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Must-read essay on why we'll be on a private isle well before your cure is on sale

Internet Security Threat Report 2014

Column Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things – that's Adam Smith, by the way.

I'm often left rather scratching my head as I read the latest screeds on the new new economics. You know, all this lovely stuff about how late industrial capitalism can, and should, change into a more caring, localised system.

What people come up with seems to be very much like old economics, although the authors of papers on the subject would be horrified if you were to point this out to them.

Take this paper [PDF] on “ultra micro economics”. It has all of the usual right-on backing: it takes a fair amount of evidence from the New Economics Foundation (nef – they insist there's a shortage of capitals at present. Also stands for Not Economics, Frankly). It is essentially arguing that lots of small-scale business is good for a locality. Well, yes, it is.

We do indeed know that it is small and upstart businesses that produce the majority of employment in the economy. We also know that it is those same two that produce all of the net increase in jobs in the economy. Large companies tend to reduce their headcount over time: jobs growth comes from the new and small ones growing up in the interstices. All of this is well known and entirely standard economics.

Given that the paper is based on nef material, they manage to – at least in my opinion – get things such as comparative advantage wrong. This is something Ricardo detailed in 1817, so you would think that people would get it right by now. From the paper:

It [ultra-micro economics] is also a direct challenge to the idea of comparative advantage as the only design for reviving urban economies. This doctrine claims to provide a blueprint for local economic revival via specialization, competing with similar places until they are all exactly the same.

Its major drawback is that it provides too few winners and far too many losers, especially when it is combined by the extreme reduction of global competition, and the way the few mega-winners carve out the world between them.

Comparative advantage does talk about specialisation, yes, but it isn't stating that a village or some other area should become solely a specialist in anything at all. Rather, it's really stating that we should all do what we're least bad at.

If we're all doing what we are that least bad at then there will be more of everything for us to share through trade. But it's this point made in a Guardian piece about the paper that really has me doing that head scratching: one of the ultra-micro heroes, Pam Warhurst of Incredible Edible said, for example, that the "government will spend millions of pounds on a campaign to eat five a day".

Instead, the local GP centre in Todmorden, West Yorkshire, used wasted scrubland outside to encourage people to plant vegetables and fruit for everyone to use. "It helps if you don't ask permission," she said.

Well, yes, and how is that different from what Adam Smith said up there at the top, taken from Wealth of Nations – the book of his that few bother to read? Or as he didn't say but meant, bugger off and let people get on with it themselves.

The paper goes on to point out that we don't have local community banking because it's really damn hard to fight through the regulatory thicket to be able to open up a new bank. And there's little point in trying to ask for government help about anything at this scale simply because national government doesn't think at this sort of scale.

All of which is entirely true and is very much the old economics explanation for why you don't actually want government at any level trying to micro-manage the economy. It's simply not very good at doing so.

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