Nick Fletcher: After the pandemic, large companies need to take more corporate responsibility

17 Apr

Nick Fletcher is MP for Don Valley.

Since the imposition of the first lockdown in March last year, our high streets have suffered enormously while online retail outlets such as Amazon have made huge profits.

I am in no way wholly against internet shopping, and I am pleased that the Housing Secretary also recognises that how we use our high streets will change over the coming years.

That said, polling data and my own experience with constituents demonstrate that the public wants to keep our high streets and believe that the companies who have been able to profit from the lack of competition now must give back more to the communities they serve.

In other words, such online business giants need to revisit what it means to be corporately responsible and how that can be best put into practice.

My feeling that this is more necessary than ever was sparked by the opening of the first Amazon shop in London in March. While some business commentators were eager to promote the concept, I am deeply concerned that the opening of this kind of store will have a negative impact on our society. The store that opened in London last month only requires a customer to pick up an item and leave. They are monitored by CCTV and charged for what they picked up accordingly.

While some may admire such a shopping experience’s supposed efficiency, this experience requires no interaction whatsoever. Is this what the public wants or needs, as we come out of over 12 months of lockdowns and isolation?

Stores such as these will exacerbate the decline of high street shops. The decline of the British high street has long been an issue but was made worse by the pandemic. Even more worryingly, the nature of the Amazon store will lower customer satisfaction and maintain the sense of social isolation that many have been feeling over the past twelve months.

As a Conservative, who believes in the necessity and utility of societal bonds, I firmly believe that we cannot allow huge corporations to create a dystopian environment where individuals speak to each other less and less, and are merely atoms within a system where everything is transacted on one’s phone.

The high street was in serious trouble before the pandemic. But Covid-19 has done a tremendous amount of damage. According to the Local Data Company (LDC), in 2020 more than 11,000 outlets permanently disappeared from UK streets. It is expected that this will continue, with 18,000 more shops, restaurants and leisure outlets potentially being vacated by the end of this year.

Yet if we are to turn the tide of this, and help rejuvenate our battered streets, these new Amazon stores, or similar ones like it, are not the way to go.

There are a couple of reasons for this. Firstly, a system that enables customers to come into a store and order anything they need will decimate the surrounding independent or more specialist stores within the vicinity. The rise of the Amazon store will do to our DIY stores and phone shops what the supermarkets did to our butchers, grocers and fishmongers. However, the scale of damage will be even more significant and will risk turning our high streets into nothing less than wind-swept, uninviting pickup centres.

While of course, I welcome that companies such as Amazon want to invest in our high streets, a far better approach would be for Amazon to open shops that showcased new products rather than selling ones in the store. This would still benefit the company, with consumers being able to try out or inspect new products, which if they liked, they could go home and order as usual. This approach would be the best of both worlds. It would enable Amazon to showcase its new products while also ensuring that its store did not suck up business from the smaller stores close by.

Some may argue that such an approach would be backward thinking and unattractive to consumers. However, rather than it being backwards, it is instead a reasonable compromise. Not least because data shows that consumers themselves are increasingly against any moves to increased automate of their shopping experience.

In a survey of 340 people by marketing agency iD, 70 per cent of respondents said that digital experiences do not compare with the ‘real thing’. Furthermore, the BBC’s research in 2017 was clear in its conclusion that most customers dislike self-checkouts and prefer proper, more traditional customer interactions. Limiting the amount of social interaction between shop staff and customers is therefore not wanted by consumers themselves. If we are to revive the high street in the pandemic, it would be nonsensical for the next breed of shops that emerge to be ones such as the new Amazon shop.

This brings me to my second reason for opposing the concept of the new Amazon store, and why I believe that further such stores of this nature are damaging. Not only will such stores accelerate the decline of the high street by making surrounding shops redundant and the shopping experience unpleasurable, but they shall also further exacerbate feelings of social isolation. This is something which large companies should avoid.

The shopping experience offered by the new Amazon store will no doubt further feelings of isolation, which are currently at dangerously high levels. According to a survey of over 4,000 adults by the Mental Health Foundation, the number of people in the UK experiencing feelings of loneliness has more than doubled since March last year, with a quarter of the 4,251 adults surveyed in February saying they felt lonely. This compared with only ten per cent in March 2020. Among young people, a staggering 48 per cent reported feeling alone, as lockdowns affected young people the hardest when it came to loneliness.

I am sure that most people will agree that these are troubling statistics, and we should not be encouraging large companies to employ business practices that make such figures even worse.

Instead, companies such as Amazon, who have done well out of the pandemic, should now be expected by Government and wider society not just to make a profit, but to think about how they can be corporately responsible as we come out of it. With the public concerned both about the future of the high street and increasing social atomisation, it is only right that we expect business giants such as Amazon to think more about the society and economy that they are building.

If we don’t push such companies to act responsibly, the consequences will be unfortunate, if not dire.

Tracey Follows: Vaccine passports just the start of a digital identity revolution. Here’s what you need to know.

19 Mar

Tracey Follows is a Futurist and CEO of Futuremade.

This week MPs gathered, in a socially-distanced fashion, to debate the merits or otherwise of vaccination certificates. Steve Baker MP took to quoting The Prisoner in his attempt to dissuade his audience from even thinking about instituting a programme of certification designed to identify who and who has not received a vaccination against Covid-19.

As one after another contributor rose to make their point, the focus was very much on how the decisions that were going to be made today would turn out to have much more serious and long-term consequences in the future.

But this is to view the issue through the wrong end of the telescope. In order to better understand the benefits and drawbacks of such a verification system, we have to look at the future and work backwards to make the right decisions today. Looking at least ten years ahead, we can envision a world in which many countries, many citizens and also many consumers use some kind of digital identity system. Here’s why.

In 2015 the United Nations committed itself to achieving seventeen sustainable development goals by 2030. The sixteenth of those goals relates to justice and, more specifically, clause 16.9 commits nations to “provide legal identity for all“. This is an important goal and we should remember that over one billion people in the world have no official form of identification to prove who they are, and therefore cannot access essential health and financial services that most of us take for granted in every day life.

At the same time, more and more of those everyday services in modern life, are delivered digitally. Nations are acting like technology companies as they digitise public services, and technology companies are acting like nation states owning newspaper media, offering schools to disadvantaged children and increasingly operating in the field of telehealth. Someday soon, nearly all of our essential services will be digitised and therefore our access to them will require a digital authentication of some kind.

But we should not jump to the conclusion that a digital identity would necessarily be state-controlled. Plenty of countries do run centralised systems, linked to biometric data like a fingerprint, in the case of India; or an eighteen-digit code that combines everything from birth data to local authority data, in the case of China. The UK government has not in the past suggested any kind of centralised model for identity. In fact it has gone out of its way to operate what is known as a federated model.

This federation consists of trusted “identity assurance services” such as your bank, the tax office or the postal service who altogether provide a package of assurances, which gives citizens a sense of privacy and control. However it is a very complex system which needs updating and in 2020 the UK government announced it would be creating a Digital Identity Strategy Board to bring together numerous government departments from the Home Office to the Department of Health and Social Care, to avoid any one department developing a digital identity system in a silo of its own.

What is often forgotten is that there is a further model which is already taking place among a new generation and technology enthusiasts at large. More and more people are downloading identity apps onto their smartphones so they can manage their digital identity themselves. In Jersey, for example, more than half of 18-25 year olds have already downloaded the Yoti app which they can use to prove their age at retail or hospitality establishments and festivals.

The way these apps work is that the user can release whatever identifying attribute they wish to share without jeopardising all of their other personal information. In the past when an eighteen-year old wanted to prove they were of drinking age they might have shown a driving licence which states not only their age but birth date and full address too. A decentralised digital identity app such as Yoti, or Evernym or many others, will only release the identifying information that is relevant to the situation at the time.

Many of these companies are now working hard to deliver Coronavirus credentials, the digital proofs of vaccination. These are the gateway drug to a more complex digital wallet that one day will be full of credentials for university qualifications, travel passports and visas, business cards or work badges, and of course your NHS number and many health records besides.

The truth is that all nations are becoming digital nations, and their digital citizens will require access to digital services. Decentralised, downloadable apps will ensure the user always has control of their digital credentials in a digital wallet, and ultimately has sovereignty of their digital identity too.

After all, no-one seems to worry about the surveillance that an autonomous vehicle will bestow on each of us. These cars will be ordered online, arrive at our doorstep, they’ll know what time that was, who we picked up on the way and what time we arrived at our destination. Likewise, not many people seem concerned about the surveillance of the self in Amazon’s new cashier-less store in Ealing that uses “just walk out” technology consisting of QR codes, sensors and cameras.

The fact is there are many ways we are already monitored on the street, at work and in our homes. Our digital identity is already out there it’s just not evenly distributed. Some people are not waiting for their governments to give them a digital identity, they have already taken control and created one of their own.

The Future of You: Can Your Identity Survive 21st Century Technology by Tracey Follows is published by Elliott & Thompson, available from now.

Neil O’Brien: Lessons we can learn from fast-growing countries to help us to grow faster

8 Mar

Neil O’Brien is co-Chairman of the Conservative Party’s Policy Board, and is MP for Harborough.

Here’s a striking thing: several countries which suffered decades of communism are now richer than large parts of the UK. In 2018, the GDP per head of Yorkshire, Northern Ireland and the East Midlands (where I’m writing from) were all below Slovenia. Wales and the North East were lower: below Portugal, Estonia and Lithuania. All are now poorer than the old East Germany.

Radical change is needed to claw our way back into the top economic league. And unless we raise growth we won’t escape from demographic trends putting upward pressure on taxes. If you look at countries that have enjoyed rapid growth, they have in common a conscious drive to increase their knowledge, investment and technology.

Take the east Asian countries. Japan, Korea, Taiwan and now China, all followed the same playbook and saw dramatic growth.

Between 1945 and 1970 Japan went from a 20 per vent of the GDP per person of the US to two thirds, rising to 85 per cent by the late 80s. When I was born GDP per person in Korea was a quarter of the UK level. Now they are roughly the same. To have seen as much economic growth as a Korean pensioner has in their lifetime, a British pensioner would have to have been born in the reign of George III.

All four invested heavily in bringing new technologies to the country. Through a mix of government support for new industries and control over the financial system they supported firms to enter new higher tech industries, and soak up the inevitable losses as they learned on the job. For example, TSMC, now the world’s leading chipmaker, was a originally part owned by the Taiwanese government. Likewise Korea’s POSCO, now one of the world’s leading steelmakers.

But unlike many poor countries, they used internal competition between firms and global markets to discipline such subsidies. Companies that grew the national knowledge base and proved capable of export success got subsidies, tax breaks, free land and infrastructure; those that failed were ruthlessly culled (the opposite of what we did with British Leyland).

Industry ministries like MITI in Japan systematically researched and plotted the conquest of one industry after another. China’s NDRC and “Made in China 2025” are similar today. Taiwan created a huge science park and established consortiums of firms to share research, development and knowledge.

Various kinds of regulations and incentives encouraged sky-high rates of investment: even after easing off a lot Japan invests about 25 per cent GDP each year and Korea 30 per cent, compared to 17 per cent in the UK. All four went through periods of importing, copying or frankly ripping off western technologies.

Or if that seems too distant, take an example closer to home. Since 1990 average wages in Ireland went from being 5-12 per cent lower than the UK to being 7-15 per cent higher, depending how you measure it. Ireland attracted four times more inward investment than the UK relative to the size of its economy. Those foreign-owned firms have higher productivity: employing 22 per cent of people but accounting for 57 per cent of value added and 70 per cent R&D investment.

Some recent growth has been driven by highly specific and aggressive tax policies. But the seeds of Ireland’s growth were sown in earlier decades, when Ireland opened up to foreign direct investment and introduced a zero tax rate for manufacturing exporters. From the mid 80’s, Ireland specifically targetted investments from higher tech firms: Microsoft arrived in 1985, Intel arrived in 1989, Amazon, Bell Labs, MSD, Google, Twitter and Facebook in the 90’s and 00’s.

The Irish Development Agency operates a sort of concierge service for inward investors, and recent court cases like that brought by the European Commission regarding Apple show how far Ireland has been prepared to go to attract leading tech firms.

What would it mean to learn from these fast-growing countries today?

First, attracting firms with leading knowhow. We’ve done it before: Mrs Thatcher wooed Nissan to Sunderland with tax breaks. Although evidence suggests previous tax breaks increased foreign investment into poorer parts of Britain, we gradually phased them out, only partly due to EU rules. So the creation of the new Office for Investment is a good start.

Second, improving our innovation-industrial system. Total investment in R&D in the UK is just way too low. The UK invested 1.7 per cent GDP on R&D in 2018, China 2.1 per cent, the US 2.8 per cent, Germany 3.1 per cent, Sweden and Japan 3.3 per cent, South Korea 4.5 per cent and Israel 4.9 per cent. Across the world there’s a clear correlation between government investment and business investment.

However, government investment is more geared towards prompting business investment in some countries. We’re now growing government investment in R&D after decades of neglect, but we must also make it more business-focused. Government should implement the proposals set out in a recent NESTA report to support innovation in poorer parts of the UK.

Third, we need to bring the same focus to manufacturing and tech policy that we’ve had for decades on financial services. We have a city minister, and have quite rightly intervened and changed the tax system to promote financial services, because finance has high wages and productivity growth.

But so do manufacturing and IT. Between 1998 and 2018 output per hour grew £20.60 in manufacturing and £22.70 in IT, compared to £11.90 in leisure, £11.50 in retail, £9.50 in admin support services and £7.20 in accommodation.

Outside London, weekly pay in manufacturing is nearly a quarter higher than the economy as a whole. However, over recent decades poorer parts the UK have seen employment dramatically shifting out of manufacturing, and into these slower-growing local services. Though this holds down unemployment, it represents a sort of economic Dunkirk. The pace of this shift has dramatically slowed since 2010, but not been reversed.

Fourth, we need to address the UK’s longstanding low rates of physical investment. As the excellent Plan for Growth published last week noted: “The UK has a lower proportion of innovating firms overall than other advanced economies and weaker business investment”.

One cause of this is that Britain has had the most miserly tax allowances for investment in the G20. So the “super deduction” unveiled by Rishi Sunak last week is a huge step in the right direction. It should boost investment everywhere, but particularly in poorer places where there is more manufacturing.

Last but not least, a lesson from the high growth countries is about making sure that finance serves growth, rather than itself.

Again, the budget saw steps in the right direction. The Hill Review will enable dual class shares, which tech firms (like Google, Facebook, Lyft, Pintrest etc) increasingly use to offset market pressures for short termism. The new Infrastructure Bank in Leeds will catalyse private infrastructure investment, while further extensions of the British Business Bank will support lending and equity for growing companies (it is gradually filling the hole where 3i used to be).

The next challenge is to unlock more institutional investment into venture capital. Sunak has set in train a review of the EU-imposed Solvency II regulations for insurers. Shifting even a small sliver of such vast institutional cashpiles out of gilts and into growth enhancing venture capital could be transformative for growing businesses. There’s also arguments for reviewing similar rules around pensions too.

Making Britain into a tiger economy is a daunting challenge – particularly its less prosperous parts. But the challenges facing other countries at different times have been at least as daunting. If we don’t want a future of ever higher taxes and slow growth, we simply have to make it happen.

Daniel Hannan: If a restaurant can refuse to serve you, Amazon can refuse to host Parler

20 Jan

Daniel Hannan is a writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.

Trump’s Twitter ban is being treated as a free speech issue, but it isn’t. Properly understood, it’s a free association issue. The First Amendment to the US Constitution does not give Americans the right to say whatever they want in whatever forum they please. What it says is that “Congress shall make no law” abridging the freedom of speech or of the press.

In other words, provided you stop short of direct incitement to criminality, you can legally say whatever you like. But, though the government can’t shut you up, there is no obligation on anyone else to provide you with a microphone. You have the right to free speech, but everyone else has the right to free association. A restaurant can refuse to serve you because you’re not wearing a tie. A hotel can turn you away because it doesn’t cater for children. An online platform can reject your custom because it doesn’t like your opinions.

Whether a platform is wise to exercise that right is a different question. When I was an MEP, Facebook, Google and the rest used to fall over each other to assure us that they had no editorial control, and therefore could not be held liable for anything that appeared under their banners. That argument is now redundant, and I suspect the big tech companies will come to regret the shift. But, as a matter of broad principle, our starting assumption should be that a private company can set its own terms and conditions and pick its own customers.

Freedom of assembly and association is, or ought to be, as fundamental a right as freedom of speech and expression. We talked a great deal about the loss of our liberties in 2020, but it wasn’t our right to worship, speak out or cast a ballot that was suspended. The heaviest constraint, the one we all felt, was being unable to congregate as we pleased.

You might think that the lockdowns would have made us appreciate a liberty that, in normal times, we take for granted. That, though, is not how politics works. In practice, every age sacralises certain values, lifting them above the run of normal debate. In mediaeval Europe, the works of the ancient philosophers were judged, not by their accuracy or logic, but by their compatibility with Christian orthodoxy. In our own day, it is the tenets of identity politics that have been sacralised.

Thus, instead, of having an abstract conversation about the value of free expression in a manner that John Milton or J S Mill would have recognised, we start by asking whether it is ok for people to say racist things – an odd way to settle a general principle.

Likewise, when it comes to free association, lots of people see the debate solely through the prism of whether an imaginary private club would be allowed to exclude someone on grounds of ethnicity – a scenario that could come about, I suppose, though it would surely be very rare in this day and age. Hard cases make bad law, goes the saying; and hard putative scenarios make bad general precepts. The correct way to determine our position on human rights is to start from first principles and then see how those principles apply to specific cases rather than the reverse.

What should our first principles be here? Most obviously, a presumption in favour of liberty and property. If people are to be prevented from getting together in whatever combinations they please, there needs to be a good reason. An epidemic might be such a reason. The expectation of equal treatment as a citizen might be another.

In balancing the competing claims of private property and non-discrimination, many countries draw a distinction between ordinary businesses and companies defined as utilities, diluting the rights of the owners in the second category. We might, for example, say that the owner of a small café has the right not to serve her ex-husband, but that she would not have an equivalent right to refuse his custom if she owned an electricity company. We might say (indeed, the law broadly does say) that a religious baker should not be compelled to decorate a cake with a message celebrating gay marriage, but that a railway could not withhold its custom from gay people.

Obviously, people can reasonably disagree about where to draw the line. But wherever we draw it, it should then apply to everyone equally. Equality before the law means precisely that. Either the café owner has the right to refuse someone service or she has not. “Laws” as Hayek said, “must be general, equal and certain”.

Where does that leave us with Twitter banning Trump, Amazon banning Parler and the rest? Well, either they are defined as utilities or they are not. If they are, then regulators can tell them whom to serve. If they are not, then they can ban anyone they like: Republicans, Protestants, left-handed people, cartwrights. It’s one or the other.

There may be an immediate test of the principle as the lockdowns end. The Government has, quite rightly, said that it will not make vaccination compulsory or issue immunity certificates. But what if a cruise ship wants proof of vaccination before you board? What if a gym requires a certificate as a condition of membership? I reckon that free association gives them the right to set their own terms. But, either way, the law must be general, equal and certain.

Ryan Bourne: “Levelling the playing field” is no argument for an online sales tax

5 Aug

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

Some time soon, we’ll see more automation in the fast food sector. Burger-making machines are real. Franchises such as McDonald’s have rolled out self-ordering touchscreens. It’s not difficult to imagine a world in which fast-food worker numbers collapse. In the longer-term, when the technologies become widely affordable to businesses, cost reductions from these sorts of labour-saving investments will benefit consumers through lower prices.

Not every competitor chippie, kebab shop, or burger outlet will make the transition, of course. Some will struggle under what will then become the higher cost, labour-intensive model, finding their niche in the market. Others may simply go out of business – unable to compete on price and without the ability to invest in the machinery.

Would this be a problem? Or is it simply an example of capitalism’s creative destruction? 

Imagine if the struggling companies and their employees demanded Parliament pass a “burger automation tax” under the premise of “levelling the playing field” with those companies that took the plunge. Think how dangerous supporters of consumer-led capitalism would consider it for popular price-reducing innovations to be held up as a problem. Consider how bemused we’d be if the savings in labour costs were dubbed “unfair competition,” simply because not every company realised them.

Well, we are seeing an analogous argument capture policymaking today. And, bizarrely, free-marketeers within the Conservative party are not really speaking out against the muddled thinking.

The UK government is kite-flying about an online sales tax of two per cent, or taxing online deliveries to consumers. One of the many justifications given for even considering these Luddite measures is to “level the playing field” between online retailers and the High Street, given the latter face business rates.

Here’s the problem: there already is a level playing field. Just as all businesses face the same minimum wage laws, they also face the same overall tax regime. This includes business rates – which is a tax on the rental value of commercial property, not sales.

Faced with those policy realities, businesses are free to decide how to operate and structure. Innovative online sellers such as Amazon have simply adopted business models that repudiate the need for a high fixed‐cost physical presence in expensive inner‐city areas.

Operating from out-of-town warehouses is a cost-saving business decision akin to the potential automation in fast food. To then suggest that online retailers not needing to rent high-value property is some distortion of competition that requires a corrective tax, as the Treasury reportedly believes, is just bizarre.

It’s this business decision that partially explains why online sellers can provide low prices for consumers, enhancing their welfare. The idea that adopting this model is some underhand advantage is as daft as saying that Amazon’s packaging costs are a disadvantage for it, requiring a “packaging-equivalent tax” on High Street stores’ sales.

To echo the 19th century classical liberal economist Frédéric Bastiat, the bricks-and-mortar retailers using this level playing field argument are akin to candlemakers petitioning the Government about the sun flooding the market with cheap light.

Now if the Government thinks that the current business rates regime is an inappropriate tax on rental values or has distortionary impacts on commercial property use (I agree, but think the impact overblown) then, by all means, they should change the law faced by all. If councils are worried about car parking charges’ impact on high street retailers, then they are within their rights to adjust them.

But let’s not talk as if it’s unfair competition when firms, faced with a tax regime, innovate to reduce costs to provide a service in a way that consumers prefer. For make no mistake, it is customers that will ultimately bear the costs of any new sales or delivery tax in the form of higher prices, especially those whose use of delivery is less responsive to price, such as in rural areas.

Of course, increasingly traditional retailers are themselves re-orienting to online, especially during Covid-19. Any cuts to business rates (to the extent they are passed through by landlords) might allow for some consumer price reductions to “compete” better with online firms for sales. But if these same traditional retailers then face a new tax on their growing online sales anyway, the Government will have given with one hand and taken with another. 

And which companies will suffer disproportionately from the new administrative burden of having to deal with an online sales tax, do you think? Will it be Amazon? Or is it more likely to be smaller companies navigating the online market for the first time?

This whole debate highlights a broader gripe I’ve had with Conservative policy thinking for some time. Conservatives used to understand the case for consumer-led markets, as extolled by Jeff Bezos in a US Congressional hearing last week. They trusted customers to make choices in their own best interests. Our revealed preferences were thought to represent us trying to maximise our wellbeing under the circumstances we face.

But increasingly MPs seem to think they know better. Sure, customers might be flocking to online retail, especially during a deadly pandemic. But what they really want, we are told, is a thriving High Street. Who you gonna believe: MPs or your lying eyes?

The idea that any business providing the same product must face the same tax and regulatory cost base to truly compete on a “level playing field” is easily dismissed. Wind and nuclear power both produce electricity. But if someone told you we needed a tax on wind power to make up for the safety costs of nuclear, you’d think they were utterly mad. So what do we think is different about retail, after we’ve decided that it’s appropriate to tax commercial property consumption?

Now perhaps the Government’s real aim is not to “levelling the playing field.” Some say a tax on online deliveries would reduce congestion – a daft argument given a van delivering to 30-40 places would cause far less traffic congestion than everyone going to stores. Some say that the Government simply needs the revenue – in which case £2 billion is a relative drop in the ocean. Our communitarian friends, with their stale 1950s vision of High Street’s somehow engendering “community,” want to pull any lever to try to preserve the town centres of yesteryear.

Yet those arguments are self-evidently absurd or futile in the face of ongoing trends. The “level playing field” line is more dangerous precisely because it sounds as if it’s pro-competition. If Conservatives really believe, however, that the role of Government is to correct for businesses finding ways to reduce their fixed costs, as if this were some unfair advantage, then they are further through the economic looking glass than I’d realised.