equilibrium - issue 1

What next for the Egyptian economy?

Enterprise: The Challenge for Economic Theory

NHS Reforms: Lansley is not the best medicine

The economic case for electoral reform

A talk to Karl Marx from beyond the grave

2

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Contents

Tuition Fees Rise:For and Against

Enterprise: The Challenge for Economic Theory

World View:

What’s going on in the world?4Leader:

Economic Impact of the

Egyption Revolution6

The Economics of Happiness:

Worthwile or Wooly?15Africa:

Underneath its Vast

Problems, a silent one lurks16

A Marx From The Past:

A talk to Karl Marx from

beyond the grave9

The Black Market:

The Proclivity Towards

Violence24Economic Development:

Columbia25

$OXPQL�3URÀOH��Tim Hill31 22

The Departure of Modern Economics from its founding father 20

12

Ernst & Young:

An Insight30

NHS Reforms:

Lansley is not the best

medicine18

Considering the Alternative:

The economic case for

electoral reform14

Lecture Analysis:

Lord Nicholas Stern26Trouble in Paradise:

A greek trajedy29

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3

Financial Market Summary

BY Jordan Rankin

IFS Report:

Designed by

Jim Norton

Printers

Yorkshire Web

Comprised of intellectually stimu-lating articles and vigorous eco-

nomic analysis, Equilibrium is the new economics based magazine on campus, brought to you every term in association with the University’s eco-nomics society, Econsoc.

The aim of the magazine is to make available to students the opportunity to get articles published, and to pro-vide interesting reading material for all students at the University of York, both economics and non-economics. With a blend of current economic is-sues and wide-ranging intellectual discussions we cover an extensive ar-ray of topics in each issue.

In this issue we delve into domes-��ȱ��ȱ��ȱ�ě��ȱ��ȱ��¢�-tian revolution has had to trade and industry, with relevant lessons to be

learnt as North African and Middle Eastern unrest spreads to Libya and beyond. We take a voyage into the past to converse with one of the most ��Ě��ȱ��ȱ��ȱ��¢ǰȱ ��ȱ��¡ǰȱand feature an article on the Challenge to Economic Theory from one of the world’s foremost market analysts of today, Andrew Smithers.

Finally we would like to express our gratitude to all the students who ��ȱ ��Ĵ��ȱ ��ȱ ��ȱ ��ȱ ��ǰȱwhich include subjects as diverse as Columbia and the Black Market, to Tuition fees and African Corruption, and many more. We look forward with enthusiasm and anticipation to submissions for future issues to come.

- Equilibrium Editors

Editorial

Ben Turner Guy Wallace Jack Eastwood

A Note From The Society

An important aim of the new rein-��ȱ ��ȱ ��Ĵ��ȱ ��ȱ ��ȱ

introduce a new professional network scheme within the whole society.

This will entail graduates advis-ing third years about application pro-cesses, assessment centres and the like for graduate roles, third years who were lucky enough to carry out sum-mer internships advising second years seeking out an internship of their own ��ȱę��¢ȱ��ȱ¢��ȱ��ȱę��ȱyears about spring weeks and how they can make themselves more em-��¢��ȱ��ȱ��ȱę��ȱ¢��ǯȱ

Students who are interested will be matched with the corresponding stu-

dent in the year above them based on the industry they want to enter. The networking can be carried out over ��ǯȱ��ȱ��Ĵ��ȱ��ȱ��ȱ��ȱ��ȱincentive for both sides of the equa-tion to build an active relationship and network.

We are also in discussion with various speakers in regards to visit the University in the summer term to present their views on the current economic climate, so keep your eyes peeled and please come along.

Thoughts and comments please email [email protected]

T��ȱ��ȱŗŖŖȱ��ȱĚ��ȱ��ȱthe 6000 mark in the New Year,

with a low of 5863 on 31st January and a high of 6091 on 8th February.

The US Commerce Department an-nounced on 11th February that the US trade gap had widened in December. Due to rising imports and the climbing ��ȱ��ȱ��ǰȱ��ȱ��ȱ��ę��ȱ�� ȱ��ȱŜƖȱ��ȱGDP ($40.6 billion).

Greece has announced plans to try and raise €50bn through privatisation. The hope is that over the next 4 years this plan of privatisation will reduce ��Ȃ�ȱ��ę��ȱ�¢ȱŗśƖȱ��ȱ��ȱ��ȱhelp avoid a sovereign default.

The price of copper, which is consid-ered a benchmark for all other metals, has reached $10000 a tonne, a new record. A reduction in Aluminium sup-ply, particularly after China has curbed its production, looks likely to push up its price as well; on Wednesday Alu-minium hit a 2 year high of $2575.25.

Since January, Brent Crude Oil has remained around $101 a barrel. How-ever WTI, Brent’s main competitor, has failed to breach $100 a barrel in the past 3 months. Thus the usually cheaper Brent has been trading for almost ten dollars per gallon more than WTI. This anomaly has been caused by instability in the Arab world over the past month.

The Euro has depreciated amid fears that Portugal could follow Ireland and Greece in asking for a bail out. Portu-gal’s 10 year government bonds rose to a Euro-era high, forcing the ECB to intervene and start buying bonds.

Editor in chiefand designer:

Jim Norton

Printers

Yorkshire Web

4

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Over the past month Oil prices

have been looking like they might

reach the $100 dollar a barrel

mark, which has brought with it all

the usual speculation and worry.

This has been further exacerbated

by the revolutions in both Egypt

and Tunisia and the rising feeling

of discontent in the Middle

East that has threatened to spiral

out of control and engulf the

region. It is going to be a tense

time for markets across the world

as this develops.

Middle East oil speculation

The coalition government has

just unveiled its controversial new

plan to try to curb bonuses in

the city while trying to stimulate

the economy. The new project,

called Project Merlin, requires

banks to lend around £190bn to

businesses, including £76 to small

businesses (BBC). The project

has led to the resignation of Lord

Oakeshott, the Lib Dem peer.

Bankers’ Bonuses

President Barack Obama sent

Congress a $3.7 trillion budget

ZLWK�D�GHÀFLW�IRU�WKH�FXUUHQW�ÀVFDO�year forecasted to hit a record

$1.6 trillion -- 10.9 percent of gross

domestic product. The budget

aims to achieve a decline in the

GHÀFLW�WR��ELOOLRQ�E\��RU��SHUFHQW�RI�*'3��5HSXEOLFDQV�don’t believe it goes far enough,

some Democrats fear it goes too

far. Social Security in the form of

Medicare and Medicad has been

untouched, even though it makes

up a large part of the budget,

politics rather than economics is

dictating that.

USA Legislation

Brazil’s government is to carry out

��EQ�UHDLV��RU��EQ��RI�VSHQGLQJ�FXWV�DLPHG�DW�ORZHULQJ�LQÁDWLRQ�and preventing the economy

from overheating. According to

)LQDQFH�0LQLVWHU�*XLGR�0DQWHJD��without affecting welfare and

infrastructure, all stimulus pack-

ages introduced as a result of

WKH�JOREDO�ÀQDQFLDO�FULVLV�ZRXOG�be abolished. The central bank

raised interest rates a month ago

WR�FRRO�LQÁDWLRQ��IURP��WR��WKH�ÀUVW�LQFUHDVH�XQGHU�3UHVLGHQW�'LOPD�5RXVVHII�ZKR�WRRN�RIÀFH�ODVW�PRQWK��,QÁDWLRQ�ZDV��ODVW�\HDU�DQG�LV�IRUHFDVW�WR�UHPDLQ�DERYH��LQ��%UD]LO·V�economy, Latin America’s prin-

FLSDO�RQH��JUHZ�PRUH�WKDQ��LQ��DQG�LV�H[SHFWHG�WR�JURZ�EHWZHHQ�XS�WR��WKLV�\HDU�

Spending cuts in Brazil

Global ViewWhat’s happening

in the world of economics?

EQUILIBRIUM

5

5HFHQWO\��LQYHVWRUV�KDYH�VHHQ�ÀW�to withdraw their money from developing markets in Asia. This has been caused by rise in oil prices and fears of overheating HFRQRPLHV��7KH�UHVXOWLQJ�LQÁDWLRQ�could potentially erode the value of equity investments. Conse-quently, central banks began increasing interest rates to stop LQÁDWLRQ�ULVLQJ��+RZHYHU��WKLV�VORZV�growth thus causing investment withdrawals.

Asia’s Emerging MarketsEurope’s second largest car manufacturer, Peugeot, is now planning to expand into India. The company has been relatively slow to set up market in other emerging market and has previ-ously focused on Latin America, 5XVVLD�DQG�&KLQD��7KH�ÀUP�LV�FRQÀ-dant that it can make 50 per cent of its sales come from outside of Europe by 2015. Europe’s car mar-ket has been described as being in decline for some time. This could show a shift away from the West’s economic dominance.

Peugeot and India

After another rise in interest rates in China the markets proved once again their resilience after a drop in value of 0.9 per cent. The market recovered mostly by mid morning to being just 0.2 per cent down. Trading had been stopped for a week after the celebration of the new lunar calendar. The Peoples Bank of China raised rates by 25 basis points to 6.06 per cent on the last day of the holi-day. Analysts are expecting more increases to come.

Chinese markets

Australia’s most powerful cy-clone struck the north coast of Queensland on the 2nd of February leading to what estima-tors guess to be AUS$3.5 billion worth of damage (Reuters). The consequence of this damage will almost certainly stretch forward into the foreseeable future having untold consequences on the suc-cessful tourist industry that thrives around that area. Coupled with WKH�UHFHQW�ÁRRGV�LW�ORRNV�WR�EH�D�hard year for the Australian tourist board.

Cyclone Yasi

The Valentines Day celebrations in Malaysia lead to the arrest of 80 Muslims in Kuala Lumpur for contravening Islamic law and being too close to a person of the RSSRVLWH�VH[��2IÀFLDOV·�DOVR�UDLGHG�hotels to make sure unmarried couples were not sharing rooms. Similar scenes occurred in Paki-stan with the arrest of Balloon sell-ers. It appears like this market will take a hit over present sales in these parts of the world.

Valentines day

Friday’s earthquake and tsu-nami have left areas of Japan’s economy “frozen”, but analysts estimate that it will bounce back later this year. Some of the coun-try’s leading producers, together with the world’s major carmaker, Toyota, have shut all of their plants in the nation. Analysts at Nomura anticipate that damage of production to damage the economy throughout this quarter and the next. Nonetheless they believe growth would come back in the third quarter. “This disaster has in effect temporarily frozen the world’s third largest econo-my,” said Richard Soultanian of NUS Consulting, which focuses on the energy supply industry

Japan’s Tsunami

6

Middle Eastern unrest is spreading at an inexora-ble speed - Libya being the most notable recent

case, and the knock-on economic ef-fects are proving severe. The tumult in Libya, as the ever erratic Colonel ��ęȱ��Ĵ��ȱ ��ȱ��ȱ��ǰȱ��ȱ��¢ȱ�¢ȱ��¢ȱ��ȱ�ȱ��ȱ��ę��ȱimpact on oil prices. With the revolu-��¢ȱ��ȱ�� ȱ��ȱ��ȱ��¢��ǰȱ ��ȱ��ȱ �ȱ��ȱ��ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ��-��ȱ��ȱ�� ȱ��ȱ��ǵ

��ȱ��ȱ��ȱ��ǰȱ��ȱ¢��ȱ ��ȱ��ȱ��ȱ��¢��ȱ¢��ȱ ��ȱ��ȱconjured up a picturesque image of

��¡��ǰȱ��ȱ��ȱ��ȱ��Ĵ��ȱ��ȱa backdrop of pyramids and the ��Ĵ��ȱ��ȱ��ȱ��ȱ��ȱ��£��ǯȱ��ȱ��¢ȱ��ȱ��ȱ ��ȱ��ȱ�� ȱto experience as tourism accounts for 5% of the entire Egyptian economy; though during the recent revolu-��ǰȱ��ȱ��ǰȱ��ȱ ��ȱ��ȱ��ȱ��ǯȱTravel agencies postponed or can-celled nearly all departures for Egypt and most governments advised their ��£��ȱ��ȱ��ȱ��ǰȱ��ȱto the huge uncertainty in the capital, ��ǰȱ��ȱ�� ǯ

��ȱ��ȱ��ȱ��Ȭ�� ȱ��ȱEgyptian turmoil, a revolution seen �¢ȱ��¢ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ǰȱ

��ȱ ��ȱ��ȱ�ě��ȱ��ȱthe country, including the aforemen-tioned near complete destruction of tourism. Tourism is perhaps the least ��ȱ��¢��Ȃ�ȱ ��ȱ��ǯȱ��ȱ��-lution lasted over 18 days taking hun-��ȱ��ȱ��ȱ��ȱ ��ȱ� �¢ȱ��ȱ��ȱ��ǰȱ ��ȱ��¢ȱ��ȱ��¢ȱ��ȱ��ȱ ��ǯȱ��-��ȱ��ȱ��ȱ��¢Ȃ�ȱ��¢ȱ ��ȱinevitable. Furthermore as a spirit of civil insubordination spread, tens of thousands of labourers across numer-ous industries such as telecommuni-cations, steel and textiles grasped the opportunity and staged protests and ��ȱ��ȱ��¢ȱ��ȱ ��ȱ��-

Economic impact of the Egyptian

Revolution

Leader:

Guy Wallace examines the economics of the road to democracy in Egypt

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7

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tions. In the Fiscal Year ending June 2011, economic growth is expected to drop to about 2% - the 2009 estimate being 4.7%.

Egypt’s economy (like all others) ��ě��ȱ��ȱ��ȱ��ȱ��ȱę�-ical crisis, and so was not in a great way even before the revolution. Over a longer period of time however, its economy has been doing relatively well. Since the year 2000 there was an increase in the pace of reforms, ��ȱę��ȱ��ȱ��¢ȱ��-cies, privatisation and new business legislations. These strengthened mac-roeconomic growth results averaged 5% annually and encouraged Egypt to move in the direction of a more market-based economy. Though this increased foreign investment, these opportunities were largely monopolised by Mubarak’s family and friends, most notably his sons; a trend seen in many of the other countries now experiencing unrest.

A succession of IMF injections, coupled with massive external debt relief from Egypt’s participation in the Gulf War coalition (both in the 90s) helped Egypt improve its macroeconomic performance. Sums as large as half a million US dol-lars were paid per Egyptian solider deployed to push Iraqi forces from Kuwait. However, the problem was that not much of the economic ��ę�ȱ��ȱ�� ȱ��ȱ��ȱconditions for the majority of the population, with vast numbers continually living below the $2 a day poverty line. This has been especially true with the growing problem of low employment amongst the under 30’s. Undoubtedly this bred much resentment among Egypt’s driven youth, many of whom weren’t even born when Mubarak came to power. Enlightened by events in Tunisia and united by internet based social net-working sites, they bravely and un-��Ĵ��¢ȱ��ȱ��ȱ��ȱ��ȱǻ ��ȱothers following) to successfully remove their dictator. The economic factors - as well as the persecution and oppression of the regime - are what caused this revolution to be so broadly based in nature. Men and women, Christians and Muslims, doctors and lawyers all marched as one, protecting each other from police hostility.

The economy of Egypt, an oil nation with a population of 84 mil-lion, was immediately hit hard by the massive disruption caused. In the era of globalisation, a country of this ��£�ȱ��ȱ��ȱ��ę��¢ȱ�ě��ȱworried investors worldwide. After protests broke out, the benchmark Egyptian index lost around 17% of its value within two days of trading.

Photo courtesy of Prospect Magazine

Subsequently Egypt’s bourse (stock market) closed on the 28th January and remained closed for many days after, due to a strike by bank employ-��ȱ��ȱ��ȱ��ę��ȱ��ȱ ��ǯȱCommercial banks across Egypt were told to remain closed by the Central Bank of Egypt, due to the strikes at the main state bank: the National Bank.

��ȱ�ě��ȱ��ȱ��ȱ��ȱ ��ȱquickly noticeable. The stock market reaction in Saudi Arabia was severe as the Tadawul All Share Index fell 6.4 percent on Saturday 5/02/11 and continued to fall as investors sold shares in response to Egyptian uncer-tainty. This was perhaps one of the reasons, along with security concerns, why King Abdullah of Saudi Arabia allegedly pledged support to Mubarak during a telephone call to President Obama. The Saudi stock recoil fol-lowed extensive selling the day before, at exchanges all over Asia, Europe and the U.S.; analysts said these were linked to the turbulence.

��ȱę��ȱ��¢��ȱ��ȱ��ȱ��ȱ��ȱ�ě��ȱ��ȱ��ȱ��ȱremains a mystery. Things could have been far worse if the intensity and length of the protests had increased for much longer. For example if passage through the Suez Canal, the once pipe-line of the British Empire, had been disrupted, world shipping and energy supplies would have been abruptly af-fected. Up to 36,000 ships pass through the Suez annually - many of them crude oil tankers. Shares in tanker companies surged during the revolu-tion due to apprehension of a Suez impasse; a scenario that would result in many ships needing to make expen-sive trips around the southern tip of Africa. Shipping companies emerged ��ȱ��ȱ��ȱ�� ȱę��ȱ ��ȱ��ȱthis turning point in history.

Throughout the revolution, one of Egypt’s key allies, the U.S., was taken on a diplomatic rollercoaster. On the one hand, President Mubarak was an ally for over thirty years, helping

The economy of Egypt, an oil nation with 84 million, was immediately hit hard by the disrup-tion and worried investors worldwide.

““

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8

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maintain stability and peace (most notably with Israel), and conse-quently helping to keep the balance against Iran. The U.S. has also made a considerable investment, with up to $1.3 billion dollars of military aid given to the regime annually. On the other hand, America is the most powerful nation in the world, regu-larly adopting endless rhetoric with regard to freedom and democracy. To therefore consistently support the regime in pursuit of stability and its own interests would have been seen by the entire world as hypocrisy. Their credibility would have been damaged and international diplo-matic clout, particularly in this key ��ǰȱ��Ĵ��ǯ

��ȱ��ȱĚ��ȱ��ȱThe White House’s behalf, they de-cided to pledge support for a faster transition to democracy. This led however to its own problems, with the Egyptian government denounc-ing the U.S. as a traitor meddling in ��ȱ��¢Ȃ�ȱ�ě��ǯȱ��ȱ�� ȱ��ȱMubarak’s fall, many in Egypt think western governments only care is for security and principally a peace deal with Israel. Many even believe they ��ȱ ��ȱ��ȱ��ę��ȱ��ȱ��ȱ��ȱthe people to obtain this. Fortunately the Military Council has agreed that the 1979 peace agreement with the Israelis will remain.

According to Reuters, the Obama administration studied the eco-��ȱ��Ȭ��ȱ�ě��ȱ��ȱ��¢��Ȃ�ȱpolitical crisis carefully. It believed progress toward democratic reforms would help bring to an end eco-nomic instability. On Wednesday 9th February Ben Rhodes, White House deputy national security adviser for communications, said: “We’re certainly mindful of the economic impact. We’re certainly monitoring it closely”. He also said that “insuf-ę��ȱ��Ȅȱ��ȱ�¢ȱ��ȱ��¢��ȱgovernment to meet the demands of ��ȱ��ę��ȱ��ȱ��ȱtroubles.

At the cost of 384 lives and 6,467 injured citizens - with many more missing - ex-President Hosni ��Ȃ�ȱřŖȱ¢��ȱ��ȱ��ȱę��¢ȱover. To the anger of many Egyp-tians, as Mubarak steps down he is expected to have £25 billion in assets stored away abroad. These are mainly properties, with many of the millions stored away during his last days; a persuasive retirement fund to say the least.

Now the army is in control, most Egyptians, and many people globally, hope Egypt will return to economic normality. As revolu-��¢ȱ��ȱ��Ĵ��ǰȱ��ȱ��ȱ��ȱthat there is still a long way to go

until both a democratic government is elected and the economy gets back on track. Looking at their predecessor Tu-nisia, where the post-revolution police state has recently collapsed, the future appears uncertain. For Libya, with its tribal structure and a complete lack of ��ȱ��ǰȱ�ȱ��Ȭ��ęȱfuture looks even more challenging and unclear.

The man now in charge is Moha-mad Hussain Tantawi, the head of Egypt’s Higher Military Council who is to oversee Egypt through the 6 months transition to democracy approach-ing the elections. However, to many, ��ȱ��ȱ�� ȱ�¡��ę��ȱ��ȱstubborn forces staying entrenched at the centre of a regime that may have ��ȱ��ȱę��ȱ��ȱ��ȱnot its fundamental nature. Wikileaks

cables suggest he is not exactly one of revolutionary spirit: he has reso-lutely ‘opposed both economic and political reforms’ that he perceives to be ‘eroding central government power’; ��ȱ �¢ȱ��ȱ�Ĝ��ȱ��¢ȱlabel him as “Mubarak’s poodle”.

Strikes still sometimes continue, particularly in the civil service and banking sector and even the police force; this is the biggest challenge that the military government face. These three sectors are vital to ensure the economy returns to business as usual as soon as possible. Further-more, insistence on the increase of food subsidies and extended disruption to tourism won’t help. The military must act immediately to provide adequate wages and guarantee social welfare - a monumental task. They have however taken some steps, such as dissolving the fraudulently elected parliament and scrapping the Mubarak favouring constitution. They have ordered the dis-contented employees to return to work, but many still remain in protest. One thing is sure, if they want to keep the people on their side use of force must be avoided.

The Tunisian and Egyptian revo-lutionary contagion is spreading, with protests occurring all over the Middle East, from Bahrain, Yemen and Iran, to ��ȱ��ǰȱ��¢�ǯȱ��ȱ��ęȱ��ȱ��ę��ǰȱ��ȱ��ȱ�� ȱ��ȱnow taking place here produces even greater concern for world oil prices than Egypt has.

The people have so much to gain from ousting a dictatorship, particular-ly in respect to political freedom, civil liberties and democracy. In economic terms the world watches on with ap-prehension.

The Organization for Economic Coop-

eration and Development (OECD) has es-

timated that the Egyptian government’s

5 day block on Internet services cost the

national economy more than US$90 mil-

lion. Telecommunications and Internet

services comprise 3% to 4% of Egypt’s

GDP.

The OECD also warned that by severing

telecommunications links between do-

PHVWLF� DQG� LQWHUQDWLRQDO� KLJK�WHFK� ÀUPV�DQG�WKH�UHVW�RI�WKH�ZRUOG��(J\SW�PD\�ÀQG�LW�´PXFK�PRUH�GLIÀFXOW�LQ�WKH�IXWXUH�WR�DW-tract foreign companies and assure them

that the networks will remain reliable.”

Problem

EQ

9

the spirit of freedom, that certainly

helped to create my views.

The most important thing was being

expelled in 1848 to go to Britain and

to see the country that was lead-

ing the industrial revolution and to

study its main theorists, the writers

of political economy, without that I

would not have been able to write

Kapital.

E: You famously said that you were

not a Marxist. What do you think of

Marxism today?

M: First I said I didn’t want to be

called a Marxist because I didn’t

want to be a founder of a school of

epigones as it were. Scholarship de-

pends on heretics, on independence

of mind, on humor and cunning.

It depends on wanting to know

��ȱ��ȱ�ě��ǯȱ��ȱ��ȱcritical people who trust their

own judgment and are led

by their own intelligence.

I don’t think there should

be any Marxism, there

should be followers. I

left behind a legacy that

��ȱ��ȱ��ǰȱ

scrutiny and critical development,

��ȱ��Ȭ��ȱ��ȱ��ȱinterpretation.

E: As you can see the world has

changed dramatically over the past

127 years. The hot topics today are

climate change, globalisation and

poverty. Do you think your theories

are applicable today, if so, how?

Armed only with an idiots

guide to summoning and

an ancient ouiji board, the

three musketeers jumped

on a train bound for London. The

aim of this short expedition was to

��ȱ��ȱ ��ȱ��¡Ȃ�ȱę��ȱ��ȱplace in Highbury cemetery and to

�Ĵ��ȱ��ȱ��ȱ��ȱ��ȱ��¢��ȱ��ȱ��ǯȱ��ȱ��ȱ��ȱ��ȱ��Ĝ��ȱ��ȱsome very odd looks from the general

��ȱ �ȱę��¢ȱ��ȱ��ȱ ��ȱthe great man himself and began our

surreal interview.

��Ǳ Good Afternoon Mr.

Marx, how have you been?

Marx:ȱ��¢ȱ��ǰȱ�Ȃ�ȱ��Ĵ��ȱ��ȱ��ǯ

E: We’ll start at the beginning. You’re

a very well travelled man, certainly

in your youth. Do you think this

helped you to create your views and

theories?

M: Most of my travelling was en-

forced, I’d been expelled from various

countries on a number of occasions.

I did travel voluntarily to France be-

cause I was excited by the revolution,

A MARX FROM THE PASTEquilibrium speaks to KARL MARX from beyond the grave to sound him out on the current state of economics...

EQUILIBRIUM

themselves communist – which means communis - is that they proclaimed in favor of human emancipation by which they understood just what the term revolution indicates in conven-tional terms: a relationships is turned around. Human emancipation does not seek to turn false society around. It seeks its abolition.

E: That said China has emerged from the recent recession faster than west-ern states due to its strong govern-mental control of the economy. Do you think this model, of strong market control would be applicable to Europe and the US to help prevent further collapses?

M: I’m not so sure about applicable. What we have in China really is a command economy, one controlled by suppression of very cheap labor, both skilled and unskilled. Adam Smith is in China. I am not, unfortunately. I would not wish Chinese labor condi-tions on anyone. Whether it is this or that, we need to see how the class struggle pans out. I might yet get to China.

E: So do you think that since your death the UK and America have made good steps in the right direction towards supporting the worker and ��ȱ�ȱ��Ĵ��ȱ ��ȱ��ȱ��ȱhim?

M: No, I would not say that. It’s not that countries or states or governments take a step or steps. Working class forced concessions more in Britain than the US, more in continental West-ern Europe than Britain and the US. But there is the question of how strong these welfare state defenses are in the context of the current crisis. In the country of my birth, Germany, and in a context of deep economic crisis and political turmoil, the working class movement appeared strong and then in 1933 it ‘was’ disappeared.

E:On the topic of that, do you think feminism helped drive that sort of movement towards equalisation and a more egalitarian states. You moved to France when it seemed revolution was coming and a more egalitarian society was coming. Do you think the feminist movement is part of that?

M: It’s a very easy question which once one thinks about it becomes very complex. I celebrated the outcome of the French revolution because most of Europe was in the Dark Ages of provincialism and parochialism; then the idea of being equal before the law was indeed revolutionary.

M: On poverty, my main work, Kapi-tal, tells the story as to why poverty is a necessary product of the capitalist mode of production. Climate change I of course didn’t write about it, it didn’t come to mind. I did however say that the capitalist mode of production is destructive of the two sources of wealth, that is, the soil and the worker.

What I wrote about the worker is very well known but what I wrote about the destruction of the environ-ment is not, which is not surprising since I did not emphasis it. I was too much taken in by sheer possibilities that the immense increase in produc-��ȱ�ě��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǰȱ��ȱ��Ĵ��ȱ��ȱ��ȱ�� -ness of the bourgeois conception of wealth. In my time, it was rather damp and cold in the UK. Has that changed much?

E: Over the past century several �Ĵ��ȱ��ȱ��ȱ��ȱ��ȱ�ȱ��-opment of Marxism, such as commu-nism. All seem to have been unsuc-cessful. What do you think have been ��ȱ��ȱĚ� �ȱ��ȱ��ȱ��ȱstates?

M: Every movement that wants to burst asunder existing relations of domination tries to hook itself up on what it sees to be the most radical theory around and that, at the time of Russian communism, happened to be mine. Their interpretations of my work felt like being kissed by a vam-pire – they put their teeth into me and sucked me dry. ��ȱ��ȱĚ� �ȱ��ȱ��ȱ

theories are that they extended what they criticized into the future rather than stopping it, as it were. You see human emancipation was, and still is, ��ȱ��ȱ��Ĝ��ȱ��ȱ��ȱ��ǯȱ��ȱis not governed by the idea of power, the seizure of power and preservation of power, or of economic value and ��ę�ǯȱȱ��ȱ��ȱ��ȱ�¢ȱ�ȱ��¢ȱ��ě��ȱ��ǰȱ��ȱ��ȱ��ȱ��ȱ��-tonomy, that is, human emancipation entail that humans achieve control of their own social world. ��ȱ��ȱ��ȱ��¢ȱ��Ĝ��ȱ��ȱ

perceive in practice. What happened with these movements that called

Marx Timeline

18185th May Marx

born in Trier

1835Goes to Bonn

to study Law

1836Moves to

Berlin to study

1841Attains his

Doctorate

from the Uni-

versity of Jena 1842Marx loses

his job when

his paper is

banned1843Marries Jenny

Von West-

phalen and

moves to

Paris where he

meets Engels 18440DU[·V�ÀUVW�daughter born

1845Marx & Engels

publish a book

attacking the

Hegelians 1847Marx & Engels

asked to write

Communist

Manifesto

1848The

Communist

Manifesto is

published 1849Marx & Engels

expelled from

Prussia

1867Das Kapital

published

1881Marx’s wife

dies

188314th March

Karl Marx

passes away

and is buried

in Highbury

The accumula-tion of making

money out of money is an accumulation of claims of future exploitations of the worker

“

“

10

mirrors the crisis shown in Das Kapital?

M: I don’t think its pos-sible that my analysis of the then crisis can be immediately applicable to your times. What I wrote in Das Kapital was two things. First of all, I established the laws of motion of a capitalist society, and showed that the laws of motion are crisis-ridden. You can not apply these illustrations as mirrors. What I argued is this: money tries to make more money, and this might take the form of credit and debt. This form is in fact an investment, if you like, on the future extraction of surplus value. There is thus uncertainty, there is the potential for monetary claims to accumulate without basis in the real economy, or in your language, without basis in real incomes. You know from yourself if you have a debt then the debt itself is in fact an investment by some-body else on your future earnings. In a capitalist society that means the accumu-lation or making of money out of money is in fact an accumulation of claims of future exploitations of the worker. What that of course means is that the future and the present are forced into a relation-ship of constant deferral. At some point, things snap - the promise of the future surplus value is revealed in the present as �ȱ��ȱ��ȱę��ȱ ��ǯ

E: Has this also been shown in the increase in welfare systems around the globe?

M: Which increase do you have in mind? Whatever, I think it is important for the workers who produce what Adam Smith called the wealth of nations to not to starve to death. For that very reason the welfare state is a welcomed develop-ment because it allows those whose hands are no longer needed to at least survive. Besides they are fed and kept warm by what their brothers and sisters have produced. So, in that sense, I’m quite happy with the welfare state and hope that it is indeed spreading around the world. They sustain the poor, in pov-erty, and keep them available as hands for hire.

E: Over all what do you think ��ȱ¢��ȱ��ȱ��ę��ȱlegacy?

M: �ȱ��ȱ�¢ȱ��ȱ��ę��ȱlegacy is the categorical im-perative that I formulated very early in my life. I agree with

Professor Kant that only that theory is true, which helps the common Man to his or her dignity. That is relationships where Man exists as an exploited and debased being have to be overthrown because they are not worthy of Man.

E: ��ȱę��¢ǰȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱCleopatra’s nose had it been shorter, the whole face of the world would have been changed. Do you think that if your beard had not been so bushy the same could be said for you?

M: Now there are two things in answer ��ȱ��ǰȱ��ȱę��ȱ��ȱ��ȱ��¢ȱ�ȱ��Ȃ�ȱhave time to shave myself I was too busy studying the classics, your classics, espe-cially the Scots. The second thing is that �ȱ��¢ȱ��ȱ�ěȱ�¢ȱ��ȱ ��ȱ�¢ȱdaughter died and I myself died shortly after that.

E: Mr. Marx, thank you very much for your time.

Interview by Jack, Ben and Guy. Thanks to Werner Bonefeld acting as Karl Marx.

11I think in your time, feminism de-

mands, at least conventional feminism does, equality before the law, equality on the labour market, etc, and these demands are in fact the liberal demands, that is, man and woman are free when they are only dependent on the law, not persons.

In my work, I endorsed human rights and deciphered them as rights of exploi-tation qua equivalence exchange. So the struggle for equality before the law belongs to the very logic of capitalist so-cial relations. They seek to realize liberal rights, in this conventional feminism ę��ȱ��ȱ��ę��ǯȱ�ȱ��ȱ��ǰȱ ��ȱ��ȱconcerned with contributing to the fullest developemn t of capitalist social relations. I argued for their abolition.

When I talked about equality – the society of the free and equal, I did not mean equality and freedom before the law, some abstract equality, an equal-ity as equivalence. I meant the equality of needs, concrete equality, an equality based on and through need.

E: Africa has generally had a strong right wing government. Do you think socialism should be looked at as an alternative?

M: Again a vey important question that is not very easy to answer. You may remem-��ȱ��ȱ��ȱ�¢ȱ��Ĵ��ȱ��ȱ��ȱ��ǰȱthe great Russian socialist, who had asked me whether it is possible for Rus-sia to transform into socialism without capitalism in the middle. I was not really able to say if that was possible or not, and I still don’t know. In fact I quite doubt it ��ȱ��ȱ��ȱ�¢��ȱ��ȱ��¢ȱ��ȱ��ę-nite terms. You will also remember my writings about India, where I argued that the fate of India is to be occupied either the British or the Dutch or by somebody else. I guess this fate of being occupied is still the fate of Africa, not by the Dutch or British but by the dollar or the yuan, and their respective advisors and engineers.

E: Do you think it is possible for a state to survive with a non-capitalist economy?

M: Well it depends, the state is the political expression of a class society, ��ȱ��ȱ��ȱ��ȱ��Ĵ��ȱ��ǯȱ��ȱdisagreement is on whether class society is an eternal thing. If in the future there is a class society that is none capitalist, then I suppose the form of the state will survive. And if we mean by non-capitalist economy an egalitarian communist or cooperative society, I called it the society of the free and equal in the Communist Manifesto, then I guess no, the state as a political form will not survive.

E:You said in Das Kapital that capital-ism creates crisis by making money from money, which ultimately leads to a crash. How much do you think our recent crisis

12

EQUILIBRIUM

Tuition Fees

key consideration. With this in mind, it seems that students would be forced to consider the value of their degree more carefully if they were to pay more for them. It would also ask students to look ��ȱ��ȱ��ȱ��ȱ�ȱę��ȱ��ȱwhich hitherto is under-acknowledged by many students.

This increased focus on the career applications of a degree will also help redress the imbalance of the current system where taxpayers receive a far smaller return from higher educa-tion than the students completing the degrees do. This is supported by OECD ��ȱ��ȱȃ��ȱ��ȱ� ȱ��ȱ��ę��ȱ��ȱhigher education to the individual are, on average, over 50% higher than public ��ę��ǯȄȱ��ȱ��ȱ��ȱ��ȱthe new system include more business skills, then the overall employability of the workforce should increase and so ��ȱ��ȱ� ȱ��ȱ�Ĵ��ȱ��ȱ��-nesses. Therefore a skilled workforce will not only reduce unemployment, but increase corporation tax revenue,

income tax revenue and reduce welfare demands on the state.

The future of higher education in the UK will depend not only on the ability of universities to provide degrees which meet the needs of students and business, but also on students to see degrees as worthy of their increased investment. Currently the Browne report claims that the average student earns over £100,000 more in their lifetimes ��ȱ��ȱ ��ȱę��ȱ��ȱ��ȱA-levels; it is this important factor and employer requirements for degrees that will be key to maintaining demand for university places.

The debate around tuition fees is one that can be tackled from many angles; some would ar-gue that there is a moral obliga-

tion, others economic and political. But considering the nature of this publica-tion let us consider the key arguments with a broader focus on the economics.

ȱ��ȱę��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�Ĵ��ȱ��ȱ��ȱpreviously against tuition fees to the ��ȱ��ȱȃ��ȱ ��ȱ��ę�ȱ��ȱhigher education as graduates ought to ��ȱ�ȱ��ȱ��ȱ��ȱ��ǯȄȱ��ȱquote from the Browne commission, which claims to have the backing of the National Union of Students (NUS), employers and higher education institu-tions (HEIs), helps us to narrow the debate to a central issue: if tuition fees are right, how much should they be?

The previous system saw HEIs rely on the government for the vast major-ity of their funding; this then meant that any pressure for these institutions to change had to be led by the govern-ment. Changes of this manner were often slow and did not address the concerns closest to students. However, by changing the source of funding and placing the emphasis on appeasing students, who now pay the lion’s share of the fees, universities must respond ��Ĵ��ȱ��ȱ��ȱ��ǯȱ��ȱ��ȱdistinction will help to introduce the much desired competition that the previous system failed to achieve, and as such place the onus on universities to ��ȱ��ȱ��ȱ��ȱ�ě��ȱ��ȱ��ȱmoney. These changes are already being seen in courses like politics where stu-dent pressure has increased the contact hours for students from 5 to 10 hours in ��ȱę��ȱ ��ǯ

Another key aspect of placing the cost of fees into the hands of students is to encourage them to look for value in their degree. The Confederation of British Industry claimed in 2010 that the UK’s “inadequately educated work-��Ȅȱ ��ȱ��ȱ��ȱ��ȱ��ȱto doing business in the UK, with lack of business skills and acumen being a

The Debate:

BY Chris jacksonSecond Year Politics Undergraduate

FOR

By changing the source of fund-ing universities must ��ȱ��Ĵ��ȱ��ȱstudent demands

“

“

EQ

EQUILIBRIUM

13

universities to raise fees to £9000 per year. The price of the degree can tell the consumer a lot about the quality of the degree they are studying at a particular institution. Universities don’t want to give the consumers the impression that a degree from them is worth less than one from a rival and may therefore bid up the price of their degree. The Minister ��ȱ��Ĵ�ȱ��ȱ ��ȱ��ȱ��ȱtoo many institutions set tuition fees at too high a level, more cuts will have to be enforced on the universities in order to fund student loans.

What must also be considered is the competition from abroad. Since the ��ę��ȱ��ȱ��ȱ��ȱ��ȱ��ǰȱthere has been a surge in the number of people applying for places in universi-ties outside of the UK. Places are not so ę��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ

tuition fees are often lower than those in the UK. This could potentially be

very problematic for the UK if this ��Ĵ��ȱ ��ȱ��ȱ��ǯȱ��ȱ��ȱ

1960’s, the so called “brain drain” saw many of Britain’s brightest and ��ȱ��ȱ��ȱ��ě��ȱ��ȱ��ȱavoid high levels of income tax. Should

tuition fees continue on this upward spiral, a similar thing may happen to UK students as more and more of our potential elite opt to study in other parts of the world and possibly remain after completing their degree.

Should tuition fees be raised? Pos-��¢ǯȱ��ȱ�¡��ȱ��ȱ ��ȱ��ȱ�ě��ȱ��ȱUK has yet to be seen and we are once more moving through uncertain waters. The devil we knew was that the institu-tions and student loans were costing the nation a lot of money and measures had to be taken to try and reduce this somehow, but the devil we don’t is if ��ȱ��ȱ��ȱ ��ȱ��¢ȱ��ę�ȱ��ȱę��¢ȱ��ȱ��¢ȱ��ȱ��ȱthe short and in the long run. As always, time will tell.

Unless you have been living in a cave for the past 6 months, you will know that the recent vote

by the government to raise university tuition fees to a possible £9000 per year, has caused a bit of unrest with the student body.

Who can blame them? For the aver-age person studying in an institution within the UK, £9000 is a lot of money which they will one day have to pay. The government says that it is a fair �¢ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ę��ȱand reduce the massive amount of debt the nation is in. But is this really fair to those who have now had to start rethinking their life plans? Surely for young graduates, many of whom still ę��ȱ��ȱ��Ĝ��ȱ��ȱ��ȱ��ȱę��ȱ��ȱonto the property ladder, com-ing out of university with large ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�ěȱisn’t an ideal position for the UK economy to be in.

Strangely enough, the govern-��ȱ��Ȃ�ȱ��¢ȱ�ě��ȱ��ȱ��ȱ

If too many institutions set tuition fees at too high a level, more cuts will have to be enforced

“

“BY Ben Turner Second Year Economics Undergraduate

AGAINST:

Pict

ure:

Vic

toria

Elm

ore

EQ

14

EQUILIBRIUM

My birthday last year was all

the more memorable for an

announcement by Wil-

��ȱ��ȱ��ǰȱ�ě��ȱthe Liberal Democrats a referendum on

voting reform. A day later, Hague was

Foreign Secretary in the new coalition

government. A year later, the nation will

be assessing the relative merits of First

Past The Post (FPTP) and Alternative

Vote (AV).

As economists we have something

��ȱ�ě��ȱ��ǯȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�¡��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��-ences, although the outcomes we usually

��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱof goods as determined through a market

mechanism, rather than the election of

��ȱ��ȱ��ȱ��ȱthrough a voting mechanism.

FPTP selects the candidate most-

��ǰȱ��ȱ��ȱ��ȱ��ǰȱ�¢ȱthe greatest number of voters. AV selects

instead by successive elimination until

only one candidate remains, at each stage

��ȱ��ȱ��ȱ��Ȭ��ǰȱof those remaining, by fewest voters.

Let’s examine three related claims

��ȱ��ǰȱ��ȱ�¢ȱ�ȱ�¢��-cal constituency with three candidates

{X,Y,Z} and where voters are of just three

�¢��ǰȱ��ȱ��ȱ��ȱ��ȱę��ȱǽ��ȱ��Ǿȱ��ȱ��Ǳ

Under FPTP, X wins here with only

45% of the vote. In fact each of the

��ȱ� �ȱ��ȱ��ȱ��ȱ��ȱ�ȱby a majority (55%) of voters.

Under AV, candidate Z is eliminat-

��ȱę��ǯȱ��ȱ��ȱ� �ȱ��ȱ��-��ǰȱ�ȱ��ȱ��ȱ��ȱ�ȱ�¢ȱ�ȱ��¢ǰȱand therefore wins.

But, while Y wins by a majority

��ȱ�ȱ��ȱ��ȱę��ȱ��ǰȱ��ȱ��¢ȱǻŜŖƖǼȱ��ȱ�ȱ��ȱ�ǯȱ��ȱ��ȱ�ȱ��ȱ��ȱ��ȱ�¢ȱ��ȱ��¢ȱ��ȱeach of the other candidates, although

��ȱ�¢ȱ��ȱ��ȱ��ȱę��ȱ��ǯGenerally, a winner under AV must

��ȱ��ȱ�¢ȱ�ȱ��¢ȱ��ȱ��ȱ��ȱone candidate, which is more than

can be said of FPTP. But any number

��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�¢ȱ�ȱ��¢ȱ��ȱ��ȱ��Ȭ ��ǰȱ��¢ȱ��ȱ��ȱ��ȱ�¢ȱ��ȱ��¢ȱ��ȱ��¢ȱother.

Under FPTP the anti-X majority

��ȱ��ȱ�� ȱ�ȱ��ȱ�ǯȱ��ȱ�ȱ��ȱ��ȱbeen standing then the winner would

have been Y instead of X. And this in

�ě��ȱ��ȱ ��ȱ��ȱ��ǰȱ��ȱę��ȱ��ȱ�ǯ

But less obviously there is an

��ȱ��Ȭ�ȱ��¢ȱ��ȱ��ǰȱ��ȱ�¢ȱ��ȱ��ȱ��ȱ�ǯȱ��ȱ�ȱ��ȱ��ȱ��ȱstanding, then the AV-winner would

have been Z instead of Y.

An individual selecting a from

{a,b,c} and b from {a,b} would be

��ȱ��ǯȱ��ȱ��ȱ��ȱ�¢��-

ical constituency this is exactly what

��ȱ��ȱ��ȱ��ȱ��ȱ��ǯȱAnd from Arrow’s Theorem we know

that this form of ‘collective irrational-

ity’ is latent in any voting system.

Under FPTP, with X and Y the clear

front-runners, a vote for Z could be

viewed as wasted. This might induce

��ȱ��Ȭ��ȱ�ȱ��ȱ��ȱȁ��-cally’ for Y. If enough of them do so

then the outcome is not X but Y, which

��¢ȱ��ǯAV allows them to achieve the

same result by voting sincerely, and

��ȱ�ȱ��ȱ�ȱ��ȱ��ǯ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��-

��ǲȱ��ȱ��ȱ��ȱ��ȱ��Ȭ��ȱ�ȱ��ȱ�ȱę��ȱ��ȱ��ȱfor Z then the outcome is not Y but Z,

��ȱ��¢ȱ��ǯAnd in neither case can a single tac-

tical vote change the outcome. Indeed

��ȱ��ȱ��ȱ�ě��ȱ��¢��ȱby voting at all. Every vote is ‘wasted’,

under any mass electoral system. But

that’s another story.

45%: X [Z] 40%: Y [Z] 15%: Z [Y]

��ȱ��ȱ��

John Bone, a senior lecturer in Economics at York, assesses the economic case for electoral reform

EQ

Under AV, unlike FPTP, the win-ner always has a majority of votes

Claim 1:

AV avoids the split votes problem of FPTP

Claim 2:

AV avoids the wasted/tactical votes problem of FPTP

Claim 3:

EQUILIBRIUM

15

parts of this hierarchy. Gross domestic

product (GDP), the most common mea-

sure of economic activity, measures the

total income of a country, and is corre-

lated with living standards. Using GDP

along with statistical measurements

��ȱ��ȱ��ȱ��ȱ��Ĝ��ǰȱ�ȱ��ȱof the inequality of income distribution,

helps us determine whether the popula-

tion has access to basic needs such as

food and shelter. The Human Develop-

ment Index, or HDI, is a more compre-

hensive measure of well-being that takes

into account additional factors such as

life expectancy and education, as well as

income per capita.

��ȱ��ȱ��ȱ��ȱ��ȱ�Ĵ��ȱ��ȱcapture population well-being though

combinations of solid, quantitative

��ǯȱ��ȱ��ě��ȱ�� ȱ��ȱ��ȱ�ȱȃ��ȱ��¡Ȅȱ��ȱ��ȱ��ȱ��Ĵ��ȱrequires self-reported happiness: asking

individuals to report levels of factors

��ȱ��ȱ��ȱ��ǰȱ��ę��ȱ��ȱpersonal life and quality of healthcare

and education. While the results of the

index may provide an insight into at-

titudes towards government-provided

services, much of the data may be so

��ȱ��ȱ��ȱ��ȱ��¢ȱ��Ĵ��ȱ��ȱsubstance to it.

The world of experimental econom-

ics has been divided over this issue for

some time. While some economists feel

they can draw meaningful conclusions

from asking subjects to rate emotions

and concepts such as morality on a

scale from one to ten, others argue that

results are too subjective to be compared

between subjects. Not only does the un-

��ȱ��ȱ��ȱ��ě��ȱ�� ȱindividuals, but between generations,

cultures and even genders. For example,

as reported in the American Economic

Journal:

“In aggregate, women’s subjective

well-being has declined relative to

that of men, but with which aspects

of their lives are women now less

��ę��ǵȱǽǳǾȱ��ȱ��ȱ��ȱ��ȱ

occurred over the past four decades

have increased the opportunities

available to women, and a standard

economic framework would suggest

that these expanded opportunities for

women would have increased their

��ǯȱǽǳǾMany sociologists he argued that

women’s increased opportunities for

market work have led to an increase in

the total amount of work that women

do.”�ǯȱ��ȱǭȱ�ǯȱ��ǰȱȁ��ȱ��¡ȱ

of Declining Female Happiness’*

This raises questions about the com-

parability of this type of data over time.

Perhaps, for example, women’s stan-

dards for happiness have been raised

along with their increased economic

presence. In economics, the assumption

of ceteris paribus (“all other things re-

maining constant”) is central to our abil-

ity to measure one variable in isolation.

Most forms of quantitative economic

data are adjusted for changes over

time, such as the adjustment of nominal

interest rates to take into account price

��Ě��ȱ��ȱ��ǯȱ��¢ǰȱ��ȱwould be unfeasible to similarly adjust

qualitative data such as happiness. It is

problems like this that have led to the

planned index being criticised as being

“woolly”, and generated accusations

that the government is collecting soft

data that is likely to be manipulated or

misinterpreted.

While the happiness index is likely

to yield some useful data and interesting

insights into the views of the popula-

tion, it is important to realise the limita-

tions of the results, and take the statistics

with a pinch of salt. The debate over the

happiness index brings up fundamen-

tal questions about the purpose and

responsibilities of government. While it

is reasonable to expect the government

to provide the tools and environment,

such as good education, healthcare and

low crime rates with which individu-

als can maximise their welfare, it is less

��ȱ ��ȱ��¢ȱ��ȱ�Ĵ��ȱ��ȱ��Ě��ȱ��ȱ��ȱ��ȱ��ȱ�Ĵ��ǯȱ��ȱ��ȱ��ȱ�ȱ��ȱ�� ȱa more paternalistic state, and we may

begin to wonder whether freedom from

an overbearing government is itself a

factor of happiness.

*American Economic Journal: Economic

Policy 2009, 1:2, 190–225)

The unfortunate phrase “the dis-

mal science” may be challenged

by the increasingly popular

branch of economics that

focuses on maximising happiness rather

than wealth or utility. In November

last year, David Cameron announced

the government’s intention to measure

the happiness of British citizens, with

��ȱę��ȱ��ȱ��¡ȱ��ȱ��ȱ��ȱ��ȱ2012. It has been promoted as a tool to

refocus the government’s priorities and

economic policies. However, with no

��ȱ��ȱ��ȱ��ȱ��ę��ȱ��ȱ��ȱword, critics are questioning how any

meaning can be drawn from this index,

and whether the government should

instead be focusing wholly on economic

growth as the country emerges from

recession.

��ȱ�Ĝ��ȱ��ȱ��ȱ��ȱǻ��Ǽȱ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱŚŚȱ��ǰȱ��ȱ��ȱ��ȱ��ȱ��¢�ȱ��ǰȱ ��ȱ��ȱ��ȱŗşşŞȱ��ȱ��£�ȱ��ȱ��ȱ��ȱ��ȱcontributions to welfare economics. The

��ȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�ě��-tive methods of measuring happiness.

��ȱ��ȱ��ǰȱȃ��ȱ��ȱ��ȱ��ȱ��ȱnew measures will cover the quality of

life of people in the UK, environmental

and sustainability issues, as well as the

economic performance of the country.”

��ȱŗȱ�� ȱ��ȱ��ȱ��ȱ��ȱ��ȱconsiders being the main contributors to

well-being.

Abraham Maslow, an American

psychologist, theorised in 1943 that

human happiness was dependent upon

the realisation of a hierarchy of needs.

The hierarchy ranges from fundamental

physiological needs (food, sex, sleep,

etc.), to safety, love/belonging, esteem

��ȱę��¢ȱ��Ȭ��ȱǻ��¢ǰȱcreativity, etc.). Most conventional mea-

��ȱ��ȱ ��Ȭ��ȱ��ȱ��ȱ��ě��ȱ

BY Aurora Phillips

��ȱ��ȱ��

The Economics of Happiness:

Our under-

standing of happiness

��ě��ȱ�� ȱ��-ations, cultures, and

even genders

“

“Worthwile or Woolly?

EQ

ȊȱIncome and wealth

��-RE�VDWLVIDFWLRQ�DQG�HFRQRPLF�VHFXULW\

��$ELOLW\�WR�KDYH�D�VD\�RQ�ORFDO�DQG�QDWLRQDO�LVVXHV

��+DYLQJ�JRRG�FRQ-

QHFWLRQV�ZLWK�IULHQGV�DQG�UHODWLYHV

��&ULPH

��3UHVHQW�DQG�IXWXUH�FRQGLWLRQV�RI�WKH�HQYLURQPHQW

��+HDOWK

��(GXFDWLRQ�DQG�WUDLQLQJ

��3HUVRQDO�DQG�FXOWXUDO�DFWLYLWLHV��LQFOXGLQJ�FDULQJ�DQG�YROXQWHHULQJ

Source: ONS

Fig.1. Measuring National Well-being:

16

EQUILIBRIUM

A recent World Bank report entitled ‘Africa Development Indicators 2010’ has given an insight into the ominously

termed “quiet corruption”, which is corruption at a grass roots level.

Grand corruption can encompass many things, for example, political ��ǯȱ��ȱ��ȱ��ȱ��Ĵ��ȱby many frontline service workers, ab-sentee teachers who know they will still get paid and building inspectors who purposely do an inadequate structural check on a new shopping mall to save time. These are just two examples of ��ȱ��ȱĚ� ȱ ��ȱ�ě��ȱ��ȱ��ȱ��ȱ��ȱ��ǰȱ��ȱ��Ĵ��ǰȱ��ȱ��ȱprevalent in many developing nations.

Shantayanan Devarajan, Chief Economist for the African Region says, ȃ��ȱ��ȱ��ȱ��¢ȱ�ě��ȱ��ȱpeople directly, but it also has long ��ȱ�ě��ǯȄȱȱ�ȱ��ȱ��ȱ�¡��ȱ��ȱa child who does not learn due to their teacher being absent. The child may not get a good job and this could even lead to ill-health because of their subse-quent inability to purchase medicine. If this is widespread, the work-force will lack the necessary skills to compete in the international market.

In our globalised world, companies’ ��ȱ��ȱ��ȱ��¢ǰȱ��ȱ�Ĝ��ȱgoods or services. Therefore, many African countries may have the labour freely available to produce goods or ��ȱ��ǰȱ��ȱ��Ȃ�ȱ�Ĵ��ȱ��ȱall important investment due to the lack of skills. Furthermore, a child that lacks adequate primary education realistically has no chance of entrepre-neurialism.

African nations need enterprise to have a solid domestic economy. Without it, the vicious poverty cycle may be sustained. Children cannot grow up to become active members of a highly demanding workforce if they are not equipped to do so. As a result, multiple generations may be born in to poverty.

There are many examples of quiet

BY Jivan Mohanty Third Year Economics Undergraduate

corruption, the report contains some ę��ȱ ��ȱ��ȱ��Ǳ

Only 13 % of the resources set aside

for schools actually materialised,

��ȱ��ȱĚ� �ȱ��ȱ��ȱ��-��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǯ

In Chad, 99% of non-salary funds

��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǯȱȱ��ȱ“quiet corruption” is ironic, it is not “qui-

��Ȅǰȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��¢ȱ��ǯ

�ȱ��¢ȱ��ȱŗŜȱ��ȱ��ȱ��ȱřśȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱśŖƖȱ

��ȱę��ȱ�¡��ȱ��ȱ��¢ȱ ��ȱ��ȱ��ȱpay informal fees to speed up the process

��ȱ��Ĵ��ȱ��ȱ��ȱ��ȱ��ǯȱȱ��ȱ��ȱ��ȱ��ȱ��ȱ�� ȱ��ȱę��ȱ��ȱ��ȱ��¢ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ�¡��ȱ��ȱ��ȱ��¢��ǰȱ��ȱ��ȱ��¢ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ǰȱ��ȱ��¢ȱ��ȱ

��¢ȱ��ȱ��ȱ��ȱ�� ȱ��ȱ��ȱ��ȱ�Ĝ��ǯ

The reason quiet corruption has not had the same media coverage that grand corruption has had is because it is very hard to quantify. In most cases, money exchanging hands is not necessary. Therefore the immedi-ate impact is not seen. The long term �ě��ȱ��ȱ��ȱ��ȱ�ȱ��¢Ȃ�ȱ��ȱ��ȱ��ě��ǯȱȱ��ȱ��ȱADI (Africa Development Indicators) report, it blames grand corruption for ��Ě��ȱ��ȱ��ȱ��ȱlower ranked individuals see their seniors involved in large scandals and

Underneath Africa’s Vast Problems, a silent one lurksThe poor do not dare talk about it; reform is needed culturally and structurally.

��ȱ��¢ȱtermed ‘quiet corrup-

tion’ is corruption at

��ȱ��ȱ��

““

EQUILIBRIUM

17

The poor do not dare talk about it; reform is needed culturally and structurally.

Quiet corruption is when public services due to poor people are not delivered to them even though somebody has paid for them. It is failure of service delivery, but if you look at it carefully, it looks like corruption.

““- Shantayanan Devarajan,

Chief Economist for the African Region

therefore assume that they can abuse their powers.

��ȱ��Ĝ��ȱ��ȱ��ǰȱthere is a solution according to Shan-tayanan Devarajan. He says that quiet corruption arises due to “po-��ȱ��ȱ��Ȅǰȱ��ȱ��ȱ ��ȱ��ȱ��ę�ȱ��ȱ��ȱ��ȱor policemen for example. The only real way to combat quiet corruption is to “enable poor people to bring pressure on those politicians in order to bring about change”. This ��ȱ��¢ǰȱ��-ity and a freer media.

Shantayanan gives a Ugandan ��ȱ��¢ǯȱȱ��ǰȱ��¢ȱŗřƖȱ��ȱschool resources were reaching their ��ǰȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��¢ȱ��ǰȱ��ȱ��-dan people demanded change. The local authorities began publishing ę��ȱ��ȱ��ȱ��ȱ�� ȱ��ȱmoney was actually arriving at the schools. He says that today around şŖƖȱ��ȱ��ȱ��Ȃ�ȱ��ȱ��ȱits intended destination.

��ȱ��ȱ��ǰȱ �ȱ��ȱ��ȱ��ȱ

media press for granted. Our envi-��ǰȱ ��ȱ �ȱ��ȱ��ȱperfect information enables us to hold politicians accountable for their actions. An example of this would be the previous Prime Minister Gor-don Brown calling a voter a “bigot” when his lapel microphone was still on and it was reported within minutes by the press. Many African media outlets are very limited in what they are allowed to report or are actually government run. In this way the government can control ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�ȱ��ǰȱtheir perception of the government. There has been a gradual progress in freeing the media in Africa with groups such as the Society for the Development of Media in Africa.

Eduard R. Bos from the World ��ȱ��¢�ȱȃ��ȱ��ȱę��-ing” is another possible solution to quash quiet corruption. This would ��ȱ��ǰȱ��ȱ��ȱ��ȱpublic organisations to record all of their activities. This would hold ��ȱ�Ĝ��ȱ��ȱ��ȱ ��ȱ

��¢ȱ��ǯȱȱ�¡��ȱ ��ǰȱ��ȱ��¢�ǰȱcould warrant incentives. Obvi-��¢ǰȱ��¢ȱ��ȱ��ȱ��ȱ�Ĝ��ȱ ��ȱ��ȱ��ȱę��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��-vent this from happening.

Quiet corruption is a very complex phenomenon and as the ��ȱ��ǰȱ��ȱ��ȱ��ȱȃ��ȱ��£�ȱę��ȱ��Ȅȱ��ȱ��ȱ��ȱ��ǯȱȱ��ȱ��ȱ��ě��ȱ��ȱ��ȱ��ě��ȱ��ȱ��ȱ��ǰȱ��ȱ��ȱreform need to be tailored for that.

In order for Africa to become ��ȱ��ȱ�� ǰȱ��ȱ��ȱ��ȱ��-crease their economic development ��ȱ��ȱ��ȱ��ȱ��ȱĚ��ǰȱonly then can it begin to compete in this highly globalised environment. Contained within this economic de-velopment is quiet corruption; it is �ȱ��ȱ��ȱ��ȱ��ǰȱ��ȱother major hurdles such as grand ��ǰȱ��ȱ��¢ǰȱ��Ě��ȱand natural disasters. Although the term is referred to as “quiet corrup-��Ȅǰȱ��ȱ��ȱ��¢��ȱ��ȱ��ȱ��ȱ��-tude and grasp over Africa.

The Corruption Price Index

placed most Afri-can countries within the bottom half, with only Botswana scoring more than 5/10.

According to 1996 estimates,

$30bn of aid for Africa ended up in foreign bank accounts. This was twice the size of Kenya’s GDP that year.

The African Development

Bank estimates that around 50% of tax revenue is lost due to corruption. The bank also believes that 2-3% of a low income households income is spent on bribes

In 2002, corrup-tion was be-

lieved to be costing the continent $148bn a year.

Statistics

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18

EQUILIBRIUM

The desperation to leave a

legacy, after 13 years in

opposition, seems set to

plague the current Conserva-

tive government as poor reforms are

hastily implemented. Michael Gove

��ȱ��ȱ��ȱę��ȱ��ȱ��ȱ��ȱrestructuring of the education sector,

and so too has Andrew Lansley for

his projected changes to the NHS. It

is not so much the objective - after an

��ȱ��ȱę��ȱ��Ȭ��ȱ��ȱ��ȱ�ȱ��-sary requirement to work to a smaller

budget – that is objected to, but

instead the speed of the ill-thought

��ȱ��ȱ ��ǰȱ��¢ȱ��Ĵ��ȱ��-

sultation or evidence to support them.

Despite the coalition govern-

ment’s agreement to “stop the top-

down reorganisations of the NHS that

have got in the way of patient care”,

Lansley intends to restructure the

healthcare system by abolishing 152

primary care trusts and 10 strategic

health authorities. He intends to set

up consortiums of GPs in their place

to commission the £80 billion a year

of healthcare. In his plan, GPs choose

the providers; inducing competition

��ȱ��ȱ��ȱ��ȱ�Ĝ��¢ǯYet the proposed NHS transfor-

mation has fuelled fear of an impend-

ing piecemeal privatisation as the

government opens up a part of its

vital welfare programme to the free

market. It represents a “profound

shift in power away from the NHS

and the principles that underpin

it” says trauma surgeon Catherine

Blake, and “the end of the NHS as

we know it” according to the chair

of the Royal College of GPs it is. This

is surprising considering the Con-

servatives appeared to be pro-NHS

pre-election.

The fear comes from the price-

based competition being implement-

ed. But will variable-price competi-

tion work in healthcare markets? It

seems counter-intuitive to compete

on price rather than quality in

healthcare, yet this is the direction

proposed by Lansley.

Surely there is compelling evi-

dence to suggest that these proposed

��ȱ ��ȱ��ȱ�ě��ǯȱ��ȱ��¢ȱgovernment certainly believes there

��ȱ��ȱ��ȱĚ��ȱ��ȱ��ȱ ��ȱdata condemning previous results

and supporting a competition-driven

change. In reality though, there is

��Ĵ��ȱ��ȱ��ȱ��ȱ��ǯIn his Bad Science column for

the Guardian, Ben Goldacre recently

highlighted four papers that studied

GP fundholding (which is similar to

the proposed GP consortiums):

- Kay (2002) found it was intro-

duced and then abolished without

��¢ȱ��ȱ��ȱ��ȱ�ě��ǲ- Greener and Mannion (2006) saw

varied results, but no evidence that

patient care was improved;

- Coulter (1995) found no sign

��ȱ��¢ȱ��ȱ��ȱ�Ĝ��¢ǰȱresponsiveness or quality

- Petchley (1995)ȱ��ȱ��Ĝ��ȱdata to make a judgement.

The evidence so far is ambiguous

and in no way supports the argu-

ment that shifting the onus onto

GP consortiums will be any more

�Ĝ��ȱ��ȱ��ȱ��ȱ��ȱ��ǯIn fact, some academics believe

BY Jim Norton

Third Year Economics Undergraduate

Lansley is not the best medicine

“It is a phony revolution, driven not by patients or

clinicians, but by business interests”Catherine Blake,Trauma surgeon

EQUILIBRIUM

19

UNIVERSAL coverage of medical care was

introduced in the UK in 1948, and was fol-

lowed by a number of other countries such

as Japan in 1960, Canada in 1966, and

France in 1967. The provision of medical

FDUH�ZKHQ�WKH�V\VWHP�ZDV�ÀUVW�GHYHORSHG�concentrated on equality, rather than ef-

ÀFLHQF\��DV�PHGLFDO�FDUH�ZDV�SHUFHLYHG�DV�D�ULJKW�QRW�D�JRRG��$V�D�UHVXOW��WKH�ÀUVW�ZDYH�of altruistic healthcare systems were very

generous, and low in terms of cost-sharing.

However, this lack of restraint resulted

in rapidly increasing health expenditure –

between 1960 and 1980, expenditure rose

from 3.8% to 7.2% - which was largely due to

technological advancements in medicine

increasing the cost of treatment. Empiri-

cal estimates have since suggested that

technological change accounts for at least

half of overall growth in costs. So, countries

FRPPLWWHG�WR�ÀQDQFLQJ�XQLYHUVDO�KHDOWK-

care were faced with escalating costs. As a

result, the 1980s saw a shift in governments’

objective: cost-containment, rather than

equity.

In order to do this, governments had

two options: induce people to spend less,

by either increasing cost-sharing or taking

services off public provision, or to increase

regulation, by introducing caps and restrict-

ing technology. The majority of countries

RSWHG�IRU�WKH�ODWWHU��7KH�8.�ZDV�WKH�ÀUVW��and could implement controls with relative

ease as doctors had state-funded salaries

and hospitals were publically owned.

The regulatory constraints were ef-

fective to an extent; costs were lowered

but high-quality care was still achieved.

However, support for the system faded.

Consequently, a third wave of reforms were

implemented, which attempted to increase

cost-sharing and competition.

The three waves of reform show the

evolution of healthcare. The original systems

GLGQ·W�IRUHVHH�WKH�HTXLW\�YHUVXV�HIÀFLHQF\�trade-off, and the process of adapting to

increasing costs whilst maintaining quality

has proved hazardous.

A History of healthcare Reforms

EQ

that the actual process of restructur-ing is counter-productive in itself.

The argument goes that the perceived failures of healthcare com-missioning are the result of constant change and disruption over the past 30 years, in which health bodies have been created, merged, and abolished at least 15 times.

According to Kieran Walshe, pro-fessor of health policy and manage-ment at the University of Manchester, these changes were often “initiated in advance of formal legislative ap-proval, the details of reforms being worked out as they are implemented, and the timetable for hasty consul-tation and implementation being a ��Ĵ��ȱ��ȱ ��ȱ��ȱ��ǯȄȱ��ȱ��ȱthe latest reforms? He believes they “look likely to make all these mis-��ȱ��ǯȄ

Furthermore, the transition faces further costs in terms of both money and service. Closing down, merging, ��ȱ��ȱ��ě��ȱ��ȱ��ȱ��ȱNHS will be expensive due to redun-��ǰȱ��¢��ǰȱ��ȱę��ȱnew premises. Using the National ��ȱ�Ĝ��Ȃ�ȱ��¢ȱ��ǰȱ��ȱestimates that this may well cost between £2bn and £3bn. The transi-tion also creates a distraction that can �ě��ȱ��ȱ��ǯȱ��ȱ��ȱ��¢ȱdemands managerial and clinical time ��ȱ�ě��ǰȱ��ȱ��¢��ȱ ��ȱ��ȱ��ȱuncertain of their future

So are reforms necessary? If we rely on the evidence given by Camer-on and Lansley, the need seems great. ��ȱ��ȱ��ȱ�Ĝ��ȱ��ȱ��ę��ȱ��ȱ��ȱ��ȱ��ȱ��ȱCare Bill, the UK spends the same amount on healthcare as France, yet it has double the rate of death from heart disease.

This data is deceptive though when taken out of context, as John Appleby, the chief economist at the British medical Journal, noted recent-ly: “not only has the UK had the larg-est fall in death rates from myocardial infarction between 1980 and 2006 of any European country, if trends over

the past 30 years continue, it will have a lower death rate than France ��ȱ��ȱ��ȱŘŖŗŘǯȄȱ��¢ȱ��ȱobserves that this trend was achieved with a slower rate of growth in healthcare spending than France. The most recent OECD spending com-parisons (2008) showing that the UK spent 8.7% of GDP on health, whereas France spent 11.2%.

��ȱ��Ȃ�ȱ��¢ȱ��ȱstatistics misrepresent the perfor-mance of the NHS and, far from high-lighting the need for drastic restruc-turing, points towards the need to persevere with the current system. It also exposes the changes as far more ideological rather than a reaction to any great need, with the data being employed for political expedience.

Improving the NHS through structural reform is a decent objec-tive, but not if it undermines the foundation of the institution through privatisation. Changes need to be scrutinised carefully and debated openly, in and outside of parliament. Many reforms instigated through ideology are left open to reform every time a new government comes in. ��ǰȱ��ȱ��ȱ��ȱ��Ĵ��ȱ��ȱ�ȱ��Ȃȱ��ȱ��ȱ�¡��ǰȱthe government needs to implement a “pragmatic, centrist philosophy for a sustainable state-run healthcare that could command widespread support ��ȱ��¢ȱ¢��ȱ��ȱ��Ȅǯ

This is not done by hurriedly bun-dling together an ideological reform ��ȱ��ȱ�Ĵ��ȱ��ȱ��ȱ��ȱ��ǰȱ��ȱ��¢ȱ��ȱ�Ĵ��ǯȱThis already has widespread op-position and carries a huge risk of major failure. As Catherine Blake says, in her damning assessment, “it is a phony revolution, driven not by patients or clinicians, but by business interests. Less of a cure, I would say, more like a second dose of the same ��ǯȄ

20

EQUILIBRIUM

BY Sam Carr-Archer

Second Year History Undergraduate

The Departure of Modern Economics

from its Founding Father

EQUILIBRIUM

Adam Smith has been given

the title, warranted or not,

of the Founder of Econom-

ics. His book, the Wealth of

Nations (1776), has been accepted by

history as one of those classics rarely

read but often mentioned, especially

��ȱ��ȱę��ȱ��ȱ��ȱ��ȱ��ȱ��ȱeconomics.

The Smith of popular thought

was the pioneer of the principles of

liberal capitalism and free markets.

��ȱ��ȱ��ȱ��ȱ��ȱ��ę��ȱof the commercial society, it is more

useful to understand Smith in the

political context of his time. Smith

was also a moral philosopher and saw

the political economy he was under-

taking as part of the ‘Science of the

statesman or legislator’.[1] It seems

that whatever later readers took from

Smith, he himself wanted to entangle

his text in the atmosphere surround-

ing statesmen who were in the

process of leaving behind feudalism,

dealing with industrialisation and

creating a virtuous society. Although

he was writing two centuries ago, his

thoughts are just as relevant today as

Britain comes to terms with a broken

society.

��ȱ��ȱ ��ȱ�ȱ��Ĵ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱę��ȱ��ȱthe period known as the enlighten-

ment. This period saw the growth of

empiricism and science, which in our

ę��ȱ��ȱ ��ȱ��ȱ�Ĵ��ȱ��ȱ��ȱ��ȱ��ȱof man. His most famous text has

already been eluded to, the Wealth of

Nations, but to fully appreciate Smith

account must be taken of his earlier

work: The Theory of Moral Senti-

ments. The two books were intended

to be part of a trilogy that would go

��ȱ �¢ȱ�� ȱ�ě��ȱ��ȱ��-pretation of the science of man.

In The Theory of Moral Senti-

ments, Smith explains all humans

as having sympathy for their fel-

low man. The book opens with the

��ȱ��ȱȁ� ��ȱ��ę��ȱ��ȱmay be supposed, there are... some

principles in his nature, which inter-

est him in the fortunes of others, and

render their happiness necessary

to him, though he derives nothing

from it, except the pleasure of seeing

it.’[2] Man’s sympathy came from the

desire to identify with the emotion of

others and the shaping of men’s mor-

al sentiments and ideas of propriety

were the product of day to day social

interaction. The

reading of these

ideas alongside

The Wealth of

Nations, where

men were put

on an equal

footing by

their new role

as consumers

and produc-

ers interact-

ing in the

marketplace,

allows

us to see

happiness

and virtue

as the

product of

economic relationships. For Smith the

marketplace had taken on the role of

the polis of ancient Greece and virtue

could be achieved through economic

relations. These elements of Smith

show him as having a moral vision of

capitalism, where an invisible hand

can produce social harmony through

competition.

Although this commercial society

was desirable, it did breed its own

corruptions and remedying these

was the role that Smith saw for the

statesman. The wretched spirit of mo-

nopoly was everywhere, encouraging

a move towards mass production

which threatened the regional based

production that so many ordinary

men’s happiness depended upon.

[3] Additionally, Smith realised that

the division of labour would result

in ‘[men] whose whole life is spent in

performing a few simple operations,

��ȱ ��ȱ��ȱ�ě��ȱ��ǯǯǯȱ�� ¢�ȱ��ȱsame... [and so]... has no occasion to

exert his understanding or to exercise

��ȱ��ǯǯǯȱ��ȱ��ȱ��Ĝ��-ties which never occur. He... generally

becomes as stupid and ignorant as it

is possible for a human creature to

become.’[4] These are just two of the

ills Smith foresaw in the commercial

society and it was very much the

statesman’s role to cure these woes

through public institutions such as

free education and a form of competi-

tion commission.

I have tried in this small space

to open up ideas about Adam Smith

which help historians and economists

realise that, at root, economics was

not the discipline of how to make

��¢ȱ��ȱ ��ȱę��¢ȱ��ȱ��ȱ��ȱ

mor-

als and philosophy

of the enlightenment and the science

of man. The thrust of political econ-

omy was towards how to develop a

virtuous society rather than simply

how to produce economic growth.

Coupled with this was the acceptance

from the very beginning that the

commercial system itself, although

��Ĵ��ȱ��ȱ��ȱ��ȱ�¢��ȱ��ȱ��ȱ��ǰȱ��ȱ��ȱĚ� �ȱ ��ȱrequired government intervention.

The retrospective view that Adam

Smith propagated an unbridled

free market with minimal govern-

��ȱ��ȱ��ȱ��ȱ��ȱę��ǯȱTherefore it is somewhat contradic-

tory that Smith now lends his name

to modern institutions and arguments

that promulgate those principles.

Furthermore the modern no-

tion that the free market structure is

natural and it is enough to allow the

market to play out its peculiarities

without too much worry, was not

something that beset the so called

founder of economics. Perhaps in the

future there should be a return to the

original concerns of Adam Smith sur-

rounding ideas about the condition of

��¢ȱ��ȱ��ȱ��ȱę¡��ȱ ��ȱ��ȱ��ȱ�� ȱę��ǯȱ

With politicians speaking about

‘broken Britain’, we may lament

that so much of the morals and

��ȱ��ȱ��¢ȱ ��ȱę��ȱ��ȱof economics. It may even become

important to change our percep-

tion of economic performance and

realise that there were concerns other

than growth for the original political

economists.

[1] R. F. Teichgraeber III, ‘Adam Smith and the Tradition’, in Econ-

omy, Polity and Society: British Intellectual History 1750 – 1950, eds.

S. Collini, Richard Whatmore and Brian Young, (Cambridge, Cam-

bridge University Press, 2000), p. 86.

[2] Bonar, J. (1926) ‘The Theory of Moral Sentiments by Adam Smith’,

Journal of Philosophical Studies, vol. 1, (1926), pp. 333-353.

[3] N. Phillipson, ‘The Scottish Enlightenment’, in The Enlightenment

in National Context, eds. Roy Porter and Mikulas Teich, (Cambridge,

Cambridge University Press, 2001), p. 36.

[4] An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith, (London: Methuen and Co., Ltd., ed. Edwin Can-

nan, 1904), vol. 1, p.178.

“The view that Smith propagated an unbridled free market with minimal government involvement is based in ÀFWLRQµ

19

References

EQ

22

EQUILIBRIUM

The sociologist, T.S. Kuhn, described the way in which ��ȱ��ȱ��ȱę��ȱand starts.[1] Periods of

advance and discovery are followed by times when everything seems to have become bogged down. After stagnation, renewed advance requires a “paradigm shift”, which is a change in the basic model and its associated assumptions and its replacement by a new one. Such changes are habitually resisted by many established scien-tists. Few welcome the idea that the learned articles that they have been writing are without relevance. As these scientists are the gatekeepers to the learned journals in which younger scientists must publish if they are to advance their careers, the young are also discouraged from breaking into new territory. It has therefore been remarked, with more truth and wit than charity, that science advances obituary by obituary.

Economics today needs a para-digm shift.[2] Prior to recent events, a large measure of agreement had been built up about the discipline’s underlying theory, which became known as the neo-classical consensus. It had, however, major omissions and these have been revealed by the ��ȱę��ȱ��ȱ��ȱ��ȱ��ȱvital ones. The neo-classical model of the economy has no place for debt or asset prices. The recent disaster followed excesses in both, which were ignored by policy makers. It has thus become clear that the model is ��¢ȱ��ǯȱȱ�ȱ��Ĵ��ȱ��ȱis essential if we are to understand how the economy works and to avoid repeating the policy errors which led to the present “great recession”.

While it is generally agreed that consensus economics theory has been found wanting, there have been a ��ȱ��ȱ��ȱ��Ě��ȱ�� ȱabout what went wrong. I have read many claims as to why it failed

and I won’t give you a list, as so many seem to have been penned by “disgusted of Tunbridge Wells”. But a common theme has been to blame the maths. I think this is wrong. In �¢ȱ�� ȱ��ȱ��ȱ��ȱ��ȱ��ę�ȱmethod, rather than bad maths, that has been the root cause of the failure.

The world is too complicated for ��ȱ��ȱ��ȱ ��ȱ��ę��-tion. Description alone is inadequate. We therefore build models. Satisfac-tory ones have two characteristics.

First, they are self-consistent and second, they work. We have found

ENTERPRISE:The Challenge for Economic Theory

We are, I hope, at the beginning of a

very important change in economic theory that will create a new paradigm.

“

“By Andrew Smithers

EQUILIBRIUM

23

that the economy is perhaps even more complicated than the physical universe. Complex and self-consis-��ȱ��ȱ��ȱ��Ĝ��ȱ��ȱ��ǯȱ��ȱ��ȱ��Ĝ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱso is no criticism. Economists have constructed models which are based, like Euclid’s geometry, on a num-ber of axioms. Unfortunately many economists have thought that the self-consistency of these models is ��ȱ��ȱ��Ĵ��ǯȱ��¢ȱ��ȱ ��ǰȱ��ȱdon’t blame the maths. Self- consis-tency is only one of the two require-ments. The second one is that the models work. We must therefore be able to test them against the facts and only accept them if they pass these tests. It is here that so much modern economics has fallen down.

An outstanding example is ��ȱ�Ĝ��ȱ��ȱ¢��ȱǻȃ��ȄǼǰȱ ��ȱ��ȱ��ȱę��ȱ��ȱ�ȱ��ȱ��ȱ�Ĝ��¢ȱ ��ȱno-one any more assumes can be applied to the real economy. In the �¢ȱ��ȱ ��ȱ��ȱ ��ȱę��ȱ��ȱ��ȱ��ȱ ��ȱ�ȱ��ȱ��¢ǲȱ��ǰȱwhen tested, it didn’t work. It was ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ę��ȱ��ȱ��ȱ��ȱbecame testable or dropped. It has not proved possible to modify into a testable form. It is a sad comment on the economics profession that many ��Ě��ȱ��ȱ��ȱ��-less continued to use the theory as if it were correct.

There are often arguments as to whether or not economics is a ��ǯȱ�ȱę��ȱ��ȱ��ȱ��ȱ��ȱ��ę�-able debate, as it can be approached ��ę��¢ǯȱ��ȱ��ȱ��¢ȱ ��ȱ��ȱ��ȱ��ȱ��ę��¢ǰȱ ��ȱ��ȱexactly the course followed by those ��ȱ��ȱ��ȱ��ǰȱ��ȱ��ȱ��ȱthat it is not a testable hypothesis. Their work then falls the wrong side of the philosopher, Karl Popper’s, famous demarcation between science and non-science.[3]

��ȱ��ȱ��ȱ��ȱ��ȱ��¢ȱ�¡��ȱof this. Charles Goodhart has noted a similar failure in monetary econom-��ǯǽŚǾȱ�ȱ��ȱ��ȱ��ȱ �¢ȱ��ȱthe old approach, which uses the so-called money multiplier, is con-structed from axioms and ignores the ��ǯȱ�ȱ��ȱȃǳ�� ȱ��ȱ��ȱ��-

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lytical failure was allowed to persist ��ȱ��ȱ��ǯȱǳǯȄȱ��ȱ��ȱȃ��ȱwhy macroeconomists so commonly refuse to look at empirical observa-tions in their theoretical formulation ��ȱ��ǯȄ

In an exchange of emails on this subject Charles Goodhart reminded me of the story favoured by econo-mists who are critical of the profes-sion’s reliance on assumptions rather than facts. It recounts how a group of starving people on a desert island who have lots of canned food but no opener. They have an economist among them, who says “Let’s assume �ȱ��ȱ��ǳǯȄ

In a paper which Stephen Wright and I published nearly a decade ago[5] we argued that central bank-ers ran great risks by ignoring asset prices. This they proudly claimed to ��ǰȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��-lectual foundation for their inaction. Not only were they basing their argument on an untestable and thus ��ę�ȱ�¢��ǰȱ��ȱ��ȱWright and I have shown that the stock market can become danger-ously overpriced and that the model which demonstrated this was testable and robust when tested.[6] The risks �ȱ��ę��ȱ��ȱ��ȱ��ȱ��ȱreal.

I have remarked that the neo-classical consensus has, notoriously, no place in its model for debt or ��ȱ��ǯȱ��ȱę��ȱ��ȱ��ȱfrom a massive build-up of debt and overblown asset prices. Asset bubbles and excess debt go together and asset prices provide valuable signals of danger. A lot of debt is bor-rowed against the apparent value of property and investment portfolios. When asset prices fall, there tends to be a panic among both debtors, who worry that they will have problems ��ȱ��ę��ȱ��ǰȱ��ȱ��ǰȱwho doubt whether they will be repaid. These panics cause reces-sions and the more debt there is, the greater the risk that falling asset

prices will cause a severe recession.We are, I hope, at the beginning

of a very important change in eco-nomic theory which will create a new paradigm. The faults of the previous consensus are of course more obvi-ous than the form in which the new paradigm will develop. I expect that this will have a number of strands. First, it will have room for the way ��ȱ��ȱ��Ĵ��ǯȱ��ǰȱ��ȱ ��ȱrecognise that assets can be danger-ously mispriced. I am happy to be able to write in your magazine that a former alumnus of York University’s economics department is doing valu-able work in this area.[7] I hope this will encourage you to be similarly critical of the current received wis-dom in economics. I must of course warn you that it is wise to hide or at least control your scepticism when taking exams.

The view that Smith propagated an un-bridled free market with minimal government involvement is based in ę��

“

“

EQ

Andrew Smithers is one of the

world’s foremost economists.

+H� LV� D� UHJXODU� ÀQDQFLDO� FRP-

mentator, columnist, and has

authored several acadameic

publications.

In 1989, he founded Smithers

& Co, a company that pro-

vides advice on internationas-

set allocation.

He co-authored Valuing Wall

Street with Stephen Wright

(2000)and wrote ‘Wall Street

Revalued: Imperfect Markets

and Inept Central Bankers’

(2009).

%LRJUDSK\

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24

Why is it that illicit black

market activities always

seem so full of violence,

even if violence itself is

not one of the goods or services pro-

vided in that market?

Let us take the example of drugs.

Drugs that are legal, such as paraceta-

mol and antihistamines, can be bought

either over the counter, or with a

simple prescription. At no point in the

transaction between my chemist and

the consumer does violence occur. Nor

is there any violence involved in the

manufacture or supply of pharmaceuti-

cals. Is it then the nature of illegal drugs

that makes business surrounding them

violent, or is it their status as illegal?

This question can be answered us-

ing simple economic theory. When a

State decrees an economic good illegal,

it does not suddenly stop being traded

and consumed. Why is that? In explain-

ing the nature of a good, Carl Menger

outlines four requirements that must be

��ę��Ǳȱ�ȱ��ȱ��ǲȱ��ȱ��ȱenable the thing in question to satisfy

��ȱ�ȱ��ǲȱ�� ȱ��ȱ��ȱ��ȱ��ǲȱ��ȱ��Ĝ��ȱ��ȱover the thing to direct it towards the

satisfaction of said need. No where does

the factor of legality come into play.

The legal status of a good does how-

ever send signals to market actors about

the risk involved. Most people will

automatically cease consumption and

trade of a good deemed illegal. These

people can be roughly categorised as

�� Ǳȱ��ȱ��ȱ��ȱ��ȱ��ȱ��¢ȱ�¢��ǲȱ��ȱ ��ȱ��ȱ�ȱ�� ȱ��ȱ��ǲȱ��ȱ��ȱ ��ȱ�ȱ��¢ȱdeveloped link between state laws and

their own perception of morality.

Thus we are left with people who do

not fear the State’s power, people who

��ȱ ��ȱ��ȱ��ȱ��Ǳȱ��ȱ ��ȱ��ǰȱ��ǰȱȱ��ę��ȱ��ȱ��ȱ��¢ȱto violently resist the State’s own vio-

lence. In this set of people, very few will

enter black markets just for thrill-seek-

ing purposes. Most will enter because of

��ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱ��ę��ȱthat comes from restriction of supply in

the market. It would seem that from the

very beginning, a very restricted and

��ę�ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱblack markets.

Moreover, black markets fail to have

many of the characteristics common to

white markets. The State’s monopoly

BY Fred Furash

Second Year Economics Undergraduate

on legitimate judicial arbitration and

simultaneous prohibition of certain

goods, makes arbitration through State

courts for inside disputes impossible.

Thus a demand for the arbitrating func-

tion of many crime organisations arise,

which, because of the violence-prone

set of people that participate in it, will

itself display a harsh and violent form of

dispute resolution.

The need to stay secretive about their

operations will also create incentives for

criminal organisations to take on a form

which is perhaps in some ways economi-

��¢ȱ��Ĝ��ǰȱ��ę��ȱ��¢ȱfor security. “Blood is bad for business”,

��ȱ��¢��ȱ��ǲȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱȃę��Ȅȱ��ȱresilient, which is why when one cut’s

�ěȱ��ȱ�¢��Ȃȱ��ǰȱ��ȱ��-ately grows in its place. This is to be the

perennial outcome if countless billions of

taxpayers’ money continues to be spent

hacking away at the branches, and not

��ȱ��ǰȱ��ȱ��ȱ��ę��ȱ��ǯThe irony is that the harder the gov-

ernment tries to eradicate black markets,

the more it will fuel them. With every

new restriction and regulation the gov-

��ȱ��ȱ��ǲȱ��ȱ ��ȱ��¢ȱ��ȱ�ě��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǰȱthe government raises the risk, and hence

��ȱ��ę�ǰȱ��ȱ ��ȱ��ȱin a black market.

To further complicate this problem,

��ȱ��ę��ȱ��ȱ��ȱ��ȱ��ǰȱ��ȱincentives arise for the corruption of the

police itself. Just think of the Prohibi-

tion era. There is an obvious connection

between modern drug regulations and

the alcohol prohibition of the 1920’s and

early 30’s. It is no surprise that the drug

trade is today one of the greatest sources

of revenue for organised crime, just as

alcohol was during its prohibition.

Note that I have so far ignored

entirely the moral aspect of the argu-

ment, which concerns itself with whether

people have the right to do what they

will to their own bodies. There are a lot

��ȱ��ȱȃ��Ȅȱ��Ĵ��ȱ��ȱthere, and vast police resources are being

allocated towards catching and prosecut-

ing people who peacefully consumed

drugs without harming anyone but (per-

haps) themselves. Does anyone wonder

��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��Ĵ��ȱuse dealing with the murderers, rapists,

and thieves out there?

Proponents of prohibition argue

that if, for example, drug markets were

decriminalised, drug addiction would

explode, yet empirical evidence conduct-

ed over the past decade in countries that

have successfully decriminalized drug

use suggests otherwise.

The United Kingdom has some of the

harshest drug laws in Europe, and yet

Cocaine use in the general population

aged 15-64 has reached an astounding

ŜǯŗƖǱȦǲȱ��ȱ��ȱ��¢ȱ��ȱ��ȱcountry. Portugal on the other hand,

which has decriminalized all forms of

drugs from Cannabis to Cocaine and

Heroin back in 2001, and replaced in-

��ȱ ��ȱ�ě��ȱ��ȱ��ǰȱhave seen a reduction in its use to 0.9% .

It is time policy stopped being made

on an intuitive level, and some measure

of common sense and economic theory

are introduced.

The proclivity of black market participants towards violence

Staying secretive �ě��ȱ�ȱ��ȱ

��ȱ�Ĝ��¢ǰȱ��ę��ȱ��¢ȱ��ȱ��¢ǯ

““

EQ

EQUILIBRIUM

25

rity to investors, the government cre-ated Legal Stability Pacts. This ensures regulation is stabilized, and if it were to change, the previous regulation will be guaranteed throughout the period, of up to twenty years.

Five years after Colombia was ranked placed 14th on the failed state index, it has improved its position. Although still on the 2010 index, it now sits at 46th. Colombia has even gained

��ȱ��ȱ��ȱ�ě��ǰȱ ��ȱ��ȱGeoghegan (CEO of HSBC from 2006 – 2010), stating “The new BRICs are Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (CIVETS). They are countries with major popula-tions, dynamic, diverse economies, political stability and each of them has a brilliant future. Any company with global ambitions will have to take im-mediate action in these markets.”

In 2005 Colombia was ranked 14th in an index of failed states. The criteria considered included the extent of severe economic decline,

uneven economic development, and a range other political and social factors.

However in 2009 GDP per capita (measured on a PPP basis, in $US) was $8,936.41, an improvement on the 2005 ę��ȱ��ȱǞŝǰŘŚŖǯŖŝǯȱ��ȱ��ȱ��ȱ��-ployment is at one of its lowest levels in ten years, although still in double ę��ȱ��ȱŗŖǯŞƖǯȱ��ȱ��ȱ��ȱ��ȱ��ȱProductive Transformation Program in ŘŖŖŝǰȱ��ȱ��ȱ��ȱ��ȱ��¢ǰȱ ��ȱsuch objectives as increasing competi-��ǰȱ��ǰȱ��ȱ�Ĵ��ȱ��ȱforeign investment.

Having a high level of security is vital to economic development. The Revolutionary Armed Forces of Colombia (FARC) are one of the largest anti – government insurgent groups, who claim to represent the rural poor, ��ȱ ��ȱ��¢ȱ��ȱ��ȱ��Ě��ȱwith the government. Groups such as these can deter potential investors from the country. However, the government is taking action against such move-ments, and with the collective action of Colombia’s security forces, successful raids on FARC bases have taken place.

��ȱ��ȱ��¢ȱ��ȱŘŖŖŘǰȱthere popularity is no longer strong enough to over through the govern-ment. As the security of the nation improves, this provides a fundamental building block, in aiding the construc-tion of the Colombian economy, allow-ing for tourism, and greater foreign direct investment.

��ȱ��ȱ��ȱ��ȱ��ȱmarkets, domestic industries had to adapt. They had two options. Either they could move into new sectors of activity, or specialise in their current market. The government helped sup-port this, with a Public – Private Part-nership policy, which aimed to seek development of new sectors, as well as making existing sectors competitive ��¢ǯȱ��ȱę��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ě�ȱ��ȱ��ȱ ��ȱ��ȱallowed, but in return the government would provide education, improved regulation and develop infrastructure.

Sixty six free trade zones currently exist in the country, which seek to �Ĵ��ȱ��ȱ��ǰȱ��ȱa range of incentives. This allows for new opportunities to open, such as business-processing-outsourcing ven-tures, serving the US Hispanic market in voice services. This could potentially lead to 300,000 jobs being created by 2019. To provide a greater level of secu-

Economic development in:

Columbia

The new BRICS, including Colom-bia, are countries with a brilliant future. Any company with global ambitions will have to take immediate action in these markets.

““- Michael Geoghegan, CEO of HSBC, 2006-10

EQ

Columbia, currently ranked 46th, has improved 32 places since 2005

26

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A student started the discus-sion by asking Lord Stern ��ȱ��ȱ ��ȱ��ę��ȱ ��ȱ��ȱresponse to his report, pub-

lished in 2006, Lord Stern answered that there has certainly been some positive change over the last 3.5 years. Govern-ments have begun to pay much more �Ĵ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǲȱin 2006 it was glazed over at the G8 summit. In 2010, more than 100 world leaders showed up to the UN Climate Change Conference in Copenhagen dur-ing December 2009. The fact that there have been advanced discussions clearly shows that governments are beginning to act. This can be seen in develop-��ȱ��ȱ��ȱ ��ǲȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�ě��ȱof climate change in their 11th 5 year plan to combat climate change , while India has imposed tax controls on CO2 emissions .

However, when asked about the

risks of climate change, three years after the Stern Review Lord Stern did allow that emissions are growing faster than he had expected, and that the capacity of the planet to cope with this was less robust, as the speed with which the polar ice-caps are melting shows. That does not mean, however, that we cannot solve climate change. He pointed out that the rate of techno-logical progress in the areas of ‘green’ technology, as well as government will-ingness to act can adapt fast enough to combat the increasing emissions. Although, at the moment, he also ac-knowledged that no technology can be shed yet, in response to queries about the role of nuclear energy, he claimed that it is still needed in conjunction with other sources of energy. Lord

Stern also appeared to be hopeful of the commitment of the future government of Britain to climate change. He claimed that all three major parties seem to be ��Ȭ��ȱ��ȱ��Ĵ��ǰȱ ��ȱ��ȱ��ȱ��Ĝ��ȱ��Ȭ��¢ȱ��-ment on this issue for strong-policies to survive even a hung-parliament.

In answer to questions about scepticism, Lord Stern acknowledged that short-term weather does have a ��¢ȱ��ȱ��Ě��ȱ��ȱpeople’s perceptions of climate change, despite the evidence we can see in ��ȱ��ȱĚ��ȱ��ȱ��ȱ��ȱ�ȱsevere threat to environmental stability. He explained that one piece of evidence ��ȱ��ȱ��ȱ��ȱ��ȱ��Ĵ��ȱ��ǰȱ��ȱthe low surface temperatures of oceans and solar activity, yet the observation

BY Elena VillarrealThird Year PPE Undergraduate

LORD STERN

Lecture Analysis:

It is possible that competition in the market will push private corporations to green policies even more than government initiatives

““

Lord Nicholas Stern is the IG Pa-tel Professor of Economics and Government at the LSE’s Asia

Research Centre, as well as Chairman of the Grantham Institute on Climate Change and the Environment, also at the LSE.

He is also special advisor to the Group Chairman of HSBC on Climate Change and the Environment, has been a World Bank Chief Economist and Head of the Government Economic Service. He headed the Stern Review on the Economics of Climate Change , published on October 30th, 2006, which has been labelled ‘the most compre-hensive review ever carried out on the economics of climate change’ (OCC, 2009). It has sparked debates on climate change from politicians to ordinary people, turning Nicholas Stern, who became Lord Stern of Brentford in 2007, into a household name. On Tuesday 9th March 2010, before giving the annual Ken Dixon lecture, in which he called for “Strong Decisions” to be made by world leaders over the coming year, Lord Stern agreed to meet with students of the Economics Society for a question and answer session revolving around the future of climate change policy.

The discussion:

About the Speaker:

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27

Name: Nicholas Herbert Stern, Baron Stern of Brentford, Kt, FBA Born: 22 April 1946, HammersmithNationality: United KingdomProfession: British economist and academic. Institution: London School of Economics Field: Political economicsAlma mater: University of Oxford, University of CambridgeContributions: The Stern ReviewCurrently: IG Patel Professor of Economics and Government, Chair of the Grantham Research Institute on Climate Change and the Environ-ment at the London School of Economics (LSE), and 2010 Professor of Collège de France.Previous: Senior Vice President of the World Bank (25 September 2000)

CV: Nicholas Stern

of trends over the last few decades has shown that it is becoming warmer. He ��ȱ��ȱ��ȱ��ȱ�Ĵ��ȱ��ȱ��ȱ��ȱ ��ȱ��Ĵ��ȱ��ȱ��-��ȱ��ȱ��ȱ��¢ȱ��ę�ȱ��ȱbeing made. He argued that, although this is partly due to a favour of govern-ment to communicate, newspapers and the media in general have a lot to answer for, as do some academics. He claimed there is a need for stronger arguments for the urgency of climate change, and that it should be treated as an issue which is particularly sensitive to counter-arguments, much like health campaigns against smoking. He also noted that, despite the global recession, as many people do still believe there is a strong argument for urgent action, but ��ȱ�Ĵ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱenvironmental issues.

There were several questions to ��ȱ��ȱ��ȱ��ȱ�ě��ȱ��ȱ��ȱ��ȱrecession on the willingness to invest in ‘green’ technology, as well as gen-eral corporate policies on controlling greenhouse gas emissions. He replied by arguing that investors considering ��ȱ��¡�ȱ��ȱ¢��ȱ ��ȱę��ȱ��ȱ��ȱcarbon constraints will be ‘too biting to ignore now’. What is important to in-vestors is that investments can be long-term, credible and transparent. He also argued that corporate social responsibil-ity has become extremely important for a company’s image to consumers and investors. It is possible that competition in the market will push private corpora-tions to green policies even more than government initiatives. He cited the fact that Walmart now feels the pressure to use clean produce, shown by its com-munications with suppliers . However, it is always governments that need to set emissions targets; organise carbon-trading schemes; regulate deforestation; and invest in public R&D.

When asked about the merits of carbon-trading schemes, and the poten-tial to expand them globally, Lord Stern argued that these schemes do have real advantages. The closer to tightening ��ȱ��ȱ��ȱ��ȱ��Ĵ��ǰȱ��ȱ ��ȱthe competition between companies to be ‘green’, it is feasible that the EU may be able to come close to its target of a 30% cut in emissions by 2020. He also pointed out that China has been consid-ering a cap and trade scheme in order to regulate greenhouse gas emissions.

Despite the action we have taken to ��ȱ��ȱ�ě��ȱ��ȱ��ȱ��ǰȱLord Stern argued that even with re-sponsible action, we cannot prevent the change of 1°c from damage done previ-ously, and so we need to have some measures to adapt to climate change. While this may not seem much, over millions of years the earth might only experience a 3°c change in temperature, over centuries this is very serious. In order to prevent more change, we need to invest further funds into the mitiga-��ȱ��ȱ��ȱ�ě��ȱ��ȱ��ȱ��ǰȱallocated on a regional basis.

Students asked Lord Stern how important it was that developing countries curb their greenhouse gas emissions, and how the richer countries ��ȱ��ȱ ��ǰȱ��ȱ��ȱ��ȱ��Ĵ��ȱ��ȱCO2 could convince them to do so? He replied that we can only combat climate change through collaboration; it ��ȱ ��ȱ��ȱȁę��Ȭ ��Ȃǯȱ��ȱ��ȱ��ȱ��ȱChina, as the fastest developing country in the world should lead the way to low-carbon growth. We need to break the link between growth and carbon emissions. There needs to be a 40% drop in CO2 emissions from 1990 levels by 2020. There are certainly inequitable contributions to greenhouse gas emis-��ǰȱ��ȱ��ȱ��ȱ�ě��ȱ�� ȱcountries cannot achieve what the 2020 goals .

Lord Stern pointed out that there is �ȱ��ě��ȱ�� ȱ��ȱ�� ȱand telling someone what to do. While developing countries are most at risk of being ‘told what to do’, they have their own scientists, and there needs to be a genuine discussion between countries, partnerships designed to combat green-house gas emissions on a global scale. This kind of approach is taken by cor-porations like DSM Desotech who have made several breakthroughs on tackling

��¢ȱ��ȱ��ȱ�ě��ȱ��ȱ��ȱ��ǰȱand who have shared this information with governmental bodies and NGOs . Governments need to come to their own understanding of the risks of climate change. Mexico for one has shown a much stronger commitment than many other countries, and China and India also recognise their own vulnerability. The problem is convincing people to act together to change radically, although we can’t see exactly where we’re going.

Despite the need for collaborative �ě��ǰȱ��ȱ��ȱ��ȱ��ȱ��¢ȱmeasures can be taken against climate change without a global agreement, but what is really needed is mutual assurance between countries and their people that everybody will be making ��ȱ��ę��ȱ��ȱ��ȱ��ȱchange. He argued that there is a need for countries to lead, such as China and the US, and for global commitments to create a sense of going forward that can be depended on.

In association with:

EQ

28

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Sam Asfahani likes ‘fair marking of assessments’

Like Comment Share

the National Student Survey

Tim Ellis likes ‘getting enoughadvice and support for my studies’

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'RQ·W�MXVW�VKDUH�\RXU�WKRXJKWV�ZLWK�\RXU�IULHQGV . . .If you’re in your final year, take the National Student Survey and get your voice heard where it matters!

�ZZZ�WKHVWXGHQWVXUYH\�FRP�ZZZ�WKHVWXGHQWVXUYH\�FRP

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Greece, who 7 years ago was

prospering economically

��ȱ�ȱĚ��ȱ��ȱ��ȱ��ȱ��¢ǰȱ

celebrating the hosting of an Olympic

��ȱ��ȱ ��ȱ��ȱ��ȱfootball championship, now stares into

��ȱ��¢��ǯȱ��ȱ�¢ȱ��ȱ��ę��-��ȱ��ȱ��ȱ��ȱ�� ȱstrikers and the police in the streets of

��ǰȱ��ȱ ��ȱ�� ȱ�ȱ��¢Ȃ�ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��-

denly and so dramatically.

The story perhaps goes back as far

��ȱŘŖŖŗȱ ��ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ�¢��ȱę��ǲȱ��ȱ�¢��-��ȱę��ȱ��ȱ��ȱ��ȱ��¢��ȱ��ȱ��ȱ��ȱ�¢��ȱę��ȱ��ȱ��ȱ�ȱ��ȱ��ę��ȱ�� ȱřƖȱ��ȱ��ȱ��ȱ�ȱ��ȱ��ȱ�� ȱŜŖƖȱ��ȱ��ǯȱ��ȱ��ȱ��ȱę��ȱ��ȱ��ȱ��Ȃ�ȱ��ȱ��ȱ��Ȃ�ȱ��¢ǰȱ��ȱ ��ȱ��ȱ��ȱę��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ǯȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ£��ǰȱ��ȱ��ȱ��ȱ��¢ȱ�ȱ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱability to borrow cheaply. And borrow

��¢ȱ��ǲȱ��ȱ��ȱ��ȱ��¢ȱ�� ȱ��ȱ�ȱ��ȱŚƖȱ�� ȱŘŖŖŖȬŘŖŖŝǰȱ��ȱ��Ȭ��Ȭ��ȱ��ȱ��ȱ��ȱŗŖŖƖǯȱ��Ȃ�ȱ��¢ȱ��ȱ�� ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ ��Ȃ�ȱ�ȱ��ǰȱ��ȱ��ȱ��ǰȱ��ȱ��ȱ��ǯ

The onset of the debt crisis had a

� �Ȭ��ȱ��ȱ��ȱ��ǲȱ��ȱ��ȱ��ȱ�� ȱ��ȱ��ǰȱ��Ȃ�ȱ��ȱ��¢ȱ��ě��ǰȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ ��Ȭ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǯȱThe next and perhaps larger impact was

��ȱ��ȱ��ȱ ��ǰȱ��Ȃ�ȱ��ȱ��¢ǲȱ��ȱ��ȱ��ȱ�� ȱ��ȱ�ȱtrickle Greek ship owners had less cargo

to transport and ships that cost $10,000s

��ȱ��ȱ��ȱ��¢ǰȱ��ȱ��ȱ��ȱ��ǯȱ��ȱ ��ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ¢��ȱ��ȱ� �-

��ȱ��ȱ��ȱ��ǰȱ ��ǰȱ��ȱ��ȱ��ȱ��ǰȱ ��ȱ��¢ȱ��ȱ�ȱ�� ȱ¢��ȱ��ȱ��ȱ��ȱŘŖŖşǲȱ��ǰȱę��¢ȱ��ȱ��ǰȱ�� ȱ�¢ȱ�ȱ��ȱ��ȱ��ȱ��¢ǰȱ ��ǰȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ�� ǰȱ��ȱ��ȱ��-

��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ� ��ǯ

�ȱ��ȱ��ȱ��ȱ��ȱ��ȱto borrow as ratings agencies down-

��ȱ��Ȃ�ȱ��ȱ��ȱȃ��Ȅȱ��ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱthe streets. And so the blame game

��Ǳȱ��ȱ��ȱ��ȱ��ǰȱ��ȱ��ȱ��ȱ��ȱ��ȱ

��ǰȱ��ȱ��ȱ��-

istration blames its predecessors, etc.

��¢ȱ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ��ȱaway from the brink of catastrophe and

which they now see as responsible for

their lowered incomes and higher taxes

(which are now being implemented

in an almost arbitrary manner as the

��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��Ǽǯ

��ǰȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��Ȭ��ȱ�� ǰȱ

calling general strikes. Short memories,

��ȱ��ȱ��ȱę��ȱ��ȱ��ȱ��ȱ�� ǰȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��¢ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ǰȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ę��ǯ

��ȱ��ȱ��ȱ��ȱ��ȱdependence that has crippled their

��¢ȱ ��ȱ��ȱ��ȱ��ȱhand that has fed them for so long has

��ǲȱ��Ȃ�ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱway.

BYȱ�� ȱ��Chair of Economics Society ‘10

Trouble in Paradise

The debt crisis hit Greece two-fold; tourism ��ě��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ȱ��

““

The story behind the Greek tragedy

EQ

A worried looking Giorgous Papaconstantinou, the Greek Finance Minister

30

EQUILIBRIUM

I work for Ernst and Young in the IT Risk and Assurance (ITRA) department, based in the

��ȱ�Ĝ��ǯȱ�ȱ ��ȱ ��ȱthe Financial Services sector and so my main clients are In-vestment and Asset Manage-��ȱę��ǯ

The recruitment process for EY was actually very ��¢��ǯȱ��¢ȱ ��ȱcandidates who ask lots of questions and show interest in the department they wish to ��ǯȱ�ȱ��ȱ��ȱ��ȱ��¢ȱ��¢ȱ��ȱprobing questions, they sim-ply want to get to know the ��ȱ��¢ȱ��ȱ��ȱ��ǯȱ��ȱis all based on your strengths, which means that even if you have no past experience you will have as much chance as anyone else if you dem-onstrate the right skills, no ��Ĵ��ȱ ��ȱ��ȱ��ȱ¢��ȱ ��ȱ��ȱ��ǯ

The main function of ITRA ��ȱ��ȱ��ȱ��ȱ��ǯȱWe ensure that the systems and controls around clients’ IT infrastructure can be relied upon; identifying areas where control failures or fraudulent transactions may have an ��ȱ��ȱ��ȱ��Ȃ�ȱę��ȱ��ǯ

The work I do day to ��¢ȱ��ȱ��¢ǯȱ��ȱ

most notable part of my job is the exposure I get to senior ��ȱ ��ȱ��ȱ��ȱę��ǯȱEY puts a lot of faith into its recruitment process, so you ��ȱę��ȱ¢��ȱ��-ing interviews and meetings at the client site by yourself within months, if not weeks, ��ȱ��ǯȱ�ȱ��¢ȱ��¢ȱ��ȱpart of the job, and we get to ��ȱ��ȱ��ȱ��ȱ�Ĝ��ȱin amazing locations across ��ǯ

The main challenge of the job is the workload during the ȃ��¢ȱ��Ȅǯȱ��ȱ��ȱ��ȱę��ȱ¢��ȱ ��ȱ�ȱ��ę-cant overload of work when you have to balance 4 or 5 cli-��ȱ��ȱ¢��ȱę��ȱ�� ȱ��ǰȱ ��ȱ ��ȱ��ǯȱ� ��ǰȱthe support structure of EY ��ȱ��¢ȱ�Ĝ��ȱ��ȱ��ȱ��ȱalways people around willing ��ȱ�ě��ȱ��ȱ��ȱ��ȱguidance, which goes a long �¢ȱ��ȱ¢��ȱę��ȱ��¢ȱ��ǯȱȱȱȱ

If you apply for a position at EY, you can be sure that you will work in a company with many like-minded indi-viduals who have a hugely ��ȱ��¢ȱ��ȱ��ǯȱ��ȱ¢��ȱwant a fast-paced, challenging introduction to a professional environment, EY may be the ��¢ȱ��ȱ¢��ǯ

For individuals with a taste for the business world, there are few more

exciting places to be than in the front line of the big ��ǯ

� ��ǰȱ ��ȱ��¢ȱwill be able to point to banking or corporate ę��ȱ��ȱ��¢ȱ��¢��ȱ��ȱthis market, it is often the unseen tax advisor who is truly in the centre of the ��ǯȱ

Every single step taken in a transaction will have tax implications, whether that transaction is an acquisition of a multina-��ȱ��ȱ��ȱ��¢ȱ��ę-nancing a bank debt for a � ȱ��¢ǯȱ��-ing and planning for these implications can mitigate the risks of a transaction, enhance the economic returns for the client and provide crucial negotiation ��ǯȱ

Working on the front line of a transaction means being a completely inte-grated part of the client’s ��ǯȱ��ȱ ��ȱ ��ȱ��¢ȱwith the legal advisors, providing tax comments on the legal documents to protect against the risks we ��ȱ��ǯȱ��ȱ ��ȱ��ȱwith the client regularly, making sure they know exactly what’s going on so that there are no surprises ��ǯȱ��ȱ��ȱ��ǰȱ �ȱhave to build a transaction structure which will be acceptable to all investors, each of whom may well ��ȱ��ě��ȱ��ȱ��ȱ��ȱ��ȱ�� ǯ

At Ernst & Young, we have developed our Trans-action Tax department to

��ę��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǯȱ��ȱTax people are excited by the business world, and want to be right in the ��ȱ��ȱ��ǯȱ��ȱ��ȱ��ȱ��ȱachieve our very best for our clients, whether that’s �¢ȱ��ȱ��Ĵ��ȱ��ȱtax structures to ensure maximum returns on an investment or by identify-ing the hidden tax risks in a company which may change the whole nature of ��ȱ��ǯ

Thanks to our Global network, we can support our clients in every coun-try in the world and you ��ȱ��¢ȱę��ȱ¢��ȱoverseeing the tax work on a deal covering more than ten locations, from Japan ��ȱ��¡��ǯȱ��ȱ��ȱapproach means compa-nies gain access to high-quality, globally coordi-nated tax advice, wherever their transaction occurs – although this can result in some interestingly timed conference calls…!

To be a Transaction Tax advisor with Ernst & Young is to be a support-ive guide for the layman, a mediator to all parties, ��ȱ�¡��ȱ��ȱ��ȱę��ȱ��ȱa pragmatist in the face ��ȱ��ȱ��¢ǯȱ��ȱcan be a very demanding career path – most Trans-action Tax advisors handle several deals at a time, and an ability to prioritise tasks is a must – but it is ulti-mately extremely reward-��ǯȱ��ȱ��ȱ��ȱ ��ȱhas been your focus for three weeks on the front page of the FT is a thrill that I never tire of!

The view from an often over looked service line in one of the Biggest 3URIHVVLRQDO�6HUYLFH�ÀUP�LQ�WKH�ZRUOG�

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EQUILIBRIUM

31

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Name:

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College:

Degree:

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How did your degree help with your career?

��¢��ȱ��ȱ��ȱę��ȱ��ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱę��ȱ�� ȱ¢��ȱ��ȱ�¢ȱ��ȱ��ȱę��ǯȱ� ��ǰȱ��ȱ ��ȱ��ȱ�ȱ��Ȭ��ȱ��ȱ��ȱ��ȱ�ȱ��¢ȱ��ȱ��ȱ��ǯȱ

Were you involved in societies and clubs at York?

�ȱ ��ȱ��ȱ��ȱ��ȱ��¢ȱ�Ĝ��ȱ��ȱ��ȱ��ȱ��¢ǰȱ ��ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��¢ȱ��ȱ��ǯȱ��ȱ��ȱ��ȱ��ȱ ��ȱ��ȱ��ȱ��¢ȱ��¢ȱ��ȱ��ȱ ��ȱ� �¢ǯ�ȱ��ȱ��¢��ȱ��ȱ��ǰȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��¢ǰȱ

��¢��ȱ��¡��ȱ��ȱ��ȱ��¢ȱ��ȱ��ǰȱ��ȱ ��ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ǯ

What did you do straight after graduating?

�ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�¢ȱ��ȱ¢��ȱ��ȱ��ȱ��ȱ��ǯȱ�ȱ ��ȱ�ě��ȱ�ȱ��ȱ��ȱ��ȱ�¢ȱę��ȱ¢��ȱ��ȱ��¢ȱ��ȱ��ȱ�¢ȱ��ȱ��ǯȱ

What have you done so far career-wise?

�ȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ¢��ȱ��ȱ��ȱ��ǰȱ��Ȭ��¢ȱ ��ȱ��ȱ��ǰȱ��ȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��¡ȱ¢��ǯȱ�ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ¢��ȱ��ȱ�ȱ ��ȱ��ȱ��ȱ��ȱ��ȱ��ǰȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ǯȱ��ȱ��ȱŘŖŖşȱ�ȱ��ȱ��ȱ��¢�ȱ��ȱ ��ȱ�ȱ��ȱ�ȱ��ȱ��ȱ��ȱ��Ȭę��ȱ��ȱ��ȱ��ȱ��ȱ��ǯȱ

�¢ȱ��¢ȱ��ȱ ��ȱ��ȱ��ȱ��ȱ�ȱ��Ȭ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ¢��ȱ��ȱ¢��ǯȱ��ȱ��ȱ�ȱ��ȱ �¢ȱ��ȱę��ȱ��ȱ��ȱ�ȱ��¢ȱ��ȱ��ȱ��ȱ��ȱ��ȱ¢��ǰȱ��ȱ�ȱ��ȱ �¢ȱ��ȱ��ȱ�ȱ��ȱ��ǯȱ

�ȱ ��ȱ��ȱ��ȱ��Ȭ��ȱ��ȱ��ȱ�Ĵ��ȱ��ȱ��¢ȱ��ȱ��ȱ��ȱ��ǯȱ��ȱ¢��ȱ��ȱ��ȱ��Ȃ�ȱ��ȱ��ȱ��ȱ��ȱ��ǯȱ

Good academic grades alone are not ��ȱ��ǲȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ��ȱ�ȱ��ȱ��ȱ��ǯȱ

1 2 3Tips

- Interview by Boyang Xiao

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