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The Scotland Effect - The Quest for Fiscal Autonomy

Hector McNeill1
SEEL

The question of the ways and means as well as feasibility of Scotland achieving fiscal autonomy were raised early on in the Scottish Executive's paper entitled "Choosing Scotland's Future, A National Conversation" published in August 2007. This succeeded in encouraging people to contribute to a "conversation" on the various points raised in that document. A section on the Scottish Executive website for people to post their views was set up as well as a section dedicated to some specific policy issues and inviting comments from the public. This early start and detailed discussions led up to the Referendum on Independence held 18th September, 2014. Unfortunately spoiler tactics involving a misrepresentation of the facts permeated the declarations of the opposition to independence. This is not a hint as to my position in Scottish Independence, it is a statement that we face a crisis in democratic ethics. Translating this into the context of economics we suffer from a failure to base our economic management on constitutional economic principles. It is evident that there are serious constraints on the effective delivery of solutions to freely identified needs through an effective method of public choice. This has a direct impact in supporting a deficient democratic model that tolerates advocacy and public discourse based on unashamed appeals to fear and ignorance as opposed to the provision of facts upon which to fashion inspiring feasible alternatives.

A commission was organized after the Scottish referendum to "agree" on the powers of the Scottish parliament and chaired by Robert Haldane Smith. This reported within less than 2 months of the results of the referendum and contained nothing substantive on the question of fiscal autonomy. It represents a case study in the failure to apply objective decision analysis and, as a result, recommendations are conceptual fossils more relevant to an unedifying past.

This note reviews some of the issues and the feasibility of achieving fiscal autonomy in Scotland.

In August 2007 I released a paper via the British Strategic Review introducing a series entitled "The Scotland Effect". The name "The Scotland Effect" for this series was chosen because in marked contrast to two efforts concerning two other important issues concerning constitutional change related to the European Union and Britain, at least Scotland has set an example by promoting public discussion and debate through their "conversation". It was already apparent that this would lead to many issues being raised to the surface which had lain for too long out of sight and therefore not considered in full by the public. Therefore, this Scottish initiative would end up influencing other initiatives as well as new work on constitution both at the UK and European levels, thus the series title "The Scotland Effect".

In September 2014 I completed another paper on what I considered to be the most fundamental question on independence entitled "Fiscal Autonomy - Part 1" posted on the British Strategic Review website. This introduced the Real Incomes Approach indicating a more detailed exposition would be produced in Part 2 of this document. I am afraid Part 2 never appeared because of other demands on my time. However, in the meantime advances in the Real Incomes Approach would have made much of the content, based on the then current state of knowledge, somewhat redundant. This is why it is fortunate that I have only been able to produce this paper now.

What is fiscal autonomy?

Fiscal autonomy is a process of raising money in order to pay for goods and services which a population has agreed are needed and where they have also agreed that the raising of finance and perhaps implementation should be managed through their government or government institutions. In a democracy the amount to be raised, means of collection and methods of application of such funds, which are paid for by people or by individuals and groups of people working in a corporate context, should reflect the free will of the self-governing community concerned. A system of governance providing people with influence over the decisions which affect them causes all policies, including fiscal, to be subject to a decision and implementation cycle. This includes the identification of people's preferences for satisfying specific needs, the identification of the best policy solutions, electoral, parliamentary and legislative cycles to enact policy, the legal implementation and a follow up to assess their success in achieving objectives. Therefore the question that is central to a successful conduct of fiscal autonomy is a system of public choice that identifies and agrees on feasible options.

The constitutional context

The question of fiscal autonomy has to be assessed from a perspective of what social and economic constituents desire in terms of income and patterns of existence. Therefore the issue is not just revenue collection but also how this is related to a clear vision of societal aims and an ability to manage the macroeconomy to facilitate the efficiency and effectiveness of people attaining their objectives and in the use of government revenues.

On the 21st April, 2015, Alex Salmond delivered a presentation in Bute Hall on the occasion of his receiving an honorary doctorate from the University of Glasgow. He referred to Adam Smith's attempts to achieve the right balance between morality and self-interest. He stated that, "Adam Smith needs to be rescued, or reclaimed from those who cite his work in a moral vacuum.". He expressed his belief that Adam Smith’s philosophy provided a great foundation for modern politics as long as The Theory of Moral Sentiments is read alongside The Wealth of Nations since these contradictory works complement each other. Salmond stated that,"The moral philosophy of the first, and the science of economics of the second are what gives us the balanced outlook to meet the challenges of today."

Fiscal autonomy & public choice

Fiscal autonomy requires a robust framework for public choice. This is, in part, the domain of constitutional economics. James Buchanan (1919-2013) saw the ethic of constitutionalism as the individual in expressing preferences for social and economic conduct, together with others in society, adopts a moral law as a general rule for behaviour. The state cannot be considered to be superior in wisdom to the citizens. This is the basis of constitutional economics. Since each constitution is created to serve several generations of citizens it must balance the interests of the state, society, and each individual. Buchanan's explained the term "Political Economy" by distinguishing between politics and policy. Politics sets the rules and policy the strategies that players adopt within the given rules. Achieving wise rules are in the domain of social philosophy, and strategies are the domain of economics. The play between the rules (social philosophy) and the strategies (economics) makes up the “constitutional political economy”.

The forerunner of Buchanan's and, indeed, Adam Smith's analysis can be found in the work of Francis Hutcheson (1694-1746) who divided moral philosophy into four components: • ethics & virtue • private rights & natural liberty • familial rights (economics) • state & individual rights (politics) Adam Smith was influenced directly by Hutcheson at the University of Glasgow especially in terms of the content of his book "Theory of Moral Sentiments", which was more concerned with the important intimate human characteristic of empathy (which he expressed as sympathy).

Buchanan did not separate the questions into the four separate elements but emphasized the issue of public choice. He co-authored and published a book with Gordon Tullock entitled, "Calculus of Consent: Logical Foundations of Constitutional Democracy" (1962) considered to be a major contribution to the theory and an important foundation of constitutional economics. It refers directly to the political organization of a free society. But its concepts, analysis and methods construct a model of the economic organization of society. Buchanan and Tullock focused on the development of constitutional democracy but in an ethical context of consent. The consent takes the form of a compensation principle, like Pareto efficiency, (See: Positive systemic consistency) because, in reality, making progress on a policy change under the so-called majority principle requires unanimity, or, at least, no effective opposition, as a point of departure for social choice. For many whose experience is limited to the current majority principle marked by contention and confrontation, unanimity is considered to be an impossibility. As a result public choice models are often given little thought. However the means of achieving unanimity are clear and these relate to the adoption of the minority principle (See: The minority principle).

There were detractors. Jeremy Bentham (1748-1832) the utilitarian, considered natural rights or what Hutcheson refers to as private rights and natural liberty, as a condition of treatment and consideration affordable to all human beings to be meaningless (nonsense). He also asserted that the proposition that such rights be immune from impositions by authority (prescription) or be safeguarded against the possibility of being legally taken away, constitute an expression of rhetoric. His use of the word rhetoric seems to refer to the sense of exaggeration, artificiality and perhaps insincerity. To add effect to his image of natural rights as being nonsense, Bentham conjured up an image designed to reduce the whole concept as one being ridiculous and without a firm foundation as “nonsense on stilts”.

My own view was expressed in 2007 as follows:

"There has been a presumptive historic development in which legislators have assumed that in order to advance the cause of civilization they should take natural, largely family-based expectations of behaviour and equate these to a legally-defined set of rights. Experience in the field of human rights seems to suggest that such an approach works if these are set out as principles as opposed to detailed specifications of all of the possible motivations for such rights being attacked. Under such circumstances, their well-meaning efforts end up with difficult to interpret and intrusive legislation. Such an approach encourages legislators to go so far as to consider that people only have rights to the degree that these are provided for in the law. So what they assert is that naturally nurtured individual freedoms should become disposable rights according to the views of legislators and political parties. Such a perception is unacceptable, for any natural behaviour which does not harm others is there already within the social culture of expectations, and therefore cannot be “given” to people as a right through law nor "taken away", even selectively, when governments deem fit."

"Community conscience"

"Beyond the boundaries of the family unit the commonality of the myriads of aspects of intimate and open human relations influenced by human biological, emotive and intellectual make up, results in most people in a community being able to relate fully to normal family relationships and commonly recognized motivations and expectations of behaviour. Above all it is the individual conscience which remains the vital element of guidance, appreciation, judgement and appeal in all human interactions within a community".

"Each individual conscience has a particularly refined understanding of the dynamics and the normal limits on individual freedom and which have given rise to normal expectations of behaviour. All individuals in a community together make up a community conscience".

"Being honed and refined by practical experience of human motivations, actions, interactions and outcomes, the community conscience is pre-conditioned to the need for people to accept self-imposed limits on freedom as the most practical and acceptable basis for community relationships. This accommodation points to normal expectations of behaviour being reasonably consistent and, therefore, providing a reference for helping resolve conflicts affecting individual freedom. In an ideal world, the community conscience should be sufficient to guide a peaceful oversight of the practical bounds of individual freedom with the minimum of external coercion in the form of laws, regulations and enforcements".

"As the English activist, Anne Hutchinson (1591-1643) said:

"As I understand it, laws, commands, rules and edicts are for those who have not the light which makes plain the pathway."


Naturally, others have addressed Bentham's views on natural rights more directly. For example a booklet, "Nonsense on Stilts? - A Quaker view on Human Rights" was published in 2008. I found this to be somewhat unsatisfactory and I posted a response to its contents online, in an article entitled "Human rights - Conscience & Human Rights".

Francis Hutcheson's separation of ethics & virtue and private rights & natural liberty from economics and politics, conveys an important message that needs to be properly accounted for in public choice. If the Hutcheson model has value then the four components have critical roles in decision-making. Thus decisions are not exclusively economic nor are they exclusively political; they must be moderated by considerations of ethics in a social forum characterized by natural liberty. To a large degree I think this is why James Buchanan and Tullock gravitated towards underlining the public choice approach. Their objective was to introduce ethics, legal political and social thinking into economics and therefore set out a more rational canvas upon which to found a better future. As economists, however, they accepted the majority principle as given and did not, as far as I am aware, seek to enquire if other forms of electoral methods and associated public choice methods might present better options.

The paradox is that our system based on the majority principle actually enhances the power of small minority factions who, through our electoral system, can gain absolute Parliamentary majorities and therefore legislative power. This creates a policy environment of limited vision that is claustrophobic and exclusive in nature. Rather than represent any majority position, policies are imposed on the majority by minority factions. It is therefore necessary enquire as to how the full range of free expression of familial rights, ethical positions and the defence of private rights and natural liberty might be achieved. The counter-intuitive solution is to abandon the majority principle as a basis for gaining a broader expression of minority desires and rights to be upheld in order to identify common positions that can provide the basis for unanimity. The only basis for achieving this is the constitutional proposition of the minority principle (See: The minority principle).
I think the sense of Salmond's sentiment is correct. I am not certain that Adam Smith, had much to say concerning our contemporary understanding of public choice. His "Theory of Moral Sentiments", was more concerned with the important intimate human characteristic of empathy (which he expressed as sympathy). If one refers to "The Wealth of Nations" one senses that Smith's position on public choice was likely to be "... just let individuals get on with it and public choice will unfold to everyone's benefit'. I don't assume, however, that Adam Smith would have, indeed, believed this, since I don't know. But I need to emphasize that whereas at first such an individualistic approach to public choice might appear very much at odds with what has developed as the theory and practice of public choice in our political environment, therein lies an important principle that represents a major challenge to constitutional economics and which has an important potential contribution to this discussion on fiscal autonomy in Scotland. I cover some of these points in the box on the right.

Roughshod treatment

One of the laments of Scottish representatives, and in particular those of the Scottish National Party, is that Scotland has suffered at the hands of the Westminster parliament. This is often expressed through a complex political kaleidoscope so in the common "blame game" the ruling Westminster party has been the offender and sometimes other parties because they have or are supporting "inappropriate" legislation. In the end the image is that of a group rooted in London who have no understanding, let alone empathy, for the needs of the people of Scotland. This is a direct challenge to the demonstrable ethics and virtue of Westminster politicians. Why do they appear to lack consideration of the private rights and natural liberty of the people of Scotland, let alone of the social constituency of the United Kingdom? Clearly there is something wrong with the system of free expression and decisions on public choice for such perceptions to arise.

Currently the experience of Greece at the hands of the troika (IMF, ECB and European Commission) reflects a similar vein of a dismissive treatment that is more than apparent and oblivious of the suffering the people of Greece. In the case of Greece one sees a passing of the costs of the past decisions of corrupt politicians, misreporting by auditors with the complicity of the European Commission, as well as irresponsible bank lending all taking place when the people of Greece were never provided with the opportunity to express any informed consent that any of this should have taken place or that debt should rise to such levels. In spite of these facts the democratic process has become grossly distorted by an imposition of extra-constitutional forces undermining free expression and the exercise of natural rights.

It might appear to be presumptuous to assume that if Scotland became independent, the Scottish government will not have to resist the temptations to behave in a way that prejudices the people of Scotland. With the passage of time, depending upon the party and individuals in power, they could end up being no better than the "Westminster clique" whom they currently oppose. Naturally the SNP or any other Scottish political party would wish to avoid any such a possibility however, our current electoral system and policy-making practice are marked by significant deficits in public choice methods. There is weak support for ethical decision-making and the upholding of private rights and natural liberty providing no guarantee of that no abuse of the people may occur some time in the future.

The Smith Commission

Following the result of the Scottish referendum, David Cameron asked Robert Haldane Smith, a member of the House of Lords, to chair a commission to "agree" on the future powers of the Scottish parliament. This reported within less than two months of the result of the referendum, hardly time to undertake any adequate decision analysis. Even worse, the commission was made up of representatives of all of the political parties in the Scottish parliament. Most of these parties were and are in a very precarious position in Scotland and could not be considered to be representative and the SNP did not seem to want to attract any negative flack, immediately following the referendum outcome, by disagreeing with what was being served up as recommendations. Given the timing and the new situation following the 2015 general election and the rise of the SNP and obliteration of the other parties, the commission report failed to address the new state of affairs.

When the topic of transfer of power, especially in the domain of economic management, involves the significant reduction in the size of the social constituency (UK to Scotland represents a population reduction of -92.2%) to be represented and one dispersed over a reduced but proportionally large territory (UK to Scotland represents a land area reduction of -68.0%), one faces the challenge of supporting higher infrastructural overheads including public service provisions. Therefore the role of the commission should not have been to divide the government budget cake but rather to first of all identify the means whereby Scotland could significantly raise real incomes on a sustained basis to compensate for the new state of affairs. Largely because of the makeup of the commission it would not seem that it had the appropriate combined experience to undertake such a task. This is not an attempt to insult the members of the commission or its chairman but the results speak for themselves. The momentum built up by the government and rush in pushing through the legislation on the Scotland Act recommendations is somewhat unedifying and the significant amount of work will be required to recast what is required given the degree to which the constitutional waters have been muddied.

Imperative and critical objectives in devolving economic power to a smaller population include a need to focus on the efficiency and effectiveness of policies and procedures adopted to manage the new circumstances so as to remain confident that such things as fiscal autonomy are feasible and therefore sustainable. What is considered to be "feasible" is usually specified in terms of existing fiscal, monetary and supportive regulatory frameworks and procedures, indeed, this is what one would expect. Unfortunately the existing fiscal, monetary and supportive regulatory frameworks are so inefficient as to be ineffective but this did not appear to have been acknowledged or recognized by this commission. However, why would they recognize this when this has not been acknowledged by those who inhabit the economic policy-making domains in the United Kingdom. The central oversight relates to glaring flaws in what are assumed to be sound conventional economic theories and policies. The main problem is that conventional policies promote their objectives through policy instruments that are mutually destructive leading to winners, losers and those unaffected by policy and, invariably an inability to sustain policy traction. These same faulty mechanisms have the effect of dismantling the logic and therefore the practical feasibility of practical ethical public choice based on the preservation of private liberty and providing space for the transparent exercise of freedom of choice. These contradictions are reviewed in what follows.

The fiscal paradox

Taxation and levies, the means of raising government revenue, have a role of collecting sufficient money to pay for desired government services. However, taxation doubles up as a means of improving the distribution of disposable incomes on the basis of progressive taxation. In addition the power to vary taxation and levies is also used as a means to influence, so-called, aggregate demand. Therefore although a specific budget might be quantified as being necessary the actual growth in the economy, or lack of it, frequently causes fiscal policy to veer off track and alter taxes and levies to dampen or encourage growth. When a government gets into debt a method of repayment is to cut government services so as to channel government revenue to repayment of debt via the increasingly trodden path of "austerity". Sometimes rises in taxes accompany rises in interest rates to control inflation, for example. As a result "macroeconomic management" complicates the purely revenue-raising function for justified public services.

The monetary paradox

The other component of "macroeconomic management" operated by the governments who collect and spend revenue, is monetary policy that makes use of money volumes and interest rates to influence aggregate demand and the value of the currency. However, the reasons to manage aggregate demand is often related to inflation leading to a need to deflate the economy or under conditions of deflation the objective becomes that of reflating the economy. To reduce aggregate demand interest rates are raised and this lowers the demand for consumer credit and makes investment finance for investment more expensive. This combined impact is to lower demand and discourage investment in productive activities. Higher policy-induced interest rates also attract deposits in banks in interest bearing accounts including from foreign depositors. This is usually associated with a rise in the exchange rate which reduces competitivity for exporters. When interest rates are lowered, so as to encourage "investment" a large component of the financial investments in fixed income instruments are diverted into the purchase of stocks, shares, derivatives, commodities (food, fibre & feedstocks), real estate, valuable objects, precious metals and energy options. The general impact of this reallocation of funds combined with the methods of participation 3 raises the prices of inputs to the real economy. As a result finance for investment in productive activities dries up. The overall monetary policy cycle from high to low interest rates therefore discourages investment and future productivity.

In addition to this the aim to secure "price stability" by aiming to secure an inflation rate of 2% per annum sets the whole economy on a real incomes depreciation treadmill that lowers real income by at least 18% each decade.

In spite of the handing of interest-rate setting to the Bank of England economic activity in the government sector, constitutes some 40% of the economy, continues to be dominated by fiscal accounting.

The profit paradox

The underlying assumption in conventional economic theory and policies is that the motivation for profit will drive economic activities as a function of varying levels of "aggregate demand". However there is a paradox associated with profits that undermines this convenient theory. Profit is simultaneously the measure of business success as well as being the target of corporate taxation. The government revenue-seeking framework is upheld by accountancy and audit laws and regulations which declare wages as a cost set against profits. These mutually contradictory management decision criteria result in a widespread evasion and avoidance of taxation, the hiding of profits and a severe constraint on wages. Indeed, in spite of attempts to obscure profits they have risen significantly as a percentage of national income while wages have fallen precipitating a cost of living crisis.

Conclusions

It therefore becomes clear that although fiscal autonomy is, at first sight, a laudable objective it is more than evident that governments face a complex challenge in sustaining the value of the currency, promoting productivity and securing adequate real incomes and their distribution because of the self-imposed impacts of the fiscal, monetary and profit paradoxes. The economic management system has unpredictable outcomes because each paradox conspires to work against the other with policy-makers attempting to raise sufficient government revenues while maintaining price stability and managing "aggregate demand" and ending up with an inevitable weak policy traction.

It is evident that weighing up the feasibility of fiscal autonomy might well benefit from more consideration of alternatives to the current out-dated and ineffective model. There is a mismatch between the amount of revenue raised through an elastic pro rata "pennies in the pound" approach and the specific expenditures on different policies. In periods of economic growth, government revenue is bolstered by windfall gains which permit "top ups" to policies "needing" further cash. This encourages fiscal creep and obscures the performance of policies. The performance of any level of fiscal autonomy can be judged from the standpoint of:
  • the degree to which policies represent the will of the people
  • the degree to which policies are affordable in terms of taxable disposable real incomes
  • the degree to which policy implementation represents value for money based on effectiveness and efficiency
On the question of Parliamentary performance in representing the will of the people there are significant failures in the British system of governance with policy being imposed, for example, by the last "successful" Labour government that enjoyed only 19% of the electorate's support4. The last coalition parties each had to abandon around 60% of their manifestos to agree on collaboration on the basis of a combined 40% of the electorate's support. They then went ahead introducing legislation that was not in either of their manifestos. The current government enjoys around just 22% of the electorate's support; hardly a majority.

The crucial part of fiscal autonomy is the affordability of desired provisions in terms of taxable incomes. In the case of Scotland this has been a sensitive subject largely because of the hang-over of the Barnett forumla. The deviations of the size of the per capita payments from the Barnett formula envelope are more related to political interference than to problems with the formula which mathematically makes payments equal. The Barnett Formula of 1972 was an update on the Goschen formula of 1888, designed for similar reasons. They both preceded devolution and were never conceived with devolution in mind. Clearly, in terms of establishing a workable basis for fiscal autonomy it is best to conceive of a model that is able to gradually reduce the need for such transfers; that is, the fiscal model needs to possess elements to achieve self-contained sustainable economic growth.

At the moment, value for money is more difficult to determine than is commonly admitted. The issue of freedom is of fundamental importance and there is a need for people to be free to define their preferences and government, by reflecting such preferences, to uphold that freedom. Britain faces a general problem in that its political parties are tiny and unrepresentative with no party having a membership exceeding 0.5% of the electorate. Policies suffer from lack of rigour in design and information in support of them is often partisan and biased. There is, under such a contentious system, tilted towards the gaining of power, an aversion to the application of more transparent and rational decision analysis. The main issue facing any people, however, has nothing to do with this vying for power but rather is more concerned with the identification of the best solutions to serve the electorate's interests. Indeed, this is not a political power issue at all but rather one of allocation of responsibility to manage public resources to deliver goods and services effectively.

The sustained optimization of government revenues

A sustained optimization of government revenues implies that government raises only what is needed to pay for public services. This balancing act can be facilitated through policies that maintain or increase the value for money. The only way this can be achieved is through innovation signifying a provision of positive incentives for investment in technology and human resources raising the feasibility of stable or reduced output prices or costs of public services. However, Keynesianism, monetarism and supply side economics in theoretical and practice terms have failed to incorporate, in a systematic and transparent way, the role of technology, innovation and technique in generating economic growth. As a result "fiscal policy" is viewed as an accounting exercise between static incomes, taxes and required provisions. Sustainable fiscal policy should not only raise revenue but should also promote real incomes growth through innovation by incorporating means of:
  • Encouraging change which drives down unit prices and raises real income levels through rational investment in technology
  • Sustaining policies on national human resources deployment which provide for life-long learning
Lastly, there is a need to move away from partisan bias in information that distorts any hope of transparent public choice and to move towards a more open system where standards of information are raised through a deployment of rational decision analysis designed to assist the population articulate their preferences, to identify the best options to satify them so as to be in a position to make sound choices.

The Real Incomes Approach - A rational alternative

Rather than rely upon a flawed system of fiscal policies and national accounting allocations which bear no relationship to economic growth and performance potential, it is as well that Scotland, or any other region contemplating devolution or independence, give consideration to the options presented by the Real Incomes Approach. Any smaller region in terms of geographic resource base or population, opting for independence would be advised to only consider fiscal autonomy on the basis of an inclusion of an overall strategy and practical policy tactics to achieve the necessary levels of real growth necessary to ensure that most demands on public services will be met from funding generated from the newly independent population. The ranges of policy instruments in the conventional policy tool boxes are limited and they have a poor track record. Policy transparency and traction is impaired by the deleterious perverse impacts of the fiscal, monetary and profit paradoxes which give rise to unacceptable differential impacts on the social and economic constituents.

The only current and coherent macreoeconomic policy that responds to the needs of the social and economic constituencies is Price Performance Policy (PPP). The policy effectiveness and traction is best explained on the basis of the Production Accessibility and Consumption model of the economy (See: The PAC Model of the Economy). PPP eliminates the fiscal and monetary paradoxes and a reclassification of the audit and accountancy legal norms can eliminate the profit paradox by emphasising corporate returns in terms of real income levels. The main impact of PPP is productivity expressed in terms of contained or reduced output prices and this results in significantly higher real income multipliers leading to accelerating macroeconomic growth and rises in employment and real income distribution (See: The Real Growth Multiplier and Growth Impetus).

Because the impulse for growth comes from competitive price-setting, the risks of inflation are low and there is no need to apply other means, such as monetary policy and centralized interest rate-setting which impact resource allocation negatively (See: The monetary paradox).The PPP tactic for improving performance is to use two policy instruments:
  • the Price Performance Ratio (PPR) (See: The price performance ratio), that measures relativities in input and output price movements. The PPR is controlled by management decisions on resources allocation and unit output price-setting
  • the Price Performance Levy (PPL) (See: The price performance levy) which is a payment made according to the PPR achieved. This can in fact be reduced to zero through managment of the PPR
This incentive ensures that return on business transactions will rise to the degree that unit prices are contained or reduced. The initial response and gains for the economy can be generated in the short term based on price-setting alone. This means the policy can have a short term impact. However, the maintennce of price-controlled growth depends upon appropriate investment in technology and human resources to drive innovative change over the medium to long term.

This growth model can help raise per capita real incomes and thereby reduce the fiscal overhead and increase the ability of the population to continute to revenues without prejudicing their disposable incomes. Both the private sector and public sector would operate under the same PPP incentive scheme resulting in increasing efficiency within the public sector and an overall reduction or stabilization in budgetary demands.

The impacts of real incomes and on public service productivity (See: Public service provisions - a note and also Private & public goods) can help move fiscal policy away from the static book balancing approach which sustains a somewhat unstable relationship because of normal variations in economic activities.

Individual freedom

I mentioned that an individualistic approach to public choice might appear to be very much at odds with what has developed as the theory and practice of public choice in our political environment. However this important principle, although a major challenge to constitutional economics, can be largely satisfied by the Real Incomes Approach because the decision-making is made at the levels of the work group and management of economic units. Macroeconomic policy does not have to continue to be a series of top down monopolistic state impositions. The broader penetration of more responsive and relevant decisions can be obtained through corporate structures that fit naturally into the Price Performance Policy framework. These include various forms of worker ownership of companies including cooperatives and mutual organizations (See: Mutualization).

More informaton can be found on the Real Incomes Approach and Price Performance Policy, in paricular, on this website.


1 Hector McNeill is the director of SEEL-Systems Engineering Economics Lab.

2 McNeill, H. W., "The Briton's Quest for Freedom - Our unfinished journey...", Chapter 23, The Minority Principle, pages 247-264, HPC, 418 pp. 2007.

3 Banks have become involved, for some time now, in high frequency trading to skim margins of trades in a wide range of physical products while not in fact taking delivery of products traded. Some banks have subcontracted physical logistics services to hoard or slow down deliveries of large quantitie of commodities to create constraints as a means of raising prices.

4 These statistics account for the estimated 10% of the eligible population who have not registered to vote.

Updated: 16th September, 2015: Alterations in text to improve clarity and added links; sense unaltered.

Updated: 18th September, 2015: Added paragraph entitled Individual Freedom, at the end.
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