Wednesday 25 August 2010

What does 'Reputation' mean in a world of instant knowledge?

Eric Schmidt, CEO of Google, has made the headlines this week for suggesting people will need to change their names to hide embarrassing material from their past. Indeed, for each cautious person who monitors carefully what they post about themselves online, there are several more who put little thought into it. And we cannot control what other people post about ourselves.

However I believe that in liberal-minded societies (such as the majority of Europe and parts of America), it is more likely that people’s standards will adjust. Having a spotless record in your past will not be a requirement for a responsible job, because enough people will recognise that a few wild years is actually the norm. This has already become the case, to an extent, with the public’s acceptance of politicians who have smoked cannabis. I expect that in future generations, people will be judged on their merits and not on their social faux-pas, recorded forever in the social media archives.

There may be a rather more serious problem in societies which are less accepting of the rebellious behaviours of the young. Super-conservative religious communities come to mind, such as the Christians of ‘Bible-Belt’ America, or Muslims living under Sharia law. Standards of acceptable behaviour are much more restrictive and the consequences of straying from the straight and narrow can be serious. And while these societies are just as exposed to new technologies as the rest of the world, their cultural norms may adapt more slowly.

In this sense, the ease of accessing information, that Eric Schmidt’s comments have highlighted, may have a polarising effect on culture. In liberal cultures, behaviour will become more open; in conservative cultures a paranoia about tainting one’s record could reinforce the restrictions. It’ll be interesting to see how it plays out...

Wednesday 18 August 2010

An Immigration Cap? Bad for the UK; Good for everywhere else

There is a lot of debate at the moment over whether the UK should put a cap on the number of migrant workers allowed into the country. Even the two coalition party leaders are at odds over this issue. With visa restrictions already tightening, it looks as though the conservatives are bowing to populist demand for an immigration cap, to the detriment of British business.

There are convincing theoretical arguments for why limiting immigration of skilled workers is a bad thing for the country. Workers coming to the UK from overseas are benefitting the economy by expanding the supply of goods and services while also increasing consumption. Working adults generally pay more in tax than they receive in public services, thus helping the public finances. And by working in the UK they are increasing the country’s capacity to export goods, which improves the long term sustainability of the economy.

To back up the theory, there is empirical and anecdotal evidence that demonstrates the benefits immigrants bring to an economy. In his book “Outliers”, Malcolm Gladwell describes the entrepreneurial success of Jewish immigrants in New York in the early 20th century. He argues that migrants are at an advantage when it comes to starting new businesses, as they can apply knowledge from their home country to a new environment (more of my own views on this at a later time!) Looking at the 21st century, Thomas Friedman writes in “The World is Flat” about the large number of Indian entrepreneurs who studied for degrees in the USA, but started their businesses in India as the visa restrictions made it so difficult to settle in The States.

These should serve as a lesson to UK politicians as they consider the UK’s immigration policy. It seems the main argument in favour of capping immigration is so that more jobs are available for British workers. While this may be true on a timescale of 3 to 12 months, in the longer term businesses will simply choose to expand in other countries.

This would be bad for the UK. However I did not start this blog just to write about the UK. Taking a “World View” instead of a country-centric one, I actually believe that transferring the economic benefit that skilled workers produce from developed countries to developing ones is a good thing for the world as a whole. All those Indian entrepreneurs who left the US to start outsourcing companies in Bombay, Bangalore and Hyderabad have helped rebalance the wealth and power in the world; if more of the same happens because of the UK government’s short-sightedness, I won’t hold it against David Cameron.

Sunday 1 August 2010

The Trouble with Healthcare

Both the US and the UK are preparing dramatic reforms to their respective healthcare systems. In the US, the role of the government is set to increase; in the UK the role of the free-market is being expanded.

Why is it so hard to design a healthcare system that works? Last week’s Economist ran thoughtful articles on both the UK and US reforms which highlight some of the problems. In a sentence...

“The demand for healthcare is always greater than the resources available.”

This problem applies to (almost) every industry, but is particularly troublesome for healthcare because rationing access to health services causes pain and mortality. Healthcare resources must be allocated somehow, and the main issue is whether free markets or government intervention is better. Unfortunately both of these paradigms lead to some perverse incentives.

Under the free market system, as exemplified by the US, there is an incentive for health insurers to try to minimise provision of treatments. The consequences of this are emotively depicted in Michael Moore’s superb film ‘Sicko’. Where treatment is provided, the patients typically demand the latest available procedures and medicines, which leads to extremely high expenditure. In addition, the paperwork and bureaucracy involved, not to mention the lawsuits, impose another heavy cost. Healthcare expenditure per capita in the USA is the highest in the OECD – but in international league tables the health outcomes are mediocre at best.

Compare this, then, to a government-run system such as the NHS. Centrally planned health care brings its own set of problems. Some are ethical, such as the rationing of expensive treatments and drugs, which is essential to keep costs down. This is one source of resistance to government planning in the US. Other problems are to do with incentives – as public sector employees, healthcare providers do not have the ‘profit motive’ to help stimulate efficiency. The government must design its own set of incentives that aim to maximise patient care at minimum cost, and then monitor performance; a set of tasks the government is not typically very good at.

Despite these pitfalls, the benefits of government-run medicine is borne out in the statistics: European countries have better health indicators and lower health expenditure than the US.

There is clearly some way to go before we find an optimal method of healthcare management. The reforms in the UK and the US are both trying to find some middle ground that gets ‘the best of both’ of the market based and publicly run systems. I can’t help feeling that some more fundamental paradigm-shift is required before we find a truly effective healthcare system.