Please sir, I want some more ／2017-11-31／Nick Sallnow-Smith

My title this month, probably the best known piece of dialogue in all of Charles Dickens’ novels, is the brave question from orphan Oliver Twist to the tyrannical master of the poorhouse. I was reminded of it this month at a presentation of Hong Kong’s economic progress in 2017. It consisted entirely of a presentation of how much “more” we had in Hong Kong this year compared with last. Just like Oliver Twist, our Government and indeed all economic commentators measure progress by whether we have “more”. In the presentation I attended, we were told Hong Kong had “more” GDP, “more” retail sales, “more” tourist arrivals, “more” hotel rooms etc. The only larger number that was not presented as progress was higher inflation, yet in most Western economies now, that too would be presented as progress.

Whether these “mores” have genuinely improved the wellbeing of Hong Kong citizens was not addressed in the presentation. It was simply assumed. For Oliver Twist, who was close to starving, another bowl of watery gruel would definitely have represented real progress. But to continue the analogy of food, for those of us lucky enough to be well nourished, to be offered another helping of the same size again when we have eaten a full meal,would not at all represent “progress”. More of the same would not be helpful. If we had the same monetary value to spend, something different would be preferred: a walk around an arts exhibition to help digest our dinner, attending a concert, buying a book we didn’t have.

In other words, at the level of the individual, gains in wellbeing are measured not by some monolithic undifferentiated measure of how much money we spent but rather they are crucially related to what we spend it on and how we personally value those goods and services. If we expand that way of thinking to the whole population of our city, how is that best maximised? 

In most economies today, states try to maximise value for their citizens by growing their spending in the aggregate. In other words it is assumed that any dollar spent is as good as any other, when measuring societal satisfaction economically. Yet unless the goods or services offered and purchased are tested in a free market, where citizens can decide whether or not they are to their taste and whether the price matches their assessment of their value, it is not possible to assess whether that dollar spent added value for the community at all.

When the state itself spends money on goods and services on citizens’ behalf, there is no such test. Yet the GDP statistics assume there is. Most of the debate about deficit spending by governments focuses only on whether deficits are effective in growing the economy. This neglects the point I am making here, that it is not possible to know whether the expenditure has any value at all. Many have pointed out that the Government could pay thousands of workers to dig holes and fill them in again, and that this would show up in Government statistics as GDP growth, neglecting not only the lack of value of that effort by workers but also the value that could have been achieved if they had been working on some other more valuable endeavours.

Apart from Government’s own expenditure, the way Governments attempt to “regulate” the private sector is also a major concern. “Cronyism” and potential corruption is only one risk here. Most “industrial policy” in OECD economies consists of protecting incumbent business against competition, or protecting existing jobs against startups.However much governments claim to be favouring competition, they do not do so in practice. First most government-run services are monopolies, or so heavily subsidised that little competition against them is possible. (Healthcare and education throughout the developed world). But in addition, the regulatory system protects incumbents against competition in the private sector too. 

The result is that when the free market left alone might produce new forms of enterprise and new ways of meeting customer’s desires, it is inhibited from doing so by the defences erected around the existing business structure by the state. Banking is a good current example. Customers are forced to continue to deal with businesses they would prefer to avoid because regulatory costs erect huge barriers against new ideas. 

These issues are very serious inhibitions to human societies truly “growing” in the  sense of using available resources to the best satisfaction of the desires of the community. When you consider what a significant share of resources in a community are consumed either in non-priced Government provided services or in the private sector in highly regulated and protected industries, you can sense how little genuine “growth” we might be seeing. We may have “more” but the components of the “more” are not meeting what our population really desires.

When Government is small, the damage wrought by its interventions may be manageable. But as it gets larger and larger the problem is severe. It is arguable that a large factor of the low “growth” that the developed economies are experiencing is due to these factors.

In a world of ever more rapidly changing technology, this overriding tendency of the state to try to produce “more of the same” presents an escalating problem. As AI in all its forms reduces the relative value of much existing human effort, and reduces the costs of the products and services we consume today, it is crucial to permit private market competition to discover what may be produced that is new, and to do it in ways of collaboration that we have yet to experience. Only in that way can new value be created that reflects the aspirations of everyone in society and utilises their capabilities effectively. A system which protects “more of the same” in production, and subsides people not to work, through welfare or universal basic income structures, so that they are too expensive for startups to hire, will be highly destructive of our community’s ability to survive the brave new world we are facing.

Nick Sallnow-Smith  (Chairman)

November 2017

The Lion Rock Institute