Wealth creation is not a zero-sum game

A “zero-sum game” means that everyone’s gains are accounted for by someone else’s loss.

Apparently, this is what socialists believe:

“Capitalists cannot keep making money forever, because eventually they will have taken all the value from the world and would have to start taking money from the poor.” – Socialism 101

Perhaps Socialism 101 needs to take a course in Economics 101!

When someone gets rich, a popular belief is that they are achieving this at the cost of wealth taken from other people, such as by charging high prices from the consumer, and paying low wages to their employees. Certainly, if the employer could get away with deploying such practices to maximise their profit, they will. But in an open market, where there is no compulsion, all transactions are voluntary. So you have to ask the question… Why would the consumer pay high prices voluntarily? And why would the employee work for low wages voluntarily?

The answer is that people pay high prices and work for low wages because it benefits them
The consumer is only willing to pay a high price of the product if they perceive the value of owning the product to be at least equal to or greater than the value of the money they are paying for it. Likewise, the employee is willing to work for low wages because the money they earn is worth their time and effort. If it were not so, they would not be compelled to partake in such transactions. After all, we do not live in a communist society.

Even the employee benefits from a low wage
An employee will not work for an employer unless the amount they pay is higher than the employee values his time. Imagine Tom a factory operator. For Tom, the calculation is simple: unless he is so self-sufficient that he can grow his own food and make everything he needs by himself, getting paid is better than not getting paid. Of course, the owner of the factory will only want to pay Tom the lowest amount he has to. But if the owner is underpaying Tom, he can simply go and find a job elsewhere. The only way that is prevented from finding a job that doesn’t underpay is if the entire industry colludes to underpay their workers. However, this would be counterproductive to everyone involved: as the industry is in competition with one another, employers who raise the wage they pay gains an the edge over their competitors in attracting the best workers. Thus the factory owner has to pay Tom a competitive and attractive wage to keep him from working for a competitor. However, if nowhere else is willing to pay Tom a higher wage than his current employer, that means that Tom is already getting paid the market value for his work. This applies in any industry sector: if your work is competitive, you will get paid good money for it.

Conversely, employers will not be able to raise the salary they offer their employees indefinitely either. If paying the employee costs more than the value the employee adds to the employer’s business, it would be more economical if the employer did the work himself, or introduce machinery that performs the same task. If the employer did not have the capacity to do so, they would simply go out of business, resulting in material loss for both employer and employee.

How wealth creation manifests itself
Most consumers will only buy a product that they value more than the money they are paying out for it (unless they are forced into it or if they are incredibly stupid). By spending, they are actually adding value to their own lives. They have lost money, but gained in wealth. How does this work? Imagine a seamstress named Fliss. She buys her first sewing machine, which increases her productivity by tenfold. So, Fliss may have lost money in paying for the product, but the resultant increase in productivity has vastly increased her personal wealth: she is now able to produce and many more wedding dresses for sale. Correspondingly, Fliss is able to reduce the prices of the wedding dresses she produces, making her wedding addresses affordable to more people, and increasing the volume of her sales. The reduction in prices means many more brides-to-be are able to indulge in the joy of wearing the beautiful wedding dresses made by Fliss. Thus we have a cascading effect: the sewing machine manufacturer gets rich, whilst Fliss earns more money, and Fliss’ customers get lower prices. Result: the richest get richer because everyone else also gets materially richer.

Money is not limited
How can everybody get richer simultaneously? A popular misconception is that everybody has a limited amount of spending power, and that the way this spending power is distributed affects how some people get rich and others get poor. However, this is a horribly misguided way of understanding the nature of finance. We have to understand what money is. Money in itself has no intrinsic value. Money is a representation of debt. When someone pays you money, it means you are owed that money’s equivalent of a product or service. When you start off in life, you have no money, because nobody owes you anything. It is only when you start working that you start accumulating money; how much money you possess represents how much society is indebted to you. Thus your spending power is directly related to how much benefit you contribute to society.

When the poor get richer, the rich get even richer
If an entrepreneur creates a product that can materially benefit everyone’s life, they have will get rich because other people will benefit from paying for that product. The more competitively priced the product, the better off the consumers who purchase that product. This means greater the demand for that product, resulting in greater sales and wealth for the entrepreneur. The wealth that the entrepreneur has gained is representative of the wealth he has contributed to society (unless, of course, that wealth is ill-gotten via theft, fraud, or gambling).

When society is bettered materially, the wealth creators responsible get rich. If the entrepreneur fails to better society, they will not get rich. How society benefits is in the form of improved quality, increased quantity, and lower costs of goods. What this means is that even if an individual’s wage does not grow, the goods available to consumers will either improve or become more affordable (or a blend of both). In short, quality of life improves. Furthermore, such economic development frees up more wealth by the average consumer to spend on other things, which increases economic activity, the growth of which ultimately contributes to increasing real-time wages.

Wealth creation is not exempt from economic fluctuations
A caveat to this cascading cycle of economic development is that the rate of growth is almost never stable. The rate of economic development has its peaks and troughs, periods of moderate growth punctuated by tremendous booms and busts. Due to the vast complexity of the economy, these fluctuations are not preventable nor are they predictable. Though governments can set policy in attempt to minimise such fluctuations, it is dangerous to assume that governments have the power to prevent them happening. As economic downturns have a natural tendency to re-balance and stabilise the economy, government interventions have a propensity to protract or even worsen recessions out of an incomplete understanding of the economic picture.

You cannot prevent economic recessions
The danger for economists and public policy-makers is that they believe they can control these periodic boom-and-bust cycles. A national economy isn’t isolated – it is constantly engaging in international trade, performing transactions with extremely high frequency. With 7 billion people and tens of millions of businesses on the planet, it is impossible to account for every transaction that occurs every day, making it impossible to predict the consequences of any action with sufficient accuracy to be able to control the medium to long term outcomes of the economy. You may as well attempt to control the weather.

A pretender to wealth creation: rent-seeking
So far I have talked about getting rich in the form of wealth creation, or entrepreneurial spirit. However, there is another method to getting rich, or staying rich, that does not create wealth. This form is called rent-seeking. The expression comes from the old perception that landed gentry gained wealth by simply letting out their property for others to work on, thus gaining rent without actually contributing any work. The basic idea is that rent-seekers have an accumulation of resources that they leverage to increase their material benefit, without needing to add value to society. A modern example of rent-seeking: when an industry interest group successfully lobbies the government for legislation to require industry participants to be regulated by that organisation. Thus entrepreneurs in that sector are required to pay subscription fees to the interest group (now a regulator) without the interest group actually contributing any value to the economy or society. Such instances of wealth accumulation does not necessarily contribute to societal betterment, which is why I would differentiate it from wealth creation. It is also why I am highly sceptical of regulatory bodies.

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Breaking the NHS monopoly: My submission to the Richard Koch breakthrough prize

Breaking the NHS monopoly – My submission to the Richard Koch breakthrough prize

The following essay is my submission to the Richard Koch breakthrough prize… (http://breakthroughprize.org.uk/)

Breaking the NHS monopoly:
Introducing free-market competition
alongside national provision of
healthcare

The Richard Koch Breakthrough Prize
Entry number 10940

Executive summary

The NHS is a state-sponsored monopoly that is both inefficient and poorly managed. This essay describes some of the various problems encountered by the NHS that is a directly a result of its nature as a monopoly and its management by the government. It is then followed with a set of operational and economic proposals that seeks to redress these issues, by breaking the monopoly and introducing competition into the system. It describes the benefits of putting such proposals into action: 1) reducing wasted time, 2) improving working conditions, 3) increasing supply of health services. The conclusion finishes up with an example of just such an economic system working well and sustainably.

Part 1: Introducing the monopoly

The National Health Service (NHS) is amazing. It is wonderful. It is full of hard-working and knowledgeable staff, all the way from the trainee nurses to senior consultants. It has some of the most advanced medical equipment in the world. And it manages to provide all this for free.

Like all things, if it sounds too good to be true, it likely means it is not true. Like any service, the NHS cannot provide services for free. Someone has to pay for it. However, the NHS is founded on the principle that it has to be free at the point of delivery. Thus the NHS is operated at the taxpayer’s expense. In 2016, this cost of the NHS to the taxpayer is in the region of £140 billion, or just under 20% of the annual budget.

As such a significant cost to the Treasury, any issues of cost will directly affect the public purse. Improvements in savings will allow the Treasury to either reduce the burden on the taxpayer or reallocate public funds to other public services, or a mixture of both.

Part 2: Describing the problems of the NHS

2a: The operational weaknesses of a monopoly

The NHS is the UK’s largest employer. It represents a monopoly of the UK health industry. Any economist will tell you that monopolies are bad, for both the consumer and for the industry. Non-competition reduces the motivation for efficiency and innovation. This alone has numerous and unquantifiable effects on the system. In a competitive market, incompetent management will not survive because of the inability to compete. It also means doctors are unable to compete for better salaries and working conditions. Consumers (patients) are also greatly limited in their ability to choose a better service provider. Costs will not go down in line with technological and operational developments, because the lack of competition removes the primary motivation for efficiency improvements. And because the NHS is publicly funded, the service is essentially managed by the government – accountable to neither the consumer nor the employee, nor even the taxpayer.  

Multiplying incompetence

In a monopoly, the impact of incompetent management and systematic failings are multiplied many times over because they often get replicated throughout the service – a problem which can be enormously costly and damaging, due to the nationwide scale of operations. When the government recently decided to change the terms of employment for junior doctors, literally thousands of doctors, and even more patients were affected. This problem arose because there was no competition in the employment of health professionals. In a free market of independent health providers, medical staff need not go on strike if the conditions of employment were unfavourable – they could instead simply choose to work for an employer who provided better terms of employment. Not only would doctors find better pay and working conditions; patients would also be able to choose to go to a hospital who are better staffed.

Political abuse

As a government arm, the NHS is closely tied to politics, making it very vulnerable to being abused for political gains. At every general election, the issue of the NHS usually becomes a massive political football, a problem greatly exacerbated by tribal politics, the cost of which is often borne by those who actually need the health service the most. Limited funding by the Treasury has meant that not only are medical staff often underpaid, they are also put under increasing pressure to deliver services with fewer staff. This leads to highly stressful employment conditions which often drive staff out of the industry or out of the country altogether, as they pursue better working conditions.

Operational momentum

This is not meant as an attack on the Conservative government; many problems also arose under the Labour government. For example, when the NHS IT infrastructure was overhauled under the Labour government, costs spiralled out of control as the contractors were unable to implement the solution on time, nor even deliver the promised benefits of its functional aspects. Even as costs and problems continue to rise, the NHS is unable to extricate itself from this system without the further enormous cost of finding a replacement solution. The government was already committed to the project contractually and operationally. In a free market of independent health providers, the scale of any IT overhaul would be limited to the arena of operation/ownership. More importantly, the risks of such an overhaul would be borne by private investors. If the risk pays off, the hospitals who benefit from the improved infrastructure would become more efficient, improving the competitiveness and profitability of the health provider. If the risk fails to pay, or if costs spiral out of control, the damage is limited to only the hospitals involved. It will not become a problem that affects the entire country’s provision of health services.

A single point of weakness

A monopoly also represents a single point of weakness, which facilitates abuse of the industry. Consider the hypothetical example of a medical equipment manufacturer who is in competition with other players in the industry. It is not inconceivable that this manufacturer might leverage connections to win certain contracts. In the NHS monopoly, this event only needs to happen once for this medical equipment manufacturer gain a nationwide monopoly, potentially squeezing all other domestic competitors out of business. This is not to say that this has happened for definite, but we do not actually know if it has not happened. However, this certainly presents a significant weakness in the system. In a free market system where there are many players in the provision of the nation’s health sector, a single event of market abuse will be limited to a single health provider. If such an instance market abuse renders this provider uncompetitive, it will be outcompeted on the marketplace, placing a huge incentive on health providers to be actively preventing such an occurrence.

2b: The economic problems of the NHS  

Proponents of the existing NHS system of operation often argue that it is economically the most cost-effective system due to economies of scale. Granted, the economies of scale is indeed a benefit, but effect of this advantage has to be weighed against the costs incurred, due to the problems described previously. In addition, the set up specific to the NHS gives rise to further economic problems

First consider the law of supply and demand. It is one of the first concepts taught in economics, being the foundation of most economic principles: The more expensive something sells for, the more producers want to sell it. Conversely, the less available something becomes, the more buyers have to pay to obtain it. But inversely, the more expensive a product sells for, the less people want it. This can be described as such: As price goes up, demand goes down; as supply goes up, price goes down. In a free market, price is determined by the interaction of supply and demand, so that the price of a product is the point where supply meets demand.

The first problem: zero cost = maximal demand

NHS services are free at the point of delivery. There is an interesting phenomenon known as the Zero Price Effect, where demand for a particular product or service presented at zero cost is significantly greater than when priced even slightly above zero. This can be described behaviorally as people taking something for granted. The practical outworking is this: People don’t take care of their health, partake in dangerous activities, and get drunk frequently, and expect the NHS to cover them for any related health issues. And there are even reports of people going to their GPs for all manner of unnecessary issues. This means demand for NHS services will be as high as conceivable.

The second problem: limited supply

However, we have because the UK Treasury is not a bottomless pot of gold, the NHS is limited in terms of supply. In fact, the supply of services provided by the NHS is completely inflexible to the market, because funding for NHS is determined by politics and not market forces. But demand doesn’t care about supply, it just cares about the price it has to pay, which in the case of the NHS, is zero. So we have extremely high demand and limited supply. In the meantime, the supply of NHS health services is strained far beyond intended capacity.  

In a free market, this would normally mean suppliers would take advantage of this market condition to crank up capacity to meet demand and reap the profits from it. But the NHS is a non-profit monopoly on a public service. It has a stranglehold on health services in the UK, meaning the free market is not able to step in and increase supply capacity. If the NHS was a private for-profit business it would be able to reap huge profits from this monopoly. But thankfully, it is not for profit, it is publicly owned.

Part 3: Breaking open the monopoly

Decreasing demand

As described previously, the policy of being “free at the point of use” means that demand for NHS services is excessively high due to the Zero Price Effect. A simple way of decreasing this demand substantially is to introduce a very small nominal charge. The price I propose to charge for all NHS access is the grand sum of: £1.

There is no need to charge an amount that is high enough to cover the cost of providing the service; for that defeats the point of having a NHS. Nor is there a need to fine people for failing to turn up for appointments. This charge is not intended to cover the actual cost of the service; indeed, it is designed to only deter repeated abuse of the service. The simple act of having to wait and pay for services will deter time-wasters, whether they are either short of cash or short of time.

Breaking the monopoly of private GP practices

The way funding for GP practices are set up makes it ripe for abuse. Funding for a GP practice is allocated according to how many “patients” are registered to that practice. This funding is provided regardless of whether or not the “patients” actually make use of that practice for its services. It is incredibly difficult to take a patient off your register because it is not easy to determine whether someone who has not used your GP services for many years is just someone in good health, or someone who has simply moved to a different country, or even someone who passed away unknowingly. Furthermore, it is against the GP’s interests to deregister a patient who no longer turns up, because this patient provides a zero-cost source of income to the practice.

To discourage this abuse of the system, the solution is to provide funding based on the actual services provided, such as number of people who received an appointment and subsequent treatment each year. Given that the NHS IT infrastructure keeps a record of every appointment, this method of funding would not be difficult to implement and audit.

Increasing supply through fostering competition

Instead of retaining the NHS stranglehold on health provision, the government and the NHS really ought to be encouraging competition from the private sector. This could be achieved by allowing private healthcare providers to access NHS infrastructure such as its records or IT system for a licence fee. If the NHS took advantage of its size to obtain supplies and equipment at a good price and subsequently sold the excess on to private UK health providers, the entire health sector might even benefit from the NHS’ economy of scale.

If the supply of NHS services is no longer free at the point of use, the private sector would more be more able to compete against the NHS. It might not be able to compete on cost alone, but it would be able to compete in terms of quality of service. For example, if an appointment with an NHS GP costs £1 but has a waiting time of one week, an unwell patient might be willing to pay £10 to see a GP straight away.

Furthermore, there appears to be a culture of “NHS is best” in the country, and politicians and doctors certainly try their best to maintain this mindset. A possible way to overcome this cultural allegiance to the NHS is for private health providers and the NHS to publicly and visibly partner up, for example providing an “NHS-approved” label of confidence on private hospitals who meet NHS requirements.

Liberating junior medical staff

Another mechanism by which the NHS retains its monopoly over the United Kingdom’s health sector is in the sourcing of staff. All medical staff in the UK have to go through the NHS system in order to gain their qualifications. There is currently no competition against this system. To address this, the government should allow private sector hospitals to employ junior medical staff on a training capacity, providing that these private hospitals undergo a training regiment that meets or even exceeds NHS requirements. Content of training and qualification requirements should be decided by an independent body comprised of medical professionals.

If private hospitals are able to provide the equivalent training, junior doctors unhappy with their current conditions of employment would then have the choice to seek employment elsewhere that also provides them with the training for career progression.

In addition to this, there can be further liberalising policies to empower junior medical staff even within NHS hospitals – by allowing hospitals to determine staff pay and employment conditions instead of having it centrally determined by government. This would allow individual hospitals to act in competition against one another to attract the best staff for their hospital, and to provide pay that more accurately reflects the cost of living in their particular area, rather than the strict salary guidelines that take into little account the cost of living or the available level of staffing in that particular area. In short, hospital management will start behaving as if they were competing in a free market.

Allowing hospitals to determine the employment conditions also minimises the effect of employment disputes, particularly the involvement of union action. A trade union who chooses to go on strike will only need to affect one hospital, allowing other hospitals to provide the service. This would overcome the widespread political conflict that currently affects the entire nation.

Conclusion

If the NHS monopoly can be opened up to compare fairly against the free market, not only would the availability of health services increase; even the cost of these services would decrease. Such a result would primarily be most beneficial to the ones who make use of the NHS the most: those who cannot afford private healthcare. It would also be advantageous to the general tax-paying public as their funds are more effectively utilised to give taxpayers better value for their money.

As the saying goes, the proof of the pudding is in the eating of it: In Malaysia, waiting times for public GP services are a matter of hours rather than days as we have in the UK. If you decide to pay for a private GP, it is actually in the order of minutes – waiting over an hour is unheard of. For more serious treatments such as surgical operations or x-rays, the wait time is only a matter of days. In comparison, patients in the UK suffer wait times of many months.

Provision of public healthcare in Malaysia is not free either. Unlike the NHS, it is not “free at the point of use”. Patients who require treatment pay a nominal sum of 1 Ringgit for every consultation and treatment, regardless of the nature of the treatment. That is Malaysia’s equivalent of £1 (actual monetary value: 20p). It is far from sufficient to cover the cost of the treatment, but it is a sufficient amount to deter time-wasters, yet priced at a level that even the poorest can afford this treatment.

This is because alongside publicly funded provision of health services, there is also the thriving market of private health providers. Because private health providers are operated on a for-profit basis, there is competition in the marketplace to provide the best health service at the most competitive rates to the customer. The costs are correspondingly higher of course, but this at least represents a choice for the patient-consumer. If they wish to skip the queues at a public health centre, and choose to pay for optional extras, the option is there. And in fact, a great many people do indeed decide to pay for faster and better service. Because of this, the burden on the public health service is greatly alleviated in terms of operational costs and volume of service. Those who are willing and able to pay for their own treatments can choose to do so. Consequently, public funds end up being directed at those in need of it the most – those who are unable to afford private healthcare. And in a free market, supply rises to meet demand, ensuring the sustainable growth of capacity. As the economy improves, and more people are able to pay for their own private healthcare, the health industry improves, and overall national healthcare improves.

There are many things not right in Malaysia and even more things that the populace like to complain about, but the healthcare system is not one of them.

Full document in PDF:

breakingthenhsmonopoly_entry-numberbreakingthenhsmonopoly_entry-number

Stupid immigration policies

I’m a UKIP and Brexit supporter, but government immigration policies are getting ridiculous.

As a UKIP and Brexit supporter, I do not necessarily agree with everything the party or movement advocate, but I do support the concept of immigration control.

But you know what, the current policies being implemented by the government is getting plainly ridiculous. Requiring landlords to investigate the background of their tenants in order to affirm that they have the right to reside??? It is going to make it a bureaucratic nightmare for both landlord and tenant everytime they move house or get a new tenant. This is going to really upset a lot of people in high tenant turnover areas like London. What this bureaucratic headache will do is encourage the growth of illegal letting. People are generally moral and want to do the right thing, but when doing the right thing is far more difficult than doing simply slipping in under the radar, more and more people will be inclined to sidestep due process. Everyone has different thresholds of how much they are willing to suffer in order to do the right thing, so the more work you require of them to do the right thing, the more likely they are to do the wrong thing!

I also have plenty of critique for the situation where a spousal visa requires that the resident spouse has a sufficient earning power to sponsor the immigrant spouse. Thus a working husband who wants to move to his wife’s home country in order to keep her close to her family is prevented from doing so unless she is employed, and rather gainfully at that. Immigration issues is more than just about money! Sure, the immigrant spouse should demonstrate the ability and desire to integrate and contribute. Sure, immigration should check against scam marriages. But why should there be a financial requirement at all?!? Immigration control is not about money!

Instead of making life difficult for all immigrants, why can’t the Border Force adequately control the immigration process? I have just learnt today that the immigration service doesn’t actually have definitive statistics on immigration and emigration. The ONS has to do a survey at all the ports of entry/departure, and then extrapolate the results of that survey. This is basically putting your finger into the wind! Surely the Home Office Border Force are able to keep track of the numbers of entry and exit? What’s the point of scanning the passport otherwise? Have they not heard of something called a database?

Of course I am not white nationalist (I’m not white). I think immigration should be easy where there is legitimate case for it. And at the same time, immigration controls should always be enforced. Free movement is just simply a no-go for me. We live in an age where countries have different laws, cultures and economic strengths. Borders are necessary to protect those all citizens from all countries being harmed by these differences – Free movement does not just hurt the richer countries, it also hurts the poorer countries.

Fighting poverty

Fighting poverty – the government can’t do it for you.

I am not sure it is the role of the government to fight poverty. Demanding that the government instate measures and policies in order to combat poverty assumes that government actually has the ability to reduce poverty. I am not so sure about this. Whilst an abusive/corrupt government (e.g. India or Zimbabwe) can certainly cause its people to massively suffer poverty, the reverse is not necessarily true – even the most benevolent and competent government is not necessarily able to reduce poverty.

I am not saying that governments should not attempt to reduce poverty; of course they should! Rather, I am saying that any efforts by the government to tackle poverty are extremely limited in scope and effect.

This might seem counter-intuitive to some. For many people, the agent most responsible for tackling poverty should be the government. I do understand this line of thinking: If the government, being the most powerful agent in the country, cannot tackle poverty, who else is going to do it? However, this attitude appears to betray a fundamental misunderstanding of the role of government.

The role of the government is to represent the people, lay down the law, and enforce the law. That is the aims of the classical understanding of the three roles of government: executive, legislative, and judiciary. None of these roles or responsibilities have any real effect on increasing their citizens’ economic prosperity. The law may help alleviate the abuse and underpaying of staff, but it doesn’t actually give them a job. It may create a tax environment that’s conducive to enterprise and growth, but it won’t actually create those companies for you.

To be fair, government has also taken on the responsibility of establishing infrastructure for the public good. This includes things such as the building of roads, power grid, communications grid, and establishing emergency services. However, all of these are not strictly the remit of government. It is entirely possible for all of these services to be provided by private enterprise. Furthermore, all of these services do not reduce poverty.

When the government builds public infrastructure and enforce laws that protect civil society and individual human rights, they do not prevent poverty, nor do they create prosperity. They only lay the foundations for the growth of economic prosperity. Economic growth occurs organically, when enterprising individuals or groups of people decide to take risks to do something people are willing to pay you good money for.

Even the welfare state, for which Western Europe is so (rightly) proud of herself for, does not actually combat poverty. It only alleviates the symptoms of poverty. The provision of welfare protections is not going to eliminate the true problem, the cause of poverty. It may provide you with the means to survive and even lead a comfortable life, but it will never increase the economic value of your contributions to society. Contributing economic value means making a product that is good value for money, or providing a service for less money and effort than if someone was to do the same thing for themselves. Earning money in and of itself is not necessarily contributing economic value.

The only antidote to poverty is prosperity. Prosperity is achieved when people are able to increase the economic value of their participation in society. When you have a skill/ability to provide a service or product that people are willing to pay for, you will prosper, and the value you contribute to society will improve other people’s lives.

If you want to prosper, you have to provide a skill that people are willing to pay good money for the services you provide, such as plastering on programming. Or, you could produce a product that people are unwilling to make for themselves, such as baking a cake or manufacturing a car.

I would even argue that the belief in governments’ ability to fight poverty actually increases poverty. This is because faith in the government to rescue us actually give us less motivation to rescue ourselves. Ironically, the more you argue for the government to help you, the more faith you are required to have in the government’s ability to help you. The less faith you have in the government’s ability to help you, the more you are willing to do something about it yourself.

My point? Don’t count on the government, whether nationalist or socialist, to resolve your economic woes. The only agent responsible for your economic prosperity is yourself. Granted, not everyone necessarily has the ability to become rich. Not even everyone has the motivation to become rich. However, should you desire financial prosperity, the onus is on you to take the steps necessary to increase the economic value you contribute to society. Nobody else can make you rich. It is true that you can blame the government for causing poverty, but you cannot blame the government for not helping you prosper. 

Brexit: What people say and what people hear…

Brexiters say:
“Uncontrolled immigration has resulted in wage depression” Remain voters hear:
“Get the foreigners out”

Leave says, Remain hears:

Why Leave voters voted for Brexit: “Uncontrolled immigration has resulted in wage depression and the overburdening public services.”

What most Remain voters hear: “Grrr get the bloody foreigners out”

Remain says, Leave hears:

Why Remain voters voted against Brexit: “Membership of the EU is critical for economic growth and peace in Europe!”

What many Leave voters understand: “Yes, the EU facilitates trade amongst the rich metropolitan bubble but it hurts economic growth everywhere else, which actually gives rise to nationalistic tensions.”

Does that sound accurate?

I was wrong about a couple of things

​I was wrong. I am not afraid to admit it when I get things wrong.

I was wrong about the cowardice of the British voting public. I previously argued that the British public were gullible fools who voted for the Conservative government despite all the misery they brought the country and the lack of integrity they displayed in office. I now believe this previous judgement to be wrong. It seems the British public did not vote for the Conservatives because they believed the scaremongering of David Cameron. I think the voters put them in power because they were the only political party able to deliver on the promise of a referendum on EU membership. The sensibility of the British silent majority has given me great encouragement.

I think I was also wrong about the Tories and Theresa May. I previously though her a party loyal coward, but it appears that under her leadership, the Conservative party is willing to take bold steps to challenge the assumptions of the status quo and instate reforms to the education system. Is it enough? I have a lot more hope this time.

I argue my positions very strongly. Far too strongly for the tastes of most Brits (in my experience). But I am not afraid to admit when I get things wrong. This is such an instance. (Even if my declaration of it comes a little late!)

What else could I be wrong on? Time will tell. I eagerly look forward to learning from my mistakes.

What is ‘affordable housing’?

​I assume most people take ‘affordable housing’ to mean accommodation that is affordable, something that people on average levels of income are able to afford to buy. But let’s go back to basic economics: What determines the price of a property? 

Although there is a rough correlation in that, if all else were equal, someone would generally prefer to live in a bigger property than a smaller one.  However, the size of a property does not necessarily correspond to its price, which seems counter-intuitive.  This is easily demonstrated in that a small one bedroom flat in the centre of London is easily worth far in excess of 10 times more than a massive empty barn in Lancashire.

Supply and demand

So what does affect the price of a property?  Essentially, price is determined by the interaction of supply and demand. The greater the supply of something, the less people are willing to pay for it, so the lower its price; the higher the demand, the more people are willing to pay for it, and thus the higher its price. 
For example, tap water  is relatively plentiful, so very few of us would be able to imagine paying £100 for a litre of it. However, were you to be stuck in the middle of the Sahara desert you might find that a litre of water will be of more value to you than the last £100 you may have in your bank account. 
Likewise, a desirable product such as an iPhone can command a rather high price despite many millions of them being in circulation, simply because the product is high in demand.


Going back to economics and the cost of property… 

In terms of supply, metropolitan areas have a greater supply of property than rural areas. High density housing developments will have greater supply than low density developments. 
In terms of demand, things that increase demand are factors such as transport links, access to public amenities, quality of housing, reputation of the area, beauty of the neighborhood, and probably the most significantly: employment prospects.

Within a given area, how does one decrease the cost of housing? Given that most of the aforementioned factors  that affect demand (ie transport links, public amenities, reputation of area, beauty of neighborhood) are somewhat fixed geographically, thus the property developers’ epithet “location, location, location”. It is clear that there is very little one can do to reduce the price of housing by reducing demand. Possibly the only factor left that can be varied is the quality of housing – and surely no advocate of affordable housing would even consider the idea of reducing quality in order to make housing affordable. In a civilised and developed world, it is a natural expectation that houses must be built to meet a standard. 

Next up is supply: within a given area, supply of housing can be increased by increasing the density of housing. This means more flats, smaller rooms, smaller gardens or even non-existent outside areas. This is already happening in London and other cities around the world. Big houses are being converted into multiple much smaller flats. Entire rows of houses have been knocked down to create apartment blocks. Human and road congestion increases, noise and air pollution increases, living conditions deteriorate, and social cohesion fractures. Those living in cramped housing in London will be able to relate to what I am describing. Even worse, even these measures of increasing supply is enough, because the property market is not the same as the manufacturing market: In the world of manufactured goods, supply can always be cranked up in order to meet demand. But you can only build so many houses within a particular area, so supply never rises sufficiently to meet demand. 

Abandoning the free market?

Some might ask, why do we have to let the market dictate the cost? Why can’t developers just sell the houses at the price it cost them to build it? Consider this example: the market price of a 2 bedroom house might be £200,000. The land costs the developer £50,000 to buy, and the construction cost another £50,000. So the developer generously forties the massive profit and sells the property affordable, at cost: £100,000. The lucky buyer becomes a homeowner at half the market price. But then the same lucky buyer is then able to sell the property at market price, reaping a huge profit of £100,000 with next to no effort. Now the property is immediately back at market price, and the developer’s generosity only benefited the first buyer. 

In the UK, property developers rarely, if ever, practice such generosity. They are financially savvy, and will not be taken advantage of. But politicians are not property developers, nor are they necessarily as financially savvy. Thus governments sometimes invest in making ‘affordable housing’ available for sale. Of course, the houses very quickly return to market prices, effectively ripping off the public purse to whomever was lucky enough to be the first buyer of this property. Alternatively, the government can mandate that property developers include a proportion of ‘affordable housings’ in every housing development. How this works out in practice is that property developers dedicate a proportion of the development to low-quality and high density housing, which is actually sold at market price, and frequently still not affordable to those on average incomes!

So what is the solution?

To those unable to afford a house where they want to live, the only recourse is to buy a house where they can actually afford to. They can aspire to be able to afford to live in a certain area, and they are free to work their way up the housing ladder until they can afford to do so. There’s no quick and easy way to accomplish this.

The more complicated issue is for those in government setting housing policy. Instead of reducing prices by subsidising house buyers, or increasing supply by cranking up housing density… I suggest that the only feasible solution is to increase the desirability of other areas. If the described factors such as transport links, public amenities, housing quality, and general neighborhood desirability. This would increase supply of desirable housing, create competition for property occupation, easing the demand for housing in congested areas, and improve living standards for all.

In practice, this would mean investing in infrastructure to build high capacity public transport links such as railways to create affordable commuter towns around major city hubs. And within these commuter towns, quality high density housing such as premium apartments or even tower blocks should be built to maximise the supply of housing. 

Along the same vein, to increase employability prospects of living in a particular area, businesses  should be encouraged or even incentivised to set up shop, by setting up attractive infrastructure and financially beneficial arrangements such as low rental costs, and/or government support via advice, free/cheap marketing, or loans/grants.

Conclusion? 

You cannot create ‘affordable housing’ by artifically forcing the price down without regard to market forces. The way to make housing affordable is to influence the market so that conditions are met where people can naturally afford housing by their own financial means.