Here's a deeply frustrating anecdote via Jeff Frankel:
A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn’t make ends meet any more.
It's a sad case where someone is seeking to create wealth, but facing financial incentives not to do so, and these real examples are important because it's rare to see such concrete figures. Indeed barriers to growth can become so embedded that we don't even notice them. The counterfactual possibility of wealth-creation and growth is never realised, and thus ignored.
I recently co-authored a policy paper on entrepreneurship, called "Enterprising Britain" (press release), in which we sought to uncover the barriers that exist to growth. One of the biggest misapplications of economic theory is to associate a healthy entrepreneurial environment with a high number of business start ups. In short, the UK is a fine environment to start a new company, but as soon as you need to employ people, pay taxes, and expand into genuine wealth/job creation, it becomes very difficult. The report seeks to uncover some of these key barriers, and by reducing barriers policymakers can effect the entrepreneurial culture and expectations of potential entrepreneurs.
I appreciate that writing an independent report for a political party isn't the best way to generate consensus, but I was disappointed to hear the response of the Treasury spokesman (from The Telegraph):
The World Bank rates the UK as one of the best places in the world to do business and we have the lowest corporation tax rate of any G7 country.
I don't expect the Treasury spokesman to actually read the report prior to commenting, but we had highlighted those very facts and discussed why they were complacent and misleading:
- Where suitable we compared the UK environment to relevant benchmark countries, however it is important to realise that our motivation is not to improve the UK’s relative ranking. We do not feel that our objective is to “compete” with rival nations. Rather, the guidelines being discussed should be compared to the state of the country if these policies are not introduced. There are two visions of British policy: one that merely reacts to competitive pressures, and one that leads the way on facilitating enterprise. Regardless of the situation in other countries, whether the UK is ranked first in the world or last, these policies should be introduced because they will improve the entrepreneurial climate and thus facilitate social development. (p.8-9)
- Although the UK rate of corporate taxation is not significantly higher than other G7 countries (28% from April 2008), global tax competition is increasing and the UK is losing ground to European neighbours (p.50)
- Headline rates of corporation tax mask an increase in other forms of indirect taxation that stifle business growth (p.55)
The report has had more positive feedback from other places: Dan Martin (Editor of BusinessZone) used the report as evidence to challenge the Chancellor over the CGT furore; and the FPB’s national chairman Len Collinson used it to accuse the government of fudging numbers (here, here). It's providing an interesting glimpse into the role of research in politics.