Scotland votes No – initial thoughts

After a campaign that lasted de facto more than three years, and in recent months saw an incredible heightening of political engagement and awareness, the votes are cast. Just more than 1.6 million people voted for independence but in a record 85% turnout, a little more than 2 million voted No. Glasgow, North Lanarkshire, West Dunbartonshire and Dundee voted Yes but most everywhere else, including Edinburgh and Aberdeen, said No.

Much has rightly been made of the huge and profound grass roots Yes Scotland campaign that has galvanized every corner of the country (and I now suspect more should also be made of the quieter No campaign – and the behavioural biases of salience and representativeness that arise when you walk around the country and only see Yes posters).

A key issue is therefore how to maintain and galvanize that enthusiasm for politics. Those of us who have long been involved in voluntary movements perpetually struggling to find board members, etc. must be encouraged by the political awakening both in Scotland as a whole but also in our more deprived urban communities. In Policy Scotland we are working with the Reform Club in London and the new John Smith Centre for Public Service – both of whom are fundamentally concerned with sustaining and promoting political participation and civic activism. Beyond this, the more radical political perspectives of the left and environmental sustainability have also had an energizing campaign – how will they now fare and how will they maintain their initiative? A challenge and opportunity, then, to keep this momentum alight across the board.

A yes-no binary and an equally sharp hope-fear characterisation of the debate do not make for easy post vote reconciliation. But it is clearly essential for all sorts of reasons and particularly in the months ahead as the unionist parties legislate on their further powers proposals, that ways need to be found to reassure the skeptics.

I must admit I had my doubts about the 16-17 year old element to the extension of the franchise – not in principle (it is clear to me that this age group should be able to vote) but I would question the practice of piloting it in a constitutional referendum of such criticality. It should have been tested in local government or the European elections. However, it is really important that we now move ahead and extend the franchise to all other elections.

There are already emerging a number of unintended consequences attached to the result. The prime minister has already implied that this will usher in constitutional change in the rest of the UK and in particular English votes for English MPs and also further announcements ahead about more powers for English cities. How will Labour deal with that critical challenge to the future – is it conceivable for a UK government to be elected with control over reserved matters but unable to deliver its manifesto proposals in England because it has no majority of English MPs (but isn’t that what devolution implies already in Scotland)?

Federalism, quasi-federalism and more symmetrical devolution will become the Uber-subject of the next few weeks and months for the think tanks and commentariat and I suspect we will look both to federal systems around the world and reform processes already underway (e.g. France). A good place to start is David Torrance’s excellent wee book – Britain Rebooted.

Wearing my other policy research hats, I do hope that the next few months will not be completely swamped in these constitutional matters. Policy reform must continue and of course there is a degree of consensus in Scotland about the Christie Commission proposals and the ‘Scottish approach’ to public policy including the Scotland Performs framework. There are several elections ahead of us and we are crying out for alternatives to austerity and better ways of dealing with wicked often place-based problems. Let’s keep that fully in focus.

 

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The Case for Pluralism in Economics: An Evening with Steve Keen

In certain respects, there should be wider support for pluralism in academic economics (i.e. the wider use of non neo-classical ideas such as old and new institutional economics, Austrian economics, post-Keynesianism, behavioural economics, evolutionary economics, strategic decision-making, etc). On the one hand there is the negative case made by the failure of the mainstream macro orthodoxy to predict or in any sense be ready for the GFC and subsequent long recession. From a more positive perspective, no-one in economics should be in favour of monopoly and instead welcome the possibility of new insights and innovation from whatever source. But there are powerful forces of resistance to change. It is in this context that the bottom-up upsurge in interest in pluralising the undergraduate economics curriculum in North America, Europe and parts of the UK is so welcome.

Steve Keen, author of Debunking Economics and predictor of the GFC, gave a lecture on Tuesday evening at the University of Glasgow invited by the student-led real world economics society. Keen is no shrinking violet and is nothing if not provocative – but he backs it up with a careful series of arguments that draw their criticisms of mainstream neo-classical economics from a range of theoretical and empirical critiques that speak to Post-Keynesian economics, Minsky’s work on financial instability, institutional economics and of course the role of banking and private debt.

I have been to a lot of events in recent months, mainly referendum-related, so it was nice to get back to economics especially this kind of more fundamental analysis. The first striking thing about the evening was Keen’s capacity – he spoke for an hour and three quarters and was consistently engaging, intelligent and entertaining.

Keen went through his fundamental macro debt argument (and his ongoing dispute with Krugman concerning whether bank debt creates demand or simply redistributes wealth between lenders and borrowers) and used his own dynamic systems open software (called ‘Minsky’) to illustrate his point. This also allowed him to attack the failure of the conventional macroeconomics profession to see the looming crisis and subsequent recession that he had for many years been anticipating. Keen then went on to attack the conventional microeconomics of utility maximisation, particularly the axioms underlying Samuelson’s revealed preference estimation of consumer demand and the broader problem of aggregating market demand from the sum of individual demands (the difficulty he argued arose from the heterogeneity in tastes and preferences).

He has evidently developed and continues to modify a polished and substantial lecture or set of talks based around his book and subsequent research. His presentational style and multi dimensional AV was very impressive – including running his model in real time to demonstrate his arguments, referring to key literature, showing a clip of an embarrassing own goal (which made sense in context) and engaging directly with his audience throughout.

I read Debunking Economics a few years back and was struck by its challenging core ideas, particularly how the house price:mortgage debt question relates to his ideas about private debt and the aforementioned critique of microeconomic fundamentals. While he is quite critical of behavioural economics in his book, I was interested to hear him say that he believed the alternative to the rational choice modelling he sought to unpick was in fact through the habit and custom and implicitly the bounded rationality inherent to contemporary thinking from (old) institutional economics. His critique of the completeness theorem of Samuelson’s revealed preference theorem (that there are just too many combinations of bundles of goods to choose from to do so in a deterministic optimal way as suggested by the model) and the consequent satisficing solution he put in it place did sound a lot like behavioural heuristic solutions to cognitive problems to me. His fundamental point was that the evidence of empirical regularities (such as demand falling after prices increase for a specific good) does not warrant a dodgy or false theory.

And what about the economics curriculum revolution? There is a strong group at Glasgow, judging by the composition of the large audience at the lecture. and, The undergraduate programme in Glasgow does now incorporate a chunk of Post-Keynesian economics, Keen’s analysis and an element of this broader set of heterodox perspectives – admittedly within what remains a fundamentally mainstream economics degree. I did this degree in the 1980s and we did include an honours core course on methodology which featured Shackle and Austrian economics ideas but it was still overall a strongly orthodox programme.

While it is welcome that students and some staff are challenging the mainstream we cannot underestimate the strength of the orthodoxy and the career and academy dominance of the mainstream neo-classical worldview. Keen concluded tonight that his fears for another financial crisis, premised on historically high levels of private debt right now, might as one consequence shock economists into revising their approaches, but it is high price to pay!

This is all not just about micro theory or monetary macroeconomics. Alex Marsh and I have been looking through the housing economics literature to see to what extent that group of applied economists predicted or expected what happened after 2006 in the USA and after 2007 elsewhere. Not only is there not much evidence that the mainstream was in any way prepared (other than an unresolved debate about housing bubbles and one or two honourable exceptions), the post-mortem afterwards has not taken us much further forward. Partly this is because many of these economists are the very same folk who study the macro and financial markets but also are located in the same neo-classical schools.

We recorded the Keen lecture and we will shortly put a version of it on the Policy Scotland website (http://policyscotland.gla.ac.uk).

Conditioned by Sanctions

I have just read the new Joseph Rowntree Foundation Round-up ‘Welfare Sanctions and Conditionality in the UK’ by Beth Watts, Suzanne Fitzpatrick, Glen Bramley and David Watkins [1]. This draws on the ESRC Welfare Conditionality: Sanctions, Support and Behaviour Change research programme (based on a series of briefings related to that programme). This is an excellent summary of the breadth and depth of the issues, the evidence that exists on the perceived effects, impacts and mechanisms of different forms of conditionality and also includes a valuable discussion of the ethics of welfare sanctions and increased conditionality.

Welfare reform, broadly, has been a defining theme of the current UK Coalition Government’s programme. While much focus has been on the bedroom tax, the problematic introduction of the Universal Credit and the specific issues relating to disabled benefits, there has at the same time been an increasing use of conditionality and in particular a toughening of punitive sanctions regimes. This built on but also intensified the previous Government’s interest in conditionality and testing the water over sanctions (e.g. linking in theory if not practice the withdrawal of Housing Benefit following anti-social behaviour).

The briefings cover a range of topics: work-related benefits and job search, lone parents, work programme and associated incentives across a range of benefits, homelessness, social housing and anti-social behaviour orders.

While there are different forms of condition applied to welfare – the authors distinguish between conditions of category, circumstance and conduct (behaviour). It is the latter form of condition – expecting set behaviours from welfare recipients – that increasingly frames the changing nature of the welfare system. Sanctions can lead to the withdrawal of proportions of benefit (up to 100%) and for different periods of times, up to multiples of entire years.

What are the key trends? Sanctions are now much more widely used not just for out of work benefits (and widened to lone parents, the disabled and particularly the young), but also play a role in terms of social housing, the homeless and anti-social behaviour. Impacts appear to be particularly severe for under 25s and for the homeless. JSA claimant sanctions have grown from 2-2.5% per month during 2000-06, up to 3.5% in 2008, to 5% in 2010-11 and higher after 2011 to 6% in 2013, peaking at 7.3% in October of that year. Writers such as David Webster have pointed out that the uneven growth of the sanctions numbers has in part been due to the effects of the Work Programme on recipients. However, after 2012, sanctions associated with the WP also started to increase, too.

In the year following the introduction of the new tougher regime in October 2012, more than a million individual cases were referred for sanctions and more than half of these cases were penalised. Although much smaller in absolute terms, sanctions applied to ESA recipients have also grown rapidly in relative terms.

Statistical analysis, consistent with international evidence, suggests that the homeless especially those with complex needs, ethnic minorities, people with learning difficulties and particularly those under the age of 25 – were disproportionately affected by the new regime. There is also evidence of increased paperwork error and confusion and misunderstanding of recipients in terms of their exposure to the risk of sanctions as overall sanctions numbers have grown.

What is the evidence about behavioural mechanisms thought to be at the heart of the effects conditionality and sanctions have on recipients? US evidence suggests that such regimes do increase ‘exits’ from benefit receipt but do not lead to favourable long term outcomes in terms of income, children outcomes, quality of work (also found in Swiss research) or wider effects like crime rates. But importantly, there is not much in the way of convincing long term research and, moreover, UK evidence on sanctions and conditionality leading to sustainable employment is ‘sparse’. Dutch research also found that less severe sanctions could ease transition from welfare to work. Research from both sides of the Atlantic also suggested a low level of understanding of sanctions regimes on the part of those potentially affected by them. Several shorter term studies indicate significant levels of hardship, necessities foregone and even destitution concerning those affected. There is some international evidence suggesting that contracting models like the work programme can have positive employment effects but these are less effective the more difficult to reach and the further away from the labour market are recipients of such initiatives. Finally, UK evidence comparing JSA data with survey-based estimates of unemployment suggests that the sanctions regime may for some people be cutting benefits use without creating consequent employment in the UK.

What are the ethical issues underpinning this shift to tougher sanctions? The round-up includes a fascinating discussion of the different arguments for and against conditionality and sanctions. One contractualist school of thought is that it is about reciprocity and communitarianism – a perspective on social justice closely allied to minimising free riding. A different argument for the regime in principle connects to utilitarianism relating to economic notions of maximising welfare for finite resources and focusing on cost to society. There are also paternalistic arguments suggesting that short run pain is worth it for recipients in the long run by taking them off benefit dependence.

Those opposed to the sanctions turn often start from an unconditional model of social citizenship which is incompatible with the sanctions squeeze and contractual rights and responsibilities models. They also point to empirical arguments challenging assumptions about behavioural mechanisms and responses, as suggested by the evidence reported above. They point to the other forces and factors that contribute to benefit dependence and critically the blunt fact that jobs do not necessarily allow people to escape poverty – witness both the alarming evidence that post sanction some people are disconnecting from the labour market altogether but also the large growth of in-work poverty and continuing reliance for many low income workers on benefits.

What are the main things that strike me reading and reflecting on this research evidence round-up?

• The moral tenor is unavoidable and it is hard to support the way sanctions impact on dependents (children but also other family members who are otherwise vulnerable and affected by the knock-on effects of benefit cuts). The idea that the long term effects of these policies are relatively un-evidenced is problematic in a context where effects seem to lead to higher levels of destitution for some and wider exclusion from both work and benefits for others.
• Utilitarianism supports punishment via its deterrent effects and this can be cynical in its intention. It may be that its proponents do not mind that those caught up in the sanctions trap do not understand the risks they face provided they contribute to scaring other people to change their behaviour.
• The numbers and their growth are frightening and one cannot but conclude that the fear and stresses created by this form of conditionality must further worsen mental health and related conditions for the poor as well as helping to encourage further the in work poverty of low wages.
• The dysfunctional relationship between benefits and low wages, and the difficulty making progress in terms of work and pay over time, are fundamental drivers of the labour market context operating at this critical margin. We need more research to better understand this part of the jobs market and what makes it tick.
• However, and maybe it is the economist in me but not all incentives or nudges are bad. We must not tar all innovative and creative policies in this space (e.g. pension opt-outs, etc. or, albeit paternalistic, policies to encourage better diet). Let’s not throw out the baby with the bathwater.
• Read this synthesis and the individual briefing papers. This is really important stuff that we should all be aware of.

 

Note

http://www.jrf.org.uk/publications/welfare-sanctions-and-conditionality-uk

 

Rebelling Against the Bedroom Tax

Yesterday, a private member’s bill seeking to moderate and largely neuter the worst aspects of the bedroom tax won its vote as a result both of the Lib Dems siding with Labour and a large number of Tory MPs ignoring a three line whip (the vote went 306 to 231).

The ‘Affordable Housing’ bill, sponsored by Andrew George MP, would, if enacted, excuse working age social renting households from a cut in their housing benefit if it is not possible for them to be found a smaller property. Disabled households could be exempt also if their condition required a spare room or an adaptation.

Is this the beginning of the end for the spare room subsidy? It is apparent that the policy lacks legitimacy on many quarters, be that the devolved governments (it remains a totemic symbol in the referendum debate), the housing and welfare professions, the media and now, it seems, even among a sizeable number of Conservative MPs, let along their coalition partners.

While the Bill may not actually make it through to law, it can certainly do further political damage to the policy. As I argue below, the actual proposals are not without their own practical difficulties but I think this is all best seen as part of an inevitable process towards the eventual scrapping and drawing a line under a classic policy blunder or failure. I find it hard to believe that the bedroom tax will be with us in its current form a few months after the UK general election, if not sooner.

However, before we hang out the bunting let it not be forgotten that much of the rest of the welfare reform package is likely to be implemented. There remains a high degree of consensus across the main parties around the introduction of a Universal Credit, tying Housing Benefit into that Universal Credit and thereby ending direct payments, the caps on household and aggregate benefits, the work test issues surrounding different benefits and the punitive sanctions regime. As I have argued before the impact of the bedroom tax in comparison is relatively small.

Perhaps we should not make too much of this Parliamentary vote – it also reflects the dog days of the Coalition and I daresay a fair bit of pre-election positioning and the strange current politics of the Conservative party facing the Clacton by-election. Nonetheless, one cannot but feel that within internal party discussions regarding the bedroom tax, and all the flak following successive damning evidenced evaluations, only the most blinkered would not like to remove the problem once and for all. Many of the various forms of human error and systematic failure described colourfully in The Blunders of our Governments by Anthony King and Ivor Crewe (and more systematically set out by Peter Schuck in the excellent Why Our Governments Fail) are there to be found in this unnecessary and self-inflicted policy wound.

One final thing we must learn from the past year and a half of the spare room subsidy is that well-intentioned plans to reform the cuts still require to be designed and implemented very carefully. How will disability be defined; how will adaptations be defined and measured; how will inability to downsize be systematically identified (and over what time period)? It is the move from abstract objective to practical operationalisation where things go wrong with hasty or ill-considered legislation. Should this become law, let’s not compound existing mistakes.

Glasgow’s City Deal

I have been reading about the newly announced though much trailed Glasgow and Clyde Valley City Deal [1]. The Glasgow and Clyde Valley City Region is made up of eight local authorities and consists of 1.75 million people accounting for a third of Scottish GVA, a third of Scottish jobs and just under 30% of Scottish businesses.

The City Deal, a 20 year project, supported by both the Scottish and UK Governments and signed up to by all eight local authorities (2) is valued at £1.13 billion. This is for the core infrastructure fund described as a ‘once in a generation’ investment. Complementing this will be a range of life science, business support and labour market schemes. Over the life of the City Deal, its proponents argue that it will create an additional 29,000 jobs across the city region (on top of 15,000 construction jobs), active labour market work with 19,000 unemployed residents, and it will lever in a further £3.3 billion of private sector funding.

What is going on here and what are its prospects? The funding involves £500 million from both the UK and Scottish Governments and a minimum of £139 million for the local authorities. The funding is designed to further grow transport infrastructure investment, provide sites for housing and employment and improve public transport over 10 to 20 years. This will be complemented by investment in the life science sector (e.g. stratified medicine led by my University and other partnership in the field between business, academics and medicine), other business support ventures (including a key role for the University of Strathclyde in a business incubation centre). Moreover the labour market policy work will be targeted at construction jobs, helping people on Employment Support Allowance youth unemployment, and pilot labour market progression schemes.

The City Deal is suitably dressed in governance, monitoring and outcome measurement requirements with public investment tied into delivering on these objectives over annual and five year periods throughout the 20 year life of the programme. The scheme will operate within an infrastructure fund assurance framework in order to deliver value for money for the public investment.

It builds on the investment in the Commonwealth Games, the M74 extension into the city (plus the further investment to the M80), the improvement to the Glasgow subway, the Southern General NHS hospital investment and the Clyde Gateway regeneration company – just focusing on Glasgow itself.

What is innovative about this announcement? Beyond the funding package, the City Deal will establish an independent commission on urban economic growth that will analyse the outcomes of the infrastructure fund against agreed indicators. Second, the councils involved will have to manage the capital investment programme including bearing the responsibility for any required prudential borrowing and managing any shortfalls that might emerge relative to the overall programme and specific sub-period elements. Despite the large scale public investment, the councils will be under financial pressure to deliver and do this as a pooled partnership.

What questions remain to be answered? First, it would be churlish to criticize this initiative at one level – the resource involved and the potential long term impact of the infrastructure work, plus the considerable commitment to targeted labour market policies are commendable and potentially hugely important for Glasgow. Second, the unanswered question for me remains how this all fits strategically with ongoing and previous large scale investments in the city region and the underlying analytical understanding of the wider urban economy and its drivers. How does it all add up? What will the transport investment actually deliver? Third, what has been learned from the experience thus far in the English city regions? Again, there is no sense of acknowledging evidence of engaging with the evidence from England, even if there are important institutional differences. What worked and what did not?

It is of course a high level narrative at this point and understandably lacks the detail one might crave for. There are many issues and challenges (e.g. what does the 18 September mean for the programme?). We have seen this year that Glasgow can both deliver huge complex projects (with governmental support) and work through complex legacy evaluation frameworks. It would only be fair to say that the programme builds on emerging strengths such as working with the leading edge of the city’s Universities and focusing on key labour market issues that reflect chronic disadvantages in the most deprived parts of the city region. The programme continues the Commonwealth Games theme of building on and linking to success such as the new hospital investment in Glasgow and the initiative in stratified medicine. It will need to apply these lessons carefully snd thoroughly.

Good luck.

 

Note

1. See: https://www.glasgow.gov.uk/index.aspx?articleid=13045

 

2. The eight participating councils are: Glasgow, East Dunbartonshire, West Dunbartonshire, North Lanarkshire, South Lanarkshire, East Renfrewshire, Renfrewshire and Inverclyde councils.