their children through university. No sense in demonising them all. Beyond the provision of ipods, phones, cars and drugs, this is another helpful way in which we gain from having soundly run firms. Of course, we all have different ideas of what it means for a firm to be 'soundly run', so there's a role for ethical investment trusts, aligned with the varied preferences of individuals.

– Maybe there are conflicts in the stated desires of CSR proponents. A firm that goes beyond its legal obligations and donates all profit to various stakeholders won’t generate jobs, puts existing jobs at risk and won't develop/improve existing products and services. Charity isn't costless and extremes in either position are harmful. This uncertainty suggests that laws creating more positive obligations aren’t necessarily in society’s long term benefit.

– A recent example of a voluntary choice to become more socially responsible is the decision by US firm Whole Foods to embrace renewable energy. See here.

Natural food grocer Whole Foods Market Inc. said it will rely on wind energy for all of its electricity needs, making it the largest corporate user of renewable energy in the United States..The decision follows the publicly traded company's mission of environmental stewardship without losing sight of the bottom line, Whole Foods regional president Michael Besancon said Tuesday.

The firm is known for its commitment to stakeholders and has yet to suffer as a result. See this report on its stock performance. See here

The ability of Whole Foods to essentially establish a high-end niche market in the humdrum grocery business — where innovative ideas tend to be rare — has earned comparisons with coffee titan Starbucks. So have heady growth plans of Whole Foods — it aims for $12 billion in sales in 2010, up more than 150 percent from last year.

If efforts to be take care of stakeholders are well publicised, negative financial effects may be lessened somewhat.

January 18, 2006

Talk on aid

Yesterday evening’s One World Week discussion was on aid effectiveness. The list of participants can be found here.

Two interesting points mentioned were –

a) The complicity of donors in perpetuating corruption: Aid has not always been conditional on quality of governance. Withholding aid on the basis of corruption may increase willingness of states to reform, but people will die as a result. Perhaps the moral imperative to assist outweighs concerns of value for money. Additionally, the optimal level of corruption is not zero. Eliminating corruption is prohibitively costly, which is why it exists in the developing world too. Donors decide on an acceptable level of money misuse.

b) Progress in the Doha trade round: David Loyn (BBC Developing World Correspondent) and a member of the audience criticised Economics professor Kent Jones for saying developed nations should make concessions too. They said that given the wealth of OECD nations and their historical misuse of power, responsibility for progress fell on their shoulders and poorer nations should liberalise at a rate of their choosing. Jones said that one-way liberalisation would be better than nothing, but it’s just not feasible politically. In the real world, countries won’t give things up for free. Poor nations should thus compromise if discussions are not to be a complete waste; they have the most to loose. Underlying this point was the probably erroneous assumption that protection is a necessary condition for progress. Chomsky has aired this view before

Furthermore that's true of every single developed society. That's one of the best known truths of economic history. The only countries that developed are the ones that pursued these techniques. The ones that weren't able… There were countries that were forced to adopt "free trade" and "liberalization": the colonies, and they got destroyed. And the divide between the first and the third world is really since the 18th century. It wasn't very much in the 18th century, and it's very sharply along these lines.

The fact that we’re trying to persuade the richest nations in the world to eliminate barriers is a testament to the persistence of trade distortions. It’s thus odd to see people encouraging the poor to hold onto theirs.

The panel were pretty positive towards aid, so a more vocal opponent would have been interesting. In defence of aid, David Loyn and Sam Sharpe (DFID) mentioned many projects that had proved beneficial to different groups. However in itself, that means little unless contrasted with the number of failed initiatives. Additionally, they correctly reconciled any observed decline in performance by saying that aid limited the extent of the decline. Still, I said here, that it'd take incompetence on an immense scale for billions of dollars in aid not to have some positive impact.

I know lives are at stake, but the issue of value for money deserved a mention. Other issues not mentioned were micro-credit, convergence towards ‘quality’ governance or the relative importance of the different issues aid is directed towards.

In all, it was a good discussion which highlighted the very real effect beneficial effect aid can have on its recipients.

January 16, 2006

Environment: Different paths

Madeleine Bunting writes in today’s guardian on Kyoto protocol and the environmental movement in general. She thinks too much attention has been focused debt and trade issues relative to the EU emissions trading scheme and post Kyoto terms.

Looked at objectively it makes no sense. Climate change will dwarf the damage the common agricultural policy subsidies wreak on African farmers; it is already costing at least 150,000 lives a year as warmer temperatures encourage disease, and erratic rainfall will starve millions in coming years. Here is an issue that makes all the aid and debt deals of 2005 look like an afternoon parlour game. Yet such was the momentum of the Make Poverty History campaign that climate change slipped off the public radar and environmental groups felt they couldn't compete.

Contrast with the supposed pro-growth, pro-technology stance of the Asia-Pacific Partnership for Clean Development and Climate. From

The first meeting of the Asia-Pacific Partnership on Clean Development and Climate, which comprises Australia, the United States, Japan, South Korea, India and China, was hosted in sunny Sydney this week. Together the countries came up with a scheme to address climate change that they say will be good for both the economy and the planet.

Their plan focuses on the creation of eight government-business task forces, which will concentrate on cleaning up power generation and distribution, the building trade, and the industries of steel, aluminium, cement and coal mining. These task forces are to devise action plans, time frames and performance indicators, but details are vague at present. The plan does not specifically mention nuclear power.

January 14, 2006

Outsourcing Primer

The Foundation for Research on Economics and the Environment hosts an easy to read document on outsourcing which answers some frequently asked questions. On this issue what jobs will take prominence in the US & Europe as many tasks are carried out elsewhere, it says the following

Uncertainty frightens people. Imagine telling a farmer in 1900 that in 100 years, farm jobs will only be 2 percent of the workforce. What jobs could possibly come along to replace the farming jobs?

Federal Express and Motorola and Intel and Microsoft and General Motors; The farmer couldn’t imagine the products that these companies would make.

Imagine being told a decade ago that some people would make their living writing software for iTunes. “What’s iTunes? Oh, it’s a place where people download music into their iPods. What is downloading music?”

Think how much the world has changed in just 10 years, and all the jobs we couldn’t have imagined that are now here. A quarter of all Americans now work in jobs that didn’t exist in the Census Bureau’s occupation codes in 1967.

Read it in full here.

It’s understandable why smart individuals who see value in concrete plans and forecasts find such suggestions unacceptable; the desire to take control of proceedings and engineer an ideal state of affairs though intervention is irresistible though history suggests it’s misguided. Few politicians would stand up and admit that their knowledge of future technological developments, patterns of competitiveness and consumer preferences, both here and abroad, is severely constrained. Therefore actively preventing the outsourcing movement is at least as risky as embracing it, particularly when we consider the higher average living standards resulting from the latter policy.

January 12, 2006

Working on Important Problems

Just finished reading though an essay from Richard Hamming called ‘You and Your Research’ (linked to within this good Paul Graham article on the benefits of procrastination). A sample –

Now, why is this talk important? I think it is important because, as far as I know, each of you has one life to live. Even if you believe in reincarnation it doesn't do you any good from one life to the next! Why shouldn't you do significant things in this one life, however you define significant? I'm not going to define it – you know what I mean. I will talk mainly about science because that is what I have studied. But so far as I know, and I've been told by others, much of what I say applies to many fields. Outstanding work is characterized very much the same way in most fields, but I will confine myself to science.

In order to get at you individually, I must talk in the first person. I have to get you to drop modesty and say to yourself, ``Yes, I would like to do first-class work.'' Our society frowns on people who set out to do really good work. You're not supposed to; luck is supposed to descend on you and you do great things by chance. Well, that's a kind of dumb thing to say. I say, why shouldn't you set out to do something significant. You don't have to tell other people, but shouldn't you say to yourself, ``Yes, I would like to do something significant.''

Read it in full here.

The essay is geared towards researchers and how they should be concerned with the most important problems in their field. Those problems should be ones for which concrete progress is realistic; time spent on pie-in-the-sky issues isn’t so useful.

Clearly, most people aren’t professional academics and couldn’t directly solve important problems in psychology or engineering. But there are other important problems to be solved. In a broader sense these include how to ensure peace in a given region, how to secure energy availability for future generations, how to improve the welfare of society’s most vulnerable, etc.

The future for many of us involves jobs that may be interesting and necessary, but not important in the sense that they’re directly aimed at solving one a big global or theoretical problem. Though we may still face job-specific problems like how best to interact with clients or how best to structure a firm, they aren’t on the same scale and won’t win you universal acclaim or put you in contention for a Nobel Prize.

That’s not necessarily a bad thing. Choosing to work in other fields for motivations other than saving the world is fine. Not everyone is suited, or even interested in working in academia, politics, an R&D department or a think tank. The yearly financial reward for working in such places isn’t necessarily great and the work carried out isn’t guaranteed to yield concrete results any time soon if at all. Whilst others are working on saving the world, the rest of us must get on with the every day production and consumption that ultimately bankrolls them.

Still, there there’s something alluring about working on something that could have a genuine impact on others for years to come. Those who take an interest in important problems but choose not to work on them directly can make an impact by simply donating funds to relevant organisations. Over the course of a year most people will make many one-off charitable donations to disaster relief funds and television appeals. Perhaps it would be better to take a more structured approach to charitable giving and to make a long term commitment to some organisation that is helping solve whatever you think society’s most important problem is. An indirect contribution is better than none at all.

January 11, 2006

Political Systems in China

Here’s a short article from the American Prospect on China, capitalism and authoritarianism.

So where are the Chinese communists? They’re in government. The communist party is the only party there is. China doesn’t have freedom of speech or freedom of the press. It doesn’t tolerate dissent. Authorities can arrest and imprison people who threaten stability, as the party defines it. Any group that dares to protest is treated brutally. There are no civil liberties, no labor unions, no centers of political power outside the communist party.

China shows that when it comes to economics, the dividing line among the world’s nations is no longer between communism and capitalism. Capitalism has won hands down. The real dividing line is no longer economic. It’s political. And that divide is between democracy and authoritarianism. China is a capitalist economy with an authoritarian government.

Read it in full here. (via Political Theory Daily)

Does anyone know the extent to which limitations on freedom of movement, association and speech are disliked amongst the Chinese population in newly industrialised regions? Are growing incomes and lower poverty yielding enough satisfaction to compensate for an overbearing state?

January 09, 2006

Cameron on Tuition Fees

From BBC News:

The Conservative Party has announced a U-turn on student finance and proposes to keep student tuition fees. Previously it had promised to scrap all fees, including top-ups being introduced from this autumn in England. On Monday party leader David Cameron told sixth formers that if universities were to be well funded, the money had to come from somewhere. In another change Mr Cameron also said he believed there should be no limit on student numbers..At the last election, the Conservatives said they would scrap all tuition fees while retaining Labour's reintroduced grants for poorer students. Instead they had said they would have bigger student loans at a commercial interest rate, rather than the effective zero rate that applies now.

Provided he adopts Labour’s plans to allow deferred payment of tuition fees, this sounds fair. Large loans reduce the need for less wealthy students to work while at university, which limit the amount of time that can be spent on academic work. The deferred fees arrest the decline in the quality of UK universities relative to those abroad. These are the key problems highlighted by LSE’s Nicholas Barr an avid proponent of variable income-contingent fees. In a report for the House of Commons Education and Skills Committee he states,

There is agreement, first, about two core problems:

Students are poor because the system of support does not give them enough to live on. Two results follow: students have to turn to expensive overdraft and credit-card debt and/or to extensive part-time work; and the parsimony of support is an impediment to access for people contemplating university.

Universities are poor, creating worries about quality. The UK would have to spend an extra £3.5 billion per year to reach the EU average.

It’s understandable that the prospect of hefty debt following university may put people off; particularly the poor, for whom further education is most needed. However, if people are forward looking enough to think about the debt they’ll leave with, should they not also consider the higher earning potential yielded by a marketable degree? Rather than being a justification for subsidies, an aversion to taking on debt is reason for parents and teachers to engage students in serious, practical discussions when these decisions must be made.

January 07, 2006

Ignoring Arguments & Conservative Policy

Conjectures & Refutations recently linked to a piece describing how people on opposite sides of an issue can talk past each other; each appearing to misrepresent and ignore the key arguments of the other. It outlines a subconscious tendency to do a disservice to arguments which are likely to cause cognitive dissonance. Here’s a quote

What you see here is..[someone] tapping into his understanding in order to formulate a rebuttal. But that rebuttal probably won't be very good, because he has not allowed himself to be fully aware of that understanding [that comes from not subconsciously disregarding the argument]. The "understanding" is locked up in a mental cage so it can't hurt him.

There are many warning signs that this is taking place. One you may recognize is "Yes-butting", where the person replies, "Yes, but" to every challenging statement they hear, then makes a fairly lame rebuttal.

Antiprocess [term used to describe the rejection of troubling info] doesn't help Bob get any closer to truth, but his mind has already assessed the information in advance and perceived a threat. Thus, the last thing it wants is understanding, even if that means turning away from truth. That's because at a level below Bob's awareness, his mind has decided that there is a threat to his mental equilibrium.

Read it in full here.

The article explains why the public may dismiss Conservative party statements containing loaded statements like ‘tax cuts’, ‘private sector’, ‘efficiency gains’, ‘business competitiveness’, etc.* Cameron’s choice to focus on social issues and to co-opt positive themes of family, society and wealth inequality is thus a sound strategic choice. Perhaps with better use of language, he could illustrate how less interventionist policies could help achieve the left’s goals of better opportunity for the less well off to a better extent than the traditional left.

A strategic choice or not, I suspect Cameron has as much faith in his ability to engineer 'better' social structures and public services as Brown & Blair. That miguided confidence doesn't bode well for proponents of liberalism. That he has even allow the party be associated with a scheme of compulsary social service (see here) says something. This view was aired by David Green of Civitas in a Telegraph article earlier in the week.

Mr Cameron was elected without anyone being quite sure what he stood for. Now quite a few of the blanks have been filled in. Yesterday, he ruled out social health insurance. Oliver Letwin, his head of policy, has said he would be "utterly astonished" if education vouchers were accepted, and has called for welfare policy to be based on egalitarian redistribution. It is beginning to look as if the policy commissions will not be open investigations of policy options at all. The "right answers" have already been decided for health, education and social security, which account for about 55 per cent of public spending.

On Sunday, Mr Cameron declared the police to be the "last great unreformed public service". They are no such thing. Health and education remain public-sector monopolies, frayed at the edges by talk of consumer choice but firmly under state direction.

Rapid, radical upheaval of existing structures is unpractical but it’s unfortunate to see options closed off so early. I'm no longer sure what I should be looking forward to under a Cameron leadership.

*This isn’t to say those who don’t agree with traditional Conservative policies are in any way foolish. The process works in the reverse too.

January 02, 2006

Articles on the Minimum Wage

A recent article from the Mises Institute discusses minimum wage legislation.

The rate of unemployment tends to be directly proportional to the excess of labor costs over productivity. In many European countries with official minimum wages of more than $10 an hour, the rate of unemployment is measured in double-digit rates although governments spend massive amounts on make-work projects. Some victims readily submit to their fate and endure a life of idleness and bare subsistence. Many learn to labor in black markets where goods are produced and services are rendered in violation of minimum wage edicts and other regulations and controls. But most victims are young people with little training and know-how who tend to react angrily and violently. Their rate of unemployment actually amounts to multiples of the official rate. And if society should be divided ethnically, youth training and productivity may be lower yet and its rate of unemployment may approach 100 percent. Such a labor situation is laden with anger and fury which not only breeds high crime rates but also, at any time, may turn to violence by mobs of unemployed youth. The recent riots of French youth clearly resembled the riots of unemployed Americans in Watts in 1965, in San Francisco in 1966, Detroit and Baltimore in 1967, Chicago and Cleveland in 1968, and in Los Angeles in 1992.

Read in full here.

Few would dispute that higher wages are a good thing. The same applies to other employee benefits like holiday entitlements, maternity leave and legislation governing layoffs. Benefits accrue to those in employment, but on the other side of the equation you have those who would have been granted a job had employment costs been marginally lower. When it comes to the minimum wage, those on the ‘wrong’ side of the equation are the most vulnerable members of society; the very young, the highly unskilled and those susceptable to discrimination.

The welfare system is supposed to compensate these vulnerable groups. The government doesn’t want people to make claims indefinitely. Welfare should be a temporary solution whilst a job search is in progress. I’m sure in most cases that’s what happens, but for those with limited literacy, numeracy and experience I bet it’s not easy. Raising the cost of employment via minimum wages increases the likelihood of long term dependency.

Suppose such legislation was eliminated and we had jobs paying £1, £2 and £3 per hour. It’s pitiful compensation by average expectations, no doubt. However from the view of the recipient, the benefits aren’t just monetary. This paragraph from Walter Williams sums it up well

The primary beneficiaries of so-called McJobs are people who enter the workforce with modest or absent work skills in areas such as: being able to show up for work on time, operating a machine, counting change, greeting customers with decorum and courtesy, cooperating with fellow workers and accepting orders from supervisors. Very often the people who need these job skills, which some of us might trivialize, are youngsters who grew up in dysfunctional homes and attended rotten schools. It's a bottom rung on the economic ladder that provides them an opportunity to move up. For many, the financial component of a low-pay, low-skill job is not nearly as important as what they learn on the job that can make them more valuable workers in the future

Read it in full here.

December 28, 2005

Government Sponsored Holidays

Libby Purves wrote an article in yesterday’s Times about assisting poor families who’re unable to go on holiday. She stresses the benefits such assistance would yield

What struck the Laurances [friends of the author] strongly was the frequent report from families and social workers that the simple holiday week could “spread” over much more of the year. Families talked about it in advance, chippy children worked and saved up, grandparents joined in, and for months afterwards everyone shared memories of the laughs and the novelty. All these things assuaged the difficulty of life, fostered optimism and made children do better in school. I was haunted at the time by two cases of parents committing suicide and taking their children with them: listening to the Laurances it struck me that if you had a memory of your child laughing on a beach that would be at least a bit harder to do.

Read it in full here.

That makes sense. I’ve spent the last couple of summers visiting relatives in the US. The trips are something to look forward to during the holiday and the pictures taken will yield a smile at many points during the year. Periodic breaks make the tedium of work and school more tolerable, and it's unfortunate that not everyone can disappear elsewhere once or twice a year.

However, she does the issue she’s campaigning for a disservice. Firstly she doesn’t consider how it’ll be funded. Practicalities are boring, yet essential if ideas are to meet reality. If higher taxation is implicit in the discussion, we’re in a sorry state. After all, there are innumerable programs that would benefit some group or other. Poor families may benefit from holidays, but my local stamp collecting club, the RSPCA and international NGOs are also clamouring for those funds. The stamp collectors may not be as worthy a beneficiary as the poor, but if they’ll be made better off, don’t they deserve something? Adopting any proposal that yields benefit to some group, however large, is folly. If Purves doesn’t want higher taxes, she needs to state what she’s willing to give up in return for those holidays. Nothing comes for free, and she’s miles off in stating this is a ‘win-win’ proposal. Somebody must pay, or something must be sacrificed.

All that could be forgivable had Purves outlined why holidays for the poor will do more to enhance their welfare than contributing more money to the NHS, schools, local transport and generally trying to remove the need for state sponsored holidays in the first place. Whether or not you think such efforts are reasonable, they’re alternative uses of funds, and they weren’t addressed by Purves. If she admits that the provision of holidays is secondary to these alternatives the article was a waste of column space.

As mentioned earlier, the potential gains from allowing poor families to take a yearly holiday are real. However, the proposal is akin to the surveys I mentioned yesterday; without addressing cost, it should be left on the pile of other good, but unpractical ideas. In fairness this is being overly harsh – newspaper columns have word limits after all. However the point needs to be made given that many well meaning people proposing grand schemes act as if the money appears from nowhere.

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