Friday, 25 November 2011

The problem with inheritance tax

Lots of people will tell you that inheritance tax is unfair. Well, you know what I feel about fairness. I understand the social significance of inheritance taxes, and although it can be hard to shake those misguided feelings of injustice, I'm broadly happy that we have such a tax to prevent cross-generational retrenchment of capital.

No, the problem with IHT isn't that we have it. The problem with IHT is this. If you don't get it, you need to understand that each of the links on that page goes to a subsection with hundreds, if not thousands of pages. You also not to understand that the only reason the document is available is the Freedom of Information Act. And that parts of these pages are redacted under exemptions to that act. And that telephoning the HMRC IHT helpline almost inevitably results in the advice: "tell us everything, we'll tell you what to pay". And that the only real, meaningful alternative is to pay a lawyer hundreds of pounds an hour to advise you.

Like so many other areas of tax law (and law generally), this has become an arena for a cat-and-mouse game played between government specialists and their opposite numbers in the avoidance profession. The only people who really benefit from all this are those who make a profession out of understanding and administering it; the rest of us just have to foot the cost of dealing with all the complexity.

Complexity is not inherently a bad thing. In some arenas, complexity is the necessary corollary of power. Human beings are considerably more complex than single-celled organisms, and consequently have much greater control over their environment. As science and technology have progressed, they too have become more complex; many people find this threatening, given our ever greater reliance on them to provide for our basic needs. But rigorous intellectual practice has a solution to this problem: abstraction. As one builds larger and larger structures, one introduces abstractions that allow one to ignore the inner workings of something when it isn't relevant to the task in hand. Providing that one understands the basic concepts of an abstracted computer interface (currently windows, buttons, folders, files etc), there is no need for most people to get involved with the world of program flow and machine-code instructions, let alone transistors and electrons. One can operate enormously powerful tools without needing to know how they work.

So there is a place for complexity that is well-abstracted and delivers practical benefit. How does our tax system fare on this basis? Well, from where I'm standing, it fails both tests.

There are few effective abstractions in IHT law. Instead, there is a tangled web of individual rules, provisions and exemptions with only loose principles holding the whole thing together. There are few areas that can be understood on their own - each set of rules is heavily interdependent with numerous others, making it hard to gain even a high-level picture without understanding the whole thing.

As for utility... well there's perhaps more of a case to be made there. There is clearly a social function to at least some of the special provisions: agricultural relief, charitable donations etc. But it's also clear that many of the most tortuous changes to the law, particularly as concerns trusts and offshore assets, have been responses to avoidance strategies. The mess is a product of the organic piecemeal growth of our legal system to cope with things that weren't previously envisaged. There is no inherent benefit to much of it; we just can't countenance the upheaval of rewriting it all from scratch.

It is a truism in software development that when a program grows organically in this way, it will eventually need to be refactored: carefully unpicked and put back together again with the introduction of meaningful abstractions to make it comprehensible. If this doesn't happen, the cost of maintaining it becomes prohibitive and it eventually collapses under the weight of its own informational complexity. This process is often unpopular. It tends to remove strange quirks upon which users of the software have come to rely, replacing them with new, more logical constructs. Sometimes it removes large chunks of functionality that are commercially unviable or otherwise undesirable. Reworking any system with a long history and many users inevitably meets with resistance. It's hard to think of many things with a longer history and an impact on more people than our legal system; rewriting chunks of it would anger many people with a vested interest in it continuing to operate as it does now. But at some point it will be unavoidable, because the cost of administering it will be greater than the value it brings. Personally, I think we're probably very close (if not beyond) that line already. And the longer we leave it, the more painful the process will be.

Thursday, 24 November 2011

The Drugs Debate

There's been a fair amount of comment recently on the subject of the "War on Drugs". Things heated up earlier this year when the Global Commission on Drug Policy, an organisation with some very heavyweight members published a damning report that suggested the war had already been lost, and that moves in the direction of decriminalisation or legalisation were the only rational way forward. Since then responses have fallen broadly into two camps:

  1. There is no war on drugs. It's all a lie, we're actually far too tolerant on drugs. See e.g. this paper. Explanations range from incompetence through politically-motivated equivocation to outright conspiracy, if you listen to the Lunatic Jesus Fringe (man, these people scare me). The solution for these people is to just fight harder. Corporal/capital punishment for serious drug offences is a suggestion that seems to crop up a lot.
  2. Decriminalisation is the best way to fight drug usage. These people accept the Global Commission's position and believe that the war on drugs is enormously counter-productive. If you want to deal with drug usage we need to take it out of the hands of criminals and apply greater regulation. Unlike their opponents, these people tend to come from all sides of the political spectrum: Conservative, Liberal and Left(ish).

Right now, it would seem that opinion most places outside of the US is generally swinging towards a more evidence-based approach to tackling drug harm. But I was struck today by an article in today's Independent by Suzie Dean. It was notable both for its clear-headedness and the fact that it was a genuine rarity in the current discussion: it actually addressed the moral question of whether drug usage is wrong, rather just how best to stop it.

One thing that saddens me about this whole debate is that it remains couched purely in terms of harm reduction. Drugs can indeed be harmful if misused, as can everything else in life. Cars are dangerous when driven without care; almost every foodstuff is "bad for you" if eaten to excess; even excessive and badly controlled exercise can be damaging to your health. Furthermore, our understanding of habit and addiction has developed enormously over the past decades, and it is clear that there are many socially acceptable activities (sex, internet usage, even working) which can sometimes develop into pathologies that are at least as destructive as the habitual overuse of drugs that do not produce physical dependencies (e.g. MDMA).

We allow all of these things in our society because we judge that the risk of a transition into harm is outweighed by the size of their perceived benefit. Clearly, this calculation consists of two parts:

  1. How big is the risk?
  2. How big is the benefit?

(1) The Risk

This does get discussed, but without sufficient rigour. What is pathological drug use? Most of the anti-drug commentators talk of socially destructive behaviours that end up in court, lead to violence, neglect etc. etc. I'm going to assume that these are the risks we're concerned about; I don't accept that the chemical alteration of consciousness is *inherently* bad (see (2) below).

To make a meaningful assessment of these we need hard evidence of what percentage of total users of each drug end up exhibiting these behaviours; and we need to find a way of removing the effects of confounding variables such as social class, economic status, prior mental health etc from these figures. I imagine this will be extremely difficult because (a) efforts to record drug usage have generally been hampered by the unwillingness of users to self-incriminate, (b) surveys of drug harm are often highly partisan and conducted without statistical rigour and (c) many of the worst activities are inextricably linked to the current illegal status of the drugs in question. If we want to move this debate forward, there's a big research hole here that needs filling.

From a purely anecdotal point of view, I would note that as an ordinary professional, middle class individual approaching middle age, I have come across a great many people who take drugs, some infrequently, some habitually. With a very small number of exceptions, they all live happy and fulfilled lives, holding down a variety of jobs in fields as diverse as management, finance, academia, and the arts. Whether regular users or not, these individuals have something in common: moderation. They also have another thing in common: they are all people that it was plausible I would meet and engage with, i.e. very few of them are from deeply underprivileged backgrounds. This is a story that I hear again and again, including (by implication) from prohibitionists who wish to undermine their liberal opponents: drug use among comfortably-off middle class people tends to be moderate and without real harm. But surely this implies that the enormously greater prevalence of drug harm among those from poorer backgrounds is not a function of the drugs themselves but their combination with pre-existing social disfunction. And to suggest that this is an argument for prohibition is akin to suggesting that we should ban cars because bored kids on housing estates cause mayhem by joy-riding.

(2) The benefits

This is the topic no-one seems willing to discuss, but it is absolutely central. There appears to be a background assumption that there is something inherently wrong, bad or dirty about altering your consciousness chemically; that there is no conceivable benefit to "getting high" which could justify the risks. And this, frankly, is nonsense. I'd like to make a few brief points:

  1. Drugs are enormously varied. There's a world of difference between someone snorting cocaine in a pub toilet and consuming ayahuasca in the context of a ritual for which they have prepared over the course of several days. You cannot describe either benefits or risks without engaging with this diversity.
  2. Drug use is a product of an inevitable human desire. I'm sorry to be bald about this, but every human society of which I've ever heard has found some way to alter their consciousness for spiritual or recreational purposes. Most have done so through some form of drug, be it alcohol, tobacco, cannabis or peyote. Those societies that have most successfully engaged with this are those which have developed social norms about the appropriate contexts and quantities for consumption, not those which have attempted to suppress the desire itself.
  3. Many drugs have enormous medical potential that is currently being underexploited as a result of the legal situation. THC has numerous well-documented medical applications; MDMA, LSD and Psylocibin have all been used with great success in the treatment of psychological conditions. There's peer-reviewed, published research on all of this, but it's still very limited because the whole field is viewed with deep suspicion.
  4. The benefits don't stop at treating pathologies. Mind-altering drugs have been lauded by all sorts of individuals throughout history as a means to personal and spiritual development, if used correctly. In the last century, people as diverse as Aldous Huxley, Steve Jobs and Baron Mayhew have all described psychedelic drug experiences as among the most profound and significant of their entire lives. Among those people that I know personally who have tried such substances, a similar story emerges: this is not always a pointless thrill or a cheap high, it can be a life-changing, profound experience that changes your perspective on the world.

I'm not for a moment trying to pretend that all drugs are always beneficial. Like anything else, they come with their risks and costs (some enormously more so than others). But until we stop framing this debate in terms of a naive assertion that "drugs are bad" and start on a genuine assessment of the risks and benefits of individual drugs, we're never going to get beyond the stage of moralising assertion.

Wednesday, 16 November 2011

The commoditisation of happiness

We have a society in which people routinely feel undervalued in what they do, condemned to a futile life making money for the few while their own dreams and aspirations wither away. We enrich ourselves and others most effectively when we are allowed and encouraged to grow in an environment designed to foster our own particular talents and individual foibles. Instead of which we are crammed into uniform boxes designed not for the needs of the individual, but the "greater good" of larger organisations, be they corporations or governments. Inevitably the interests of those organisations end up mapping largely to the interests of the few who direct them rather than the many that they employ or notionally "serve", whether as citizens or customers.

Unsurprisingly, this leaves most of us feeling pretty crappy about what we do, and worse, about ourselves. As a society, how do we respond? Well, as a capitalist society, we respond like this: we create think-tanks and bullshit consultancies to sit around stroking beards (and charging money) to work out how we can reinject positivity back into the system as an afterthought. We've optimised for all sorts of other variables, maybe we just need to tune things a bit better for Corporate Social Responsibility, Resilience, or Whatever The Next Pointless Buzzword is. Zizek would have a field day! The capitalist ideology is so completely integrated into our world that we're even using its language and methods to fight against it; by which we inevitably do no more than strengthen it! How can we not see the glaring, bitter irony of labelling as "emancipatory" the idea of selling people tools and systems to help them cope with a work environment that crushes them?

Elizabeth Cotton's approach is no doubt well-meaning - an attempt to minister to the ills of a mentally sick workforce. But appealing to our corporate or political masters to pay for some new benefit, some new healing to soothe the wounds inflicted by the daily debasement of our spirit, is deeply misguided. First of all, it is inevitable that the cost will all too soon be borne by those doing the demanding; that's the way markets work. As an employee you have a cost; and you have a benefit to the company. By and large companies won't do things they don't have to that increase cost unless they also increase output. When they apparently do so in the short term, you can bet it will ultimately be taken away elsewhere. You can legislate to try and set some minima but unless you regulate every detail of workers' compensation and treatment, market forces will eventually even things out again. You can make the state pay, but that's just socialising the emotional costs of our corporate culture onto the taxpayer, which is just as flawed unless you can ensure that the worst offenders pay tax in proportion to the damage they do (hint: you'll fail).

The second, and much more worrying thing about all this is that we are just legitimising the fundamental idiocy. Instead of learning "coping strategies" we should be working to rewrite the entire system so that it doesn't make us sick in the first place. Are our dreams so stunted that we can no longer even imagine a society in which most of us spend most of our time doing things that enrich our lives and those of people around us? Surely that's got to be better than wasting our lives making others rich in exchange for the money to pay for things that help us forget the horror of the bargain we've accepted?

Thursday, 10 November 2011

On Fairness

There's something interesting that I've noticed cropping up in a lot of political debates: the notion of "fairness". If you're to the right of centre, "fairness" is paying your way, not taking what you haven't earned; it's a notion of equity founded on the sanctity of private property. If you're on the left, "fairness" is about equality of opportunity, social justice, the absence of "unfairly" huge gaps in prosperity between members of the same society and the redistribution of "unearned" wealth.

Both sides appear to assume that the notion of "fairness" is at least partially self-evident. Perhaps there is room for debate about what is actually fair and what is not, but basically we all know what we mean by the term. Well, I have a response: Bullshit.

There is no such thing as fair or unfair.

The terms are intellectual land-grabs, the appropriation of moral status for a preference about social affairs. They are founded on an absurd myth that it is somehow possible to balance out all of the competing impulses and desires of billions of individuals into a harmonious system that is self-evidently "right". Furthermore, any careful examination of the claims made in the name of fairness inevitably reveal them to be based on some very shakey foundations. I've already questioned the notion of social justice recently. On the other side, many of the highest earners justify their wealth by saying that they "worked for it" "within the rules". Quite apart from the fact that this is often demonstrably false, it begs the question completely: who says the rules are fair in the first place?

"It's not fair", they cry, like petulant children. Translation: "that's not how I thought it was supposed to work, and I don't like it". We need to grow up and get beyond this. There is no magic justification for one social order or another; all that we can do is try different things and see how well they work out for us. If we take away money from rich people and give it to poor people, what happens? Does it make people happier, does it give us a more cohesive, richer culture, ? If it does, who gives a damn if it is labelled "unfair"? Conversely, if it turns out that artificially redistributing wealth by central fiat inevitably creates a downward spiral of disaffection and dependency, maybe we'll just have to accept that there are going to be haves and have-nots, whether or not that seems "fair". The one thing that's certain is that we're never going to find out if the possibility of change is suffocated at every turn by childish tantrums thinly disguised as moral arguments.

Saturday, 29 October 2011

If Property is Theft, Social Justice is a Myth

I have the feeling that the last few posts might have given people the impression that I'm a bit of a Marxist. Although I have some pretty grave reservations about capitalism, I'm not sure I'm yet ready to be comfortable with that categorisation, so I'd like to redress the balance a bit with a thought that occurred to me the other day.

Ok, so strictly speaking, Proudhon's aphorism about property is really anarchism rather than Marxism, but it taps into a very important idea that is central even to more "statist" forms of communism. At the core of most left-wing ideology is the concept that the concentration of wealth and power in the hands of a small elite is undesirable. If I may be permitted some very broad generalisations, liberal-capitalist society is founded on encouraging each member to further themselves as far as they can without unduly impinging upon the freedom of others, while left-wing systems see this as a destructively divisive mentality, and instead emphasise the importance of collective action and shared values. I have a lot of sympathy with this latter idea. Why should our whole culture be predicated on the idea that my own efforts should only really benefit me? It's an idea that's deeply rooted in our consciousness now, but when you stop to examine it, it really isn't obvious that it has to be that way. We're highly social creatures who derive an enormous amount of benefit (both practically and emotionally) from collective endeavour. If I work to create something, why shouldn't my default position be to share it rather than to keep it purely for myself?

This is a well-worn argument. Pointing to the limited nature of both human effort and natural resources, the capitalist will now say, "That's a lovely sentiment, but you can't share a pair of shoes with a whole society - they become useless if they're divided up. We have to have a means of dividing things up in a tolerably efficient way, and of prioritising our effort towards those things that are most needed. Only markets can achieve this." And then the argument rapidly descends into the question of whether it is in practice possible to replace capitalist markets with some sort of system (centralised or otherwise) that works to distribute resources on a more altruistic basis. Ultimately, the communist wants people to share as much as they practically can, to use what they have and what they make for the benefit of as many people as possible. The capitalist just can't see that working in practice.

Now at this point I'd like briefly to wheel in one of the standard explanations for the failure of Soviet communism. According to this line of thinking, the key problem was that communism wasn't universal. The fastest way to undermine a system based on sharing and redistribution is to have some people very visibly not playing by the rules and doing well as a result. Think, for example, of the enormously heated response to the spectre of "benefit cheats". The idea that we're all paying our taxes in good faith, but someone is just lazing around living off the fruits of our labour arouses a very strong response: we feel that we've been duped. Doing more than you have to for your fellow man quickly becomes synonymous with being a schmuck, being taken for a ride; one does what one must, but no more. The only solution to this is to ensure that the "system" is universal, so no one can get one over on anyone else. Then we can all relax and enjoy our lovely co-operative socialist utopia. In the meantime, we may need to have some pretty heavy-handed border controls, censorship and ideological policing to ensure that the purity of the system isn't polluted from outside. Sounding familiar?

The observation that struck me the other day is that this is not just a problem of practical politics. It's a fundamental logical problem with the idea of talking about describing this sort of redistribution as "social justice". The reality is that the world is a deeply unequal place. Natural resources are concentrated in particular locations; climactic, ecological and other geographical factors have an enormous impact on the prosperity of civilisations; people get lucky with where, when and to whom they are born[1]. The communist wants to try and even out these differences by sharing these local benefits across a wider society. But how wide? We've already mentioned the idea that perhaps communism needs to be global to succeed. But why stop there? What about animals (certainly advanced ones like dolphins)? If it's objected that animals are somehow disqualified as insufficiently sophisticated, what about potential life forms from other planets? If that's too fanciful, what about a wide colonisation of other worlds by human beings, whose values and culture begin to diverge substantially as a product of radically different environments? What gap is so wide, which boundary so strong, that it can be sufficient to block the moral necessity of the equalisation of resources and opportunity?

Furthermore, it should be noted that the reductio ad absurdum of redistribution is the heat-death of the universe. If we remove all local concentrations of everything, we reduce creation to a thin chaotic soup devoid of life, motion and significance. Even when we step back from this physical exaggeration of the principle and return to real politics and sociology, it is a common charge levelled at communism that it crushes the human spirit by attempting to homogenise everything about our existence. I don't think it's controversial to suggest that there must be limits on the degree of "equalisation" that should take place.

So it seems that we must draw some arbitrary boundaries around redistribution: both to the number of those to whom we extend it, and to the degree to which we extend it to them. But once we do that, we cannot avoid the persistent question: why these boundaries? Why not boundaries of class, race, or nationhood? Why not tribal, or even family boundaries? Why not only a very small part of our disposable income? There are no easy answers to these questions, which is not to say that we shouldn't keep asking them, and keep trying to improve our solutions to the problem through practical experiment. But I think it's extremely important to recognise that the idea of some sort of objective "natural social justice" is a dangerous myth that is all too often used as an excuse for the pursuit of destructively impractical policies. There is nothing mystical about an arbitrary group of living organisms sharing an arbitrary degree of equality on some arbitrary set of qualities. Where equality can help us get more out of shared experience (and in many cases I'm sure it can), then let's try and further it; but we must always be thinking about where the boundaries lie.

This all becomes especially challenging as our societies get bigger. 500 years ago, the average person had a close connection with a few hundred people, some indirect connection with a few thousand more, and a very weak national connection with a couple of million others. Now we live in "communities" of millions, nations of tens/hundreds of millions, and a world of billions, to all of whom we have closer practical connections than our ancestors did to people at the other end of the same country. But as the number of people in each social grouping has grown, we haven't thought hard enough about the implications for our ability to relate to them. Having a meaningful relationship with an ever-growing number of people is extremely hard; most people already struggle to feel connected to the entirety of the nation in which they live, let alone to humanity as a whole. So what justifies taking on this increasing burden?

It should be clear by now that the answer "because it's right to do so" doesn't satisfy me: our notions of things like "human rights" have been too fluid for me to believe that any current position is the "right" one (or even close to it). Even if one appeals to some notion of more or less continuous historical progress on the matter (a contentious claim in its own right) one still has the problem of setting an ultimate limit to our widening responsibilities, for the reasons discussed above. No, there are no convenient absolutes here: we must experiment and see what works.

Such experimentation, however, relies on our ability to measure success. What are we trying to achieve by sacrificing some of our own resources to help others? In part, it's a matter of practical insurance. I help others when I can because I hope that when I need help myself, they are more likely to help me in return. In large enough communities this can be institutionalised into something like a welfare state. But I think this only goes so far. First, I think such behaviour has diminishing returns beyond relatively modest sizes of community. The cost of maintaining social cohesion rapidly outpaces the value of socialising all but the most extreme risks [2]. Second, I think it ignores a much more important reason for altruism: we enjoy helping others.

Humans are hardwired to value being part of a social group. It is one of our basic desires to create bonds between ourselves and others. For me, one of the most negative consequences of capitalism is that it encourages people to see themselves as fundamentally selfish[3], which is simply not true: most of us need to do things for others to be happy. The temptation, however, is to move from this observation to the assertion that we have a general imperative to "help our fellow man"; and this is just as false. One cannot generalise the need to form direct personal relationships and live in some form of society to a requirement to identify with any human community, no matter how large or how remote. But this is increasingly what we are asked to do, and the consequences are frequently disastrous. When you push people beyond their ability to relate with others, they naturally seek justifications for their failure to be as generous as they "ought to be". Instead of simply ignoring people who fall outside their community, they feel forced to stigmatise them as "unfit to be helped". What could have been a passive indifference becomes cultural divide, racism and sectarianism.

And this is the thesis I've been working up to: we cannot compensate for all life's inequalities, since our charity is a limited psychological resource which we must spend wisely. The idea of social justice is a dangerous fiction, because it suggests instead that there is some absolute level of universal charity from which we can fall short; and when we inevitably do, we justify it by turning to social and racial stigmatisation. I believe that the parable of the Good Samaritan is frequently misread. It tell us not that we must help everyone in need no matter who they are; for this is impossible. Instead, it warns us against the much worse error of systematically excluding whole classes of our fellows from the possibility of our aid based on dogmatic classifications. We should help those whom we wish to help to the limits of our ability to do so; and we should remain ever conscious of how we draw the boundaries of our charity; but we should not fall into the trap of feeling guilty for failing to be more than we can be.

[1] Read Jared Diamond's Guns, Germs and Steel if you haven't already for a really compelling historical account of the significance of the "geographical luck of the draw".

[2] This is a complex area in its own right. Many people would argue that we rely on large societies that can support heavy specialisation to maintain our technological development. They'd also point out that such large societies are necessary to socialise some very dramatic risks (natural disasters, war). I think it's questionable whether a) the cost outweighs these benefits beyond a certain point and b) there aren't other ways to solve both of these problems that don't require us to engage in heavyweight commitments of a "social justice" variety. I want to expand on these ideas considerably in my next post.

3] I accept that this isn't a fundamental part of capitalist ideology; it just happens to be a practical, psychological consequence of running most of your society on a for-profit basis.

Saturday, 16 July 2011

Why capitalism can't deal with intellectual property

It's almost a truism to say that our approach to intellectual property is broken. If you ask the copyright holders, they'll say that our laws and enforcement approaches are inadequate to protect the rights of creators in the face of technological advances; if you ask the reform advocates and the pirates they'll say that just toughening laws is exactly the wrong thing to do: the whole concept of intellectual "property" needs to be reconsidered to a greater or lesser extent. For what it's worth I'm at the (very radical) end of the second camp. But that's not the point at issue today. What I want to discuss in this essay is the fact that, right or wrong, the concept of intellectual property is completely incompatible with the logic of free markets. Or to put it another way, if you're a capitalist record industry executive (and let's face it, not many of them are socialists), you've got a lot of explaining to do. It's actually a pretty simple argument, and it comes in three steps.

The nature of value

The first point to recognise is what free market capitalists believe about value. If you're a strict Marxist, you believe that value is something that is produced by labour.  When people work, that creates value; the more they work, the more value is created. Value is something that can, after a fashion, be quantified objectively,  by measuring the amount of work done.

Capitalists think this is falsified by the reality of how people actually value things. In practice, value is in the eye of the beholder; different people make different value judgements about the same products; a single person may make different value judgements about a single product at different times. You can work for a decade writing your Christian sci-fi-rom-crime-thriller-mystery-action cross-over novel, but if you're absolutely talentless no one else is going to want to read it.  As a result, the collective assessment of the novel's value is extremely low. You may think it's enormously valuable, but pretty much everyone else disagrees. It's worth noting that there's an important asymmetry here: the creator, the labourer, is one; the potential consumers are many. Even with mass labour, for any given product, the number of people directly associated with its creation will be dwarfed by the number of potential consumers, so in any aggregate assessment of value on this model, the creator/producer's opinion is largely irrelevant. It's important to note that this is true even if the producer's opinion is purely a function of his costs in creating the product in the first place.

Price as communication

In this model, the perceived value of a good to the consumer is a function of his need and/or desire for that good. Furthermore, it is presumed (reasonably enough) that the higher the value that the consumer places on something, the more he will be willing to pay for it. From the capitalist's point of view, this is an enormously helpful phenomenon. As a society, our resources of manpower, energy, and physical materials obviously have limits; and consequently the products of these inputs must be limited. There are only so many diamonds/bread rolls/shoes to go round, and we need to have a system for distributing them. Rather than trying to centralise this distribution (which is inefficient and error-prone), free markets work by allowing people to indicate their need/desire for a product by means of how much they're willing to pay for it. Naturally, the more people who are competing for the same resource, the more that they're likely to have to pay to secure it for themselves; so in theory scarce resources go to those who are willing to sacrifice most in order to acquire them. The system has a lot of problems that I won't go into here, but one thing to be said in its favour is that it is highly effective as a means of communicating consumer need/desire extremely rapidly.

In order for this communication model to work, however, it needs to be unimpeded. This is the "free" in free market. As a model for allocating resources, it only works, it is only defensible, if it can genuinely reflect the realities of supply and demand. This is why capitalism places such a great emphasis on competition and the avoidance of monopolies. When the supply of a good is artificially constrained, or the pricing feedback loop is disrupted such that prices no longer reflect the relationship between supply and demand, the claim that the market is acting as an effective communications channel for the distribution of resources starts to fall apart.

All intellectual property is a monopoly

This is the big step. Intellectual property rights, such as copyrights or patents, grant to an individual or organisation the right artificially to constrain the supply of a fundamentally unlimited good. The form of language expressed in a book is not, in itself, in limited supply; it's an abstract idea, an organisational structure that can be realised in a potentially unlimited range of media. The reality of this has been brought home particularly in recent years with the advent of digital media. Previously, the unlimited nature of these abstract ideas was masked by the fact that the only ways they could be distributed had meaningful, physical costs associated with them. Even a cheap paperback book costs money to print. But the cost of making copies of an ebook is almost zero. Now that the media costs have been stripped away, we can see clearly that there are no real limitations on the theoretical supply of the underlying forms.

The problem with this is that it still takes effort for someone to create the original template, the form of words, the musical composition, in the first place, and that someone probably wants to be rewarded for their effort. And this is where capitalism is stumped. As we noted earlier, the capitalists reject the idea that value arises from the effort of the creator - it's in the eyes of the consumer. But the mechanism by which that value is expressed and communicated is the give and take of supply and demand; when you're dealing with a good which has a logically infinite supply, the price should naturally fall to zero. What do you do? The only solution that we've come up with so far is to break the free market: to grant people state-sponsored monopolies on their creations for a certain period of time, to make up for the fact that the capitalist model can't actually reward them for their effort. And once you have such monopolies, the principal defence of a capitalist model evaporates, since almost by definition, prices no longer reflect the natural relationship between supply and demand. Capitalism and intellectual property are incompatible. QED.


I can see a number of potential objections to this line of reasoning that I'd like to try and address:

Free markets don't have to be completely free.

The capitalist position I've been describing is a radically free-market version of capitalism after the Austrian model. Most recent economic policy has in fact espoused a significantly weaker form of capitalism in which the market is regulated to try and ensure it runs smoothly. We do things like protecting consumer interests and regulating commercial practices; and we carve out special exemptions for socially significant areas like health and defence. We should it be a problem to carve out another partial exception for IP?

I think there are two problems with this. First off, I think that this "weaker capitalism" has been significantly discredited in the last few years. Attempts to regulate the markets through central bank control have miserably failed to deliver economic stability. To the extent that capitalism remains credible, I think the Austrian school has by far the most convincing explanation of and response to the crises that have afflicted our economies in the last few decades - and it is precisely the excess of regulation and manipulation that is to blame. For capitalism to work effectively, it has to be able to reflect the realities of demand without distortion.

The second problem is that IP is nothing like health or defence. No matter what the music or film industry lobbies would have you believe, the maintenance of IP is not a socialised benefit that we must all sign up to pay for. If that were genuinely the case, IP would be unnecessary - the government would fund intellectual endeavour from taxation for the greater good; private enterprises/personal ownership of intellectual "property" would be completely redundant. IP is only necessary precisely because this isn't the case; creativity could be funded effectively without IP - it's just that no one would be in a position to get enormously wealthy off the back of it. So if the content creation industries want to argue for IP, I think arguing from a "social benefit" position is deeply disingenuous

Competition exists - you just need to recognise what the comparable goods are.

It is argued that music labels and publishing houses compete with one another. They all release works to fill genres, and if you don't like the latest chick-lit offering from Penguin, or think it's overpriced, you can always buy one from Harper-Collins instead. The fact that either publisher has a monopoly on the supply of any given book doesn't prevent there from being competition. Well, after a fashion, this is true. Not every running shoe is identical, but we still believe that Nike competes with Adidas. It is argued by hard-line capitalists that even entrenched monopolies like the American railroad monopoly can be (and were) broken with the advent of a new, different, competing product (such as cheap air travel) without external interference. But I think that if this is true, it puts creative endeavour into the same bracket as commodities. If it's true that Penguin's latest best-seller is a drop-in for HC's, that hardly says much for the quality of the writing. What we value about creative thought is precisely its individuality, it's uniqueness. What we value in a commodity is its ability to serve a simple function. To argue that books, or music, or inventions are subject to commodity competition is to devalue them far more than even the abolition of IP ever could - because it says that the very act of creativity is itself worthless.

Regulation of physical supply is just reflecting the reality that the intellectual supply is limited.

It is true that the supply of any given intellectual work is essentially unlimited. But it is also true that the original production of such works in general is very much limited by the ability of their creators to craft them. It takes significant time and effort to write a good book, even if replicating it is nearly free once it has been written. By granting copyrights and patents we are simply ensuring that the longer-term realities of supply are reflected in an otherwise free market.

But this is not a sound argument for intellectual property. It's an argument for creating a market in ongoing creativity, because that's where the genuine limitation of supply is, not in the replication of existing works. To see why this distinction matters, I think one only needs to look at those artists who are profiting from work that they created 50 years ago but have created nothing of any interest since. In what other industry would it be acceptable to cease production and still demand payment for decades afterwards?

I'm not sure where this leaves us. For my part I'm not convinced by either IP or capitalism. But I'm pretty convinced that at least one of them needs to give!

Friday, 8 July 2011

9 responses to Austrian School Economics

After reading a variety of material on MP Steve Baker's website earlier today, I ended up reading this summary of Austrian school economics. It's clear and well-written, although it gets a bit polemical at points and the engagement with potential objections at the end is pretty cursory. I am actually quite sympathetic to some of the ideas involved; it seems to me that the interaction of notionally "free" markets with regulation that is at the mercy of powerful lobbying interests is a pretty terrible combination. It also seems self-evident (especially now) that a crude mathematical model of human choice is badly flawed as a basis for monetary policy. And I hope that most right-thinking people can now agree that the inflationary economic policies of the last 50-odd years have finally passed their sell-by date. Nonetheless, I think this radically free-market economics is in many way just as guilty of utopian fallacies as the centralising socialism that it pits itself against. A few observations:
  1. The assertion about monopolies being primarily a product of intervention seems extremely hard to verify. I'd like to see more genuine examples of monopolies being toppled without intervention. Even at a logical level: if the claim that governments can distort markets is true, how on earth can one claim that companies can't distort them? Surely the more one limits the government's power, the more likely it is the companies will be able to exert influence to distort?

    I think it's probably true that given time, a monopoly will either collapse or take over the world, but it seems that in practice this can take decades even in the absence of regulatory distortions, and much harm can be done in the meantime. Is that really an acceptable cost?
  2. The moderate Austrians seem forced to turn a blind eye to the necessity and cost of providing a framework within which the market can exist. Defence spending is the classic example here. The government is just as much part of the market as everyone else. More recently, Net Neutrality highlights that the freedom in free markets depends on other sorts of infrastructure as well; if a company owns the means by which the market itself communicates, how can this not distort things?
  3. The whole thing seems to be based on an entirely mythical notion of rational free agency. We are not free at all, we are programmed by our education and the collective cultural output of our society. Those with large sums of money have a disproportionate control over this programming process. This is the biggest distortion of all!
  4. The model seems to be extremely poor at dealing with catastrophic future costs. Although massive environmental damage will ultimately have a huge impact on prices, current prices do not communicate this to consumers so they will not change their behaviour. In fact, in the short term, a free market penalises those who attempt to deal with long term issues since it makes them less competitive in the short term.
  5. Free markets are inherently bad at aggregating universally held values that have a low impact on individual, local choices but a very serious impact at a wider level. This is because it is inherently difficult for every individual to factor in all such considerations to every choice that he makes (this is basically a modified version of the capitalist argument against socialist central planing). This is exactly the same problem as with First Past the Post voting systems - something can be an important but not decisive consideration in myriad individual choices, such that in aggregate it is a very, very significant factor in the collective consciousness, but it will be almost entirely unrepresented in the informational structure of the free market because the market only sees the winning result of each of the individual choices.
  6. The theory runs that free markets are driven by what consumers want. Entrepreneurs have an incentive to offer new products that fit better with consumer desires to make money. But the same theorists also argue that capital isn't inherently self-replicating because the entrepreneurial investment of capital involves risk. You invest money on the assumption that, after a potentially long and complex process of production, you will get a good return. But there's a risk you won't. As a result, only a minuscule fraction of possible products are ever introduced into the market: the others "aren't worth the risk". But exploring even a small part of the complex space of consumer demand would require an enormous range of products to be introduced all the time in order to establish the right combination of attributes and price; and this just doesn't happen.

    For example, I want to buy food from an ethical, conveniently located supplier that employs local people and is locally owned; I'm not too worried about the price. There is no such option and there isn't likely to be. So I buy from Waitrose instead, sometimes even Tesco because it's the closest. The information about my values and preferences is being massively misrepresented in the market. In reality our current markets offer a pathetic illusion of choice which undermines the claim that they are likely to converge on what people really want; importantly, there is little incentive for those currently doing well out those markets to change that situation.
  7. Free markets tend to maximise consumption. Is that really a good idea, particularly in view of the currently environmental situation? The idea that we should strive to satisfy as many of our desires as fully as possible is questionable, at best.
  8. In the introduction I read by Dr Eamonn Butler, he tries to distance the economic model from the psychology underlying action. This seems deeply disingenuous for an economic model that emphasises the centrality of human choice. Markets have a profound impact on our psychology, they change the way that we decide, even when no deliberate distortions are involved. Subsuming all human choices to a simplistic pricing model is exactly the mistake Austrians criticise in mainstream economists, but in their own way they're just as guilty of it. Although they ditch the simplistic mathematical calculus of value where utility can be added and multiplied, we still have a marketisation of all our choices nonetheless, because the whole system still ultimately revolves around what someone is willing to pay. Yes, it's good that it's no longer a zero-sum game where you have to lose for me to win; but we're still trapped in this mindset of "everything I do must be for some return". I think we've got to recognise that the act of reducing all human interactions to part of a value bartering system comes with some very serious social consequences; the more you tell people that they're fundamentally selfish, the more you legitimise the individualist attitude, the stronger it grows. When the psychological reward for helping another is classified in the same way as a financial reward for the same action, eventually that psychological reward is devalued. The marketisation of our motivations is very real, and very damaging.
  9. Economic liberals don't think it makes sense to engineer a particular social structure because the market gives people what they actually want. But people are notoriously bad at identifying what they really want. We have traditionally deferred authority (even in democracies) to society "elders" of some sort (be they Kings, MPs, witch doctors or whatever else) on the basis that they are likely to make better decisions about the wider interests of the community than we would ourselves. Genuinely free markets make that extremely difficult because they give ultimate power to the aggregate expression of our unconsidered desires. I'll accept that "elders" often get it wrong, and can themselves become entrenched etc, etc., but I think there's room for a balance here. Are we sure we want to devolve massively more power to the collective expression of our immediate desires than we already have?