Friday, March 17, 2006

The 2006 UK Education and Inspections Bill recently passed its second reading in the House of Commons. The bill has been controversial, relying on support from opposition members of parliament for its passage to this stage. It comprises a number of major elements:

Schools may opt to become trust schools, owning their own assets, employing their own staff, and setting their own admissions criteria - independent of local authorities.

The local authorities, meanwhile, will develop a strategic role which will promote quality in all schools within their jurisdiction. They will also be required to play an active role in promoting parental choice.

Admissions procedures will be tightened up, so that schools have to abide by their policies (not merely have regard of them). Interviewing of pupils will be banned, and the ban on selection by academic ability will be reaffirmed - except for the 164 grammar schools that are still in existence.

There are a number of other provisions, which include such things as school meals, the right for staff to discipline pupils, and the creation of specialised vocational diplomas.

The main reason for Labour revolt over this bill would appear to be the creation of the trust schools - which are similar to the grant maintained schools introduced by the last Conservative administration. By removing many schools from direct control of the local authorities, this effectively separates the schools from the political process. Many people other than the Labour rebels might regard that as a rather good thing.

A little discussed aspect of the bill, however, concerns the creation of specialised diplomas. The role of the state in creating qualifications has not in the past been a distinguished one. Think of the NVQs. Unfortunately this part of the bill has all the hallmarks of an accident waiting to happen. There are two aspects of the proposal with which I am uncomfortable. First, the diplomas are intended to be vocational in nature. There is, however, no evidence to suggest that education at this level should be take the form of vocational training. In a fast changing economy, general education, providing as it does the skills with which people can become adaptable and amenable to lifelong learning, provides much higher returns. Secondly, any new qualifications would stand the best chance of success if they were to be created and validated by a private sector body. This would ensure that market pressure is brought to bear that should guarantee the usefulness of the qualifications.

Thursday, March 16, 2006

Gary Becker provides an interesting defence of capital punishment. His argument hinges on the deterrence effect. While the strength of this effect is a matter of some debate, he argues that even where less than one innocent life is saved as a result of killing a guilty murderer, society may benefit from capital punishment, since the positive value to society of the murderer is likely to be less than that of the innocent victim. "A comparison of the qualities of individual lives has to be part of any reasonable social policy."

This statement is, of course, far from innocuous - especially so if we remove it from the emotive context of capital punishment. It is particularly controversial because it begs the question of who should make the decision about the qualities of individual lives. If different people are to carry different weights in society's welfare function, how should democracy work? Do currently installed governments have a mandate to make decisions on this? Should the governments now in place therefore allocate variable numbers of votes to members of their populations in time for the next elections? Should these be based on criminal records, access to welfare payments, education, gross income, or contributions to party funds? Under such conditions, democratic government would amount to little other than a one party state. So should it be a dictator that decides on the weights? That would be convenient, to be sure, but one dictator's tea is another dictator's coffee.

Unless Becker can tell us how and by whom the comparison of the qualities of individual lives should be made, his argument is no more than subjective opinion - in his view, we should count some people's lives as worth more than others. In the context of capital punishment, his opinion may have a lot of public support. More generally in the construction of social policy his would be one voice amongst many, and each of those voices would like to be able to dictate.

All this is not to suggest that economists can, or should, refrain from making comparisons of the qualities of individual lives. Indeed we cannot avoid doing so, for assigning an equal weight to each individual involves making comparisons just as does the assignment of unequal weights. But reaching a judgement that at the margin one life is worth more or less than another is something that we should do only in the most exceptional of circumstances, and in full cognisance of the implications. For amongst those implications is the undermining of much of our discipline as we know it. Utilitarianism would be out, and with it much of welfare economics would go. Even the invisible hand, which provides the intellectual foundation stone of free market economies, and which assumes that one agent’s welfare is worth the same as another’s, would be seriously compromised.

Now that's a funny thing to come out of Chicago!

Thursday, March 09, 2006

Energy prices have been rising very dramatically of late. Those with long memories will be reminded of the 1970s. At that time, oil price hikes led to general price increases, and many governments (notably the UK) sought to accommodate these by increasing the money supply. The result was rampant inflation.

Is inflation likely now? Certainly a one-shot increase in prices is likely and that will cause a blip in inflation. A major difference between the current situation and that of the 1970s, however, is that the central bank has autonomy to determine monetary policy. Its reaction to an inflationary blip is likely to be a temporary rise in interest rates which will serve to reduce inflationary pressure. This is the opposite of the policy mistake that was made in the 1970s.

So while the increase in energy prices hurts, it is reassuring to know that it is unlikely this time to be translated into a sustained and high rate of inflation. And, who knows, it might even have a beneficial impact on the environment.
Britain's big supermarkets - Tesco, Asda, Sainsburys and Morrisons - are under investigation. The charge is that they are dominating the market and crowding out smaller providers. This is seen as being detrimental to local communities.

There are advantages and disadvantages associated with big stores. They exist because they can take advantage of economies of scale. These include, most obviously: spreading out advertising costs amongst many stores within the chain; the ability to arrange for the production of discounted 'own brand' goods; human resource management; a rationalised distribution network; administrative and other overhead savings. These economies of scale are likely to be substantial, and advantage should be taken of the savings that they allow.

There are other advantages that the supermarkets have in the market, however. With such a high degree of concentration of market power, they can use their weight in the market as a means of exploiting their suppliers. In economists' parlance, they can abuse their monopsony power. This means that small suppliers - including many farmers - find their profit margins squeezed to the point that they go out of business. This is not welfare-enhancing.

Moreover, the increased dominance of large, often out of town, superstores has implications for the car useage and the transport infrastructure more generally. The environmental and social cost of superstores - compared with the availability of local shopping - needs to be borne in mind in any assessment of welfare.

So the supermarkets do indeed need investigating. Striking the right balance between exploiting scale economies, on the one hand, and preventing the anti-competitive exploitation of suppliers, on the other, will be a challenge. That the authorities should at last have risen to meet the challenge is welcome news.