The start of history Life as a start-up tech firm Brexit and Northern Ireland

Max Kendix Brij Kantaria Kardo Beck

A politics and economics publication Issue 7 Summer 2018

Compromise
Contents
LEADER: THE START OF HISTORY
Letter from the Editor Max Kendix, P3
Welcome to the seventh issue of The
Backbench, our politics and economics COMPROMISE IN:
publication. We must say farewell to The Rt.
Hon. William Atkinson, our former editor, as THE START-UP MARKET
he leaves the school with sprezzatura, intel-
lectual vigour and a free pass to Tory HQ. Brij Kantaria, P5
We are now welcoming a new dawn of ‘The BREXIT
Backbench’; a shift to the centre from the
two preceding editors’ Eurosceptic right-wing Kardo Beck, P9
bias, a very broad theme to encapsulate the
main body of articles, and the inclusion of NATIONAL SECURITY
economics perspectives on issues of the day.
Haris Zuberi, P13
As you’ll see on the back page, we continue
to welcome Letters to the Editor on any FOREIGN AID SPENDING
article from any reader, have now begun
verifying sources for articles, and are Joseph Morgan, P15
launching a website. Enjoy, and feel free to
disagree.
GOVERNMENTS AND MARKETS
Max Kendix, Lower Sixth Dilan Pindoria, P17
The Backbench On the cover SPANISH LEADERSHIP
Issue 7– Summer 2018
Front and back Isaac Bettridge, P21
Editor: cover cartoon:
INDIAN DEMONETISATION
Max Kendix Tanya Kendix
Mitul Satra, P23
Deputy Editor/Design:
Kardo Beck
SPECIAL RELATIONSHIP

Writers: Joseph Morgan, P25

Max Kendix, Brij LONDON’S HOUSING MARKET
Kantaria, Kardo Beck,
Haris Zuberi, Joseph Ayush Popat, P27
Morgan, Dilan Pindoria,
Isaac Bettridge, Mitul
Satra, Ayush Popat, PARTING SHOT; BELGIUM ISN’T
Xavier Stavrou-Long A COUNTRY
Special thanks:
Mr James Xavier Stavrou-Long, P30

2
The start of history—why the post-Soviet liberal
world order faces a bitter demise
Max Kendix
As the Berlin Wall fell, Moscow’s queue for
McDonald's formed, and Soviet-funded
African militant groups crumbled,
scholars, activists and Presidents saw a
new world order forming, based on liberal
Western values. The wind of change
brought with it great hope for open
markets and borders, and an international
consensus on respecting human rights.
Now, more than ever, the hope of an
interdependent, values-driven world has
been skewed, as we see interconnectivity
exploited and the United Nations
brandishing international confrontations as
a ’new Cold War’.
Why now, then, after liberal capitalism
has proven to boost prosperity, after
Western support has proven to establish
democratic institutions, do we see this
demise? Mainly, I would say, due to the
premise of that question being a blatant
lie - protectionism is more appealing than
ever, human rights are no more than a
hindrance to American and European aid,
and new types of conflict require new
approaches to economic management.
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The appeal of protectionism
The argument for free trade is simple—
you repeal all tariffs and industry
subsidies, and then by a theory of
comparative advantage, you specialise
industry to minimise prices all round,
trading with countries who can produce
goods you need more efficiently. Let
globalisation and the market run their
course.
That sounds all well and good in theory,
but in the real world, it suffers two major
downfalls. Firstly, when developing
countries trade with larger, ‘developed’
countries, there is a mismatch in quality
and efficiency of industry, and so the
more prosperous state can exploit its
advantage in trade, keeping a hierarchy
of international order. Under this system,
there is no opportunity for the develop-
ment of business locally, and if there is
any prosperity, it can only come through
large foreign companies setting their
own terms to work in the territory. One
need not look further that the Japanese
and South Korean automotive industry in
the 50s to realise that a large dose of
government intervention, including
subsidies, grants and import tariffs to
boost local production is often the only
remedy for a developing country.
The other reason the free, open interna-
tional markets idea is falling through is
Summer 2018 3
more political—the loss of a sense of
national sovereignty and pride in local
brands, combined with a formation of
trade ‘enemies’, with whom a deficit can
be perceived as weakness. This has been
more prominent recently in countries that
have already experienced high levels of
economic development. The election of so
-called ‘populists’ in Western democracies
has with it seen a drive for a more
resistant economy that is not dependent
on trade—in turn creating a self-sufficient
national identity.
That is true for the current President of
the USA more than anyone else—however
chaotic Trump’s administration may
appear to be, the tariffs, the renegotia-
tions and the reneging from international
obligations are all endemic of a state that
has had enough of what it sees as dishing
out help in the world for no return—a
sense exacerbated by events in Iraq early
this century and the still-burdening
financial crisis.
International aid
The ‘West’, broadly speaking the EU and
North America, when providing financial
aid to developing countries, has increas-
ingly been setting pre-conditions; the
country must meet a certain standard of
human rights and environmental policy as
dictated by the West.
China, on the other hand, doesn’t bother
with such minutiae, and lends out billions
of dollars annually to impoverished and
corrupt African and South Asian nations in
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the hope of some long-term influence.
This leaves developing countries more
willing to conform to the East not the
West; an ideology not of liberalism but of
rapid development and international
investment.
New wars
The liberal idea of free trade was always
seen as a way to prevent wars, hence
the formation of the what was to become
to EU in 1950. As countries trade, they
would become too dependent on each
other’s resources to go to war, as it
would not be beneficial to them. But the
threat of terrorism and non-state sabo-
tage means the threat of conflict is truly
international; there is no certainty who
will strike next and where—in Europe,
the policy of open borders for all has
contributed to that fear. New wars can
be fought on the internet, with the threat
of systems being brought down by uni-
dentifiable hackers sponsored by a gov-
ernment. So, in a world where coopera-
tion with neighbours can actually in-
crease the chances of attack, trade does
not looking appealing.
Having said all that, free trade, when
used well, can produce huge economic
benefits. Though the system is flawed, it
need not be torn down. It may be
enough for it to be tweaked. But that job
falls to the next generation of politicians.
Summer 2018 4
Life as a start-up tech firm
Brij Kantaria
The turn of the millennium is synonymous By the big firms announcing plans to
with the growth of the quaternary explore similar lines of new technology,
technology industry in the western world it’s an indicator to small firms that
as economies became largely based on they’re heading in a good direction.
Information technology. Computer Small start-ups have, on average, a six
ownership turned from luxury to to twelve-month head start from the
necessity, and the internet became a technology giants. After that, it’s
place of great opportunity for investors. anyone’s guess as to who comes out on
Almost two decades later, the tech top.
Industry has come a long way, and while
the dot-com bubble saw the rise of big
names such as Amazon.com and EBay,
today it’s start-up and small tech firms
that are breaking through. In the US,
Silicon Valley is a breeding ground for
Innovation. Across the pond it’s the
golden triangle of London, Oxford and
Cambridge that attract large numbers of
start-ups. But there’s always a
But the giants’ pursuit of similar
compromise in relative success of
technology often hinders the availability
start-ups - life as a start-up tech firm
of creditors for the smaller firms, with
does not always prove to be so java.
venture capitalists being scared off by
The ‘kill zone’ refers to an increasingly the almost inevitable prospect of small
popular term coined by entrepreneurs and firms being swallowed up by the likes of
venture capitalists for the stage in the the mighty Google or Facebook. Securing
growth of a start-up tech firm in which it financing for a start-up firm has become
is exploited and taken over by big firms significantly harder to do. When
with huge amounts of resources by start-ups enter the ‘kill zone’, they enter
copying ideas or taking them over to drive the lion’s den, sometimes accidently. It’s
them out of the industry and eliminate the only a matter of time before they’re
threat they pose. sought out and hunted down by the big

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cats. Few survive. The company ‘Life on
Air’ launched ‘Meerkat’ in 2015, which
enabled mobile users to broadcast live
video streaming. It generated $12 million
in start-up funds from venture capital firm
Greylock Partners, only to soon be
obliterated and shut down within twenty
months due to the acquisition and mass
launching .of a competing app, ‘Periscope’
by Twitter. Life on Air shut down Meerkat
and launched a similar service of live
group video chats with ‘Houseparty’.
However, it didn’t take long for Facebook
to copy the idea, commandeering
attention and users from the originally
very successful app and totally
undermining the start-up. It’s no wonder
venture capitalists are becoming
somewhat sceptical about technology
investment.
The suffering for start-ups doesn’t end
there. Even if the large firms can’t out-
right copy start-ups, they can most
certainly make their futures turbulent. By
acquiring one firm’s competitors, the
giants can destroy the prospects of a firm
supplying the same services by
threatening to enter the market and take
over. ‘Match Group’, an online dating
company, took a huge blow when
Facebook announced it was entering the
online dating industry. Its share price fell
by 22% in a day. In this way start-ups are
also bullied into agreeing to sell to the
giants after being threatened that they
would launch competitive platforms and
drive them out of the market if they didn’t
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Sell. So, is it possible to survive in an
Industry where tech giants dominate the
newer firms? Sometimes. Take the
ride-hailing app ‘Uber’. It has managed
to resist threats from the US competitor
‘Lyft’ and the Chinese equivalent ‘Didi
Kuaidi’, despite the two competitors
teaming up to take Uber down. This is
not, however, a common sight. Most
tech firms must learn to either face the
giant’s competition, and likely lose, or
set out more feasible short-term
aims. Today entrepreneurs are thinking
more about which giant is going to buy
them out, not whether they’re going to
be bought out. This has inevitably led to
start ups becoming less ambitious. In
fact, many firms aim to maximise the
attractiveness of their company to a
giant, in the hope that it can be sold for
a couple more zeros, rather than
maximising the Innovation of the
firm. According to Ajay Royan from
Methril Capital, a company investing
in tech firms, speaking to ‘The
Economist’, ‘ninety percent of the
start-ups are built for sale, not for scale’.
The impacts of this could largely be
negative for the future of the
technology industry. With fewer
resources allocated to innovation and the
threat of large firms discouraging
investment into tech, the growth of the
industry could slow.
Summer 2018 6
Why does the kill zone exist and why is it
so dangerous? Firstly, giants have tons of
available data to identify emerging
markets and are also likely to innovate
faster than start-ups, due to their large
size, which reduces their costs via
economies of scale. This renders any head
start for small firms useless, in most
cases.
By utilising their market information
gained from investing into start-ups, the
giants gain insights into new developing
markets. For example, Google has market
signals to identify how users are spending
time and money through its Chrome
browser, email service, app store etc.
Similarly, Facebook sees which apps
people use and where they travel online.
Amazon collects lots of ecommerce and
cloud data. This huge amount of infor-
mation collected by the giants is likely to
continue rising as these large firms in-
crease investment into start-ups. Ac-
cording to ‘Recode’, Amazon invested
$22.6 billion into tech firms in 2017, up
41% from 2016.
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Secondly, large firms have the economic
power and resources to keep top
employees, making it uneconomical for
workers to move to their small start-up
competitors, who can’t afford to pay
such high wages or bonuses.
Recruiting top, experienced tech experts
therefore becomes very difficult for start-
ups, when the pool of such high-skill la-
bour is so small.
This hinders their development in a dog-
eat-dog industry where remaining com-
petitive is so vital for survival.
The problem of the kill zone is a
complicated one, caused by the powerful
threat of the market behemoths. There’s
no doubt that the industry is increasingly
being viewed with caution by investors.
For venture capitalists, it is a matter of
which company will get killed next. The
situation has made it extremely difficult
for younger start-ups to survive.
Perhaps industry regulators have been
too relaxed, and with more firms unlikely
to escape the kill zone, it could soon be
time for regulators to intervene. With no
sign of a new, revolutionary technology
platform, the situation doesn’t seem like
it will change.
Summer 2018 7
Kill zones are most likely to exist until ‘the next big thing’ is created and hurts the
giants, much like the exponential growth of the mobile phone, which massively
disrupted Microsoft’s PC based business.
Start-up firms must ultimately make a compromise between innovation and surviv-
al, in order to ‘esc’ the ‘ctrl’ of these giants. But what is this next big thing?

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Brexit and Northern Ireland; an impossible com-
promise?
Kardo Beck
With the topic of this issue of The
Backbench being ‘compromise’, it seems
only fitting to write my article one of the
greatest diplomatic tasks of compromise
by a British government since the Second
World War – the question of Northern
Ireland in Brexit negotiations.

The issue of Northern Ireland was sparsely

featured in the campaign in the Brexit
referendum of 2016. Britons where far too
focused on the economy and immigration
and it was the fact that EU is a legal as
much as a political construct was often
ignored; people wanted to avoid
discussing the somewhat arcane legalities
involved in Brexit. Yet the future of the
500km border that separates Northern
Ireland from the Irish Republic—and which of no significance; neither its Assembly
will soon separate the United Kingdom nor its Executive have any formal powers
from the European Union—has become regarding the prevention of the
one of the thorniest issues of the triggering of Article 50 (and are not
withdrawal talks. currently functioning). The Belfast High
In the Brexit referendum, 56% of people Court and the Supreme Court overruled
in Northern Ireland voted to remain in the all of the challenges posed to Brexit in
European Union. Nevertheless, the region relation to Northern Ireland by
will leave along with the rest of the United proclaiming that the devolved
Kingdom on March 29th next year. legislatures “do not have a parallel
Northern Ireland’s participation in the legislative competence in relation to
referendum, in constitutional terms, was withdrawal from the European Union”

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Good Friday Agreement

Britain’s goriest battlefield over the past half-century was on home territory. During
“The Troubles” of 1968-98, one thousand members of the British army and police
officers were killed in Northern Ireland. A further one thousand eight hundred
civilians were killed and over forty-seven thousand were injured. The Irish border,
for much of this time, was heavily fortified with army checkpoints, watchtowers and
a customs control - until 1998. Twenty years ago that horrific thirty-year conflict was
brought to an end by “The Good Friday Agreement” and the shift from a militarised
frontier into a mere line on a map was unequivocally the most visible achievements
of the agreement. There is, however, a risk that the ‘hard’ border could return after
Brexit.

The GFA was as a cooperative achievement, building upon a strong relationship of

trust and communication between the British and Irish governments. One of the key
features of the deal was the compromise on Northern Irish self-determination, which
dictates that Northern Ireland is to remain in the United Kingdom until such a time
when a majority referendum vote in both Northern Ireland and the Republic of
Ireland for a ‘united Ireland’ occurs. The negotiations that led to the agreement thus
worked from the conjecture that, although major change to the constitutional status
of Northern Ireland would be provided for in British and Irish legislation, there would
be no such change for a substantial amount of time. In the meantime, the
Agreement set out to create political and social conditions that were stable,
pragmatic and consistent .The UK’s withdrawal from the EU has direct repercussions
for the effective implementation of the Good Friday Agreement; the nature
and effect of these implications largely depend on three things; how the courses of
withdrawal and transition are managed, what arrangements are put in place to
govern the future of relations between the EU and the UK, and the way parties to the
Agreement are involved in and respond to the changes brought by Brexit.

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After leaving the EU, Britain wants to do Most Brexiteers prefer a different
its own trade deals with the rest of the proposal known as “max imum
world, which means leaving the EU’s facilitation”; this would rely on
customs union. Like Ireland, it wants to technology to minimise the checking of
uphold the open, invisible border that was borders.
enhanced by the Good Friday Agreement
of 1998, contributing to the cessation of Declaration procedures would take place
three decades of violence. in advance, away from the border, and
surveillance would be intelligence-led
Having a different customs regime to the searches.
EU means implementing customs controls,
which implies that the border cannot be Others say it would not solve the Irish
quite so faultless as today. The border question as there would still need
‘hardening’ of the border would not only to be tariff checks.
affect movement on the island of Ireland,
but symbolically and psychologically rep-
resent, for many, a reversal of the peace
process and an overall failure of the GFA. Neither route is acceptable to the EU or
even remotely prepared to use yet.
Ireland, with support from the EU, has
threatened to halt any outcome involving
a harder border which raises the prospect
Britain could end up with no deal whatso- With such cynicism and shortage of time,
ever. Many Brexiteers accuse the EU and attention is slowly moving to the
Ireland of using the border as a tactic to “backstop” possibility that would be
drive Mrs May towards a softer Brexit. implemented if neither of Britain’s most
ideal schemes are ready to use.
May and her cabinet are split over two
adoptions for a future customs This would mean the UK would have to
arrangement to avoid imposing controls at match EU tariffs temporarily in order to
the Irish border. She is in favour of a avoid a hard Irish border post-Brexit.
“customs partnership”, whereby UK
administrators would collect tariffs on This option has been in the news recently
behalf of the EU for any goods coming to with Brexit secretary David Davis having
the UK that were later ordained to go to threatened to quit from the government
any other EU member state. if the prime minister refused to change
her proposal to fix the customs challenge
The UK government, however, has con- after he demanded a time limit on the
fessed that this plan would be "backstop" option. To make matters
“unprecedented” and “challenging to im- worse, the political situation in North-
plement”. ern Ireland is also tense.

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Northern Ireland’s power-sharing executive collapsed around 16 months ago for
other reasons, but there is no doubt that Brexit is now the main obstacle to its
reconstitution. Leo Varadkar, the newish premier down in Dublin, is suspected by
many unionists of being ‘carelessly nationalist’. He is under pressure from other
parties in Dublin not to be too lenient on Britain— and he is likely to face a
re-election within 12 months.

The EU is very antagonistic towards Mrs May’s latest compromise, which intends to
keep the UK unified with the EU on customs and single-market rules for a period
after Brexit. The EU seems prepared to offer a similar option to Northern Ireland
alone, but is unhappy extending the notion to the UK as a whole. Mrs May’s
intentions appear somewhat incompatible: she wants to depart the customs union
and single market and be able to do free-trade deals with other countries. However,
these goals clash with the intent of escaping a hard border in Ireland and any related
infrastructure, checks or controls.

To minimize the threat that Brexit poses to the future of the Good Friday Agreement,
minimal disruption to the context for its effective implementation is imperative. This
means upholding as much of the status quo as possible. It also involves
guaranteeing that EU citizenship rights of Irish citizens born and residing in Northern
Ireland are upheld and that the equivalence of rights across the island of Ireland is
upheld, without posing the risk of differential treatment or disparity for British
citizens.

No doubt, establishing the post-Brexit arrangements for Ireland will be a process of

intense negotiation; both sides need to be flexible and approach issues and solutions
from the perspective of what needs to be tackled and what can best ensure the Good
Friday Agreement’s unhindered implementation.

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The balance of national security and free trade–
Trump’s Tariffs
Haris Zuberi
President Trump’s crusade to isolate the
United States from the rest of the world
continued on Thursday 31st May 2018
when Secretary of Commerce Wilbur Ross
announced the imposition of a 25% tariff
on steel imports and a 10% tariff on
aluminium imports from Canada, Mexico
and the European Union. The tariffs were
initially announced in March but
temporary exemptions were granted to
American allies in the hope that a
mutually beneficial deal could be struck. It
could not. The exemptions were lifted and
now the US appears to be entering in a
world of needless economic pain. But
why? Well Trump argues it’s a matter of
national security.
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Other large steel manufacturing
countries like China have been applying
economic pressure on US rivals,
contributing to the US steel industry’s
struggle to compete in the global
market. Soon after entering office, Mr
Trump directed the Commerce
Department to investigate whether
imported steel and aluminium posed a
threat to national security. The
department concluded that tariffs and
quotas were justified. International
allies, non-partisan economists, business
leaders and others have roundly
condemned the decision.
Possible consequences of the tariffs
Manufacturing firms who depend on
imported raw materials will lose out
thanks to these tariffs. For example, the
aerospace industry employs around 2.5
million US workers and heavily relies on
US steel and aluminium imports. As the
cost of individual parts increase, the
burden of the tariffs will be passed on to
consumers or cause lower profit margins
for these companies. Furthermore, the
import tariffs could cause fewer products
to be produced in the US which could
result in jobs being cut in the
manufacturing sector. Not only will jobs
be affected in the US but also jobs in
other countries which are involved in the
production of steel. Canada Provides
16% of US steel, Brazil 13% and South
Summer 2018 13
Korea 10%. Companies in these countries will be hit hard by the tariffs and may
need to let go of workers to maintain the profitability of their business. Trump wants
to help support the domestic steel and aluminium industry however these tariffs may
go against him. The US is heavily reliant on foreign steel and aluminium for the
production of everyday items. 90% of aluminium used in the US comes from other
countries, while a third of steel used domestically is sourced from abroad. The tariffs
will undoubtedly affect prices of everyday item and may have other unintended
consequences thanks to Trumps actions.

Hopes for a compromise (or not)

Trump offered an aspirational proposal at the start of a contentious meeting on trade

disputes at the G7 summit in Quebec, an annual gathering of the leaders from seven
major industrialised nations. During the private gathering on Friday 8th June 2018,
Europe’s major economic powers pushed back hard against Trump’s repeated
assertions that the U.S. is a victim of unfair trade practices. “We should at least
consider no tariffs, no barriers — scrapping all of it,” Trump said, according to
officials who were listening and taking notes. This was an unexpected pitch from the
American president, in the amid of a tit-for-tat trade war that he recently launched.
German Chancellor Angela Merkel responded positively to Trump’s suggestion on
Friday, telling him: “We’ll take it as a starting point.”. Of course, Trump being
Trump, he withdrew all his support for the joint communique and lambasted the
Canadian premier as dishonest and weak. An unpredictable time for compromise on
free trade.

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Should the UK government compromise on for-
eign aid spending?
Joe Morgan
The current Tory government has a long
record of spending cuts; since its rise to
power in 2010, defence spending has
been cut by 22%, there has been an 18%
decrease in police funding whilst if NHS
spending continues to stagnate then our
health service will face a £30 billion
funding gap in England alone by 2020/21.
Interestingly, whilst the health service has
been starved of funding that it desperately
needs and the military’s capabilities have
been ritually downgraded, foreign aid
spending has risen generously since 2010;
it now stands at 0.7% of GNI and £13.1
billion per year in real terms.

If this sum were cut to 0.35% of GDI, as

was (roughly) the case from 1970-2000,
then £6.5 billion would be freed up for
spending on public services or a military
which looks increasingly unable to combat
the rising Russian threat. If £4 billion of
this extra cash were pumped into the
NHS, which would equate to an annual
funding rise of 3% per year, then there
would still be enough money left to
remedy the MoD’s £20 billion budget
shortfall over the next decade.
Such a fix would certainly be politically
beneficial it would help blunt Corbyn’s
attacks concerning the NHS whilst also
drawing attention to his weak record on
national security as tensions with Russia
escalate. So why won’t the government
do it? Perhaps the Tories genuinely
believe that it is the duty of affluent
nations to help those poorer than
themselv es; whilst t his is a
commendable principle I would argue
that under all circumstances the
betterment of Britain itself should be the
emphasis of all governments, not the
betterment of other countries, especially
at a time when Britain’s economy is, let’s
just say, far from booming.

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And why is it necessary for the devote 1% or more of their GNI on their
government to devote so many resources aid budget, and they don’t have the
to foreign aid in the first place when same plethora of international
charities such as Save the Children and commitments to fulfil as the UK does.
Oxfam (which both still do incredible work There seems to be, then, no justifiable
in spite of their recent travails), among reason for Britain to spend so much on
others, are already striving to provide its foreign aid budget; doing so
humanitarian aid to less developed disadvantages Britain’s public services
countries? and is highly unlikely to curry favour
Another theory doing the rounds suggests with emerging economic powers. I would
that Britain’s foreign aid is spent in order argue that the UK should cut its foreign
to cultivate warm relations with rising aid contribution to 0.35% of GNI
economic powers such as India and China. (approx. £6.5 billion), purge the foreign
This theory is however busted when one aid budget of any misused funds and
takes into account the fact that out of the reinvest £4 billion in to our NHS and £2
top ten main beneficiaries of Britain’s aid billion into our military in order to both
budget, only one of them, India, is an improve the health service and ready
important emerging economy. In many ourselves for whatever Russia might
cases, Britain’s foreign aid cash isn’t throw at us next; it makes sense, after
actually spent on humanitarian aid; just all, that the British government should
recently it was uncovered that millions of put Britain first.
British taxpayers’ money was being spent,
under the veil of “foreign aid”, on
regenerating the Chinese film industry.
This calls into question the entire basis of
the aforementioned theory; does the
government honestly anticipate that China
will favour Britain in any upcoming trade
talks on the basis of our renovation of its
film industry?
There is also no precedent amongst other
major economic powers to spend such a
large portion of our GNI on foreign aid;
Germany spends just 0.41% (of its GNI),
France 0.36% and the US just 0.19%. It
is only the Scandinavian nations who

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What is the ‘correct’ balance between govern-
ment intervention and free market forces in an
economic system ?
Dilan Pindoria
One of the most controversial issues in
economics is the extent to which the
government should intervene in a
country’s’ economic system. Adam Smith
and Milton Friedman argue that
government intervention should be strictly
limited as intervention tends to cause an
inefficient allocation of resources. Instead
the price mechanism (interaction between
supply and demand) should allocate
resources, through the ‘invisible hand’
theory developed by Adam Smith. On the
contrary, economists such as Karl Marx
deem the free market ‘unstable’, arguing
for the common ownership of all means of
production and state planning of all
economic decisions. This article will
explore who benefits from which situation,
and what kind of characteristics constitute
a healthy balance of these diametrically
opposed perspectives.
maximise profit creates an opportunity
for the state to maximise welfare.
Utopian egalitarianism was the
traditional cornerstone for communist
movements, but this overly hopeful aim
has disintegrated - income inequality is
soaring in North Korea, and the country's
wealthiest live in Pyongyang, where the
(estimated) per capita income is $2,950
a year, in comparison to the national
nominal GDP per capita being $1,300.
The UK, in contrast, boasts a GDP per
capita of $40,000. Nevertheless, heavy
macroeconomic intervention there has
produced an increased effort to reduce
unemployment and overcome prolonged
recessions.

The DPRK is one of the world’s most

centrally directed and least open
economies, meaning it faces multiple
chronic economic problems. It can be
argued that one of the positive
consequences of a command economy is
the reduction of social inequality. The
removal of free market incentives to

The Backbench Summer 2018 17

Through the use of Figure A, you could even claim that North Korea have endured
considerable success, considering it averaged a rate of 4.65% from 1991 until
2017, reaching an all time high of 6.4% in 1992 and a recent record low of 4.2%.
This data can only be useful when compared with other nations - the UK reached a
42-year low of 4.2% in March 2018.
It is essential to consider the detrimental economic impacts of the Great Financial
Crisis of 2008, where unemployment I ncreased from 5.7% to 7.6% in the space
of one year.
Since peaking at a rate of 8.1% in 2011, we as a nation have recovered well to
reach a record low. Another key focus should be on China, who made the transition
from a command economy to a mixed economy – though politically the country re-
mains communist.

The Backbench Summer 18

Figure B demonstrates China’s impressively low unemployment rate of 3.89%, which
contributes to its rise to number one in GDP PPP rankings ($25.2 trillion). All this
shows that command economies, despite warnings to the contrary, have experienced
relative success in reducing their unemployment rate, which is heavily linked to
economic growth.
In practice, the extent of government intervention depends on how a mixed
economy is managed and governed. Even some of the most ardent free-market
economists would agree that a degree of government intervention is needed to
maintain order and macroeconomic stability during times of political and economic
crises. One benefit heavily explored by Adam Smith in “The Wealth of Nations” is the
need for government to prevent the exploitation of monopoly power.
As a strong believer in regulation on the abuse of monopoly power, I believe this
can only be successfully implemented through government intervention, leading to
the prevention of mergers and excessively high market prices. Monopolistic markets
tend to seek out ways to increase their profits at the expense of consumers,
thus generating more costs to society than benefits. In the UK we address this issue
with the Competition and Markets Authority (CMA). In January 2018, for example,
Refresco proposed a $1.25 billion (about £935 million) takeover of Cott’s worldwide
beverage manufacturing business.

The Backbench Summer 2018 19

 In the UK, Refresco and Cott manufacture, package and distribute soft drinks for a
number of well-known brands, supermarkets and shops – concerns are playing out,
however, that the merger could lead to reduced competition in the manufacturing
and packaging of certain juice drinks, resulting in higher prices or quality standards
slipping for stores and brands, with potential knock-on effects to end-consumers.
To conclude, there is no real model of a purely free-market economy in today’s
society. Even the more radical libertarian economists would accept the need to
have some state protection of property rights and spending on national defence.
The debate arises on the extent of government intervention. Both free-market
economies and command economies have a variety of potential benefit - but a
country can only be optimally run through adopting a ‘middle ground’, combining
benefits of both in order to create political and economic stability.
We as a nation are very aware of the role of private business and financial incen-
tives in promoting economic growth and a flourishing economy, even if the desire
is to promote greater wealth redistribution.
So, we should not stray into the ever-tempting realm of command economies, nor
accept again the Thatcherite monetarism of the 80s. Of course, all this is theory –
we can only wait and see whether any kind of balance is possible through the polit-
ical instability we live in today.

The Backbench Summer 20

Profile in Tremendousness :
Pedro Sanchez , Spain’s new
hope

Isaac Bettridge
Ever since the headline-catching drama of
the aborted Catalan independence
referendum last autumn, Spain has
existed in a near-perpetual state of crises.
On the 1st of June, that crisis finally
claimed the scalp of the country’s
And, as he assumes leadership of a
embattled prime minister, Mariano Rajoy.
country ravaged by political and financial
Rajoy and his People Party (PP) had long
crisis and at risk of breaking up, what
been plagued by scandal, starting in 2013
will he do next?
when Senator Luis Barcenas was arrested
and alleged that the party kept a slush Pedro Sanchez Perez-Castejon was born
fund of donations from private businesses, February 29 1972 in Madrid to a
and the PM had narrowly avoided businessman and a public servant, and
deposition via a vote of no-confidence last upon graduating high school went to the
year. But the scales finally tipped against Complutense University of Madrid to
Rajoy when, on May 24, Spain’s National study business sciences. His political
Court handed down sentences to 29 awakening came in 1993, when he
members of his party, on charges of joined the PSOE after being awed by
fraud, money laundering and tax evasion party leader Felipe Gonzalez’s landslide
that put him firmly under the microscope. victory in that year’s general election.
Another vote of no confidence followed, Upon graduating in 1995, he went on to
one that Rajoy failed to withstand, thus work as an assistant in the European
paving the way for leader of the
Parliament and later as the chief of staff
opposition Spanish Socialist Workers’
to the UN’s representative in Bosnia
Party (PSOE) Pedro Sanchez to take his
during the Kosovan crisis. He also found
place. But who is Sanchez? Where does he
time to become a Professor of

The Backbench Summer 2018 21

Economics, and publish his doctoral thesis
entitled ‘The New European Economic
Diplomacy’.
His political career began with his election
to the Madrid City Council in 2004, before
ascending to be Madrid’s representative in
the Congress of Deputies (the Spanish
equivalent of the House of
Representatives) in 2009 as a member of
the PSOE. He quickly rose through the
ranks, being elected as the Secretary
General of the PSOE in 2014 and
attempting to form a government after
the 2015 elections, though failing to do
so. He faced a minor crisis after being
forced to resign as party leader in late
2016, but ran again and won with 50.2%
of all votes cast.
His big moment came in May 2018, when,
as party leader, he filed a motion of no
confidence in the government of
Incumbent PM Mariano Rajoy due to the
scandals detailed above. This motion was
successful, and led to his swearing in as
The Backbench
the new Prime Minister of Spain on 1
June 2018 by King Felipe VI.
Upon taking office, Sanchez said that he
planned to soon dissolve the Spanish
parliament in order to hold an election,
but has yet to follow through on this
promise.
His short time in office has been taken
up by the ongoing dilemma surrounding
Catalan independence, the leaders of
which he has promised to ‘reinstate dia-
logue’ with, and immigration - he earned
much credit on the international stage by
allowing the migrant ship Aquarius to
dock in Valencia after it was turned away
by Italy.
However, despite a mostly promising
start, Sanchez is likely to struggle with
some of the larger issues facing Spain.
The country was among the hardest hit
by the Eurozone crisis, and despite mild
economic recovery still has a high
unemployment rate that has fed a
growing wave of populism.
With populist parties such as the left-
wing Podemos gaining support among
the young, and the Catalan crisis fuelling
further cynicism about the capabilities of
the government, Sanchez’s key
challenge will be to restore both public
and international trust in Spain and its
government. This writer certainly hopes
he is up to the challenge.
Summer 2018 22
No Compromise with Cash
With this masterplan in mind, it seems
Mitul Satra little could go wrong.
This scheme, however, was widely re-
garded as a colossal failure – indeed,
Donald Trump once said “As long as 99% of all notes were legitimately ex-
changed.
you’re going to be thinking anyway, think
big”. Following these wise words from Rather than unmasking criminal
such a distinguished scholar, Narendra entrepreneurs, the scheme sent them
further underground.
Modi set out to clean the streets of India.
“How?” I hear you clamour. By rendering Whilst many may see this as negative,
the demonetisation process sent creative
all 500₹ and 1000₹ notes worthless
accountancy into a mini boom. For a
overnight. short period of time, these ‘accountants’
India has historically had a black money became more popular than the IT geeks
of yesteryears.
problem; it’s the third largest exporter of
dirty money, and ill-gotten gains have Further to this, temple donations sky-
funded terrorist activity for years. rocketed. Unfortunately, as the currency
was non-traceable, it was worthless.
The government claimed this move would Ironically, temples had to pay to dispose
curb such activities, and India would be of this money.
the better place as a result.
An announcement was made via an untel-
evised address at 20:00 on November 8th
2016, intending to cause shockwaves
throughout the nation.
The intention was that Indians holding le-
gal tender would go to a bank or post of-
fice and easily swap their money for larger
denomination notes, whilst criminals
would not be able to hand in their curren-
cy without being exposed.

The Backbench Summer 2018 23

 Although this all might seem negative, demonetisation has had its successes. The
biggest impact on demonetisation is its negative trend in the use of hawala.
Hawala is an informal, underground way of transferring money and this is done
as a form of tax evasion.
For example, if an Indian citizen is importing goods from China, he will officially
pay a proportion of the cost, and then use the hawala system to pay the
remaining money confidentially. This results in tax being paid on the initial sum
alone, hence the government does not collect as much tax revenue as it de-
serves.
Furthermore, online transactions (which allow a more transparent tracking of
money) skyrocketed, rising over 25% in the month after demonetisation was
announced. Consequently, corruption has been, at least partially, reduced as
transfers can be verified and counterfeit money circulated less.
Demonetisation has decreased criminal activity such as rampant corruption and
the financing of terrorism but is just one step on a long path to modernising
India’s economy. A simple currency reduction will not curb an insatiable love of
money.

The Backbench Summer 2018 24

Is the “special relationship” dead?
Jo Morgan
Rumour has it that Donald Trump finds
Theresa May’s tone similar to that of a
“school mistress”, whilst he also dislikes
her eagerness “to get into policy details
rather than wider conversation”; hardly
surprising for a self-described “genius”
President. Trump snubbed the Prime
Minister when, speaking at the G7
summit, he omitted her from the list of
world leaders with whom he has a “ten
out of ten” relationship. Finally, Theresa
May was the only leader at the G7 not to
hold a formal one-on-one meeting with
the President. So is the special
relationship really dead?
To answer that question, one has to con-
sider what the ‘special relationship’ really
is. The term ‘special’ suggests some sort
of different treatment, so I will work with
the definition that the special relationship
The Backbench
is ‘the preferential manner in which the
UK and USA treat one another in
diplomatic, political and military
spheres’.
I would argue that such a relationship
only ever existed during the Second
World War. The Grand Alliance between
the US, UK and USSR, formed soon after
the Japanese attack on Pearl Harbour,
necessitated preferential treatment
because it was a wartime pact, and
during times of war nations do not have
time for the petty squabbles which
characterise peace.
During the war British and American
soldiers were forced to fight and die
together because of the pressing threat
which both Nazism and Japanese
imperialism posed to the US and UK.
Ever since, however, the special
relationship, whilst trumpeted by
politicians on both sides of the Atlantic,
is a myth which only the British appear
to believe in.
Soon after the defeat of Japan, the US all
but ended its cooperation with the UK on
nuclear weapons, despite the develop-
ment of the Atomic bomb having been a
joint Anglo-American project.
During the Suez Crisis of 1956, President
Eisenhower refused to support the British
and pressured them to withdraw from
the Suez Canal.
Summer 2018 25
In the 1982 Falklands War, Ronald Reagan declined to fully support the UK’s
position; he in fact advocated “a shared Argentine-British role in the islands’ future
and a joint American-Brazilian peacekeeping force”; that is hardly the sort of
preferential treatment which is supposed to define the Anglo-American
relationship.
Despite the full involvement of the British military during the invasion of Iraq in
2003, at great political cost to the then Prime Minister Tony Blair, the British were
stonewalled by the Americans when it came to Iraq’s post-war governance, whilst
Blair’s wish to advance the peace process in Israel was swept aside time and again
by George Bush.
When it comes to big diplomatic and political standoffs, the US’s soft spot for Brit-
ain appears to have been non-existent since 1945.
On the other hand, Britain blindly follows American foreign policy at every turn. In
recent years, the UK military has participated or at the very least cooperated in the
American-led invasions of Afghanistan and Iraq and bombing campaigns over Libya
and Syria, all to preserve our so-called special relationship with the country across
the pond.
And yet there is nothing to preserve; our preferential treatment of the US is cer-
tainly not reciprocated.
If Britain embarked on a mission to remove a dictator in a Middle Eastern country
just for the sake of doing so, do you really think that the US President would pro-
vide his country’s unconditional military and diplomatic support, even at the cost of
his own political survival?
When Obama claimed that the ‘special relationship’ would continue despite the
Brexit vote and subsequently said that Britain would be at the back of the queue for
trade deals, he summed up the myth perfectly.
The US pretends that this relationship exists, most likely to please the British,
whilst at the same time subjecting Britain to the complete opposite of preferential
treatment; how can a special relationship exist whilst Britain is being shafted by the
Americans on trade?
The “special relationship” is a myth; it died in 1945. It is best for current and future
British governments to accept this, lest more British blood be shed for the sake of
an idea which simply doesn’t exist.

The Backbench Summer 2018 26

London Housing Market in Deep Water – Why is
it so different from the rest of the UK?
Ayush Popat
There seems to be an odd compromise in It seems that this is sufficient reason for
the statistics when it comes to UK house London’s housing market performing at a
prices. House prices in the UK have rate lower than any region in the UK. It
can also be said that this trend has been
increased by 4.2% since March 2017. But
caused by the differences in stamp duty
according to the Office of National in different regions of the UK. London
Statistics, London’s house prices have has the highest stamp duty in the UK,
fallen since the EU referendum in June with all properties buyers being charged
2016. In some parts of London house over £300k, with the rest being charged
below.
prices have fallen by 15% over the last
year. Since the Brexit referendum, central
London has seen a fall in foreign direct
investment, especially from Chinese
investors. According to The Telegraph,
overall investment into the UK commercial
property investment has fallen from 5.2
billion pounds in the fourth quarter of
2017 to 3.8 billion pounds in the first
quarter of 2018 as Brexit continues to
cause uncertainty and damage investor
confidence. The London property market
is driven by confidence but since the
referendum consumers seem to be run-
ning on reserve.
Jonathon Samuels, the CEO of Octane
Capital, told the Independent that “tight
supply and subdued demand are the key
contributors to the ongoing limbo gripping
the property market”.

The Backbench Summer 2018 27

On top of this, the fall in housing demand may well have been caused by the rise in
interest rates in November 2017 from 0.25% to 0.5%. Due to this, almost 4 million
households will face higher mortgage interest payments. This will reduce the
average household’s discretionary income, causing people generally to reduce the
average number of houses they own. According to the Guardian, since 2000 second
home ownership has increased by 33% with 1 in 10 UK adults owning more than
one home (5.5 million people).
An increase in mortgage interest repayments since November has dampened this
boom and so reduced housing demands .The expensive nature of the monthly
mortgage interest repayments may also be the reason for the fall in Chinese invest-
ment. Since 1996 the number of ‘buy to let’ properties have increased with the in-
troduction of mortgages in which the buyer didn’t have to live in the home. Howev-
er, with higher interest rates, investors will be less confident in buying to let in Lon-
don as mortgage repayments increase. The rise in November meant that an aver-
age homeowner with a typical mortgage of £175 000k would be hit by £22 extra in
monthly repayments a year.
In a country with 9.2 million households with a mortgage, this is not good news.
Due to this the number of mortgages sold to home buyers have fallen from 68,700
in 2017 to 63,900 in June 2018. These reductions may also have been caused by
the more cautious approach of banks when selling mortgages. Since the EU
referendum, banks have become concerned with low levels of liquidity in the years
approaching our final departure.

The Backbench Summer 2018 28

Therefore, as banks are less set on providing credit to home buyers, the demand for
housing has fallen as some can no longer afford it. As the graph shows banks had
reported a fall in credit of -50% between the 2nd and 4th quarter of 2017.
To summarise, then, the main reason for the fall in London’s housing prices has been
the lack of demand. Stamp duty and mortgage interest rates have supressed
demand and so placing downward pressure on housing prices. London has been
impacted by this the most with stamp duty being more prominent than in any other
part of the UK.
The EU referendum has also had a negative impact on London’s property market
with low confidence draining out investment and the amount of credit banks are will-
ing to provide to those looking to buy a house. However this may be a temporary
impact. As the UK comes to terms with Brexit we may see rising confidence and so
increased demand for housing. Thanks to Brexit, London’s business confidence
has fallen to an all time low due to uncertainty and anxiety. This may improve in the
long run, however, which means there may be an improvement in the property mar-
ket in years to come.

The Backbench Summer 2018 29

Parting shot
A spectre is haunting Europe; the spectre of
‘Belgium’
Xavier Stavrou-Long
Many of you will have watched the recent
England-Belgium game. You may also
have been duped into believing that our
nation was playing a football team repre-
senting a real country, much like France
or Brazil. Think again.
Belgium, if real, is no nation. Their
domestic politics is devoid of the sense of
national pride that characterises all other
European states. Instead, Belgium is split
into three political communities based on
language: the Dutch, the French, and the
German (with Brussels acting as Eurocrat-
stan). Of course, we may be seen to have
a similar system with devolution to Scot-
land, Wales, Northern Ireland, and
hopefully not Cornwall. The UK does not,
however, hide its composite status. We
don't offer up football or rugby teams
claiming to represent the ’UK’. ‘Belgium’,
on the other hand, attempts to deceive us
all—displaying nationhood through sport
alone, they dissimulate their division in to
Wallonia, Flanders, Brussels and a strip of
Germany.
The Backbench
But how did ‘Belgium’ manage to get this
far? Well, mythology is the best basis for
a state's legitimacy. In order to create
their tyranny of effective policy-making,
insidious Eurocratic conspirators sought
to find an example of a state with no
shared language or culture. Finding
none, they made one up.
Dear reader, surely you are not so
gullible to believe that a ‘country’ with
three separate governments with no
sovereignty over each other, no national
newspaper, no national language and
even no national TV station, actually
exists?
There is further evidence. UN population
statistics stipulate a 0.5% margin for
error. ‘Belgium’ allegedly makes up less
than 0.5% of the world's population.
Many see ’Belgium’ as a puppet state of
The Netherlands and France, or the
buffer state of Europe, with most Euro-
pean battles fought on its territory. How-
ever, there have been several referenda
so that people could admit their inherent
falsity. But they didn’t. No real humans
would do that. I see no interpretation of
the evidence other than Belgium itself
being incorrect.
Enough of this waffle (pun intended).
Enjoy your summer.
Summer 2018 5
 If you’re interested in writing for The Backbench, please email
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