TV Time!
Lots of Economics on TV this weekend:
read more...»Recycling batteries - keeping things simple
Ask your students how many batteries they get through in say a week or a month and then get them to estimate how many batteries are used up in the UK every year. The latter figure is in excess of 600 million and clearly it poses a major challenge in terms of recycling and reducing the contribution to landfill. But the UK has a dreadful record in recycling old batteries - fewer than 3% are recycled each year, the vast major are dumped creating externalities along the way. This BBC news video reports on a new EU law which makes it pretty simple for consumers to deposit their used batteries at retail outlets. No need for a battery tax, just an accessible scheme to change our default behaviour.
Alcohol information failure
Shadow Health Secretary Andrew Lansley was interviewed on radio 4’s Today Programme about the Conservative Party’s call for changes to labelling on alcoholic drinks. They say the current approach of using alcohol units is widely misunderstood, and want it replaced with centilitres. Mr Lansley identified the negative externalities associated with abuse of alcohol as costing £20bn to society, and said that the current system of information, printing the number of units contained in a bottle or can of alcoholic drink, did not allow the public to make decisions about how much to drink, as the implication is that one ‘serving’ of the drink is the equivalent one unit.
However this is often not the case – a typical glass of wine is between 1.5 and 2 units, and a pint of beer or lager can be more than two units, depending on the alcohol content of the brew. Instead the Tories would like to see the number of centilitres of pure alcohol shown on the label, suggesting that this would be easier for consumers to relate to the total amount they are drinking, rather like showing the amount of saturated fats in foods as grams, which are easier to assess as a proportion of the total food weight rather than showing the amount in calories.
read more...»Tit-for-tat protectionism
More protectionism trade wars over the New Year, as the U.S slapped China with another trade penalty hitting Beijing with anti-dumping duties on $91m of steel grate imports. Most Chinese producers of steel grating will now face anti-dumping duties of 145 per cent, which they will have to pay as a cash deposit or bond upon arrival to the US. That rate represents how far below market value the US says China is selling its steel.
read more...»Externalities of effective road safety schemes
Sometimes the simplest interventions have the greatest effects. Cutting average road speeds for vehicles in built up areas is the surest way to reduce the number of deaths and serious injuries for pedestrians and this latest report highlights the impact that 20mph limits in London have had on the number of fatalities.
RBS Lloyds sell-off
The UK market has fewer bank brands than most other countries and choice has fallen in recent years after the Spanish bank, Santander bought up Abbey, Alliance & Leicester and Bradford & Bingley, and Lloyds has taken over all of HBOS’s brands. However, as per a ruling from the European Commission, RBS will sell 318 branches while Lloyds will dispose of more than 600 branches over the next four years.
read more...»OFWAT plans to turn the tap on water company prices
The Times today has an interesting article on the power battle between the water industry regulator OFWAT and the regional monopoly providers such as Thames Water. It appears that a much tougher pricing regime is planned for the utilities leading to cuts in the real price of water supplies for consumers.
“Every five years, Ofwat sets limits on prices that water companies in England and Wales can charge. For 2010-15, it has proposed that, before taking inflation into account, bills should be reduced for many customers, bringing the average annual water and sewerage bill down by 4 per cent from £344 to £330 by 2015. The water companies had wanted a £28 rise to fund their business plans.”
OFWAT wants the utilities to invest more in in improving drinking water quality, cutting leakage levels and raise the number of metered households from 36 per cent to 50 per cent (in a bid to control water usage). But will imposing real price cuts help achieve this objective? The aim is to have a pricing regime that forces the utilities to raise productivity and cut out as many inefficiencies as possible.
Water is a good example of where a strong regulator is needed because of the absence of competition - after all consumers can’t switch supplier if they are given a poor service.
Nobel Prize in Economics: A different take on the Tragedy of the Commons
Elinor Ostrom and Oliver Williamson shared the 2009 Nobel prize for economics (and the accompanying $1.4m) on Monday for their work on how economic transactions operate outside markets in common spaces and within companies.
read more...»Ticketmaster-Live Nation merger provisionally blocked by the CC
This morning, the Competition Commission announced that it has provisionally moved to block the merger between Ticketmaster (the world’s largest ticketing firm) and Live Nation (the world’s biggest concert promoter).
read more...»Microsoft to offer users a choice of browsers
The battle between Microsoft and the EU competition commission seems to have gone on for an age. In the latest move Microsoft has agreed to contact European users of its Windows software to a choice of Web browsers. The browsers featured in the ballot would be determined by market share; the five with the highest—at the moment, Internet Explorer, Firefox, Apple Inc.‘s Safari, Opera and Chrome—are almost certain to be displayed. What is critical is the number of web users who then decide to switch to an alternative browser and click on an option for Microsoft IE to be removed as the default web browser. My default choice is now Firefox from Mozilla. Windows 7 is due for release on the 22nd of October.
OFWAT wants cuts in the real cost of water bills
The water regulator OFWAT has published their latest five-year price capping proposals for the UK water industry. They want household bills to fall in real terms for water customers in England and Wales - positive news for people struggling to pay their utility bills but not so for shareholders in the water companies who have become renowned for their generous dividends on the back of price increases over and above inflation in past years.
read more...»LCD manufacturers are screened for price fixing
Here is an example of alleged price fixing that directly affects the prices that consumers pay in the market for their durables. The European Union competition commission are alleging that manufacturers of LCD screens have been engaged in a price fixing cartel in a market thought to be worth an estimated £43bn a year. The industry is dominated by LG Display and Samsung, which together have about half the market for television and computer monitors. Phillips, Sharp and Hitachi are also heavily involved in the market along with Chi Mei from Taiwan.
LCD panels are used in televisions, computer monitors and a range of smaller electronic gadgets including mobile phones and digital music players. The investigation into price fixing has crossed several countries including US, Japan, South Korea and Europe. In theory, fines for breaches of anti-trust laws can be as much as 10 per cent of annual turn-over.
Land grabs and market power in retailing
The Observer carries an article today which focuses on what appears to be a spending spree by cash-rich supermarkets to take advantage of falling demand for and prices in the commercial property market.
read more...»King and Chancellor at odds over intervention
Both the Chancellor of the Exchequer and the Governor of the Bank of England gave their Mansion House speeches to the City yesterday, and both addressed the issue of regulation of the banking system. But while the Chancellor emphasised that he had no plans to fundamentally change the regulation system, the Governor called for more powers for the Bank to intervene and prevent excessive risk taking. This is at odds with the approach outlined by Alastair Darling, who referred instead to encouraging a change of management culture in the banks which would encourage bankers to manage themselves more effectively, being “rewarded for long-term success, not for failure”. He seems to suggest that the solution lies more in ensuring that banks are led by Boards of Directors with “the right people of the right skills and the right experience …. and they need to be equipped to ask the right questions.” He also called for an end to short-termism: “Their focus must be on long-term wealth creation and not short-term profits.”
read more...»Labour Market Failure - Exploitation of Migrant Workers
Martin Shankleman of the BBC reports on what looks a like a blatant example of exploitation of vulnerable migrant workers who seek employment in the (often unlicensed) UK food processing industry. Gangmasters have monopsonistic power in their own labour markets and, as this report shows, Saphire Trading based in Southampton appears to have shown a disgusting lack of care for many of the people they have taken on. A severe case of labour market failure and one that requires effective regulation - in this case the Gangmasters Licensing Authority.
Barak sees mileage in fuel efficiency targets
Here is a good example of government intervention through regulation
“Under the proposed new standards, manufacturers must reach an average of 39 miles per gallon for passenger cars by 2016, and 30 miles per gallon for light lorries…The increase in mileage is to be introduced gradually, and is expected to add $1,300 to the cost of a vehicle by the time it is fully implemented in 2016.”
In a similar vein, the EU has progressively cut the maximum Co2 emissions per km for all passenger cars.
1. Think about how this type of regulation will affect producers both in the short and the long term.
2. How will this affect consumers? Is it (a) effective (b) does it promote efficiency? (c) Is it equitable?
3. What are some of the possible macroeconomic effects of such an intervention?
Regulation is an alternative to taxation and/or subsidy ... or should we regard it as a complement? Part of a mix of policies needed to address environmental issues and targets?
Sewage - The Fuel of the Future?
Waste not want not.
Monopolistic water and sewage companies rarely get a good press but here is a fascinating news story in the Times. Severn Trent, one of the UK’s largest water suppliers which supplies water and waste services to 3.3 million households is researching ways in which the hundreds of thousands of sewage sludge that is generated every year in the UK can be turned into a biomass fuel to produce heat and electricity. The economic incentives to consider this have been boosted by a combination of subsidy, taxation and regulation.
On the subsidy front, since 2003, Renewables Obligation Certificates — a form of subsidy to accredited generators — have been available for electricity that is generated by burning biomass fuels, which include wood, straw or sewage gas and sludge.
On the tax side - the government has gradually increased the size of the landfill tax which covers disposal of waste in landfill sites - the tax is set to increase by 20 per cent to £40 per tonne, up from £32 in 2008. In 2010 it is set to rise again to £48 per tonne.
Regulations now ban the disposal of sewage sludge at sea.
The Times reports that
“About 347,000km of sewers collect more than 11billion litres of waste water in the UK every day. This water is treated at about 9,000 sewage treatment works across the country. Roughly 62 per cent of the country’s sludge is treated and recycled into a type of fertiliser known as biosolids, which is used to fertilise more than 80,000 hectares of British farming land every year.”
This is a good example to use in exam questions because the incentives to develop innovative schemes to find economically viable forms of renewable energy often require a combination of policies working in tandem rather than a single ‘big bang’ approach. Government policies towards waste can be found here.
Binge Tanning and Information Failure
Tanning salons on the high street, in leisure centres and in hotels may be contributing to an alarming rise in the potentially deadly malignant melanoma in the UK. Cancer Research UK has launched a new campaign “SunSmart” citing evidence that the deadliest form of skin cancer has now become the most common kind of cancer for women in their 20s. The risks are greatest among younger girls whose skin offers least protection to time spent under the rays of a tanning machine.
Cancer Research argues that sunbeds don’t offer a safe way to tan. The intensity of UV rays in some sunbeds can be more than 10 times stronger than the midday sun. “Excessive exposure to UV damages the DNA in skin cells which increases the risk of skin cancer and makes skin age faster.
The lack of awareness of the risks of using tanning machines is a clear case of information failure. In Scotland the government is using regulation to attack the problem. Legislation (yet to be enforced) has been passed to ban under 18s from using sunbeds and for all sunbed salons to be supervised and proper information provided to customers.
Skills crisis in curry restaurants
An evening out at a good curry house could be a reward for lots of hours spent revising during the Easter holidays, but could be under threat. Surely another example of the Law of Unintended Consequences – the tightening of the immigration rules last year has caused a shortage of skilled chefs entering the UK, and the government is holding an “ethnic chef summit” on Thursday to meet Indian, Bengali and other restaurateurs and to discuss a serious skills shortage in the industry. Enam Ali, chairman of the Guild of Bangladeshi Restaurateurs, says 150 curry houses have closed this year, in an industry worth £3.5bn each year.
The Law of Unintended Consequences at Staffordshire hospitals
Government intervention is carried out with the best of intentions, but can result in unintended consequences with resulting government failure (a deepening of the market failure or even worse a new failure which may arise). The case of the failures at the Staffordshire General Hospital reported yesterday gives a tragic example of this. A report by the Healthcare Commission, which is a regulator for the NHS, said there were deficiencies at “virtually every stage” of emergency care at the hospital, and up to 400 patients died as a result. This BBC report highlights a dreadful list of errors at the hospital’s Accident and Emergency department from the use of receptionists to carry out initial checks on patients to heart monitors being turned off on wards because nurses did not know how to use them. Various factors are identified as having led to this failure, the government’s target for patients to be seen within four hours at A&E which meant patients could be taken to “dumping grounds” to avoid breaching the target. The situation was only recognised after complaints from residents were backed up by statistics showing a high death rate.
read more...»Trade-offs in the off trade
Proposals to tackle alcohol-fuelled violence and health related problems in Scotland were announced yesterday. This is government intervention to tackle the market failures that result from alcohol, which has been a regular issue discussed in England and Wales as well. Some of the statistics given in this video report spell out the reasons for the concern north of the border; there has been a 20% increase in the number of people being discharged from hospital following alcohol-related treatment, Scots drink the equivalent of two litres more pure alcohol each per year than the English, and alcohol-related liver disease has overtaken heart disease as one of the top three killers there.
read more...»Alternative views of the economic crisis to evaluate
While politicians, business leaders and policymakers searched for solutions at this year’s World Economic Forum in Davos, different debates were taking place at the “alternative” World Social Forum in Belem, Brazil.
There, a mix of some 100,000 campaigners, thinkers, and working people came to starkly different conclusions about the causes of the downturn, and how best to address it. This BBC article takes the views of 4 of the participants:
David Evan Harris, Director, Global Lives Project
“The current economic model which privileges unbridled competition is not sustainable”
Walden Bello, Focus on Global South
“This crisis has roots in global overproduction”
Myriam Vander Stichele, Researcher on multinationals
“Calls for re-regulation require a dismantling of the architecture of international trade treaties”
Marcos Arruda, Economist
“At this point the capitalist emperor has no clothes”
Their views make interesting reading; while they all broadly agree that the existing model of the global economy has to change in the light of the economic crisis, they offer very different perspectives of the root causes and the solutions – worth reading and evaluating to assess which you think would work best, and why.
Costs of Supply - Organic Farmers Divided
As the recession bites, so sales of organic food have started to slump and with it the premium prices that truly organic farmers can command in the market-place. The tough economic climate seems to be causing a deep divide within the organic farming community about whether the rules on the use of organic feed should be relaxed as a cost saving measure for producers facing an uncertain future.
The article in the Times today entitled “Let us bend the rules, say organic farmers” is a great example of how organic farmers face differences in the conditions of supply compared to producers who rely on conventional mass production methods. According to the article, average organic feed prices are £320 a tonne compared with £160 a tonne for conventional feed.
With hundreds of farmers converting some or all of their production to organic methods in response to the rise in organic products sales over recent years, the Soil Association and the Organic Farmers and Growers are trying to persuade the government to relax the regulations imposed on organic suppliers that allow them to trade under the organic quality mark. But hard core organic producers argue that to do so would dilute the brand reputation and cause confusion (information failure) among consumers.
It is interesting how in a recession there are increased pressures on so many different stakeholders. The depth of the downturn in 2009 will create much suffering among producers - but the very best, the most flexible and the most robust should be able to survive without sacrificing their principles or their standards. Organic produce will always be more expensive than conventional farm output - are we about to see yet another industry lobbying for government support to tide them through difficult times?
EU goes bananas over price rigging
It has taken over three years of intensive investigations. But the EU has decided that the time is now ripe to announce heavy fines for a well-known bunch of banana growers guilty of operating a price-fixing cartel in eight European Union countries.
Chiquita Brands and Dole Food were among the producers found guilty of rigging import prices into a market worth around Euro 3 billion annually. Because of their ‘whistle-blowing’ role in outing the cartel, Chiquita have been given immunity from the fines. In contrast, Dole faces a liability of over Euro 45m for its key role in the price-fixing agreement. Del Monte is also involved and has been fined $19.8 million, but Fyffes was not part of the anti-trust investigation. Tough EU competition laws now allow businesses who suffered commercial damage from the banana price fixing cartel to take legal action against the growers / importers.
End tobacco smoking by 2025?
Could we end the smoking of tobacco in the Uk within a generation. On first glance it looks like one of those utterly grandiose targets that New Labour used to launch (and re-launch) such as abolishing Child Poverty by 2020. But this ultra-ambitious target comes from the Royal College of Physicians who argue that radical measures are needed to curb smoking. They argue that “The primary objective of regulation of smoked tobacco should be to make smoking and smoked tobacco products as unappealing, unattractive, unaffordable and unavailable as possible, as quickly as possible.”
The measures include:
Increase the tax on tobacco by 10% every year
License tobacco retailers and prohibit the sale of smoked tobacco in premises where children are admitted
Crack down on tobacco smuggling, and apply Class A drug penalties for tobacco smuggling and under-age sale
Encourage sale of low cost single day nicotine packs, available from any retail outlet
Permanently exempt medicinal nicotine from VAT
Provide free medicinal nicotine for all smokers on the NHS, not just those on a smoking cessation programme
What do you think?
Ending Tobacco Smoking in Britain is available here
Fares fair?
For occasional taxi journeys from my home to and from Heathrow and to my local station at Slough I am almost completely price insensitive. But in central London I do weigh up the costs and benefits of jumping in a taxi for shorter forays. This is a terrific article on the cost pressures facing London’s metered cabs whose prices are capped by Transport for London. Earlier on this year, the price of metered can journeys was raised by 2.7% - below the CPI and RPI rate of inflation and nowhere near the increase in the cost of fuel at the forecourts.
read more...»Tobacco price fixing
John Fingleton’s tenure at the competition watchdog the Office of Fair Trading has coincided with some huge fines for price collusion within oligopolistics markets and yesterday came one of the biggest with a tobacco manufacturer and five retailers agreeing to pay the biggest collective penalty yet imposed for price-rigging after admitting their role in efforts to boost the cost of cigarettes.The six companies agreed to pay £132m to settle the charges with Gallaher, one of two tobacco manufacturers involved in the case, shouldering the lion’s share of the burden after agreeing to pay £93m.The Times reports that “The six companies fined made prompt admissions of illicit competition practices in return for lenient fines.” - another example of game theory and the prisoners dilemma in action!
Coverage here
BBC news: Six firms fined in tobacco probe
The Telegraph: OFT’s hefty fines for tobacco price fixing
The Times: Supermarkets and tobacco firm are fined £173m for price fixing
Office of Fair Trading press release
There is a recent profile of John Fingleton here in the Times
Learning Lessons from: George Soros
On Wednesday, George “The Man Who Broke The Bank” Soros returned to his alma mater to promote his new book The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Arguably the world’s most well-known speculator, the Old Theatre was packed with awe-filled admirers who have made the long pilgrimage despite The Match kicking off in 2 hours’ time. A member of the audience later commended him on how quickly Soros had managed to get his book published, with statistics as up-to-date as from last month. You can listen to an mp3 file of the session here.
