Trade unionism: my part in its downfall (with apologies to Spike Milligan)

Source: Department for Business, Energy and Industrial Strategy Trade Union Membership, UK 1995-2021: Statistical Bulletin, 25 May 2022

It all began for me on 23 September 1985, the first day in my first graduate role as a management trainee at the home counties factory of a security printing firm. From the beginning I was left in no doubt by my new employers that the fairly powerful print unions at the time (SOGAT and the NGA) were the biggest impediment to the captains of industry within the firm from running the business successfully. Occasionally I was allowed into management meetings, where all of the things we could do if it wasn’t for the unions were discussed endlessly.

During my time in this first role, the printing industry changed dramatically: the typesetting was computerised, massively reducing the number employed virtually overnight and Rupert Murdoch set up his non-unionised newspaper factories at Wapping. There had already been three pieces of trade union legislation in the 1980s by the time I started work, the latest being the Trade Union Act of 1984, which required secret ballots for union elections and strikes rather than the show of hands which had been possible up until then. The Miners Strike had also only just ended in March 1985, which had a devastating impact on the trade unions more generally.

Further legislation now quickly followed:

  • the Public Order Act 1986 (which introduced new offences related to picketing, and increased police powers over protests involving groups of 20 people or more);
  • the Wages Act 1986 (which reduced many of the restrictions on employers fining and deducting money from employees’ pay, removed statutory holiday entitlement and reduced state funding for redundancies);
  • the Employment Act 1988 (which gave workers the right to not join a union, and trade union members the right to challenge strike ballots);
  • the Employment Act 1989 (which restricted trade union officials’ time off for duties and abolished government support for redundancy payments);
  • the Employment Act 1990 (which finally removed the closed shop – ie a workplace where union membership was compulsory – and secondary action protection);
  • the Trade Union and Labour Relations (Consolidation) Act 1992, which consolidated the legislation of the 80s and 90s, while clarifying that the right to take strike action was protected when it was “in contemplation or furtherance of a trade dispute”; and
  • the Trade Union Reform and Employment Rights Act 1993 (which gave trade unions a duty to inform employers of upcoming strikes).

This would appear to have given my first employers everything they could have wanted in terms of containing union power but, after some retrenchment in the 1990s owing to the incoming Labour Government taking the UK back into the Social Chapter of the Maastricht Treaty (which we had originally opted out of in 1992) in 1997, there was further legislation in the form of the Trade Union Act of 2016, which, amongst other measures:

  • introduced a new requirement of 50% of union members to vote in a ballot for strike action;
  • required that workers in important services (health, school education, fire, transport, nuclear decommissioning and border security) must gain at least 40% support of those entitled to vote in a workplace for a strike to be legal;
  • required two weeks’ notice of industrial action to be given to an employer (the employer can agree to one week);
  • limited the right to take industrial action after a strike ballot to six months, or nine months if the employer agrees.

Over the period since 1985, wealth inequality, which had been steadily reducing since at least the end of World War I stalled and has been generally on a slightly increasing trend since:

Source: Resolution Foundation The UK’s Wealth Distribution, December 2020

And the position with respect to income inequality is even worse, with the UK having the 9th worst income inequality of the 38 countries in the OECD:

Source: Income inequality in the UK, House of Commons Library, 30 November 2021

However, perhaps this was a price worth paying, if the forces of creativity and entrepreneurship had at last been allowed full rein, freed from the stifling dead hand of union power? Unfortunately not (TFP stands for total factor productivity in the graph below):

Source: The UK Productivity “Puzzle” in an International Comparative Perspective, Fernald and Inklaar, April 2022

So whatever, the continuing problems of UK PLC, it does not look like union power was ever really one of the major ones. Undeterred, the Government is proposing further restrictions on trade unions and their members, including enforcing minimum service levels during strike action for ambulance staff, firefighters and railway workers and requiring some employees to work during a strike under threat of being sacked if they refuse.

The TUC has made a submission to the International Labour Organisation of the United Nations over what it sees as breaches of Conventions 87 (Freedom of Association and Protection of the Right to Organise) and 98 (Right to Organise and Collective Bargaining). As David Allen Green has blogged:

But regardless of your view on the ultimate rights and wrongs of strikes by public sector and other public service workers, there is something fundamentally objectionable in the current government’s proposals to compel certain “key” workers to attend work when they otherwise would be entitled to strike….Simply prohibiting other key workers from being able to strike, without sufficient alternative entitlements and arrangements to balance this loss of a right, is misconceived and illiberal.

It is an authoritarian gesture, rather than a solution to a problem.

Roy Lilley (at the Institute of Health and Social Care Management) in a postscript to a recent blog, focused on what a strategic failure the proposals represent within the NHS industrial dispute:

HMG plans, to ban strike action by some public workers is a further example of ‘push-back’ management. Push the disputes into the courts instead of dealing with the root-cause of strike action, improve industrial relations and representation.

So what has my part been in the downfall of trade unionism to date? In my first job, other than an abortive attempt to develop a new shift pattern(!) for the security guards in the factory, I had few skirmishes with union leaders compared to those with my management colleagues. In the finance sector, where I spent most of the middle 20 years of my working life, I rarely came across any staff representation at all. As a school teacher I joined the ATL rather than the NUT (they have since merged to form the National Education Union) due to its reputation for being determinedly non-militant. And, in my current role, I rather flounced out of the UCU over a difference of opinion over the pensions dispute raging at the time.

So I have not been a very good supporter of trade unionism over the years. However it now seems clear to me that the industrial austerity (ie the crushing of labour power within the economy, further discussed here) described above during my lifetime has been a political rather than an economic project all along. None of the economic justifications given for it since the 1980s have been borne out and the unopposed rugby of industrial management we have increasingly witnessed since has resulted, in my view, in poorer outcomes than if the 99% had been consulted regularly.

I sense that the current Government will only be satisfied when trade union membership levels fall to zero. So if, like me, you don’t want that to happen, the time to push back against running the economy at all times exclusively in the interests of the owners of capital is now.

I have rejoined the UCU.

Democratising the Lathe

I have been thinking a lot about Ursula K Le Guin’s The Lathe of Heaven over the last few weeks, a book I would highly recommend at any time but particularly at the moment. It is the story of a man, George Orr, who can change reality by dreaming. An ability that terrifies him. He is caught taking unprescribed drugs to try and prevent himself dreaming and as a result is sent for a “voluntary therapeutic treatment” with Dr William Haber, a dream specialist. Haber has built a machine called the Augmentor to make it easier for his patients to have dreams directed by him. He starts to work with Orr, becoming increasingly impatient with Orr’s version of the directions Haber is giving to his dreaming in the machine, until eventually Haber dispenses with Orr and connects himself to the machine instead.

Every time reality is changed it is as if it has always been changed. The changes become increasingly dramatic and disruptive until a peak of general insanity now referred to by all as The Break:

All over the world the various gods were being requested, more or less politely, for an explanation of what had occurred between 6.25 and 7.08 pm Pacific Standard Time.

But what the book really focuses on are George’s desperate attempts to live in this increasingly unhinged reality, as the only person (apart from Haber) aware of the abrupt changes swinging it around, and to hang onto the one person, Heather Lelache (or Andrews in the final version of reality they arrive at), he has ever loved.

One of the sentences on the last page (when he finds out that she has married) has stayed with me in particular:

He stood and endured reality.

However hilarious some of the moments of the last few days have been (and let us not forget some of the highlights here, here and here), we are all going to have to endure some significantly altered reality over the coming years as a result, from the moron risk premium to the cost of living crisis slowly rippling through all aspects of life, at a time when we already have a climate emergency and other planet-wide issues we need to be dealing with. There are many arguments to be had about the best way to tackle all of these problems, and I intend to throw myself fully into those arguments.

However, I would propose that we have to prioritise ensuring that, as a society, we never ever again let the lone mad scientist or economist or politician or former talk show host or indeed anyone else, whoever or however charismatic they are, take over sole control of the machine.

I think we need to do three things to achieve this, before we start to argue over policy:

Adopt proportional representation in parliamentary elections. We have got to broaden the support for whoever is in power, rather than stick with the current system which focuses on a tiny number of people in marginal constituencies and ignores pretty much everyone else. Make Votes Matter have agreed a cross-party document (which I have signed) called the Good Systems Agreement. This sets out the options on voting systems to replace first past the post and the best way of getting there. More about what is wrong with our current system (from the Electoral Reform Society) can be found here. Never again should there be a small cabal of people (like this weekend) deciding on who runs the country – with a steadily shrinking selectorate as their ability to achieve consensus on anything dwindles with every successive decision. We no longer have a system in the UK that can make important decisions and the answer is not more technocracy (leaving it to the so-called clever people, however foolish they may be) or plutocracy (leaving it to the rich), it is more democracy, ie including all of us in the decisions we will have to live with.

Reform media ownership and promote plurality in support of a more democratic and accountable media system. The Media Reform Coalition has produced a manifesto for a people’s media which I support: it includes proposals for an Independent Media Commons – with participatory newsrooms, community radio stations, digital innovators and cultural producers, supported by democratically-controlled public resources to tell the stories of all the UK’s communities. This will allow a much greater range of ideas to be presented to the public and discussed than the current Overton window (see below) and greatly improve our national debate about the things that matter.

Source: 99% Organisation

Reform election finance. Recommendations for doing this were provided in the July 2021 report by the Committee on Standards in Public Life, with 47 recommendations following a comparison of political and electoral finance regulation in 12 countries (Australia, Canada, Denmark, Finland, France, Germany, Ireland, the Netherlands, New Zealand, Norway, Sweden, and the USA), the majority of which are around reforms to campaign practices, meeting emerging threats around the source of donations, delivering greater transparency and enhancing compliance with election finance law.

We have big problems to solve in the UK and we need everyone to be able to contribute if we are going to solve them. However currently:

  • Our votes are counted in a way which effectively wastes most of them;
  • The information we receive about politics is fed to us through a very partial sieve controlled by a small unrepresentative group of people whose vested interests effectively define our Overton Window; and
  • Influence and access to power often appear to go to the highest bidder rather than the best ideas.

All of this needs to change whoever is Prime Minister in the coming weeks, months and years.

Chartered Actuary: I am still very confident that this is a good idea

I originally talked about Chartered Actuary status (here, with the cartoon above) when the Institute and Faculty of Actuaries (IFoA) first proposed the idea and set up a consultation in 2018. I said then that sometimes an idea comes along that seems so obviously good that you wonder why it hasn’t been done a long time ago.

Four years on from the retreat from the proposal following the slenderest of straw polls offering some challenge, and it remains a good idea. There are still relatively few full actuarial roles available for associates and many firms still assuming a default career path of continuing to fellowship.

There are some differences this time however:

  • There will be two chartered actuary designations: Chartered Actuary (Fellow) and Chartered Actuary (Associate), with the hope that the FIAs who were most concerned with maintaining their distance from AIAs last time will now support the proposal. The original proposal suggested Chartered Actuary (CAct) would be a single distinct qualification, a required qualification point for all student actuaries to reach before going any further and globally recognised as the generalist actuarial qualification from the IFoA. This approach has been abandoned, with no requirement to complete the core curriculum before tackling specialist modules. It will be interesting to see whether Chartered Actuary (Associate) will be seen as a destination in its own right, or just a change of letters. This will depend on all of us within the profession (see below).
  • The environment we are operating in has certainly changed, with the replacement of our regulator, the FRC, by the Audit, Reporting and Governance Authority (ARGA). One of the concerns that the IFoA were looking to address in 2018 was that another, much larger, profession, could pose an existential threat. If actuaries have a unique skill set, which is likely to be lost to a wide range of businesses and other sectors if it is unable to meet the demand for those skills due to a simple lack of numbers, then the need to take any perceived barrier to practise away from our emerging young professionals is clear. The move from FRC to ARGA does not remove this threat and there also remains in the regulatory proposals to date the threat of differential regulation, where actuaries are regulated more heavily than other professionals doing similar work could price us out of markets where we have value to add. The profession therefore needs to grow to increase our voice and influence over the future regulation of the profession.
  • We have acknowledged the impact of the Great Risk Transfer within the finance sector, but in my view the impacts more generally of the increased individual risks and uncertainties millions of the UK population face as energy, food and housing costs escalate need to be faced up to by our profession. For that we need to continue to be a destination of choice for a growing number of your people with a widening range of backgrounds and experiences.

So what do we need to do to make this a change worth making? We need to start behaving like a generalist actuarial qualification is what we want, and offering roles for actuaries on completion of core practice modules in future. It will mean not necessarily insisting on further actuarial specialisation as a requirement for senior roles within our firms. It will mean getting comfortable with a much wider range of specialisms amongst those we consider to be actuaries. Some are already doing this, but most of us need to go much further. A good place to start might be the IFoA’s own website, where the Route to Becoming An Actuary still features a diagram where an IFoA Associate is shown as a milestone on the way to the final destination of becoming a Fellow.

Some Don’t Like It Hot

Levels of body temperatures at which extreme hot and cold sensors are triggered – data source: An Immense World – Ed Yong

In January this year, the southern hemisphere experienced, in some cases, record-breaking heatwaves, with temperatures reaching 50.7° C in Western Australia. In the last few weeks, it has been the turn of the northern hemisphere.

In the UK this week, we recorded the highest day (40.3° C in Coningsby in Lincolnshire) and night (25.8° C in Kenley in Surrey) temperatures ever. What is clear is that climate change has already significantly changed the probabilities of extreme weather events occurring in the UK, meaning that our own past experiences of weather ranges and likelihoods are now out of date.

This is likely to have many consequences. This week our railways literally went into meltdown in places, with New Street operating an “exit only” policy for a period while no trains were running to or from the station at all. Overhead cables were damaged, requiring lengthy repair work and buckling rails led to widespread speed restrictions across the network. This is because the heat tolerances of our railway system were set in cooler times, meaning that most of the network can operate up to around 46° C. As track temperatures can be up to 20° hotter than air temperatures, this threshold was widely exceeded.

So, if our infrastructure has limits, what about life on the planet? Well yes, in animals these are controlled by proteins called TRP channels, which allow neurons to be stimulated at temperatures which would be immediately extremely harmful to the organisms concerned. A few of these are shown above. In humans, this is a body temperature of around 42° C (a healthy temperature is around 37° C and our bodies work hard to keep it there, but we starts to feel unwell from 37.8° C upwards and may become comatose at 42° C. We are likely to die or at least suffer serious brain damage at 43° C), but the hot and cold limits vary hugely between different species. So rapid changes in the temperature distributions means that habitable areas, which would need to be at temperatures well short of these limits, for a wide range of animals and plants will also be changing rapidly, requiring migration or extinction for many.

In humans, where we have more control over our environments, we will still need to adapt many of our practices, from how we construct our infrastructure, to how we use resources and spend our time. One obvious question that has come up this week is why we don’t have a maximum workplace temperature (currently we don’t have a minimum either, although we do have guidance around minimum temperatures). The House of Commons Library Briefing Note on this from 2010 can be found here.

In Germany, a maximum of 26°C is the norm but the guidelines state that, if the outside temperature is higher, a workplace temperature may in certain circumstances be higher than 26°C.

In Spain, Real Decreto 486 of 1997 lays down that, in places where sedentary work takes place, the temperature should be between 17 and 27°C. In places of light physical work, an acceptable temperature will be between 14 and 25°C, although there are some limitations and conditions around these requirements.

There are clearly complications around setting a maximum comfort level which would probably also need to account for humidity and activity, but the Health and Safety Executive have suggested 30° C in their guidance as a maximum acceptable temperature, less if the work is strenuous. They also suggest polling employees to see if a particular temperature is comfortable, making adjustments if more than 10% are uncomfortable in an air-conditioned office.

There are now renewed calls to introduce a maximum workplace temperature in law. And, as Lord Turner so eloquently put it on Sky News, this is at only 1.2°C warming. If all of the promises made at Glasgow are kept we may stay between 1.8°C and 2.5°C. However in the UK, the Climate Change Committee, the body set up specifically to monitor our compliance with our climate commitments, has already said that our current programmes will not deliver net zero. And Liz Truss, who may be Prime Minister in 6 weeks, has vowed to halt the only green levies we have so far been able to put into law.

In the meantime, it appears to be a great time to be a Melanophila, or fire-chasing, beetle.

What Stuart Kirk was not criticised for and what this tells us about financial markets

For those of you totally immersed in the daily to and fro of the finance industry, this post about Stuart Kirk will probably seem a little late in the day. For those of you who are not, let me explain briefly what I am talking about today!

Stuart Kirk was Global Head of Responsible Investments at HSBC Asset Management. On 19 May 2022 he gave a talk at the FT Live Moral Money Summit Europe conference with the provocative title of Why investors need not worry about climate risk. Stuart’s talk was a real crowd splitter. Many called for his dismissal (HSBC subsequently suspended him), others regarded his talk as a missed opportunity and full of things which were not true, while others have regarded his stance as speaking truth to power.

However what interests me most about all of the column inches devoted to the affair is what he has not been criticised for and what this tells us about financial markets.

What Stuart said was structured around the following 12 statements:

  1. Unsubstantiated, shrill, partisan, self-serving, apocalyptic warnings are ALWAYS wrong.
  2. As the warnings became ever graver, the more asset prices INCREASED in value.
  3. One of only three explanations can explain the impending end of the world and higher risk asset prices:
    1. Climate risk is negligible.
    2. Climate risk is already in the price.
    3. All investors are wrong.
  4. Even by the UN IPCC own numbers, climate change will have a negligible effect on the world economy – A (large) temperature rise of 3.6 degrees by 2100 means a loss of 2.6 per cent o global GDP. Let’s assume 5%.
  5. Adaption is cheap and effective: climate related costs relative to GDP and mortality rates are down.
  6. Perhaps the biggest error of thinking with climate risk is confusing volumes and values – Plenty of things happen between a volume disruption and a move in asset values.
  7. Climate “winners” and losers” can create value. Climate “winners” and “losers” can destroy value.
  8. The difference between volumes and value is regularly made clear in markets.
  9. Even if climate risk isn’t negligible, it’s too far into the future to matter for most companies.
  10. To make climate change appear like a significant threat, scaremongers are torturing their models.
  11. It’s easy to show that climate change is an investment risk if you engineer a bond market collapse.
  12. Climate change isn’t a long-run risk just like wars, energy crises, pandemics, financial crises and so on (with the graphs shown above to supposedly prove this point).

Can you spot the pattern here? All of these statements are about the map that Stuart is standing in (think of Joey standing in his map to orientate himself in Friends). It is a complicated map of asset prices and charts and reports written by lots of other people standing in the map with Stuart, but it is still just a map. And the map is the territory as far as Stuart is concerned. If something does not appear in his map, it is not worth worrying about. And climate risk is struggling to make it into his map. In Stuart’s view, this is a problem for climate risk, and the people “torturing” their models to make climate risk appear significant and piling him up with regulatory reporting responsibilities are very annoying.

But of course this take is completely upside down. This is not a problem for climate risk. Rather climate risk is a problem for us and the fact that it does not appear in our models unless we torture them (which I am sure is true) means that we have the wrong models. Because the scientific consensus about the consequences of climate change on our current trajectory of between 3 and 4 degrees warming are (amongst others from Mark Lynas’ Six Degrees: Our Future on a Hotter Planet):

Africa […] split between the north which will see a recovery of rainfall and the south which becomes drier […] beyond human adaptation.
Indian monsoon rains will fail. The Himalayan glaciers providing the waters of the Indus, Ganges and Brahmaputra, the Mekong, Yangtze and Yellow rivers [will decrease] by up to 90%.
The Amazonian rain forest basin will dry out completely. In Brazil, Venezuela, Columbia, East Peru and Bolivia life will become increasingly difficult due to wild fires which will cause intense air pollution and searing heat. The smoke will blot out the sun. Drought will be permanent in the sub-tropics and Central America.
Australia will become the world’s driest nation.
In the US Gulf of Mexico high sea temperatures will drive 180+ mph winds. Houston will be vulnerable to flooding by 2045. Galveston will be inundated. Many plant species will become extinct as they will be unable to adapt to such a sudden change in climate.
The [IPCC] in its 2007 report concluded that all major planetary granaries will require adaptive measures at 2.5° temperature rise regardless of precipitation rates.[and] food prices [will] soar. Population transfers will be bigger than anything ever seen in the history of mankind. [The feedback effects from the] Amazon rain forests dry[ing] out and wild fires develop[ing] [will lead] to those fires [releasing] more CO2, global warming [intensifying] as a result, vegetation and soil begin[ning] to release CO2 rather than absorb[ing] it, all of which could push the 3° scenario to a 4°-5.5° [one].

Much of the discussion about the talk was that Stuart was speaking out bravely and that HSBC had only suspended him to silence inconvenient truths, that he had been silenced by “extreme environmental ideology“. I have no idea about all of the reasons why HSBC suspended Stuart other than their official statements, but it seems clear to me that many people in the finance industry agree with what he said. This suggests to me an extreme ideology of its own of resolutely refusing to look out of the window.

In Kim Stanley Robinson’s excellent New York 2140, global sea levels have risen by 50 feet. Everyone lives in tower blocks connected by sky bridges which occasionally topple into the canals which were once streets. I used to think that money markets would not survive events like this, but Robinson posits what I believe is a more likely future scenario. The Intertidal Property Pricing Index is developed instead, carefully constructed to be reasonably stable despite the instability of the actual real estate being valued, and people bet on it. And soon everyone is fixated on what this index is saying daily rather than the buildings collapsing around them.

This is exactly what our finance sector will do of course, there will be money to be made out of such activities after all. And so expectations that they will, in any way, be a leader out of the climate emergency are, in my view, unrealistic.

We will however need the finance industry to facilitate aspects of how we transform our economies over the next 10 to 20 years. And this will involve much more of the regulation which annoys Stuart and others so much.

A success made of failures

Source: Wikimedia Commons: Shattered right-hand side mirror on a 5-series BMW in Durham, North Carolina by Ildar Sagdejev. Cropped by Nick Foster

It starts in 2025 with a description of a horrific heatwave in India which will stay with me for a very long time. As well it should as, in the book, it kills 20 million people. In response, India send thousands of aircraft up to 60,000 feet to spray aerosol particulates of sulphur dioxide into the stratosphere, in defiance of the international conventions banning such activities, to deflect some of the solar radiation with the aim of reducing the probability of future heatwaves for a period. By how much or for how long or with what other consequences is unknown.

As we build up to COP26 in Glasgow in November this year, in the book we start with the results of COP29 in Bogota, where the organisation which would come to be known as The Ministry for the Future (and the title of the book by Kim Stanley Robinson) was set up “to advocate for the world’s future generations of citizens, whose rights, as defined in the Universal Declaration of Human Rights, are as valid as our own. This new Subsidiary Body is furthermore charged with defending all living creatures present and future who cannot speak for themselves, by promoting their legal standing and physical protection.”

The Indian crisis happens a few months later. The new head of this body, Mary Murphy, is briefly held captive by, Frank, one of the survivors of the heatwave in her own flat in Zurich (the book also feels like a love letter to Zurich) and challenged to do more:

It’s not enough. Your efforts aren’t slowing the damage fast enough. They aren’t creating fixes fast enough. You can see that, because everyone can see it. Things don’t change, we’re still on track for a mass extinction event, we’re in the extinctions already. That’s what I mean by not enough. So why don’t you do something more?

This has a profound impact on Mary, who keeps in touch with Frank and his troubled suffering life throughout the book. It also leans her towards effectively endorsing the involvement of her No 2 in “black” operations to ensure certain people are “scared away from burning carbon”.

Indeed the book is suffused with eco-terrorism. Technological progress has partly displaced the state monopoly of violence, with drone technology in particular meaning that no aircraft or ship or surface navy is safe from a well-enough organised group by the end of the book. People stop flying when aircraft start being shot down regularly, and those that still do fly use carbon-negative airships, where solar panels generate more power than the ships use. Davos attendees get taken hostage and given a compulsory seminar at one point. Tax havens become obsolete when all money becomes digital and tracked.

Mary’s interactions with central bankers are probably the closest this book ever comes to comedy. In the first, she tries to argue for a “carbon coin”, a digital currency which would be paid out to organisations and people who could prove they had removed carbon from the environment. This would be the incentive to work alongside the carbon taxes. The contemptuous response from the Federal Reserve and others at first is “not our purview”, however by the end they are on board with this and many of the other ideas developed along the way.

There are so many ideas in this book, far too many to cover them all here: some of them familiar to me from economics (carbon quantitative easing, Jevons’ Paradox, Modern Monetary Theory, Gini Coefficient – these each get a short chapter among many other ideas and interspersed with riddles) and others not so. The Indian techno fix is the first of many: some successful, like sucking out the meltwater under glaciers to slow them sliding into the ocean and others not so, like the billionaire wanting to refreeze the oceans. Russia dyes parts of the Arctic yellow to reflect more sunlight back. Huge areas of land are rewilded.

What strikes me most is that the arguments we tend to have here and now about which course to take (Freud’s phrase is quoted here in the book – “the narcissism of small differences”) seem largely moot in this one imagined near-future: all of them are tried there – it’s not techno-fixes or de-carbonisation of transport and heating, it’s both. It’s not carbon QE or re-wilding, it’s both. If something doesn’t work, it’s abandoned. By far the most important determinant of which of the IPCC future scenarios we end up on seems to be how quickly we start. Economists come in for particular ridicule there – whatever course of action is planned, they can find one group who thinks it will have one effect, one who think it will have the opposite effect and one which thinks it will make no difference at all. The difference is that the economists are no longer guiding policy there, but facilitating and post hoc rationalising it.

There is a wartime feel to the book throughout, with people doing what they feel needs to be done in desperate circumstances. The choices are all different levels of bad, but bad is almost incalculably better than worst. And the overall impression is of a world changing rapidly, with one of its herd animals belatedly getting into better balance with the others. Even at 560 odd pages the impressions are inevitably just that – one chapter is just a list of different organisations working on aspects of the climate emergency in different countries, described as about 1% of the total number active. It is like the shards of a smashed wing mirror picking out details from the vanishing world behind. I have never wanted to apply the word polymesmeric (which I first saw on the cover of Catch 22 by Joseph Heller) to a book as much as I have to this one.

The hoped-for outcome of all of this? In one conversation this is described as a “success made of failures” or a “cobbling-together from less-than-satisfactory parts”, which I think sums it up nicely.

And I definitely want to visit Zurich one day. Probably by airship.

 

Getting Serious About Miracles

There are many papers about model risk, and the dangers of blindly relying on algorithms or metrics without allowing for human judgement at any point in any subsequent analysis (in effect “baking in” whatever analysis was done at the time the computer model or algorithm was constructed as the final word), but these can often descend into the same level of technical impenetrability as the programmes they are attempting to critique.

I watched the film Sully: Miracle on the Hudson for the first time this week, on the anniversary of the landing on the Hudson. In the final scenes there is a hearing (spoiler alert!), where the evidence presented up until that point based on computer simulations, with and without pilots involved, was leading to the unanimous conclusion that Sully and Skiles could have turned back to La Guardia or Teterboro airports rather than landing on the Hudson River in January. However Sully had appealed to have the video recordings of the pilot simulations shown to the hearing, and these revealed the pilots responding to the catastrophic bird strikes which had taken out both engines (again something later confirmed when the actual engines were recovered, but which the simulations themselves did not accept because of the instrument readings on one of the engines from the aircraft) by calmly immediately setting course for La Guardia or Teterboro with no decision or response or recovery time needed at all. When a 35 second allowance for this was inserted into the simulations, the results were fatal crashes in both cases.

What struck me was how invisible this deficiency in the programming of the simulation would have been without a cockpit recording of the simulations. In many of the programmes we use to automate judgement-heavy processes, such as recruitment, many of the capital allocation decisions in financial institutions or even A-level grades, we do not have anything equivalent to a cockpit recording available to us. Perhaps we wait until either events prove us wrong (bad) or those on the receiving end of our automated decisions start to complain in sufficient numbers for us to reconsider (worse). What if quite a large proportion of the cost savings from automating these processes is in fact illusory as a result of our not putting enough time and attention into the original programming and/or not setting aside enough budget for maintaining it and challenging its decisions with parallel processes which do allow for human judgement? How much bigger is this problem going to become in the era of machine learning, where the programmes we are running are themselves several steps of abstraction away from those originally written by humans?

Our ability to programme machines to carry out billions of calculations in seconds would have been regarded as miraculous only a few decades ago and is still pretty astonishing to us now. We need to start thinking a lot more about how we can live alongside these ever more capable machines amicably over the long term. And it can’t be only programmers who get to see what the machines are doing – whatever the technical problems of allowing the equivalent of a cockpit recording to be made which can be understood by any of us, they need to be solved with as much urgency as the process automation itself. All of our decision-making processes need to be understandable and challengeable by the society in whose name they are carried out. It’s time to get serious now about our miracles.

Avoiding mean observances of paltry decorum

CPD doesn’t have to feel like this: a youthful man-o’-warsman, from the diary of an English lad who served in the British frigate Macedonian during her memorable action with the American frigate United States; who afterward deserted. Source: https://www.flickr.com/photos/internetarchivebookimages/14594689439/

According to Daniel and Richard Susskind’s the Future of the Professions, there is a Grand Bargain between society and the professions, which means (and I am paraphrasing a little here), in return for professions providing:

  • Expertise, experience and judgement;
  • Delivered affordably, accessibly, reassuringly and reliably;
  • With knowledge and methods maintained and kept up to date, members trained, standards and quality of work enforced and only appropriately qualified individuals allowed in;
  • Acting honestly and in good faith; and
  • Putting clients interests ahead of their own.

Society will give the professions:

  • Respect and status;
  • Exclusive rights to perform/provide socially significant activities or services; and
  • Independence to decide how they do it and how much they can be paid for it.

It is with regard to the knowledge and methods point above that nearly all professions have some sort of continuing professional development (CPD) requirement. The Institute and Faculty of Actuaries (IFoA) consultation on their proposed new CPD scheme is currently open and runs until 17 April. I will be responding to it via the online questionnaire, but thought it might be worth airing a few points more widely too, to promote some discussion just in case anyone has any bandwidth for anything not directly corona-related at the moment.

Overall I think this is a move very definitely in the right direction. I have some criticisms, which I will come to, but I very much welcome:

  • the broadening of the scope of CPD activities. I am clearly not the only one who has experienced a talk or discussion or even an arts event about which I would have said, in the words of Walter Scott: One hour of life, crowded to the full with glorious action, and filled with noble risks, is worth whole years of those mean observances of paltry decorum, in which men steal through existence, like sluggish waters through a marsh, without either honour or observation. And yet would have been unable to record it in my CPD because there was no other actuary present and no way of proving I was there!
  • the introduction of reflective practice discussions. There are few details about how these will work and who will run them (the suggestion I took from the consultation was that they would be centrally run, which I think would be a mistake for reasons I will explain below). However in principle this is a great idea, getting people together to talk about what they are doing to develop their thinking in important areas and sharing their experiences on how the journey is going. I am not aware of any other profession moving in this direction currently, but I very much welcome it.
  • The removal of the need to be audited annually on CPD recorded. The 2018 Annual Report of the Disciplinary Board of the Institute and Faculty of Actuaries indicates that there were 2 cases of non-compliance with CPD referred to them and 3 cases of failure to hold a practising certificate. The current system therefore does bring the words sledgehammer and nut to mind.

However I do also have some criticisms:

  • there is much made of how they are proposing to prescribe a single requirement for all members. I found it difficult to answer whether I agreed or disagreed with this proposal as I didn’t feel that they had: people who work for firms who have signed up to the profession’s Quality Assurance Scheme (QAS), practising certificate holders, Practising Members (we will come to these), Non-Practising Members and students all have different rules applying to them. My concern here is that this 5 tier system will translate into inequalities of status within the profession, and some members having a louder voice than others.
  • keeping students (completely outside the CPD system via the Personal and Professional Development (PPD) scheme) and QAS members completely dependent upon their firms for professional development risks, in my view, narrowing the development undertaken rather than the broadening that the proposals overall intend.
  • I am very concerned about the examples given to clarify what is meant by a Non-Practising Member: retired from actuarial practice; not carrying out technical actuarial work; or on a career break. As technical actuarial work is not defined in the consultation, the suspicion is that this will be the usual suspects of life, general insurance, finance and investment and pensions, with wider fields including the education field where I practise, certainly NED roles but also perhaps resources and environment work or, particularly topical at the moment, health and care. Obviously members may choose not to apply for non-practising status, but I do not believe that they should have the option to if they are using their judgement to analyse complex situations to help the people or organisations they are working with to make decisions.
  • currently most categories of member need to complete 2 hours annually of Professional Skills Training (PST). The materials provided by the profession to support members in complying with this requirement are extensive and excellent, but there are a wide range of ways in which it is currently met, from company events to regional community events to individuals registering the video and other content they have interacted with online. In my view this allows members to tailor what they think they need in a given year and, as a provider of these sessions for a number of years now, I have been impressed by the open and frank discussions which have become possible with our attendees on difficult questions involving potential reputational risk. My main concern with the proposals on this are that members will not feel the need to subject themselves to these sessions if the professional skills requirements are to be relaxed as far as just a learning outcome related to managing professional ethical challenges.
  • I am enthusiastic about the replacement of the audit of CPD records with an invitation to a reflective practice session instead, however I would be concerned if these were all centrally controlled, as opposed to the wide range of current providers for PST. I well remember sitting in professionalism CPD sessions run by senior members of the IFoA in a room full of other scheme actuaries and none of us prepared to admit to making any mistakes in our client work in front of each other. It would be regrettable if these sessions became formalised to the point that they were no longer useful.
  • my final point is that, if we are moving from a strictly audited system to one which will be much more light touch, perhaps this is also an opportunity to increase the hours from the current 30 hours for practising certificate holders and 15 for nearly everyone else. Doing a quick check I found that the Society of Actuaries requires 50 hours over 2 years; and the General Medical Council requires 250 hours over 5 years. At the other end of the scale, the Institute of Chartered Accounts in England and Wales (ICAEW) and the Law Society have no specific requirements at all. The ICAEW, hilariously in my view, includes the following in its guidance: There is no requirement to achieve a certain number of hours or points, and the notion of structured and unstructured activities no longer exists. There is no requirement to attend a certain number of courses or seminars. There may be periods when, having reflected, you quite reasonably conclude that you already have all the current skills and knowledge necessary for your work and that you do not need to undertake any further CPD activity at that moment. However, if we believe, as I do, that our work has never been so technical nor demanded a wider range of skills, many of which have not been traditionally demanded of actuaries previously, we should surely require that we move closer to the top of this range.

CPD has a range of uses beyond meeting the Susskind’s grand bargain:

  • it allows us to share our practice with each other and challenge each other;
  • it allows us to move between practice areas or respond to new ideas in our existing ones;
  • it is a means for the profession to disseminate urgent changes in expectations of members (in conjunction with the alerts which are issued occasionally);
  • but, perhaps most importantly, it allows us as individuals to reflect on what we are doing and the direction we are taking and consider whether we might want to change either of these.

Carefully chosen, it really can spare us a system of Scott’s mean observances of paltry decorum and instead provide more hours of glorious action!

Actuaries and the Green New Deal

Images from the Birmingham Climate Strike on 20 September 2019

On the day millions have taken to the streets across the globe to demand a more urgent response to the climate emergency, it seems a good time to write about the crossbench Decarbonisation and Economic Strategy Bill, originally tabled by Caroline Lucas and Clive Lewis in March this year, which has now been formally launched. This “Green New Deal Bill”, as it has been dubbed, sets out a legislative framework for the changes that are needed to make the Green New Deal (a programme of action neatly summarised in the Green New Deal Group’s fifth report here) a reality. The impacts of these proposals would be far-reaching and radical, changing the way our economy operates and what we value. As well as revolutionising the way we live, this would also significantly affect the current work of actuaries and provide many opportunities for people with the actuarial skill set to be centrally involved.

The main proposals which I think would impact actuaries are as follows:

  • Bring offshore capital back onshore to make sure that government, not markets, can make the big economic decisions. This would obviously impact all businesses operating in financial markets. There would also be large movements in the value of some businesses as a result of economic decisions which have previously been left to the market now being made by government. Modelling the impacts of such changes and helping businesses manage the transition are examples of where actuaries can add value here. We are already seeing increasing disinvestments from coal, but this would seem to be just the start of a much wider realignment (one possible view of the potential is discussed here).
  • Greater coordination between the Bank of England, the Treasury and the Debt Management Office. This means the end of the independence of the Bank of England by the look of it, with monetary policy and fiscal policy run in much closer cooperation with each other. It also means more regulation for banks and the supported emergence of local banks and a new national investment bank.
  • New bonds, nationally and locally, and new pension arrangements targeted at the green renewal of our infrastructure. For instance, tax rules on pension schemes could be changed to require a minimum percentage of assets invested in such bonds in order to continue to qualify for tax relief.
  • New objectives for business, and new kinds of businesses. For instance, the UK-based Corporate Accountability Network argues that the whole focus of corporate reporting will have to change, and so too then would corporate behaviour because there is very strong evidence that what is reported by any organisation is what becomes important to it. The Green New Deal Bill provides for changes to both company law and accounting to embrace the need for legally required and enforceable reporting on progress towards any company becoming carbon neutral. This will certainly lead to new business structures as a result and, I would imagine, many new business opportunities for those with actuarial skills as a result.
  • Replacing our measures of progress. This is something I have long supported. The main problem is that there are many possible candidates for this, but that also means that there is a great opportunity for actuaries to be involved in constructing appropriate indices which are globally respected, thereby helping to change what we value away from our current GDP and FTSE fixations.

Of course there are also opportunities for those with actuarial skills to block the transition to an economy that isn’t constructed in such a way as to make environmental destruction inevitable. Employers like these would probably make those with the actuarial skillset very lucrative offers to use their skills. I hope that most of us, and particularly those just at the start of their careers, will resist such offers. We now know that tobacco firms hid the evidence of the damage done by their products for decades and firms such as Exxon have done the same in denying the science on climate change for over 40 years. Please don’t be part of the problem when you could be such a valuable part of the solution.

At Leicester, we intend to launch a new module on our MSc Actuarial Science with Data Analytics programme next year, specifically on the ideas behind the Green New Deal and focusing on the areas where ideas still need to be developed (one of the most exciting things about the Green New Deal is that it is still an area of live discussion, with many of the policy details still being developed). I would welcome any input from members of the Green New Deal Group or those with research interests in this area who would be interested in helping us develop the detailed curriculum of this module before launch.

This is an exciting time for those who are comfortable working with data and communicating what they have found in it. Let’s make sure that those skills are applied to the needs of 99% of the global community.

Catch 22 and Actuarial Practice

Source: https://unsplash.com/photos/g0b_tx3i0_8. This image is from Unsplash and was published prior to 5 June 2017 under the Creative Commons CC0 1.0 Universal Public Domain Dedication

Catch 22 can in no way be compared to actuarial practice. One puts its characters in impossible positions, with constantly shifting targets, rewards often inversely proportional to the social usefulness of the characters’ actions and against a backdrop inordinately preoccupied with death. The other has recently been on our TV screens directed by George Clooney.

The most recent link between the two was provided by John Taylor’s excellent Institute and Faculty of Actuaries (IFoA) presidential address last month. He encouraged us all to look at Jimmy Reid’s 1972 speech at Glasgow University (an extract showing the passion with which it was delivered can be seen here). So I did. John picked out the following passage:

I am convinced that the great mass of our people go through life without even a glimmer of what they could have contributed to their fellow human beings. This is a personal tragedy. It’s a social crime. The flowering of each individual’s personality and talents is the precondition for everyone’s development.

Inspiring as that is, my eye was drawn to a different passage of Jimmy Reid’s speech:

Society and its prevailing sense of values leads to another form of alienation. It alienates some from humanity. It partially dehumanises some people, makes them insensitive, ruthless in their handling of fellow human beings, self-centred and grasping. The irony is, they are often considered normal and well adjusted. It is my sincere contention that anyone who can be totally adjusted to our society is in greater need of psychiatric analysis and treatment than anyone else.

They remind me of the character in the novel, Catch 22, the father of Major Major. He was a farmer in the American Mid West. He hated suggestions for things like Medicare, social services, unemployment benefits or civil rights. He was, however, an enthusiast for the agricultural policies that paid farmers for not bringing their fields under cultivation. From the money he got for not growing alfalfa he bought more land in order not to grow alfalfa. He became rich. Pilgrims came from all over the state to sit at his feet and learn how to be a successful non-grower of alfalfa. His philosophy was simple. The poor didn’t work hard enough and so they were poor. He believed that the good Lord gave him two strong hands to grab as much as he could for himself. He is a comic figure. But think, have you not met his like here in Britain? Here in Scotland? I have.

This got me thinking about the investment requirements of the Green New Deal, as this would need to be a huge programme of work to transform our infrastructure and economy away from the carbon-burning planet-trashing Doomsday machine it currently is, which in turn would need huge levels of investment.

I have previously written about some of the views about how we might reduce our current reliance on carbon: the one with the most coherence in my view being the Green New Deal.

However there is a problem. Since our current system, the one which needs to be transformed, is currently predominantly doing the financial sector’s equivalent of rewarding people for not growing alfalfa (for example the misallocation costs estimated by SPERI at £2.7 trillion between 1995 and 2015 from having too large a financial sector here), any Green New Deal spending, at least to start with, is going to have to come from the Government.

The authors of the latest report from the New Economics Foundation anticipate that the massive increase in public spending required to make it happen would be between £20 billion and £40 billion a year. This level of public spending is inconsistent with our current ways of measuring fiscal space, or the room for additional Government spending. Government borrowing is normally expressed in terms of a percentage of GDP and has historically been around 1.3% pa in normal times (ie other than wartime or bailing out the banks). They therefore suggest:

  • The development of a new framework, defined in terms of the threshold beyond which there is a significant risk of adverse economic effects. This would have prevented the damaging austerity policies since 2010, for instance.
  • The parallel development of a tool which would allow policymakers to accurately assess the implications of holding back fiscal space compared with the implications of borrowing for investment, and therefore allow politicians to come to an informed view on the best combination of fiscal intervention or fiscal prudence at a given point in time, including with respect to climate related risks.
  • More explicit cooperation between the Bank of England and the Treasury, including the use of a new public investment bank (or network of banks) such as a green national investment bank (GNIB) – to increase commercial lending to green industries.

A particular interesting aspect of the GNIB is the proposal to make it independent of political interference. In the same way as those economists who argue for independent central banks so that governments don’t pursue damaging monetary policy in particular for electoral gain, some advocates of the GNIB believe it could be used as a backstop against governments underusing fiscal space for ideological reasons.

Richard Murphy points out that https://www.gov.uk/government/statistics/individual-savings-account-statistics shows £40 billion was saved in cash ISAs in 2017 / 18, and suggests that Green ISAs, backed by a Green Investment Bank and paying, say, 3% a year would be more attractive than current cash ISAs, therefore potentially meeting the GND funding requirements on their own.

Simon Wren Lewis, in his discussion of the many of the arguments around the Green New Deal and how it should be funded, makes the following excellent point (amongst many others):

No one in a 100 years time who suffers the catastrophic and (for them) irreversible impact of climate change is going to console themselves that at least they did not increase the national debt. Humanity will not come to an end if we double debt to GDP ratios, but it could come to an end if we fail to combat climate change.

The Catch 22 of the title originally described the catch which kept pilots flying highly dangerous missions in World War 2 – they could only get out of them by being certified insane, but the very fact of trying to get out of them showed that they were in fact sane and therefore they had to keep flying. If we want far fewer actuaries to be employed in not growing alfalfa in the future and far more working on making the finance structures of our economy work better, whether to support a Green New Deal or more generally, we first need to embrace the idea that our current economic priorities are indeed insane.