Saturday 21 December 2019

Empirical literature on the firm

From LearnIOE comes this video of Professor Peter Klein discussing the empirical literature on the firm.
The research literature on the economic theory of the firm has greatly expanded in the last several decades. But what is not as well known is that there is a growing empirical literature to go along with that theoretical body of work. In this video, Professor Peter Klein summarizes some of the empirical work that has been done so far and discusses its advantages and weaknesses. He hopes to inspire some of you to do additional empirical research in this area.

Thursday 19 December 2019

The year in review: from the IEA

From the IEA in London comes their annual review of the last year:
Find out in our round-up of 2019, who the IEA’s Director General Mark Littlewood, Associate Director Kate Andrews and Head of Lifestyle Economics Christopher Snowdon’s Person of the Year is, the trio’s Favourite Film of the Year is, their Political Moment of the Year and their Top Prediction for 2020

Wednesday 18 December 2019

Saturday 14 December 2019

Renationalisation: back to the future?

The recently released Renationalisation: Back to the Future? by Julian Jessop and Len Shackleton is number 72 in the IEA's Current Controversies series.

The paper discusses the idea, common among a number of political parties in the UK, that some industries should be bought back into government ownership, that is, these industries should be renationalised.

A brief summary of its main points is:
Actual and perceived problems associated with privatised utilities have led to some public disenchantment with these businesses. Polls suggest that there is a popular majority for renationalising them, and there is some cross-party support for this.

Examination of these industries suggests grounds for concern over aspects of their recent operation. However, other criticisms are not substantiated, and there have been significant gains from privatisation which should not be ignored.

Many of the problems of these sectors are not intrinsic to private ownership but are the consequence of continued government intervention and regulatory failure. Some problems – such as the conflict between prices to consumers and cost to the taxpayer – would persist even in the event of renationalisation, and could get worse.

The record of post-war nationalisations was for the most part unhappy. The clamour for taking businesses back into state ownership ignores important lessons from that period, such as the instability of investment hen nationalised industries have to compete against other government priorities.

The cost of renationalisation would be considerable. The issue of compensation to private shareholders is being treated superficially: wider UK share ownership and the increased involvement of foreign investors would make it be much more difficult than in the past.

Foreign nationals would be in a strong position to challenge attempts to acquire assets at less than market value. Such attempts would damage the UK’s reputation for upholding property rights and could also lead to retaliatory measures against the UK’s own large stock of overseas investments.

Proposed new organisational arrangements for renationalised businesses are untested and may lead to continual politicisation, adversely affecting future performance.

It could be more sensible, where necessary, to strengthen the regulation of these businesses with a focus on reinforcing market mechanisms. The aim should be to reduce political interference and reduce disruption to business operations.

Notwithstanding political support for renationalisation from several parties, it seems unlikely that there will ever be complete consensus. Future governments might re-privatise, or threaten to re-privatise. The instability created by this sort of ping-pong would damage these industries’ performance, with consequent adverse effects for customers and taxpayers.
Remember that one way to think about privatisation is that it is a way for a government to commit to a policy of non-intervention in the operation of a firm. Selling a business maximises the "distance" between the government and the firm and increases the political cost to interference with the firm. Renationalisiating a firm reverses this process and makes government interference that much easier. Renationalisation minimises the "distance" between the firm and the government and thus makes political intervention that much cheaper for the government.

How can we make sense of the political realignment taking place in the United Kingdom?

From the IEA comes this audio of an interview of Steve Davies by Kate Andrews:
How can we make sense of the political realignment taking place in the United Kingdom?

In one of the very first Live from Lord North Street podcast episodes, the IEA’s Dr Stephen Davies discussed this topic with Kate Andrews. Having developed his political realignment theory for several years now, Steve offers in our podcast today an explanation the ongoing political realignment, particularly highlighted the UK’s general election. He discusses the triggers for change (including Brexit and the growing support for socialist ideas), the reshuffle of political structures, parties, voting blocs and redefinition of what it means to be on ‘the left’ and ‘the right’, both in the UK and abroad.

Thursday 5 December 2019

Patents: good or bad

This podcast from Words and Numbers discusses the advantages and disadvantages of patents. The patents discussion starts around 12 minutes.
One of the few enumerated powers that the Founders granted to the federal government was the power to issue patents.

Patents are a compromise between two conflicting goals. On the one hand, we want to avoid the creation of government-protected monopolies because monopolies stifle innovation. On the other, we want entrepreneurs to have an incentive to innovate. And one way to incentivize entrepreneurs is to grant monopoly protection for their inventions.

Patent law is an attempt to balance these two conflicting goals, but the balance presents trade offs. Weaker patent laws mean cheaper goods today but a lesser variety of goods tomorrow; stronger patent laws mean more expensive goods today but a greater variety of goods tomorrow.

Daron Acemoglu on the struggle between state and society

From Conversations with Tyler comes this interview of Daron Acemoglu by Tyler Cowen.
What determines the economic, social, and political trajectories of nations? Why were settlers in colonies like Jamestown and Australia able to escape the extractive systems desired by their British masters, while colonial subjects in Barbados and Jamaica were not? In his latest book, Daron Acemoglu elevates the power of institutions over theories centering on human capital, culture, or geography. Institutions help strike the balance of power in the constant struggle between state and society, creating a ‘narrow corridor’ through which liberty and prosperity is achieved.