Category Archives: Government Policy

University Lecturer Strikes–and Perverse Incentives

As a master’s student at UCL, I recently learned that there will be 18 days of strikes by professors over a variety of issues between now and 22 March.  For me personally, this means that out of the 12 classes I have remaining this term, 50% will probably be cancelled due to strikes. This does not take into account classes which will be cancelled as a result of rail strikes and professors’ inabilities to get to the classroom.  Before continuing, I should make clear that although I am saddened by the impact on my learning, I fully support the teachers in their strike.

Recently a petition has been circulating among the students which seeks reimbursement to students for classes that they will be missing (500+ signatures!). Although I support this effort as well, for someone like me who is at the tail end of my career and academic life, it has fewer consequences than those with many decades still ahead of them. I also feel a particular sense of rage on behalf of foreign students who have forked out something like £28,000 for their education and have seen its value in actual terms decline sharply as a result of the strikes. This also damages the image of UK universities abroad—but alas this is the sort of medium to long term consequence that often gets ignored. 

It is possible that a few universities may pay compensation to students, and some have done so previously, but the amounts will be trivial—I heard of one university which paid roughly £4 per hour missed.  On that basis, I will get £24 for the classes I miss–ridiculous.  You will guess that the £16k I am paying for my master’s degree, as a UK resident and citizen, is costing far more than £4 per hour!

However, this situation has led me to reflect on comparisons with the private sector, where I have spent most of my life. Most firms suffer as a consequence of strikes because during work stoppages they are unable to manufacture the products or services which generate revenues.  Thus the strikes adversely impact their profitability.  As students, we pay up front for education, and in the event of strike we suffer, as do lecturers, but there is no concomitant reduction in the university’s revenues, apart from minor compensation a few pay out. In fact—and this is the key perversity—universities benefit financially when teachers go on strike—their wage bill falls. Therefore unlike in the private sector the impact of strikes not only fails to punish the employer but actually benefits them. The biggest losers are the students and their professors.  Furthermore, the entire academic experience is diminished, something I have felt deeply.

This is not dissimilar to the health sector where striking nurses, ambulance workers and others suffer directly from their decision to withhold their labour. Sadly patients endure serious hardships and tragically some may die as a result. Whereas students like me might be disheartened or inconvenienced by the negative impact on our education, this is nothing in comparison to the loss of a loved one as a result of industrial action. Anger and fear are inevitable consequences and unfortunately, these are sometimes targeted at those who strike.  Students rarely get angry with teachers, but they are certainly cross with the university—but are they at fault?  I feel the real culprit in both the educational and health field are the Government, who seem to get away with this and hide behind the university or the health entities who bear the brunt of the ill will.  This Government also offers absurd excuses such as “preventing inflation” (see this previous post for a discussion of this issue). I do wish there was some way that they could suffer directly as a result of their policies, but the existing incentive system does not accommodate this.  Instead they benefit, in having a reduced payroll burden, when health and education professionals strike in desperation over how their real pay has declined. 

I study democratic innovation.  I too wish that we could come up with an innovative way to restructure the incentive system so that this perversity did not exist.  Any ideas?

I hope and pray that come the next election this government pay the heavy price for its behaviour. Sadly, it will be nothing like the price that many others are being forced to pay.

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here.

Empty Priorities, at University and in Government

In 2022 I committed myself to the idea of restarting a regular blog, which is something I had done ever since I got involved in the field of impact investment, back in the early 2000s. I worked on this last summer and with enthusiasm posted 5 pieces, with every intention to carry on.  I was thwarted by two words…….”Quantitative Methods”.  This is the course at UCL which all political science students are required to take.  To say I found it challenging would be an understatement. For someone whose first and second degree came with hardly any experience with a computer, the idea of conducting statistical analysis in a programming language called R was daunting.

I had been prepared for this challenge.  Among the prior year cohort of students, the volume of complaints was so high that I dreaded the prospect—it felt like an impending execution.  Many students in the previous cohort felt the subject to be of such relatively narrow interest and applicability that they questioned its necessity as a required course.  With much trepidation, I launched myself into the class which began in October 2022. Although it was the only course I took that term I found it exhausting and felt myself unable to do much else in the meantime—it was intellectually draining. As excuses go it feels pathetic, but as an explanation it is an honest one.

The course was very difficult and experienced as such by me and many of the other students. The professor, Indraneel Sircar, was an extremely gifted lecturer and able to explain the most complex concepts it is simple and engaging way. In this regard we were blessed. Similarly, I found the 400-500 students on the class to be highly collegiate in their approach to one another. Students would regularly reach out to each other and I was overwhelmed by the helpfulness extended to me during the course—it was heart-warming. I also have to admit I began to see the Department’s wisdom in including this in the core curriculum. Modern day political science study is well-nigh impossible without a solid background in statistical analysis–thus unlike the prior cohort I came around to the university’s judgement that this was an essential pillar for a politics master’s degree.

What was severely absent was the support for students of all levels to integrate the concepts we had learned into our practical work. Professor Sircar tried his darndest, but the 50-minute weekly seminars (taught largely by others) were simply inadequate. The quality of the seminar leaders was mixed, and the instruction to “work independently at your desks and call me over if you have any questions” was a stunning demonstration of pedagogical laziness. By the time the instructor would get halfway around the room the session was up and any questions which existed would remain largely unanswered. With 15 to 20 students in the room, there are roughly 3-4 minutes per person.  It is inconceivable that that is sufficient time to assist people grappling with new and complicated concepts and exercises.  With a 30 minute commute each way, I was making a two hour commitment to a 50% chance of having one question answered.  One need not have statistical training to see this as a poor investment of time.

There is a modern-day political echo of this.  The practise of stating that something is of high importance without providing the resources to back it up is prevalent in modern Britain.  It reminded me of so many things we observe in the political realm.  Teachers face an ever growing pile of “governmental priorities” but are rarely given the resources to support those efforts. Professionals in the health sector are instructed, chided, insulted to meet targets set on high but rarely provided with the financial capacity to deliver.  Earlier this month Prime Minister Rishi Sunak announced plans for all UK students to study maths until the age of 18[1]. Whether or not this is a worthy endeavour I cannot say but I am certain that the funds to support this endeavour will not be made available or they will come out of an already stretched education budget which has declined significantly in real terms. The independent Institute for Fiscal Studies has reported that in the 10 years ended 2019/20 real spending per student has fallen by 9% in real terms.  It has declined from 5.6% of national income two 4.4% of national income over that period[2].  I have serious doubts that this will change regardless of Sunak’s proffered maths ambitions for British students.

Actions such as these at UCL and from the Conservative government I find especially infuriating. They latch onto an important issue or identify a serious problem, make pronouncements, but rarely if ever back these up with the necessary actions to support the initiatives. Frequently they might require sacrifices elsewhere, and whilst politicians delight in making unfunded commitments (and banking the political credit), they refrain from explaining trade-offs.  Such acts are cynical in the extreme.  And what is especially galling is that the people that pay the price are students, patients, teachers, health professionals, but rarely politicians who rack up credit for their substance-free soundbites.  In Sunak’s case it is particularly loathsome, because trailing by 20+ points in the opinions polls, he can rightly expect never to have to pay the price for the “commitments” he is making.

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments.


[1] The Guardian, 3/1/23 downloaded 29/1/23. https://www.theguardian.com/education/2023/jan/03/rishi-sunak-to-propose-maths-for-all-pupils-up-to-age-18

[2] November 2021 IFS report.  https://ifs.org.uk/sites/default/files/output_url_files/R204-2021-Education-Spending-Report-1.pdf

Market orthodoxy, embedded inflation and fair wages

Inflation across the western world is skyrocketing. Consumer prices across the developed world are rising to near double digit levels—levels not seen since the 1970s. Similarly to the 1970s, a rapid increase in the price of oil and gas has been the main contributor. The war in Ukraine has catalysed a surge in energy and grain prices, and both are causing wider knock-on effects.  This is causing one of the worst cost of living crises in modern times.

Governments and central banks are rightly concerned about rising inflation. It imposes extraordinary hardship on citizens (especially the poor) and squeezes government budgets. On top of this there is a concern that inflation, which with substantial effort and cost appears to have been eliminated in the 1980s is now returning with a vengeance, thus threatening to undo all that arduous work.  The fear is that inflationary expectations get ‘embedded’ into the economy thereby making it harder to control.

Interest rate increases are a tool of central banks to bring inflation under control by dampening demand. Higher rates raise borrowing costs which, at the margin, reduce economic activity. However, in the current environment, it is ridiculously hard to argue that the economy is overheating—far from it.  The global economy is very weak due to Covid, the war, and other factors, but the primary cause is the massive increase in energy costs.  Raising interest rates will weaken growth and do nothing to address the cause of higher inflation.  Their effect will be to push the world economy into a recession.  This might have been a time for REDUCING interest rates, had central banks acted more prudently in past years.  I suspect they were under pressure from the finance sector to keep money loose, which supported asset prices—and this seemed excusable with inflation at seemingly low levels.  Now we are paying the price for this error.

Let’s return to this idea of embedded inflation and how to address it.  Inflation “getting embedded” is a euphemism used by officials for wages which (heaven forbid!) might match inflation.  Central banks and many governments are nearly hysterical about the need to resist this at all costs.  There is no matching angst regarding corporate profit margins—or CEO pay, for example.

The chart below illustrates the share of GDP in the United States which is represented by labour or corporate profits[1]. Notice how labour share of profits has fallen since the 1970s at the same time as share represented by corporate profits has risen sharply.  Maybe its time for some reversion of corporate profits to the historical mean?   Perhaps companies can help prevent inflation from getting embedded by raising prices at less than the increase in costs?  Profit margins might suffer a bit (from historically high levels!)—but is this not preferable to forcing the lowest paid to make choices between heating and eating?

And why do the arguments about “irresponsible pay increases” only apply to low paid workers?  It seems that CEOs have no worries about their own role in embedding inflation.  The chart below[2] shows how US CEO pay packages have risen in comparison to the pay of workers.  Is it simply inconceivable that only average workers should suffer as we ward off embedded inflation?

The next chart[3] shows how labour’s share of output has steadily declined, especially in developed economies.  Is it not time for some correction?  Given labour shortages across the western world, is there not a simple solution to entice staff back to work—just pay them more!  Why does the market orthodoxy of supply and demand only apply in the case of CEOs or banker’s bonuses (the UK just loosened the cap on banker’s bonuses, amidst this cost of living crisis)?  Do only the high-paid need to be “incentivized”?   

Paying workers in line with rising inflation in the current environment is hardly inappropriate–in fact, it’s essential, and any decent objective observer would say the same—in fact, they might say its time workers to catch up a bit.  However, I do not hear this at all. Yes, labour union leaders seek more money for their members, but I do not hear the broader point that in the interest of the nation we simply must reallocate between corporate profits and workers.  And why should these pay increases only approach the rate of inflation? Why should they not match or even exceed it? And while it is true that in the short term profit margins may suffer, we will avoid a social and economic cataclysm.  I also believe that the trendline of economic growth will accelerate if we undertake this shift. The poor and those on moderate incomes have a much higher propensity to spend any incremental income–it is sensible from a growth perspective that we put money in their hands instead of continuing to enrich the rich and the owners of assets.  Who is more likely to spend incremental income, the rich or the poor?  No points for a correct guess.  (I may write a separate blog post on this subject.)

That companies simply “have to” pass on costs (labour or materials) is just taken for granted–almost as a natural law of physics. However, the notion that workers should receive pay increases which support them to keep up or just about keep up with the rise in costs is heresy of staggering proportions. This orthodoxy needs to be challenged.

This is not just about markets, but political choices.  Governments are restraining pay increases for low-paid public sector workers to grapple with inflation.  What they should do instead is pay these workers more, raise funds to cover rapidly rising debt levels by increasing personal taxation at the high end (and lower it at the low end?), increase (not decrease, as the UK is proposing to do) corporate tax rates, and they should, as some countries are, institute “windfall taxes” on energy companies for the unusually elevated level of profits realised merely as a result of the war.  Failure to do so risks social unrest, poor health outcomes (as the poor starve, freeze and are unable to procure health care) and economic weakness as demand suffers.  In any event, they should junk the rule that says workers always have to shoulder the burden of fighting inflation.

A courageous politician would seize on this theme. Where is he, or her?

Rodney Schwartz

London, UK–14 October 2022 

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments.


[1] Taken from a PGIM (division of US financial firm Prudential Financial) Fixed Income Division report, dated April 2021, written by Nathan Sheets and George Jiranek, downloaded 17 August 2022

[2] Financial Times, 13/10/22

[3] Financial Times 12/10/22