Issue 11 by Nottingham Economic Review

Nottingham Economic Review

Dear NER readers,

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Editorial

Thanks for picking up another issue of our journal! We’re again pleased to showcase a collection of student articles reporting on a range of current issues. An enthralling US presidential race - which seemed to take on added seriousness in the aftermath of Hurricane Sandy - of course resulted in a re-election for Barack Obama. Whether Obama can redirect his energy into avoiding gridlock in Congress with problems such as the ‘fiscal cliff’ should prove fascinating. Regardless, we’re delighted to include articles Editor-in-Chief: focusing on how Obama won at all, the effects Angus Naismith of Hurricane Sandy, and another big issue: inequality. Economics Editors:

Credits

Elsewhere, there are fascinating contributions looking at other political and economic developments around the globe, and two about initiatives begun by current and former Nottingham students: a microfinance scheme in Cambodia, and a technology start-up. The standard of entry to the Oliver Pawle Prize was again of an impressive note. The shortlisted articles study UK immmigration policy, Chinese export-subsidisation in reference to the East India Company, and the economics of happiness. A massive thank you to all of our writers, whether we were able to feature your contribution in the magazine or not. Don’t forget to take a look at our website for extra content, and look out for us on Twitter and Facebook. Best wishes for Christmas and the New Year! The NER Team

Gabbie D’Mello Roneeta Gupta Anthony Jackson

Politics Editors: Laura Curtis Luca Lixi Matthew Richmond Web Editor: Harry Villa Design Editor: Luke Askwith Sponsorship and Marketing: Roham Kermani Usman Saleem Illustration: Jennifer Yu Special thanks to: Hilary Clayton Oliver Pawle Kevin Lee Ben Claxton

Contents Economics Disparity in the West by Ross Heard

Golden Futures by Katherine Stapleton

Scottish Independence by Alexander Cook

Hurricane Sandy by Adetuke Morgan

Oliver Pawle Prize Pursuit of Happiness by Ben Hodges

East India Company by Rob Hudson

Immigration by Katherine Stapleton

Politics The Prince and the Letters by Thomas Smith

How Syria Compares to Last Year by Caroline Chan

The American Election – The upset that never was By Thomas Wheatley

Interview An interview with Ben Claxton

The Disparity in the West 4

Nottingham Economic Review

By Ross Heard

If you were to stop someone on the street, and ask them, what they thought economics was, they would likely answer something in the realm of finance, or money markets. Of course, as part of the inner circle, we know that this is only part truth. Though no definition of the discipline has ever proved, in fact, to be definitive, there was a time when the ideas driving

what is now modern economics, appeared to have very little to do with money at all. Centuries ago, it was not the study that today engages all of us, but rather that vague and shadowy understanding under the guise of the ‘political economy.’ Indeed, it is easy to forget, in the form that economics takes now, that as a newborn concept it was not simply about the efficient allocation of resources, but equally about the welfare

and wellbeing of society; and by extension, equality. In recent years, however, it appears that in striving for this latter case, we have lost our way. When the Occupy Wall Street movement emanated in September 2011, perhaps no one could have foreseen that within the space of a month, Occupy protests would have taken place in more than 90 cities, across 82 countries. The ‘99%’ had spoken, and the protests

Photo by Crispin Semmens

Economics

signified that the Western world and beyond had recognised, en masse, a global shift in wealth. In most circumstances, its coming has been a slow cooked meal, and one that many populations have found difficult to digest. What is notable, reflecting on the events is that countries in which Occupy protests were in the double-digits occurred almost entirely in Western countries: America, Canada, The U.K. and Australia to name a few. Does this mean that Western

as well. Richard Wilkinson, author of The Spirit Level and Professor Emeritus at the University of Nottingham, gave an excellent TED talk some months before Occupy started, entitled ‘How economic inequality harms societies.’ The key point of his talk, highlighting the major market economies of the world, was that whilst you cannot compare social indexes of countries in terms of national income, you can compare them

countries are feeling ‘The Wealth Gap’ more so than the rest of the developed world? The prolific uptake of the Occupy movement appears to indicate so. In the month after the Occupy protests on Wall Street, and as the movement was still yet taking root in various corners of the world, the US Congressional Budget Office (CBO) released a study that US incomes in the last 30 years had increased by 62% (allowing for tax and inflation). Good news? Not really, considering that the lowest paid fifth of Americans received the smallest share of the increase: a paltry 18%. The fifth below the top 1% received 65% of the share, whilst the 1% itself received a staggering 275% increase. This indicates that the average income of the wealthiest of Americans, from 1979-2007, had almost quadrupled. However, this purely monetary disparity is not all we should take into account. Research has shown that apart from the easily quantifiable effects of inequality, there is also a knock-on social effect

in terms of inequality. What he found, was that in weighing social indexes such as life expectancy, literacy, social mobility, etc, against the calculated level of inequality, there is clear, positive correlation between low social index scores, and high inequality. This means that far beyond the initial unfairness of income disparity, it also manifests itself in the social fabric of more unequal societies, a thought that to this writer is perhaps the most frightening. Professor Wilkinson’s talk has proved immensely popular online, with over 1.5 million views over the various TED Talk platforms (their website, YouTube, etc.) and so, it is obvious that the wider world is taking note of increasing disparity. (In fact, one could even speculate that considering the talk was posted in October, some months after it was filmed, it may even have stimulated the Occupy movement.) Let’s now look at data concerning the UK. Fig. 1 is an excellent graphic from the BBC News

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website: What Fig. 1 effectively shows, somewhat mirroring the CBO data from the states, is that whilst the income of the bottom 90% has remained effectively the same, the tiers of the top 1% have grown considerably, and disproportionately in relation to each other. Consider that for 90% of the country, income has increased by about £2000, and that for the top 0.1% of our country (top 1/1000th) income has almost doubled: an increase of about £500,000. When one looks at the darker orange spot, sitting at the bottom of the graphic, it is easy to see how static and immobile the fortunes of the poor have become. A more widely used method of measuring inequality is the Gini coefficient, which measures the income inequality of a country by assigning a value between 0 and 1, with 1 being perfect inequality. What Fig. 2 here shows, is that the growth of inequality in the UK is has not been an overnight process; it is a change that grew rapidly in the early 80’s, and mostly continued in the 2000’s. Though it is not displayed in this figure, the 2010 coefficient for the UK was 0.36; the highest it has been since the end of Second World War. This puts into perspective how the Occupy movements and other protests are not simply an outcrop of the recession, but a reaction to the ‘sleeper hit’ of the long standing, unresolved issues concerning income disparity. In an article by the Guardian, the inequality trend in Britain was summarised as ‘especially pronounced’, and that not only has the rise of the super-rich been fuelled by this trend, but figures from the OECD (Organisation for Economic Co-operation and development) suggest that at the same time, the rich have seen tax rates fall. Paul Johnson, of the Institute for Fiscal Studies, noted that in the UK, the growth of the City and rising bonuses had played a part augmenting the separation. Johnson then cited the research of Mark Stewart, a professor at Warwick University, who suggested that in the last 12 years, ‘almost all the increase in inequality has come from financial services.’ Commenting on the data, the OECD made

Economics

repeated warnings of the repercussions that this kind of a shift will have on future generations. It is somewhat obvious to this writer that with unequal pay comes unequal opportunity, which is especially vivid in the eyes of the young. In fact, it should surely be one of the greatest fears in all of this, that with the growing inattention toward those entering the labour market, there will be a sense of disenfranchisement and abandonment, and they will believe that they have been sold up the river. It is easy then, to imagine a future where the youth, so ready and willing to take the reins subsequently begin to give up on themselves; and this is where the values of society really begin to deteriorate. The harsh and debilitating effects of disparity will leave the young ungrounded, and cold to the thoughts of success and responsibility so frequently denied. This would not be something that countries can recover from in months, or even years; it would take decades. Aside from the examples provided for UK, and the United States, the West as a whole is almost unilaterally becoming less fair. The aforementioned report from the OECD indicates that even the “fairer” states in Europe, such as Germany, Denmark and Sweden, are experiencing a greater pay gap between the rich and the poor. It is a trend that is growing, and has been for many years, and as the divide between Britains, and Americans, and the rest of West grows like some great fissure between each populous, it is our children who will pay for it, not only though their incomes, but through social and political unrest. Despite the mood that has been set, there is a glimmer of light at the end of the tunnel. In a recent BBC news report in mid-October, Stephanie Flanders notes that the Gini coefficient, earlier mentioned, fell from 0.36 to 0.34 between 2010 and 2011: the largest one-year fall in almost 50 years, and one that brings us back to the still high, but stable value that dominated the 1990’s. The economics editor does concede that the fall may well be short-lived, but it is to an extent, comforting, to think that after the resounding trauma and uncertainty of the so-called Great Recession, we are, by degrees, more equally shouldering the pain.

Golden Futures: A charity born and bred at Nottingham By Katherine Stapleton

Golden Futures Microfinance is the provision of financial services to entrepreneurs and small businesses, who lack access to banking and related services due to the high transaction costs associated with serving these client categories. A division within microfinance is microcredit which is the provision of small loans to impoverished borrowers who are unlikely to be served by normal banks due to their lack of credit history or collateral. The idea of microcredit originates from the Grameen Bank in Bangladesh, set up by Nobel Prize winner Muhammad Yunus. Yunus started the bank using his own money to provide low interest loans to the poor. The idea of microcredit then spread to other institutions and became a popular tool for economic development worldwide. Microcredit was based upon the principle that the poor previously only had access to credit through ‘loan sharks’ who would charge high interest. Providing the poor with access to low interest credit would stop them being taken advantage of and support entrepreneurship. Microcredit institutions were originally not for profit and supported by private subsidies or government funds. However they later became commercialised, starting most famously with Unit Desa in Indonesia in 1984 which started providing microloans at market interest rates. Due to this microcredit institutions have been much criticised. Critics claim that microfinance leads poor households into a ‘debt trap’, that the loans are used for consumption which doesn’t help alleviate poverty and that men appropriate the loans, drawing their female relatives into debt. A famous randomised control study by Esther Duflo showed that microcredit had no positive impact on equity, health or education but only raised the number of businesses. However when used carefully, with low interest charged microcredit has various positive benefits such as increasing entrepreneurship, household incomes and asset accumulation.

Golden Futures is a charity that was set up six years ago by Joseph Bull, a Nottingham alumnus. After spending his gap year working in an orphanage in Phnom Penh, Cambodia he decided to set up a charity to raise money in the UK in order to empower the children where he worked with future prospects. Although Cambodia is endowed with a vast range of NGO care providing for disadvantaged children, very few charities provide funding or opportunities for these children once they have grown up. Higher education is not state-funded and so students from poor backgrounds lack the opportunity to gain the skills they need to escape from poverty. Children leaving NGO care often fall back into a life of lowskilled employment or crime. Moreover children who grow up in orphanages often lack even basic skills such as how to search for a job, how to dress for an interview or how to write a CV. Going to university in Cambodia is not expensive – for many institutions only $400 a year. For a Cambodian, however, where GDP per capita

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is around $1000 a year, this is unaffordable. More importantly there is a lack of available credit, which is where the idea of microfinance comes in. Golden Futures uses money fundraised in the UK to provide interest free loans for a small number of students at this orphanage to go to university or make small investments in equipment or training to start up small businesses. Fundraising $400 in the UK is not too difficult and can transform the life of a student who otherwise would have little opportunity to go to university. By lending the money as opposed to giving it, a sense of responsibility can be instilled in the receiver and the money can

Economics

then be used again once repaid. The Golden Futures group in Nottingham fundraises in the UK and then sends out a group of key volunteers to Cambodia for a month in the summer. While in Cambodia the group provides training and coaching to the students at the orphanage in areas such as how to apply for jobs, write CVs and open bank accounts. We work with the students one-on-one to help them discover what they want to do in the future and then take applications for the loans. Golden Futures has also compiled and published a Phnom Penh University Guide. This is now the only university guide in Cambodia and helps

students obtain an understanding of the options available. The loans provided are interest free, the organisation is not for profit and loans are a small, manageable amount to people whom we have close connections with, only for the means of education or capital investment. This means the problems of the loans being used for personal consumption, or these students falling into a debt trap, are overcome. This year Golden Futures is looking to expand and fundraise a record amount. If you would like to get involved, visit our website www.goldenfutures. org.uk or search for our Facebook group ‘Golden Futures 2012/13’.

What Would William Wallace do?

Photo by the Scottish Government

By Alexander Cook A Yes/No Question

Golden Futures

In a momentous agreement on 15th October David Cameron and Alex Salmond brought negotiations to an end upon the referendum that could determine the future of Scotland and the Scottish National Party (SNP). After extensive discussions and compromises, politicians in Westminster and Holyrood eventually settled upon a single yes/no question to be asked in the autumn of 2014 (which 16/17 year olds will also be able to vote on). Alex Salmond, Scotland’s first minister and

a fervent nationalist, will be disappointed that the date has been set so soon; at present the Scottish population is by no means decided on their future and the SNP was hoping for more time to win its electorate over. Presently voters aged 18-24 are the least supportive of independence, and by opening the electorate to even younger voters it is possible that the SNP has in fact damaged their chances of winning the ‘Yes’ vote. Currently less than a third of Scots support independence; a slightly larger group approve of further devolution without independence; and the final third prefer the current status

quo. With the voters’ stance as it is, Mr. Cameron seems to have won one over his Scottish counterpart by framing the decision as a single question. ‘No’ votes are predicted to outnumber ‘Yes’ by two-to-one, assuming that the ‘No’ campaign draws in devolution supporters with its pledge that a rejection of independence will lead to further devolved powers away from Westminster (but not full independence). Scotland had been able to win the ‘Devo Max’ question it is likely to have been preferred by many in Scotland. Strategic nationalist voters in Scotland would have realised that in a pair wise vote, independence is likely to lose out to staying in the

Economics 11

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union, but given the aforementioned composition of public opinion, nationalists could have guaranteed more powers to Holyrood by voting for this third option. ‘Devo Max’ would allow Scottish parliament to raise and spend its own revenues (i.e., full fiscal autonomy) but pay a levy to Westminster to cover nationwide non-excludable goods such as defence. It would though still maintain an important presence in the United Kingdom for international matters. It had been implied that a vote for ‘Devo Max’ would have been a step towards Independence; however this would not have been in the near future - the previous two referendums on devolution were twenty years apart. Perhaps without knowing, Mr Cameron has practiced fundamental elements of Political Economics and taken full advantage of being the agenda setter, thereby limiting the possibility of a successful independence bid. Nevertheless, whatever the actual outcome, there are still a number of questions that remain to be answered about what would happen to Scotland outside of the United Kingdom.

Splitting the Union Of these remaining questions, the legal and economic implications press most highly. Legally, it remains unclear what membership status a new independent Scotland would have in international organisations such as the EU and NATO. In economic terms, whether or not the Scottish people would be better-off leaving the United Kingdom is still hotly contested. For a considerable amount of time Mr Salmond assured voters and Members of the Scottish Parliament (MSPs) that leaving the United Kingdom would not affect its membership

to the EU, but it was recently revealed that no specific legal advice to the issue had been sought. Constitutional lawyers already doubt that automatic membership could follow independence; instead Scotland would likely have to go through the same process as any other state and declare an intention to join the Euro. This would particularly dissuade the Scottish electorate given the current problems within the Eurozone. Mr Salmond has in the past alluded to an independent Scotland working in a prosperous triangle between itself, Ireland and Iceland. More recently he has distanced himself from such a relationship since Iceland’s bankruptcy in 2008 and the current woes of Ireland. Instead the SNP looks across the North Sea to Norway, often declared as one of the most developed countries in the world by utilising its extensive oil and gas reserves. Despite these similarities, it is unlikely that Scotland would be able to replicate Norway’s success. Extraction in the North Sea has been on the decline for many years now and there are a number of installations that in the coming decades will require expensive decommissioning. Although reserves do remain, they are generally much more costly to extract and would leave Scottish revenues highly exposed to volatile market prices. For example, it is estimated that at $90 a barrel approximately 23 billion barrels could be extracted, but at $70, the amount falls to 16.5 billion. The forming slogan of the SNP in the 1970s was ‘It’s Scotland’s Oil’ and it still remains a key part of expected future GDP at 18%. But given for the whole of Britain these extractive processes only contribute 1.8% it is clear that an independent Scotland would need to diversify to get away from this overreliance. Even Edinburgh’s previous reputation as a global financial centre has slipped: the two enormous Scottish banks RBS and HBOS had to be bailed out in 2008 by the British government (which would want to unburden their share of their now toxic assets onto Scotland.) Apart from these economic problems for Scotland’s future there are abundant political ones that would need to be ironed out in a separation agreement. Among them will be how to finance the public sector and pension pay promises agreed in Westminster as well as the control of Scotland’s currency. While Mr Salmond was previously

Photo by Ben Cooper keen to adopt the Euro he now declares he would prefer to stay with Sterling. Might this limit the fiscal autonomy of Scotland? Scotland’s nuclear stance also remains a contentious issue. The SNP has long been opposed to nuclear weapons, and frequently reiterates that it would not accept Britain’s Trident nuclear defence capabilities to be based in an independent Scotland. Despite this, Mr Salmond announced that he would seek membership to NATO, a nuclear alliance. This policy is supported by the electorate. This uncertain stance on nuclear weapons has cost the SNP two MSPs who have quit the party over the contradictory nature of these intentions.

Spreading Disintegration Despite the multitude of difficulties in seceding, Scotland is not the only European region that wants to breakaway. Despite secessionist demands and activity, no other region has gone as far as Scotland by securing a referendum on independence. By far the most active and loudest of these regions is Catalonia, home of Barcelona on Spain’s east coast.

With its own language and distinctive style, Catalonia can seem like its own country and separatist feelings are rising – reportedly, over half of Catalans would vote yes to independence if asked now. Despite these seemingly encouraging figures, they are misleading as there is extensive anti-government sentiment throughout Spain as austerity bites. Consequently, Catalonia, one of the richer regions, feels that it should not have to support poorer parts of the country. This attitude has been accommodated in the political structure of Spain. Over recent decades laws have been gradually tweaked to grant Catalonia greater fiscal and political autonomy, edging towards independence. This incremental approach is much more widely appreciated by Catalonia’s influential middle class population than a straight yes/no vote as Scotland has arranged. The timing of this secessionist movement could not come at a worse time for Spain, with business already expressing a resounding lack of confidence. A possible exit by Catalonia would make Spain’s

economy even more vulnerable. This is why Spain’s leadership will also be carefully monitoring discontent in its industrial north Basque region. Similar to Catalonia, the Basques have their own language and feel they have to prop up other regions who perceived as less hard working. The Basque claim for independence has long been damaged by ETA’s terrorist branch which has disrupted reasonable discussion for forming a new state. However now that ETA has officially become a peaceful political party, the support for independence within the region has taken off. The reason for this widespread separatist sentiment can be broadly explained by economic trends. As the world underwent widespread trade liberalisation in the second half of the 20th century, the number of countries in existence more than doubled. This occurred as the economic benefits of being a unified country has reduced, whilst free trade blocs such as the EU allow smaller countries to exist and operate with low transaction costs for trade. This reduces the economic pressure on countries to remain politically integrated. The real question comes down to nationalist feeling, and the importance of independence to its citizens. So as citizens across Europe question the importance of national identity, it seems likely that many will look to a small country in the north of the United Kingdom to set the precedent.

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Hurricane Sandy By Adetuke Morga

‘When America sneezes, the rest of the world catches the cold.’ This famous phrase originated back in 1929 in the aftermath of the Wall Street crash and the 1930’s great depression. It’s just as true these days, because when the U.S. economy is doing well, world trade and global stock markets tend to flourish. In Johannesburg, the phrase has been modified to ‘When America sneezes, things get a little feverish in South Africa.’ The Crux of the matter still remains that events in the U.S tend to have an impact, whether little or large on the rest of the world. Irene, Katrina, Sandy and Rita- these beautiful female names have one thing in common; they are the names of Hurricanes which have affected this world in the 21st century. Upon researching how a hurricane is named, I was surprised to discover that for each year, a list of 21 names, starting with a different letter of the alphabet was developed and arranged in alphabetical order. The first tropical storm of the year was given the name beginning with the letter “A”, the second with “B” and so forth. According to the Atlantic Oceanographic and Meteorological Laboratory (AOML) the first use of an appropriate name for a tropical cyclone was by an Australian forecaster early in the 20th century. He named Tropical

Country

Fatalities Missing Damage (in USD)

United States

121

50 billion (estimated)

Haiti

74 million (estimated)

Cuba

2 billion (estimated)

Bahamas

300 million (estimated)

Canada

Unknown

Dominican Republic 2

Unknown

Jamaica

55 million (estimated)

Bermuda

Unknown

Total

193

>$52.4 billion (estimated)

cyclones “after political figures whom he disliked” and by naming a hurricane, the weatherman could publicly describe a politician as ‘causing great distress’ or ‘wandering aimlessly about the Pacific’. Later, during World War II, US Army Air Corp and Navy meteorologists named Pacific storms after their girlfriends or wives, just like pilots had done with their fighter planes. Today, the World Meteorological Organization maintains six lists of Atlantic hurricane names which are reused every six years. Occasionally, a name is retired when a hurricane causes so much death and destruction that reusing the same name would be insensitive to people who suffered losses. Hurricane Sandy was not that prevalent

in the news when it hit the Caribbean. However, upon its arrival in America it made major headlines. Sandy began in the Atlantic and knocked around the Caribbean before it strengthened into a hurricane as it chugged across the southeastern coast of the United States thus earning nicknames like ‘superstorm’ and, on Halloween-eve, ‘Frankenstorm’. In Jamaica, winds left 70% of residents without electricity, blew roofs off buildings and caused about $55 million in damage. In Haiti, Sandy’s outer bands brought flooding that caused food shortages and left approximately 200,000 people homeless. In Cuba, there was extensive coastal flooding and wind damage inland which destroyed 15,000 homes and

Photo by ccho on Flickr caused $2 billion in damage. In the Bahamas, there was an estimated $300 million in damage. In the United States, Sandy affected at least 24 states, from Florida to Maine, with particularly severe damage in New Jersey and New York. Besides its magnitude, Sandy was unusual because of its hybrid-storm classification: a winter storm-hurricane combo that virtually crippled one of the wealthiest cities in the world. It caused cars to float like boats and even flooded the September 11 memorial site. The subways are the vital arteries that keep much of Manhattan alive and Sandy flooded most of the tracks and tunnels such as the Brooklyn battery tunnel which connects Manhattan to 2.5 million people. The water inundated tunnels, subway stations and the electrical system that powers Wall Street. It also sent hospital patients and tourists scrambling for safety. The shutdown of mass transit crippled a city where more than 8.3 million bus, subway and local rail trips are taken each day and 800,000 vehicles cross bridges run by the transit agency . The historic storm knocked out power for about 8.5 million people and Mayor Michael Bloomberg of New York has said Sandy may have left as many as 40,000 people homeless. Sandy inflicted a final indignity as it caused coffins to rise from their graves because the sheer force of the water unleashed by Sandy swelled the ground. ‘Nature,’ said New York City Mayor Michael Bloomberg, assessing the damage to his city, ‘is an awful lot more powerful than we

are.’ Volunteers in Coney Island and Far Rockaway, New York City state that there are elderly and mentally ill people trapped in their homes, without heat, power and access to medicine. Volunteers claimed to have encountered residents using stoves to heat their homes, inviting the risk of potential carbon monoxide poisoning. “People are tired. They’re frustrated. They want their lives to go back to the way they used to be…” Residents are moving back into homes with walls covered in mould and worries that respiratory illnesses could result. With an estimated $50bn in damages, analysts believe Sandy is the second most expensive disaster in US history, surpassed only by hurricane Katrina. Scotia Economics suggests that a 0.25 percentage point hit to GDP growth in the fourth quarter of 2012 is possible, resulting in a downward revision of Q4 growth to 1.5%. Damage of the ports of New York and New Jersey will impact on international trade as these ports import about four times as many goods as they export, thus disruptions at the ports could artificially improve the trade deficit figures (i.e. by lowering the trade deficit) for the months of October and November 2012. It is expected that initial jobless claims will spike upwards due to business shutdowns related to storm damage. While prior to and immediately after any disaster, consumers are stocking up on items such as flashlights and the demand for building supplies increases strongly after the event, pushing retail sales up. On the negative side, disruption to business lowers retail demand due to the widespread damage to both public and retail infrastructure. However, the biggest negative impact could be on the earnings of the insurance sector. Looting has also been a problem. “We’ve already lost $400,000 from the storm damage and the looting,” said a longtime employee at Bay Park Pharmacy in Coney Island who goes by the name Crazy. “Now we are losing thousands each day being closed.” In Mermaid Avenue, produce was tossed from shelves and ATM machines ripped from the walls. Ron Troyano, owner of Joann’s Discount Wine and Liquors in Coney Island said “We are supposed to come together as a community during times of crisis, not pick at each other like vultures. Next time I’m getting a gun.”

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Oliver Pawle Prize 15

The Oliver Pawle Essay Prize is running in its 3rd successful year. The essay prize is graciously sponsored by Mr. Pawle, an alumnus of the School of Economics, who also assists with the printing costs of the magazine. The competition challenges current economics students to write an engaging and analytical essay on a current issue in economics which interests them. The winner is recognised and awarded £1000 at the graduation ceremony. This semester’s submissions were, as always, of an outstanding quality - so much so that we were not able to shortlist, let alone publish them all. Kevin Lee, Head of the School of Economics, who judged the competition, explains his decision: “All three essays are really interesting and well written. In looking at the happiness literature and the links between the East India company and Chinese industrial policy, Ben and Robin have both chosen slightly left-field topics (which is a good thing). They both quickly show their relevence to, and place in, modern economics and offer some very good insights on contemporary policy debates. But Katherine’s essay goes a little further. It addresses an issue that is very high profile and important in policy terms. Katherine makes it clear where she stands on the issue and takes a clear line in the debate. But she presents the pros and cons in a systematic and dispassionate way and makes her case very persuasively. If you would like to enter an article for next semester’s Oliver Pawle competition, submissions will open in Februrary 2013.

Pursuit of Happiness By Ben Hodges

The immense physical and emotional strain of completing a marathon often leaves its participants in a rather dumbstruck haze of satisfaction. Whether it be crossing the finish line or simply listening to music, we all experience these temporary day to day swellings of short-term ‘affective happiness.’ If we consider the marathon runner’s high job security and approaching silver wedding anniversary, we become aware of a more long-term form of happiness –‘evaluative happiness’ which philosophers and, increasingly, economists have suggested might be much more valuable. It is important to note the distinction. While stubbing one’s toe on a plant pot may provoke a short lapse in contentment, it will have no impact on any assessment of overall general wellbeing. It would seem that evaluative happiness can result directly from particular and attainable life choices. Research is almost unambiguous

in suggesting that those who get married are generally happier than those who do not. But it is less so with specifics: does this happiness hike last for ever, or simply for a short ‘honeymoon period’ after marriage? And what if divorce or the loss of a loved one? There is also a question of causality: are happy people more likely to marry in the first place? Because of its apparently subjective nature, economists have often dismissed the science of happiness as having the ‘giggle factor;’ how can a supposedly unquantifiable emotion be measured and evaluated? This view is beginning to shift. Much like Da Vinci’s helicopter blueprints that lacked an engine, Friedrich Hayek, a pioneer of classical liberalism, recognised the potential of neuroscience at a time far preceding its current capabilities. Due to the many years of scientific progress that followed Hayek’s predictions, neuroscientists are now able to use advanced imaging techniques to measure happiness levels.

Such recent innovations are allowing economists to measure subjective happiness with increasing objectivity. In the past, most attempts to measure happiness have involved psychological surveys, (‘How happy were you yesterday?’ was a question asked by the Office of National Statistics (ONS) in the UK) as well as utilising weighted factors such as income levels, which are said to influence happiness. It is easy to see where concerns can arise. How much, for example, does income contribute to happiness – if at all? Interestingly, new neuroscience technology provides us with data that correlates closely with previous data. It seems the critics were too dismissive. As a result, previous comparisons of happiness between different societies like the ‘Happy Planet Index’ are becoming the subject of serious reconsideration. Leading the way is the small Asian country of Bhutan, which has adopted the target of increasing Gross National Happiness (GNH), an index which involves measures like cultural values and good governance, rather than Gross National Product (GNP), which is a growth measure used by much of the rest of the world. Other nations are taking note. In April 2012, for the first time ever a United Nations conference on happiness and wellbeing took place in its New York Headquarters, which included the release of a comprehensive ‘World Happiness Report.’ Furthermore, in the UK Prime

Minister David Cameron recently allocated funds of £2m to the ONS in an initiative to asses the nation’s wellbeing. In a world where sustainability is a more important issue than ever before, and where globalisation is narrowing the once stark differences between the economic growth and GNP of countries, it is no wonder that governments and institutions are searching for answers. Perhaps it is time for the ‘economics of happiness’ to take precedence over the more traditional and limited measures of success. This brings us to one of the most paramount questions of concern amongst governments and institutions alike: does having more, make us happier? The United States of America has experienced sustained economic growth over the past fifty years, yet research by numerous organisations including the ‘General Social Survey’ states that reported happiness levels have remained constant throughout. Despite becoming richer, Americans are just as happy now as they were in 1960. In the Declaration of Independence, America’s founding fathers wrote that there were: ‘certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.’ How can a nation that enshrines such values have failed to increase its citizen’s experience of happiness over a period of fifty years, even though this same period has seen such significant increases in growth and prosperity?

There may be many explanations for this, but one factor is that as America has become richer, its income distribution has become increasingly unequal. International news agency ‘Reuters’ recently claimed that America’s income inequality ‘is at the highest level since the Census Bureau began tracking household income data in 1967.’ Indeed, for such a developed nation many would find the disparity between rich and poor extraordinary, and hence fail to find it surprising that people are not feeling happier when so many are missing out. Having said that, citizens of the USA take great pride in believing that hard work should be met with financial reward; indeed, these ideas govern the ‘American Dream’ that anybody can make it big if they work hard enough. With this in mind, is it still viable that a primary cause of America’s static happiness is unequal income distribution? It seems that while this plays its role, other reasons must exist. In any case, evaluating America’s brief history on its own is of little use; perhaps other countries have contrasting stories to tell. Fortunately, in economist Richard Easterlin’s 1974 paper asking does ‘Economic Growth improve the Human Lot?’ a paradox was developed which – provided basic needs are met - can be used as a model to describe happiness in all countries that experience economic growth. From his evidence he observed

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income has little impact on happiness, do the world’s poorest countries like Togo and Sierra Leone always rank the least happy? What we must remember is that this hypothesis only applies to countries who have reached a level where the population receives basic requirements like sanitation, food and water. Unfortunately some countries are stuck, where factors like war, corruption and widespread poverty must be addressed first. These are often specific for each country, and require an entirely different approach. Maslow’s widely accepted ‘Hierarchy of Needs’ states that in order for an individual to achieve higher needs like self actualisation, physiological needs like food and water must be met first. In similar fashion, what will improve the happiness of an American may not do so with a Sierra Leonean, and vice-versa. In light of the evidence that growth does not result in happiness, (putting that small percentage of countries that require specific support to one side) it seems strange that countries have pursued an increasing GNP with such vigour. We must remember that a lot of the investigations into happiness are new. Indeed, the ‘World Happiness Report’ was only presented to the UN in April 2012, and advancements in neuroscience that make happiness studies more conclusive are ongoing. While the actions of the past were governed by growth, the future may take a different route, as issues of sustainability will

increasingly come to affect the happiness of future generations. Governments are already investing heavily in trying to learn how to keep their societies happy. Lord Layard, a London School of Economics professor takes a strong view. Due to the relative income hypothesis, by working long hours and improving one’s income you are also causing others to become less satisfied with theirs. He argues that this is quite simply a negative externality: the individual’s actions are having a negative affect on society. Therefore, by increasing income tax to a discouraging level, the externality will become internalised, hence removing the potential for loss of happiness. Fortunately for us all, Lord Layard has his critics (studies have shown that people with religious beliefs are slightly happier than those without; would he have religion forced upon everyone?) but in a changing world this debate of new ideas regarding how we live is critical to the way in which we progress. We must continue to research this area and considerations of ‘happiness’ must continue to evolve. Governments will need to reach international agreements where common policy approaches are seen as necessary, for example in promoting sustainable development, whilst cultural, institutional and social differences will require countries to adopt different approaches to the pursuit of happiness, dependent upon their specific and individual needs.

Is immigration the Conservative party’s ‘barmiest’ policy? By Katherine Stapleton

Illustration by Jennifer Yu

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two seemingly contradictory facts: ‘Within any society at a given time, richer people are on average happier than poorer people’ and ‘As a country’s income increases over time, the population does not on average become happier.’ From this, Easterlin arrived at the ‘relative income hypothesis.’ It dictates that as individuals, we care more about our income relative to that of our fellow citizens than in absolute terms. This provides us with evidence suggesting that even if America did have a perfectly equal society, it still would not be any happier than it was in 1960 (other things being equal) because everyone will have got richer by the same amount. Relatively, nobody would be better off, everyone having kept up with the Joneses. Furthermore, a 1998 experiment led by economists Solnick and Hemenway offered participants a choice of two worlds: in the first you earn $50,000 and your peers earn half that, and in the second you earn $100,000 but your peers earn more than double that. The majority opted for the first world, suggesting that rank and relative income are often more desirable than income in absolute terms. Perhaps philosopher and economist Karl Marx had a point when he said: ‘A house may be large or small; as long as the neighbouring houses are likewise small, it satisfies all the social requirements for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut.’ Why then, if absolute

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An economic analysis of the impacts of immigration.

he Economist featured its leading article on the 18th October deploring the current immigration policy as ‘crippling businesses and the economy’. David Cameron has promised to reduce annual net immigration from over 200,000 to the ‘tens of thousands’ by 2015. As immigration from Europe cannot be altered this will largely fall upon students and migrant workers. Business Secretary Vince Cable and Universities Minister David Willetts are amongst those urging David Cameron to water down his pledge. Economists such as Jonathan Portes, who recently spoke at Nottingham on the issue,

have repeatedly stressed the economic benefits of immigration and the damage this policy will cause business and international education. What was the government’s rationale in making this policy and what exactly are the economic impacts of immigration? This article aims to discuss these questions with reference to economic theory and empirical evidence and in doing so evaluate the extent to which The Economist was justified in describing the policy as ‘barmy’. The impacts of immigration are wide ranging. The most studied and discussed area is the effect on the labour market. Equally important

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and less thoroughly researched are the effects on income per capita of residents, productivity, innovation and the side effects from an increasing population. Even less thoroughly quantified are the social impacts. What value do we put on diversity? How can we measure the impact of immigration on integration and social cohesion? Myths abound on the impact of immigrants on the employment and wages of natives. A Transatlantic Trends survey in 2011 showed that 58% of people in the UK surveyed agreed that immigrants take jobs away from native born workers. Theresa May recently told us that Labour used immigration to ‘keep wages down’. To analyse such claims let’s firstly review a static labour market model. The effect of immigration on the wage structure and employment of natives should depend on the skill composition of the immigrants, the nature of capital supply and the flexibility of the economy to adjust through uses of different production technologies and output combinations. For a simple one sector economy which can react to immigration only through changes in the wage structure, assuming immigrants and natives are perfect substitutes, capital supply is perfectly elastic and labour supply perfectly inelastic, immigration will only affect wages if the skill composition of immigrants is different to that of the native country. Natives who are similar in skills to immigrants lose out while others gain. Average wages stay the same. If the

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economy adjusts to immigration by changing its output or production technology, wages and employment may be unchanged. Empirically investigating these predictions is difficult. There is firstly the problem of the missing counter-factual. We cannot easily compare the effects of immigration with what would have happened had immigration not taken place. Secondly there is endogeneity bias. Immigrants are not randomly allocated but select areas with greater economic success. However, there have been numerous studies trying to overcome these difficulties. Dustmann et al (2005) find no discernible effect on aggregate employment, participation, unemployment and wages. Lemos et al (2008) find no hard evidence that inflows of accession migrants contributed to a fall in wages or rise in claimant unemployment during the period of 2004-2006. Manacorda et al (2006) find that natives and immigrants are imperfect substitutes. Labour market impacts mainly affect immigrants already in the country. Nickell et al (2008) find a small negative effect. The results of such studies have been questioned and differ slightly but the consensus is that immigration has a small impact on wages or employment of natives. There is a lack of evidence on the effect of immigration on the GDP per capita of natives. Studies have been carried out on the effects on overall GDP per capita but these shed little light on the impact

on the resident population. A House of Lords report claims that there is no evidence that net immigration generates economic benefits for the UK population. This statement has been criticised in the media by Economists such as Danny Sriskandarajah, Jonathan Portes and John Elliot who claim that it ignores dynamic and spillover effects of immigration. Returning briefly to simple economic theory, long run growth models such as those of Solow, Romer and Lucas show the importance of technological progress in sustaining economic growth. Human capital accumulation, innovation and knowledge spillovers are pointed to as ways of increasing total factor productivity. It is intuitive that if immigration leads to the exchange of new ideas and knowledge transfer it will lead to economic growth. Empirical studies have tried to quantify these effects. Huber et al (2010) find that high skilled immigration has a positive role in productivity developments in skill intensive industries. Kerr et al (2010) have also found that cross border flows of people and knowledge make an important contribution to innovation. Max Nathan has studied the effects of ethnic inventors and diversity on innovation in the UK by examining patenting data and the development of new products. He finds that diversity of inventor communities helps raise inventors’ productivity and that culturally diverse cities are more innovative. It is accepted that interactions and exchanges with other people are the foundation

of economic gains through variety, specialisation and spillovers. There are various models showing the role of openness to trade on the economy, but few on openness to immigration despite its similar outcomes. One of the few was published in March this year by Ortega and Peri showing that openness to immigration is a strong indicator of a country’s income per person. Even if immigration does improve productivity and have a positive effect on income per capita, the aim of the government is not simply to maximise GDP. A leading argument against immigration has been its fiscal cost. However, the Home Office in 2002 showed that immigrants in fact make a net positive contribution to public finances. Likewise, Dustmann and others have shown that new migrants are a substantial positive contributor to the public finances because they have a higher labour force participation rate, pay proportionately more indirect taxes and make lower use of benefits and public services. A rising population puts pressure on housing, food and energy markets, congestion and the environment. In theory immigrant inflows should increase the demand for housing and increase rents and house prices. Nonetheless empirical evidence is less clear cut. Positive price effects are found for the US, Switzerland and Spain. On the other hand immigration has been shown to have small effects on the housing markets in Canada and New Zealand. A study by Filipa Sá from the University of Cambridge finds a negative effect on house prices in the UK. Natives respond to immigration by moving to different areas and those who move are at the top end of the wage distribution, generating a negative income effect and reducing demand. Immigrants hence do not always increase house prices and evidence for the UK shows the contrary. A further argument against immigration is that it causes crime. The impact of immigration on property crime should depend on the payoff from legal labour market opportunities for the immigrants compared to the payoff from illegal opportunities. The greater the legal labour market opportunities the lower the chance of turning to crime. The causes of violent crime and less well understood. The Centre for Economic Performance shows that immigrants from the A8 accession countries, those entering with work permits or Tier

2 visas are found to have significantly negative impacts upon property crime rates. As they have come to the UK with the specific intention of working it follows that they are less likely to commit crime. Impacts such as that on national identity and social cohesion are very difficult to quantify. A report in January of this year for the Migration Advisory Committee finds that there is little evidence of the impact of immigration on reduced national identity or social cohesion. However, immigration is found to play an important negative role in integration. The cost-benefit principle should apply to immigration. Although this writer agrees that the current level of net immigration may not be sustainable in the long term, the evidence as summarised above points to the benefits outweighing the costs. The policy will be particularly detrimental due to its timing and structure. The economy is in desperate need of innovation and growth. Reducing access to the strategic skills and talent that businesses need will stifle their development. Immigration of the workers who bring the greatest benefit will be reduced at the time when their benefit is needed the most. Moreover The Economist is correct in its criticism when it comes to international students. They are included in the target and considered permanent immigrants despite around four fifths of them returning home after studying. The IPPR estimates that the reduction in international students will have an annual cost to the economy of £2bn-£3bn. Given the evidence summarised above this writer agrees with The Economist that the policy is at least somewhat ‘barmy’. Regulation of net immigration is necessary, but not of the scale the government plans, at the given time or in their proposed structure. Bureaucracy on bringing in strategically skilled workers should be reduced, students exempt and the target reduced until the economy is in better shape. Once in a blue moon the government and media might also want to consider the welfare benefit British people gain from immigration. I for one put a high value on going to a university with a vibrant international community and integrating with people with different cultures, values and ideas.

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How The East Was Won And How It Could Ultimately Be Lost By Rob Hudson

Wikipedia

What can China learn from the rise and demise of one of the world’s first statebacked companies?

s China continues to dominate headlines and buck economic forecasts we turn to the history books in the hope of finding a relevant case study of a state-backed enterprise gone bad. China’s economic system demands close scrutiny and its recent reform begs the questions; are the reforms enough, and can our history provide a guideline for their future? In 1600, Queen Elizabeth I granted a Royal Charter to the East India Trading Company (EITC) for a monopoly of trade with the East Indies lasting fifteen years. The state did not directly own any shares in the Company, it did, however, have an indirect role in its running. Through the support of the government the Company was able to offer its shareholders limited liability on their investments, making it a much more attractive venture for

investors. The state’s involvement did not end there however. With the aid of government diplomats and the sanction of the monarchy, the Company was able to gain exclusive rights to operate in strategic areas of the Indian mainland, well beyond the allotted fifteen-year period. Over the subsequent 200 years it grew to a formidable size with around 10% of Britain’s imports coming from the Company. It also had control of its own army, numbering some 250,000 men, meaning it was able to act as a mercenary for the state who used the Company and its army as a tax collector in the foreign lands. As such, the Company became more and more entwined with the government, acting on its behalf as an ambassador in India. The Company’s size, power and controlling nature, however, created much animosity towards it, both at home and abroad, thus compelling the government to regulate it more strictly. This would mark the beginning of the end: the government appointed a board

to command its directors and then removed its trading monopoly. Eventually the state adopted all the Company’s managerial roles in India. On June 1st 1874 the Company was officially dissolved and so, after nearly three centuries, the very same body that helped create them took on the role of their executioner. The similarities between the EITC and the modern day State-owned Enterprises (SOEs) of China may not be immediately apparent but when one looks closely the similarities are palpable. It is these parallels that show why China needs to be wary of its companies’ futures. Many Chinese SOEs are monopolies themselves just as the EITC was. China Mobile is 70% owned by the government through the State-Owned Supervision and Administration Commission (SASAC); the rest of the company is owned by private investors. It must therefore play a delicate balancing act between pleasing the state and benefitting the shareholders. The Company knew all too well about boosting profits whilst keeping parliament sweet through the liberal dispensation of bribes. Nevertheless, parliament inevitably wanted to extract more and more from the EITC by means of higher taxes and tariffs. In much the same way, the SASAC has hoped to squeeze out higher dividends for the government. Further similarities can be found within the international merits of the EITC (which was one of the world’s first Multi-National Corporations [MNCs]). Many of China’s dominant SOEs are also MNCs, entering the global arena and benefitting their host nations by introducing new technology and developing existing infrastructure. China’s most notable influence has been in Africa where, according to the World Bank, they invested US$7 billion in 2006. In much the same way the EITC built schools, roads and factories as it expanded in India, not only improving the efficiency of the company but benefitting the local community. Similarities stated, we now turn to the main difference between the two. By-and-large the disparity stems from a simple – yet important –contrast in the state’s involvement. The Company was merely state-backed, with the government owning no shares, whereas today’s government in China holds large amounts of shares in the stateowned enterprises. A state-backed enterprise is an umbrella term for a company approved, owned or controlled by the government. As such, state-

owned enterprises fall into this category as well. The important distinction to note is that the EITC was state-backed in as far as it was approved by the monarchy. The state-owned enterprises of China are just that: enterprises that are fully or largely owned by the state. The EITC crowed triumphant over a foreign sea and a domestic economy; statecontrolled companies continue to dominate the Chinese market place and are increasingly making their mark outside the country’s bamboo curtain. In the past quarter-century China, not wanting to commit to a full free-market economy, has pushed for a socialist-market economic system. With policy reforms such as ‘grasping the large and letting the

Photo by Anthony Arrigo small go’ it hoped to maintain its biggest, most profitable companies in strategically-important industries whilst letting the smaller ones go, through mergers, privatizations or bankruptcies. Now, as the Chinese state endeavors to reap the rewards of its successful enterprises it is veering dangerously towards a situation all too familiar: the EITC was slowly choked-off as the government attempted to grasp hold of it. In China, the SOE sector incurred a net loss for the first time in 1996. This highlights the fact that, even though largescale reform has occurred, the structural changes have not improved the overall balance sheet of SOEs. Since 2003 the SASAC has shed 77 companies from its books - its portfolio now consists of 121 companies. Although a step in the right direction, China still has a long way to go before it can be described as a free-market economy. The aforementioned SASAC still shadows SOEs’ board meetings and intervenes on decisions, plans and workers’ salaries – and often succeeds in controlling them. A reiteration of the historical comparison here is repetitive

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Politics 23

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but necessary: the EITC was assigned a governmental board to command its directors in much the same way. China has no doubt come a long way from the initial Communist regime that took over in 1949, but it still has a long road ahead to secure its future as a dominant economic force. Since joining the WTO in 2001 they have been called on to increase competition and open up their economy; for example, they will have to substantially reduce the subsidies they provide to SOEs under the Agreement on Subsidies and Countervailing Measures. Despite this, it must be noted that an important reason for the success of the EITC was its independence in prosperous periods and its ability to fall back on state subsidies in turbulent times. This is merely another example of how the EITC and China’s SOEs are comparable. Many studies have concluded that SOEs are less efficient than other forms of enterprise. They can become bloated and inefficient, sapping resources and placing enormous burdens on the national budget. However, privatization can prevent loss-making public-sector companies from increasing the government’s debt; the flip-side being that the government no longer receives revenues from the profitable enterprises. Flip the coin again and it can be said that government revenues from taxation will increase with privatization so long as efficiency is increased. Increased efficiency is not beyond the realms of possibility. SOEs often lack profit motivation, scrutinizing

shareholders and unrestricted competition, all of which induce efficiency. As the state’s role in the EITC increased it became less focused on profits and more focused on power, losing sight of competitiveness. Lack of competition also causes companies to be much less responsive to technological advancements. In 2000 SOEs controlled over 65% of China’s industrial assets and were dependent on largely outdated, inefficient and highly polluting technology. One study concluded that nearly 50% of the products it surveyed came from factories that were operating 40% below their installed capacity. The only reason they managed to stay above water was through governmental fiscal subsidies and heavily subsidized credit. Although we may have strayed slightly from the historical comparison we are never far from it: In 1770 a famine in Bengal destroyed the local economy and Company business and the EITC only avoided bankruptcy by way of a government bailout. A commonly used argument against privatization relates to the social effects from the transfer of SOEs to the private domain. These transformational costs mean that SOE privatization would likely bring about an increase in unemployment as some enterprises hold high levels of surplus labour. However, the newly privatized enterprises may actually create jobs in the long run through the restructuring of the economy. Hence if the transmission from SOE to privately-owned enterprise happens gradually this problem may be largely

overcome. The death of the EITC left thousands unemployed, the majority of whom eventually formed the armies of British India. Of course, no solution is perfect and a temporary increase in unemployment may be a small price to pay for a much stronger economy in the long run. If timely, large-scale privatization occurs in China then the benefits induced by the aforementioned pros will largely overcome these hurdles. The East India Trading Company is long-dead but its legacy lives on. It is an invaluable case study that China would benefit from scrutinizing. China is well on its way to becoming a formidable economic power in the global economy. Nevertheless there is the need for further reforms in addition to the ones of the past quarter-century. A steady transition towards competitive capitalism through widespread privatization is required for China to ensure its position as the dominant Asian (if not global) economy. The structure of the system is such that it encourages public sector advances at the behest of the private sector. Though the situation has improved considerably since the 1980s it still leaves a lot to be desired. SOEs still dominate the market place, despite history warning us of the dangers concerned with mixing enterprise and politics, as shown by the EITC. There are lessons to be learned about the pros and cons of linking company policy to that of the state and, as has been proposed, the advantages seem relatively trivial when one examines the costs.

The Prince and the Letters By Thomas Smith

The heir to the throne, Prince Charles, has come under considerable criticism since the Guardian reported that its request to have letters sent by the Prince of Wales to various government departments and ministers made public was blocked by Dominic Grieve, the Attorney General. The move has angered many on the left, and even some on the right of the political spectrum, with republican-minded Brits seeing it as yet another example of the democratic deficiencies of monarchical rule. We could take this recent revelation to be an example of the failings of republican democracy, as many critics, particularly on social media sites, have suggested. There are, however, a number of reasons why we should look at this issue in greater detail. Despite the use of the term ‟lobbying”, no minister has yet come forth to claim that the Prince placed pressure upon them with regards to policies. Jack Straw, the former Justice Secretary claimed that, while a cabinet minister, through his letters the Prince was “offering me opinions, never telling me what to do”. One could argue that any letters the Prince sent, and the advice inside, carried the same weight as those of an ‘average’ citizen airing his views. The Attorney General has stated that the correspondence was blocked due to the position of the Prince as heir to the throne and the purpose of the letters was “preparation for kingship”. Therefore any revelation of the letters would jeopardise his position of political neutrality when he became King. What must be remembered is that Charles is not King yet, and in order for him to serve as King, he must have some idea of how the government works. How better to do this than to directly question ministers? Asking Ministers of the Crown about their policies, their implementation and to pass on his opinions to them is the best and arguably the only practical way for a man to learn inner workings of what will one day become His Government. In Britain we have a tradition, thoroughly reinforced by the current Queen HRM Elizabeth II, that the monarch should be politically neutral, with neither preference nor

Wikipedia

bias to the ideologies of whatever party is in power. However that does not mean the Crown does not have a right to speak directly to ministers to question them. Questioning ministers and pressuring them are two very different things. Furthermore, Charles is only human. He, like all of us, will have some very strong political beliefs. Yet he is destined for the highest political office in the land, and one which requires an almost sacred indifference to politics. Therefore his private correspondence to ministers regarding his personal views being published would truly damage the concept of a neutral monarchy when he was to become the said monarch. We all know Charles has opinions, as we all know the Queen has opinions, though the duty which she so often talks about means keeping those views locked away for the good of the constitution. As King, Charles would no doubt follow the Queen’s example of rigidly dividing personal opinion and professional neutrality, but until that day arrives he can only continue to learn what will be expected of him and to fully grow into the monarch we expect him to be - a task that would be made much simpler if the social media warriors finally left him alone.

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PwC 25

Consulting at PwC What do consultants at PwC do? PwC’s consulting practice offers two main routes for graduates: a generalist route into Management Consulting, or the opportunity to specialise in Economics, Risk, Strategy or Sustainability & Climate Change. Here we outline what each one’s all about Management Consulting: We help some of the world’s most significant organisations – public and private – become even more effective as quickly as possible by improving the way they operate, accelerating their growth, reducing their costs, managing their risks, developing their talent and changing the way they do business. In doing so, we focus on their agendas and the big issues they need to deal with, both today and in the future. Economics Consulting: Economics is the science of business and shapes the world we live in every day. In this team, you could find yourself analysing the current economic climate for companies in a wide range of sectors trying to maximise the value of their transactions or involved in market-related disputes. You might also be involved in working with public sector bodies on market regulation and reform. Put simply, the work here is front page news. Risk Consulting: Market dynamics over the last two years have highlighted weaknesses in valuation and risk models and tools that have played a significant role in measuring and monitoring risk and business performance. Events over recent history have shown that risk can materialise and result in major losses and that capital needs to be prudently allocated. Firms are increasingly looking for us to help them maintain a strong capital base and are guiding their businesses towards balancing profit potential, risk and capital usage. We also help financial institutions comply with increasingly demanding new regulations relating to capital adequacy and liquidity risk.

CV, stay for two years, and then go back into the banking industry. But I had so much fun at PwC that after 18 years I’m still here in consulting! I became a partner in our Management Consulting team eight years ago, and have worked all over the world and with many different clients.

Strategy Consulting: Most of our work is concentrated on two main areas. Corporate Strategy offers a wide range of strategic advice to major international companies and organisations. Mergers and Acquisitions (M&A) Strategy advises private equity houses, banks and companies undertaking M&A on investment opportunities. We evaluate business plans and strategies against market performance and competitor strengths to help clients understand which companies are attractive acquisitions and how much to pay. Sustainability & Climate Change Consulting: Sustainability and climate change are at the top of the corporate agenda for public and private sector organisations. But different organisations are at different stages in understanding how they should respond. We help them all balance competing economic, social and environmental goals, giving advice which goes right to the heart of policy and strategy, addressing everything from changing regulations and consumer preferences to the security of supply chains and access to scarce resources. Isabelle is a Partner in Management Consulting at PwC:

I studied Electrical Engineering at Imperial College London, and moved into computing there. Once I graduated, I joined RBS’s graduate scheme in their IT department and then PwC as a consultant. I thought I’d get PwC’s prestigious name on my

What attracted you to consulting at PwC? I saw working in consulting as a way to fast-track my career by getting a vast range of experience very quickly. I was able to do just that, but having realised how rewarding and challenging consulting was, I really didn’t want to leave! What graduate programmes within consulting are available at PwC? We offer two distinct graduate routes into consulting. If you want a broad range of experience across a number of disciplines, there’s our core Management Consulting programme. Students train on a two-year structured programme, building a range of core skills. And we’ll provide them with the opportunity to specialise. A significant amount of the programme is spent on fast-paced client assignments, as we believe getting involved in these is the best way to develop. Or, if you’re interested in specialising straight away into one of our key consulting practices – you can choose Economics, Strategy, Risk or Sustainability & Climate Change – you can apply directly to your practice of choice and develop your skills in this area quickly through taking responsibility on projects in your chosen area and in-depth training.

patterns, and the fact that work we do is projectbased – so is made up of a mixture of busy and quieter periods in a relatively predictable pattern – really supports us in doing so. It sounds strange, but I treat my family like one of my other projects and make sure I allocate the right amount of time to them, just as I do with my other projects. Also, the technology we have to support us in doing our work really helps us to work when and wherever we want. Why should more women apply to work in consulting at PwC? I think consulting is an excellent career for women. You’ll need some specialised technical knowledge to help you as you progress, but a lot of consulting is about interacting well with other people and really listening to them, which women tend to be very good at. Consulting is a flexible career – you may spend six months on one project, and then change to another. Flexibility benefits any woman in their working life, and personally I’ve found that being in an environment where everybody is so used to people moving from project to project has made it easier for me to take time out to have children. For more information about graduate opportunities at PwC visit www.pwc.com/uk/careers or “like” PwC at www.facebook.com/PwCCareersUK To find out more about Consulting and apply, visit www.pwc.com/uk/work-in-consulting

Why is now an exciting time to join the consulting practice at PwC? Our consulting business has grown hugely over the last four years through a mixture of finding experienced hires and recruiting graduates. Going forward, our growth will be driven by our graduate programme. We’re looking to develop a strong team of talent that’s flexible and able to respond to the market. And we see the people who join us as graduates as future leaders – the partners and directors – of the business. How do you manage to maintain a healthy work/ life balance? I’m married, have three young children, and work four days a week. We’re a large enough organisation to support multiple flexible work

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Photo by Victoria Pickering

How Syria Compares to Last Year: An International Response By Caroline Chan

The Arab Spring is defined as the revolutionary wave of demonstrations and protests which first began back in 2010. To date, rulers in Tunisia, Egypt, Libya and Yemen have been ousted. Syria is currently following suit but will democracy finally be re-established there? In order to examine the situation in Syria, we need to know what happened in some of the successful revolutions that inspired the Syrian uprising.

In Tunisia, the widely accepted causes were government corruption, inflation, unemployment and political repression. The revolution consisted of general strikes, civil resistance and demonstrations. Following three weeks of action, the Ben Ali government officially resigned and elections for a Constituent Assembly were held in October 2011. President Mubarak of Egypt was also ousted by people apparently inspired by the events in Tunisia. In Libya, following sustained uprisings by government opponents, the United Nations Security Council passed an initial resolution freezing the assets of Gaddafi and referred the case to the International Criminal Court for investigation. Following Gaddafi breaking his promise of a ceasefire, full scale civil war ensued and rebels went on the offensive, taking back Tripoli before eventually capturing and killing Gaddafi. The international community accepted the National Transitional Council as the official representation of Libya soon after. A similar picture is painted in Yemen, where the Saleh government was removed from power and a new president was elected as a result of resistance over corruption, unemployment and ailing economic conditions. These countries appear to have experienced similar problems and solutions have been found, in the sense that the governments responsible have been removed - so what is different with Syria? The Syrian civil war began in March 2011 between President al-Assad and

his long-ruling Ba’ath party, and those seeking to get rid of him. However, the difference in Syria is that whilst multiple international organisations, including the Arab League, the United States and the European Union have condemned the brutality used against protesters, China and Russia have opposed attempted UN resolutions against Assad. They have also opposed sanctions, citing that this would amount to foreign military intervention. Edward Luck, a UN advisor for the ‘Responsibility to Protect’ doctrine, claimed in an interview that he believed China and Russia threatened to veto because the responsibility to protect was not prominent enough: ‘There was a lot of regional pressure to act in the case of Libya…they felt they could not go against the Arab League or the African Union and try to block this kind of action’. Others have claimed the Russian and Chinese strategic interests in Syria have taken precedence over humanitarian concerns. In August 2011, the Arab League did make several statements in the Telegraph condemning the Syrian government’s actions but this was already five months into the crisis. The Human Rights Council and the Security Council followed suit with similar statements. The turning point in Libya was a Security Council Resolution calling for the use of force to protect civilians, which led to NATO’s aerial intervention; this is seen as a major factor in bringing down Gaddafi. in Syria no such definitive international action has occurred.

Perhaps China and Russia are the key in allowing the next course of action, but they are also persisting with their argument that international action could exacerbate the conflict. It appears that that the significant differences in Syria are that the amount of political pressure on Syria to act does not match the other countries. Some claim Western actors who were quick to act against Gaddafi in Libya have failed to place the same amount of pressure on the Assad regime, despite the high number of civilian casualties. International organisations have acted slower and concrete courses of action have not been taken. The situation was not helped by Kofi Annan’s resignation, following the violence that escalated after observers were deployed in April 2012 to monitor a ceasefire. The BBC writes that ‘with major powers unable to agree on a way forward, Mr Assad showing no signs of leaving power and the opposition deeply divided, there appears to be no end in sight.’ Whilst the causes and characteristics of the Syrian conflict appear to mirror those of previous revolutions, until the big international organisations agree on a course of action and the protesters coordinate themselves, it seems Assad will cling onto power. More recently, the Syrian government agreed to a ceasefire to mark the Muslim holiday of Eid al-Adha, but many commentators believe this to be a ceasefire only in name. Hopefully democracy will prevail, but there desperately needs to be further action.

28 Nottingham Economic Review

The American Election – The upset that never was By Thomas Wheatley

s the dust settles on the 2012 American Presidential Elections there is one question that is still running through the head of various political experts: How did the Republicans lose?! Barack Obama was seeking re-election in a country in which, according to the Economist, ‘approval of his economic management is near rock-bottom’. Furthermore, as the Financial Times point out, median wages in September of this year were below 1993 levels, and there has been a dramatic decline in American competitiveness, dropping from the most competitive global economy in 2007, to 7th in the world now. If one also considers Obama’s broken promises on Afghanistan and other major issues (100 of which can be found on PolitiFact.com), it would seem that he would struggle to find a platform on which to stand for re-election. This article has identified three key factors which seemed to swing the advantage back in Obama’s favour during the election. Heading into the election, Barack Obama would have been comforted by the fact that 15

Wikipedia out of the 24 presidents standing for re-election in the last century went on to win. However, as Herbert Weisberg points out, incumbency can be a ‘double edged sword’. No president who has lost any amount of popular support in the country in their first term has ever gone on to win re-election, with even George W. Bush winning 11.6 million more votes in his second election in 2004 than in 2000. Bearing this in mind, the mood in the country was perhaps not favourable towards an Obama victory; Jewish voters, young people, union and non-union workers and many other sectors of society were falling away in their support for him. In addition, a few months before the election, Rasmussen and CBS/NYT polls had Mitt Romney as the frontrunner. However, Obama managed to work his incumbency to his advantage, portraying himself not only as the youthful dynamic candidate, but also a seasoned Commander in Chief. He portrayed Mitt Romney as a ‘reckless’ and inexperienced challenger, pointing out, amongst other things, that Romney has never ‘been in a position to actually execute foreign policy’.

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Each time Obama made an announcement to the press in the Rose Garden, he portrayed the image of a man in control and in his element, cementing the idea in the electorate’s mind that he was qualified for the job. Obama sought to make himself look like a level headed leader seeking to finish the job he had started, while Romney was a wildcard trying to implement the ‘foreign policies of the 1980s… the social policies of the 1950s and the economic policies of the 1920s’. This goes one step towards explaining how Obama became the first president since FDR to win re-election despite unemployment figures of above 7.8%. Obama presented himself as the elder statesman, basing his campaign around the idea that ‘there is still more work to be done’, claiming to the electorate that he is the man with the experience and the reforming agenda to press ahead and finish the job. It is in examining the strengths and weaknesses of the candidates that one discovers the second element which helped Obama to win his second presidential term. The main problem that the Republican Party encountered was that the candidate that they elected was not a credible reformer. A pre-election NBC/NYT poll showed that 62% of Americans wanted ‘major changes’ from President Obama’s agenda in the next term, and yet the Republican Party failed to field a candidate who could provide that. Mitt Romney was very much a safe candidate, one at the centre of his party and who had no real appetite for

change. To an extent, one can blame this on a weak field of candidates which included Newt Gingrich, Herman Cain and Rick Perry, leading one exasperated columnist to exclaim ‘where are the serious Republican candidates’? Yet there was one real reformer who was overlooked. Ron Paul was the one candidate in the Republican line-up who was not only an advocate for change, but who was also very popular. He would have been a candidate who could have provided a real alternative to Barack Obama, and who could have attracted those voters who desired change. However, as things stood, the party chose a candidate who had all the looks of a President but who failed to identify himself as a man with real substance and a plan to get America back on track. Finally, in examining the statistics after the election, one can see that Obama was far more successful in doing the groundwork that his competitor, persuading key groups to vote for him and getting his voters out to vote. In the analysis of his victory it is apparent that one key group which swung the election were the Hispanic voters, who turned out in large numbers in support of Obama. This is notable, because this is a grouping commonly associated with the Republican Party. However through a successful ground campaign, the Obama team managed to persuade them, and many other swing voters, that he was the man to see America through this storm. Obama’s ‘ground game’ was far more sophisticated than

Romney’s, with thousands of mainly young people getting involved in canvassing and following up voters in order to ensure they had their votes. Furthermore through the employment of behavioural scientists and their use of vast databases, they had a hugely sophisticated electoral machine which was gave them an advantage over the Republican Party’s dated and ineffective ground campaign. These three factors go a long way in explaining the Republican Party’s failure to win the 2012 election despite a favourable electoral environment. The Party failed to field a credible candidate and to update their groundwork methods in order to truly compete with the Obama election machine. However, it was not only their failures which swung the election in the Democratic Party’s favour, but also the nature of the candidate they were facing. Despite the unpopularity of his policies, Obama’s personal popularity remains high and he continued to play on that during the election. He sought to portray himself as an experienced candidate who could continue to deliver change where the Republicans wouldn’t. Therefore, while it seemed that the Republicans could have capitalised on weak economic showings from the Obama administration, their poor candidate selection and failure to update their electoral strategy meant that they couldn’t realistically compete with Obama’s charisma and his well oiled electoral machine.

An Interview with Ben Claxton

30 Nottingham Economic Review

Here at the Nottingham Economic Review, there are few things we like more than a Silicon Valley-style start up. How lucky then that we had the opportunity to speak with former University of Nottingham student, Ben Claxton, about his new app – nativeye – which allows respondents to post their thoughts, observations and experiences, providing ‘in the moment’ research for businesses and companies. Here’s how things unfolded.

ow did you originally come up with the idea for Nativeye? I guess it was my background that led to the original idea. I used to plan advertising campaigns for a mediaadvertising agency focusing on qualitative research and I’ve also worked in consumer-focused areas. Nativeye was really an amalgamation of all of these career ideas—market research,

performance. We went with performance.

Probably for the best. If you could describe your app in 3 words, what would they be? [Laughs] Affordable, experiencebased research.

but less intrusive than surveys and opinion panels. Were your university studies at all relevant to what you’ve gone into? I occasionally use some of things I learned in economics. In fact, welfare economics – which was what I mainly focused on during my course – has proved useful. People and welfare are essentially what market researchers are interested in. A lot of start-ups are faced with the question of whether and when to go cross platform. Is Nativeye available on multiple platforms? Not right now, but we do intend to make an Android version very soon. The real question is whether to go with a native or a web app. Hybrid platforms are not that good, so the decision was between redistribution and

Is running a business like what you thought it would be? It’s a lot harder! There are so many things you have to think about, and you have to cover these from every angle. You think you’re going to be free to focus on a product but you actually find you need to think about things like revenue sharing and intellectual property. There’s a big difference between just having an idea and actually making it happen. Also, it’s absolutely necessary to be able to learn as you go along. One key thing is being able to deliver on what you say. It’s hard work but because it’s your thing, you don’t mind putting in the hours. How hard is it running a business like Nativeye by yourself? How do you make decisions? There are five of us in the company. I am the leader with the industry knowledge; there’s an equity partner who’s head of delivery; then there are also two

Interview 31

techies and maintenance. The techies are social which makes things easier (techies aren’t always sociable!). The equity partner and I gather info from customers, then, through the development process, discuss ideas with the techies. So it’s a 2-way conversation with techies and leaders. Technology plays such a big part in this type of business now that you need a hybrid approach. What have been your hardest challenges since starting your business? That depends which day of the week it is! Beginning from a standing start, no one knows you so I would maybe say sales is possibly the biggest challenge because it is so crucial and because we are self-funded. But retaining your focus and longterm vision is also very difficult. You need to be very resilient and have a thick skin. When it’s great, it’s really great. But when it’s bad, it’s really bad. How do you balance the shortand the long-term view? That’s an interesting question. One very important thing for a bootstrapped (self-funded) startup is focus. You need to be really focused and zone in on one thing at a time that is achievable without spreading yourself too thinly. It’s always tempting to take on new suggestions, but you need to be able to say no when you won’t be able to deliver—even if they’re offering cash! Lots of people have great mobile app ideas but draw a blank when it comes to monetizing that idea. You charge a

subscription to use the app. How has this worked out for you and has this had any negative effects on growth? Well it’s a different business model to other apps. The product starts with what you get out of it—in the moment insight you can gather easily and affordable. This is something that agencies are willing to pay form. Also, it’s a good test—if people are prepared to pay for it, then it’s a good idea!

It’s fascinating to get behind the dashboard of the nativeye app – you can really get a sense of what Ben’s trying to achieve. The product itself isn’t a standard app. Instead, the company aim to sell powerful researching capabilities to firms who want ‘in-the-moment, affordable, experience-based research’. There is an app interface which is used to collect data from researchers who log their experiences. The app is very fluid and probably more functional in its design than stylish – but this is probably the

way things should be: it is easy for respondents to use. A couple of screenshots showing the capture process for a customer service assignment are shown left: However, the app is only a small part of the researching package Ben and company are offering. In Ben’s words, companies view market research data recorded in the moment as a gold mine of information. By compiling this information through media such as the app, companies are able to sort, compare and analyse consumer response data, which could be invaluable to how their products and services are received in future. An example is shown below:

All-in-all, nativeye is a fascinating and inspiring example of a Nottingham alumnus’s realisation of a product he envisaged. We certainly enjoyed getting a flavour of the product and of Ben’s experiences of entrepreneurship, and wish him and his company all the best in future. Interview and words by Harry Villa and Angus Naismith

The experience stays with you

Jer at a broadcaster

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