Tuesday, 31 January 2012

Notes on Capitalism for those without an Economics background (very long)

As long as I can remember (and much longer still) there have always been those who have repeated that most venerable of arguments: Capitalism will surely destroy itself. And sure enough it has, many times, only to startle its critics by rising phoenix-like, each time fresh-faced and re-invented with some change of regulation or modification to the status quo and a promise of “never again”. A new state of play but the same old game.

To most of us, it would be nice if capitalism would simply define itself. After all, the lines between capitalism and socialism, and socialism and communism all blur if seen from the right perspective (or side of the Atlantic). So what is capitalism, and how can we reform it?

There isn’t a single form of capitalism of course, and in conversation we constantly hear it conflated with ‘markets’, privatisation and the profit motive. This essay will strive to set out some basic, hopefully accessible definitions and descriptions which are universal across the capitalist systems of the west, and to examine in brief what it means to ‘reform capitalism’.

The Capital Idea

A good starting point is capital itself. Capital comes in many forms, and can be divided into potentially limitless categories, but the basic meaning is some productive value capable of producing or constituting wealth. Human capital includes personal skills and aptitudes, while physical capital usually refers to machinery, technology and so on. There’s also capital in intellectual property, social arrangements, roads and sewers and so on.

The total stock of capital a country has is a good indication of its wealth and future prospects, but not all capital is equal. If an earthquake destroyed all our factories tomorrow we might rebuild in time, if we lost all our accumulated knowledge from the past two thousand years, it might take considerably longer. In fact science, engineering and information play a unique and critical role in determining national wealth and potential, as they provide the ceiling above which a country cannot develop, and information is readily transmitted.

Consequently countries which lack vast human and physical capital can rapidly catch up to more advanced countries because they don’t need to go through the same process of scientific discovery and invention, though they still do need to take a long time to develop the skills, knowledge, institutions and infrastructure to rival advanced countries. For this reason, countries like China and India can grow more rapidly than the UK or US because they started from a lower base, but are catching up swiftly. We would not expect this growth to continue indefinitely.

Productive Assets

Growth itself is growth in GDP, and GDP is a measure of the total production in a country in a given year. Production is a function of capital; everything from new farming techniques to better training to more advanced machinery can increase productivity, and increased productivity means a lower unit cost for each ‘thing’ produced. Imagine this in terms of a farm, if you were able to produce more from the land via any of these methods, be it a combine harvester or crop rotation, you could produce more food from the same workforce.

Alternatively you could produce the same food from fewer workers. And that’s precisely what has happened across history, we’ve moved from a majority of humans working to feed themselves, to a percent or two in most countries. This increase in production leaves those workers unemployed, but they remain capable of production, and soon enough will produce some other desired good, be it a luxury like jewelry, or perhaps clothes, horseshoes and so on.

This is also why it’s possible for rich countries to produce more cars, computers or candles despite a smaller portion of the population doing those jobs. We can’t necessarily do the same for comedies though, at least until computers write the jokes. This contains a serious point, of course, some things are pretty much strictly the result of human endeavour. We can, however digitally distribute the fruits of this intellectual labour for an incredibly low distribution cost, and that’s a whole other set of problems.


In Demand

Economics is often said to be the science of satisfying infinite desires with finite resources, and this is lent a new reality in the information age by the capacity of the internet to take performances which only a few dozen people might normally see, and transmit them to millions over Youtube within hours or days. So is there an infinite demand for such performances?

For simplicity’s sake we can divide demand into two types: Expressed demand, and subjective demand, or external and internal if you like. Expressed demand is the stuff of supply and demand curves seen in economics, it relates to both the relative desire for some good or service, and the capacity to pay for it balanced against its price.

Demand is like a Russian doll, though, even when you demand a single object, like a car, you are really expressing a bundle of different preferences. You might want a red car, a car with a certain type of engine, and so on. Inevitably you will have to decide which preferences matter more to you, and compromise on which car you ultimately choose to buy, and this expression is in that sense impure, but weighted. The fact you bought a blue car registers within the market as demand for blue cars, even though in reality you preferred Red.

And each of us has many competing demands, and limited money. We are constantly weighing up one thing against another in our minds, and in Economics the act of weighing a purchase against the next best thing is referred to as the opportunity cost. If you buy two Mars bars for 50p each, you forgo the opportunity to buy a bottle of lucozade for £1 (your prices may vary).

Finally, when we come to our purchase we interface directly with the price. If the price of Mars bars goes up but the price of Lucozade stays the same, this may change our decision. In this way an increase in price will lower our expressed demand for that specific thing.

A Market for Everything

And so we come to markets. Markets are a strange thing, at once natural and inevitable, and yet simultaneously contrived by social convention. It is possible for a society to operate without ownership laws and rules, though it is not common, and virtually nonexistent in the modern world. Certainly the rules by which markets operate differ enormously from country to country, and even the mechanisms by which they operate can differ.

Even so, markets are fundamentally ‘emergent’ systems, they have no independent existence, there is no ‘market’, rather the market is just a way of understanding the self-organising properties of economic systems. This is worth exploring for a moment.

For any good there is of course a supply and a demand. If the supply of a good exceeds the demand at a given price, suppliers will tend to discount the goods in order to sell the excess. Similarly, if the demand exceeds supply buyers will compete for the scarce supply of goods, and in the process those who value the goods the most will opt to pay more in order to secure them. In this way, we can say that the market for a good exhibits a negative feedback-- that is to say, it opposes the direction of change from a given homeostatic point, which we call the equilibrium.

The equilibrium is nothing more or less than the price at which supply and demand are equal. This works because goods of a certain type will be more or less fungible, operating as close substitutes for each other. A barrel of oil, or a bag of sugar of a certain type from one source, is just as good as one from another source. This fact puts buyers and sellers in competition with one another, because if my price is too high, you can just as easily go to someone else.

This is a ‘competitive’ market framework, a theoretical system in which there are millions of buyers and sellers, and no individual is able to set the price. Rather the price ‘emerges’ from the interactions of all buyers, and all sellers. And this is the market.

An Embarrassment of Efficiency

In reality markets are far more complex. Free markets are never truly free, for without fierce regulation corporations and cartels swiftly concentrate power, the costs of ‘entry’ to the market rise, and information costs are ruthlessly exploited. Information costs are the cost of learning what you need to know to navigate the system, get the best price for a good, etc.

Similarly markets operate on the basis of the doctrine of ‘privity of contract’ (mostly), meaning that prices are set on the basis of transactions between buyer and seller only. This leaves so-called externalities unaccounted for in the price level. For example, a young person’s education does not only benefit them, it also benefits wider society, and the pollution generated by industry may be cheaper for them, but costly to the local community (or indeed the planet). These costs and benefits apply to society as a whole, and are not part of the transaction, which produces inefficient results.

Likewise markets can sometimes produce positive feedbacks, and this can be seen in speculative activity, where the direction of market movements is driven by the direction of market movements. This produces S-wave bubbles which are mediated primarily by State action via monetary and fiscal policy.

Even when markets work perfectly, the production is not always ‘good’. There is such a thing as both good, bad and indifferent GDP in various degrees. An easy example is that of US healthcare, which costs perhaps twice as much as a proportion of GDP as many other western nations, and delivers worse outcomes. Certainly a lot of production is going on, but is it beneficial?

It is as a rule always beneficial, on the other hand, to maintain the highest productivity possible. So-called “bad GDP” is not a cause for reducing GDP, simply for re-aligning it, so that everyone is able to be productive towards a socially beneficial goal, rather than a less beneficial goal. After all, production means taking less percentage GDP to achieve the same goal, as well as higher overall GDP. It also does not mean being environmentally unfriendly, as productivity gains can mean achieving more for fewer inputs.

In this respect, green technology offers enormous potential productivity gains by reducing both the externalities of pollution, and the costs derived from increasingly scarce hydrocarbon fuels.

Markets are themselves neither good nor evil, they are simply natural mechanisms by which our activities regulate themselves in large communities. It’s not unlike evolution in this sense, and the comparison has often been made, though just as with evolution, it is not survival of the fittest-- a term Darwin never used--, merely survival of the best adapted and best placed. Cooperation is just as valuable to survival as individual merit.

In fact the synergies that come with cooperation are also a reason that pooling resources can greatly increase productivity. To take a simple example, imagine a school employs three janitors. One each working eight of the twenty four hours in a day. As they don’t work at the same times, they could share a common set of equipment, they could co-ordinate on what to do, and they could share any special knowledge gained. Or they could all bring their own equipment and learn their own lessons, and do the same job twice for lack of information.

For this reason monopolies and concentrations of economic power can actually be very good for society. It varies depending on the context, but there is no single rule that can be applied to everything. Quite often you want the greatest competition possible and the greatest plurality of firms with the lowest entry costs to the market.

Structures, Institutions and the State

Speaking of synergies and concentrations of power, I mentioned earlier that social, infrastructural and institutional capital are significant factors in the wealth of nations didn’t I? Of course they are, and some of the reasons are more obvious than others.

A good transport network is necessary to get people and goods from A to B, an education system is needed to maintain a steady supply of well educated workers, a consistent legal framework ensures a predictable future, law and order reduces the threat of crime and provides remedies, and a lack of corruption means no bribes, no power plays by your rivals to drive you out of business by political means, and so on.

There are also more subtle aspects, such as cultural norms, work-ethic, even the philosophical disposition of the citizens towards believing they can control their destines, seems to have a connection to the outcomes. The behaviour of corporations, educational institutions and the state can all vary without any difference in the law, as well. A friendly, mutually beneficial relationship between industry and education is indeed mutually beneficial, and by no means automatic or universal. It requires work, and this is precisely what leads major political parties to seek to increase apprenticeships and corporate good citizenship.

Cultural and social connections can lower information costs, making it more likely that people with the right skills will be available for and able to find the right jobs to suit them, or that companies with bad track records are punished by consumers. Job searching and careers advice, as well as consumer advice and advocacy all fall under this province.

The State, apart from providing many of the aforementioned institutions and investing in roads and schools, can also intervene to help to build industries, subsidise important but costly projects, and steer the national economy through troubled waters. Sometimes this means intervening in the same problems that were mentioned when discussing markets.

Path dependency is another factor here. Although one of the functions of the market is pluralism, and to ensure risks and entrepreneurialism, sometimes the start-up costs are simply too high. Where a market already exists you will find expertise, experience, infrastructure and ties with educational institutions which do not exist elsewhere, and creating all of these overnight is simply impossible. As no single player within a market can produce the environment necessary for the activity to be profitable, it is unlikely to happen without state aid. Once it has happened though, new investments and innovations will reduce the costs until it becomes a larger, more diverse and vibrant industry-- assuming it takes off at all.

These are the risks and the benefits of State cultivation of industry. It can carve out a path for the great currents of industry to flow down, or it can dig a hole for itself. In some areas, such as health, the nature of the problem makes government involvement mandatory, as the profit motive will exclude the most expensive and difficult cases, and tends to under-prioritise preventative care.

Inequality

Path dependency and hysteresis have particular significance in the area of inequality. Even ignoring all the associated problems with lower educational attainment, social development, exposure to crime, violence, stress and anxiety, if you are poor capitalism undiluted is always harsh to you.

The wealthy have assets to pledge as security for any loans they want to take out, if they feel the need to do so at all. The poor are a greater risk, they have less wealth, less income and fewer prospects, all of which means they will attract higher rates of interest, less help and higher information costs. In fact the poor tend to have less knowledge of how to navigate the systems and institutions of society, less ability to pick through the tariffs and deals on offer in the market and greater exposure to financial stresses and strains.

And of course, those in minimum wage jobs are easily replaced by the millions of others in their position and have little bargaining power for determining wages, whereas there are only ever a handful of people with both experience and the skills required to run a massive corporation, and spending a few million on a single person is a good investment if they run a multi-billion pound company better than the next guy (though it is famously difficult to rate the actual contribution of a CEO vs the contributions of those lower down the chain than them, market movements, and sheer luck).

These disparities stretch into every aspect of life. Economics shapes the geography of affluence as well, with wealthier parents being able to pay more for those houses closer to the best schools, closer to their jobs-- thus allowing them to spend less time at work, and more with their children-- and inevitably, closer to each other. The poor, on the other hand, will inexorably go on to live in the postcodes that suit their tax code.



Real Demands, Real Needs

All of which raises a noteworthy point. I said earlier that those who value a thing more can bid more for it, and in this way economic transactions are supposed to be pareto efficient. That is to say, the people who value things the most end up with them, with both sides of a transaction better off, maximising utility. Clearly our more affluent citizens do not value nice neighbourhoods so much more than our more impoverished denizens, or at least, not in proportion to their bidding power.

Of course the answer is obvious, expressed demand is contingent on affordability. The poor cannot afford to express their demands to the same extent. What we can afford is just the tip of what promises to be titanic-sinking desire, but to what extent are our demands natural? Our ancestors probably didn’t yearn for ipads, or diet pepsi for that matter.

Obviously this area as with all others is immensely complicated, but here are three distilled sources:

1) Demand creates its own demand. Once you try something, you’re far more likely to want it, and if you’re used to something, perhaps you grew up with it, or it has emotional significance to you (I find tea immensely reassuring, personally), you are much more likely to want that thing.

2) Placebo or sugar? The mere association of a brand name with something, like the aforementioned pepsi can be enough to significantly change our subjective experience of it, to the point that a person tasting two identical liquids would enjoy the one in the brand-name container more-- if they like that brand.

In much the same vein, marketing, advertising and branding are used to create initial awareness-- you can’t want something you haven’t even heard of.

3) Social appearances. Keeping up with your peers is a known factor behind the desire to acquire. This is true of all income groups, and therefore, critically, is true despite the fact that in absolute terms relatively poor people today consume vastly more goods than wealthy people from centuries past.

More unequal societies may be unhappier for this reason alone-- the distance between the haves and the have-nots is great, social mobility is low, so the sense of your personal standing within society, and your power to change your own life is commensurably weak. Control and identity are critical factors in stress, anxiety and happiness.

Conclusions

Making no judgments-- or as few as I can manage-- about macroeconomic theory, consumerism, environmentalism and even feminism (does pornography shape demands, and social interactions, what are its negative externalities?), I’ve tried to outline the basic concepts which underly capitalism in the west. Some countries have more interventionist industrial policies, some have stronger social safety nets. Some have more concentrated market power, others are more pluralistic. Ultimately all have relied on markets to a greater or lesser extent, and with varying degrees of regulation and intervention. Pretty much none of them exhibit ‘pure’ capitalism, which almost certainly would destroy itself fairly quickly. Income and wealth inequality vary significantly, as do investment levels, and the degree of research and development each contributes.

Capitalism is not innately efficient. As well as externalities and market failures, its tendency towards inequality severely drains human capital and systemically under-invests in people whose potential may never be known simply because of their background. Ultimately, via debt, it can even produce scenarios where the capacity to express demand of large sections of the system breaks down, producing liquidity crises and demand shocks such as the one we’re experiencing at present, and without state intervention can enter into a cataclysmic freefall, much as it did in the great depression.

This point is somewhat moot however, as capitalism is not innately anything. Capitalism as a term is used to denote certain systems which have conditional, non-absolute but strong property rights, do not employ centrally controlled economies, and which aim to maximise net capital, with the proceeds of capital going to the capital owner to a greater or lesser extent, as controlled by the tax system.

Within that scope there are many ways to run a health care system or the media, to tax, to educate, to structure corporations, to regulate markets.

To reform capitalism three things are required: A goal, an understanding, and a plan. The goal might be to avoid disasters, such as the great depression, stagflation or anthropogenic climate change. It might be to achieve equality, or fairness, or egalitarianism. Maybe you really do just want to achieve efficiency, or maybe you want to empower citizens to fulfill their individual potential. Maybe you want to create a better citizen, encourage more voluntary work, more selfless behaviour.

There are lots of ways to change capitalism. Collectivism, socialism, civic republicanism. Employee owned firms and cooperatives. Changing the structure of corporations, or the role of unions. National service initiatives, incentives for non-profit organisations, even honour systems. And of course, apprenticeships, internships, work experience, job centres.

But it all starts with being clear about where we are, and what we want. Markets are brilliant, wonderful, elegant and utterly human creations, distant cousins of natural selection. The profit motive isn’t everything, nor is competition, but both have their place. And capitalism isn’t a monolith, it’s just that some capital is more equal than others.

Sunday, 15 January 2012

Some Brief Notes on the Fabian New Year Conference 2012

First up it was a great event with strong attendance and many excellent speakers. Front line Labour speakers including Ed Balls, Chuka Umunna and Rachel Reeves were present to defend and explain the Opposition's stance on the economy, and this became the dominant theme of the day. The conversation ranged from feminism, fairness and class to detailed discussions of Britain's competitive advantages and possible industrial policies, but returned again and again to the question of Labour's position as the day wore on.

The Opening Act

Ed Balls gave an excellent speech, perhaps softening the impression given elsewhere about Labour's stance on austerity and invoking Keynes and his legacy repeatedly. It was a long speech though, there was plenty of time to go into detail about economics and history and still circle back to Labour's position. The speech was good, but the tone of the speech simply does not and cannot match the language we hear from Labour on a day-to-day basis; whatever Ed Balls thinks or believes, it does nothing to assuage legitimate fears many of us have about where this is going.

Which brings me to my disappointment with Chuka Umunna, whom I have often praised in the past. He's often one of Labour's better broadcast speakers and I guess the infighting within Labour is a source of great frustration to him, because on Saturday he really let it show and consequently felt more abrasive than persuasive. He defended the party line aggressively but did little to answer the criticisms leveled at it.

The main argument against Labour is that it is failing-- whatever its core beliefs-- to act as a responsible opposition. Despite protesting that the cuts are wrong it has never presented a clear and unambiguous alternative, instead it has hedged, trying to capture an elusive concept of 'fiscal credibility', whose definition has arisen through the Government's persistent effort and success in hammering in the profligacy narrative. Of course it isn't purely a fiction, and it is powerfully and pervasively imprinted on the political consciousness at the moment, but if Labour believes its own statements on the economics, the next several years of Government policy will give them plenty of chances to assert their own narrative. If they have one.

Of course the deficit needs to come down, but private debt is far more worrying at the present. If unemployment and real wage decline continues households will not only spend less, they will default more. The UK is more exposed than most to this problem, and Labour should not be arguing about whether they'll have to accept cuts in 2015. We are barely into 2012. To spend your time talking about accepting the cuts in the future, however reluctantly is both unnecessary and foolish.

The public tend to regard Labour as equivocal, trying to have it both ways, and the Tories have been extremely effective at stating that Labour opposes all cuts. In the meantime, Labour's spokespersons are often confronted by the media with the fact that the Government is not cutting spending, but borrowing more, and all too often they fail to explain this in a way the average person will understand. Instead the impression is one of obfuscation. There is nothing Labour needs more right now than a clear, well defined, well voiced alternative vision for the economy.

An unpopular argument made now, and made repeatedly will bear fruit as the factual consequences of the Government's policy surface. Without a clear alternative choice, the country is stuck on this path, and whether the Government succeeds or fails, Labour will at best be ignored unless it is able to distinguish itself clearly and absolutely. Cutting the deficit must be secondary-- and resultant from good economic policy, it must not by itself be the policy. Fiscal credibility will be defined in the minds of the public by results. That is a legitimate criticism, and noone making it wants to wound the Labour party. But it is a democratic party, and these arguments will not go away.

Later That Day


Moving swiftly along, I want to give an overview of some significant arguments I heard come out of the event.  I'm afraid I'll skip or skim some wonderful contributions, but it was an eight hour long event and speech was dense and continuous, I can only encourage anyone who is able to attend future events. After the opening segments the conference gave way to breakouts, two groups of four parallel panels held in different rooms at the same time.


The first I went to was on inequality and class, but class definitely dominated the discussion. Here was an enjoyable, nuanced departure from the political wrangling of the morning, with talk of working class identity, the role of education and pecuniary inequality, whether we unconsciously discriminate against certain accents and ways of speaking and many other topics. The panel and its audience questioned the move towards middle class identity, even as real incomes have declined in the lower half of the population, and the difference in what we aspire to in a consumerist age.

On the whole there wasn't much room for disagreement, but it was absolutely the epitome of the Fabian society, a deeply academic discussion of something which is utterly real-world, and which all-too-often goes undiscussed in the public discourse. You often hear criticism of the abstract, but it helps to form the mental framework which we carry with us when tackle the practical questions of policy, and improving the society we live in, and that's exactly what this was, an examination of how we understand these issues.

The second of the two sessions I went to was focused on what Britain is good at, what we do well, be it financial services or pharmaceuticals. This was a little more combative, with back and forths on the question of 'picking winners' which were both civil in conduct and enlightening. As well as the historical argument concerning the wealth of critical inventions, projects and successes the State has made possible over the centuries there was a more immediate argument here. Sometimes the winners are pretty evident, and while you won't always get everything right, that's no reason to give up.

The key industry being discussed in this context was, perhaps unsurprisingly, green technology. This isn't just a question of carbon based fuels running out, or of burgeoning demand, but of simple questions of efficiency and productivity. If a company, a factory or a household can use 50% as much energy, they not only contribute to tackling climate change, they save a lot of money. With energy bills at unaffordable levels for most voters right now, this is hardly an abstract question.

I would add to this one note of my own: Path dependency also speaks in favour of this. If the infrastructure is in place and the industry is well established it will be cheaper to operate, cheaper to innovate and easier to get private money to invest in it. The economies of scale, the development of local talent and resources are all vital, government aid can make or break an industry, and sticking by an established one which already has these advantages is not merely conservative, but potentially a huge waste of an opportunity.

Finally I want to mention that immigration and the role of brain drain came up in this discussion, and the Government's policies were strongly criticised for their impact on the development of foreign-born talent. Equally, note was made of the fact that unrestricted immigration is simply not practical or desirable on a small island with limited public service capacity in any given moment. The emphasis was primarily on skilled labour.

Parting Words


Another really big feature of the day, which came up in Ed Balls's speech, and several times in the latter half of the day, was that of a national investment bank, intended to use the near zero interest rates available to government to invest in infrastructure projects, and similar arrangements for SMEs. Bearing in mind that loans are currently very hard for small enterprises to get, and almost invariably more expensive and difficult in any environment it's easy to see the virtue of sidestepping capitalism in this area.


This is intended to boost lacklustre British investment, improve infrastructure and economic efficiency, make life easier for commuters, and hopefully, develop a reliable return on the money drawn down, thus reducing its footprint on public finances. A similar suggestion was made by Ken livingstone later in the day, when he put it to the Fabians that state pension money, and indeed, private pension money could be used in such a way, with the goal being government underwriting, greater safety for reasonable returns. This would substitute for the way private pensions are, lamentably, managed at present.

Ken was on very strong form here railing against Boris, ebullient and affable as ever. An upcoming race, one not dominated entirely by Labour infighting or the economy, was not on reflection a bad note to end the day on. It is easy to find the present political situation depressing, but, thankfully, a wonderful conference came to a rousing conclusion.

Sunday, 1 January 2012

Notes on Liberty (long)

Liberty, freedom, your-shibboleth-of-choice-here. There is a dangerous tendency at large in the world today, a habit formed through long years of casual use and cultural osmosis: The tendency to treat the concept of freedom casually, as if it were universal, simple, good, absolute. And yet as broad, vague and generally fuzzy as it is, freedom is usually remarkably narrowly defined. It is individual freedom, almost invariably negative liberty-- freedom from, not freedom to. Individual freedom, to do what we like without being told what to do by the state.

Of course there are contradictory concepts of liberty in politics, or at least concepts which in specific circumstances may prove mutually exclusive, or in some cases merely paradoxical. Let's take two examples to start off with, one each from the polar extremes of the scalar spectrum:

 Nations often find themselves bound to a given course, against their democratic or even technocratic will because to do otherwise would have a perverse effect. We see this in the constant drive to lower taxes on the wealthy / corporations, so as not to drive them offshore. Consequently agreements in international law which otherwise constrain nations by requiring them to adopt specific ways of taxing legal persons and so decrease de jure sovereignty, nonetheless increase de facto sovereignty by allowing a greater range of policies domestically.

This is the sort of problem we hear about where politicians say something is a fine idea in principle, but will only work if there is a global regime. A similar phenomenon can be seen in the ‘race to the bottom’ in federal systems, as states try to capture corporate investment via fiscal policy by outbidding or undercutting each other, and leaving the federal government to cover the difference. Competition gives power to the most mobile, with labour almost always being the least mobile, and yet the most likely to vote. Democracy's loss arises not out of strict necessity, but out of the freedom of movement combined with unfettered freedom in respect of tax policy.

On the other hand we have things like contract law (and criminal law), which even libertarians tend to favour the enforcement of. Contract law restricts individual freedom to some extent, this removes the need to bring serious collateral, or guns into agreements. The capacity to settle disputes and ensure a consistent predictable process, rather than restricting overall freedom, actually empowers individuals to act more expansively. More contracts take place, more business, more investment.

This latter is a trade-off between what we might call negative liberty, or the freedom from interference by such bodies as the state, and positive liberty, or an outside agency empowering you to be able to do something. When the state pays for your health and literacy to be taken care of (in theory), this is empowering you to have the freedom to do most everything you take for granted. A more specific example that is often given, is that the negative freedom to vote matters little if you cannot positively get to the polling station, or positively understand what is written there.

There are also concepts of social freedom, freedom to assembly, to form group identities, to hold a religion and so on. In and of itself though, this is a strangely un-British idea, as we tend to hold that anything not forbidden is by default permitted.

Freedom is not static though, it is fluid. If an individual has the freedom to do a particular thing, such as murder, it may affect the choices others *feel* able to make, such as walking down the street without a weapon for defence, and so it is that in every corner of life we find rules, either social or legal. A more mundane but believable example might be if you were paid a bonus for doing work faster, but you were also able to cut corners which someone else in the office would have to pick up, and it couldn't be traced to you / you were not judged by this practice. It would be only a matter of time until one of the more unscrupulous workers took up this glistening opportunity.

This advantage will at first be contained by social and cultural emergent norms, or rules. That is to say, team-mates will dislike you, exclude you, etc for doing it, and therefore you won’t. But if such a behaviour takes hold, or if individuals view it as a ‘job’, and regard their own success as more important than how they act in an ethical sense, then the incentive to act unfairly may take over. If enough people act this way, even stringently ethical individuals may find themselves cheating simply to survive. If eventually everyone is doing it, or the only ones who aren't are bitter and resentful, the effect is a worse workplace.

Perhaps not the best example, but in systems with performance based incentives things like this happen a lot. The law of unintended consequences means that narrowly construed rules or incentives can produce undesirable behaviours.

Another rather baffling-- though perfectly understandable-- behaviour arises at the corporate level. Mortgage companies (and many other types of company) would often give better discounts / deals to new customers than to old / existing / loyal customers. This was / is because they were looking to tempt people away from their rivals, whereas existing customers had a good chance of staying with them without shopping around.

As a result, companies would trade customers, with little clear benefit, and incentivise the public to shop around, benefiting them for what would otherwise be wasting their time, and in the meantime what amounted to a tax on loyalty affected everyone else. The high information costs of the poorest-- the lack of time / knowledge which makes it difficult to obtain good information-- means they often suffer the worst prices. This unfortunate consequence doesn't come as a result of any really meaningful social benefit, it happens simply because you cannot fail to act, if by so doing you allow a rival to act to your disadvantage.

Similarly, as has been mentioned elsewhere, when lending was being extended to riskier and risker clients, banks which didn’t engage in this activity would lose market-share. Therefore, those making the decisions would be under pressure to do that, or, possibly, be replaced by someone who would. We can blame bankers for immoral behaviour, but it's always far more sensible to simply improve the rules and incentives.

Two more examples from a different kind of situation:

Constitutional Jurisprudential tension. In the US they have a very strict, difficult to change, and not terribly clearly worded constitutional document. As a result, two hundred years or so of social and political change, together with this ambiguity and intransigence in the documents themselves has lent itself to a flexible and expansive interpretation of the text. This interpretative activism has created in the judiciary a political power of sorts, and therefore the nomination and selection process for justices has inevitably become increasingly political.

Meanwhile in the UK, where the constitution is utterly fluid and unwritten, reliant to some degree on gentleman’s agreements and constitutional convention, the literal interpretation, together with conventions providing that judges shall avoid adopting political roles, and politicians shall avoid criticising judges, has created an effective doctrine of parliamentary supremacy with a remarkably independent and a-political judiciary.

This might seem more abstract and less germane to a discussion of freedom, but it sets out a long term vision of how contextual behaviour is and always must be. Everything takes place within, and creates around itself a structure like a snail shell.

In the arms trade we see governments actively exhibit this kind of behaviour. Countries are often accused of double standards in selling weapons to shady regimes, but of course these deals, and other logistical sleight of hand provide jobs at home, and as everyone is able to, someone else is bound to. This pre-emptive immorality for selfish gain is not inevitable, but it is extremely likely in such situations. Not every government will pursue or endorse this kind of behaviour, but even those which do face a difficult trade-off.

Finally, if you have strict laws governing something, you actually free up agents to engage in anything *short* of breaking the law, including bending it, subverting it and brushing up against it in a sinister sort of way. This is because the law upholds the system, keeps the game running. No law governing the system? Then you have a self-organising ruleset. That is to say, if you play a game with someone and they keep cheating, eventually you stop playing. Reciprocal goodwill becomes necessary, which is why in international law trade rules are usually respected, and the WTO/GATT are among the more successful bodies. In this situation if one country fails to follow the rules, a trade-war can break out and damage all parties.

This is not to say that the law of unintended consequences should be allowed to govern policy. Without government there are usually worse problems, which noone would intend for. Indeed, the next step in a system of reciprocal good will is for countries to band together and punish offenders consistently irrespective as to their own interests-- this happens with piracy, as a jus cogens of international law, for example, and obviously resembles domestic law much more. It is worth recognising that law can sometimes displace custom though, and in so doing, displace moral reasoning unless the law's intent is internalised.

Freedom in a deterministic universe is always a dangerous word. We are always free within some definition of free. We are always rational within some definition of rational. The question is, how bounded is that rationality, what kind of freedom? We can always choose from the choices available to us, we can always act in the ways allowed. The question is, who decides on what choices are available? (the market / the political market / the ‘free market of ideas’) or which behaviours are acceptable? (the government / the courts / social mores) and how? (democracy / autocracy / communism / capitalism etc ) Choices available are themselves affected by information, by hysteresis, culture and so on, as well as the mechanisms involved.

The consequences of freedom are also profound. Individualism can be a dangerous construct, as it tends to lead us to assert our individuality without being any wiser as to our nature. Being free to act foolishly is fine to a degree, we must have freedom, we must make mistakes in order to learn from them. Yet, we must also accept outside wisdom, outside limits, and sometimes, prohibition from dangerous and reckless actions. This is why we aren’t allowed to drive while drunk, even though we’re sure we’ll be fine. Why we can no longer smoke where it will harm the public, even if we don’t believe the science.

Social choices are subject to the mechanisms we use to aggregate individual choices (voting mechanisms such as first past the post, AV, etc), the structure of politics (parties, coalitions), and how we get access to information. This last one presents a final baleful examination of freedom, altogether too often-- but not always-- without responsibility. The press could be a group of professional men and women treating their work as a science, checking every source, dotting every i, conscientiously factchecking statements, investigating the integrity of other organs of society, and trying to inform and educate the public on important issues, rather than entertain them. The reality is that while this no doubt happens most of the time in some degree, and some of the time to a great degree, in a highly competitive market the priorities of a paper are often survival and profit.

Over time, this can change the culture and character of the profession, as I think we’ve all seen. We have to ask, in a deterministic universe, not just what freedoms matter to us, but what constraints matter. What it is that we can do to help keep ourselves on the straight and narrow, without ordering each other to behave constantly. We should never kid ourselves that we are ever free, because that lie is the one true seed of enslavement, it is only the awareness that our behaviour is limited, and springs from our character, our limited knowledge and awareness, our irrationality, that allows us to grow, to choose our own path.

Similarly, we must not ask for liberty or death from our state or our society. We must of course make our choices valiantly, to strive to earn their respect, to earn the right to be applauded and cherished for our choices, but we must always recognise the price of absolutism in our obsession with unfettered personal expressions of will. The price of freedom without consideration is not chaos, but it is a world we wouldn’t necessarily want to live in.