1

2
Editors Note
2016 has been perhaps the most volatile and Producing this journal has been a long and
unpredictable year in recent memory. Indeed it will challenging process, but it is undoubtedly
no doubt form a significant chapter in the economic worthwhile as we, the editors, are immensely proud
history of both Britain and the globe. With the of it as an academic body of work. We must of
Brexit vote and the recent election of President elect course give thanks to the many Olavians both past
Donald Trump the tectonic plates of global politics and present that have contributed to this journal and
have shifted beneath our feet and we are all left in a to Mr Greenwood, without whom it simply wouldnt
state of uncertainty, pondering the economic exist. We sincerely hope that you, the reader, will
implications of a changing world. appreciate and enjoy the journal as much as we
have.
Domestically, Sterling has collapsed to record low
levels with little sign of meaningful recovery, whilst
the future of the foreign investment on which many
would argue the U.K economy is based has been
cast into doubt. Yet - as of December 2016 - Article Luke Smith, Tanvi Aggarwal, Thomas Laver, Amrit
50 is yet to be implemented and the UK remains Dawood and Aaron Kiernan.
within the EU. Is the decline of the pound and the
withdrawal of investment a premonition to further
economic woes, or merely an expected fluctuation in
a flustered market?

It is of course impossible to say for certain what the

long-term implications of 2016 shall be. But we as
editors hope, that beyond entertaining the reader,
this journal serves to provide a semblance of clarity
in a seemingly perpetually uncertain world.

Indeed Edward Parker-Humphreys article on Life

after Brexit should yield a deeper understanding of
the future of Britains political climate, whilst Matt
Ryans piece on Sterling should illuminate the
typically complex currency markets and provide a
clearer picture to the reader of the significance of a
collapsed pound. Beyond the major Economic
issues of the present we hope this journal will
accommodate a diverse range of interests in both
Politics and Economics. For the future Business
tycoons Kayo Kufejis article on CPG and Online
startups should prove useful; the diplomats of
tomorrow will no doubt enjoy Amrit Dawoods
article on the real impact of foreign aid; and for
those willing to momentarily suspend their disbelief
David Van Egghens piece on the economic
feasibility of colonising the moon will be
undoubtedly fascinating.

3

Book reviews
Capital in the twenty-first
century - 5
Why nations fail,
particularly Bulgaria - 7
Business
The Five Axioms Of Jewish
Business Ethics - 10
Start-ups: The Online Market
and CPG Industry -13
The Americas
Brazil Down the Drain - 16
Lessons we can learn from
Brazil - 17
Government and trade
Why is Britain still obsessed
with Austerity? 19
5p for a Bag please! 22
Trade after Brexit - 24
Table of Contents
International
Foreign Aid to the rescue? -
27
Britain and Europe
Britain and the EU - 29
Life after Brexit - 31
Lacit - 33
Political Polarisation - 35
Brexit Currency Jitters -36
Economic Indicators
Gender Inequality and GDP -
38
Who cares about Rising
Inequality? 40
RES Young Economist
Competition Essay A
discussion on Interest Rates
- 42
Science and Technology
Renewable Energy: Can the
Market do it? 44
Can we live on the moon?
46
The Economic viability of
Trident 49
The Economies of Digital
Currency - 50
Game Theory 51
Happiness Economics - 57
4

Capital in the twenty-first century
A summary of Pikettys assessment of the history of economic inequality
September 19th 2016 | Rohan Regmi|
Thomas Pikettys Capital in the Twenty-First
Century is a revolutionary book taking the world
by storm. Published in August of 2013, the book
puts together over 250 years of data of income and
wealth in over 20 countries. Admittedly it is a very
lengthy book and having read it, I wanted to give an
overlook of each century as well as discuss some of
the key points Piketty makes.
Firstly, I will begin by introducing the
capital/income ratio which is essentially the ratio of
the capital stock to the annual flow of income and
plays a large role within the book. Piketty includes
the capital/income ratio in The first fundamental
law of capitalism: = r x , where is capitals
share in national income, r is the annual rate of
return on capital and is the capital/income ratio.
Piketty states that this equation can be applied to all
societies in history and what is more intriguing is
that it follows the same U-shaped curve as income
inequality itself over time i.e. high during 18th and
19th centuries, falls between the period 1914-1945
and has been rising from 1945 to the present day and
looks to be returning to levels of 18th and 19th
centuries. Piketty later introduces The second
fundamental law of capitalism: = s / g, where is
the capital/income ratio, s is the savings rate and g is
the growth rate (both economic and demographic
rates). Essentially with the second law, a country
that has a high savings rate, but grows slowly will
accumulate an enormous amount of capital leading
to high levels inequality. It basically gives us an idea
of how much capital played a role in a given
society. Before looking into each century in more
depth, I wanted to give both forces of divergence of
Book Reviews
inequality and forces of convergence. The central thesis
of the book is that when the rate of return on capital (r) is
greater than the growth rate (g) it ultimately leads to the
concentration of wealth. Therefore when r-g is greatest,
this is where we will observe high levels of income
inequality. Although Piketty suggests that this is not the
only force for divergence, he sees this trend throughout
history and believes it plays a very significant role. In
comparison, the main force for the convergence
(reduction in concentration of wealth) is what Piketty
describes as the Diffusion of knowledge which can be
applied both internationally and domestically. Piketty
states the poor catch up with the rich to the extent that
they achieve the same level of technological know-how,
skill, and education, not by becoming the property of the
wealthy and can be made possible if large institution
encourage large scale investment in education and
training. The only problem that arises is that annual rate
of return tends to be much greater than the growth rate.
The annual rate of return on capital is consistently around
4-5% and for those with a larger initial fortune the return
on capital is much greater, in comparison we see that
growth rates are as little as 1% and even close to 0% for
some developed countries . For example, Bill Gates saw
his fortune grow at a staggeringly high rate of 13% a year
from 1990-2010 and this is mainly due to the fact that the
rich are able to afford financial advisors who pick out the
best investment opportunities for their clients in order to
see their wealth grow. As a result, the rich begin to pull
away from the poor and this process continues in the long
run due to inheritance.
Distribution of wealth in the 18th and 19th centuries
Piketty uses somewhat unorthodox methods to compare
the distribution of wealth within the 18th and 19th
centuries. He emphasises the importance even within the
introduction of looking at the literary works of Jane
Austen and Honor de Balzac. During this time income
from capital was superior to that of income from labour
i.e. people who owned enough capital to live off their
annual income from wealth which Piketty names as being
Rentiers where at the top of the income hierarchy than
those that derive their income from labour who are
known as managers. As a result, Piketty uses their
novels to suggest that inheriting and marrying into a
large fortune was the only way one can have a
comfortable life. Very few people during this time period
climbed the income hierarchy through income from5
labour alone.
 wealth. We have seen the top centiles share in national
Capital mostly took the form of real estate and
government bonds during this time period. We also income reach 20% in this century from 9% observed in
see that the capital income ratio at its peak and the 1970s. Both the capital/income ratio, as well as top
inequality at very high levels. However this changes deciles share in national income is predicted to reach
drastically due to the shocks observed during the unprecedentedly high levels. However, only predictions
20th century. can be made and who is to know whether shocks
observed during the 20th century will occur again. Only
Distribution of wealth in the 20th century
one thing can be certain and it is that capitalism doesnt
Inequality undoubtedly varies the most during the lead to a natural reduction in inequality and nothing
20th century and we see many different factors play a observed in previous centuries suggests that the
role. There were many shocks between the period distribution of wealth is natural.
of 1914-1945, these primarily being WWI, The
Great Depression and WW2. Pickettys solution

The return on capital was very low during this So how does Piketty believe that we can reduce wealth
period and there was a huge destruction of capital inequality before it reaches the levels seen in the Belle
particularly in Europe. Even within the UK, where poque?
there wasnt as much destruction of capital through
financing of the war, public debt and high inflation Piketty purposes an annual progressive tax on wealth:
to reduce the debt resulted in the destruction of capital tax schedule with rates of 0.1 or 0.5 percent on
private capital and the rate of return on capital also fortunes under 1 million euros, 1 percent on fortunes
falling. It was also a time of low growth, however as between 1 and 5 million euros, 2 percent between 5 and
r-g was very low, we saw a sharp drop in inequality 10 million euros, and as high as 5 or 10 percent for
and the capital/income ratio. As we move into the fortunes of several hundred million or several billion
period after 1945 to around the 1970s we see a euros. He suggests that we should focus on income from
catch up period, both Europe and countries like capital and this is because entrepreneurs tend to be
Japan had high growth rates to catch up to the US. rentiers. A progressive annual tax on income would not
This high growth rate was mainly due to high only reduce inequality, but also preserve entrepreneurial
demographic growth rates and is what is known as dynamism and innovation.
the baby boom period. This was also when the
capital/income ratio was lowest and we see the top
deciles share in national income reach its lowest
levels at 32.5% from 1945-1979; however we see a
complete change from the 1980s. From the 1980s
onwards we see much lower growth (close to 0%)
and we see that the return on capital at around 5%,
as a result we see the concentration of wealth
increasing. Both the capital/income ratio as well as
the share of the top deciles share in national income
begins to rise from 1980 to the turn of the 21st
century and looks to be returning to the levels of the
Belle poque (1871-1914) and the only thing that is
prolonging this process is the emphasis on
progressive taxes.

Distribution of wealth in the 21st century

Piketty predicts that unless something is done

inequality will reach the levels once observed in the
Belle poque. There is also a lot of evidence to
suggest that even with the extremely high levels of
inequality we observe today it may even be worse
due to the rise of tax havens. Tax havens play a role
in hiding way the richs financial assets and these
assets amount to 10% of global GDP to give a scale 6
of the vastness. The rich are essentially hiding their
Why nations fail, particularly Bulgaria
The Bulgarian experience of Extractive and Inclusive political institutions
Aug 28th 2016 | Boyan Popov |
In the modern world there are vast differences in
wealth between people, countries and continents. In
Why Nations Fail, Daron Acemoglu and James A.
Robinson propose the hypothesis that the differences
in prosperity are determined not by geography or
culture, as has been proposed in the past (for
example by Jared Diamond in Guns, Germs and
Steel), but by the way institutions function. More
specifically, they suggest that the economic
institutions of a country are determined by its
political ones, and they generally fall into two types,
described as extractive and inclusive. Simply put, gradual decline in the 18th and 19th centuries.
extractive political and economic institutions are run
by a small group of individuals for personal or
narrow political gain, whilst inclusive institutions
involve many in the governing process for the
purpose of a greater common good.
In this article I intend to examine this theory and
apply it to a subject only briefly mentioned in the
book: the rise and fall of Communism in Eastern
Europe, and the attempted shift from the extractive
Soviet institutions to inclusive modern ones since
the 1990s. I will focus on Bulgaria, a country with a
chequered political and economic past which has
managed in recent years to experience solid
economic growth (and which also happens to be the
country from where I am writing this article). Many
would argue that Bulgaria is a near failed state, with
widespread corruption and unchecked organised
crime, but that makes for an even more interesting
case study in how small movements from extractive
to inclusive institutions (and back) generates immediately
observable movements in economic output.
Bulgaria fell under Ottoman rule in 1396 and remained a
part of the Empire for nearly 500 years, during which
time it was governed solely by extractive political
institutions. The Ottomans maintained the feudal system,
which had been in place before the conquest; much of the
conquered land was parcelled out to the Sultans vassals
as fiefs, and many new taxes were introduced. Initially,
there was not much change in the economic lives of the
lower levels of society: these types of extractive
institutions were the standard at the time. However, the
Ottoman Empire eventually began to lag behind as much
of the western world went through gradual political and
economic reform that led to greater independence of the
various branches of government. Bulgaria, albeit a
relatively prosperous province of the Empire, began to
fall behind its non-Ottoman neighbours as its long-
standing extractive institutions were preserved. It was
this refusal of the Empire to modernise its institutions
that created the economic stagnation that led to its
Bulgaria emerged from Ottoman rule a largely
agricultural country, with an 80% peasant population,
most of whom were engaged in small-scale and
subsistence farming. In setting up its post-independence
institutions Bulgaria borrowed practices from France,
Germany, Austria-Hungary and other developed
countries; the more inclusive institutions fostered the
introduction of modern farming practices, education and
budding industrialisation which lead to steady economic
growth and urbanisation in the late 19th and early 20th
century.
In 1947 the Bulgarian Communist Party came to power,
scrapping the budding political and economic institutions
and instead implementing Soviet economic policies.
Control of the means of production was a central
ideological tenet of the Communist party, and thus the
wholesale adoption of a Soviet planned economy was
undertaken; under a planned economy production,
7
investment, prices and incomes were managed forceful management of the workforce and an intrinsic
centrally by the government for the benefit of the inefficiency of a heavy bureaucracy was not sustainable.
party or state. This is in contrast to the market
In the late 1980s, decades of economic mismanagement
economies we see today where decisions regarding
came to a head when the political systems of the Soviet
investment, production and distribution are based on
Bloc collapsed, taking with them the economies. Having
market-determined supply and demand, with the
lost the guaranteed markets of Comecon for its
state only maintaining a regulatory role.
substandard produce, Bulgarias economy collapsed
A five-year plan strategy was adopted. Bulgaria under a mountain of debt.
became one of the first members of Comecon, an
Bulgaria had its first post-Communist free elections in
economic organisation that was the Soviet answer to
June 1990, but unlike other Eastern European states once
the Organisation for European Economic Co-
again elected the Communist Party, albeit now
Operation (now the OECD), and confined much of
notionally reformed. The party introduced a series of
its economic activity to the bloc. Furthermore, in
reforms, key amongst which was the split of power and
keeping with Communist doctrine based around
creating independent judiciary, legislative and executive
fostering an urbanised working class, the new
branches. Although an improvement on the previous
regime forced the movement of people from the
Communist states fully extractive institutions, the
countryside to the cities to provide a workforce for
reforms were only partial and insufficient to create fully
the nascent heavy industry, shifting the economy
democratic governance in Bulgaria; many who had held
from an agrarian one to an industrial one.
power under the Communist regime remained in power.
These new policies were supported with loans, The resulting governance model resembled a post-
grants, and technology transfers from the USSR, communist Russian-style oligarchy rather than a modern
and were initially effective in mobilising and then western parliamentary democracy. The poor reforms and
stabilising the Bulgarian economy, with GDP per resulting policy vacuum created a drawn out decline of
capita almost doubling between 1950 and 1960. economic performance that culminated in hyperinflation
Despite the initial shock of introducing a planned and lead to the collapse and revaluation of the currency,
economy and the extractive nature of the party run the Lev, in 1996.
institutions, the rapid industrialisation of the country
A group of
and the rise in living standards were obvious.
demonstrators
By the late 1960s the initial growth began to slow for the Union
down as the flaws in the planned economy became of Democratic
clear. It was not taken into account whether there Forces
was a market for the goods being produced; (identified by
surpluses and wastage of some goods and severe the logo on
shortages of others were commonplace. The their banner)
Communist party failed to incentivise workers;
although some incentives were introduced, they
often had adverse effects. For example, increased
pay for exceeding output targets led to workers
lowering their initial outputs so as to manage
targets, thus creating an incentive never to expand When the United Democratic Forces coalition came to
outward significantly. Morale was also dropping. power into 1997, they set forth an economic reform
package along the lines of Western best practice in
This ushered in a high degree of economic
economic and political institutions, which included the
experimentation which proved continuously
introduction of a currency board, agreed with the World
ineffective, and the ever more wasteful economy Bank and International Monetary Fund. These measures
accrued vast amounts of foreign debt. By the late
stopped the decline and restored some confidence in the
1980s it was clear that the economic policies of the
country. Foreign investment began to flow in and a
Communist Party (and those in the rest of the
series of successful governments saw the economy 8
Eastern Bloc) were failing; an economic model
based on aggressive foreign direct investment,
return to growth at the turn of the century.
In this way the new Bulgarian economic institutions
in turn gained more independence and fostered
further growth and relative prosperity, in what
Robinson and Acemoglu term the Virtuous
Circle. Since inclusive political institutions are
based on constraints of power and a system of
checks and balances for pluralistic distribution of
political power in society, they can become self
reinforcing, and make it more difficult for one
group to impose its will on everybody elses.
institutions and numerous continuing policy and
governance flaws, it has been clearly demonstrated that
even minor shifts to inclusive institutions deliver
immediate and sustainable economic growth, whilst
shifts to extractive institutions may cause a growth spurt
but have disastrous long term effects.
Therefore, Acemoglu and Robinsons theory that a
change in institutions will also result in a change in the
prosperity of a nation seems to be strongly supported by
Bulgarias uneven political, institutional and economic
history.

On January 1st 2007, Bulgaria entered the European

Union, an important step in solidifying the
countrys position as an open, democratic society
run by an inclusive political system. The Bulgarian
economy has been, for the last 8 years, at its most
stable in decades (apart from the recession in the
late 2000s, which was caused by external factors).
The annual GDP growth has remained very high,
hitting its peak of 8% right after joining the EU and,
despite a drop in 2010, has still averaged 3% GDP
growth a year, well above the EU average of 0.6%.
To an extent this is due just to its very low starting
base, and growth is likely to slow down as the
economy converges with more developed ones, but
it is nevertheless a strong demonstration of the
power of inclusive institutions.

However, extractive institutions are very resilient

and even after decades of reform some features of
well established extractive institutions remain.
Invisible interdependences between the branches of
government and disregard for the rule of law lead to
corruption and the stifling of the free press in
Bulgaria, which can be traced back centuries to first
Communist and then Ottoman times.

In the last 150 years or so Bulgaria has performed

9
several shifts between extractive and inclusive
institutions. Despite poor application of inclusive

The Five Axioms Of Jewish Business Ethics
The role of honesty and good faith in Jewish Economic Theory.
Nov 12th 2016 | Isabel Wilson Scott |
According to the Jewish faith, the Talmud suggests
that the first question we will be asked once we have
died isnt about our religious beliefs, or whether we
have followed the Ten Commandments, but did
you do business bemunah (in good faith)? While
some see this as heaven being interested in whether
we have led an honest life, Weitzner sees this as
heaven being specifically interested in our business
practices it is such a priority, it is a question which
has to be asked outright. This essay will examine
Jewish responses to various parts of business and
economic theory using Sauer & Sauers five axioms
of Jewish economics.
Judaism is the worlds oldest Abrahamic religion
with a following of around 15 million. The beliefs of
those who follow Judaism stem from the Torah,
which contains the first five books of the Hebrew
bible, as well as the Talmud. The Talmud is where
discussions of rabbis regarding Jewish law, customs,
history and Jewish ethics are recorded. Through
interpretation of these texts, it is possible to grasp a
view of what Judaism sees of business.
When looking at economics through Judaism, Sauer
& Sauers five axioms of Jewish economics are
particularly useful. These five axioms are
considered by the Sauers to not be exhaustive, but
instead to be considered as the basics against which
economic policy can be judged. Firstly, man is
created in Gods image suggests that humans have
a special place in the world, and due to this we must
continue Gods work, just as the Midrash says, All
that was created during the six days that God created
Business
srt
was created during the six days that God created the
world still requires work. Since God gave us a world
that isnt perfect, we should work towards making it
better through hard work and innovation.
Secondly, the protection of private property is seen as
paramount two of the Ten Commandments refer to the
protection of property. By protecting the right to
property, it allows hard work to be rewarded and
prevents followers of Judaism from taking part in
unethical business practices, such as outright stealing, but
also prevents other unsavoury practices such as theft
through deception or by selling goods with false weights.
Furthermore, Deuteronomy specifically refers to physical
buildings You shall not remove your neighbours
boundary mark, while also specifically protecting
property, it is interesting to note also that within the
rabbinic tradition, the violation of property rights is
equated to destroying the foundations of society.
Thirdly, the acquisition of wealth is a virtue rather in
evil, which is in contrast to Christianity. Judaism
according to Y. Lifshitz, unlike Christianity, has a fairly
positive attitude to wealth. Classical Christianity sees
material wealth as unnecessary and poverty as a virtue,
highlighted in St. Matthews gospel, It is easier for a
camel to go through the eye of a needle, than for a rich
man to enter into the Kingdom of God, as well as in
practice, for example in 1209, St. Francis of Assisi
decreed that members of his order, the Franciscans,
would take an oath of poverty, which is now standard
within the catholic clergy. In contrast, Lifshitz argues
that Judaism sees mans place as being obligated to
express his dominion over creation, as seen in his book
Foundations of a Jewish Economic Theory, stemming
from the belief that man was created in Gods image.
The reward for hard work is wealth, this is further
highlighted in the Talmud that states: One who benefits
from his own labor is greater than one who fears
heaven.
10
This can be seen throughout the Torah, through
Abraham, Isaac and Jacob, those who are rewarded
for their hard work are seen as working with God in
order to create. Maimonides (1135-1204) an
eminent Jewish philosopher whose work is now a
cornerstone of Jewish thought, saw religious work
where you are sustained by charity as wrong,
arguing instead that work, just like religious study,
is compulsory. While other religions may see the
creation of wealth as potentially dangerous, Sauer
and Sauer argue that the Talmud doesnt see the
attempt to benefit from labour and the subsequent
wealth as dangerous behaviours, allowing that it is
done according to Jewish principles.
The fourth axiom they suggest is a requirement to
care for the poor through charitable gifts, known as
Tzedakah, through which they will be blessed.
Tzedakah is mentioned in Parashat Ree; You
should not harden your heart or shut your hand from
your needy brother.
Tzedakah is the Hebrew word for what we would
call charity, however it is fundamentally different
and while charity suggests compassion or
generosity, Tzedakah derives from the Hebrew root
Tzadei-Dalet-Qof meaning righteousness, or
justice. Tzedakah is not considered as an option,
instead it is a duty or obligation. This is due to
where it comes under Jewish law, there are
considered to be two kinds of commandments, man-
to-God, which are moral values such as dietary
requirements, and man-to-man commandments that
are legal principles, such as those regarding business
transactions. Tzedakah is considered to be a man-to-
God commandment and so is a moral obligation to
God, not to others. Maimonides, in his Guide for the
Perplexed, argued that by performing Tzedakah
Jews fulfill those duties towards our fellow men
which our moral conscience imposes upon us.
Finally, the Sauers argue that the Torah warns of the
danger and sinful nature of government and its
bureaucracy, giving the main example being issued
in the first book of Samuel, where the Israelites ask
for a king; These will be the rights of the king who
is to reign over you.
He will take your sons and assign them to his
chariotry and cavalry, and they will run in front of
his chariot. He will use them as leaders of a
thousand and leaders of fifty; he will make them
plough his ploughland and harvest his harvest and
make his weapons of war and the gear for his
chariotsHe will take the best of your fields, of
your vineyards and olive groves and give them to
his officials He will take the best of your
manservants and maidservants, of your cattle and
your donkeys, and make them work for himWhen
that day comes, you will cry out on account of the
king you have chosen for yourselves, but on that day
God will not answer you.chosen for yourselves, but
on that day God will not answer you.
This has been compared to the book written by
Friedrich Hayek, The Road to Serfdom, which is
where governments play a vast role in distributing
resources and goods within an economy, where
there has been a meticulously drawn up plan of what
society and the economy should look like
however, this leads to the risk of freedoms being
denied as citizens become more and more oppressed
in order to achieve the goals set out in the plan.
While Judaism advocates for the creation of wealth,
as highlighted by Sauer& Sauer, as wealth alongside
a long life and peace are considered to be rewards
from God. Judaism has no issue with wealth in itself
as long as wealth is obtained honestly, and is used in
part to help others those who create wealth must
be aware that with money, comes responsibility.
An example of this responsibility is charging fair
prices, to obtain wealth through greed such as
through overcharging, or undercharging is not
considered acceptable. This has been interpreted
from Leviticus (25:14) - if you sell something to
your neighbour or buy something from your
neighbours hand, you shall not wrong each other.
The Talmud ruled that if a good is sold by more than
a sixth than what is accepted to be a generally fair
price, the sale is null and void. In the same way, if a
seller is unaware of the true value of their goods
then the person buying the goods must not take
advantage of the unawareness of the seller.
11
Arguably this applies to all business transactions,
but especially to specific goods where the consumer
may have little knowledge of the true value of the
good, such as historical artefacts, Judaism in these
cases according to Tamari, would argue the seller
should ask for a fair price if the buyer doesnt know
better.

These five axioms provide a moral backbone to

everyday business, and through Judaisms long
history has influenced virtually all areas of modern
western society through its connected history with
Christianity and Islam, although Judaism is today
the smallest of the three in terms of number of
followers, its impact cannot be understated. Ethical
business practices are at the core of Jewish
teachings, with about 100 of the commandments
referring to business in some way, and these
commandments have influenced not only followers
of Judaism but followers of Christianity and Islam
too.

12
 Start-ups: The Online Market and CPG Industry
Are Decentralised Markets the future?
July 31st 2016| Kayo Kufeji |

At the Harvard Business School, Professor Howard

Stevenson gave the definition of entrepreneurship as
the pursuit of opportunity beyond resources
controlled. The word pursuit implies a relentless
focus within a short period of opportunity; progress
must be made quickly due to limited budgets and in
order to attract more resources. Opportunities
include exploiting a new market, creating a new
business model, technological innovation or
targeting an existing product to a new consumer
audience. The phrase beyond resources controlled
refers to the basic economic problem (wants are
infinite but resources are scarce, therefore it must be capital. In the past, examples of such technology firms
decided what to produce, how to produce it and for included Napster and Kazaa, who in the early 2000s
whom to produce it). allowed users to peer-to-peer share music files rather
than downloading them from a central server. However
Initially, founders of a new venture control only their reach was limited, mainly by a string of lawsuits.
human, social and financial capital, which they must raise capital.
eventually articulate to meet requirements such as
production facilities, distribution channels and The recent resurgence of decentralisation is attributable
working capital. As a result, most entrepreneurs will to the bitcoin crypto-currency and its blockchain
bootstrap by keeping spending to a minimum and technology. The blockchain is similar to the
investing only their time and personal funds in an InterPlanetary File System and Bigchain DB, which are
attempt to bring the venture to a point where it databases allowing collaborative cloud storage by
becomes self-sustaining from the initial cash flow. distributing data over the computers that have signed up
Despite these risks, entrepreneurs continue to shape to the service. Similarly, the app Onename created by
and influence markets globally. The internet has Blockstack Labs enables users to create an individual
become dominated by multinational companies such online identity so that they do not have to rely on logon
as Google, Facebook and LinkedIn - Google servers such as Facebook who could store their online
generates 40% of web traffic and with Facebook details. Other apps include IndieWeb (which lets you
takes in nearly 70% of all advertising revenue. keep information both private and online) and
These companies are also in control of online OpenBazaar, a group of online shops.
personal data - Android and iOS access is regulated
Entrepreneurs creating start-ups like these all face a large
by Google and Apple, and Cloud computing by
degree of risk since they are pursuing novel opportunities
Amazon. This allows them to dominate the online
with limited access to resources. Such risks include
market with the host of information they possess
demand risk, which refers to the degree to which
regarding users behaviour.
customers are willing and able to adopt a new venture
through expenditure. Technology risk refers to the need
Recently, a new group of entrepreneurs have formed
for engineering and scientific discoveries in order to
with the aim of decentralising the internet. Venture
bring the new ideas to fruition. Execution risk is
capital firms provide support by investing in the
drawing together the human capital and partners to form
start-ups balance sheets and infrastructure until they
an established corporation. Financing risk assesses the
are self-sufficient before being sold off as shares in
availability of external capital.
institutional markets to provide liquidity or raise 13
The catch-22 situation most entrepreneurs face
concerns risk and resources. It can be challenging to
reduce the risk perceived by potential investors and
partners without first having resources but it can be
equally challenging to persuade resource owners to
invest in a venture in the first place when the risk
remains high. For ventures leading to national
jurisdictions, investors are likely to be more
reluctant. Maintaining sustainable profit margins
and regulating costs of production can also be a
problem because decentralised services tend to be
based on open-source software, which is open to
anyone completely free of charge. As a result,
service providers are forced to generate revenue
through add on services such as updates,
maintenance and subscriptions.
Fortunately for decentralising entrepreneurs, many
of these risks are mitigated, with investors and
partners such as BlueYard showing interest early on
and Brad Burnham of United Square Ventures
expressing his intentions of investing in the
mechanics of decentralised online markets. In
addition, technology risk is reduced since Ethereum
and Bitcoins blockchain are systems allowing
developers to write apps more easily. For example,
developers can create smart contracts, business
rules allowing funds to be transferred only if the
majority of owners have approved the transaction.
The determinant of future success for many of these
start-ups is how effectively they can employ risk-
mitigating solutions. For example, entrepreneurs can
reduce perceived risk and increase their stock of
disposable resources through storytelling, where
the venture is advertised by illustrating how it will
positively impact the world. Former Apple CEO
Steve Jobs employed this technique with great
success, using a model he called reality distortion
field. Entrepreneurs can also resolve risks by
creating a minimum viable product. This uses the
minimum amount of capital and activities required
to accurately test a business model hypothesis.
Staged investing spreads the burden either between
companies through partnering or by sequentially
expanding the resources required.
The threat of market-penetrating start-ups is far
reaching, also affecting the consumer-packaged
goods industry. According to a joint study by IRI
and Boston Consulting Group, large food companies
such as Nestl, General Mills and Procter & Gamble
have recently lost 3 percentage points in market share
due to competitors in emerging natural foods markets.
For three consecutive years Nestl have missed their 5-
6% growth target.
CPGs (Consumer packaged goods) once ruled the food
market with high-quality TV advertisements, strong
manufacturing and extra payments to store owners to
display their products more clearly on shelves, but why is
it that these effects seem to have lost their penetrating
power on consumers? One reason is that consolidated
factories have made the companies more vulnerable to
fluctuating exchange rates. TV has lost some of its
influence, with advertisements shifting to social media
and online reviews. Barriers to entry are lowering,
increasing market saturation. Smaller brands can
establish themselves much more quickly and easily by
proving themselves through online sales, which increases
resources lending from partners and investors. Critically,
as the consumer market evolves, large CPG firms with a
high degree of specialisation struggle more to adapt.
Research firm Sanford C. Bernstein noted that
consumers, especially in developing economies, no
longer assume established Western products to be
superior. Local brands meet more of the average
consumers needs notably in China where the Yunnan
Baiyao Group accounts for 10% of the toothpaste market
and in India where Ghari Industries claim 17% of the
detergent market. In the largest consumer markets, large
brands are struggling to compete with organically-made
products; consumers are prepared to pay up to 10% more
for organic products according to consultancy firm
Deloitte.
Multinational companies are adopting solutions to try to
regain dominance of the food market. P&G are
attempting to narrow their product range to improve
quality and make operations more manageable, having
announced that they will sell off 100 of their less
successful brands. Cadburys is an example of a firm that
is investing more in customer research, whilst Brazils
3G company have attempted to reduce costs and expand
profit margins by launching venture capital projects and
acquiring smaller firms. Nonetheless, a degree of
uncertainty regarding the solutions remains as acquiring
smaller firms may incur unpaid marginal costs and one
byproduct of reduced production costs can be a decline in
quality and then sales. Returning to the online market,
competition between centralised firms and the
introduction of new competitors reduces the potential of
14
monopolistic markets and improves market stability.
However, centralised firms have developed new
solutions to fight back against decentralising
entrepreneurs. Microsoft purchased LinkedIn for $26.2
billion, the 3rd largest acquisition in history. It came with
the promises of Microsofts boss Satya Nadella that the
deal will transform businesses and workers
productivity worldwide.

Although with 430 million registered users and an

additional 100 million visitors LinkedIn is the worlds
largest professional social network, it has recently
experienced slow revenue growth, which has worsened
the financial strain of capital investment and expansive
business projects. As a result, future growth rates look
unpromising. LinkedIn profits from selling subscriptions
to corporate recruiters who look through the database for
prospective employees. In February its share price
plummeted by 40% which lead to an $11 billion fall in
its market value. Regardless, Microsoft paid a 50%
premium on the share price to acquire the firm.

With such dismal statistics, what possibly could have

been Mr. Nadellas incentive for acquiring the giant? As
adaptation towards computing in mobile devices and the
cloud become vital, Nadella is investing more in cloud
computing and artificial intelligence. The acquisition of
LinkedIn marks an important step in the plan to improve
Microsofts competitiveness within the volatile online
market. LinkedIn provides them with the invaluable
resources of data scientists, statisticians and the ability to
gather users information about employment history,
education and contacts. This information should increase
the quality of Microsofts consumer relations and help it
to compete with another rival: Salesforce. Its cloud
services could also be improved due to enhanced user
data, resulting in a rise in revenue.

Finally, employees use of LinkedIn leads to clashes with

employers who fear that recruiters can poach employees
from their workforce, increasing staff turnover and
overall reducing the productivity of the company. As a
result, some firms have even openly banned or restricted
employees access to LinkedIn, further damaging
Microsofts prospects.

Although the influence and sheer strength of online

companies is indubitable, entrepreneurial start-ups are a
genuine threat to their wellbeing, and will continue to
shape and influence their respective markets for years to
come.
15
 The Americas
Brazil down the drain
Whats happening in Brazils economy?

Nov 6th 2016 | Chisom Mgbedike |

From the removal of President Dilma Rousseff

from office to the economy shrinking by 3.8% in
2015, Brazil has certainly suffered. State-controlled
Petrobras played a key role in the corruption scandal
that launched Brazil into its worst recession in three
decades.

Rousseff (right) was chairman of Petrobras between

2003 and 2010, when the majority of the corruption
is said to have taken place. The directors conspired
with Petrobras contractors - some of which were
Brazilian construction companies - to launder funds Former President Dilma Rousseff
from the corporation to boost their bank accounts. of government workers and the capping of salaries
The publicised scandal shattered the confidence in belonging to civil servants may have caused friction
the Latin American economy, as inflation reached a within his own coalition.
peak of 10.7%, the highest in 12 years. In 2015, To correct the imbalances faced in Brazil, the influence
consumption fell by 4.0% and investment fell by of a stable political system is needed to initiate the
14.1%. necessary economic reforms. Although their trade
Rousseffs attempts to cover the budget deficit surplus has widened, Brazil still suffers from weak
proved futile as it stood at 10.1% of GDP in 2015. external demand, despite a drop in prices for
President Michael Temer, who took over from commodities such as iron ore, oil and soya. It is said that
Rousseff, has agreed to cap public expenditures in half of Brazils exports in 2015 were raw materials i.e the
order to improve fiscal austerity and reduce the success of the economy is largely dependent on the
budget deficit in 2017. His pledge to fire thousands commodities market. Being a resource-rich country,
Brazil should be able to further develop the raw materials
into products of even more value, considering the size of
President its oil and iron ore reserves but before that can be
Michel accomplished, the demand for Brazils products needs to
Temer: increase.
can he From the nations largest oil discovery in 2009 sparking
bring a commodity boom to cleaning up the financial damages
stability left by the previous president, Brazil has seen a severe
back to boom and bust cycle. What the future holds in store for
Brazil? this country is yet to be revealed. Maybe President Temer
can turn around the situation and restore Brazil to its
position as one of the fastest growing economies once
more.

16
Lessons we can learn from Brazil
The Brazilian Economy has undergone some major fluctuations since the 1970s, but what can we learn
from its mistakes and recovery?
Jul 6th 2016 | Thomas Laver |
In 1972, Brazils economy was booming, with large
economic growth leading from strong
manufacturing and exporting sectors; setting
themselves up for many years of further growth with
significant amounts of infrastructure construction
and improvement. However, what happened over
the next 21 years was instead years of economic
turmoil and upheaval, and even though recovery and
significant growth did occur until 2012 a growth
which placed them in the BRIC group of
outstanding growing economies the Brazilian
economy has once again suffered, currently
shrinking by 4% a year. So why has Brazil suffered
so badly, and what economic lessons can be drawn
from their experiences? These lessons could be
extremely valuable to developing economies, as
Brazils experience may teach how to grow at a fast
rate, but without such large periods of economic
crisis.
The first lessons can be drawn from one of the
primary reasons for the 1970s economic crisis:
excessive growth targets leading to a significant
balance of payments deficit, teaching us that growth
targets can be damaging, and that the balance of
payments must not be allowed to stray too far into
deficit. This lesson stems from the 1973 oil shock
(arguably the start of the Brazilian economic
decline), when despite exports significantly falling
and an overvalued currency, the Brazilian
government still (unwisely) pursued high-growth
policies requiring large amounts of imports. These
imports tipped the balance of payments decisively
towards deficit, which when coupled with the
overvalued Brazilian currency was exceedingly
government still (unwisely) pursued high-growth policies
requiring large amounts of imports. These imports tipped
the balance of payments decisively towards deficit,
which when coupled with the overvalued Brazilian
currency was exceedingly expensive for the Brazilian
economy. As a result this could only be financed with
foreign debt, leading to significant problems in the 1980s
when the repayments on public debt bankrupted the
public sector. In the short term, the Brazilian
governments high growth policies were effective in
maintaining the strength of Brazils growth, but they very
quickly backfired as the current account deficit, debt
levels and inflation also massively increased, causing the
economic crises that have permanently damaged the
Brazilian economy. This demonstrates that growth
targets can be highly damaging to the economy,
especially when they go against the general direction of
the economy, which also shows that economic policies
must be flexible, and reflect the actual state of the
economy, not an idealized one.
Inflation has also been a significant feature of Brazils
recent economic history (not just large debt), and so
significant lessons about how to (and how not to) deal
with rampant high- and hyper- inflation can also be taken
and applied elsewhere. Between 1986 and 1994 there
were numerous attempts to bring hyperinflation under
control, each of which had varying levels of success. The
1986 Cruzado plan was the first of these attempts, with
freezes on wages, prices, rents and the exchange rate all
put in place in order to directly stop inflation. These
measures failed very quickly, as people simply refused to
sell products, rent accommodation or work as they were
being paid unfairly low amounts for what they were
losing, crippling the economy even more. Similar
methods were attempted in the 1987 Bresser and 1989
Summer plans, which both failed as well, demonstrating
that price freezes are ineffective means of stopping
inflation. The 1990 Collor Plan was marginally more
effective in combating inflation by freezing bank
accounts and applying huge taxes on transactions to
combat inflation, while also significantly reducing the
protectionism in Brazil to stimulate the manufacturing
17
sector. However, that plan was only marginally effective
and seen as incredibly unfair.
accounts and applying huge taxes on transactions to
combat inflation, while also significantly reducing
the protectionism in Brazil to stimulate the
manufacturing sector. However, that plan was only
marginally effective and seen as incredibly unfair.
Brazilian economists did eventually come up with a
plan that addressed the endemic economic
weaknesses and hyperinflation in the Brazilian
economy: the Plano Real, a possible model for
other countries suffering from conditions similar to
those of Brazil. This plan brought the balance of
payments under control (addressing that serious
problem), made balanced budgets a legal
requirement (helping to reduce future government
debt and improve credit ratings), increased interest
rates (sensibly combating inflation) and putting in
place a trusted currency. This was done through the
Fixed URV, a real unit of value which was fixed to
the value of products, to which a new exchange rate
with Cruzerio Reals (the currency) was published
each day. In time, Brazilians came to think just in
terms of the URV, rather than the hyper inflating
Cruzerio Real, making the switch to the URV
then renamed the Real successful in establishing
faith in the fixed nature of the currency, even when
it was unpegged from the US Dollar. This was an
effective strategy in stopping inflation, and shows
how psychological tricks can restore confidence
back into a currency and the economy, rather than
blunt tools such as price fixes or freezes. From this
we can learn about the necessity of care and
precision in economic policy, as well as possible
methods for combatting hyperinflation in the
modern, interconnected age, rather than using
simplistic and outdated methods that (while they
may sound effective) are in fact useless.
However, the recent shocking decline of the
Brazilian economy also teaches how to avoid
significant recessions, not just how to solve them.
Brazil looked to be doing so well, with consistently
good growth (3.5% 7.5%) despite recessions, low
poverty and a relatively low debt-to-GDP ratio, but
the reliance on oil companies such as Petrobras in
the economy has done great harm to Brazil. The
main reason for the current recession in Brazil has
been the oil crisis, where oil prices have crashed
from $105.54 in June 2014 to $28.50 in January
2016; because the economy is dominated by oil
companies whose profits have shrunk by up to 60%, it
has significantly suffered.
This has shown that a diversity of businesses and
sectors is needed in an economy to limit the amount
that external factors and crises can harm it: this should
not be mistaken for an advocacy of isolationism or self-
sufficiency, but instead as a warning from over-reliance
on what may currently be profitable industries which
may turn sour in future. The most immediate non-oil
example that comes to mind is the reliance of certain
economies such as Luxembourg on financial services at
the detriment of a diversity of industries such as steel
making, so if the one sector fails, then the economy
much like Brazil is likely to significantly shrink it:
this should not be mistaken for an advocacy of
isolationism or self-sufficiency, but instead as a
warning from over-reliance on what may currently be
profitable industries which may turn sour in future. The
most immediate non-oil example that comes to mind is
the reliance of certain economies such as Luxembourg
on financial services at the detriment of a diversity of
industries such as steel making, so if the one sector
fails, then the economy much like Brazil is likely to
significantly shrink.
Many lessons can be learnt from Brazils recent
economic history which have ready applications to
other countries of all types. Firstly, a sensible balance
of payments should be maintained. Secondly, that
growth targets and other inflexible forms of economic
policy can actually bring harm upon the economy.
Similarly, dealing with inflation (however high it may
be) should not be done through obvious and imprecise
tools such as price freezes: instead consider facing the
endemic problems causing the inflation such as low
economic confidence or a poorly run public sector.
Furthermore, reliance on one industry or sector in an
economy is highly dangerous for an economy, as it
makes the economy extra vulnerable to external
shocks, which can then wreak havoc upon both the
economy and the country. Other lessons about the
inaccuracy of predictions, confidence in political
institutions and the necessity of clear governmental co-
ordination over finance can also be taken from Brazils
experiences, demonstrating that by observing
developing economies, valuable lessons can be learnt
to be applied to all economies regardless of
development such as lessons from (developing) Brazil
that we have applied to (developed) Luxembourg.
18

Why is Britain still obsessed with Austerity?
With the UK economy now recovered from the majority of the damage of the financial crisis,
are widespread cuts still justifiable?
Oct 13th 2016 | Joshua Goulbourne |
The financial crash of 2008 and the Great Recession
that ensued saw the World sink into a long,
exhausting period of economic uncertainty and
instability. Banks would no longer lend and
consumers would no longer spend, leaving economies
stagnant and policymakers confused. The demise of
the Greek economy in 2009 led to skepticism of
expansionary fiscal policy in economic times of
trouble, and the appointment of a new coalition
government, saw a rapid change in political rhetoric.
Cuts! Cuts! Cuts! echoed around Britain, as the
public saw debt and deficits demonized, and spending
cuts glorified. Why are we a nation still completely
absorbed by austerity?
Policy after the crash
Immediate action was taken after the collapse of
Lehmann Brothers bank in September 2008. G20
countries slashed their base interest rates, with the
UKs falling from 5% to 0.5%, the lowest rate in over
100 years. The intended effect was an increase in
available credit in the UK economy and an increased
incentive for consumers to spend - both of which
should boost aggregate demand, and put the UK
economy back on the road to recovery. However, the
banking crisis struck fear into the heart of almost
every available lender, and with consumer confidence
practically non-existent, the UK economy began
plunging further and further into recession. Monetary
policy had been rendered ineffective, and the Labour
government under Gordon Brown embarked on an
alternative, expansionary fiscal stimulus, in line with
many other European countries.
Britain
VAT was also cut by 2.5% in a desperate attempt to
restore consumer confidence in the UK economy.
Shortly after its implementation, the UK saw its first
quarter of positive GDP growth since the start of the
recession, and the economy seemed to be showing
signs of recovery.
The case for Austerity
With the Greek debt-to-GDP ratio rising to the
terrifyingly high level of 112.9% during the crisis, a
drought of capital in Greece soon followed. Greeces
debt crisis, and subsequent bailout, served as the
perfect example of the dangers of high levels of
government debt. It also coincided with a certain
research paper, on the concept of Expansionary
Austerity, published by Italian economist, Alberto
Alesina. This paper was especially significant in the
championing of austerity throughout Europe, as
Alesina claimed to have conclusive evidence that
government spending cuts increase consumer
confidence within an economy, thus offsetting the
direct negative implications of the cuts. Governments
making sensible choices during times of economic
hardship (e.g. reducing spending) should, in theory,
restore confidence within an economy, leading to a
steady rise in consumer spending, business investment,
and therefore growth. However, in reality, this tended
not to be the case, but Alesinas research gave the
European policymakers precisely what they needed to
put austerity into action.
Another crucial contributing factor in the case for
austerity, most notably in Britain, is the vast political
resonance that it had with the public. The aftermath of
Great Recession left many families struggling, and
having to make cuts on their spending, wherever
possible. In these times of distress, it helped to see a
government doing the same - cutting back their
spending. Throughout the 2010 electoral campaign, and
during his time as Prime Minister, David Cameron
played on this idea of unity, and getting through the
recession together.
19
This certain angle was so successful with the British
public, that it wasnt long before the Labour party
were pledging to undertake the very same spending
cuts. As the UKs debt-to-GDP ratio approached the
80% mark in early 2010, George Osborne
capitalised upon this, using the fearful example of
Greece to intimidate and terrify the nation into
believing that a gargantuan chain of spending
reduction was not only necessary, but vital to avoid
a repeat of 2008.
The problem with Austerity
The fundamental problem with the austerity
programme implemented in Britain was not the fact
that it was ineffective, but instead lay within the rate
at which it slowed recovery, and the scale at which
it limited GDP growth. When the UK slid into
recession again at the start of 2012, the coalition
austerity programme was in full flow. This acted as
a double-edged sword for the poorest families and
individuals, who saw a struggling economy and a
reduction in the size of the welfare state that they so
desperately required. This was exemplified by an
Oxfam case study, which found that the poorest
two-tenths of the population have seen greater cuts
to their net income in percentage terms than every
other group, except the very richest tenth.
The graph above serves as the best example of the
failures of austerity, as it includes most of the
Worlds major economies in the period when
austerity was most severe. The vertical axis depicts
annual GDP growth (%), and on the horizontal axis,
the average annual change in the cyclically adjusted
primary surplus is shown, which is the most
widespread measure of austerity. As you can see, a
strong negative correlation emerges, suggesting that
harsher austerity leads to less GDP growth. This
came as no surprise to most economists at the time,
who warned against austerity in the years prior, but
were duly ignored and presented with the research
of Alesina.
Dispelling the myths
Despite the highly negative connotations of the
phrase budget deficit, and the constant
conservative commentary on the dangers of debt, it
should still be noted that a budget deficit was once a
sign of an economy in good health. Increased
spending on welfare, education and healthcare,
alongside moderate tax levels, should increase both
consumer and business spending within an
economy, stimulating GDP growth. The recent
fixation on government debt levels has shifted the
focus away from what really matters the debt-to-
GDP ratio. Large economies are able to manage
large debt-to-GDP ratios for long periods of time.
The Greek debt crisis coincidence with the UKs
rising government debt levels was rather
unfortunate, as it led to unnecessary panic that
paved the way for austerity. High government debt
levels, and periods of economic boom have long
gone hand in hand, but the global oversight of
principal Keynesian theory - born out of fear
nonetheless - led to a deepening in the financial
crisis.
Regardless of the differing opinions on government
spending in times of trouble, one thing must remain
clear the government deficit did not contribute to
either recession, it was merely a symptom of their
presence.
Getting away with it
As the World began to accept that the austerity
phase was reaching a halt in 2013, the majority of
the damage had already been done, particularly in
Britain. A 40% cut in real public investment
between 2010 and 2012, alongside the VAT hike to
20%, had vast negative ramifications on the
economy, some of which are still being felt today.
By 2015, Conservative spending cuts had reached
32 billion, and there was no intention of stopping
there. Austerity fever rebounded around the House
of Commons, as George Osborne revealed spending
cuts, and more privatisation plans.
The conservative party were able to unleash
austerity in every corner of the UK for so long for
two reasons; Its logical rationale that made sense to
the public, and the extraordinary weakness of their
political opposition.
20
The idea of government debt and deficit spending
can be a difficult one for the public to grasp in a
time of economic recession, and understandably so -
spending when money is tight does not make much
sense for an individual, but for a government to do
so, economic recovery would soon be in sight. The
post-recession period provided a difficult
environment for a Labour party already in tatters.
Leadership was lacking, and the conflicting of
opinions within the party, that still haunts them to
this day, prevented them from organising a potent
attack on the Conservative austerity fixation, and
thus allowed it to go on.

Though the initial case for austerity was undeniably

valid, its repeated use was not only unnecessary, but
has been - and will continue to be - hugely
detrimental to the economic potential of this
country. The extent to which we have limited our
economic capabilities shall forever remain
unknown, but how long must we let this go on for?

21
5p for a bag please!
The effectiveness of government intervention
Sep 4th 2016 | Thomas Storer |
With the number of single use plastic bags
increasing each year, rising to 8.5 billion given out
by UK supermarkets in 2015, it has become a real
environmental issue that needs to be dealt with.
Therefore the UK government announced that from
October 2015 all shops with over 250 full time
employees will have to charge a minimum of 5p per
bag. Throughout this article, I will be analysing and
evaluating whether or not this form of government
intervention was successful and alternative solutions
that could have been put in place.
Government intervention is defined as the regulatory
actions taken by a government in order to interfere
with decisions made by individuals, groups or
organisations regarding social and economic
matters. One of the main issues in economics is the
extent to which a government should intervene in
the economy. Free market economists argue that the
intervention should be strictly limited: as Ludwig
Von Mises said, Every government intervention in
the marketplace creates unintended consequences,
which leads to calls for further government
interventions. However, Keynesians justify
government intervention in the economy through
public policies that aim to achieve price stability and
full employment.
Government intervention is beneficial as markets
fail to take into account externalities that arise from
the production/consumption of a good. With plastic bags,
many social costs can occur. Producing the bags requires
millions of gallons of petroleum which could be used
elsewhere for heating or transportation, and as a result
petrol prices may rise as the supply falls due to the
plastic bag production. This will directly affect all
consumers of petrol as they will then have to spend more
money on fuel than on other items. The plastic bags also
heavily affect the environment, with thousands of birds
and marine mammals dying each year as they mistake the
bags for food. The bags are also not biodegradable, and
so can clog waterways and end up on landfill sites, where
they can take 1000 years to break down. The market
doesn't think about these negative externalities and so it
should be down to the government to take charge of the
situation.
However, it could be argued that government
intervention is not required and the free market is most
efficient because they have a profit incentive, knowing
how and when to produce their goods. Due to this profit
incentive, innovation and entrepreneurship are promoted
to enable the firm to carry on for the future.
Governments are also liable to make the wrong
decisions, with politicians not having the same market
discipline of seeking to maximise the use of limited
resources, which then leads to an inefficient outcome.
England has been the last part of the UK to adopt this 5p
levy, after successful schemes in Wales, Scotland and
22
Northern Ireland saw 75-80% falls in the use of If advertising similar to what is used on cigarette
plastic bags. As of July 2016 (after the tax was packaging is used, but instead with images of pollution,
introduced), the number of single-use plastic bags then this may put many consumers off using them as
given out in England has fallen by 85%, showing they can see the damage they're doing.
just how successful this tax has been so far. The
charge has also triggered donations of 29 million Overall, the 5p bag tax is clearly successful as seen by
from retailers to charities and other good causes, the huge decreases in the total number of them
helping to create more positive externalities and aid throughout the UK and so this form of government
society as a whole. intervention should be praised. It also raises money,
which several supermarkets have donated to good causes
The reason why this scheme works so well is and so is successful in the way social benefits are
because it is a combination of a nudge and a created. With decreases in the number of bags, the
financial incentive. The nudge theory states that environment will definitely be better off, and so this
individuals can be influenced by subtle policies like reduces the negative externality of pollution.
this 5p levy rather than through fiscal acts such as
taxes (e.g. V.A.T) or outright bans. Mostly shoppers
will go out and try to get the best deals for their
money, so with this small charge brought forward, it
becomes exaggerated and so the customer is less
likely to pay for a bag. It will then become a habit to
the consumer to bring their own re-usable bags
instead of paying this charge and so the amount of
plastic bags will decrease. From what I've noticed in
my own experience as a sales assistant in a local
chemist, when I ask whether they'd like a plastic
bag, some customers seem to presume there is a
charge on them and so reject the offer. If more and
more people keep these presumptions throughout
the UK that because bigger shops charge for bags
then little shops will too, the overall number of bags
given out will decrease even more.

Looking towards the future and how the UK can

tackle environmental pollution even more, with less
resources such as petroleum being used up,
solutions need to add on to the 5p levy that is
already in place. The first solution is to make it
obligatory to charge 5p for a plastic bag in any
shop, rather than just those with over 250
employees. Millions of bags are still given out in
these little shops and so if this small but significant
charge is put on them, behavioural economics will
suggest that the bag total will definitely decrease.
Another solution is to educate people all over the
UK on the damage plastic bags do to the
environment, with facts such as that 5 trillion bags
are produced every year, and so side by side they
can encircle the earth 7 times. If advertising similar
to what is used on cigarette packaging is used, but
instead with images of pollution, then this may put
many consumers off using them as they can see the 23
damage they're doing.
Trade after Brexit
How will the decision of the British public to leave the European union impact trade and
where do we go from here?

June 24th 2016 | John Greenwood| Head of the Economics department

The UK voted on the 23 June to leave the EU. As
rd
a Remain supporter I personally am very
disappointed with the vote to leave the EU. This
article will consider where we are going with respect prospect for more export led injections to the economy.
to our trading position as a nation and how we
continue to create valuable export revenue injections
into our economy.
As a member of the EU the UK trades with the other
27 nations on the basis of the single market. This
works on the concept of freedom of movement of
goods, services, capital and labour. There are no
tariffs between member states (taxes on goods). The
EU imposes a tariff on imports unless countries have
a negotiated free access. The EU also negotiates on
behalf of the UK in world trade talks.
So how does Brexit change the above? The UK will
leave the EU but what platform will trade take?
Firstly the UK will have to build its own trade deals
with others with respect to free trade and access to
markets. This involves the UK now acting as an
individual agent in talks. Some perceive this as a
great opportunity for Britain to negotiate better
access to markets all around the world, some argue
the EU has slowed trade talks and deals as it tries to
balance the needs of its members. Britain clearly
will have more opportunity to broker deals but for
many it will be acting as a smaller entity and may
find it difficult to achieve favourable access to
markets in the world trading system. It is clear that
Britain as a net importer will be an attractive option
to for those countries who are large exporters to
form quick freer trade deals. However, this may be
complex as Britain may find it difficult to negotiate
with interested parties quickly and efficiently; a
queue may ultimately form just to negotiate.
Also the UK is an exporter of services and countries may
not be interested in trade deals outside of product
markets as see the growth of the service sector within
their economy as the next stage of their economys
development and growth. Whilst this may all link to the
theory of comparative advantage it is clear that in goods
markets the UK possesses little comparative advantage,
whilst in service markets it performs with a far better
comparative advantage. The problem, however, is that
services and financial services can be easily replicated.
As countries industrialise and develop they will naturally
see these as the driver of the next stage of growth.
Consequently they will resist offering free trade deals,
which include the free trade of services, thus limiting the
It is likely the UK will try to negotiate a free trade deal
with the EU. This is vital as almost 50% of our trade is
with this area. However, what form is this likely to take?
The EU maintains that its four freedoms are pivotal to
any trade deal. This includes Freedom of movement of
goods, services, capital and labour. These four freedoms
have been essential in supporting long run growth in the
UK since the single market was created in 1994. Not
only have consumers benefited from products as part of a
free trade area, services have grown and UK financial
institutions have been able to sell into the EU. The City
of London has developed as a financial capital as it is
able to work with banks and investors outside of the EU
to passport banking products into the EU. This trade is
now at risk as traders from outside of the EU will look to
other European financial centres to undertake their
business. It is worth reading around the idea of
passporting within the city of London as a separate area.
In addition to the above the UK has also benefitted from
the free flow of EU migrants who have not only
delivered new skills but also helped to constrain wage
growth and support long run growth within the economy.
This flow of labour is now under threat. By leaving the
EU it is clear that the loss of the single market may
constrain free trade in goods and services. The City of
London will find its position in world trade significantly
reduced and the economy may find its supply of workers
constrained. In other words the European Economic Area
(EEA). The UK would pay the EU for access to the
single market and adopt the four freedoms but have no 24
influence on EU policy or development. For example an agreement could be created on free trade
in goods services and capital but excludes labour. Whilst
A solution for the UK would be to adopt what is this may be possible there are difficulties. The EU may
known as the Norwegian or Swiss Models with agree to free trade in goods, which would benefit many
the EU, in other words the European Economic Area members as net exporters to the UK.
(EEA). The UK would pay the EU for access to the
single market and adopt the four freedoms but have A second option would be a free trade deal with the EU,
no influence on EU policy or development. which agrees on some of the elements of the four
freedoms. For example an agreement could be created on
This would be an acceptable compromise for many free trade in goods services and capital but excludes
as it would allow trade with the EU to continue in a labour. Whilst this may be possible there are difficulties.
normalised way and maintain the City of Londons The EU may agree to free trade in goods, which would
ability to passport as well as ensure there is a free benefit many members as net exporters to the UK.
flow of labour with skills. It too, would be
acceptable to the EU possibly with some negotiation This would please the City of London as it could still
but all members would find this agreeable as they potentially passport into the EU. However, its likely the
already understand the deal on the table from the EU may not want to allow access to service markets as it
relationships Norway and Switzerland (although would like financial centres in the EU to grow. Its worth
slightly more complex with no access to service noting the Swiss do not have an agreement with respect
markets) have. This option would alleviate some of to services which limits their banking systems
the problems potentially being faced by parts of the
opportunities to sell into the EU. Furthermore countries
UK such as Northern Ireland and Gibraltar who have
that have negotiated with the EU such as Canada have
land borders with the EU. These areas not only
been granted access to goods markets, although these are
voted to Remain as part of the EU their residents
frequently work and travel in other parts of the EU, consistently being monitored for compliance with EU
hence benefiting from freedom of movement. product standards.
Consequently If another model were to be adopted
This imposes further costs and limits the scope for
their inhabitants may find cross border work and
comparative advantage to be applied. A further problem
travel more difficult as part of a post Brexit world.
exists as any agreement has to be ratified by all members
However, this type of deal creates two problems. of the EU and as in the case of the Ukraine a deal was
One it may not limit immigration from the EU. reached for it to be rejected by Dutch voters in a
Many leave campaigners voted on the basis that the referendum. It has become increasingly clear since the
UK could not continue to sustain the level of referendum result that any free trade deal may have to
immigration from the EU. The EEA option whilst include freedom of movement as the EU considers this a
favourable to many may not be favourable with the key component of any agreement. As a result the leave
Leave campaign. However, it may be possible to campaign may be not see this as a viable alternative if
negotiate with the EU on this issue by imposing this is included.
some restrictions on the freedom of movement. A
Another option would be to pursue a deal similar to
second problem that this deal would have is that UK
Turkey. Currently Turkey is allowed to trade goods
firms would have to obey all EU product standards
freely with the EU. They are also part of the common
set by regulation. They would have no influence in
external tariff for all products entering from outside of
this area. It is worth pointing out at this stage this
the EU. This allows goods to be sold freely across the EU
requirement has to be met with any deal that is
and Turkey has access to goods markets. However, the
concluded even if we do not create one and simply
main problem is this would not help service or financial
use the WTO trade rules. It has also become clearer
services, as these are exempt. It is unlikely Britain would
in a post Brexit world that members of the EEA may
pursue this option. However, it may be the only deal
resist the UK joining. The countries in the EEA such
acceptable to both parties that could be easily agreed on.
as Norway consider the UK to be a far bigger
It does not include freedom of movement as part of the
economy and they feel that it could dominate their
deal, which may please the Leave campaign, but if this is
trade agenda hence making them less powerful in
not included it may limit businesses ability to recruit
trade negotiations in the global economy.
from the pool of labour available from within the
A second option would be a free trade deal with the European Union.
25
EU, which agrees on some of the elements of the
four freedoms.
A final option is to follow the world trade If this option is not pursued the implications of a harder
organisations rules. This promotes free trade but Brexit could be significant posing significant risks to
tariffs can be imposed on certain industries such as future employment, trade and foreign investment.
cars, which face a 10% tariff. This would not please
car manufacturers such as Nissan and Toyota who Free Trade deals such as those agreed by Canada and
have built plants in the UK to access the single Turkey are insufficient for the needs of the UK
market and to circumnavigate the common external economy and if these are pursued the UK would
tariff. It is likely that car producers would possibly certainly find its trading opportunities more limited.
relocate inside the EU imposing higher prices on However, a free trade arrangement would be
UK customers. Since the referendum the Japanese significantly more preferable to adopting world trade
Government have written to the UK Government organisation rules. The possibility of a hard exit from
expressing their concern at the loss of single market the EU may become a reality if a compromise cannot
access. The letter raises the possibility of Japanese be found quickly between all parties involved in the
companies leaving the UK putting jobs at risk in negotiations.
many industries from car production to
pharmaceuticals and banking. One benefit of this
approach is that tariff barriers have continually
fallen overtime as rounds of negotiations have taken
place. Furthermore the WTO has been working on
allowing freer access to service and capital markets.
Despite the WTO making gains in these areas it
won't be the option either side favours because it
will raise the price of products. In addition
negotiations and developments as part of World
Trade Organisation rules are often slow and
complicated.
It is clear that the UKs decision to leave the EU
poses many difficulties for trade internationally. AS
the position has become clearer in the three months
since the vote it is now apparent the government
faces a difficult and complex series of negotiations
with the EU. The government need to work out a
clear compromise on single market access whilst
pleasing the Leave campaign with respect to
limiting freedom of movement. If the government
wants to minimise the long run economic impact
and loss of jobs in key sectors the best agreement
would be a move into the EEA.

Whilst this is not the EU, Remainers like me would

accept this as a way forward. The Leave campaign
may feel this is not an acceptable deal although
many still consider access to the single market
access above the issue of immigration. In addition
the EEA option does allow for some immigration
controls to be negotiated and implemented. The
EEA option could be sold on the basis that we will
go into this system for a period of time such as ten
years whilst reviewing and considering carefully
other options. It would provide a safe period of
transition whilst minimising the shock of leaving the
EU. 26

Foreign Aid to the rescue?
Why aid alone cannot solve the issue of extreme poverty
Sep 20th 2016 | Amrit Dawood |
We live in what appears to be a culture of aid.
Deep rooted in every liberal sensibility is the notion
that in a world of moral uncertainty one idea is of
ultimate importance and must not be compromised:
the rich should help the poor in the form of financial
aid. The well-documented horrors of extreme
poverty around the world which has created this
moral imperative has resulted in aid becoming a
cultural commodity, with pop stars, media figures
and rock legends whole-heartedly embracing aid
whilst governments who are criticized respond in
kind, fearful of losing popularity. Has this aid really
helped the people in developing nations? Has the
US$1trillion in development assistance over the last
several years made the people of African countries
better off? No. the notion that an influx of aid can
alleviate systematic poverty is simply a myth. Aid
has helped make the poor poorer and growth slower,
yet it remains at the forefront of strategies to tackle
what it itself has created.
Under the influence of media headlines, it is easy to
paint a bleak picture of African development over
the past twenty years. Economic prospects seem
grim, corruption appears rife, infrastructure lies in
ruins and tyrannical states are the norm. Why is it
that Africa, alone amongst the continents of the
world, seems to be locked into this dysfunctional
cycle of failure? Are the people less capable? Are
the leaders inherently more corrupt and ruthless?
International
In fact, many economists have outlined reasons they
believe to be at the heart of African grievances: in
particular, geographical, historical, cultural, tribal and
institutional.
Consider this: over the past 40 years at least a dozen
countries have experienced phenomenal economic
growth. Many of these countries, mostly Asian, have
seen GDP growth of nearly 10% a year, with star
performers such as Brazil, Russia, India and China
expected to exceed the growth rates of nearly all
industrialised economies by the year 2050. Yet, in the
same time period, as many as thirty aid-dependent
nations, mostly in sub-Saharan Africa, have failed to
generate consistent economic growth and in some cases
have even regressed. We know that there is not a single
country on earth today that has achieved long term
economic growth and has meaningfully reduced poverty
by relying on foreign aid and yet, we continue to push an
agenda of aid onto the African continent. By just
witnessed China alleviate 300 million people out of
poverty over 30 years and it having nothing to do with
aid, it is also clear that we know how to create growth
and reduce poverty. India for example has 450 million
people living in the middle class, the largest in the world,
and has not achieved that by relying on aid to the extent
which African countries rely on aid today. Why is it there
one approach to development in one continent but a
different approach in another? The continent is viewed as
poor, desperate and unable to help themselves and the
lack of confidence in the African people reflects itself in
its economies.
Let us not forget that there are more poor people in China
than there are in Africa and Africas negative portrayal
doesnt attract investment. Since the arrival of aid,
Africas growth prospects have severely declined. In the
1970s 10% of Africans lived on less than $1 a day,
currently that figure stands at 70%. Something is clearly
not working. In theory, as aid is given, investment
increases and in turn growth, thus poverty is reduced.
27
However, there are a number of reasons for why Every year the World Bank publishes a report called
the 100billion of government to government doing business around the world and Africans are
transfers each year does not have the desired consistently at the bottom of this list. Their governments
effect. We all agree on a few things. Nobody do not rely on tax revenues to stay in office they rely on
wants Africa to remain in poverty and be foreign aid, thus entrepreneurship is not promoted in
dependent on aid forever and we desperately African countries.
need African governments to lead the charge
against extreme poverty. Whether we like it or What should we do with the aid system?
There are alternative ways of financing development in
not, aid has contributed to the dysfunctionality of
poorer countries. New regions in the world might want or
African governments they underperform.
need African produce, with increased FDI (as opposed to
aid) being a more rational option. The problem is that
The Marshall Plan African countries see aid as permanent income and with
So why isnt Aid working? Surely it has worked no critical mass of middle class or no private sector,
before. Often cited as evidence of the successes economic conditions need to be created so a civil society
of financial aid is the Marshall Plan of 1948- can emerge through explicit and transparent policy. The
1952, where the US government transferred over only type of Aid that is worth something to Africans is
US$13billion (around $100 billion in todays the type of aid that will make sure it doesnt exist in the
terms) to reconstruct post-Second World War future.
Europe. As most historical accounts will point
out, The Marshall Plan was an undeniable
success. Not only did it repair the economies of
war-torn Europe, but some argue it relay the
political and social foundations that allowed for
Western Europes ongoing peace. To apply the
Marshall Plans achievements as a blueprint for
African recovery would, quite frankly, be
ridiculous. The conditions on which the Marshall
Plan was created bear no resemblance to the
harsh and unforgiving conditions the African is
subject to, which are both natural and man-made.

Aid contributes to corruption and as a result, a

lack of accountability. Unlike the western world,
most of the money in these economies pool at a
state level and there is no thriving private sector
where you can create wealth. The result of this is
that there are constantly groups trying to
overthrow the government so they can sit in
power and capture wealth, which is coming in the
form of aid and thus contributes to civil wars,
civil unrest and inherent corruption. In the 1990s
there were more civil wars in Africa than the rest
of the world put together. An aid driven society
also generates unsustainable levels of inflation by
flooding the economy with dollars, killing off the
demand for domestic goods as the local currency
becomes too strong and exports are too
expensive. Entrepreneurship is also hit hard.
28

Britain and the EU
What happens next?
Sep 4th 2016 | Amy Borrett | Old Olavian
The rapid disintegration of our relationship with
the EU, culminating in the decisive vote to leave on
June 23rd, is a contentious issue that may have left a
bitter taste in the mouths of many. There exists,
however, unanimity in the serious nature of the
question this poses as to the fate of our nation.
Since the referendum the British political system has
been thrown into turmoil, with unprecedented
leadership contests by both the incumbent party and
the opposition. The media, whose conjecture related
not only to the future of our economy but our
national identity, created a wave of panic throughout
the country; something which was reflected
markedly in the exchange rate movements in the
wake of the decision. Thus, it is hardly surprising
that there is a great deal of concern over what Brexit
will actually mean for Britain.
David Davis, the man who will be foremost in
shaping the talks on these issues, has already made
the case for a more reserved approach to
negotiations, claiming that it will be a little time
before Article 50 is triggered. This decision is a
tactical one by a cabinet facing divided opposition
both at home and in Brussels.
The precedent established by the UK voting to leave
has not gone unnoticed by the other member states.
Europe and Britain
Concern over the emergence of similar successful
movements in other countries with deep-seated
discontent, namely Greece, Holland and France
where Euroscepticism is rife, has led to delay in
negotiations.
The existence of the European Economic Area only
complicates this further as the pre-existing deal
lessens the likelihood of desirable concessions for
the UK on the grounds of having to make similar
offers to countries already in compromised trading
positions. With the out vote having been
campaigned to some considerable extent on the
issue of the free movement of labour this poses
difficulties for the UKs negotiations, as it is
unlikely an advantageous arrangement can be struck
without conceding control of our borders. To many
such a deal would undermine the very principle of
the democratic process we underwent to reach the
point we are at now.
Its hard to foresee the kind of trade deal Britain will
receive in the future. Switzerland and Norways
positions offer some guidance, but suggest no
alternative to the challenge of immigration. Another
option is to not seek out an explicit trade deal with
the EU and to trade going forward solely under the
WTO guidelines. For an electorate primarily
preoccupied with the economy it is hard to see how
we could choose this alternative, as it seems
unrealistic that we should sacrifice economic growth
and stability at a time when recovery from the the
effects of the financial crisis has only just begun to
become apparent. Movements by the Bank of
England, who both altered the base rate - the first
such change in seven years - and expanded the
quantitative easing scheme recently, signal
impending instability in the economy. It is possible
that concern regarding the British economy coupled
with the impossibility of securing an agreeable deal
with the EU may lead to many regretting their
decision to leave. Theresa May has made it
abundantly clear, however, that indeed Brexit
means Brexit and so our imminent existence
outside of the EU is absolute. 29
One positive development since June has been the
waning of the independence movements in both
Scotland and Northern Island. Considering the small
margin between remain and leave in the latter state
Sinn Fins failure is unsurprising. In Scotland,
however, Nicola Sturgeons inability to garner
sufficient support for secession has only just become
clear. Given that 67% of the Scottish electorate was
in favour of remaining within the EU and that they
have only just undergone a tumultuous
independence struggle, avoiding another such battle
is in everyones best interests. Fractious relations
between Westminster and Scotland are likely to only
strain discussions with Brussels and distract from
the matter in hand.

Politically and economically the path for Britain is

unclear. What we do know is that until Article 50 is
triggered the implications of our leaving will likely
remain undetermined. At this point, however, the
irrevocable countdown will begin and the relative
stability that has emerged since the referendum is
liable to be disrupted. For now were all just going
to have to keep guessing what Brexit will actually
mean for Britain.

30
Life after Brexit
How the post-referendum fallout will shape the British Political scene for years to come

Oct 10th 2016 | Edward Parker-Humphreys | Old Olavian

result of his prominent role in the Remain campaign,
whilst former Mayor of London Boris Johnson, despite
finding himself in a more promising position having
campaigned for a Leave vote, surprised many by not
standing in the contest, with key ally and fellow
Brexiteer Michael Goves public refusal to back Boris
seen as playing a significant role in his decision not to
run for leader. Despite four other Tory MPs, including
Gove, also putting their names forward for the
leadership, Theresa Mays wide-spread support amongst
At the time of writing, just over three months have Conservative MPs helped her secure the leadership
without the need for a membership vote, with her last
passed since the United Kingdom voted to leave the
remaining rival, Andrea Leadsom, dropping out of the
European Union on June 23rd, but the full details and
race in recognition of the overwhelming support for May
subsequent impact of our exit are yet to become
amongst Tory MPs. By 13th July, Theresa May was
clear Article 50, the official mechanism for
officially Prime Minister, less than three weeks after the
leaving the EU, is yet to be triggered, the Cabinet
referendum result. She now faces the difficult job of
have only recently started planning their approach to
overseeing Britains withdrawal from the European
exit negotiations and the new government
Union, balancing the demands of those Tory MPs who
department created to oversee our withdrawal is still
backed Brexit with the potential economic risks involved
being set up. But although it may be a while before
with leaving the EU. An increasingly divided
we start to see what Brexit actually entails, the
Conservative Party, as well as pressure from some
political fallout from the referendum has already
politicians to call an early election following the change
been felt right across Westminster, sparking one of
in Prime Minister, could make the coming years
the most turbulent periods in recent political history.
increasingly difficult for Theresa May, especially given
With a new Prime Minister, multiple party
the slim Conservative majority of just 12 in the House of
leadership elections and the possibility of another
Commons.
Scottish independence referendum, the knock-on
political effects of the Brexit vote make for very Despite the drama of a new Prime Minister and Cabinet,
interesting viewing. the most engrossing political story of the post-Brexit
period has been unravelling on the other side of the
Perhaps the most obvious change we have seen post-
chamber, with the Labour Party currently in the midst of
referendum has been at 10 Downing Street, with
a heated and divisive leadership contest, just one year
Theresa May succeeding David Cameron as
after their last one. Since Jeremy Corbyn was elected in
Conservative Party leader and Prime Minister.
September 2015, many within the party have been
Having announced his intention to step down as
concerned about the failures of his leadership, with
party leader and Prime Minister the day after the
mixed local election results in May and consistently poor
referendum, the race to succeed Cameron was
poll ratings compounding those fears.
surprisingly short-lived.
This discontent intensified further in the aftermath of the
George Osborne, previously considered one of the
EU referendum result, with many Labour MPs criticising
favourites to take over from Cameron, had
Corbyns performance in the campaign and accusing him
effectively crushed any chance he had of becoming
leader as a
31
of appearing half-hearted in his efforts to secure a
Remain vote. . Eventually, Labour MPs passed a
motion of no confidence in Corbyns leadership by
an overwhelming 172-40, following the resignation
of 23 members of his Shadow Cabinet over the
previous few days. Yet, remarkably, Corbyn
continued as leader and refused to step down,
despite his clear lack of support within the
Parliamentary Labour Party, leading to the current
leadership contest within the party. Owen Smith,
Corbyns challenger, faces a hugely difficult task if
he is to defeat the incumbent leader, given the huge
number of members who have joined the party to
support Corbyn since his election, and some of the
early polling evidence suggests that Smith still has a
long way to go if he has any hope of winning in
September. As you can imagine, the contest has
been extremely bitter thus far, with wide-spread
reports of online abuse from both sets of supporters
contributing to an increasingly hostile atmosphere
within the party. On top of this, the Labour Party has
had to fight off two legal challenges to the rules of
the leadership election (one from a key party donor,
another from a group of members) and with the
party appearing in complete disarray to the general
public, Labours polling figures have plummeted
even further in recent months, allowing the Tories to
build up a double digit lead over their main political
rivals. Tensions within the Labour Party had already
been building in the nine months prior to the Brexit
vote, but the result on June 23rd acted as the trigger
for this current crisis, sparking a huge internal row
within the party. Whatever the outcome of the
ongoing leadership election, the fallout from the
referendum result has started to tear the Labour
Party apart, with many commentators already
writing off Labours chances at the next general
election and some even forecasting a potential split.
Although an Owen Smith victory would, in this
authors opinion, probably be much more beneficial
for the party than seeing Corbyn re-elected, it would
still take a long time for these Brexit-inflicted
wounds to heal under Smiths leadership, given the
huge divide within the membership.
Whilst the outcome of the referendum has clearly had a
profound effect on the larger political parties, it will also
impact on some of the UKs smaller parties as well. For
UKIP, whose primary focus since its creation has been
campaigning for the United Kingdom to leave the EU,
the question they face is: what now? Having seen their
political dream realised, followed by Nigel Farages third
(and probably final) resignation, they face a huge
challenge to produce the policies and a leader that can
attract the same level of support they received in 2015,
where they mustered nearly 13% of the vote. In theory,
they have the potential to attract Eurosceptic Tory voters
who may become disillusioned with the governments
handling of Brexit, as well as threatening Labour in
Northern areas where large numbers of working-class,
traditionally Labour-supporting towns and cities voted
Leave. Yet UKIP is also dealing with its own internal
divisions as their leadership contest unfolds, and they
risk retreating into electoral irrelevance without the
leadership and publicity which Farage provided so
effectively during his time in charge.
The one party which may inadvertently end up benefiting
from the referendum result could be the Scottish National
Party. With Scotland voting in favour of remaining part
of the European Union by 62% to 38%, the SNP, itself a
strongly pro-European party, have argued that Scotland
now finds itself being taken out of the EU against its
will, with First Minister and SNP leader Nicola
Sturgeon already floating the possibility of a second
independence referendum. Although there is obviously
no guarantee that a second referendum would deliver a
vote in favour of Scottish independence, Scotland being
forced out of the EU despite overwhelmingly voting
Remain would certainly make a Yes vote a much more
likely possibility, contributing to the potential break-up
of the United Kingdom.
Although there are many more examples of the effect the
referendum result has had on British politics, such has
been the enormity of the post-Brexit fallout, the issues
which this article has explored already demonstrate how
wide-reaching the political impacts of the vote to leave
have been - before the formal process of withdrawing
from the European Union has even begun. The instability
which this has created will continue to shape the political
scene throughout the years to come, with the Brexit vote
radically altering the future of our parties, our leaders and
British politics as a whole.
32
Lacit
France faces a worrying future, but the nation can learn a valuable lesson from its storied past.
June 24th 2016 | Sebastien Santhiapillai | Old Olavian
In 1789, world history took a sharp turn when a young
Lafayette stood up in front of a nascent National
Assembly and presented to them what would famously
become the Declaration of the Rights of Man. The
revolutionary document has helped shape society as we
know it, but particularly pertinent for the French today is
Article X, which stated the following:
No man may be disturbed for his opinions, including
religious ones
It is a sentiment that has manifested itself as an ideal
celebrated and lamented in equal measure by the French
people; Lacit. Although the word is perhaps unfamiliar
across the Channel, it has come to form an integral part
of the French psyche, defined as the separation of
religion and the state.
However, France has ostensibly begun to lose its
connection to this treasured doctrine in recent times. An
obvious example of this has been the ongoing debate
over the now infamous burkini ban. A constitution
which vehemently stresses the need to separate the state
from religion and the decision to force women to remove
clothing they wear on religious grounds are clearly
incompatible. The fact that this law was enforced by
armed police suggests an even graver threat to Frances
status as a liberal democratic society. Although the ruling
has now been rescinded in mainland France, it is still a
worrying sign that the government has strayed so far
from Lacit that it was even considered as a way to
ensure societal harmony.
Measures of this kind are reflective of a change in attitudes in
France, in particular the growing popularity of nationalism.
Powerful political figures such as Marine Le Pen, leader of the
Front National, have deliberately abused the concept of Lacit
by using it to justify their inherently xenophobic beliefs. As a
result, it has come to be seen as a byword for religious
intolerance, playing into the hands of Le Pen. On the contrary,
Lacit seeks to ensure the religious freedoms of all French
people, Catholic, Muslim, or otherwise. Moderates in France
and across Europe need to recognise this and champion the
paradigm themselves; it may be the only way to combat the
increasing attractiveness of nationalism across the continent.
Worryingly, politicians seem to be responding not by
challenging the nationalist spin of progressive values, but
instead pandering to the populist fever it has generated.
Nicolas Sarkozy, the former President of France and an
established figure within European politics, has led the way in
this ignorant endeavour. Symbolic of his strategy has been the
alteration of the slogan of former President Jacques Chirac, the
famous France for All, to All for France, a move which
says everything about the direction that political discourse has
taken over the past couple of years. The fact that such a
recognisable mainstream politician is so strongly advocating
such polarising politics is a testament to the fear among
Frances major parties of the threat posed by the Front
National.
Symptomatic of the disregard for Lacit sparked by this fear
is the increasing hostility towards the concept of
multiculturalism. In Britain, we have largely come to accept
multiculturalism, on some scale, as having a beneficial impact
on our society. It is taken as a given that it is also an effective
way of allowing those of different nationalities and cultures to
integrate into British society. From this perspective, it is an
inexplicable phenomenon that in France the growing
consensus is that multiculturalism is the enemy of public
harmony. But it is an all too real scenario thanks to the
increasing influence of the Front National on the French
political scene. Sarkozy has written in his new book that It is
time to engage in a determined combat against
multiculturalism, adding We are not Anglo-Saxons who
allow communities to live side by side while ignoring one
another.
33
From this comes the startling implication that
multiculturalism is a purely British experience, and an
experience worth mocking by those of a different culture.

But the evidence suggests that these cultural differences

are merely the fabrications of the perennial far-right
propagandists scattered across the continent. In a country
of around five million Muslims, there is a purported
overwhelming anti-Islam agenda among French citizens
that makes multiculturalism impossible. On the
contrary, data suggests that 76% of French people hold
favourable views of Muslims, compared to just 72% of
Britons.

Although the situation in France is clearly problematic,

the political class needs to stop dividing its own
population in an attempt to end the agitation that has
accompanied the growing threat to French security. The
only justifiable approach to these internal affairs is to
live and let live, accepting that it is not the role of the
state to determine if or how citizens should express their
faith. Instead, France and other Western governments
would be well advised to focus their attention on solving
the roots of the problems that have now reached their
own borders; namely the Syrian refugee crisis and the
staggering increase in economic inequality both at home
and abroad.

As the French themselves say, He who runs after two

hares catches none. If France is to truly guarantee its
people peace and prosperity, the country needs to be
united in achieving that goal. To that end, France would
do well to remember Lacit.

34
Political Polarisation
The Great Modern Problem of the West
Sep 4th 2016 | Nat Amos |
Perhaps the most important political trend today is
polarisation. Increasingly in western societies, there
is a growing gulf between different sides of the
spectrum. There are fewer and fewer issues that left
and right see eye to eye on.
America is perhaps the greatest and most extreme
example of this. Over the last twenty years, a gulf
has appeared throughout the society as politicians,
parties and voters move split themselves on
ideology. As the graph demonstrates, the middle
ground of median voter values in Republican and
Democratic camps has shifted apart. Voters seem to
be going for the extremist options and rejecting
moderates and compromise. This divide is not just
on issues, but seems to be becoming more emotional
as well. A PEW poll conducted in 2014 found more
than half of Republicans and 45% of Democrats
described the other side as hostile to America. In a
democratic society, this type of thinking is
dangerous as it gives even smaller ground for
compromise and leads to increasingly deadlock and
perhaps violence.
This divide also extends to Europe. Increasingly,
voters are going for far right, as in France or Poland,
or far left as in Greece or Spain. This can be seen in
the recent EU referendum result where Britain split
almost down the middle or in the recent EU
elections where the far right secured its biggest ever
share of EU Parliament seats. There is a trend seen
everywhere in the western world.
Why is this happening? There are three main reasons;
Economic trouble, media agitation and fears of
geopolitical future. Once again, using America as a
case study these factors are readily apparent. In
America, the majority of people and voters are finding
economic life difficult. Inequality has increased to a
record high even as the average worker pay hasnt risen
since the 1980s adding to the frustration. When times
are hard, people do not want business as normal and
reject compromise. Tough politicians arguing tough
solutions like Trump or Sanders are given a receptive
audience and society splits as left and right increasingly
separate in vitriol of dogma as they both seek solutions
in their own ideology. This is fanned by the media. The
media serves to get views from which they gain
revenue. This creates the incentive for outrageous
coverage that panders to one side of the spectrum to
guarantee an audience. Fox news has honed this to an
art. This leads to both sides hearing what they want to
hear, leading to misinformation and preventing a
reasoned debate from happening. Social media creating
walled gardens of information and opinion only add
to this. Meanwhile, this is all played out against a
backdrop of paranoia and fear of a decline of American
relative strength. As China expands and America is
tested from Syria to the Ukraine, Americans yearn for a
perceived golden age and in fear push for politicians
that promise to make America great again. These
factors can also be seen, in lesser degrees, across the
whole of the Western World.
This is ultimately a disaster. Politics needs compromise
to function with very little being able to achieve in a
separated state. Gridlock and partisan tactics are the
result of polarisation and a weakened democratic
system.
35

Brexit currency jitters
Sterling suffers its worst day on record following shock Brexit vote
Aug 12th 2016 | Matt Ryan | Old Olavian
Economic indicators
The UK will continue to enjoy membership of the EU in
the short term, and no significant legislative changes will
take place for quite a long period of time. Activation of
the now infamous Article 50, which would set the two-
year clock ticking on the UKs exit from the EU, is not
expected to take place any time soon. Newly appointed
Prime Minister Theresa May has made it clear it will not
be activated before the end of 2016 which could provide
some near term respite for the Pound.

It also remains unclear whether the Conservatives will

have enough party support to activate Article 50 and its
quite possible that Parliament approval would be needed,
T he Pound has suffered from a torrid year in 2016, throwing yet another obstacle in the way.
with Britains shock vote to leave the European
Union in June sending shockwaves throughout As the vast majority of economists had anticipated,
financial markets and causing one of the most ourselves included, the UK economy suffered from a
dramatic major currency movements in recent noticeable slowdown in activity in the immediate
history. aftermath of Britains vote to leave the EU. This has been
shown by a fairly abysmal set of economic data for July,
Britains vote to leave the European Union stunned namely in the form of the Purchasing Mangers Indexes
economists and traders alike and led to an (PMIs): a monthly survey measuring business activity of
unprecedented period of volatility and uncertainty. around 300 companies. These indexes are a key gauge of
Contrary to a string of opinion polls in the weeks economic activity in the economy and provide a very
before the vote, the British public defied the odds good indication as to the level of overall economic
and voted 52% to 48% in favour of leaving the EU. growth much earlier than the release of the official GDP
numbers.
Financial markets around the world were rocked,
with the Pound experiencing its largest ever one-day
decline, falling in excess of 10% against the US
Dollar in a matter of a few hours to its weakest
position against the greenback since 1985. In trade-
weighted terms, the Pound has also fallen to its
lowest level in five years at the time of writing
(Figure 1).

The UKs manufacturing and services PMIs both fell

sharply in July, down to below the critical level of 50
that denotes contraction. The manufacturing sector
suffered its worst month since February 2013, while
the UKs dominant services industry, which accounts
for 36
almost 80% of overall economic output, plunged by
the most since records began in 1996, slumping to a
seven year low of 47.4 (Figure 2).These very weak
PMIs suggest there is now a very good chance that
we could see a recession in the UK for the first time
since late-2009 and the height of the financial crisis.
In order to prevent an economic downturn from
taking hold in the UK, the Bank of Englands
monetary policy committee voted unanimously in
August to cut its benchmark interest rate by 25 basis
points to a fresh record low of 0.25% (Figure 3),
while ramping up its quantitative easing programme
by 60 billion to 435 billion. This was the central
banks first interest rate cut since March 2009.
likely to hike its benchmark interest rate again in
December after the Presidential election.
The Brexit vote has sent shockwaves throughout
financial markets and it could be a long time before
Sterling recovers back to its pre-referendum levels.
The last time the Pound experienced such a sharp
depreciation (back in 1992 after the exit from the
Exchange Rate Mechanism), it took Sterling nearly
15 years to retrace all of its losses.

Moreover, the Bank of England announced it would

buy up to 10 billion of corporate debt, while
launching a new Term Funding Scheme of up to
100 billion in order to ensure commercial banks
pass on the full rate cut to their borrowers. This
means the Bank of England could now pump as
much as a massive 170 billion into the UK
economy.

These monetary easing measures are very

significant in nature and much more aggressive than
the vast majority of economists had anticipated. The
shift in tone for the Bank of England since the
Brexit vote is clear, and we think that further easing
measures could be on the way should the next few
months PMI and growth figures fail to show any
meaningful turnaround.

The prospect of an additional interest rate cut and

further quantitative easing from the Bank of
England bodes ill for Sterling. We think that the
Pound will struggle to trade much higher than
around the 1.30 level against the US Dollar
throughout the remainder of the year, especially
37
given the Federal Reserve in the US now looks
Gender Equality and GDP
Is the exclusion of unpaid housework from the measurement of GDP reflective of economics as a social
s

science dominated by men? Published in 1988, Marilyn Warings book If Women

July 4th 2016 | Bronwen Roberts |
Counted argues that the system of measuring GDP was
designed by men to keep women in their place undervaluing
womens contribution to society production and care of
children is equally as economically viable as the production of
cars, machinery or infrastructure.

The intrinsic ignorance of this measurement in excluding an

area of economic activity that undeniably contributes to the
wellbeing of individuals, families and societies in unpaid care
work is not widely known and is reflective of a need for
feminist adjustments to economic policy and attitudes
Unpaid care work is commonly left out of policy agendas due
Alfred Marshall, a highly influential economist born in
to a common misperception that, unlike standard market work
1842, described the social science of economics as the
measures, it is too difficult to measure and is irrelevant to the
study of men as they live and think and move in the
economy of a country. This neglect of voluntary work leads to
ordinary business of life. Although Economics is
false ideas about levels of changes in individuals wellbeing
supposedly objective, supported by statistics and
and the value of time, and this seemingly trivial ignorance in
quantitative data, its nature as a social science denies
fact paints a bigger picture of the gender inequalities in
social attitudes from not influencing the methods of data
employment that still exist today despite first, third and
collection or basic theories and principles. There is a very
second-wave feminist movements promoting gender equality
real social perception that the economy exists of money,
in all areas of society including campaigning for the Equal Pay
machines and men and this ignorance of women is
Act of 1970. Economics has to adjust to the progressive
reflected in the basic measurements of GDP which has
approach to gender equality in Western society and come to
evolved since William Petty and Charles Davenant
terms with the fact that unpaid care work contributes
established the basic concept of GDP defining economic
massively to the growth of an economy and without unpaid
growth throughout the 17th century. In 2014 women
housework and care work, an area which is dominated by
constituted only 12% of American economics professors
women, not only would the wellbeing and productive capacity
and only one woman has ever won the Nobel Memorial
of society would collapse but the population would suffer
Prize in Economic Sciences a worrying prospect for a
from Malthus style deficiencies.
discipline which supposedly caters for the whole of
society, allowing every voice to be heard and for all Based on data provided by the Office for National Statistics
needs to be met. Only when men and women are equally and surveys carried about by The Princes Responsible
represented as leading experts in this field will economic Business Network and the Labour Force Survey 9.4% is the
policies that are imposed satisfy everybodys needs. median full time pay gap between men and women and 1 in 5
women are carers and the UKs part time workers are made up
GDP is criticised as a measure of economic growth
of 5.85 million women and 2.11 million men. The
comparison between countries for a number of reasons
disproportionate amount of time women spend on unpaid work
including GDP per capita not accurately portraying the
is as a result of the gendered social norms that view unpaid
distribution of income in a country, international price
care work as a female prerogative.
differences, an inability to account for the hidden
economy and the relative size of hidden economies The approach that economic policy makers take concerning
across countries as well as currency conversion with the care can directly help or hinder the cause for gender equality
accuracy determined by exchange rates. by opening up opportunities and choices for men and women
to make regarding balancing time between paid and unpaid
However these are relatively objective and well-known
work, employment and care both equally vital in achieving
flaws in GDP as a measure of growth that can be
economic prosperity and boosting growth of a country.
adjusted and accounted for by using techniques such as
Purchasing Power Parity.

38
An alternative approach to promoting gender equality,
however, would be to separate the disparity between
unpaid house/care work and paid labour work from
their respective gender roles. Femininity and
masculinity are social constructs which have been
formulated throughout a history of the patriarchy.
These social constructs confine women to femininity
fulfilling social roles of passivity, domestication and
lacking agency whereas masculinity also manages to
confine men to being labouring, active breadwinners.
Obviously, there are fundamental biological
differences between the genders, which will alter the
capabilities of both sex, but these physical
discrepancies do not define the capacity of either sex as
economic agents. Especially in the UK, a service based
economy, women are equally as capable to earn the
highest salaries as men but the contradictory social
attitudes which criticise women for either sacrificing
their career to raise a family and fulfilling the 24/7
occupation of being a mother but also the generational
pressure on creating a family and not letting work rule
your life. This pressure is increasing in a country
verging on Stage 5 of the Demographic Transition
Model and beginning to suffer from the many
economic implications of an ageing population.
equal right to participate in labour work. In order to achieve
this reconsideration of the gender roles expected of men and
women we must take social approaches that avoid
stereotyping and harness the abilities of both men and
women. Furthermore, policy makers and chief executives
can actively encourage paternity leave or adopt polices as
imposed in Norway in which the maternity and paternity
leave can be given to either the father or mother leaving
the couple with the choice as to which parent chooses to
convert from paid work to caring for their child. A more
liberal approach such as this values the role of parenthood to
a greater degree and credits parenthood as an important a
role as employment, acknowledging the contribution of care
work and a focus on wellbeing as a vital part of social
wellbeing.

Nevertheless, returning to the deconstruction of gender

roles, Melinda Gates argues that unpaid work should be
as acceptable for men to carry out as women, following
her 2016 travels with her husband Bill Gates she wrote
a letter stating that Unless things change, girls today
will spend hundreds of thousands more hours than boys
doing unpaid work simply because society assumes its
their responsibility,. According to Gates, globally,
women spend an average of 4.5 hours a day on unpaid
work. Men spend less than half that much time. This
ridiculously high amount of time spent on chores
massively limits the time available for paid work.
Gates argues that reducing womens unpaid labour
from five hours per day to three can increase a
countrys female labour-force participation rate by
10%, if women participated in the economy at the same
levels as men, she writes, global GDP could increase
by 12%.

As opposed to changing the measurement of GDP to

incorporate unpaid work such as caring or domestic
chores perhaps the focus should be on redistributing
time between heterosexual couples and achieving a
balance in gender roles in which men and women have
equal expectations to upkeep housework or dedicate
their time to childcare as well as equal opportunities
and expectations that men and women both have an

39
Who cares about Rising Inequality?
As economies grow the gap between the rich and the poor has only grown wider and wider,
but is there really any potential (or reason) for change?

Nov 12th 2016 | Ben Ryan |

Inequality has many economic effects, mainly focussed
around the poorer workers in an economy. Poorer
workers generally spend a greater proportion of their
total income so they cannot afford to spend on luxury
goods like holidays. An increase in low end wages at
expense of higher earners would therefore boost
consumption, leading to greater GDP growth which
would benefit everybody in society, but inequality keeps
their wages low and increasing their disposable income
would have a larger impact on growth than increasing
I nequality is a part of the capitalist free market
mid or high earners as they tend to save more.
economic system, it provides incentive for people to
work hard and see the benefits of their hard work in Another issue associated with inequality is the inability
the form of higher income and greater wealth, but to invest in human capital (training and education of the
has this gone too far? In the past 30 years through workforce), like going to university for example. Failure
periods of both sustained growth and deep recession, to invest reduces long term productivity as workers do
society has become more unequal, the distribution of not become more efficient, limiting the productive
income is becoming more and more concentrated, capacity of the economy. Poor social mobility and a lack
leading to many different effects, both positive and of key skills means greater unemployment, as workers
negative. There are two major types of inequality: are not able to travel to jobs or may not have the skills
income inequality (the distribution of income) and needed for certain jobs, so become unemployed.
wealth inequality (the distribution of assets). Increased unemployment increases costs to the
government as more people are likely to be claiming
The most common method of measuring income benefits, and the lost income tax revenue puts further
inequality, according to The World Bank, is the pressure on government finances.
Gini-coefficient. Created by Corrado Gini in 1912, it
was designed to represent how evenly (or unevenly) The cost is not only to the government however, the
income was distributed in a population. unemployed could be working and producing goods and
Theoretically if income is distributed perfectly services which increase GDP growth. They are unused
evenly (i.e. everybody in the country makes exactly resources that could improve output, but because of a
the same amount) then the Gini coefficient should failure to invest in workers they are unable to contribute
be 0. A value of 1 would represent perfect inequality to the economy. Companies also gain power over
where one person earns all the income and nobody workers if inequality is higher as they control wages and
else has any. For all countries the value of the Gini employment. This can lead to unions demanding higher
coefficient is somewhere in between. In the UK this wages or striking which will reduce GDP as no goods are
value has risen significantly, in 1977 the coefficient being produced as people protest. Firms may also decide
was 0.24 indicating a reasonably even distribution, in the form of dividends, instead of investing in more
but in 2008 this figure was 0.36, showing that training or better machines that could boost growth.
income in the UK is becoming much less evenly Generally, education is expensive, meaning unless it is
distributed and the rich are starting to control a provided by the state or training is provided by firms, the
much greater proportion than the rest. Compared to poor are unable to improve their skills and boost their
the USA, which has a Gini coefficient of 0.48, productivity.
income is much more equal but still more varied
than Germany, with a coefficient of 0.29. 40
Stagnating incomes and rising prices do not mix well, the
poor are forced to borrow more and more money to
finance their spending. In the short term this prevents a
fall in living standards and cheap credit could improve
growth, but over a longer term this causes serious
problems. Increased household debt means that more will
have to be paid back in future and high debt more
importantly increases exposure to any financial shocks,
as seen after the 2008 Financial Crisis in the USA where
many simply had too much debt and could not handle the
sudden loss in wealth. It can be concluded then that
lower inequality is closely linked to financial stability as
more of the population are able to deal with economic
shocks.
Inequality isnt necessarily all negative however, there
are several benefits that are essential to the growth of the
economy. Most importantly inequality provides an
incentive to work hard, take risks and invest as the
potential rewards can be worth the risk. In the UK this
can be seen in the education system, the introduction of
university fees is an example. Students typically take on
huge debt, all because they know that they will gain more
skills and be paid more than somebody who does not
have a degree. Without this mechanism, investment into
education would decrease as there are no potential
benefits to be gained from spending large amounts of
money on tuition. This has a knock on effect on the entire
economy as potential output falls and incomes stagnate
everywhere. A lack of inequality in the UK would also
increase the incentives for top students to study
elsewhere and then move into work there too, this
essentially is a brain drain as the most capable workers
move elsewhere in search of higher incomes, leading
again to reduced UK output.
So inequality has grown massively, one major reason is
globalisation. Wages in developed nations are generally
higher than in developing countries, meaning that
unskilled labour is outsourced to these countries to
reduce costs for firms. Unskilled workers in developed
nations have to therefore compete with cheap foreign
labour meaning their wages fall.
But developing nations lack the highly skilled workers
that developed nations have in abundance, therefore their
jobs cannot be outsourced and their wages remain high.
This creates a divide between skilled and unskilled
worker income, which contributes to inequality. In
the past 50 years, huge advances in technology and
transport infrastructure have allowed countries like
China to export on a global scale, offering cheap and
unregulated labour to firms based in developed
nations.
Reducing inequality is not an easy task, and there is
no one solution. Fiscal policy is complex in itself
but by adopting a progressive tax system, countries
can alter the distribution of disposable income to
make it more equal. Standard regressive income tax
is simple, everybody pays a set amount or a set
percentage of their income, this is seen as equality
as every member of society is treated the same.
However, not everybody makes the same amount of
money, so a progressive system can be
implemented, where the poor pay a smaller
percentage than the rich because the rich are more
able to pay the tax and should therefore contribute
more, this is equity. Most rich countries have
adopted this kind of system, in the UK those on very
low income pay nothing but those earning over
150,000 pay 45% of their income above that level.
The tax revenue is then spent on public services or
distributed to those on lower incomes.
A recent OECD study on the effects of inequality
showed that by reducing the Gini-coefficient by 1
point, GDP would rise by roughly 0.15% per year
for a 5 year period, and roughly 0.1% for the next 25
years. Interestingly, different regions of the world
appear to react differently to inequality, European
countries grow much faster when the Gini
coefficient is roughly 20-25 but the Americas still
have positive growth around the 40-45 area. So
should we here in the UK care about rising
inequality? In short yes, greater economic growth
would be obtained if inequality was reduced to a
level similar to Germany, which would benefit
everyone in society.
41
RES Young Economist Competition Essay
srt
Low interest rates penalise the thrifty, so the sooner the Bank of England raises interest
rates the better
Jun 30th 2016 | Thomas Laver |
In March 2009, the Bank of Englands base interest
rate fell to 0.5%, after falling from 5.75% in July
2007, less than two years beforehand. This record
low interest rate has remained, and brought some
consternation from some savers, who complain that
their saving is being punished by the surprisingly
low depths of these rates: in fact, some have
calculated that it has cost them 160 billion
(Hargreaves Lansdown, 2016, cited in Osborne,
2016) in lost yield. This figure only accounts for lost
interest, but have savers really been penalised and
punished by these low rates? And who even are the
thrifty, and how do these low interest rates affect
them? This latter question is pertinent, as focus must
be on the thrifty in society, about whom no
assumptions should be made about financial habits
or assets.
So who are the thrifty in our society, and what do
they do? The Oxford Dictionary (2016) states that
being thrifty is just Using money and other
resources carefully and not wastefully, so in an
economic scenario this would mean that money is
used wisely and not wasted. It is important to note
that this contains no reference at all to saving, so the
thrifty may not be punished by low interest rates, as
they may not be saving at all. Recent research has
shown that 48% of households have less than 1,500
of savings, with 28% having no savings whatsoever,
and 60% have no investments of any type to speak
of at all (Financial Inclusion Centre, 2016). Many
see that the thrifty are instead the ones who need to
be careful with their money as they are the poorer in
society, suggesting that they will be part of this large
proportion of the population with little to no
savings: the thrifty are therefore unharmed by these
consistently low interest rates, having no savings at
all to lose out on. In fact, it is the wealthiest tenth of
households who own 45% of the countrys private
wealth (ONS, 2015), suggesting that in fact it is only
the rich who save and are therefore punished by low
interest rates.
These are not the thrifty referred to in the question, as
they can spend freely on expensive excesses and not lose
out so actually the thrifty are not punished, only the
rich.
We mention how many households have very little
savings, and part of this is because they also have large
amounts of debt. Recent studies found that there is
1,465.1 billion of outstanding debt in the UK which has
been calculated as 54,636 per household (The Money
Charity, 2016), of which the vast majority (1,284.4
billion) is in mortgages (Bank of England, 2016). These
mortgages and consumer debt is held by the poorer in the
society, who have to be thrifty to stay financially
afloat, and so the Bank of Englands low interest rates of
course help to keep this debt affordable (for both these
debt types). In fact, average mortgage rates have fallen
by 31% since March 2009, resulting in monthly savings
of over 270 on the average mortgage (Hargreaves
Lansdown, 2016, cited in Osborne, 2016), so the average
household has indeed benefitted from these low interest
rates. These are the thrifty who form the vast majority of
the economy, and so are truer representatives of who the
thrifty (and even other households) are, showing that
these low interest rates do not in fact penalise the vast
majority of people: only the rich who did not need debt
as they had savings already. This can be seen to have a
slightly redistributive effect for wealth in society, as debt
is kept cheap for the poor (helping them), while the rich
who save lose out (but can afford to), helping society to
become more equal in its distribution of wealth.
However, even the rich arent truly punished with these
low rates. As long as interest rates remain above the rate
of inflation, savings increase in quantity more than they
depreciate in value, so there is a net gain. As shown in
Figure 1, this has been the case since November 2014,
where CPI has consistently been far below the fixed
interest rates banks offer on peoples savings, and (as
seen in Figure 2) since December 2014 for the Bank of
Englands base rate, meaning that all savings are growing
at a faster rate than CPI inflation is reducing their value,
so no-one has been penalised for these low interest rates.
42
Englands base rate, meaning that all savings are interest rates have is beneficial for society as instead
growing at a faster rate than CPI inflation is reducing of penalising the thrifty, it allows them to benefit
their value, so no-one has been penalised for these low from cheap borrowing to increase in wealth faster
interest rates. than the rich, reversing this current perverse trend.
Actually suffering, or growing very slowly,
demonstrating that the gentle redistributive effect on
wealth that lower interest rates have is beneficial for
society as instead of penalising the thrifty, it allows
them to benefit from cheap borrowing to increase in
wealth faster than the rich, reversing this current
perverse trend.
Fig. 3: Median Wealth Amounts
Wealth amounts Jul '06 - Jun '08 Jul '12 - Jun '14 8-year growth
Less than 20k 7,500 7,800 4%
20k-85k 43,600 44,400 1.83%
85k-200k 140,100 138,500 -1.14%
200k-300k 246,300 245,800 -0.20%
300k-500k 381,200 386,300 1.34%
500k-1m 666,700 686,000 2.89%
1m+ 1,382,800 1,445,400 4.53%

Unless inflation considerably accelerates, which is

unlikely with forecast inflation beneath the 1% level
until at least Q2 2017 as domestic cost pressures
remain subdued and GDP growth has slowed,
(MPC, 2016), so these savings are still largely safe, as
savings rates still remain well above those for inflation
However, as has already been mentioned, the thrifty
(even if inflation exceeds the base rate, which as a
are not just those who are poor: it can be anyone who
minimum is often exceeded by banks), so savers have
uses their money wisely. Therefore, if someone
little to complain about in terms of being actively
thrifty saw that low interest rates were going to
penalised. This means that the wealth of the richer
impact upon their savings, would the wisest course of
households in society is only growing at a slightly
action truly be to save? This leads us to begin to
slower pace instead of being taken away, so the wealth
explore the extent to which the truly thrifty are
redistribution is actually just a chance for wealth
affected by these changes in interest rates as they are
catch-up a far fairer and morally beneficial thing for
wise with their money, and so may in fact decide to
society, while perhaps also stimulating growth if
invest, which is a profitable venture in these times of
Lansleys hypothesis is correct that equality could help
low interest rates. This is because low interest rates
to reverse the recession (Lansley, 2012). The necessity
have boosted confidence in markets by allowing firms
for greater equality can be seen in the Wealth and Asset
to borrow far more cheaply, encouraging strong
Surveys which have tracked household wealth since
business growth which has fed into increased
2006 summarised in Figures 3 and 4 which show
dividends for investors. Indeed, investing has netted
that the median wealth of the top wealth bracket is
on average an 87% return, or a 138% return if
growing far faster than all other ones, with only the
investors reinvested the dividends that they just
wealth of the absolute poorest in society increasing at a
received (Hargreaves Lansdown, 2016, cited in
similar rate (ONS, 2015). However, the average
Osborne, 2016), while the FTSE 100 has also risen
households wealth of 225,100 (ONS, 2015) is
from 3926.14 to 6138.69 since rates were set at 0.5%
actually suffering, or growing very slowly,
demonstrating that the gentle redistributive effect on
43
wealth that lower
(Investing.com, 2016), so investors in that index gained
an easy 56.35% return. Open market operations have also
meant that bond prices have significantly risen due to the
low base rates a mechanism that the financially thrifty
should know of. Therefore, because low interest rates
have been conducive to large investment returns, the
truly thrifty should have invested rather than saved, as
this is the using money carefully which is their key
characteristic, so through their ingenuity and financial
wisdom the thrifty are not penalised by low interest rates,
instead greatly benefitting from conditions encouraging
business growth.
However, low interest rates also affect the property
market: another significant influence that they have on
households. As has already been mentioned, low interest
rates result in cheaper mortgages for most households,
which is very beneficial for many mortgage holders who
then have far more disposable income. However, the
inexpensive nature of mortgages does present other
problems to households especially the worse off in
society as it leads to a significant rise in demand (and
therefore prices) in the housing market. Since March
2009 average house prices have risen just over 56%
(ONS, 2016), with prices in London rising higher to just
under 88% (Nationwide, 2016) as the demand for
housing has increased while the housing supply barely
changed: dwelling numbers increased only by c.3% since
2009 (Department for Communities and Local
Government, 2016). This is also due to the Buy to Let
bubble the government has caused, unnecessarily
pushing up demand for housing. This has not been
wholly beneficial to many renting households a fast
growing element of the population which has reached
over 8 million households (more than a third of the total)
(DfC&LG, 2015): generally perceived as a less wealthy
portion of society. This is because rising house prices
make housing a more valuable resource, so landlords can
easily charge renters more, leading to the rapid rises in
rents of from 105.65 to 136.24 per week (28.95%
growth) that has been observed nationally between 2009
and 2014 (DfC&LG, 2015) and is shown in Figure 5.
This means renters are paying (on average) half
of their take-home income on rent, with the 16-24
age bracket bracket even spending up to 81% on
rent including housing benefits that they receive
(Osborne, 2015). These woes are felt by the least
wealthy in society who cannot afford to buy a
home, so the thrifty that need to be financially
careful are hardest hit by the rising rents
indirectly caused by persistently low interest
rates. This would suggest that the Bank of
England should raise interest rates in order to
alleviate hardship caused by these rising rents,
which disproportionately penalise the least
wealthy households who then need to be thrifty in
order to survive.
The effect of interest rates on the economy also
significantly affects whether the thrifty are at all
penalised. One of the primary reasons for such
low rates recently has been persistently low
inflation, which low interest rates have been
attempting to increase through monetary
stimulus. This can be seen in Figure 6, which
demonstrates that CPI inflation has been
consistently below the 2% target set for the Bank
of England since January 2014, and even below
the acceptable 1% range since December 2014,
leading to deflationary risks and certain instances
in April, September and October 2015 where
inflation did indeed become negative.
The Bank of Englands base rate has needed to be
at such low levels to ensure that inflation does
not fall even further (which could cause a
deflationary spiral), as the low rates help to
stimulate inflation by discouraging saving and
encouraging spending in the economy, to drive
prices higher.
44
While deflation may indeed seem positive for
thrifty savers as their savings then increase in deflationary low interest rates are in fact justified, as they
value over the time the detrimental effect that it
has on the size of debt in fact negates this, as
deflation also makes debt (not just savings) more
expensive.
As has already been mentioned, debt in the UK,
with the average household having over 54,000 of
it, so if this increased due to deflationary pressures
there could be a serious debt crisis, with people
defaulting on debts and going bankrupt attempting
to meet repayments, worsening the current situation
in which already 226 people a day on average
declare insolvency (The Money Charity, 2016). This
would mostly affect the poor thrifty, who hold a
significant proportion of debt in the UK (Wolff,
2010, cited in Durden, 2013), while having very
little savings, wealth or income, meaning that they
will especially struggle to service this debt with it
constantly increasing in value, a struggle which
would be worsened if they were also laid off due to
another side effect of deflation: real wage
unemployment. This occurs when instead of cutting
wages to reflect any deflation (which workers
illogically resist), employers instead lay off workers
to keep labour costs the same, making the problem
of servicing debt even greater as households then
have no income, and as they also have no savings
they are unable to meet repayments and must
declare insolvency. Such a large wave of insolvent
households would obviously hurt the economy, as
insolvent households have lower consumption,
harming consumer spending and lowering aggregate
demand: possibly causing economic shrinkage and a
recession. This effect is exaggerated by the fact that
consumer spending is generally discouraged anyway
during a deflationary period, as falling prices
encourage consumers to constantly delay spending,
leading to a significant fall in GDP and a deep,
damaging recession such as Japan has suffered
(Takeshita, 2009).
As demonstrated, deflation is severely detrimental to
the thrifty and to the economy so all households
suffer so it should be avoided at all costs,
especially as deflation is often very retrenched and
difficult to reverse, so prevention truly is the best
policy..
This would suggest that the Bank of Englands anti-
provide a monetary stimulus to the economy to attempt
to increase inflation through growing domestic demand:
a venture which has indeed helped domestic demand to
grow constantly since the base rate was set at 0.5%
(MPC, 2016). Therefore, instead of punishing the thrifty,
these low interest rates in fact help them by saving them
from insolvency, unemployment and an economy in
recession, and so any increase in the base rate would (by
significantly increasing the risk of deflation) hurt these
households.
It is easy to see why many savers who consider
themselves thrifty feel victimised and penalised by low
interest rates: they very simply arent earning quite as
much on their savings.
However, these claims of suffering due to low yields
arent wholly correct: the Bank of Englands 0.5% base
rate is justified, and helps every household whether
thrifty or not to survive financially by averting the risk
of deflation, one of the main reasons for the rates being at
the level they are. For the poor thrifty the benefit of
cheap debt is also added, helping them to stay more
financially solvent and able to cope with their current
(large) debt burden. The financially sensible thrifty
which many associate as being savers (inaccurately)
also benefit from low rates encouraging significant
business growth, yielding significant investment returns
to households who wisely place their money in funds or
bonds rather than saving accounts. Furthermore, as rich
savers are slowed down in their wealth growth while the
poor are able to benefit from cheap debt with low interest
repayments, greatly beneficial gentle wealth
redistribution occurs, leading to a fairer society.
Arguably, these benefits outweigh the low yields and rent
growth that has been caused by low interest rates, as 29%
higher rents is only a small price to pay for such large
investment returns, cheap debt, a functioning economy,
and an overall fairer society. Therefore, the Bank of
England have been justified in keeping interest rates at
0.5% a balance of large economic benefits with
minimal negative effects for the thrifty and should keep
them at current levels until high inflation again threatens
to become a problem in order to maximise benefits, and
avoid actually penalising the thrifty.
45
The previous essay was shortlisted by the Royal
Economics Society in its Young Economist of the
Year Competition of 2016 beating thousands of
other entries for a spot in the top 50 articles.

46

Renewable Energy: Can the Market do it?
Can the free market produce enough renewable energy to satisfy demand?
June 24th 2016 | Aaron Kiernan|
We all know about the problem. Most of us choose
not to deny the existence of the problem. It is the
problem - more than war or plague - most likely to
put an end to us.
Climate change.
You could be forgiven for thinking the battle was
won and that fossil fuels had already thrown in the
towel. This was a year in which the media have
bombarded us with articles about record breaking
investments ($285.9 billion in 2015) in renewable
energy capacity and many huzzahs were had after
the agreement at COP21 to limit global warming to
1.5 degrees celsius.
Champagne was popped open. Politicians clapped
each other on the back and vowed to press on and
save the planet!
But has anything actually been done?
The short answer is no. In fact, in many ways weve
moved backwards. In Europe at least, Right-wing
governments have obliterated subsidies for
renewable energy (whilst neglecting to interfere
with fossil fuel subsidies), hacked away at Carbon
Capture and Storage (the scheme was scrapped,
causing the UK government to have to hand over
thirty million pounds without anything being built)
whilst rolling out new subsidies for fracking, which
succeeds in attacking the environment on two fronts:
Toxic water and emissions.
Technology
Ironically much of the momentum for renewable energy
is now being driven by China, in an embarrassing
reversal for western countries, most of which
acknowledge climate change but do nothing about it and
some of which (especially the US) contain strong
political movements that completely deny climate change
and cite supposed benefits of increased carbon levels in
the atmosphere. China is cleaning up its energy not out
of perceived duty to the greater good but because the air
pollution has become so catastrophic that bricks can (and
have) been made by sooty air in the main cities.
The critical question that must be asked about renewable
energy is as follows: Can the market produce it fast
enough without government intervention? If it cant, how
do we regulate or influence the market to ensure it does,
especially while grappling with the most powerful and
entrenched lobbying force in the world?
This year, investment in renewable capacity has far
exceeded investment in fossil fuels, but it still only
makes up 19.2% of our capacity. This is still
commendable: this level of power generation would have
been unthinkable ten years ago.
More than 146 gigawatts of renewable capacity was
added in 2015, the largest increase ever. The renewables
industry now employs slightly over nine million people
worldwide (every unit of renewable power generated
creates more jobs two to nine times more jobs than fossil
fuel generation), mainly in China, India and the US.
But questions must be asked. The growth of renewable
energy has been amazing. But before we can become
complacent, we must first understand why there has been
a boom.
This year has included vast subsidy cuts for renewables,
increased subsidies for fossil fuels and crashing oil
prices. The combination of these three factors ought to
have dealt a crushing blow to the burgeoning renewable
industry. It failed to. As economists, it is critical we
understand how the renewables industry has survived -
and thrived - under these conditions.
47
In many ways, the future is bright for renewable
energy. The US Energy Information Administration
recently published its report predicting that
renewable energy costs per unit over an assets
lifetime would be less than 40% the cost of the Coal
power station that could be built instead.
Considering the EIA has been constantly and
severely criticised for over-estimating prices of
renewable energy, this is a significant statistical
move. The IMF and the World Bank are each
pursuing their own strategy to further a green
economy, with the World Bank funding developing
world green projects and the IMF providing
technical assistance to governments that want to
reform carbon taxes or create carbon-trading
schemes.
Many large governments are finally starting to
mobilise. The Chinese government has unveiled a
huge range of reforms in their most recent five-year
plan, which targets the climate. These include
banning commercial deforestation, evaluating
officials performance based on how well they
protected the environment and electric cars to be
further pressed into service at the expense of the
heavily taxed petrol variety of vehicle. Perhaps most
importantly, a real-time emissions monitoring
system is to be set up, which will record and charge
all firms with static emissions sources of any kind.
European action on the issue has been very
lackluster in response. The UK has decided to
continue its strategy of axing subsidies and any kind
of reform, complaining about renewables (while also
shying away from two large Nuclear plants) and
continuing to press for fracking to go ahead, against
the wishes of the vast majority of the population,
every health study ever done and the advice of
numerous scientistsAnd common sense.
However, despite (or perhaps because of) the UKs
ability to stick its head into the sand, other European
nations have done much better. Sweden is investing
hundreds of billions of pounds into being the first
industrialised nation with 100% renewable power,
with Denmark and Germany not far behind. France
is continuing to support Nuclear energy, which -
whilst not ideal in the long term - will at least deal
with the problem of emissions quite effectively.
However, it is time to address the elephant in the room.
A single country responsible for using 22% more energy
than all European Nations combined, despite having half
the population. The USA. With the Republicans (a party
that denies the existence of climate change using such
excellent scientific proof as snowballs brought into
Congress) set to maintain dominance in Congress and
potentially the Senate, any attempt to institute federal or
local policies in support (or tolerance) renewable energy
will be met with stiff resistance. Those unit costs for
renewables (taking into account the original cost of the
asset) will be so much cheaper in the future is a very
good sign. It also can't be denied that there is more than
enough untapped capacity in place for a 100% renewable
energy economy. In one (accessible) region of the Rocky
Mountains alone, there is enough wind power potential to
provide the US with energy three times over. Renewable
energy sources can also be conveniently located (and
provide the most capacity) in many of the areas of the US
where people would lose jobs due to the phasing out of
fossil fuels. With all this in mind, why has the US
government done nothing to address the threat? The
answer is simple. Renewable energy is facing the world's
most powerful lobby. Oil, Gas and Coal companies spent
a over a billion dollars lobbying for favourable
regulations, increased subsidies and an effective carte
blanche to destroy the environment in the US alone.
Plummeting oil prices and impassioned right-wing
rhetoric threaten all the progress that has been
painstakingly made.
At this point, all the economic benefits of renewable
energy to host countries are obvious: it employs more
people per unit of energy than the fossil fuels, has lower
per-unit costs and dont destroy habitats or contribute to
the global catastrophe currently brewing. Even Shell is
experiencing unease, with a shareholder revolt
demanding divestment into green energy and away from
oil barely defeated earlier this year.
At this point, the market will produce a green energy
economy on its own, given time. If governments refuse
to help, there will be dire consequences for the planet.
Island chains will flood and millions of homes may be
destroyed. If they do help, the transition can be beneficial
and painless.
If theyre willing to accept those losses, they just need to
stay out of the way and reduce the $493 billion subsidy a
year paid to the fossil fuel industry worldwide.
48
Can we live on the moon?
How long will it be until science makes lunar settlements economically feasible?
September 24th 2016 | David Van Egghen| Old Olavian
When British Astronaut Tim Peake was asked in
his first interview aboard the International Space
Station about the establishment of a human colony
on the Moon, he declared it a great ambition and a
necessary stepping-stone to Martian colonisation.
He is absolutely right. The dream of a moon base
has held the public and scientific imagination since
the start of the Cold War Space Race. An
unfortunate lack of investment in lunar exploration
from the 60s to the end of the Cold War means we
are unfortunately behind on the dream that Arthur
Clarke first predicted in 1968 that man would be
living on the Moon by 2001.
As I sat in the midday Tanzanian sun reading 2001:
A Space Odyssey, a year and many miles from the
trials of sixth form and UCAS, I imagined Clarkes
moon bases and super intelligent and murderous AI
and felt disappointed by the lack of progress we
have made in this direction. Though perhaps I can
pass on the development of the latter technology.
There are a few ways in which a permanent lunar
settlement may be achieved and several functions
for which it may be used. One likely scenario is that
of a national military base. In the tension of the Cold
War, the opposing superpowers of the USSR and the
USA laid down fleshed out plans for long-term lunar
habitation. Project Horizon, developed in 1959 by
the US Department of Army, was a plan to create a
nuclear fission powered US military base on the
Moon before the Russians could so as to maintain
American space dominance. Two years later the US
Air Force called for a 21-man base to be built by
1968, dubbed the Lunex Project.
Yet these military bases are rather less likely in the
present day. The Cold War is over and there simply isnt
much of a reason for such a project. Horizon was driven
by a desire to supersede the Russians in the Space Race,
to establish dominance and to safeguard against a
possible enemy moon base. Given the current level of
interdependence in the space sector with manned
missions to the International Space Station requiring
astronauts and technology from the USA, Russia, and
Europe, one nation achieving a Moon base for military
purposes would be very difficult financially and
diplomatically.
One type of colony we could expect to see would be an
eventual tourist and settlement destination for civilians.
However, for this 60s pipe dream to be even remotely
feasible we would need an extensive period of scientific
development in this area. The 1967 Outer Space Treaty,
signed by 129 nations, states that outer space is not
subject to national appropriation. In other words, a
country cannot own land on the Moon as celestial bodies
are deemed the common heritage of mankind. The
treaty says nothing about individuals or corporations
staking claims to land and moving in. You can in fact
purchase areas of land on the Moon, Mars, or even Venus
(if you really have money to spend) online. The difficulty
with that of course is that for your claim to be recognised
you would need the power of nation states or
supranational bodies such as the UN to support and
enforce your claim for you against other individuals. For
example, Gregory Nemitz, a US citizen, discovered the
asteroid Eros 433, which contained nearly 500 quintillion
dollars of Platinum. Therefore, he claimed it belonged to
him. When NASA landed a probe on the asteroid,
Nemitz sent them a parking ticket for $20. Needless to
say NASA refused to pay, as the US could not recognise
Nemitzs claim under the Outer Space Treaty. We dont
really know how to apply property laws to space, and
some scientists such as Dr. Catherine Doldirina have
suggested that regarding of space as common property
has retarded exploration.
This is partly because the Treaty can be interpreted to
demand equal access to resources in space.
49
Building a mining outpost or settlement may violate
this principle, as it would prohibit others from
accessing these resources. A similar arrangement
exists over Antarctica. Indeed the Outer Space Treaty
was based on the Antarctic Treaty. This treaty
declares that the continent is never to become the
scene of international discord.
For this reason, the Antarctic, unlike the Arctic, has
seen virtually no development of any sort, while the
latter has seen a boom in mining and resources due to
the financial incentives to explore the land.
The prospect of a commercialised and resource-
driven space age where one could live on the Moon,
mine asteroids, or take a space cruise therefore seems
distant at best and virtually impossible at worst. We
do not yet have the technology or the capability to
start pushing the validity of the Outer Space Treaty in
the real world in a way that might lead to the Treaty
being overturned for another set of common law
promoting the ability of individuals or nations to own
areas of space for themselves. One thing that may
change as a result of this is a relaxation of the laws
forbidding the damaging or contamination of a planet,
moon, or other body, because this is seen as
damaging the common property of mankind and
ruining the resources for others.
Whether this would be a good thing or not is up for
discussion in the next few decades and more. On the
one hand, the effective privatisation of space would
enable vast amounts of development and
commercialisation. Illustrious billionaires like Yuri
Milner or Elon Musk are already trying to crack
interstellar travel and commercial spaceflight
respectively with private endeavours. Once the
trailblazers make the area more profitable and lower
the cost, many more companies and individuals
would likely fill the new market. However, there is
the issue of what happens if there is any sort of life on
other planets either sentient or microbial. This is
one of the reasons for environmental protections, as it
would be a disaster to ruin the isolated ecosystem of a
planet for our own purposes. For this reason, craft
have to be thoroughly sterilised on missions in case
they introduce Earth life into another planet. If space
were opened up to private exploration, these
restrictions would either have to be relaxed (perhaps
only to include areas with a high chance of life) or
largely ignored given the likely difficulty of
interplanetary policing.
Whether this age of colonisation will occur in our
lifetime is uncertain. The necessary technology can
only be developed through scientific missions,
which will take several decades at least.
The most likely way in which a human lunar
settlement could be established is for the purpose of
scientific exploration. For any missions beyond the
Moon, only robots and probes have been used for
exploration and discovery. Robots do not require
food, water, air, psychological stability, and (barring
technical hitches) they are far less prone to mistakes.
Most of the time, they do not even require warmth.
For a clearly defined mission, such as collecting
rock samples, drilling soil, and performing analysis,
a human is an unnecessary complication to the plan.
Yet having a person or two at the wheel is not
always a hindrance. There are many things that can
only be done by the most versatile of computers
the human brain. Only people can react and adapt
quickly to precarious environments and situations,
so it would certainly be beneficial to create a
permanent lunar outpost to maintain a long term
human operation.
There are two ways in which a lunar settlement
could be achieved for scientific purposes: by
national and international publicly funded bodies
such as NASA and the ESA, or through private
companies like SpaceX. A combination of the two
may be the best approach. Firstly, publicly-funded
institutions have a key advantage since their
missions do not require there to be immediate profit
in order to get funding. This is beneficial for science
- many space-faring endeavours do not have an
immediate commercial benefit. However, most
space missions have led to a great deal of
commercial benefit in the long-term as a result of
the technology developed for the missions,
including LEDs, freeze drying technology, and
water purification. Many more concepts and
products have also spawned entire industries. State
funded exploration lets us perform more obscure
scientific missions with little or no profit beyond
improving our astronomical knowledge. Private
endeavours will only come into greater prominence
when public missions and a few breakthrough
companies make the process of space flight or travel
commercially viable.
50
One great example of this is the pursuit of reusable,
cheap, and efficient rockets by SpaceX.

This technology, created by the drive for lower

costs, can be used by public bodies to make their
missions cheaper more missions with the same
budget.

Private space companies like SpaceX will begin to

focus on space tourism rather than science missions.

For lunar tourism to be a reality, the foundation for

the necessary infrastructure (most likely comprising
water systems, food sources, oxygen, heating, and
so on) will need to be laid first by scientific
missions that give us the knowledge and means to
find solutions to these problems. Perhaps, one day
when there is a small outpost of scientists la the
ISS living on the Moon, with oxygen, water, and
food supplies either provided through easier drop
offs (at first) and then by harvest and purification,
we will have the infrastructure for lunar tourism to
be practical. And one day, perhaps enough people
will decide to retire in their new holiday destination,
and we will see the street lights of Tycho Crater
City on a new moon night.

51
The Economic viability of Trident
Do we still need Nuclear Deterrence?
Sep 4th 2016 | Qais Zaidi |
The Trident nuclear programme was first
conceived in 1980, as a means to deter the most
extreme threats to [Britains] national security and
way of life, which cannot be done by other means,
as stated by the Ministry of Defence1. As of 1996,
four Vanguard-class submarines armed with
thermonuclear ballistic missiles have been operated
by the Royal Navy to maintain a nuclear deterrence
and allow means to deliver modern nuclear weapons
from within the United Kingdom. Tridents
acquisition in the 1990s cost a mighty 18.35bn
(inflation adjusted), and its yearly operation
accounts for about 5% of the annual defence budget
with a weekly running cost around 2bn: this is
equivalent to the amount spent on our National
Health Service2.
So, with Tridents replacement set to be constructed
for about 40bn; the discussion remains: Is our
nuclear deterrent system economically viable?
Deterrence theory Why we need Trident:
To debate this question an understanding of the
basis of Tridents implementation is needed.
Deterrence is a strategy using threats intended to
dissuade an adversary from initiating any drastic
actions3. In the case of nuclear deterrence, this
means a smaller nuclear arsenal, with devastating
power regardless of size, can deter a more powerful
adversary; assuming the arsenal wont be eliminated in
any said attack. In order for deterrence theory to work,
the threat of either side must be believed to be credible
i.e. that they are both willing to take drastic action on one
another, and must always be at the ready (but never
used)4.
Deterrence theory is closely linked with game theory,
using rational choice and assumptions as models for
decision making. The theory goes that if one state attacks
another, the other is most likely to retaliate too, so that
the neither state benefits from doing so. If one state has a
nuclear arsenal and the other does not, it can attack
without credible retaliation thus reaping full benefits.
Therefore for equilibrium if one state has a nuclear
arsenal, then so must the other so they both refrain from
attacking one another and prosper accordingly. This
follows the theory of Mutually Assured Destruction
(MAD) whereby the use of nuclear weapons by two or
more opposing sides would lead to the total annihilation
of both sides thus creating a Nash equilibrium strategy
where upon becoming armed neither side is incentivised
to initiate conflict or disarm5.
However, the theory of MAD contrarily negates the
effect of Nuclear Deterrence in a way. This is because
despite the physicality of a nuclear arsenal existing, the
state using it must be willing to use it in order for the
threat to be credible. Some who ethically object claim the
UK should never be a country willing to threaten or
inflict catastrophic devastation on an adversary with
nuclear weapons even in the most extreme
circumstances and if we ourselves were attacked as the
humanitarian consequences of doing such would be so
grotesque as to be unfathomable6. For example, current
Labour leader Jeremy Corbyn has claimed he would
never use Trident under any circumstances as he could
never be the one to push the nuclear button.
Deterrence can also branch into two categories direct or
extended for whether it prevents attack in ones own
state or in an allys3. Because of this, some argue that we
52
dont need our own nuclear deterrent as we are
protected through extended deterrence from the
USA or Frances nuclear arsenal. However, this is
making strong assumptions on the USAs
commitment to the defence and security of Britain1
and upon the result of our recent referendum to
leave the EU, the likelihood of France providing us
with nuclear deterrence is much less so. Any
opposing adversary not believing our allies to pose
a credible extended deterrence for us whether or
not they actually do leaves us far more vulnerable
to attack.
So, by view of deterrence theory, it is crucial that
Britain maintains the Trident programme so that
equilibrium continues; although one might point out
that an ultimate and cheapest solution would be for
total global disarmament. Unfortunately this is
unviable due to its sheer difficulty and a reliance on
too much trust in the highly unlikely situation of
getting two opposing sides to agree to disarm, one
(or more likely both) may bluff and keep some
weapons assuming the other does not know the
true size of their arsenal in order to gain a clear
edge over the other in military power, or ironically
if they presumed the other to be feigning their
disarmament they will keep a few weapons just in
case this is true. Now nuclear weapons exist, its
near impossible to remove them all.
Arguments against Trident:
One major argument against Trident and its
replacement is the cost of the programme. The
expenditure of 40bn on the new programme
designed just in case of a potential threat could be
seen as simply ludicrous, as an uncertain future
threats environment on which the submarines are
being operated could mean a future with no threats
arising at all; meaning the money was all wasted6.
Some even argue the possibility of a threat within
the submarines future is so low its not at all worth
taking the risk now. Those strongly against Trident
have theorised that combined with the operational
costs over its lifetime, the total expenditure on
Tridents replacement may come to 205bn; and
this incurs a very large opportunity cost. The
Campaign for Nuclear Disarmament7 claims this
money could instead be spent on building 120 new
state of the art hospitals for the NHS and employ
150,000 nurses, or on building 3 million affordable
new homes, or to pay the tuition fees for 8 million
students across the country. What these figures are
based on is unknown but the reality remains that the
programme is massively expensive, and should no threat
or real use come for them over their lifetime such money
could be used to fund the UKs other important sectors
to potentially much greater benefit.
On the other hand, the Trident programme does provide
Britain with about 15,000 highly skilled and specialised
jobs, and there are major fears that if we were to scrap
the system this would leave them occupationally
immobilised6. Not only this, with the renewal underway
thousands more jobs are to be created for construction,
engineering and design works. Trident may be expensive
but it keeps these workers employed, so its hard to tell
the true benefit of scrapping the programme and using
the money elsewhere. Furthermore, there is a large cost
to scrapping the programme in itself: 4bn over several
years2. Some may argue there is a sunk cost fallacy to
Trident here as it costs so much time and money to
scrap, why not keep maintaining or updating it, whilst in
reality the costs of maintenance are far greater than the
cost to scrap it. However, if it is scrapped and for
whatever reason global tensions rose to the point it
seemed useful to rebuild a nuclear deterrence not only
could this take an extensive amount of time (which may
be critical at such a point) the cost would be greater than
had the old deterrence system have been kept in place
and to make things worse, the action of building a new
nuclear deterrence could be seen as escalatory in a crisis,
thus potentially creating major destabilising risks which
are arguably inconceivable to take1.
Another major argument against Trident is that there are
bigger immediate threats to the world than nuclear war,
and that technologies might surpass our systems to
render them defunct. The Governments National
Security Strategy recognises international terrorism and
cyber attacks as greater threats than nuclear war; thus the
defence budget should be spent in these areas rather than
on less necessary or obsolete weapons. They could spend
it increasing our conventional arsenal and forces to
counter terrorism or provide a deterrent to that specific
53
threat, or on training new workers on countering submarines and a government split on whether they
hacks and cyber assaults cyber assaults which could actually use them in a crisis, as it stands I believe
could also potentially hamper or disable the Trident is perceived to be a credible deterrent to the rest
computational or electronic capabilities of Trident of the world simply as the risks of using nuclear
and its successor, rendering it obsolete. Not only weapons by any country onto another which possesses
this, but some fear that underwater drones are in them are far too high to rationally take; and as our future
development by various militaries to counter and becomes increasingly uncertain and ultimately
destroy submarines undetected; once again stunning unpredictable its absolutely critical we keep the system
the feasibility of our systems7. active, as the most extreme potential costs incurred due
to not possessing it far outweigh the current cost of its
However, the Ministry of Defence themselves have maintenance and existence in any case.
responded to such concerns1 regarding upgrading
conventional capabilities: they claim conventional
forces cannot deliver the same deterrent effect
necessary to deter threats from others possessing
nuclear weapons; and that investment in Trident
does not come at the expense of the conventional
capabilities of our armed forces. They also believe
that submarines remain by far the least vulnerable
platform of those available for nuclear deterrence,
and that it is highly unlikely any radical
technological breakthroughs may come in the near
future which can displace the advantages of using a
submarine system rather than strategic air bombers
or stationary Intercontinental-Ballistic-Missile
(ICBM) bases.

Russian ICBMs an alternative to a submarine

based system.

Conclusion:
In conclusion, there are strong arguments on either
side for whether Trident remains an economically
viable system. Whilst we need a nuclear deterrent to
maintain equilibrium with all potential opposing
adversaries to prevent the most extreme threats, its
questionable whether our deterrent is even credible
in the first place, or whether the global state is such
that no extreme threats can be predicted to come in
the foreseeable future thus all money being spent
54
on it is wasted. Despite new emerging technologies
which could potentially mitigate the use of
The Economies of Digital Currency
Do digital currencies like Bitcoin have the potential to change the global economic order?
October 20th 2015 | Tanvi Aggarwal |
Walk along any high street and youll see several
banks, all offering a variety of services. Although the
public have mixed opinions about their reliability, it is
generally accepted that they are the best way to
manage and transfer money.
The current method that we use for managing
currency and assets has been around since the 1300s.
It was originally pioneered by the Medici family of
the Florentine Renaissance, who identified that there
was a fundamental need in society for an intermediary
body between savers and borrowers so funds can be
efficiently transferred to those who need them. They
started providing these services by taking in the
excess capital of the former to loan out to the latter,
all in exchange for a fee. They also started keeping
general ledgers, which are complete records of
financial transactions. This new service not only
created a network efficiency, but also had the effect
of producing a new centralised system of trust, as
strangers who previously had no way of trusting each
other could now do business with the aid of a third
party.
The Medici familys new method of sharing funds not
only provided opportunities for money creation and
massively boosted the economy, but also put the
banks in an incredibly powerful position, as economic
agents became more and more dependent on them
because economies became increasingly intertwined
and globalised. Eventually no one had any choice but
to deal with a bank, regardless of what side of the
exchange they were on. This dependence could very
easily become dangerous, as proven to the world by
the disastrous aftermath of the Financial Crash of
2008.
Enter Bitcoin. The solution this new technology provides
means that the intermediary can simply be cut out, as its
Blockchain (the name of the technology used to publicly
display ledgers) and online anonymity allows complete
strangers to conduct business with each other without
any issues regarding trust. This means that in theory
there are no banks or any other regulatory bodies
required in a community using only Bitcoin.
The intermediary (banks) can simply be cut out
By eliminating intermediaries and their fees, the use of
Bitcoin and other digital currencies can not only reduce
time taken and cost to do business, but can also remove
corruption inside banks as well as from the politicians
who inevitably become involved. The transfer records
that were previously hidden within large corporations are
now completely open to the public, as Blockchain
technology means that every account each coin has been
in is displayed and unforgettable, which prevents fraud.
Digital currencys potential to enforce transparency and
accountability has made it incredibly popular, with many
of its supporters, mistrusting of large banks and other
corporations in the aftermath of the Financial Crash,
seeing it as a way of shifting control away from the
dominant elites and back to ordinary people.
However, there are some major obstacles that need to be
overcome if digital currencies are to become the norm.
Firstly, they suffer from a major image problem, as they
are often tied to illegal activities such as the online drug
organisation Silk Road, which makes it more difficult to
then present them as a legitimate financial option for
people rather than just something that enables crime.
Furthermore, as with any new technology there is the
issue of people needing to learn how to use it, which not
everyone is willing to do. Unlike other technology, it
cannot work without a large number of users as a
community is required for a currency to operate. This
poses a problem as a large number of people are unlikely
to use it unless they see it working.
Despite their pitfalls, there is definitely massive potential
behind digital currencies. If they continue to grow at the
rate that they are currently they could very easily render
large corporate banks obsolete, and completely change
the structure of our economy for the better.
55
 Game Theory
How does Game Theory enhance our understanding of economic agents behaviour?
Dec 29th 2015 | Tanvi Aggarwal |
Game theory is the study of mathematical models of below:
conflict, or games, and how interactions between
rational decision makers affect the final outcome of
the situation. Game theory suggests that the majority
of situations can be treated like a game with a
limited number of players, strategies and outcomes.
The resulting outcomes are dependent on the
strategies employed by each player, which the
effectiveness of can be ranked according to their The names of the different strategies are denoted with
payoff for the player.
It was first founded as a field of mathematical study
by John Von Neumann, who was a Hungarian
mathematician, who also saw its many applications to
economics. He formulated many theories related to
the field, the most notable of which is the Minimax
Theorem. This states that in zero sum games with
perfect information, there is a pair of strategies for
both players that allows each to minimize their
maximum losses (hence where the name came from).
A zero sum game is a situation where the gains of one
player exactly balance out the losses of the other
player(s), and a game with perfect information is one
where all of the moves taken are known to all players
(so Chess has perfect information but Cheat does not
as players do not know for sure what cards other
players have played). The minimax value is written
as such:
Where:
i is the index of the player of interest.
-i denotes all other players except player .
is the action taken by player .
denotes the actions taken by all other
players.
is the value function of player .
An example of this can be seen in a game with 2 players,
and different strategies that they can play, as shown
the letters L and R for the column player and T, M and B
for the row player (note that the minimax theorem also
works without a zero sum).
The row player can get a value of 4 (if the other player
plays R) or 5 (if the other player plays L), so: .
The column player can get 1 (if the other player plays T),
1 (if M) or 4 (if B). Hence: .
However, using these values does not always provide
you with the best solution. For example with the game
above it would suggest that to minimise maximum losses
the best strategy for the column player would be L and
the best strategy for the row player would be B.
However this would end up resulting in a loss of 100 for
the row player, which is the worst possible outcome. For
this reason it was realised that more ways were needed to
calculate the best move while factoring in gains and
losses for both parties.
One of these methods was created by mathematician and
economist John Nash, who published the Nash
Equilibrium in 1950. This is reached when no player
has an incentive to change their strategy to increase their
payoff, which means that although it may not be the best
possible outcome for either individual player, overall it
gives the best balance for both of them, so if either of
them changes their strategy it would only result in loss
for them. The most common example of this is the
Prisoners Dilemma, which illustrates how people may
not act in a rational manner, even though it may be
mutually beneficial if they did.
56
From this it is clear that the best outcome for them
would be for both to cooperate and stay silent.

However, both of them have the opportunity to

betray each other to improve their situation, as if they
confess they have the opportunity to walk free,
despite subjecting the other to ten years in prison.
Therefore, being selfish beings they would inherently
both choose to confess while expecting the other to
stay silent leading to five years in prison each.
Therefore the Nash equilibrium of the situation is
confess, confess, as neither player has a
motivation to change their strategy to increase their
payoff, even though it may not be the most rational
solution to the problem.

Methods like these are often used by game theorists

in real life applications. Obviously game theory is
useful in calculating moves and payoffs in classic
games like chess and noughts and crosses (and
famously poker, with the 2001 world champion
being a known game theorist), but also in other fields
of study. The prisoners used in the Nash equilibrium
can be replaced with rival companies to explain why
they constantly try and undercut each other by
lowering prices despite it being mutually beneficial
for both to agree on high prices, which makes it
useful for predicting moves in economics, so much
that the new Greek Finance Minister (Yanis
Varoufakis) chosen to help solve their current crisis
was a famed game theorist. Game theory is also
employed in evolutionary biology, to explain
predator-prey relationships and courtship behaviour,
and in philosophy in relation to peoples possibly
irrationally selfish behaviour.

As it becomes a more widely known field of study

and gains increased media exposure (as in the Oscar-
winning film A Beautiful Mind about the life of
John Nash), Game Theory has the potential to help in
efficiently navigating crisis situations to decrease
losses for everybody.

57
Happiness Economics and Policy Framework
How should happiness impact Economic policy?

July 26th 2016 | Advik Chaudhary

Richard Easterlin however founded the thought that
happiness increases with income up to a certain point. He
mentioned that this point was when basic human needs
were met. After necessity goods such as food and shelter
are available, happiness and income no longer had a
correlation. Easterlin then compared the happiness of
two separate groups of people over a life cycle and also
compared point-of-time data. One group included
people with a college education and the other group was
made up of people with just secondary school education
or less. The general trend observed was that the more
The field of happiness economics has grown educated group sees a faster increase in income than the
rapidly in recent years and some economists these less educated group. What he also found was that on
days are keen to answer an important question: Does average, people with higher incomes were on average
wealth lead to happiness or are quality of life and happier than people with lower incomes using the point-
well-being more important? A related question is of- time data.
whether happiness, welfare and economic well- However, if the happiness of the two groups were to be
being of a society should become key determinants plotted on a graph, using the longer-term life cycle data,
of economic policy. both groups would have the same gradient as happiness
What do we believe makes us happy? Is it good would increase or decrease at the same rate. This clearly
grades in school, getting a sought after place in a top showed that the rate of increase in income had no
university which is related to future economic well- correlation with happiness. The graph (showing the
being or is it hanging out with your family and change in happiness and income per capita in the United
friends? Is it travelling to exotic places, States from 1972-2008) above shows that even as income
experiencing new cultures or is it just being healthy? per capita increases, happiness is unaffected.
I guess that all of us want love, health and wealth to Easterlin offered an explanation for the above
live a full life; natural human aspirations that phenomenon suggesting that relative wealth and
statisticians are possibly not measuring. happiness are correlated. For example, if your income
This question about happiness was answered in the increased substantially and everyone elses income
1960s by Hadley Cantril, a social psychologist. He remained the same, how would you feel? Most people
conducted a survey from people spread across 14 would feel better off. However, if your income remained
countries with huge socio-economic and cultural the same, and the income of everyone else increased
disparities. These people were asked what they what substantially, you are likely to feel less well-off despite
they wanted out of life and what they would need to experiencing no change in your standard of living. This
be completely happy. The responses globally were then explains why, on average, people with greater
similar and the majority of people sought material incomes are happier than people with lower incomes as
goods, a higher income. Were the people who were they are comparatively richer. In terms of why happiness
surveyed correct? levels remain the same as time goes on despite income
increasing, as shown below in the graph, that has an
explanation too a similar income.

58
Generally, we compare ourselves with the people we .If this is the case, then should governments globally
meet frequently such as friends. It is becoming more refrain from implementing policies solely to improve
and more common that the people we associate with GDP per capita? Should they use the data presented by
are limited to those who have a similar income. As a Easterlin and recognize the importance of investing into
result, the comparative wealth people experience is social programs, health and education?
low. Due to the fact that the incomes of the people
Economic inequality is something that governments
around you are increasing at the same rate as your
around the world are very concerned about. As economic
own, your level of happiness remains constant. The
inequality grows, many positive things in society are
misguided belief that having more money will make
undermined such as life expectancy, social mobility,
you happier therefore is a result of people assuming
educational performance and economic growth. At the
that the income of other people will stay the same
same time, negative aspects of society increase such as
while theirs increases.
obesity, abuse of drugs, violence, teenage births and
Cantrils survey, mentioned at the start, also saw imprisonment rates. Social well-being is increasingly
people value health. Research suggests that people being hindered because of economic inequality.
who suffer from disabilities and long term injuries
An example of the successful implementation of
are significantly less happy depending on the
economic policies in consideration of happiness, welfare
severity of their condition and the way they are
and economic well-being of its citizens seems to be
treated by the people around them. This means that
Costa Rica. According to the Gallup world poll, Costa
people experience greater happiness from good
Rica is the happiest nation in the world whilst also
health than they do from money. This shows that
having one of the highest literacy rates in Latin America,
economic measures such as GDP per capita alone
a greater life expectancy than the United States (78.5
may not be suitable to measure the welfare of
years) and 99% of its energy coming from renewable
nations.
sources. It managed this by abolishing its army in 1949
However, Easterlins theory is very controversial and invested the military funding into social programs. It
and has been opposed a lot since it was published. is the first government to commit to being carbon neutral
Many economists argue that there is a direct by 2020. In contrast, the United States saw a massive
correlation between GDP and happiness. For increase in GDP per capita between 1946 and 1970 but
example, Betsey Stevenson said that there was a happiness remained almost exactly the same and even
clear relationship between happiness and income as decreased between 1960 and 1970.
the wealthier people in society are the happiest in
The definition of progress for many nations after World
society and this happiness increases steadily when
War II has typically been a financial and economic one.
income does. She argues that there is no wealth
The above two examples of Costa Rica and United States
threshold where people do not get happier anymore.
suggest that economic policy focused solely on growth of
Robert Kennedy however once said that the gross
GDP may not result in social well-being of the society
national product (GNP) measures everything except
59
that which makes life worthwhile
and increasing their happiness.

According to an article in the Guardian written by

Christian Kroll, the influential Stiglitz-Sen-Fitoussi
commission, which inspired a number of national
initiatives around the globe to redefine our
understanding of progress concluded in 2009 that
indicators of subjective well-being hold the promise
of delivering not just a good measure of quality of
life per se, but also a better understanding of its
determinants. A study by Kroll further revealed that
the role of three very important development goals -
namely income, health and education - in
determining people's life satisfaction varied
significantly across nations.

Bruno S. Freys research into Happiness has the

potential to change economics substantially. New
insights into how human beings value goods and
services and social conditions that include
consideration of such non-material values as
autonomy and social relations are being developed.
Frey considers that governments around the world
can provide the conditions under which people can
achieve well-being, arguing that effective political
institutions and decentralized decision making are
likely to play crucial roles.

It may be the case that the flawed measure of GDP

as an indicator of progress is replaced with a more
holistic measure of national happiness in the near
future. However, one needs to recognize that there is
no one size fits all public policy that is expected to
be beneficial to countries across the world. Each
country needs to consider its own priorities,
customize its development goals and accordingly
choose the most suitable and beneficial public policy
framework for themselves

60
Credits

Head Editor Luke Smith

Editor Thomas Laver
Editor Tanvi Aggarwal
Editor Aaron Kiernan
Editor Amrit Dawood
Cover art Adrian Santhiapillai

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