Waiting on the market?

The UK government has finally declared a climate emergency. This is great news of course, but what does it really mean in practice? And what is this doing on a blog about law and economics?

The government in the UK has subsidised the purchase of new electric and low emission vehicles in a a bid to support and stimulate the market. But at the end of 2018, the government reduced the available subsidy rates, the makes and models of cars that were eligible, and capped the number of vehicles that could be purchased under the scheme. It’s really no surprise then that the rate at which electric and plug-in hybrid vehicles have been sweeping the market has fallen since the subsidy reduction. Indeed, sales of plug-in hybrid cars fell by one third in the period to April 2019. This is, of course, against the backdrop of a clean air crisis, a backlash against Diesel engines and emissions scandals, and the Extinction Rebellion protests calling for every tighter emissions limits.

So, it would make sense for the government to support the clean(er) transport industry, including electric and low emission vehicles. More to the point, the industry seems to be crying out for a level of oversight, investment, and general co-ordination. While some companies have started to set up charging networks across the UK, these are often not cross-compatible, resulting in up to 15 different types of charging points that drivers of electric cars have to navigate. What’s more, charging points tend to congregate in wealthier areas of the country, while residents in poorer areas struggle to find a single charging point. On top of this, most experts agree that if the electric car revolution is to take off, fast charging – or the ability to charge a car to 80% in 30 minutes – is essential for the success and sustainability of the network. The problem is that the national grid in the UK is simply unable to support the required wattage, or provide the increased levels of electricity required. We would, literally, face a melt down. The answer is a massive investment and overhaul of the underlying infrastructure.

So here we turn to economics. Once again, the problem is not technology. We have the knowledge, the tech, and the skills to make the green revolution happen. It comes down to economics.

The UK government has repeated its mantra that it is waiting for “the market” to step in and develop the charging networks for electric vehicles. Meanwhile, “the market” currently complains that there is insufficient basic infrastructure available for them to build on. This is not a new dilemma, and as Mariana Mazzucato has documented, a great deal of the tech that has driven progress over the last half century has developed out of state-funded R&D. Steve Jobs did not “invent” GPS or the touch screen; he took the technology and packaged it up in a shiny box.

It feels too obvious to state that a network of charging points for electric vehicles across the UK needs to be integrated and cross-compatible. It also feels obvious to state that this network needs to be connected to a grid that has the capacity to charge the nation’s cars, if we actually want people to move to cleaner, greener, options. It also feels like common sense to point out that this level of integration, planning, and investment needs to come from the state, as the only entity with sufficient oversight, patience, and funding. Or, at very least, it needs to come from “the market” working closely with the state to achieve clearly set targets that can establish a nationwide network that avoids duplication and achieves integration for the greatest value and usability.

The markets for broadband and mobile phone coverage are instructive here. There are still areas in rural Somerset in 2019 that have no mobile phone coverage. Understandably, where the market is left to decide where to invest, it will do so where the returns are greatest, and this is in towns and more densely populated areas. Given the basic underlying premises of business and shareholder value maximisation, this is to be expected.

The problem arises when ideology and a die hard belief in neoliberalism takes hold and denies the valuable role that state involvement can play. Writing in 1944, Karl Polanyi emphasised the utopian nature of the ideological divide between state and market, and criticised the belief that the free market was entirely self-regulating. He pointed out that both market and state relied on the other, and that some degree of state oversight and involvement was necessary if society was to avoid the worst effects of the free market. To use the example of the telecommunications failures, the government can step in at this point and regulate the operation of the market to ensure that everyone has access to broadband, whether they live in London or rural Somerset, and regardless of the cost to the company bidding for the contract.

At the same time, the market benefits from state involvement, and the examples of infrastructure such as an enhanced national grid, green power and a network of clean vehicle charging points on which the green transport industry can flourish is an archetypal example of where the close collaboration between the two spheres has never been needed more.

Visualising interactions with Procreate

I’ve been experimenting with Procreate on the iPad, which is an amazing app for drawing digitally. Seriously – check it out.

I’m using an iPad Air 3 with first generation Apple Pencil, which is great for digital calligraphy as well as designing and drawing complex interactions, networks, and social phenomena in general. The app also exports GIFs and MP4s as well as the standard visual media. I’m really excited to share my progress here with digital visualisations of economic and legal phenomena, and tackling questions like “how can we think about economics differently”?

Here’s an example: In the following diagram, each red dot is an actor – you or me. We interact with lots of different people every day, and these interactions are the black lines between each red dot. Over time, these interactions build up in complex patterns. This diagram is one way of visualising the way that patterns of interactions can develop in complexity, so that when we zoom out, we begin to see larger patterns.

What happens if we imagine that these black lines represent the economic aspects of interactions? What can we say about macroeconomics? And can this be scaled up further?

Visualising interaction patterns
Visualising complex interaction patterns

Between the Gigs and the Reels: novel approaches to understanding the gig economy

The rise and rise of companies like Uber, Lyft, TaskRabbit, UpWork, JustEat and Deliveroo has been termed the “gig economy”. Even the term itself can be wince-inducing to labour lawyers who are uncomfortable with the implications of the term “gig”. But there are broader issues, and a lot of ink has already been devoted to the economic and regulatory issues that arise as a result of this new form of working. At its heart, the issues tend to arise initially from the introduction of technology into the labour market that enables informal work. This has allowed the regulatory and statutory protections that workers have campaigned and fought for over the past two centuries to be summarily side-stepped. Sure, there are benefits, and it can present opportunities for people to get out of the house and supplement their income. But the problem is when this form of working begins to challenge the main, or more formal, economy.

The gig economy really took off in the wake of the 2008 financial crisis and the unemployment wave that followed, and is rooted in the informal sector which lacks government oversight, creating dilemmas about regulation and worker protections. Not that this is a completely new issue. The matter of informal sector work with a lack of recognition and worker protections and rights is a problem that women have been facing since labour rights came onto the scene. Women’s work – work generally done in the home – has yet to receive the same recognition as work done in the formal sector. Informal sector work includes not only a lack of pay, but also rights, holidays, sickness, insurance and so on. This analogy tends to be underplayed in the public debate about gig economy pros and cons. As Catherine Powell notes, the gig economy is business as usual for women. What’s new here is that the advent of technology and the self-employment or contractor-status of (usually) men has been sold to us as the epitome of the free market “in which app-driven services are seen as an example of unfettered market activity that is free of the intrusive, cumbersome hand of government regulation”.

At the same time, drivers working for Uber are contractors rather than employees, and therefore do not have access to the regulatory protections that employees do, like holiday pay, sick pay, pensions, national insurance contributions, and so on, although there are legal and regulatory challenges underway. In her recent book, “Hustle and Gig”, Alexandrea Ravenelle also argues that society is the poorer for this labour market model, as reduced tax incomes and reduced provision of social security nets by employers as well as the state have wider detriments throughout society.

In a different approach to most of the literature on the gig economy, economist and Stanford Professor Paul Oyer signed up with Uber and worked as a driver for them to understand the gig economy from the inside. This article links to an interview with him about his research and findings.

If you’ve read any of my previous posts, you’ll be expecting a comment here about economic methodology and how exciting it is to have an economist taking a sociological, quasi-ethnographic approach to understanding how a market works. Oyer notes that he took care not to tell his Uber customers that he was an undercover economist, and as he was employed by Stanford, his Uber wages were donated to charity. Nevertheless, his observations are valuable for their insight into the inner workings of companies leading and shaping the gig economy, like Uber. One observation that stands out here is the lack of social interaction among gig economy workers. If you work in an office, you see the same people every day, and a sense of community can develop. But working as a contractor in a car or on a bike can mean that you are isolated and solitary, and the loneliness of this was highlighted by Oyer’s undercover work; a sociological commentary on an economic phenomenon.

There are few insider accounts in general, and little literature on the importance of algorithms that form the backbone of the company like Uber. These are being developed by economists brought in by the firms, and have unpleasant, although perhaps unsurprising, side effects. The algorithms tend to channel higher paying work to men who are prepared to work at short notice, during “surges” in demand where prices are higher, and at periods of scarcity. Thus, male Uber drivers earn on average 7% more than female drivers. Male drivers are also more likely to “game” the system, learning how to be strategic in their pick ups and how to cancel less profitable journeys without incurring a penalty, provoking angry discussions like this online. Women are less likely to engage is this less-than-honest behaviour, putting their wages further behind.

A call to arms? Or just another wave of frustration with the status quo?

In the years following the 1929 crash, economists responded with a flurry of new and innovative ideas to better understand the bigger questions of how the economy works. Keynesianism, over the decades, came to be shaped more by the political mores of the time than any true adherence to what Keynes actually wrote, while Hayek’s free market theories present questions that we are still grappling with.

There have been other flurries of activity calling for “better economics” over the decades, and the 2008 financial crisis sparked another wave of calls for a deeper and more accurate understanding of what is actually going on. Clearly, while microeconomics might have given us the answers to some questions, macroeconomics has a way to go in understanding how the world works. But really, since 2008, what has actually changed?

“Very little” appears to be the general answer to this. There are several reasons here. In academia, the way your research is assessed and the way that promotions are awarded tends to come down to publications that support, rather than challenge, the mainstream (more on this later). In business, monopolies are unlikely to campaign for better antitrust regulation and enforcement. And we have a generation of politicians who have been taught (indoctrinated in) orthodox, mainstream economics and have been told that this is the only way to do economics and that it works. But there are calls for diversity, plurality and different approaches appearing.

I thought it might be helpful to set out some of the institutes and organisations that have appeared since the financial crisis calling for a rethink of economics. In the UK, Promoting Economic Pluralism (PEP) aims to change the way economics is taught in universities, and sets out an ambitious accreditation for pluralist economics teaching that it aims to have up and running by 2020. The blog for the group can be accessed here, and charts some interesting developments, seminars, and movements that have the common purpose of changing the way we do economics.

Other research programmes include “Rethinking Macroeconomics” at the National Institute of Economic and Social Research (NIESR) in London, which has secured ESRC funding for a project looking at how we could do macroeconomics better.

In the US, the Institute for New Economic Thought sets out to challenge the dominance of mainstream economics by funding research, engaging in public dialogue and driving forwards a new way of thinking about economics. Their goals are listed on this page.

Both institutes are engaged in highlighting and tackling the crisis of conformity in economics – in the way it is taught, the way it is practiced, and the way it is thought about in academia. The conformity within academic thought is more of an institutional problem, as this touches on publication, promotion, and professionalism within academia.

The problem here is that to progress as an academic you have to publish, preferably in the “top” or most prestigious journals. Obviously, if you’re trying to do something innovative or outside of the mainstream box, or even worse trying to tear down the existing box and build a new one, it is unlikely the more prestigious mainstream journals will accept your paper for publication. They have strict criteria for what they accept, and usually this means conforming to mainstream standards and not challenging or undermining the entire field. The publication industry actually reinforces the mainstream way of doing things, and in economics, that means reinforcing methodologies and frames that led us to the financial crisis.

As I mentioned in the previous post, there is a lot to be said here for greater education. Not just in universities on macroeconomics 101 courses, but more generally and broadly. We need a much higher level of economic literacy across the board, so that society is able to engage with – and more importantly challenge – economic ideas, plans, models and conclusions. This needs to happen hand in hand with an expansion of economics methodologies and approaches, and an appreciation of economics as a social science that is about perfectly imperfect and irrational people.

We all need to hope that the voices currently calling for diversity and plurality are more successful this time than previous waves of soul searching have been.