IEA Blog

Public health regulations frequently serve exclusively to prevent legal capitalistic acts between consenting adults. But the fact that prohibition’s history is a history of failure never stops the good people in the public health establishment from promoting the next ban, or the next one after that.

This brings us to the tobacco display ban, which would require shopkeepers to hide all tobacco products from sight.

Since the UK battle commenced over tobacco displays, those in favour have confidently argued that a ban here would have the same outcome as display bans in other countries, especially Canada. We continue to be promised that, critically, a display ban will reduce youth smoking.

What has the Canadian ban on tobacco retail displays done for public health in that country? Analysing the data produced by Health Canada leads me to conclude that display bans do not lead to lower rates of youth smoking. Nowhere – anywhere – in Canada is it possible to find evidence that display bans result in less youth smoking. Adult smoking is equally unaffected by display bans.

To be fair, however, I must acknowledge that display bans do have a positive impact upon youth cigarette consumption. By positive, though, I don’t mean good. By positive, I mean display bans boost the average number of cigarettes consumed daily. In the province of Nova Scotia, for example, youth consumption jumped 15% in the two years after introducing a display ban. Nationally, smoking among 11-15 years olds rose 46% and smoking among 15-18 year olds rose 16% between 2007 and 2009, according to Health Canada’s biannual survey released last month.

My statistical analysis comparing smoking prevalence before and after the implementation of display bans in the relevant provinces shows display bans are associated with increased prevalence for both young people and adults in Canada and no decline in consumption. 

Any careful reading and balanced assessment of the Canadian situation can only conclude that Canada’s display bans have been harmful to her public health.

Click here to download Patrick Basham’s report, “Canada’s ruinous tobacco display ban: economic and public health lessons”.

“A free man must be able to endure it when his fellow men act and live otherwise than he considers proper. He must free himself from the habit, just as soon as something does not please him, of calling for the police”, wrote Ludwig von Mises in his classic Liberalism. Maybe someone should print out that quote, put it in a golden frame, and send it to the offices of the Guardian and the gay rights group Stonewall.

But let’s start from the beginning. A few weeks ago, a bed and breakfast establishment in Berkshire refused to let a room to a gay couple. The couple sued the B&B owners for violating anti-discrimination legislation (ADL). Shadow home secretary Chris Grayling then caused quite a furore by arguing that this form of discrimination should be legal. Ben Summerskill of Stonewall called this “very alarming”; Peter Tatchell of the Guardian interpreted it as “support for homophobic discrimination”. Apparently, it hasn’t occurred to them yet that there is a world of difference between “being against banning XY” and “endorsing XY”.

Grayling’s critics fear that if private owners were given the right to dispose over their property as they see fit, we would see rampant discrimination emerge. It is strange that Stonewall, which has chosen its name for a reason, views government as per se benevolent and liberating. They should know best that in societies where homophobia really is the norm, protecting gays through ADL is not an option, because there is no political majority for it. As a general pattern, the stringency of ADL is associated with public tolerance towards homosexuality. ADL is most far-reaching in Scandinavia and the Benelux-states, where homophobia is practically non-existent. In other words, ADL only becomes politically feasible when it is not needed anymore.

Consequently, until the 1960s and 1970s, many governments even in Western Europe banned homosexuality, not homophobia. Until not so long ago, gay people were socially sidelined – but they were never economically marginalised to the same extent. Why?

Because business owners, employers and landlords, whatever their personal views, are seldom willing to lose a valuable customer, employee or tenant to a competitor. (In fact, it would not be surprising if some B&Bs in Berkshire now flew rainbow flags and wrote “gay couples welcome” on their front doors, to fully capitalise on the incident.) Today, with gay clubs, bars, literature, fashion labels and dating sites thriving, the gay community represents a major force in many markets. That would be no less true if ADL was scrapped.

So here’s a proposal for Stonewall and the gay rights community: instead of fighting discrimination through slow, costly and probably ineffective litigation processes – why don’t you put your market power in the balance, turn the tables, and discriminate against the discriminators? Why don’t you team up to launch a website where cases like Berkshire are documented, and businesses engaging in discriminatory practices are named and shamed? With an annual guidebook ranking establishments by their “gay-friendliness”, the significant purchasing power of the gay community and those sympathetic to its causes would be coordinated to make discrimination a costly choice. And best of all, no state power would be required at all.

The papers and airwaves are full of Baroness Scotland’s difficulties over her Tongan housekeeper. I have no strong feelings about what her political fate should be, but I do think, as Oscar Wilde might have said, that it would take a heart of stone not to laugh over a minister falling foul of one of her own ill-thought-out laws.

There are suspected to be around 400,000 illegal residents in London alone and it is understandable that the public are concerned. But as usual a sledgehammer is used to crack a nut which is probably much smaller than the headline figures suggest. Many of these people are visa overstayers who are likely ultimately to return home, particularly as jobs dry up.

If as sophisticated a woman as Baroness Scotland can fall foul of the law, what does this suggest for the rest of us? As so often, a perverse outcome is likely. Many middle-class households will be tempted to continue to employ cleaners on a cash-in-hand basis rather than get involved with paying tax and national insurance as the Baroness, to her credit, seems to have done. With no records at all – and like many people, I admit my own incompetence in keeping personal records –  the deniability factor is greater.

I’m more worried about small businesses, many of which are run by people with little or no knowledge of employment and immigration law. Owner-run cafés and shops, for example. A fine of £5000 may be peanuts to our Attorney General, but could tip the scales against a little business like the café I go to up the road. Assuming that the proprietor even knew about this law before this week, she would not find it easy to take photocopies of passports (possibly forged, but how would she know?). She’d probably have to queue up at the post office half a mile up the road. For what? Who would ever check unless she became star of a reality show and nosy neighbours then tipped off The Sun?

The process of copying passports and documents is tedious and aggravates people. And there is “mission creep” as risk-averse HR departments over-interpret their responsibilities. At my University we now expect people to bring in passports when we interview them. Inevitably some people forget, so we have time-consuming follow-ups. Many people in their fifties who are as English as Yorkshire Pudding resent this process of having to prove anew their eligibility to hold a job in their own country, when they’ve already been employed here for thirty years. And we end up with ten lots of photocopies when only one person, and sometimes not even one, is appointed. Then we get government “advice” which is now telling us that all jobs should be advertised for a minimum of four weeks, to allow sufficient domestic applicants and thus minimise the chances of our employing someone from outside the EU. The delay to filling posts is no concern of government, of course. Nor are the continuing long delays in getting work permits sorted out, which have meant that two lecturers we appointed in June cannot start teaching next week.

So it goes, as more and more regulations tie up enterprise, make it difficult to employ people who want to work, and generally add to the hassles of business life. Meanwhile, of course, government seems magically free of such constraints: it creates peers like Baroness Scotland or Lord Mandelson without advertisement for even one day, let alone four weeks, and gives them well-paid jobs for which they are not particularly qualified on the whim of the prime minister.

Finally, I wonder what will happen to the unfortunate lady housekeeper? Now her status has been discovered, she is unemployed. No doubt desultory moves will be made to deport her, but they may not succeed or may take years even if they do so. She may get legal aid to appeal and social security benefits: if we do deport her, she’ll cost us for her detention and get a free flight. Having been a productive contributor to the country she will become a cost to us all and, just as important, will have had a traumatic and unhappy time for the ”crime” of wanting to work in this supposedly business-friendly country.

In my recent article on monopolization cases under Article 82 of the European Union treaty, I criticized Neelie Kroes and the European Commission for the aggressive application of competition law in cases where the outcome was at best uncertain. The dangers of the Commission’s approach are highlighted by the recent EC Commission decision to impose a $1.44 billion fine on Intel for a rebate programme that it used to persuade original equipment manufacturers to use Intel chips in their products during the period from 2002 to 2007.

Cases of this complexity raise serious factual and legal issues. On the former, no academic has anything useful to contribute, except to note that Intel CEO Paul Otellini vigorous chastised the Commission for disregarding all evidence that tended to dispute its judgment that Intel had in fact engaged in these practices. But this academic at least can raise two doubts about the Commission’s attack on rebates. 

First, no claim of consumer harm can look just at individual cases. It must look at overall market conditions. Here the Intel rebates lowered prices for the 80 per cent of consumers that used its products. What consumer harm could outweigh those particular gains in either the short or the long run? Without these rebates Intel’s share of the market would fall and that of Advanced Micro Devices (AMD), the complainant in this case, would rise from its 12 per cent share. Suppose AMD’s share doubled, Intel would still serve about 2/3rds of the market. Where is the net harm when more consumers are helped than hurt by the rebate?

Second, AMD, as a nondominant firm, could of course offer rebates (or larger rebates) for its products to increase its market share. Now price competition increases, which is all to the good. The EC’s Kroes has gathered the scalp of yet another large American company by intoning the phrase “abuse of a dominant position”. But in so doing she has converted Article 82 into an anticompetitive provision, just as her critics have long feared.

Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law at the University of Chicago. He is the author of Free Markets Under Siege and a contributor to The Legal Foundations of Free Markets.

Harriet Harman’s long-promised Equality Bill looks set to land employers with further regulatory burdens, while doing little to meet its ostensible objectives – themselves of debatable utility.

The concept of an overarching piece of legislation to bring some coherence to the hotchpotch of laws on equality issues developed since the early 1970s makes some sense. But unfortunately the Equality Minister’s proposals go rather further than simply tidying up.

Two main extensions of the law are proposed.

First, private sector employers with more than 250 staff are to be required to reveal details of the average hourly pay of male and female workers. Across the economy the median pay gap, Ms Harman argues, is 23%. This figure, however, is not the one normally quoted: it refers to all workers, part-time as well as full-time. International comparisons are always couched in terms of full-time hourly earnings, which display a pay gap of roughly half this magnitude. Part-time work, for sound business reasons to do with the extra costs involved, frequently tends to be paid at a lower hourly rate than full-time, for both men and women. Indeed the alleged “part-time penalty” is greater for men than for women.

The requirement to report pay gaps, already established in the public sector, will put pressure on firms to justify pay differences between individuals. This will create a lot of hassle and extra costs to firms, as it has done in the public sector – where equal pay tribunal claims have rocketed in the past year (see previous post) as a result of group actions encouraged by unions and by “no win-no fee” lawyers.

It will distract the attention of management from its prime objectives of serving consumers and thus generating the profits on which jobs, taxes and pensions depend. It is unlikely, however, to do much to reduce the overall pay gap between men and women, which results in large part from men and women doing different jobs, rather than being paid differently for the same jobs -  a distinction which Harriet Harman repeatedly fails to acknowledge. Despite all the huff and puff in the public sector, and massive costs resulting from re-grading exercises consequential on pay audits, the gender pay gap in the public sector actually rose last year.

The second major innovation of the proposed Bill is the imposition on public sector organisations (which for this purpose include many legally autonomous bodies such as universities) of a duty to “consider reducing socio-economic inequalities”.

This nebulous proposal is going still further to hog-tie local authorities, hospitals and schools. These organisations, which ought to be clearly focused on delivering services to the public, already carry considerable baggage in terms of requirements to consider gender equality, environmental sustainability, employment creation, support for small businesses, trade union recognition and a host of other objectives.

It is doubtful whether much will come of this beyond endless box-ticking: governments consistently over-rate their abilities to engineer desired social outcomes. How exactly are schools to know, for example, the socio-economic characteristics of individual pupils and their parents? And what can they effectively do to offset disadvantage? But each school will have to have an approved document setting out its approach and will be regularly monitored by people employed for this purpose. Headteachers will be penalised when they fail to meet targets which bear little relation to genuinely achievable outcomes.

It is a further distraction at a time when we need to be seeking value for money from our public services, which many consider to account for too large a proportion of our shrinking GDP and should be reformed and restructured. We do not need yet more “Socio-economic Equality Coordinator” advertisements filling the pages of the Guardian.

 To be fair, we have yet to see the fine print of these proposals, but they look to be another nail in the coffin of the original New Labour project to build on the benefits of the market rather than to reassert Old Labour’s tribal conviction that government knows best.

Professor J. R. Shackleton is the author of Should We Mind the Gap? Gender Pay Differentials and Public Policy.

The government has just announced plans to monitor social networking sites, in the name of “anti-terrorism”. Officials claim that they will not be monitoring or recording the content of communications between website members, but will be keeping tabs on who is being contacted and what networks are being created.

Although obviously intrusive on personal liberty and freedom, the more worrying aspect of this is the current government’s persistence in using two basic policy solutions to curb any illegal activity.

The first of these is to create new and more inventive ways to extend control and monitoring for “security reasons”. Examples include the growth of CCTV and tighter border restrictions.

The second is to create a bigger, more centralised government. As we have seen with the financial crisis, control and regulation seem to be the government’s solutions to any type of chaotic or unplanned system.

Hayek states in Law, Legislation, and Liberty that “Rationality of actions …demands complete knowledge of all relevant facts. A designer or engineer needs all the data and full power to control or manipulate them … to produce the intended result. But the success of action in society depends on more particular facts than anyone can possibly know.”

The arguments against these approaches (which also apply in the case of ID cards, monitoring of travel abroad and many other government proposals) are both economic and political. Yes, they undermine political freedom but they also make a fundamental economic error. Society cannot be improved and perfected by the collection of ever more information. This is true in the social as much as in the business sphere.

The government’s strategies of centralised control are therefore likely to be ineffective at achieving their objectives. Huge amounts of information will be gathered but not the subjective time and place specific knowledge available only to dispersed individuals. Monitoring social networking sites will allow the authorities to snoop but it is highly unlikely to prevent terrorism. Worse still, there is a significant economic cost to such activities.

New media websites like Facebook have grown and prospered precisely because they have been relatively free of regulation and state intervention. The Facebook platform has enabled new and entrepreneurial uses of personal content to be developed. A government policy of monitoring and control will discourage growth and innovation in this vibrant sector.

Unnoticed in the economic gloom accompanying the rising unemployment figures, last week saw the publication of the statistics of employment tribunal claims for 2007-2008. The figures are quite startling and show the increasingly worrying grip of the compensation culture in our workplaces.

The number of claims accepted by the tribunal system rose by over 40% on the previous year, to reach a total of 189,300. Many of those claiming redress cited more than one “jurisdiction” – the term for one of the 80 or more offences which tribunals can hear. For instance, an individual might claim racial and sexual discrimination and unfair dismissal – three separate jurisdictions. Last year the total number of separate alleged offences was 296,963.

The big expansion last year was in two areas – equal pay claims were up 18,000 to 62,706 (mainly in the public sector, where the requirement for pay audits and subsequent job evaluation has created costly and seemingly endless hassle), while Working Time Directive claims went up by 34,000 to 55,700. This year the Tribunals Service can expect to be even busier, as unfair dismissal claims always rise in recessions.

The expansion of cases reflects the increasingly complicated arena of employment relations in the UK, where new regulation seems incessant, often in a format which invites litigation – for example, rights to “request” extended parental leave or continuation of work after age 65, when refusals of these requests can be, and frequently are, challenged at tribunals. Loose drafting also leads to jurisdictions being extended beyond what Parliament intended or understood. For example, a large number of disability discrimination cases now invoke stress, which the House of Commons was told the legislation did not cover. And recently the Employment Equality (Religion and Belief) regulations – passed largely to reassure Muslims that their sensibilities would be recognised – have been interpreted to apply to a man who claims his strong “philosophical belief” in climate change led to his dismissal.

Another factor is the increasing involvement of unions and, especially, lawyers in promoting claims. When tribunals were first given the power to hear individual claims in the mid-1960s, it was emphasised that they were to be informal institutions, free of management/labour set pieces and, above all, free of lawyers. In fact the number of cases in which unions represented claimants has risen from 6,676 in 2005-6 to 29,136 last year as unions try to develop what are in effect class actions to pursue collective goals. In the same two years, lawyer representation rose from 67,442 to 117,565. Some lawyers are operating on a “no win, no fee” basis which can give them a large slice of any compensation won.

In 2002 the government introduced procedural changes which were intended to reduce the number of tribunal cases and encourage solutions within the workplace. These have manifestly failed as more and more employees take their cases into the tribunal system rather than seek internal solutions to their concerns.

There is clearly a need for more fundamental reform of employment law and the nature of the employment contract. In a recession when we need employers to be creating new jobs, we should be seeking ways to make this an attractive proposition. We need yet more tribunal cases like a hole in the head.

Last week the government chose to ignore its own advisors and decided not to downgrade ecstasy to a “class B” drug. This is despite substantial evidence that existing policies have failed. The era of strict prohibition has been marked by increasing drug use, the imprisonment of thousands of addicts, huge resources flowing to criminal organisations, widespread corruption and even wars that have been caused or funded by the revenue from narcotics, not to mention the billions that have been spent on futile attempts at enforcement.

The failure of prohibition is entirely predictable if you think about the underlying economics. The price of the prohibited substance is artificially inflated, creating a huge incentive for criminals to enter the market in order to satisfy demand. Attempts at policing tend to be futile, because if successful, they simply push up the price and therefore increase the supply incentive. The high price also incentivises users to engage in criminal activity in order to purchase the drug. Worse still, the supplier is outside the law, so the threat of violence will inevitably be one of the methods of enforcing contracts.

The huge resources in the hands of criminal suppliers inevitably result in the corruption of legal and financial systems. Drug suppliers need to be able to invest those resources and one way is by moving them into the “legitimate” economy (money laundering). The other is to invest them back into their business, for example by paying off officials and politicians.

The negative consequences of prohibition could be avoided if the government followed a simple rule – adults should be allowed to do what they want provided it does not directly harm anyone else, even if it is harmful to themselves, and, here is the difficult bit, even if the government does not approve. And even if this principle is not accepted, it should be clear by now, after 30 years of the “war on drugs”, that it is the prohibition of drugs, not their consumption, that causes most of the harm.

The newspapers have been full of reports recently about the Prime Minister and the Chancellor of the Exchequer summoning senior bankers and ‘ordering’ them to reduce the interest rates charged on housing loans. They wished to see reductions in the Bank of England’s base rate ‘passed on’ to ‘consumers’ fully, immediately and in a concerted way.

This whole sorry business reveals the rather curious nature of competition law. In many ways it does not look like ‘proper law’ at all. At a time when airline managers are dragged before the courts accused of talking to one another about passing on aviation fuel surcharges to customers, the government is capable of actually arranging a meeting and, with maximum publicity, trying to enforce behaviour that on the face of it is a blatant breach of the rules. ‘Bankers meet secretly to fix the price of mortgage loans’ somehow looks dubious. ‘Government summons bankers to force cut in interest rates’ apparently looks all right. It is not easy to think of a good reason in economics why this should be so.

The obvious argument that the government was operating in the interests of ‘consumers’ by urging a fall in price ignores the fundamental point that banks are intermediaries and that most of the ‘consumers’ of their services are actually savers and lenders. Implicitly the government was publicly forcing the bankers to conspire with each other in order to improve the fortunes of one set of people (financially vulnerable and clearly politically important) at the expense of another (a broader, more numerous group facing costs that are, to a significant extent, hidden). They were not letting competitive forces determine the winners and losers from underlying changes in market conditions.

Competition law seems particularly vulnerable to these ‘public choice’ considerations. In the end it is always about negotiating with officials rather than complying with universal principles of conduct. The present disastrous financial meltdown simply reveals this underlying reality in an unusually stark way. The Lloyds-HBOS merger would have received short shrift only a few months ago, as has widely been remarked. This presents a real dilemma to supporters of market systems. We might take the classic view that competition law is a necessary buttress to the market system. If so, I leave it to professional lawyers to explain how we can prevent the over-mighty executive branch of government (in the UK) from driving a coach and horses through it. Or we might give up on the grounds that the results are as likely to reflect political expediency as economic efficiency. It would be interesting to know what proportion of economists still hold to the classic position and what proportion think that, with a free trade policy and a clear rule that restrictive agreements are unenforceable in the courts, we could do perfectly well without the whole shooting match.

The last century has seen a steady expansion of the ‘nanny state’, a process that has arguably accelerated in the last decade. A ‘banning culture’ has developed, with numerous restrictions placed on what individuals are permitted to do with their own bodies on private property.

The economic and social costs of such policies are enormous: the prohibition of recreational drugs is responsible for a high proportion of crime; the ban on trade in body parts indirectly kills tens of thousands every year and raises healthcare costs; restrictions on prostitution put women in unnecessary danger, pushing the trade onto the streets and blighting many residential areas.

Taxpayers spend vast sums enforcing bans and dealing with their effects. A Home Office report estimates the overall cost of crime in England and Wales – much of it drug related – at £60 billion per year.

Lifting prohibitions is not an issue of morality but of prudence. It is simply imprudent to ban everything we might regard as immoral. Ending current restrictions would bring banned activities into the formal sector, with reputable businesses paying taxes and investing in the quality and safety of their products and services. Drug dealers would no longer have the same incentives to supply more addictive forms; the poor who sell their body parts would have legal redress if they were exploited; and lifting the ban on handguns would undermine the profitable black markets run by criminals.