As a resident of Bristol it is with considerable interest that I’m following the development of the Bristol pound, due for launch in September 2012. One Bristol pound will be worth one pound sterling.
The new currency will be issued in demoninations of £1, £5, £10 and £20 and there is a local competition to design the notes. Participating local traders will open accounts with Bristol Credit Union, which will administer the scheme. It has FSA backing and so all deposits will be guaranteed up to £85,000.
The idea of a local currency is not new. There are already local currencies in Stroud in Gloucestershire, Totnes in Devon, Lewes in East Sussex and Brixton in south London. The Bristol scheme, however, is the first to be introduced on a city-wide scale. The administrators are keen that use of the currency should be as easy as possible; people will be able to open accounts with Bristol Credit Union, pay bills online or by mobile phone.
As the money has to be spent locally, the aim is to help local business, of which more han 100 have already signed up to the scheme. Bristol has a large number of independent traders – in fact, the road where I live is off the Gloucester Road, which has the largest number of independent traders on one street in the UK. The organisers of the Bristol pound are determined to preserve the diversity of shops and prevent Bristol from becoming a ‘clone town’, with high streets full of chain stores.
But how likely is the scheme to encourage people to shop in independent shops and deal with local traders? Will the scheme take off, or will it fizzle out? What are its downsides? The following articles consider these issues.
Articles
The Bristol Pound set to become a flagship for local enterprise The Random Fact, Thomas Foss (7/2/12)
What is the point of local currency? The Telegraph, Rosie Murray-West (7/2/12)
The Bristol pound: will it save the (local) economy? Management Today, Emma Haslett (6/2/12)
‘Bristol Pound’ currency to boost independent traders BBC News Bristol, Dave Harvey (6/2/12)
We don’t want to be part of ‘clone town Britain’: City launches its own currency to keep money local Mail Online, Tom Kelly (6/2/12)
British Town Prepares To Launch Its Own Currency — Here’s How That’s Going To End Business Insider, Macro Man (7/2/12)
They don’t just shop local in Totnes – they have their very own currency Independent, Rob Sharp (1/5/08)
Videos and webcasts
The town printing its own currency [Stroud] BBC News, Tim Muffett (22/3/10)
Brixton launches its own currency BBC News (17/9/09)
Local currency BBC Politics Show (30/3/09)
Local currency for Lewes BBC News, Rob Pittam (13/5/08)
The Totnes Pound transitionculture.org on YouTube, Clive Ardagh (21/1/09)
Local Currencies – Replacing Scarcity with Trust Peak Moment on YouTube, Francis Ayley (8/2/07)
Questions
- What are the advantages of having a local currency?
- What are the dangers in operating a local currency?
- What steps can be taken to avoid the dangers?
- Can Bristol pounds be ‘created’ by Bristol Credit Union? Could the process be inflationary?
- What market failures are there in the pattern of shops in towns and cities? To what extent is the growth of supermarkets in towns and the growth of out-of-town shopping malls a result of market failures or simply of consumer preferences?
- Are local currencies only for idealists?
There is a growing consensus amongst the political parties in the UK that something needs to be done to end the huge pay rises of senior executives. According to the High Pay Commission, directors of FTSE 100 companies saw their remuneration packages rise by 49% in 2010. Average private-sector employees’ pay, by contrast, rose by a mere 2.7% (below the CPI rate of inflation for 2010 of 3.3% and well below the RPI inflation rate of 4.6%), with many people’s wages remaining frozen, especially in the public sector. (See Directing directors’ pay.) In 1979 the top 0.1% took home 1.3% of GDP; today the figure is 7%.
But agreeing that something needs to be done, does not mean that the parties agree on what to do. The Prime Minister, reflecting the views of Conservative ministers, has called for binding shareholder votes on top executives’ pay. The Liberal Democrats go further and are urging remuneration committees to be opened up to independent figures who would guard against the cosy arrangement whereby company heads set each other’s pay. The Labour Party is calling for worker representation on remuneration committees, simplifying remuneration packages into salary and just one performance-related element, and publishing tables of how much more bosses earn than various other groups of employees in the company.
So what measures are likely to be the most successful in reining in executive pay and what are the drawbacks of each measure? The following articles consider the problem and the proposals.
Articles
Parties draw up battle lines over excessive executive pay Guardian, Patrick Wintour and Nicholas Watt (9/1/12)
David Cameron’s plans for executive pay may not end spiralling bonuses Guardian, Jill Treanor (8/1/12)
Executive pay: what would Margaret Thatcher have done? Guardian Politics Blog, Michael White (9/1/12)
Businesses tell the PM he’s wrong about ‘fat cat’ pay Independent, Nigel Morris (9/1/12)
Directors’ pay is not the Government’s business The Telegraph, Telegraph View (9/1/12)
I’ll end merry go round of bosses’ pay, says David Cameron Scotsman (9/1/12)
Find a place at the table for public interest directors Scotsman, leader (9/1/12)
Cameron vows executive pay crackdown Financial Times, George Parker (9/1/12)
Q&A: Voting on executive pay BBC News (8/1/12)
Will shareholders crack down on executive pay? BBC News, Robert Peston (8/1/12)
Why didn’t investors stop high executive pay? BBC News, Robert Peston (9/1/12)
Report
Cheques With Balances: why tackling high pay is in the national interest Final report of the High Pay Commission (22/11/11)
Questions
- Why has the remuneration of top executives risen so much faster than average pay?
- What market failures are there in the determination of executive pay?
- What insights can the theory of oligopoly give into the determination of executive pay?
- Compare the proposals of the three main parties in the UK for tackling excessive executive pay?
- To what extent is it in the interests of shareholders to curb executive pay?
- Why may it be difficult to measure the marginal productivity of senior executives?
- To what extent would greater transparency about pay awards help to curb their size?
- What moral hazards are involved in giving large increases in remuneration to senior executives?
You might think that small environmentally-friendly companies would be moving into the green energy market: that setting up a wind farm, for example, would be a perfect business opportunity for a small company. In fact, the big companies are taking over this market. As the Der Spiegel article below states:
Europe’s wind energy sector is currently experiencing a major transformation. New massive offshore wind parks are soon expected to crop up off Europe’s coastline. Big companies like Siemens and General Electrics are increasing their stakes in a market worth billions. But experts warn that a new energy oligopoly may soon emerge.
So what is it about the wind energy market that makes it suitable for an oligopoly to develop? The two articles explore this question.
Winds of Change Der Spiegel, Nils-Viktor Sorge (1/11/10)
GE and Siemens Outpacing Wind Pioneers, Becoming Clean Energy’s “New Oligopoly” Fast Company, David Zax (2/11/10)
Questions
- What market failures are there in the wind energy market?
- What barriers to entry are there in the wind energy market?
- What economies of scale are there in this market?
- How are changes in this market affecting the minimum efficient scale of companies?
- Would there be room in the market for enough competitors to prevent collusion?
- How might the authorities prevent (a) open and (b) tacit collusion in the wind energy market?
- Do small wind energy companies have any market advantages?
Student fees are set to rise to between £6000 and £9000 per year from 2012 (see Will students be Browned off?. But I’m sure you know that already! Not surprisingly, there has been considerable debate about the effects on student debt and whether potential students will be put off from applying to university. But there is another issue, explored in the article below. This is the question of the ‘marketisation’ of higher education.
With the exception of the STEM subjects (science, technology, engineering and maths) universities will no longer receive any teaching subsidy from the government. Teaching will have to be funded from student fees. This means that provision will depend on supply and demand. If there is a high demand for certain courses, then the courses will be financially viable for universities. If not, they will have to close (unless the university chooses to cross-subsidise them from other profitable courses).
This might be fine if the market for university places were perfectly competitive and if questions of inequality of access were fully taken into account. But the higher education market is not perfect. The article looks at some of these imperfections and why, therefore, a pure market system will fail to achieve the optimum allocation of university places.
Browne’s Gamble London Review of Books, Stefan Collini (4/11/10)
Questions
- What information failures are there in the market for higher education places?
- What externalities are involved in higher education and will this lead to an over or underprovision of higher education in a pure market system?
- Apart from externalities and information asymmetries, what other market failures apply to the market for student places in HE?
- What are the arguments for subsidising non-STEM subjects (as well as STEM ones)? Should these subsidies vary from course to course and from university to university?
- What is the best way of tackling the problem of unequal access to higher education?
Until the credit crunch and crash of 2008/9, there appeared to be a degree of consensus amongst economists about how economies worked. Agents were generally assumed to be rational and markets generally worked to balance demand and supply at both a micro and a macro level. Although economies were subject to fluctuations associated with the business cycle, these had become relatively mild given the role of central banks in targeting inflation and the general belief that we had seen the end of boom and bust.
True, markets were not perfect. There were problems of monopoly power and externalities. Also information was not perfect. But asymmetries of information were generally felt to be relatively unimportant in the information age with easy access to market data through the internet.
Then it all went wrong. With the exception of a few economists, people were caught unawares by the credit crunch. There was too little understanding of the complexities of securitisation and the leveraged risk in these pyramids of debt built on small foundations. And there was too little regard paid to the potentially destructive power of speculation and herd behaviour.
So how should economists model what has been happening over the past three years? Do we simply need to go back to Keynesian economics, which emphasised the importance of aggregate demand and the ability of economies to settle at a high unemployment equilibrium? Can the persistence of high unemployment in the USA and elsewhere be put down to a lack of demand or is the explanation to be found in hysteresis: the persistence of a problem after the initial cause has disappeared? Can failures of markets be incorporated into standard microeconomics?
Or do we need a new paradigm: one that emphasises the behaviour of economic agents and examines how people act when there are information asymmetries? These are the questions that are examined in the podcast below. It is an interview with Nobel Prize winning economist, Joseph Stiglitz.
Podcast
Joseph Stiglitz: ‘Building blocks’ of a new economics BBC Today Programme (25/8/10)
Articles
Needed: a new economic paradigm Financial Times, Joseph Stiglitz (19/8/10)
Obama should get rid of Geithner, Summers Market Watch, Wall Street Journal, Darrell Delamaide (25/8/10)
This rebel’s heresy is not so earth-shaking Fund Strategy, Daniel Ben-Ami (23/8/10)
Questions
- What are Stiglitz’s criticisms of the economics profession in recent years?
- What, according to Stiglitz, should be the features of a new economic paradigm?
- Is such a paradigm new?
- Provide a critique of Stiglitz’s analysis.
- What do you understand by ‘behavioural economics’? Would a greater understanding of human behaviour by economists have helped avert the credit crunch and subsequent recession?