Onion Economics

There is something about onions which brings out the worst in bureaucrats. Orlando Figes’ A People’s Tragedy chronicles the early years of the Russian revolution. Under war communism, the Bolsheviks attempted to exert state control over the entire economy. A long list of vegetables was drawn up, specifying the prices at which they could be traded. Through incompetence, onions were omitted. The result was a huge glut of onions, as everyone rushed to take part in one of the very few areas of private enterprise left to them.

Congressman Gerald Ford, the future American President, made no such mistake. In the late 1950s, he promoted the Onion Futures Act, which means that onions are the only commodity in which futures trading is banned in the United States. This was in response to a massive coup in which two traders literally cornered the market in onions. But in general, futures markets helped rather than hindered producers by providing a guaranteed price and protection from price fluctuations.

The temptation for bureaucrats to imagine they have special knowledge, that they can intervene and make things better, is irresistible. The European Union is getting in on the act. A revised Markets in Financial Instruments Directive provides for regulators to impose limits on the size of the bets which dealers in commodity futures can place. Time will tell how successful this will be, though recent academic work suggests that interventions such as this, or the Tobin tax, may actually increase rather than reduce price volatility. The Taiwan stock market, for example, has a tax on most transactions, yet it is one of the most volatile. The UK housing market has a very large tax on transactions – stamp duty – but this has not prevented the development of speculative bubbles and huge swings in prices.

We might perhaps think of the bureaucrats at the Environment Agency as a bunch of onions. Rather, as a group of people who imagine they can improve the outcomes for onions. Of course, their concern is the environment rather than markets, but the mentality is the same. It is not that bureaucrats lack imagination. Whether it is the Soviets believing they could control vegetable prices, of the denizens of Brussels who think they know the maximum amount of speculation which is to be allowed, a future which is different to the past has to be imagined. And this vision has to be held with conviction

This conviction is often the root of the problem. A narrative emerges within a bureaucracy that there is a correct line, one best way of doing things. The Environment Agency came to believe that flora and fauna were more important than humans, and everything became subordinated to this narrative.

It is when a dominant narrative emerges within an organisation, when dissent is not tolerated, that the chances of making bad decisions rise sharply. Recent developments in algorithmic text analysis enable such situations to be detected from internal memos and emails. The first task of a regulator should be to monitor itself against this danger.

As Published in City AM on Wednesday 12th February 2013

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e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.