Subsidy as Economic Illusion

@james_randerson @guardian_clark and @TimHarford debate whether nuclear power can survive without subsidy.

@james_randerson picks up a statement by Chris Huhne, the new Energy Secretary, saying there will be no new nukes without government subsidy [Guardian 13 May 2010]. Surely that means no nukes, concludes James. But as @TimHarford points out, the question depends (among other things) on the carbon price. To the extent that the energy market is already distorted by a wide range of government initiatives, the concept of subsidy is not as simple as the politicians might wish.

More generally, the notion of subsidy is an accounting convention, and depends critically on how you frame the systems of interest. During the 1984 UK miners' strike, there was a fiercely political debate about the economic viability of the pits. The two sides in the dispute (NCB and NUM) adopted broadly similar styles of argument, but came to opposite conclusions simply because they chose to scope the cost-benefit analysis differently.

In housing, the notion of "subsidized housing" commonly refers to cheaper accommodation for people with low to moderate incomes, provided with financial support from government or charity. But as Malcolm Rigg pointed out at the PSI conference yesterday, mortgage tax relief can be regarded as a form of subsidy affecting (and arguably distorting) all parts of the housing market, including owner-occupation and private rental (including buy-to-rent).

Talking about subsidies creates the illusion that there is a flow of money or other resources from A to B. But these flows are an emergent property of a particular economic or business model. And as system theory should remind us, the model is not the reality.

Scoble attacks IBM

Two of the most powerful leaders in the modern world are faced with an interesting challenge to their leadership. Can/should Microsoft take a leading role in progressive social policy?

Bill Gates and Steve Ballmer want (wanted) to support some anti-discrimination bill. But they've been warned off by the religious right. Or changed their minds. Or maybe that's what they were planning all along. Or something.

Steve Ballmer's email. Comments from some Microsoft employees: Robert Scoble, Steve Maine, Adam Barr.

Scoble implies his bosses are chicken - afraid of standing up for their beliefs. And of course at one level he is quite right - we must always stand for our beliefs - whatever they may be. This is endorsed by many non-Microsoft bloggers, including Tim Bray (Sun) and James Governor (Redmonk).

And of course the fact that Microsoft can accommodate this debate is itself a good sign. Scoble asks: "What if we were a company in Germany in the 1930s?" Now which computer company could he possibly be talking about here? Has he been reading Edwin Black's book, by any chance?

But besides the sideways attack on IBM, this example raises some serious ethical questions about individual leadership, corporate leadership and social change. Who is the "we"? Shall Microsoft collectively stand up for the opinions (however well-justified) of Bill and Steve? What are the principles of leadership and change that Ballmer and his supporters are using to justify his actions in this particular case, and are these principles applied consistently in other situations? Meanwhile Scoble is presenting an alternative moral leadership, whose force depends largely on the support he gets for his position.

Is it appropriate for a large corporation such as Microsoft to put forward its own policies and practices as a suitable baseline for legislation? Is this a reasonable way for a corporation to pursue its corporate social responsibilities.

Is it appropriate for a large corporation such as Microsoft to take sides on any controversial issue - given that there is no consensus among Microsoft's stakeholders (shareholders, employees, customers)? Is there a difference between lobbying for something that directly affects Microsoft's commercial position, and lobbying for something that Microsoft executives happen to believe in? Under what circumstances (if any) is it appropriate for the executives of a large corporation to make political donations?

By what process does a large organization determine its position on something controversial? Should all the members somehow have a say in the matter, or does the boss decide?

Alternatively, is it possible for corporate leaders such as Gates and Ballmer to hold and express personal positions on controversial issues, without these positions being automatically associated with their organizations? Or do we think they are so rich and powerful that their normal democratic rights should be restricted?

I should be inclined to criticize Ballmer, not for betraying the progressive cause of antidiscrimination, nor for being a wimp who has collapsed under pressure from religious groups, but for inconsistency. If Microsoft is going to avoid taking a position on anti-discrimination, where it has the opportunity to provide a good example of progressive policies, then how can it possibly justify taking a position on other controversial issues; and how can it justify diverting shareholders' money into the pockets of partisan interests such as political parties.

Companies often wish to present themselves as socially engaged and responsible, but this potentially brings them into conflict with some key stakeholders. Meanwhile, activists can often exploit the corporate desire to please everybody. What of Microsoft employees (such as Scoble) who regret Microsoft's failure to act on this occasion - are they always happy when Ballmer and Gates take a political position about something? Who is leading here, and who is led?

Update May 2005: Steve Ballmer clarifies the Microsoft position on public policy engagement. This is a different order of leadership. Congratulations to Microsoft, and congratulations to Ballmer, Scoble and the other participants in the debate.

Update June 2006: Robert Scoble was a Microsoft employee from May 2003 until June 2006.