regulation

The only future certainty is taxes…

_MG_0665    _MG_8782

In the future, medical advances and biotechnology might prevent death. But not the need for taxes.

This week I read a small but interesting tax article by Andrew Sentence (senior economic advisor at Price Waterhouse Coopers), in a column in the morning edition of the City Newspaper (London). In the article, Sentence highlighted that UK taxes on income and national insurance make up nearly half of tax revenues. Also that the combined burden of (labour-related) national insurance on employers and employees at 13.8% and 12% respectively, was higher than the 20% income tax rate on corporate profits.

Meanwhile the combination of UK Council taxes, business rates, stamp duty, inheritance tax and capital gains tax, levied on property values or wealth, raises only about 12% of total tax revenues.

The basic message of the article, was that the UK government needed to reform the tax system. And that it was time for George Osborne (UK Chancellor of the Exchequer) to make his mark as a tax reformer.

I couldn’t agree more. There’s little doubt that the UK Government desperately needs the quantum of all those taxes, to balance the annual Budget (income less infrastructure and other spending)  and pay down some of the £1.5 Trillion of legacy debt. The mix of taxes and the relative emphasis is the problem. The mix problem will only grow bigger, as companies invest further in automation and eliminate human jobs too.

To elaborate, as we further enter the age of Big Data, robotics, artificial intelligence and global trade, tax types and tax rates will have to change radically, else the social cohesiveness that we struggle to maintain at present, will be swept aside on a tide of conflict and protest.

The owners of ‘automated capital’ exploit various enterprise incentives and legal trading structures to minimise their corporate profits liable for corporate tax. They also continue to make economically-rational decisions to ‘offshore’ labour costs. Or replace labour with 24/7 automation, laying off human jobs in the process. The only way soften the social impacts of these changes is to more effectively tax the property purchases that such profits are invested in. And perhaps reform VAT to a much higher rate on luxury products than the standard 20% rate at present.

Say I’m right on this (current blue, pink and white collar jobs disappearing at a faster rate than future high-tech job are being created and in different regions of the World too). Where is the lobby group at present in the Western World to lobby effectively for the necessary tax reforms before it’s too late?

The emerging generation of school leavers has the most to lose from the forthcoming automation changes, with their entire working life ahead of them. They need to use their electoral votes wisely. And form a tax reform political party if necessary. The alternative is society facing soaring insurance costs, greater legal costs, a rising crime wave and serious inter-generational resentment.

Advertisements

Social Transitions 3

What will happen to Middle East peace when the World’s oil dependency runs out? Doesn’t that region of the World need to focus all their energy on building a highly skilled workforce, supported by state of the art infrastructure?

If the Sun gives us free solar energy and the ocean gives us free wave energy, why are we still paying energy companies for energy?

For a multi-national energy company, the grass is always greener over the fence, when you keep choosing to harvest old investments in fossil fuel production. As the innovation vehicle speeds up, organisational complacency and myopia become the first victims of road kill. Share price the second.

Protecting free goods like the air we breathe is one battle worth fighting. Another is converting free solar energy into free energy for society.

Market cabals are the dying breath of an obsolete club – real competition isn’t market equilibrium. It’s market revolution.

Why in the UK do we encourage begging in the streets (by giving money to beggars)? We give enough in welfare benefits, foreign aid, food bank contributions, disaster relief and charity donations already. If the beggars aren’t UK citizens, who lets them come here and effectively tax us, on top of the EU taxes we already pay?

Do parental suicidal attitudes translate into their teenagers’ suicidal actions?

When it comes to national innovation, thinking outside the box means not drowning in the treacle of tradition inside the box.

Transformation of the Silicon Roundabout

I recently read an interesting Guardian article ‘The slow death of Silicon Roundabout’ by journalist Cory Doctorow. http://www.theguardian.com/cities/2014/mar/10/slow-death-of-silicon-roundabout

The article and some follow-on comments, neatly highlight some issues tech start-ups and wannabe start-ups face in large urban cities. In spite of central government desire for tech SME’s to proliferate, create jobs, boost overseas earnings and boost the tax receipts flowing back to government, at the local government level (below city level), the priorities are different.

Local government (below city level) might argue that, as its funding from central government diminishes, it’s forced to turn to large property developers to build new, high-density property, to replace near derelict properties in its jurisdiction.  Urban renewal, particularly if on brownfield sites, is desirable and helps cities rejuvenate. Likewise increasing the supply of inner city space helps to offset rental price rises (eventually). However, in my view, there’s an important role for local government to ensure that replacement property plans allow flexible use and include park space to offset higher-density effects.

On the park space point, Central Park in New York is a good example of consolidated park space co-existing with high rise, in (relatively) close proximity. London’s approach on park space has been to scatter large parks all around the city, which also works well. In the London of the future, is there scope to create elongated ‘strip’ parks in Eastern London, to offset future high-rise while incorporating cycleways, to separate cycle lanes from existing road users?

Returning to the Silicon Roundabout/Tech City article, a final thought. If the local government institution (Hackney Council in this case), want long-term occupants (workers, property renters and live-in property owners) occupying as much of its jurisdiction as possible, to contribute Council taxes and reduce the social costs (crime, fly tipping etc) associated with derelict areas, then why encourage purpose-built student accommodation development at the expense of tech city accommodation? As the journalist quite rightly points out, tech city is a diverse community of start-up services and organisations. Encourage a critical mass and it will spawn ongoing replacement (successful start ups move on and are replace by new ones starting out), in a similar way to market traders. In contrast, in allowing developers to build (overseas) student accommodation en masse in the inner city, the Council risks putting too many eggs in one basket, if the educational institution occupants aren’t themselves of top quality and since education institutions don’t appear to benefit from clustering together physically* (Eton & Harrow, Oxford & Cambridge, the US Ivy Leagues, excepting MIT & Harvard).

Best case, if elite higher education institutions move in and then attract successful companies to relocate alongside them, the Council plan will pay off handsomely. However, worst case, the Council will find itself surrounded by empty new build space, purpose-built for the education sector, vacated by non viable education institutions. And therefore reliant on other educational institutions to move to the area.

*In contrast, there are mutual advantages for commercial organisations locating physically next to research-led higher education institutions.

Social Comment – London 2

Modern day London – a city under raps and a city under wraps.

Good London design is good policy. Good London policy is good design.

If British culture is an iPod, London’s the earphones.

London overcrowding is a Council policy & enforcement problem first and a supply problem second.

London overcrowding is a squat environment pretending to be a rental flat.

London’s housing problem quickly becomes the overground train companies’ overcrowding problem.

The Tube; mind the gap getting off. Mind the mosh pit when you get on…

Amateurs and Pros

In business, is the boundary between being an amateur and being a professional slowly blurring?

Product planning often rolls out a new product to the early-adopter market. This segment may include tech enthusiasts and fashion trend-setters, depending on the product on offer.

The early-adopter market might comprise both pros and amateurs – amateurs unconstrained by corporate budgets (including the ‘Maker’ revolution) and professionals seeking a competitive advantage, at least in the short term. Do product marketers make a distinction or lump them all into the ‘early adopter’ category?

In the luxury goods market, early adopters of the new luxury product release (a Rolls Royce car say), again might comprise passionate amateurs (wanting the luxury status in their amateur life) as well as wealthy business owners, wanting the luxury status in their professional life. Of course, the status spillover isn’t usually something they complain about either.

Switching gears (no pun intended), is there an important distinction to be made between wealthy philanthropists who give in their amateur life, versus those who arrange grants from their own business organisations?

As the product quality to cost ratio improves – cameras, music-recording systems, broadcasting, publishing, sports gear, (some) healthcare, tourism, labour-saving devices etc, does it get easier for passionate, talented amateurs to duplicate professional efforts?

Who does this matter to (the winners & losers)?

Governments whose population rely on a structured (licensed) professional labour force, strong in the above areas, might care about the changing economics of those industries, if they create unemployment and voter discontent.

The professional associations and guilds might care about the threat to their members’ livelihoods.

Educators will care about educating the workforce in the relevant skills to avoid those professional roles that are in decline.

Companies might care about capturing procurement savings as professionals rates are bid down. They will also be keen to sell to wider markets than just the business professionals alone.

Finally, is there a net cultural benefit? Professionals are incentivised to make a living first and expand/extend their art second. Amateurs the opposite. If the market blurs, will there be a faster development of the art?

 

 

 

 

Regulation – too much or too little?

_MG_7730_MG_7723

Is there an optimal level of regulation that can provide a safety net, but not a glass ceiling?

It sounds like a question affecting a very narrow group of people, but is it? Firstly, in society, if the laws of the land are the cake, then regulation is the icing i.e. an add-on. Something to enhance the result, but not undermine or take anything away from the core product.

Where no regulation of a group exists, the group might itself decide that regulation is a benefit to them. For example a healthcare group wanting to exclude the ‘cowboys’ and keep their profession’s brand intact. Or perhaps wanting to standardise the training requirements and routes within the profession to proficiency.

So would more regulation be the solution? Some people who argue that legalising then regulating the supply of drugs would prevent some of the problems of drug abuse think so.

People who advocate central control of budgets also think a degree of control (by them) is necessary to minimise behavioural gaming and to get a viable (realistic) budgetary outcome.

People who are professional product designers of systems that control traffic flow, heart rate or data, electricity and water flow down  the ‘pipes’ also advocate regulation as the solution to erratic or peak demand, with the problems that those things bring.

But what about the drawbacks to more regulation?

Firstly there’s the question that if more regulation is introduced, will the overall costs be outweighed by the overall benefits? Often the people getting the additional benefits from the regulation aren’t necessarily the people incurring the costs, but are the loudest advocates for change.

Then there’s the power imbalance problem. If the power of the regulator is less than the power of the lobby groups arguing against regulation, then additional regulation will exist in name only and give people a false sense of relief. The global credit crunch and the weakness of the financial regulators leading up to the crisis is a case in point. If illegal drugs were made legal but regulated, what power would the current drug cartel members wield in practice, knowing the profits at stake if they don’t intervene?

Then there’s the definition problem. What should be regulated – the supply of something (affecting its price), the product quality, or the range available? In the case of alcohol, a legal drug, it is currently regulated regarding the age of who can buy alcohol and on quality (it must be fit for human consumption with accurate labelling as to the alcoholic content, amongst other labelling requirements). Even so, the newspaper headlines from time to time still highlight children aged ten or younger securing supplies of alcohol for binge consumption. Furthermore the alcohol and tobacco lobby form a formidable lobby group to lobby politicians on changing the laws away from ways that disadvantage them.

Finally, there’s the political tension problem. For argument sake, assume the UK alone took a radical position and legalised but regulated the production and consumption of certain drugs that are currently illegal to produce or possess. It would no doubt encourage a new export industry and earn taxes for the government. However, unless and until the UK’s major trading partners adopted a similar position, it would likely create significant political tension with those countries, due to the increase in illegal smuggling of such products from the UK platform.

Beware the fixes that backfire.