The ties that bind could become the rope that hangs

On June 23rd the electorate in Britain will go to the polls to decide the country’s future, or lack thereof, in the European Union.  Already the main story is about which Conservative heavyweights will back their leader’s play and fight to stay in Europe, and which ones will join the campaign to get out.  With all the infighting the actual hard facts and scary truths of the EU referendum stand a good chance of being missed.
Britain is no longer “Great” in the way that the leave campaign would like people to think. We don’t have an empire anymore and no matter how much the man in the street may want one we aren’t going to again. Europe provides us with the best possible outcome in an imperfect world to maintain at least someone dominance in international affairs, as well as relevance.
Trade with the EU counts for approximately 45% of Britain’s total exports and 53% of its imports come from the bloc, based on 2014 figures.  The amount of finance generated by trading with other countries outside the EU pales into insignificance. Leaving the EU will not change the fact that we still need to trade with it, all it will mean is that we have to pay higher rates to do so and have no say in the tariffs and regulations in place which monitor it. British companies will still have to meet EU regulations, however, this time they won’t be able to have a say in what those regulations actually are, inevitably leading to a tiered system which will create immeasurable damage, particularly for small to medium sized enterprises.
There are those who claim that we can cover the trade deficit by increasing exports to non-EU states. While this may seem like a nice idea on paper the practicality is that it will fail. The majority of arrangements we have in place with countries outside of the European Union are based, at least tacitly, on the idea that Britain will act as a gateway to the rest of Europe. An easy option for trading with the whole so to speak. The exogenous impact of leaving Europe is incalculable, not because it doesn’t matter but because it matters so much. Britain would be economically crippled.
The same goes for the financial sector. London acts as a useful node for business not despite its ties to Europe but because of them. France is already punching to have a greater say in global economic affairs and it is not in the least unrealistic to see a shift in dominance from the City to Paris should the UK up and leave.
Then there is the question of security. Out campaigning Works and Pensions Secretary Ian Duncan Smith has claimed that to remain in Europe puts Britain at ever greater risk of a Paris style attack due to open borders. As Britain will always have at least one back door to Europe in Ireland this is a moot point all on its own. Add in the fact that the security arrangements created by our ties to Europe would be weakened and it quickly becomes clear that it is obfuscation at best, lying at worst. Mumbai is not a member of the EU bloc and that didn’t prevent attacks against the city.
The European union is far from perfect it is however here to stay no matter how much the “Out Campaign” may want it to be otherwise. For expats it provides a measure of security which they will not be afforded upon Brexit and for those living in the country it is essential for economic success and security. To think that leaving will mean that we are no longer tied is inconceivable. It just means that the ties which bind us will become the rope which hangs us.

The Tragedy of the Commons is a common tragedy

IT was reported earlier this week that the Chinese Government was finalising plans to introduce strict fuel standards on large ships to help combat marine pollution.
Li Qingping, a senior official at the ministry’s Maritime Safety Administration, told a news conference in Beijing that once the rules are implemented, certain toxic emissions from ships would be reduced by 65 percent and particulate emissions by 30 percent by 2020, as compared with current emissions.
Being honest China has not always been the leader in pitching environmental ideas so the fact that they are taking such a hard line to reduce the damage being done to the oceans should act as an indicator of how bad things have become.
A walk along any of a million beaches will show just how much rubbish is being deposited in the seas, and that is just the tip of the iceberg, which are coincidently also being destroyed at an unimaginable rate. Whereas previously the tragedy of the commons with the oceans had been overfishing, nowadays it is over dumping.
The tragedy of the commons stems from a simple idea, that commons, something which anyone can use, are at risk of being overused by some and therefore their overall utility reduced. The theory has been used to address the need for fishing quotas and carbon permits as a way to impose a degree of restraint and prevent them being depleted for future generations.
The issue is that while there are measures in place to stop people polluting the seas they are incredibly hard to monitor and punishments tend towards the laxer end of the scale. With so much open ocean to cover it is a mammoth task to patrol and once in international waters one which is hard to persuade governments to invest in.
If something isn’t done though the lasting harm will be immeasurable.  A report published by the Ellen Macarthur Foundation in January entitled “The New Plastics Economy: Rethinking the future of plastics” gave a stark warning of the threat facing the oceans, by 2050 there will be more plastic in the oceans than fish.
“Each year, at least eight million tons of plastics leak into the ocean—which is equivalent to dumping the contents of one garbage truck into the ocean every minute,” the authors wrote. “If no action is taken, this is expected to increase to two per minute by 2030 and four per minute by 2050.”
It is not just the plastic bags and bottles which we see littering our beaches causing the problem though, although they provide a starting point. It is the microplastics, tiny particles of plastic which have been broken down in the water.
A simple experiment is to take some sand from the beach and put in a glass, now add water and give it a bit of a stir. Pretty quickly you will see these plastic particulates separating out and floating to the top.
When these are mixed in with the sea water they are mistaken by marine life as food, which as might seems obvious causes immense suffering followed by death.
If we are to stop this then we all need to take part. The real tragedy of the commons is that it is something we can all stop if we work together. A collective decision to be responsible and not misuse the utility of the commons is essential, as is the need for a coordinated international approach to enforce genuine measures to protect them.
It doesn’t take much and anyone can help. Think twice about the waste you throw away, and more importantly how you dispose of it, if you see a plastic bag on the ground pick it up and bin. There are beach cleanup schemes across the world, take part, help out and if there isn’t one then why not set one up? If our children are to have the same benefits from the sea we have then we need to act now. There really is no time like the present because the future is looking particularly uncertain.

Market futures are looking murkey

Don’t let the recent shock waves in the economy fool you we still haven’t figured out what the markets will do in 2016.
A drop in oil prices normally heralds a period of economic growth and the reasons are fairly obvious. We need oil literally greases the mechanisms of production. Lower fuel costs mean lower production costs, which in turn mean, theoretically, lower prices for consumers. As prices drop people buy more, which puts more money in the pockets of the people producing allowing them to either raise wages employ more staff. Either way it means more money being pumped into the economy which is good for everyone.
There is a problem though. When oil prices have dropped previously it has been due to an excess of supply, the more of something there is the lower its prices. This time round, however, it appears that the drop in prices is due more to a drop in demand. Oil just isn’t the commodity it once was. Not necessarily a bad thing, it does mean that people are paying attention to renewables more after all which is, hopefully, good for the environment.
For the markets though it poses a serious risk. Oil has been a strong base for many investors and the thought that it could collapse is putting the frighteners on more than one. Economists don’t like uncertainty and that is exactly what they are facing.
Coupling this with recent developments in China and the markets for 2016 are looking as though they are likely to be in for a rocky time. This has been evidenced this week by the drop in the Shanghai index, due in no small part to the drop in the price of oil.
These developments have not come out of the aether however. China’s rapid expansion and construction boom has longed looked like a bubble set to burst. What keeps it stable though is the influence of the government over the whole situation. Should the growth of industry, without the supporting infrastructure, we have seen in China have been attempted by America or Europe then it would be a dramatically different story. As it is the Chinese government is likely to impose measures to prevent the spiralling decent of its economy. It won’t be pretty but it may just be enough to stave off collapse.
The issue of oil prices however is one which may not have such a hopeful future. Large swathes of the global economy are built on high oil prices, whether directly or indirectly, in some cases without it being evident to the industries themselves until it is too late. A curtailment of supply may help to drive prices up slightly, however, it would be an illusionary fix which defeats the object. Investors know the oil is available it is just a matter of them waiting until they can access it.
For now the future is uncertain and likely to remain that way. The loss of revenue from oil is likely to create further instability in the Middle East and create a domino effect of devaluation. As the main beneficiaries of oil wealth withdraw their support from other enterprises the economy as a whole will feel the pinch.
Whether we like it or not oil is still the life blood of market enterprise and right now the markets need a transfusion.

A Christmas calculation

There is a simplicity to being cynical which cannot be denied. An easy way to sum up human interaction as nothing more than self interest. It is a view which personifies much of economics and which has shaped the world we live in.
Instead of trying to take that leap into the darkness, where we can see that not everything is motivated by greed and desire, we take the path of least resistance. We assume as a species that the actions of others will be to maximise their own gains with no regards to the repercussions on those around them. Logically it falls on each of us to only think of ourselves and try and get the best deal we can before the rest of the world catches up, otherwise generally known as backward induction where you use your knowledge of what the last move will be to work backwards in an attempt to ensure you get the best deal in each round.
The depressing notion of self interest falls down in one key respect though, it fails to take humanity into account.
The last 12 months have seen some of the most devastating scenes in our generation. The mass exodus from Syria, the attacks in France and Tunisia, bombings in Lebanon, wars and terrorism throughout Nigeria, Afghanistan, Iraq, Ukraine, Yemen, Gaza and Israel, Egypt and repeated mass shootings in America are all only a tiny fraction of the pain and misery the world has suffered through.
In the face of such acts of violence and callous disregard for the lives of others the principle of self interest is clear and understandable. Where it is undermined however isn't in the grand headline grabbing actions of a crazed minority. It is in the selfless acts, those who when the first shots were fired didn't run from the chaos but put themselves between the bullets and others. Humanity has shone through as people have fought to retain that glimmer of hope for those who need it most. Those who didn't shut themselves off against the storm but threw their doors open to refugees and those who still strive to do just what they can to make others lives better.
A focus on Game Theory demonstrates that self interest is not always the most profitable approach. By collaborating individuals may not achieve the Parreto optimal strategy, where you cannot become better off without someone else losing out, they can however achieve a dominant strategy, or more simply the best course of action for each player knowing what the other player will do.
Self interest is fine for modelling strategies but it is not realistic when applied to the real world.
At this time of year that feeling of collaboration should be stronger than ever. It is all too easy to see the holiday season as nothing but an excuse for even greater crass commercialisation than usual. For many western high street retailers it is a season where the laws of supply and demand are everything as sales account for approximately 40% of their annual earnings. It is so much more than that though. It is a time when we can think about what really matters. A time of reflection and peace. It is most of all though a time to realise that there is so much more to this world than the maximisation of self interest. If the old economics is to be overturned it won't be through campaigns against capitalism or shouting slogans. It will be about taking a moment from our own selfish ideals and thinking about others. If we act on those thoughts then just imagine the benefit to all.

COP21 must act as catalyst for construction industry

The success of the Paris Climate Change agreement must be tempered by a realisation of how difficult it will be to achieve.
For the construction sector in particular it provides a challenge which will be hard for some countries to overcome. At present the construction industry is responsible for more than 30% of the world greenhouse gas emissions. As the delegates at the climate change conference fly back to their home nations on private airplanes it will fall to the construction industry to ensure that they can meet the target of below two degrees for global warming.
Recent statistics have given rise to the prediction that the global population could be nearing 10 billion by 2050, about the same time that global greenhouse gas is expected to rise by 70%. With such a dramatic increase in population comes and equally dramatic need for construction. 10 billion people need homes to live in, hospitals to be born and treated in, schools to be educated in, factories and offices to work in, shops to buy goods in, roads to travel along and on and on. The construction industry is set for a period of growth, even taking into account that the majority of those born between now and 2050 will be in developing countries without necessarily having access to all of the facilities which would be hoped.
If the global construction industry is going to meet the needs of these dual issues then it is going to need to start adapting to new technologies and embracing some existing ones.
The construction of Passivhaus builds for example could become the norm as an increasing number of architects and contractors see them to being the solution to meet the current climate change targets. “With innovative new technologies and expected cost reductions, climate-damaging emissions can be further cut, leading to an eventual complete decarbonisation of the sector”, Oliver Rapf, Executive Director of the Buildings Performance Institute Europe (BPIE) writes on the subject in a publication for the think tank Friends of Europe.
The principles behind Passivhaus design are quite simple, and play nicely to the principles set out in the Paris Climate Change Agreement, Carbon Dioxide emissions are reduced as the energy consumption of these build is limited by their heat retention capability. Likewise in hot weather the buildings ability to maintain a constant temperature internally through its design prevents the need for air conditioning or other energy intensive measures. Even with a new focus on renewable energy the increased efficiency of Passivhaus builds is likely to be an area of growth in the future, after all preventing the need for the energy consumption is preferable to needing even green energy sources.
"Renewable energy is absolutely essential for climate protection, but better efficiency offers even greater potential", says Dr. Wolfgang Feist, Director of the Passive House Institute.
Forty-five years from now the world and the construction sector in particular will be a very different place. The evidence for this is simple just look at the construction industry in 1965 compared to today. By embracing new ecological and sustainable building practices the industry in 2050 can still be the driving economic force it is now, more importantly though it could potentially be the driving environmental one as well.

Sugar tax leaves a sour taste

THE figures are startling and should be cause for concern however imposing ill thought through taxes is not the answer
According to recent figures one in three children leaving primary school is overweight, or obese. This is not to say, as some newspapers have claimed, that this same proportion of children are obese, just that they are over the recommended weight for their size.
The Common’s Health Committee is now proposing a tax on sugary drinks to help combat the epidemic of obesity which they see as infecting the country. A pigovian tax on sugar in the UK would fail to do anything more than cause even more fear among those parents already aware of the dangers of too much sugar and penalize families from the lower end of the income spectrum though. At best it would create a temporary decline in the amount of sugary drinks being consumed as a result of the media coverage; however, the overall impact in the long term would be negligible on the consumption habits of individuals.
Much has been made of the impact a similar tax has had in Mexico. Proponents of the legislation are only relying on a micro focus rather than looking at the larger picture. In Mexico the tax is based on per litre servings of sugary drinks. While the data shows that there has been a drop in the consumption of larger bottles experts have calculated that this reduction can be explained by people shifting to purchasing smaller servings. One such study led by Emilio Gutiérrez, a professor at Mexico’s ITAM University calculated that this shift in consumption habits from larger to smaller servings could account for 60% of the documented drop, while not actually creating a decline in the overall amount of sugary drinks being consumed.
Pigovian taxes are intended to address problems associated with negative externalities in the market, such as the health risks linked to too much sugar. By imposing these taxes states hope to combat inefficient market outcomes by imposing a cost for negative behaviours. They are already used in regards to smoking and alcohol and it has been suggested that such taxes should be imposed on fatty goods as well as sugar.
One of the key problems in imposing them though is in ensuring that the negative social consequences of the good, or action being taxed, is correctly calculated to ensure that it is balanced against the rate of tax being imposed.
Due to the overall costs of sugary drinks the level of taxation on each bottle would result in minimal revenues and marginal, overall, increases cost of the end product. In Mexico the tax started at about 10c on the dollar before being reduced to 6 cents. This type of increase would in most case be absorbed by the producers, who will still be making supernormal profits on their goods, and in cases where it isn’t is unlikely to be enough to deter people from making the purchase.
The cumulative effect of the increase, in the cases where it is passed onto the consumer, is most likely to hit those at the lower end of the income threshold. The theory of the tax increasing the substitution effect fails to take into account behavioral triggers which drive particular groups to purchase specific goods. Certain labels have a cache about them which creates a system of conspicuous consumption, particularly among the young and less educated, which will not alter with the creation of the tax and won’t be altered by any amount of substitution factor.
The concept of the tax has been drawn up by well intentioned individuals who haven’t realised the real draw of sugary drinks. There is a reason why people buy Coke and not the supermarket own brand. It isn’t about the cost. If obesity is really to be tackled then taxes on sugary drinks won’t do it. Increased education about health issues and more exercise programmes in school may be the way to go, if only we could find a way to fund them.

Sugar tax leaves a sour taste

THE figures are startling and should be cause for concern however imposing ill thought through taxes is not the answer
According to recent figures one in three children leaving primary school is overweight, or obese. This is not to say, as some newspapers have claimed, that this same proportion of children are obese, just that they are over the recommended weight for their size.
The Common’s Health Committee is now proposing a tax on sugary drinks to help combat the epidemic of obesity which they see as infecting the country. A pigovian tax on sugar in the UK would fail to do anything more than cause even more fear among those parents already aware of the dangers of too much sugar and penalize families from the lower end of the income spectrum though. At best it would create a temporary decline in the amount of sugary drinks being consumed as a result of the media coverage; however, the overall impact in the long term would be negligible on the consumption habits of individuals.
Much has been made of the impact a similar tax has had in Mexico. Proponents of the legislation are only relying on a micro focus rather than looking at the larger picture. In Mexico the tax is based on per litre servings of sugary drinks. While the data shows that there has been a drop in the consumption of larger bottles experts have calculated that this reduction can be explained by people shifting to purchasing smaller servings. One such study led by Emilio Gutiérrez, a professor at Mexico’s ITAM University calculated that this shift in consumption habits from larger to smaller servings could account for 60% of the documented drop, while not actually creating a decline in the overall amount of sugary drinks being consumed.
Pigovian taxes are intended to address problems associated with negative externalities in the market, such as the health risks linked to too much sugar. By imposing these taxes states hope to combat inefficient market outcomes by imposing a cost for negative behaviours. They are already used in regards to smoking and alcohol and it has been suggested that such taxes should be imposed on fatty goods as well as sugar.
One of the key problems in imposing them though is in ensuring that the negative social consequences of the good, or action being taxed, is correctly calculated to ensure that it is balanced against the rate of tax being imposed.
Due to the overall costs of sugary drinks the level of taxation on each bottle would result in minimal revenues and marginal, overall, increases cost of the end product. In Mexico the tax started at about 10c on the dollar before being reduced to 6 cents. This type of increase would in most case be absorbed by the producers, who will still be making supernormal profits on their goods, and in cases where it isn’t is unlikely to be enough to deter people from making the purchase.
The cumulative effect of the increase, in the cases where it is passed onto the consumer, is most likely to hit those at the lower end of the income threshold. The theory of the tax increasing the substitution effect fails to take into account behavioral triggers which drive particular groups to purchase specific goods. Certain labels have a cache about them which creates a system of conspicuous consumption, particularly among the young and less educated, which will not alter with the creation of the tax and won’t be altered by any amount of substitution factor.
The concept of the tax has been drawn up by well intentioned individuals who haven’t realised the real draw of sugary drinks. There is a reason why people buy Coke and not the supermarket own brand. It isn’t about the cost. If obesity is really to be tackled then taxes on sugary drinks won’t do it. Increased education about health issues and more exercise programmes in school may be the way to go, if only we could find a way to fund them.