Equitable estoppel, mutual restrictions and common resources

For reasons that we don’t need to explore*, I’ve found myself in my day job obliged to reinvestigate what I learned as a law student on the concept of estoppel. Not only is estoppel a quaint word but it’s a peculiar principle that arises in a number of different forms. It is another creation of equity, that odd and wonderful portion of the legal system that cares less about a strict interpretation of the law and rather (as the name implies) seeks to find what is the fair resolution in all the circumstances.

To simplify, estoppel enables someone who has acted to their detriment in reliance on another’s representation, or even just a course of dealing, to hold them to that representation (or to the representation that is implied by that course of dealing). The person making the representation is bound by the fact that the other has relied on their indicated intent, and will lose out if that intent isn’t delivered on. The key three elements of the doctrine of estoppel are representation, reliance and detriment.

A word that comes up often in equity case law is ‘unconscionable’ – someone is estopped from holding strictly to the letter of the law if their previous conduct would make that unconscionable. Instead, the court intervenes to ensure fairness. As law professor Alastair Hudson sets out in his guide to equity:

“estoppel is truly an example of equity at its purest, in that the court can do almost anything it wishes to prevent an unconscionable benefit being taken by the defendant or uncompensated detriment suffered by the claimant”

Again reflecting that heritage in equity, the courts have proven very open-minded in deciding on the appropriate remedy for such unconscionable behaviour. As Hudson explains: “the court’s intention is … to provide a remedy that prevents the claimant from suffering detriment”.

It is of course not quite as simple as this (the law, particularly equity, never is). “Estoppel in all its forms is based on a variety of underlying conceptions, varying from ‘honesty’ to ‘common sense’ to ‘common fairness’,” says Hudson. Indeed, Lord Sumption in a key recent Supreme Court case went even further, in saying that the “various doctrines of estoppel” offer a “safeguard against injustice”. Yet these broad words are not always fulfilled in practice: the English courts are clear that the various forms of estoppel – though they are sometimes referred to collectively, often as equitable estoppel – are separate and distinct, and not part of any great unified theory (courts elsewhere in the Commonwealth tradition have suggested otherwise). Though in his guide to equity and trusts, Hudson calls a chapter ‘Equitable estoppel’, he starts by pointing out the inaccuracy of the term, not least as some estoppels arise in common law, and not only in equity. In another of his books, he argues that the lack of clarity in defining and separating the different categories of estoppel is a necessary aspect of equity, leaving the courts free to reach the fair decision, and the fair remedy, according to the specific individual circumstances.

This peculiar artefact of fairness in the law is not only interesting in itself. Estoppel also helps illuminate some ongoing philosophical debates with regard to fairness more broadly. Indeed, the great fairness philosopher John Rawls talked about something that sounds very like estoppel within broad societal relations: “a person is [morally] required to do his part as defined by the rules of an institution when two conditions are met: first, the institution is just (or fair) … and second, one has voluntarily accepted the benefits of the arrangement or taken advantage of the opportunities it offers to further one’s interests”. In this, Rawls acknowledges his debt to earlier legal positivist philosopher Herbert (usually HLA) Hart, and especially Hart’s principle of mutual restriction. Rawls goes on: “The main idea is that when a number of persons engage in a mutually advantageous cooperative venture according to rules, and thus restrict their liberty in ways necessary to yield advantages for all, those who have submitted to these restrictions have a right to a similar acquiescence on the part of those who have benefited from their submission.”

In effect, Rawls argues, the whole rest of the societal group has acted to their own detriment, by themselves submitting to the social requirements, in reliance on the expectation that all who take the benefits of their shared endeavour should also submit. Free-riding on that goodwill and seeking to personally avoid the detriment is in many circumstances a breach of a representation given to society (not always explicitly, but perhaps by the course of dealing of enjoying the benefit) and ought to be remedied in some equitable fashion.

In a thorough and thoughtful article on free-riding, Australian philosopher (no, this is not an oxymoron) Garrett Cullity comes to talk about the unfairness of free-riders as being the act of objectionably granting themselves preferential treatment. Through his analysis, Cullity develops the thinking of Rawls and produces the following Principle of Fairness in relation to these kinds of challenges:

“If a person receives benefits from a scheme that satisfies the following conditions, it is unfair for her not to meet the requirements it makes of her in respect of her enjoyment of those benefits.

(i) The practice of participation in the scheme represents a net benefit for her.

(ii) It is not the case that practically everyone would be made worse off by the practice of participation in the recognition as obligatory of those further requirements that must in fairness be regarded as obligatory if the requirements in question are regarded as obligatory.

(iii) She is not raising a legitimate moral objection to the scheme.”

This begins to seem very like the way in which common resource problems are in practice effectively managed, according to the analysis of the great Elinor Ostrom, with mutual sharing of the burdens so that the benefits can also be shared, and often with scope to punish or ostracise those who seek to free-ride. And indeed, Cullity’s ‘recalcitrant fisherman’ example, with which he tests various versions of a possible rule against free-riding, seems very close to an explicit common resource problem and how it might be managed effectively.

In a later article further developing this thinking, Cullity directly references Ostrom. His articulation of general principles in this latter article is striking. I especially like one that is highly relevant to current considerations: “Relationships of trust involve an expressed commitment to reciprocal self-constraint for the sake of cooperation.” This has particular resonance given that, as I explain in my book, trust is the reciprocal of fairness. Cullity argues that failures of appropriate impartiality are at the core of all unacceptable unfair behaviour. He explains that any free-rider granting themselves preferential treatment by exempting themselves from contributing to a common good is exactly such a failure of appropriate impartiality.

Fairness in various forms – including the legal concepts of equity, philosophical approaches to fairness principles, and practical solutions to challenges of managing common resources – reach similar conclusions: there need to be mechanisms and controls over free-riding or reneging on a shared endeavour from which all participants benefit. People undertake a fair set of obligations through their participation in human societies; estoppel is just one way in which they are held to those obligations.

Fairly sharing the commons, sharing the future

I am happy to confirm as ever that the Sense of Fairness blog is a purely personal endeavour

* I don’t think I should inflict on readers a discussion of the current definition of a constructive obligation under IAS 37 accounting standard, nor proposals under consideration for building upon that definition

Understanding Equity and Trusts (7th ed), Alastair Hudson. Routledge, 2022

Rock Advertising v MWB Business Exchange Centres [2018] UKSC 24

Great Debates in Equity and Trusts, Alastair Hudson. Macmillan, 2014

A Theory of Justice, John Rawls. Harvard University Press, 1971

Are There Any Natural Rights? HLA Hart. Philosophical Review, 64, 1955

Moral Free Riding, Garrett Cullity. Philosophy & Public Affairs, Vol. 24, No. 1 (Winter, 1995)

Governing the Commons: The Evolution of Institutions for Collective Action, Elinor Ostrom. Cambridge University Press, 1990

Public Goods and Fairness, Garrett Cullity. Australasian Journal of Philosophy, Vol. 86, No. 1, March 2008

Fairness in Business and Investment, Paul Lee. Routledge, 2026

Introducing Fairness in Business and Investment

This is a version of my speech from the (very enjoyable) London launch event of my book, on October 29th 2026. A version, because as I spoke without notes so these aren’t the exact words that I actually said!

When I first worked in the City, I wasn’t actually working in the City. Before we moved to Portsoken Street, Hermes’ offices were just along from here, on the east side of Mansell Street, and the official bounds of the City ran straight down the middle of that street. It’s less stark now, but there are still streets in this area where you can see one one side of the street the steel, glass and concrete and the wealth of the City, and on this side the bricks and mortar and the poverty of Tower Hamlets, where we are now. I know of no better symbol of the unfairness of our world, and how it gets oddly fixed and ossified than that the arbitrary choices of the Romans in choosing the boundaries of their settlement 2000 years ago are still reflected in a divide between wealth and poverty today. And this place, and the organisation it hosts, Toynbee Hall, works with the poor of this poor borough, and they often use the language of fairness talk about themselves.

That’s why we’re here.

Why we are here, though, is of course this little book, Fairness in Business and Investment. We all feel unfairness viscerally, and it’s not just that we here are a self-selected bunch. Rather, fairness is core to the human condition, it’s been a foundation of our social success as a species, it has been shown to be hard-wired in our brains, and been demonstrated to be present in children of ages all the way down to 15 months. And the thesis of my book is that when we as business-people and investors fail to be fair, we are not just denying something core to our humanity, we are worse at business and investment. For being fair delivers better business and investment, and delivers more prosperity for the long-term.

The book is in 3 parts, introductory, then fairness in business and fairness in investment.

As part of the introduction, I look at how consistent fairness is across cultures around the world. The ultimatum game shows this. I give XX £20 that she must share as she chooses it with YY – and they will get to keep their chosen shares if YY accepts what she’s offered. Economists argue that XX should make a low offer, and YY accept any money that is offered, because it’s free money (at least for you!). But of course that’s not how it works. Almost everywhere in almost all conditions, the most frequent offer, the mode, is 50%; the mean is often a bit lower, but still usually in the low 40s%; and offers below around 20% or 25% are almost always rejected. Fairness is shown to be – almost – universal. There is a key exception to the fairness shown by the ultimatum game, which I’ll come back to later.

Also in the introductory section, I discuss fairness of process, including the crucial issue of the Rule of Law. And I discuss fairness of outcomes, including the question of meritocracy. We all so love fairness that we want to believe that we live in meritocracies, and we’re often willing to believe that those who are suffering somehow deserve their misfortune, even when we happen to know for sure that’s not really true, and even when we doubt the genuine existence of meritocracy. I was at an event a couple of weeks ago and someone asserted that ‘no one believes in meritocracy any more’, in the sense that no one believes that we do live in meritocracies any more. But sadly that’s not true. Exactly the wrong people believe in meritocracy: those who succeed tend to, they believe they merit their success, think it is based on their skill and hard work alone, and are willing to ignore advantages they had or the role of just plain luck. And if they fall into that myth of meritocracy trap, it turns them into the most awful people. They drive aggressively, cutting up other traffic. They cheat in tests. They literally steal sweets from children. Successful people really can be awful human beings in their personal lives; who knows how they might act in their working lives?

The core of the book is the section on fairness in business. Here I look at each of the main stakeholder relationships, as set out in s172 of the Companies Act – employees, customers, suppliers, communities and so on. For each of them I consider what fairness looks like in relation to that stakeholder, what the benefits of fairness are, and something about the current state of play (usually not as good as it could be). I use the s172 list because I think it’s a useful articulation, not because I want to be narrowly British in the analysis – in fact when I share that ‘enlightened shareholder value’ approach with directors as part of the training I do, directors from around the world recognise it as a clear articulation of their duties, what they think the job of boards is, and what they think companies are there to do. And I show that even in the supposedly narrowly shareholder-focused US, actually the law properly understood is much closer to that articulation of enlightened shareholder value.

Of the s172 stakeholders, there’s probably least evidence for fairness making a valuable difference in the case of the environment. I think that’s because that relationship isn’t mediated through humans, and so isn’t subject to the push and pull between people that is often the source of fairness. But even there I find evidence of the need to strike a fair balance. And I go all the way down the list of s172 stakeholders, including corporate governance and good business conduct, and fair dealing with shareholders. I cover dual class shares, and the accounting and reporting wonks among you will be particularly pleased to know that I cover true and fair, as well as fair, balanced and understandable and Fair Disclosure (Reg FD) in that section. It’s striking how central fairness is to the language we use when we talk about the corporate relationship with its investors.

But it’s odd that we use fairness rather less in our expectations of investors themselves. So, to move to the final section of the book, fairness in investment. This section is rather less evidence-based and rather more aspirational than the fairness in business section. And the reason for this is that there is simply much less experience of fairness operating in the investment world, on which such evidence might be founded. Someone here’s employer has just launched an advertising campaign based on their being the fair pension and investment provider. While normally I love to see fairness in marketing, seeing it being applied as a core differentiator in the investment world depresses me a little.

And it’s here also that the outlier in the ultimatum game comes in: when researchers merely briefly called it a ‘Wall Street game’ when introducing the rules, the outcomes were very different, with initial offers much less generous and much greater acceptance of lowball offers. We fundamentally believe and accept that Wall Street, that the investment world, is less fair than the real world.

And that’s ironic because the foundation of all investment is the concept of fiduciary duties, that we’re looking after other people’s money and therefore must care for their interests above all. People in investment proudly talk about themselves as fiduciaries, as they should. And here’s the thing: fiduciary duties arise from that branch of the legal system known as Equity, which as the name suggests seeks to deliver fair outcomes whatever a strict interpretation of the law might be. So it is odd that investment, which is based on fiduciary duty, and so founded in equity, is not actually expected to be fair.

Fairness proves a valuable way to illuminate other key challenges in the investment world too, including stewardship, systemic risk and short-termism. The final nugget I’ll share is on short-termism, which we measure in investment using discount rates – the amount by which future money is worth less than money in the present. With the scale of our long-term problems, we desperately need to be thinking more long-term and so have lower discount rates, valuing the future more. But there’s a finding that in conditions of inequality – which obviously we are currently in – people have higher discount rates, they discount the future more and focus more on the present. There’s some logic to it, as inequality increases the risk that we may not be around to enjoy the future, and we may not have the funds to enjoy it. But the researchers argue that it’s more a psychological outcome than a logical one, and given that they’ve shown other psychological effects on discount rates (not least that men become much more short-term while in the presence of an attractive woman) it’s hard to argue with them.

So not only does unfairness exacerbate many of our future problems, it also constrains our ability – or at least how we perceive our ability – to deal with them.

So, in short, fairness matters to us as humans, deeply, viscerally. We miss something fundamental if we close our minds to it in our business and investment lives. Businesses need strong stakeholder relationships, all of which are stronger if mediated through fairness. Investment ignores fairness at its peril, risking the strength of customer (fiduciary) relationships, bringing systemic risks and limiting the ability to address them, getting timeframes wrong and too short-term, not least because of excess discounting. Yet we are human, and we shouldn’t allow the Wall Street game to have different fundamental rules to the rest of our lives, or be fooled by success within what we hope are meritocracies but really aren’t.

Fairness matters, and we will succeed more in business and for our investment clients, if we believe that and act more vigorously on it.

I’m happy to confirm as ever that the Sense of Fairness blog, and indeed Fairness in Business and Investment, are purely personal endeavours.

Fairness in Business and Investment, Paul Lee. Routledge, 2026

Baring the necessities

I fight shy of defining fairness. There’s a broad range of options that fulfil fairness for human beings – and different individuals will reach different judgements as to whether a particular circumstance falls within that range. There’s somewhat more clarity about unfairness. That concept animates us all so viscerally that we can more readily agree that something is unfair, even though there is much human judgement in that too.

This human and emotional side of fairness and unfairness is exactly why it is more rewarding to explore than the definable and measurable concepts of equality and inequality.

Such is the strength of my sense that I shouldn’t seek to define fairness that throughout my forthcoming book I provide no easy answers. Instead, I talk about ways in which businesspeople and investors can develop their own approach to finding a fair landing ground. I believe that the push and pull between people is so key to finding what is fair in any particular circumstance that making assertions in the absence of its particular details is all but impossible. It’s not by chance that the legal approach of equity is entirely based on reaching a fair outcome, setting aside any detailed legal rules: equity – fairness – can’t be defined in advance, successive courts have found, but only decided by judges considering the facts of the individual case. The same is true of fairness outside the court context: it must be subject to judgement based on the particular circumstances.

So I found myself baulking a little at those sections of Will Snell’s highly accessible new book The Fair Necessities that assert “Fairness is definable”. Indeed, for Snell, the CEO of the wonderful Fairness Foundation, the definition of fairness is based on his eponymous ‘fair necessities’ (which he and the Fairness Foundation first launched on the world in 2021). They are, exactly as he sets them out in the book:

Fair essentials: Everyone should have their basic needs met, but we need to go further to enable people to play a constructive role in society.
Fair opportunities: Everyone should be able to thrive, without having to overcome unreasonable barriers to opportunity or earn a huge salary.
Fair rewards: Everyone’s hard work should be rewarded, in line with their contribution to our society as well as to our economy.
Fair exchange: Everyone should contribute to society by paying their fair share in tax, and in return should be supported by society when they need it.
Fair treatment: Everyone should be treated with equal respect and should be able to exercise equal influence on decisions made in their name.

These seem to me a good articulation of key pillars of fairness, and key elements of what fairness might look like if delivered in practice. But a definition? Maybe not so much.

So I personally welcome the book’s later comments that fairness inevitably means different things to different people, and particularly comments acknowledging that really the fair necessities offer a framework for understanding fairness, and operationalising it in society – rather than a definition as such. Certainly, it was as such a framework that Snell spoke about the fair necessities at the book launch I had the pleasure of attending last month.

And it is really in that operationalisation of fairness that Snell’s book comes into its own, in a powerful and valuable way. Even as someone who has chatted with Snell over a number of years and closely followed the Fairness Foundation’s thoughtful work, I found much that was new in the book’s later chapters, especially the last substantive one, ‘Dismantling the barriers to fairness’. In particular, Snell discusses how to win the social and political argument about the need for greater fairness, and particularly highlights the need for an engaging and emotional discussion of fairness, not a purely technocratic one. Only occasionally does he fall into the trap of implying that the fairness agenda is favoured by people of one specific political persuasion; elsewhere he rightly notes that the concept works across the political spectrum.

Only deploying such an engaging and emotional discussion of fairness will, in Snell’s words, change the political wind, and help society acknowledge the scale of the risk that our current unfairnesses represent. I suspect his quote from economist Angus Deaton (from his 2024 Rethinking my Economics comments) will stay with me for some time: “Efficiency is important, but we valorise it over other ends … When efficiency comes with upward redistribution – frequently though not inevitably – our recommendations have become little more than a license for plunder.”

I’ve niggled about a small aspect of the book (though the posited definition is the frame within which its title is first explained) but really I would, very simply, highly commend The Fair Necessities to all. It’s accessible and challenging, and like this blog it is based on the clear understanding that our world needs, and deserves, more fairness. Do read it, do enjoy, and do think about how we collectively can more effectively operationalise fairness.

What’s fair pay for a bank?

It’s fair to say that generally banks aren’t well known for the fairness of their approach to pay. So it was interesting to note the emphasis that UBS, now by far Switzerland’s dominant bank following its 2023 rescue of the failing Credit Suisse, places on the issue of fair pay in its latest, recently issued annual report.

But the problem is that it seems to this reader at least that the bank may not necessarily be focusing on the right forms of fairness in pay.

For example, in the introductory section of the 43-page compensation report, the bank answers its own question, How does UBS support pay fairness?, as follows:

“We pay for performance, and we take pay equity seriously. Across all our locations, we apply the same fair pay standards, reinforced by annual reviews of our approach and policies in line with established equal pay methodologies. In 2025, our statistical pay gap analyses reaffirmed that pay differences between male and female employees in similar roles across our core financial hubs remained below 1%, a difference consistent with that for 2024. If we find any gaps not explained by business or by appropriate employee factors, such as role, responsibility, experience, performance or location, we look at the root causes and address them.”

UBS develops this analysis a little further in the Compensation philosophy and governance section, under the title Fair and equitable pay. Key elements of this discussion read:

“Pay equity and equal opportunity are fundamental to support our strategy. Being an employer of choice and inclusive of all experiences, perspectives and backgrounds is critical to our success. Factors such as gender, culture, race, ethnicity, sexual orientation and identity, disability, family, veteran status, generations and part-time status should not impact opportunities available to our employees.

“Fair and consistent pay practices are designed to ensure that employees are appropriately rewarded for their contribution.”

It again emphasises that gender pay gap analysis shows gaps below 1% in pay for male and female employees “in similar roles across our core financial hubs”, an interesting geographical narrowing and also clearly ignoring the general experience that the issues in gender pay arise most often because of differential opportunities for men and women, which tend to lead to a skewing of roles away from strict ‘similarity’. And note that it has a marked gender skew overall in staff, given that only 41% are female.

If we set aside these limitations, this discussion of fairness seems fine as far as it goes, but it barely begins to address the promise of the titles given to it. This is not UBS ‘supporting pay fairness’; this is simply the bank not overtly discriminating in its treatment of different staff – which in many countries and cases will in any case be illegal. An actual discussion of the challenge of supporting pay fairness might acknowledge realities outside the bank, rather than this internal focus. The financialisation of our economies has helped fuel the broad inequalities that our world faces, as financial institutions, competing with each other for ‘talent’, bid up the pay of individuals well beyond what is affordable or realistic (even imaginable) for most businesses. The closest UBS comes to a proper understanding of what a broader mindset about fair pay, looking beyond the financial sector, might actually imply is this comment, which at least acknowledges some external benchmark:

“We also aim to ensure that all employees are paid at least a living wage. We regularly assess employees’ salaries against local living wages, using benchmarks defined by the Fair Wage Network. Our analysis in 2025 showed that employees’ salaries were at or above the respective benchmarks.”

A bank that was genuinely seeking to ‘support pay fairness’ might apply similar pay expectations – of that minimum living wage level pay – at all clients and counterparties. A bank that worked with its corporate customers to understand what local living wages might be in their countries of operation and how they might be achieved across relevant workforces while still delivering profitability would be a bank genuinely supporting this ambition.

A bank that was genuinely seeking to ‘support pay fairness’ might consider whether financialisation is leading to pay distortions between the financial sector and almost every other part of the economy.

These UBS does not do. As ever, the finance industry has a tendency to look inwards at itself and not outward at its role and influence in the real world. An article I reference a couple of times in my forthcoming book invites the industry to think about fairness ‘outside its cocoon’. Only if financial services starts to do that will it genuinely be supporting fairness.

Duncan Mavin, in his (highly recommended) book telling the sad history of UBS’s takeover target, Meltdown: Scandal, Sleaze and the Collapse of Credit Suisse, identifies an unfair approach to pay as being part of the drivers of that bank’s failure: “The behaviour of the bank’s leaders hardly inspired other staff to be the best versions of themselves … Credit Suisse bankers got paid well, whatever happened. When the bank was making a profit, staff made a bundle, regardless of whether the results were driven by strong markets or great management. When the bank made a loss – because of misconduct, fines, bad behaviour or poor strategic decisions – the bonuses were good then too.”

Inward-looking financial institutions are more likely to fail than ones that look outward and measure fairness against external benchmarks. Instead, they need to look beyond their comfortable cocoon.

Annual Report 2025, UBS

Fairness Outside the Cocoon, Meir Statman, Financial Analysts Journal, Vol 60, No 6

Meltdown: Scandal, Sleaze and the Collapse of Credit Suisse, Duncan Mavin, Pan Macmillan 2024

Bubbles and economic fragilities

With all the talk about a bubble in investment in so-called ‘AI’*, I have taken a moment to reread the classic on the 1929 Wall Street bubble bursting, US economist John Kenneth Galbraith’s The Great Crash 1929, first published in the 1950s.

Speculative market bubbles do come and go. As Galbraith notes, the reason that 1929 is most remembered is not so much that the speculative bubble had grown so large before bursting (though it was unusually large) but that there were such broad real economy impacts from the bursting of the bubble – the lost years known as the Great Depression. A pair of Galbraith datapoints start to capture the scale of the Great Depression in the US and its searing impact on ordinary people: unemployment in 1933 was 13 million, one in four of the labour force; and even in 1938 still one in five were out of work.

So trying to understand why the Great Crash sparked the Great Depression is of real interest and seems like a timely thing to consider. Galbraith has no patience for the Wall Street apologists who argue there was no connection between Crash and Depression, but he does see that there were vulnerabilities in the economy that made it particularly susceptible to the crisis.

The first of these is of most interest to this blog, and Galbraith headlines it ‘The bad distribution of income’, noting that in 1929 the top 5% received around 35% of all personal income, and that interest, dividends and rental income (the almost exclusive preserve of the wealthy) represented fully 22% of total family income.

“This highly unequal income distribution meant that the economy was dependent on a high level of investment or a high level of luxury consumer spending or both. The rich cannot buy great quantities of bread. If they are to dispose of what they receive it must be on luxuries or by way of investment in new plants and new projects. Both investment and luxury spending are subject, inevitably, to more erratic influences and to wider fluctuations than the bread and rent outlays of the $25-week workman. This high-bracket spending and investment was especially susceptible, one may assume, to the crushing news from the stock market in October 1929.”

Readers will recognise some of our current distortions in these reports of the imbalances of pre-crash 1929 (also see Is enough enough? Addressing the problem of the super-rich, and The centre cannot hold). Significant inequalities – especially unfair ones – make economies less robust, more risky and more prone to crisis.

That is the first of Galbraith’s linkages between Great Crash and Great Depression. The others are as follows (deploying my brief characterisations of his comments):

Bad corporate structure. A business sector including many swindlers and fraudsters.
Bad lending. Profligate lending to unsound businesses and investments.
Imbalanced trade positions. Long-term trading imbalances, sometimes exacerbated through the application of tariffs, with the resulting deficits sometimes filled by corrupt, or at least grey, payments.
Poor economic insight. Shonky economic data riddled with holes.

So clearly, we’ve nothing to worry about now.

I will leave Galbraith with the last words of this blogpost, without comment from me. In the last pages of the book, he writes: “during the next boom some newly rediscovered virtuosity of the free enterprise system will be cited. It will be pointed out that people are justified in paying the present prices – indeed, almost any price – to have an equity position in the system. Among the first to accept these rationalizations will be some of those responsible for invoking the controls. The newspapers, some of them, will agree and speak harshly of those who think action might be in order. They will be called men of little faith.”

* Seasoned readers may remember that I am an ‘AI’ sceptic – see A just AI Transition, for example

I am happy to confirm as ever that the Sense of Fairness blog is a purely personal endeavour – and also that I do not give, and am not authorised to give, personal financial advice. This blogpost should not be construed as such advice.

John Kenneth Galbraith, The Great Crash 1929. Hamish Hamilton 1955

Debilitating poverty

Being poor brings many disadvantages. A lack of money squeezes options and reduces opportunity. It hampers health and makes ambition harder. But the effects aren’t just direct and physical. They are psychological too. Researchers are beginning to uncover just how debilitating being poor is for effective thinking.

The answer to the question posed in the title Do Financial Concerns Make Workers Less Productive? was a resounding yes. Not only did poor workers whose money troubles were temporarily alleviated produce more, they also made fewer mistakes in production, despite operating more quickly. There is a clear business productivity benefit from this poverty alleviation; and in work that pays piece rates – where workers are paid for their useful output in numbers of products – this alleviation of worry also enabled them to earn more.

In a world of unfairness in which many are kept poor, these are significant findings. In a world seeking greater growth, where growth has been held back by stagnant productivity, they are still more important.

The increase in productivity shown was much greater than that brought about by an increase in the piece rate paid (which in a control experiment was done alongside a cut in base pay so that overall earnings were steady). There was a small increase in output following the piece rate increase, but it was less than a tenth of the change brought about by removing money worries – and there was no discernable increase in the quality of production, meaning this piece rate change delivered much less than a twentieth of the improvement in productivity that alleviating poverty did.

It’s worth noting that the researchers were able to discard alternative explanations of why these workers become more productive. In particular, they specifically discounted the possibility that improved nutrition of the poverty-relieved workers was the cause, because of the speed of the effect of the early payments and the lack of difference in nutritional intake in that short period. The effect is a psychological one: workers who don’t need to worry constantly about money are more productive.

This means that our economies are being held back by workers who are less productive than they could be, simply because they do worry about money on an ongoing basis. GDP growth is being artificially depressed and poverty alleviation could help it recover. This represents a business, investment and economic opportunity.

These findings are depressing. But it’s worse to find that growing up in poverty also has debilitating effects on children.

A recent study finds that poor students underperform their usual standard on maths tests that use real-world scenarios involving money, food or social interactions. It’s not a small effect, either: their performance is on average 18% lower than it is on questions overall – and, the researchers note, it would look even worse if they compared performance against just those questions that are more neutral.

These results were surprising to the researchers, who were expecting to see outperformance in these more practical questions, revealing hidden talent among poor students (they use the jargon low SES, socioeconomic status) that may be untapped by traditional education. That’s the reason why such questions have increasingly been used in modern testing: they are thought to be more accessible to all students. But the result of this study indicates that accessibility comes at the price of triggering distracting thoughts for poorer young people. As the chart shows, performance is worst with regard to questions that refer to money specifically.

Another recent study also found evidence of underperformance on money-linked questions by poor students. It puts this down to ‘attention capture’ as the researcher identified an effect not only on the specifically money-linked questions but also underperformance on more neutral questions asked subsequent to them. It seems as though the question reminds the students to worry about money, and they then can’t shake off the concerns.

These results amount to another example of apparent meritocracy in fact acting to limit the opportunity of those who start with less. As the Fictional Money, Real Costs paper states:

“Examinations are an efficient mechanism to benchmark and rank a population based on a specific set of skills. The notion that they are fair, however, has increasingly been questioned. A significant concern is that performance differences reflect inequities in the testing process itself, rather than differences in underlying skills, and thus may contribute to the intergenerational transmission of existing inequality.”

I am happy to confirm as ever that the Sense of Fairness blog is a purely personal endeavour

Do Financial Concerns Make Workers Less Productive?, Supreet Kaur, Sendhil Mullainathan, Suanna Oh, Frank Schilbach, National Bureau Of Economic Research Working Paper 28338, January 2021

Math items about real-world content lower test-scores of students from families with low socioeconomic status, Marjolein Muskens, Willem Frankenhuis, Lex Borghans, npj Science of Learning, vol 9, art 19 (2024)

Fictional Money, Real Costs: Impacts of Financial Salience on Disadvantaged Students, Claire Duquennois, American Economic Review 2022, 112(3): 798–826

Business and investment’s fairness challenge – and opportunity

“We need a major repair that is not going to be found in the traditional economic models that consider the social impact of our decisions as something to be fixed ex post through social policies and redistribution. It needs a major change in the economic narrative, that brings equality and sustainability objectives on an equal footing with productivity and growth when measuring success. And it needs to bring in the private and the financial sector to change the way they define and measure their objectives and actions ex ante.”

So said Gabriela Ramos, Assistant Director-General for Social and Human Sciences of UNESCO, at the launch of the mouthful that is the Taskforce on Inequality and Social-related Financial Disclosures, or TISFD – an organisation she will co-chair – at the end of September.

Ramos went on to express the hope that the TISFD disclosure framework “will encourage organisations to consider the broader impact of their operations in an ex ante manner and make the social implications of business models transparent … We need to integrate the private sector and the financial sector in the solution because with that we can drive meaningful change that aligns economic progress with positive social impact.”

One of her fellow co-chairs, Arunma Oteh, former World Bank Vice President and Treasurer, and former Director General of Nigeria’s Securities and Exchange Commission, took the opportunity of the launch webinar to invite the investment and business communities to take part in the development of the TISFD standards: “By participating in this process businesses and financial institutions in my view will gain a deeper understanding of how social and inequality issues contribute to systemic risks that can affect financial markets and the global economy.”

Her aspiration is clear: “By standardising how organisations report on social-related issues we can also empower all stakeholders to hold businesses and financial institutions accountable for their social impact.”

These are not small ambitions. It’s clear that the new Taskforce will throw down a gauntlet for both business and the investment community, to think more deeply about the negative implications of business models and investment for society, and particularly the danger that the current approaches further foster inequality. In the language of this blog, the ambition is to instil a greater sense of fairness in business and investment.

Fortunately, there are a few voices from the world of business talking about these issues. Professor Scott Galloway, a successful tech entrepreneur – with an unusual humility for someone with that background – turned educator, is typically excoriating in a recent blog on the US minimum wage: “We have epidemics in the US — depression, anxiety, high blood pressure, homelessness, obesity, and poverty — among young people, particularly men. (Though it’s worth noting here that the majority of people making the minimum wage in the US are women.) The most powerful means of addressing these ills, and the ‘deaths of despair’ that follow, is a good job at a fair wage that acknowledges the nobility of work. In addition, a good job creates incentives and illuminates a path to wealth creation and economic security.” He is clearly referencing the work of economist Angus Deaton, and in doing so highlights the opportunity for investors: economies with fairer pay will prosper more. But Galloway is an unusual figure, in multiple different ways.

Peter Bakker, CEO of World Business Council for Sustainable Development (WBCSD), and former CEO of Dutch logistics firm TNT, talked about the creation of the TISFD arising out of earlier work of the Business Commission to Tackle Inequality: “One of the key conclusions out of that work is that the way that business makes decisions today, the way that businesses are managed, the way that capital markets look and value businesses, does not incorporate the social- and inequality-related risks, the dependencies and the impacts that business actually has on society and on people in it.”

This image from the Business Commission to Tackle Inequality’s flagship publication shows the breadth of what that group sought to encompass. If anything, the breadth of the challenges that TISFD is intending to cover is still greater. The inclusive – even eclectic – nature of the issues covered by the new group readily demonstrated by the failure (at least so far) to find a streamlined name for the Taskforce. It represents the combination of separate groups, one considering inequalities and the other social issues. Of course there are multiple cross-overs between these areas but clearly neither group felt able to compromise over the name.

As well as the spread of its ambitions, the inclusive nature of the TISFD is also shown by the breadth of the backgrounds of the co-chairs. The fourth co-chair is Sharan Burrow, the redoubtable former General Secretary of the International Trade Union Confederation. She noted that TISFD’s aim goes far beyond disclosure: “If we think about it as an end process which is just disclosure then we’re not actually considering what the recommendations must do, which is actually to put up front the sorts of issues that ought to be taken into the business model, the externalities, the risks that must be accounted for in planning.”

Bakker agreed: “Do not make the mistake that TISFD is about disclosures or reporting, because that’s the mistake that everybody always makes in the sustainability world. The reporting bit is the end of a process in which better decisions are made and that’s how you influence the social impacts towards a more positive outcome.”

Bakker went on, and laid down the crucial challenge particularly for the investment world:

“It is partly corporate decision making, partly corporate disclosures, but it’s also about how financial markets will then pick up this decision-useful information and provide incentives for a much fairer and more equal and inclusive world.”

We will see if investors are ready to rise to this challenge.

I am happy to confirm as ever that the Sense of Fairness blog is a purely personal endeavour

Taskforce on Inequality and Social-related Financial Disclosures

TISFD Launch Webinar, September 27 2024

Doing the Minimum, No Mercy/No Malice blog, Professor Scott Galloway, September 13 2024

Business Commission to Tackle Inequality

Tackling inequality: An agenda for business action, Business Commission to Tackle Inequality, May 2023

Deaton’s economics: fair criticism?

It is remarkable that the International Monetary Fund, one of the bastions of our modern economic construct, should be so willing to test and challenge current economic thinking. But that is what it does in publishing a striking short blog by respected economist Angus Deaton. Deaton is best known for his remarkable work on the US epidemic of what he has dubbed deaths of despair and he also led a recently-completed eponymous review of inequality for the Institute of Fiscal Studies. Deaton offers what amounts to an apologia for modern economics, and suggests some routes that may be more productive for the future. Not only might they be more productive, I would suggest that they are also likely to be fairer.

In the blog, Deaton questions mainstream economics. He does so from a remarkably mainstream position. He won the Nobel Prize in 2015, and is a professor at Princeton. His criticism of the failings of current economics, and not least of current economic education, should therefore hit home.

The core of Deaton’s points are made in crisp discussions under a handful of bullet-point headings. These are: power, philosophy and ethics, efficiency, empirical methods and humility (doesn’t our entire world need a whole lot more of that last?). He comes most crisply to his point in the first of these: “Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.” But the bullet points reflect a continuity of thought, not separate ideas. He complains at the loss of ethical thought from economics and its replacement by an emphasis on efficiency and a simplifying focus on the financial: “We often equate well-being with money or consumption, missing much of what matters to people.”

Under efficiency, he states:

“Many subscribe to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends or to the stronger version that says that economists should focus on efficiency and leave equity to others, to politicians or administrators. But the others regularly fail to materialize, so that when efficiency comes with upward redistribution—frequently though not inevitably—our recommendations become little more than a license for plunder.”

I think that quote bears rereading.

Applying these five approaches as a new lens for approaching questions, Deaton reaches a range of fresh conclusions – or rather a reduced level of certainty – about a number of different issues. These include: unions, free trade, global poverty and immigration.

But though it is not among these bullet-points, or the issues about which Deaton now has less certainty, to my mind one of the most notable single words in the piece is ‘efficacy’. Deaton says: “today we [economists] are in some disarray. We did not collectively predict the financial crisis and, worse still, we may have contributed to it through an overenthusiastic belief in the efficacy of markets, especially financial markets whose structure and implications we understood less well than we thought.” Normally economists and investors talk about market efficiency, and certainly the financial crisis was in part due to overconfidence that markets are efficient, that they will find the right prices for things. The efficient market hypothesis – which many investors take as a certainty, even though it is merely an hypothesis, and even though there would be no ability of active investors to outperform if it were true (admittedly many are more lucky than genuinely generate outperformance, but nonetheless it is still possible to outperform a market). The crisis showed that market pricing can often be very wrong and the use of market prices as a foundation for valuations can be risky.

Deaton is clearly referencing the Efficient Market Hypothesis (and the use of ‘efficiency’ as one of his bullet-point headings makes more notable his decision not to use the term in his comment about the disarray of modern economics), but he is actually making a very different point. He is asking whether markets are always efficacious, whether they work and always add value to human society. And his clear view is that they are not always, and do not always. We should listen, particularly those of us who work in financial markets.

Deaton has never minced his words, but here he is remarkably cruel about his profession. He says he does not want to get into the question of corruption among his peers, though he notes that allegations “have become common in some debates”. But he does state, bluntly: “economists, who have prospered mightily over the past half century, might fairly be accused of having a vested interest in capitalism as it currently operates”. In a blog that clearly has real concerns about the operation of modern capitalism, that fair comment is one that should hang over the profession, challenging all to rethink with the confidence and honesty that Deaton has.

Is enough enough? Addressing the problem of the super-rich

“To make the poor richer, you have to make the rich poorer.”

It’s one of the bolder early assertions made in a new book, Enough: Why it’s time to Abolish the Super-Rich, from my friend Luke Hildyard, who leads the High Pay Centre, the think tank dedicated to considerations of pay and employment rights. Given the hours he put into it, he’ll hate that I note it’s a short book, but that means it is a quick read – which its brisk and energetic style greatly assists. It includes extensive references to the evidence of academic and other studies, but Hildyard doesn’t let them weigh down his central messages and arguments.

Much of the book is dedicated to demonstrating the truth of this early assertion. Beyond that, Enough also aims to show that there would be benefits from a more equal income and wealth distribution and that much current income and wealth is unearned and undeserved. It argues that it is possible to address the issue of the super-rich, both politically and practically – but that at present the political will isn’t there and the social pressure for change isn’t yet great enough. “The super-rich are tragically unloathed,” says Hildyard in one of his typically crisp and blunt phrases.

As is perhaps obvious, this is a polemic, using vigorous and direct language to make its points – and it is none the worse for it. It’s also funny. I didn’t expect to laugh out loud at the book, but its dogged pursuit of a thought experiment of carpeting the nation in £5 notes is only one among its amusing moments.

Hildyard also charts a path for addressing the issue of the super-rich, one part of which would be wealth taxes. That particular path became potentially much easier just yesterday when a UN committee of tax experts agreed to develop a clear map for it: the Committee of Experts on International Cooperation in Tax Matters approved guidance for the creation of wealth taxes. This will not be called a ‘model law’ but rather an ‘example law’, but the intent is clear, and the idea of international cooperation in this area is aimed to reduce incentives for individuals to move to avoid such tax burdens. We’ll see how far these proposals progress in practice.

There is clearly some political will, and indeed some general willingness to engage in these issues. If the interest shown by those seeing me reading Enough on public transport are anything to go by, this is a book whose time has come. I would certainly heartily commend it. It was formally published this last week.

In many ways, vigorous and blunt as it is, Hildyard’s language is less hardline than others’. For example, the authors of the wonderful Spirit Level, Kate Pickett and Richard Wilkinson, both professors of epidemiology at York University, recently wrote a comment piece published in venerable journal Nature entitled Why the world cannot afford the rich.

As well as noting the disproportionate greenhouse gas emission impacts of the lifestyles of the wealthy (as previously noted in this blog), Wilkinson and Pickett state: “large differences in income are a powerful social stressor that is increasingly rendering societies dysfunctional”.

They continue:

“bigger gaps between rich and poor are accompanied by higher rates of homicide and imprisonment. They also correspond to more infant mortality, obesity, drug abuse and COVID-19 deaths, as well as higher rates of teenage pregnancy and lower levels of child well-being, social mobility and public trust.”

Most strikingly, the epidemiologists argue that “Even affluent people would enjoy a better quality of life if they lived in a country with a more equal distribution of wealth”. They complain about the wastefulness of unfair distributions: “Inequality also increases consumerism…Studies show that people who live in more-unequal societies spend more on status goods.” It’s certainly clear that this is happening. For example, ultra-luxury carmaker Bentley recently revealed its financial results, making revenues of €2.9 billion on sales of just 13,560 cars (or over €200,000 per vehicle), with margins improved by a record of nearly 10,000 of those vehicles including personalised features costing upwards of €40,000. For these buyers, it appears, it’s not enough to be able to buy a car that costs more than many houses. They also want the additional status of a still more expensive and truly unique vehicle.

The wealthy also buy other trappings of status – like the arts building branding that was part of the focus of the Sackler family in deploying their immoral earnings from Purdue Pharma’s role in the opioid crisis, or political donations. Evidence shows that rarely are such gifts really generosity – something is expected in return (as the reliably brilliant Tom Burgis amply shows in his excoriating new book Cuckooland). Sadly, rarely do the super-rich now feel the need to be genuinely generous in sharing their wealth in the ways their predecessors in earlier generations did. Alms houses are among our most beautiful old buildings, mostly built by our wealthy Tudor or Victorian forbears, but there seems to be no modern equivalent being created now.

This urge towards status skews our whole business sector. When you now look at the market capitalisations of major businesses, it is notable how much more valuable are the luxury goods companies that cater to the demands of a tiny minority than those that provide much larger markets with less luxurious versions of the same products. Germany’s Porsche is valued at more than $90 billion and Italy’s Ferrari (actually listed in the Netherlands to benefit from rules allowing unequal voting rights) is touching a valuation of nearly $80 billion; Ford and General Motors hover around the $50 billion mark, while producing orders of magnitude more vehicles. In a similar way, the valuation of Hermes (around $270 billion) is nearly double that of Inditex, whose major brand is Zara (valued at some $150 billion). The mass market isn’t where the money is made any more: even collectively, the centre doesn’t hold as much spending power.

Pickett and Wilkinson capture their findings in a striking chart that sets the Gini coefficient measure of inequality against an index the authors created of environmental, health and social issues (including measures such as air pollution and recycling; infant mortality, life expectancy, and obesity; and educational attainment, teenage births, social mobility and trust). As they say, “There’s a clear trend, with more-unequal societies having worse scores”:

As an earlier editorial in Nature raged, Reducing inequality benefits everyone — so why isn’t it happening? Essentially, that’s the challenge that Hildyard is attempting to rise to, and he provides some useful answers, and relevant solutions, as well as amusing challenge to the status quo. Do we need to make the rich poorer in order to make the poor richer? Probably, yes. The greatest political challenge on this issue though is likely to be defining what amounts to ‘rich’ or ‘super-rich’ for these purposes. One hindrance to action may be that definitions of what is too much are hard to draw. It’s hard to build a coalition of the willing among those who fear they may be next to face reductions (even if intellectually they might accept the idea that they would benefit from less inequality), and that – for the present at least – seems to limit the political pressure for change.

Hildyard himself blurs these lines, at times railing only and specifically at the truly (absurdly) super-rich, the billionaires, and at other times focusing on broader wealthy groups, including all public company bosses, top lawyers and bankers, and anyone earning in the top 1%, or having wealth among the top 1%. He quotes income of £183,000 and wealth of £3.7 million for the UK, and $400,000 and $11 million respectively for the US, as placing people into the respective 1% groups. These are huge numbers, clearly, but not close to being in the same league as the billionaires. A focus on a loosely defined super-rich elides this challenge – and while Hildyard demonstrates just how much might be available from the individuals at the very top of the income and wealth distributions, were they taxed more effectively (a simple function of their extreme wealth), he leaves open the question of seeing changes lower down the income levels too. This doesn’t undermine his arguments, but clarity is likely to be helpful in garnering political support and leveraging real change.

Hildyard ends the book saying:

“Indeed, it will be impossible to achieve our full potential to build a fairer, happier, more prosperous society without a major rebalancing of incomes and wealth. This ought not to be a question of partisan ideology – the logic, feasibility and urgent importance of the issue are clear. It is time to abolish the super-rich.”

I’d argue that all of this but the final sentence is unarguably true – that last sentence probably remains open to some debate, not least as to where the threshold for super-richness lies.

As the phrase goes, the poor are always with us. It is less clear that the super-rich need to be.

The centre cannot hold

As ever, I am pleased to confirm that the Sense of Fairness blog is a purely personal endeavour.

Enough: Why it’s time to Abolish the Super-Rich, Luke Hildyard, Pluto Press, 2024

Subcommittee on Wealth and Solidarity Taxes Guidance as of 1 March 2024, UN Committee of Experts on International Cooperation in Tax Matters

Why the world cannot afford the rich, Richard Wilkinson, Kate Pickett, Nature 627, 268-270, 12 March 2024

The Spirit Level: Why Equality is Better for Everyone, Kate Pickett, Richard Wilkinson, Penguin, 2010

Highest Levels of Personalisation Drive Second Best Financial Performance on Record for Bentley Motors, Bentley, 19 March 2024

Cuckooland: Where the Rich own the Truth, Tom Burgis, HarperCollins, 2024

Reducing inequality benefits everyone — so why isn’t it happening?, Nature 620, 468, 16 August 2023