The Fundamental Political Problem

 

It hasn’t slipped my notice, and it shouldn’t slip yours either, that by and large, the services in this country that have been consistently performing the worst in recent times have been the services politicians have been attempting to heavily manage. Think about it; the most financially strained, under-performing, crisis-laden services are the health services, social care, education, and the parts of the economy that politicians attempt to govern. Don’t get me wrong, our health workers, social workers, teachers, etc are doing an amazing job under hugely challenging conditions – this is not their fault – but the industries in which they serve, and in which they are understandably so unhappy, strained and unsettled, are the ones that are most incompetently managed and poorly planned by our political overseers.

Despite the clear warning signs of more deeply rooted issues with this model, remarkably, the majority of the population seem to think that these issues can only be resolved by having even more government involvement in the matters, or more public money thrown at the problems, or that things wouldn’t be quite so severe if only the other party was in charge. This kind of wishful pleading and sub-standard party political group-think has been going on for decades, and it is perpetuating a narrative that has the dual effect of misleading the public further and further, and increasing the damage to society as it does so. I will explain both.

The first thing you should always remember is that humans are primarily selfish – by which I mean that they are primed to put their own interests first, and those of their family and strong tie connections, and think and act in a relatively short-term manner. There’s nothing outrageous or shocking about that – humans have limited capacity (time, energy, resources), so it makes sense that they do this. Just as when you’re on a flight that comes into difficulty, the wisdom of “putting on your own oxygen mask first before helping others” is sensible advice (you need oxygen yourself to enable you to help others, even your own children) – similarly, if you are going to have a widely positive impact on others, you need to get your own house in order first.

The kind of pattern of behaviour I’m describing generally works well in the free market too, where pursuing your own family interests first, also creates wealth and value for others too, in a broad competitive and cooperative society. Jack the furniture maker, Jill the florist, Susie the accountant and Dave the greengrocer all make a living by selling their goods and services, but they are of benefit to their consumers too (these are called consumer and producer surpluses). The key to all the value being created here is that, in a world consisting of billions of complex trade-offs, all the agents of participation know their own wants, needs, skills and individual preferences better than anyone else, so are (usually) optimally equipped to make those decisions.

The problem is, this kind of model does not translate very well into the political sphere. Humans being primed to put their own interests first works a lot better in a market where the Smithian ‘invisible hand’ is at work, than in politics. It doesn’t work brilliantly in the market every time, and it doesn’t work badly in politics every time – but, by and large, human selfishness is a bigger problem in politics than it is in the market. Here’s why. Even if you are selfish, greedy and profit-seeking in the market, you can’t make a living unless you are competent enough to provide goods or services that others want and are willing to pay for. But selfish politicians don’t have the same incentives to be as careful with their money, their actions or their policies as the everyday individual, because politicians rarely feel the full effects of their actions, and almost never pay the price of their bad policies. The only way they pay the price is by being voted out at the next election, but that simply means that those self-interests are most energised in favour of short-term decision-making and narrow perspectives that usually benefit a small minority at the expense of everyone else.

And it’s becoming increasingly difficult for society to hold politicians accountable for acting in such selfish narrow interests, not just because humans generally are self-interested and lack the incentive to bring about changes, but because the whole political charade has been partially created by the volitional endorsement of its model by the electorate. In other words, there is a co-dependency by the governors and the governed that acts as a tacit advocation of the human selfishness problem on which the political sphere operates - and this consists of numerous self-centred, short-termist decisions that range from being annoying and marginally costly, to being absolutely dreadful for society.

For example, the main reasons that the health services, social care and education are in such a mess is because politicians aren’t able to make decisions that factor in the range of complexities required for the services to be optimal. As a consequence, they mismanage the finances, and they continually try to solve problems with short term perspectives, meaning that they never keep up with the changing landscape. It’s not entirely their fault; we’ve become a society that demands that politicians solve problems they are ill-equipped and unmotivated to solve properly, so everyone has to keep up the facade – which is why we get the aforementioned futile cycle of the majority thinking that these issues can only be resolved by having more government involved in the matters, or more public money thrown at the problems, or that things wouldn’t be quite so severe if only the other party was in charge. This has been failing for so long, it is mystifying to me why so few people have got wise to this debacle.

To make matters even worse, the selfish, short termism of politicians is even more damaging when it comes to the influence they have on the economy. Again, many people are struggling with the cost of living, yet they seem to be perpetually convinced that if only the failing model grew even bigger, or another party took over to govern it, things would be better. Let’s take the confusion about inflation, prices and public spending as a good example of a long-standing and snowballing catastrophe.

I have a couple of blogs in the Economics sidebar that go into inflation more deeply, but let’s talk about inflation in relation to price perspective. Consider tomatoes. The media has reported this week that there is a shortage of tomatoes. Suppose for simplicity, tomatoes generally cost £2 per kilo. When a supply shock occurs, with no change in demand, supermarkets raise their price to £2.50 a kilo. This is generally a good thing, because nothing has changed in the UK’s money supply, and with the increased price, those who value tomatoes at less than their new retail price won’t buy them. Unfortunately, most politicians and social media commentators have joined the general public in confusing inflation with price increases. Higher value tomatoes caused by a supply shock or a natural increase in demand is a price increase, not inflation; inflation is largely connected to an increase in the money supply. If there was no change in the supply of tomatoes, but the government decided to increase the money supply to pay for a subsidy so that every citizen in the UK could have a kilogram of tomatoes every week, then the price of tomatoes would go up because people now have more money to buy tomatoes. When the money supply is increased, each pound you own becomes less valuable, because there are more of them in circulation.

Returning to self-serving politicians, part of their short-termism is in vastly increasing the money supply to pay for things that will help them stay in power. But when politicians increase the money supply and the credit supply, purchasing power goes all out of whack with the market’s supply and demand signals, hurting most of the citizens in the country (this is also mostly why house prices have continued to rise faster than real wages). In other words, the government and the banks usually benefit from an inflated money and credit supply, but most other people feel the costs – they just don’t often realise why they are feeling the costs.

All this new money hasn’t created significantly more value or any more material resources, which means there is more of it competing for the same resources, which means that, combined with higher taxes to pay for it, things like food, fuel, energy, etc cost more for the consumer like you and me. It is literally the case that short-termist governments are increasing the money supply to favour their own self-interested priorities first, and in doing so, they are diminishing the wealth and purchasing power of almost everyone else. It is also literally the case that this has been going on for decades, and that the public blithely encourages their own wealth diminution with consistent regularity by continuing to vote for this kind of governance.

Furthermore, such a system of governance has continually been manipulated by special interest lobbyist groups, who bid for first dibs on the extra money or credit that has been generated. The politicians are often happy to support these projects regardless of whether they provide value, whether they allocate resources efficiently and whether they make the nation poorer overall, because a) they know there will be little resistance from a general public that doesn’t really notice how these activities are harming them, and b) they know they can make the very same public pay for it through increased taxation, and burden future generations with much of the debt. At the time of writing, this official national debt (what the state owes to private enterprise, including banks) is about £2,800,459,700,000 (it’s even more than that, really, if you factor in other unmentioned liabilities – but let’s keep it simple), and is growing at the rate of about £5,170 per second.

The above is the kind of consideration you should be having when being forced to confront the daily realities of cost-of-living crises, rising prices, inflation, strained public services and a devalued pound sterling. Covid has only exacerbated the problems, of course – but this cycle of problematic and clumsy economic mismanagement has going on for a long time – and that is largely because of the way that the malaware of human self-interest and short-termism has become so infectious in our politics, and because the anti-viral software of the general public is so badly in need of an upgrade.

Put The Scandinavian Myths To Bed Now

You can't very easily claim to be a serious thinking person if you have been taken in by the widely promulgated myth that Scandinavia is both:

a) Some kind of empirically demonstrable example of the success of socialism in action.

And:

b) What Jeremy Corbyn wants to create for the UK.

These contentions are so fatuous, that if they were a human being, they would be the illegitimate love child of Owen Jones and Angela Rayner. The reality is, every time the Scandinavian countries have weighed in too heavily in favour of socialistic models things have gone poorly - and every time they have weighed in heavily in favour of markets things have gone significantly better.

By and large, private individuals in Scandanavian countries have a relatively free rein in the means of production. Scandinavian countries do push the boat out a bit on welfare, but that is not the same as a Corbyn-esque command economy built on envy, price fixing and punitive confiscatory measures.

The much vaunted political aspects of social democracy that turn up in places like Norway, Sweden, Finland and Denmark are funded by everyone else's trade. To claim that Scandinavian social democracy is a good advert for socialism is a bit like claiming that opening bars and restaurants is a good advert for protection rackets.

Scandinavians embrace the fruits of the market as a means of providing welfare - it works in conjunction with markets, not in opposition to them. Scandinavian success comes in spite of a fattened up taxation system, not because of it. The fiscal redistribution policies happen because of flexible, lightly regulated markets and fairly substantial levels of economic freedom.   

For further reading, I recommend this. Here's a summary.

• Scandinavia’s success story predated the welfare state. Furthermore, Sweden began to fall behind as the state grew rapidly from the 1960s. Between 1870 and 1936, Sweden enjoyed the highest growth rate in the industrialised world. However, between 1936 and 2008, the growth rate was only 13th out of 28 industrialised nations. Between 1975 and the mid-1990s, Sweden dropped from being the 4th richest nation in the world to the 13th richest nation in the world.

• As late as 1960, tax revenues in the Nordic nations ranged between 25 per cent of GDP in Denmark to 32 per cent in Norway – similar to other developed countries. At the current time, Scandinavian countries are again no longer outliers when it comes to levels of government spending and taxation.

• The third-way radical social democratic era in Scandinavia, much admired by the left, only lasted from the early 1970s to the early 1990s. The rate of business formation during the third-way era was dreadful. In 2004, 38 of the 100 businesses with the highest revenues in Sweden had started as privately owned businesses within the country. Of these firms, just two had been formed after 1970. None of the 100 largest firms ranked by employment were founded within Sweden after 1970. Furthermore, between 1950 and 2000, although the Swedish population grew from 7 million to almost 9 million, net job creation in the private sector was close to zero.

• Scandinavia is often cited as having high life expectancy and good health outcomes in areas such as infant mortality. Again, this predates the expansion of the welfare state. In 1960, Norway had the highest life expectancy in the OECD, followed by Sweden, Iceland and Denmark in third, fourth and fifth positions. By 2005, the gap in life expectancy between Scandinavian countries and both the UK and the US had shrunk considerably. Iceland, with a moderately sized welfare sector, has over time outpaced the four major Scandinavian countries in terms of life expectancy and infant mortality.

• Scandinavia’s more equal societies also developed well before the welfare states expanded. Income inequality reduced dramatically during the last three decades of the 19th century and during the first half of the 20th century. Indeed, most of the shift towards greater equality happened before the introduction of a large public sector and high taxes.

• The development of Scandinavian welfare states has led to a deterioration in social capital. Despite the fact that Nordic nations are characterised by good health, only the Netherlands spends more on incapacity related unemployment than Scandinavian countries. A survey from 2001 showed that 44 per cent believed that it was acceptable to claim sickness benefits if they were dissatisfied with their working environment.

• Other studies have pointed to increases in sickness absence due to sporting events. For instance, absence among men due to sickness increased by 41 per cent during the 2002 football World Cup. These shifts in working norms have also been tracked in the World Value Survey. In the 1981–84 survey, 82 per cent of Swedes agreed with the statement ‘claiming government benefits to which you are not entitled is never justifiable’; in the 2010–14 survey, only 55 per cent of Swedes believed that it was never right to claim benefits to which they were not entitled.

• Another regrettable feature of Scandinavian countries is their difficulty in assimilating immigrants. Unemployment rates of immigrants with low education levels in Anglo-Saxon countries are generally equal to or lower than unemployment rates among natives with a similar educational background, whereas in Scandinavian countries they are much higher. In Scandinavian labour markets, even immigrants with high qualifications can struggle to find suitable employment. Highly educated immigrants in Finland and Sweden have an unemployment rate over 8 percentage points higher than native-born Finns and Swedes of a similar educational background. This compares with very similar employment rates between the two groups in Anglo-Saxon countries.

• The descendants of Scandinavian migrants in the US combine the high living standards of the US with the high levels of equality of Scandinavian countries. Median incomes of Scandinavian descendants are 20 per cent higher than average US incomes. It is true that poverty rates in Scandinavian countries are lower than in the US. However, the poverty rate among descendants of Nordic immigrants in the US today is half the average poverty rate of Americans – this has been a consistent finding for decades. In fact, Scandinavian Americans have lower poverty rates than Scandinavian citizens who have not emigrated. This suggests that pre-existing cultural norms are responsible for the low levels of poverty among Scandinavians rather than Nordic welfare states.

• Many analyses of Scandinavian countries conflate correlation with causality. It is very clear that many of the desirable features of Scandinavian societies, such as low income inequality, low levels of poverty and high levels of economic growth, predated the development of the welfare state. It is equally clear that high levels of trust also predated the era of high government spending and taxation. All these indicators began to deteriorate after the expansion of the Scandinavian welfare states and the increase in taxes necessary to fund it.

I Can See Why Socialism Would Be Attractive To A 12 Year Old

I saw a statistic from Thomas DiLorenzo that greatly concerned me. Apparently 43% of Americans under 30 view socialism more favourably than capitalism, and 69% of voters under 30 would vote for a socialist Presidential candidate. This is really disturbing and ought to horrify, probably about as much as it should horrify if a young earth creationist was lecturing in biology at Oxford University, or if an astrologer was appointed as a high school physics teacher.

Things are similar in the UK, with Corbynmania becoming an ever-proliferating personality cult based on the crass distortions and uncritical evaluations of its delusional leader. I've just listened to Corbyn's interview on this morning's Andrew Marr Show, where he is practiced in the art of making statements that are attractive to the credulous, and absurd to anyone with a smattering of intellectual curiosity.

I can well imagine being about 12 years old, and hearing positive political aspirations about making society more equal, paying people a 'fair wage' and 'investing' in our economy. But naïve ideas only survive in the heads of naïve people - and once the linguistic manipulation of these words is exposed, and once one develops even a sketchy understanding of the adverse effects that would occur through the introduction of Corbyn's policies, it becomes very easy to grow out of socialism, and somewhat alarming that there are so many young, so-called educated, worldly people that have not rejected it.

Socialism and its more aggressive cousin Communism have the most dreadfully tainted of histories - responsible for repeated legacies of dictatorships, mass killings, state-mandated theft, war crimes, environmental destruction, forced labour, famine, drastic food shortages, housing crises, mass unemployment, disease, totalitarianism, censorship, hyperinflation, poverty, and oppression.

One of the big mysteries of the present age is why so many otherwise intelligent people think that this disease of the mind is so laudable and fashionable - they would never point such approbation in the direction of starvation, mass unemployment and oppression, so why do they extol it so fervently when it goes by another name? They hate the symptoms but love the disease that causes those symptoms.

I think the explanation is fourfold. Firstly, they get fatted up by the lies and distortions of the propagandists; secondly, they think that what is being promised is medicine instead of poison; thirdly, they completely misunderstand and are ignorant of all the basic economics that would help them see the error of their thinking; and fourthly, they believe they are doing good, not bad, so their moral suasion pulls them in the direction of these falsehoods.

They have no realisation that the big things they desire: greater living standards for the poor, a cleaner more environmentally friendly planet, less divisiveness in society, better healthcare and social services, a more even distribution of power, more value for money, job creation for the unemployed and a more educated nation are all provided much more readily by markets than they are politicians. Moreover, with some irony the socialists don't realise that every good cause to which they cleave is paid for by the fruits of free market labour - it is trade and competition that produces the tracks on which the carriages of socialism can travel.

It's not just noteworthy how much socialists are actually unmindful capitalists - and how in just about everything they do they rely on something capitalism has provided. It's also noteworthy how the common tactic in cults like socialism, Marxism and young earth creationism is the tactic of proclaiming problems and proffering no solutions. Criticisms of capitalism and biology largely amount to spurious criticisms of the thing in question – they are almost wholly devoid of their own explanations, they are merely parasites that feed off the efficacy of their host organism. For example, read anyone from olden day Marx to modern day Ha-Joon Chang and you’ll find no theories of viable alternatives.

There is no mention of a system better than the system of a free market where decisions are made to create mutual value for buyer and seller. The anti-capitalist rhetoric fails at every basic reality-check, and offers nothing that gets close to matching Pareto’s principle that a nation will progress with economic growth and value if there is increased specialisation. That is, it makes no sense if nurses make their own uniforms or car mechanics grow their own vegetables – it is far better if individuals specialise in a particular skill and engender a free economy of diverse varieties to match the diverse varieties of human beings.

It amazes me how so many people still cling to absurd and counterfactual ideas about how the state over-wielding its influence is to be preferred over the prosperity of the free market and increase in trade. One of the main reasons it amazes me is because history furnishes us with repeated real life social experiments that confirm beyond any doubt that what causes increased prosperity and happier citizens is free trade, which is underpinned by competition.

If you want a large scale example of the effects of our being back into self-sufficiency from a comparably good market system, you have the collapse of the Roman Empire and the ushering in of the Dark Ages, where free trade was retarded by a mass de-urbanisation process that put us back a few rungs on the evolutionary ladder of social progression.

 

Or perhaps you could consider the alternative paths that Germany took after it was divided into West Germany, a parliamentary democracy that embraced the free market and went on to be the most prosperous economy in Europe, and East Germany, a Communist dictatorship that provided its citizens with economic stagnancy thanks to the Marxist-Leninist Soviet-led influence.

You may like to look at the difference between the dreadfully closed state hegemony of North Korea and the hugely prosperous market-embracing South Korea; or the difference between Hong Kong, one of the freest markets in the world, and other nearby Asian nations that didn’t follow suit. Or, if you get time, read this lovely little IEA article Latin America: A tale of two continents by Diego Zuluaga Laguna about South American prosperity that saw individual nation growth commensurate with each nation’s opening up of freer trade.

All of these examples share a vital piece of wisdom – more trade and less state equals better and more prosperous societies. It’s not rocket science. Why after repeated demonstrations of this does anyone with an ounce of realism still support the woefully misguided rhetoric from neo-socialists who still want to run on about all the things that retard progress, growth and well-being?

The reality is, with the rise of the personality cult of Corbynism we are seeing one of the biggest mass delusions this country has ever seen. And the only way to stop it is by the same method we use to stop childhood guilelessness; by growing up and growing out of it.  

* For additional consideration, if you want more things to read on this matter, in particular how the burden of regulation stultifies growth, Dan Mitchell from International Liberty is well informed about how it affects things like aggregate cost, job losses, time wasted, and foregone growth.

Poverty & Sweatshops - All Is Not As It Seems

The paradox of sweatshops is this: they are pretty grim places, so lots of people want to see them discontinued. Yet discontinuing them frequently brings about an even grimmer situation for the people working in them, meaning that the people claiming the greatest consternation for the workers are actually the people doing them most harm. Actually, let’s not even refer to them with the misleading terms ‘sweatshops’ – let’s call them what they are: factories of low pay (FLP).

But isn't that where the State should get involved?

In most cases, probably not! They are highly likely to mess it up. You may have some idealistic fantasy about State powers intervening to rescue developing nations from the oppression of heartless corporate hounds, but you know as well as we do that no such thing can ever materialise - and that the only way for citizens of developing countries to climb the ladder of prosperity is for them to be able to trade more freely and openly in a global market.

Nevertheless, it is the case that big businesses go into developing countries because they know workers there will work for much lower wages than in the developed world, which is kind of immoral, right?

Ah, but lower wages than whom?

Lower than workers in the UK.

But why should you think the two nations' wages would be comparable? They both have different cultures and different prices. Comparing the wages of two very different countries with vastly different levels of wealth is pointless. £2 in Bangladesh goes a lot further than £2 in the UK.

It still pains us to see them working in less favourable conditions though.

Sure, but while it often elicits indignation and disgust, the resultant outcome of this is an outcome that benefits both parties. The workers in developing countries get the chance to enter the global market and earn enough to gradually improve their living standards, and the businesses that set up there are able to make a profit and often expand into other areas of the market.

But while it's evidently the case that the businesses are making a profit out of some of the world's lowest paid labour, the question of whether they are morally wrong or simply the first steps of progression for a developing country looms large.

A few points might make this easier. Firstly, as long as the labour is offered voluntarily then FLP workers are working in FLPs because they prefer that work to the alternatives. I recall a US senator in the nineties banning imports that came from FLPs, which resulted in about 50,000 workers being laid off - many of whom either died or went into prostitution. Secondly, the wages that people earn are determined by the marginal revenue productivity of a worker, which varies according to all sorts of factors - most notably, supply, demand and competition. If a Bangladeshi FLP worker creates £3 per hour worth of revenue for a firm, then accounting for the intervening point between profits and productivity, he (or she) will be paid somewhere between £0 and £3 per hour. Paying him more than £3 would be costly to the firm so they would lay him off. Paying him too little would affect productivity, which affects profits.

So is it actually immoral to pay people their marginal revenue productivity when A) doing so offers them hugely greater benefits than the alternatives, and B) if even more of these factories existed there would be more people getting out of their plight?

It is difficult to see how this is immoral - particularly once you realise that paying them more than the value of their labour only ends up hurting everybody else trying to get a foot on the first rung on the labour market. Price signals dictate value. Is that immoral? I don't see how it is, because price signals carry all the vital information about value, which is the very thing that underpins all the economic growth humans experience. It's true that politicians and campaigners could feel indignant and demand a rise in pay, but if such an action guarantees harm for millions of others looking to take advantage of the chance to sell their labour and feed their family, then intervention can just as easily be argued as being irresponsibly immoral. Politicians who lament the fact that Bangladesh has 500 factories fail to realise that an even more prosperous Bangladesh would be one that had 1000 factories. Rewind back time 150 years and we'd be saying the same about the UK.

It is in the employers' interest to help improve the working standards for their employees - things like improved health and safety, shorter days, more comfort, better facilities and regular breaks can only help with productivity and morale. The upshot is, things are tough for Bangladeshi workers, but they would be a lot tougher if protest groups got their way and we stopped buying the goods they produce. The result would be to artificially advantage better off workers by eliminating much of the competition. Saying this isn't denying that it's unfortunate that Bangladeshi workers have a much worse time of it than UK workers - but if solutions proffered are actually a misunderstanding of what helps people and what harms them, it is difficult to argue that anti-FLP campaigners are the moral ones and the rests of us are immoral.

I won't deny that many instances of protesting, boycotting and activism have proven to be valuable vehicles for improvement. But many have not been, as they end up interfering in a market they scarcely understand. As has happened in the past 150 years in the UK and USA, and as had happened more recently in about a fifth of the time in places like Japan, Taiwan, South Korea and Hong Kong, developing countries get a foot on the ladder of prosperity and begin to become more open to the vital market forces of globalisation that will bring them economic growth and increased prosperity.

But why are so many people still are poor?

Be careful! To understand why the answer lies elsewhere you first have to understand why that's the wrong question. The right question is why are so many people so prosperous? Prosperity is not the default state of human beings - poverty and hardship is. For most of our history we have been struggling through poverty and hardship. Then a couple of centuries ago we saw a progression-explosion brought about primarily by science and capitalism. Naturally there were always going to be countries that experienced these changes in fortune first.

So the poverty and hardship we lament now was once our natural state too?

Exactly! Once upon a time, the kind of hardships seen in India and Bangladesh now were seen in the UK then. We in the UK once used to be an underdeveloped country, having citizens who work painstakingly long hours in very poor working conditions for relatively little money. But as we saw the increased growth of capital, the advancements in technology, and the increased opportunity to trade and innovate, we gradually climbed out of poverty and hardship into greater wealth and prosperity.

What we're saying, then, is that developing nations haven't had their progression-explosion yet?

Sort of, and there's no reason to think every country will experience the same kind of progression-explosion. But what is happening is that people in FLPs now are experiencing something similar to what we did 200 years ago - they have improved their own living conditions by being able to earn money and avoid starving to death. Their standard of living is woefully short of ours - but it is only our increased standard of living that has enabled them to begin their climb to better prosperity. And as I pointed out in this blog, we need 600 million new jobs in the next decade to fully employ the world’s eligible workforce, and entrepreneurs and big businesses are the top creators of new jobs, providing 70% of all new jobs in the world, and up to 90% in some emerging economies. It is the world's biggest businesses that do most to drive economic growth in poorer countries.

How so?

Because the global economy is now a vast interconnectivity that has enabled the poorest countries to enter the market in a way that was nigh-on impossible decades ago. Just as the UK was able to bring about the eradication of its own dire labour conditions by becoming wealthier, the same is happening with today's poorer countries. The best way to ensure they continue to increase their prosperity is to keep opening up the market in which they can sell their goods and services.

EDIT TO ADD: One final thought. Habitually we tend to consider much of our moral thinking in binary terms - kindness and generosity are good things, murder and rape are bad things, and so on (yes there are exceptional circumstances, but generally this is true). Often, though, in economics, applying such binary considerations is misjudged, because economics deals primarily with positive statements, not normative ones. Usually when morality comes into economics it is not to do with good and bad, it is to do with better or worse. In other words, normative statements in economics are usually a matter of scale related to whether decisions make people better or worse off in terms of money to live on, well-being, and so on.

Sweatshops as a perfect example to illustrate this. By any standard we are used to in places like the UK and USA, sweatshops are pretty dire places. But given that countries across the world vary greatly in their developmental stages, it is misjudged to simply refer to them as 'bad' in absolute terms, particularly if by bad you mean wanting them discontinued. Because of the plight of countries like Bangladesh, Vietnam, Indonesia, and so forth, sweatshops must be judged not compared with other alternatives in the UK and USA, but instead in comparison to other alternatives in the countries in which sweatshops exist. You can guarantee that sweatshop workers are choosing the best of all the alternatives available to them - alternatives like agriculture, road-building, pulling rickshaws, construction work, hustling in the street, and even worse, prostitution. Those are just some of the alternatives that don't involve death through starvation - and they are all lower paid jobs and involve harder labour than sweatshops. In fact, comparably speaking, much of the work in sweatshops is more skilled labour than any of those jobs (as any dress-making seamstress will tell you).

So the moral situation that people face when talking about sweatshops is roughly this. Given that sweatshops are by far the least bad option for many people, successful campaigns to close them and boycotts against the goods they produce will make those people worse off. Yet speaking out in support of them will cause you grief, and bring accusations that you don't care, even though sweatshops make people better off, and in many cases rescue them from prostitution or death. In summary, then, quite often you either support sweatshops and do the right thing for the people, or you condemn them, get praise, but do the wrong thing for the people. And let's not forget, supporting people's opportunities to work in sweatshops does not mean we can't be a voice for them regarding better working conditions, improved employment protocols, better health and safety, and so forth.

India Is Right To Tell Greenpeace Where To Go

I was delighted to read today that India has told Greenpeace exactly where to go in meddling in its economic growth. I’m not even going to make a big deal as to whether India has de-registered Greenpeace because of fraud or mendaciously inaccurate reporting.

No, what’s most important here is that India is a developing economy that trails far behind the most advanced countries in the world – and still has millions of people in poverty. It is not a country that should have its economic growth impeded by special interest groups that don’t understand that countries like India need to become increasingly more industrial to provide the jobs to get more and more of its citizens out of poverty.

And as I argued in this article for the Adam Smith Institute:

"Although Pigouvian taxes bring in revenue for politicians short-term (for a few decades maybe), the long-term indicators are that the market left to run by itself will naturally make us greener anyway. The reason being: businesses are already looking for the most efficient means of supplying customers using as little energy as possible, because in a highly competitive market it is in their interest to do so to remain profitable. The goal to reduce energy output can, and has, come in various ways: replacement of human energy for machines, replacement of metal-based technology for higher intensity resources or carbon-cased materials, replacement of paper for digital devices, and so forth – and these are improvements in production that naturally improve business’s cost-effectiveness.

Consequently, compared with how the market engenders continually increased efficiency, emission taxes probably will turn out to have had only a much more negligible effect on lower energy output and more efficient use of resources than the free market, because the market is driven by efficiency far more than politicians with political interest. If there is a race to make us greener, politicians are more like the tortoise and the market is more like the hare."

 

 

 

 

 

Why Islamic State Is Politically Unsustainable

So Islamic State leader Abu Bakr al-Baghdadi wants to establish the Caliphate of all Caliphates, unleashing terror everywhere he can, and ruling Islamic State nations under the thrall of their terror-inducing regime. Ah, if only he was a bit more familiar with the works of Plato and Aristotle, or even a bit more cognisant of historical antecedents, he and his fellow Jihadi thugs would see that their aspirations of nation-ruling are unrealistic.

A general pattern throughout the history of military or political coups is that even when they are brutal and catastrophic for the citizens, they soon reach a point of levelling out, not least because it's nigh-on impossible to rule a country under continual internal barbarism and eradication of human rights for a sustainable period of time.

 

In other words, good conquerors, even Caliphs, totalitarian as they were, still allowed at least a semblance of autonomy and harassment-free administration of people. That's why, even though it is likely that these horrible terrorist groups will continue to pop up, the idea of ruling nations consistent with the backward, totalising, barbaric, freedom denying methods of Islamic State is wholly unrealistic.

 



No, Britain Absolutely Should Not Pay Reparations For The Slave Trade

Jamaica's Prime Minister Portia Simpson Miller has called on David Cameron to personally apologise for Britain's role in the slave trade, and to even consider paying reparation money too. It was good that David Cameron uttered the words 'Jog on!', or words to that effect, because the idea of contemporary nations apologising or paying reparations for our ancestors' role in the historic slave trade is an ugly and egregious notion.

Now let's be absolutely clear: the slave trade was horrific, despicable and a truly abhorrent legacy for which some of our ancestors ought to have felt much shame, regret and contrition. But that sentiment must apply to - and only apply to - people who were personally involved, and people around at the time who didn't do enough to stop it - it is certainly not David Cameron's duty to apologise or offer financial restitution for these past crimes against humanity.

The very basis of contrition, regret and atonement is that we are moral agents who must take responsibility for our own actions, not the actions of people we've never met and to whom we have no personal connection.

But there is another point to this opprobrious news story: in asking us to live in the past, the valuable notion of 'moving on' and acknowledging the progress that has been made in the intervening time is being diminished, which to me smacks of treating the current people of Jamaica a little too trivially and disrespectfully. It sees to me rather patronising to talk of the citizens of Jamaica as being people so stuck in the past that they haven't moved on and are still preoccupied with righting the wrongs of history.

Perhaps they are, but I would like to think not: for if there is one valuable thing to be learned from being human it is that harbouring resentments from the past is rather like pouring hot coals on your own head and expecting it to burn the scalp of your enemy. Imagine how much that truism is magnified when the people who've done the wronging did so at a time when your grandparents weren't even born.

On Africa & Trade

So, Alex Salmond publicly announces he is going to donate his annual pension to charity after stepping down as Scottish first minister. That's good of him, sure, but I can't help being suspicious that it's very much based on courting publicity and reputation mongering. If he wants to give to charity, why not do so quietly, as though the cause is what's important, not the attention? As a wise man once said, "When you give to the needy, do not let your left hand know what your right hand is doing" (Matthew 6:3).

Things aren't that way, of course, for Bob Geldof - he relies on a public persona to get the British public donating money. Reports say he may have got the hump with Adele and other performers for not joining him on his latest version of Band Aid’s patronising charity single. Not to worry, she probably couldn't give two hoots what Bob Geldof thinks - and as Bryony Gordon reminds us in her Telegraph article – “Later, we learnt that Adele had quietly made a private donation to Oxfam. But in the shallow, self-promoting world of celebrity, the simple and silent act of handing over money to charity is not the done thing.” I say Geldof ' may have got the hump' - it seems uncertain whether he did, although he denies it publicly - but he's certainly calling for us all to give more to charity, and in the process he's dividing opinions regarding how he goes about it.

Of course, despite Geldof's apparent arrogance, and the crassly condescending song lyrics and over-inflated egos of so many of the slebs involved, any money raised is most welcome (perhaps they could give it to the DEC or Oxfam to ensure maximal good is done in fighting Ebola). But whatever good is done to fight Ebola, and whatever help is given to those beset by its plight, the big questions about Africa continue to be raised - with the reality of the bigger picture being that what Africa needs more than aid is trade - and we prosperous nations don't help as much as we could. As well as the many internal problems that hold back Africa’s progress, the CAP denies Africa many vital trading opportunities with their barriers to Europe’s market for (in particular) agriculture and their EU subsidies, which deny Africa the ability to compete in a global economy. As I said a while back in this Blog post:

“Government subsidies and high tariffs on imports are two examples of how richer countries are distorting the free market by preventing poorer countries from competing to sell their resources. The European Union subsidises European farmers and the American government subsidies American farmers, placing African, Asian and South American farmers at a huge disadvantage, because they cannot easily sell their own produce as they are unable to compete with richer countries in the price market. When George Bush affords American farmers 180 billion dollars in subsidy deals to buy American votes (which he did when he was President), he depresses prices across the globe, which robs unsubsidised (and much poorer) Africans Asians and South Americans of their ability to be able to sell their crops competitively in the global market. This costs poorer countries tens of billions of dollars in lost revenue.

In subsidising farmers, the governments in question don't just disadvantage those struggling in developing countries, they retard innovation locally too. Stopping the subsidies helps farmers explore new market potential; it incentivises them to innovate, to diversify their output, and to generally be more economically prudent without government funds to fall back on. When a government subsidises farmers it removes some of the need to run a business in accordance with market demands and price fluctuations. Non-subsidised business owners are much more alert to profit and loss signals, just as any business that makes decisions with other people's money tends to make those decisions less prudently than with their own money. Furthermore, business owners who receive subsidies try to curry favour with the politicians handing out the cash, when they should be trying to win the customers by providing a good business practice and competitive prices. Farm subsidies in the shape of the very rich giving to the relatively rich at the expense of the relatively poor are a disgrace - and no nation can claim any kind of moral accomplishment in the global scene while they continue to engage in this egregious policy of subsidising their own at the expense of those desperate to get a stronger foot in the free market.”

It's good to hear the trade policy adviser for Oxfam agreeing with this, and being fully seized of what needs to change:

"Not only does the Common Agricultural Policy hit European shoppers in their pockets but strikes a blow against the heart of development in places like Africa. The CAP lavishes subsidies on the UK's wealthiest farmers and biggest landowners at the expense of millions of poorest farmers in the developing world. The UK Government must lobby hard within the EU to agree an overhaul of the CAP by 2008 to put an end to the vicious cycle of overproduction and dumping. The £30bn-a-year EU agricultural subsidy regime is one of the biggest iniquities facing farmers in Africa and other developing counties. They cannot export their products because they compete with the lower prices made possible by payments."

  
It should be remembered - and this is so often forgotten - that poverty and material hardship is not an unusual thing for humans to experience. In the middle ages we in the UK were about as poor as the poorest countries are now. We gradually crept out of our plight to become prosperous, and we did so by finding out that prosperity comes from a combination of material resources and human resources (including education). During the time of long working days, low life expectancy and severe hardship we also found out that the fundamental key to increasing prosperity is conflating those material resources and human resources to create value through innovation.

Once we reached the inceptive stages of our scientific and industrial enlightenment, it took us about 250 years to go from severe hardship to wealth and prosperity - and being one of the first nations it naturally took longer than it would in the modern day when if you are a country plighted by severe hardship you are in a world in which many countries are prosperous and able to help with aid and investment. Don't forget that even as late as the 1970s China's GDP still resembled the GDP of England pre-Industrial Revolution. Just 40 years later China is one of the world's biggest economies and looks set to be the biggest in a few decades (although prior to this happening I predict that China's recent rapid growth will slow down in the short term future while it sorts out its internal contradiction of having a communist state whilst relying primarily on its exporting of consumer goods). The upshot is that when lots of countries become wealthy, poorer countries increase the speed at which they join them. Don't get me wrong, there is still lots more that needs to happen, but as well as China one can see this expedition with the likes of South Korea, Taiwan, Hong Kong and Singapore, all of which were mired in poverty a few decades ago but are now rising in prosperity and stability.

All this prosperity, though, won't happen for the current poorest countries without at least one other vital change - the end of political corruption and oppression. It doesn't take a genius to work out that when a dictator or political party wins a huge majority in a country in which they are vastly unpopular there is corruption at the heart of it. And, of course, if you are a political oppressor running a nation it's no use pillaging a country to its total demise. That is to say, if these dictators are to exploit their citizens and take a proportion of their earnings, they need to keep them at a level that doesn't destroy the economy but keeps everyone poor enough and regulated enough so that they lack the powers to engender revolutionary changes.

It's easy to see why such an effect keeps people poor. Under such a tyrannical regime, there is little incentive to innovate or progress when the State takes much of your earnings and fails to protect your basic human rights. It is the kleptocratic people in charge that keep their citizens in their plight and deny them the ability to trade properly. Prosperous countries begin to be prosperous when the conditions facilitate it - and those conditions rely on people taking actions that benefit others, not just themselves – namely through the vehicle of free trade. Citizens that are forced by their corrupt State to practice the kind of self-interest that only has negative effects on other citizens (directly or indirectly) are going to find it difficult to climb out of their poverty trap.

Given the foregoing analysis, it's not hard to believe the contentions that much of the aid money that went to Ethiopia in the mid-1980s was used to entrap starving citizens into state camps, from where over half a million were said to have been deported and where tens (probably hundreds) of thousands are thought to have died. How much of Somalia's, Uganda's and Zimbabwe's aid finds its way into the hands of corrupt officials and warlords? It wouldn't be surprising to find out that the answer is the vast majority. Thus the onus is on us to research well and ensure that the charities to whom we choose to give are ones that are going to do the most good. 

It was primarily trade that made the Western world prosperous, and it will be, and is, primarily trade that lifts Africa out of poverty. The forecast for Africa looks brighter with every passing decade – and what will expedite this process is a reversal of the things that have retarded the continent for so long, namely the engendering of more stable governments, the lifting of trade restrictions, and the improved ability for Africa to compete more propitiously in the global market economy.

Crimea River

As expected, with the tension in Crimea and the rather impotent threat of economic sanctions, some people on the left have used the opportunity to take issue with Russian ownership of UK business, complaining that profits made in the UK are sent overseas and are not being filtered into the British economy.

This is a foolish and absurd comment to make - it completely misunderstands the value of business and how financial exchanges are made. When a foreign investor looks to buy a UK business they pay less than the price at which they value it, and the seller sells for more than the price at which they value it. The buyer is buying a business that has been valued by the seller on the basis of future profits factored into the price. If Coventry Clive sells his tennis club to Moscow Mary he is exchanging his expected future profits for the buyer's price in the here and now. Moscow Mary on the other hand is buying the tennis club at a purchase price in the here and now in exchange for future profits henceforward to come.

So, far from any worry about her profits leaving the UK, when Moscow Mary buys the tennis club her forecasted profits are all contained in the purchase price which has just come into the UK. When her future profits leave the UK and go to Moscow they are future profits that have been paid for in the purchase price.

It is true that sometimes future profits will exceed the purchase price, but it is equally true that other times the purchase price ends up exceeding future profits. In fact, one might expect the latter to happen more than the former. If the buyer's offer was less than or equal to the seller's expected future profits then in many cases no sale would take place. Hence, in most cases the seller must value the expected future profits as being less than the buyer's offer - and every time this happens there is a net gain for the UK.

Finally, to criticise foreign ownership is often to be blind to other benefits. Take a Russian billionaire who buys a football club as a good case in point. The net gain for the UK is significant (and that's aside from the other ancillary benefits his wealth brings). In spending lots of money on players' wages he uses money that wouldn't have come into the UK economy to buy players whose tax from high earnings does come into the UK economy.

Don't listen to misguided politicians who complain about foreigners' profits going overseas - they are missing most of the picture.

What about the situation in Crimea?

Regarding the circumstances in Crimea, while I understand the fears about where Putin will go next, the actual situation in Crimea seems to me to be centred on a desired destiny that Westerners usually support - most notably self-determination and democracy. 

I can't see that mobilising troops, holding a referendum at gun point and claiming a democratic vote is something for which Putin would want to be thought responsible by his European associates. Thus, it seems to me that if he wanted to argue the case for democracy and self-determination for the Crimeans all he had to do was to push for a referendum under the rule of the Ukraine, observe that most Crimeans want to be Russian, and then push for that outcome. Given Ukraine's frosty reception from major EU countries, I can't think that he wouldn't have had a case, even perhaps being able to appeal through the conduit of international law. There are a few possible reasons why Putin didn't take that particular course of action:

1) He didn't think of it.

2) He did think of it but thought the Ukraine would be unwilling to offer the Crimeans a fair referendum without his intervention. 

3) He was feeling intense pressure from Russian people to stand up for fellow Russians in Crimea, so he took the more reactionary route.

4) He is starting of a series of aggressive military mobilisations under which he plans to annexe other small nations.

For me, 1 is highly unlikely; 2 and 3 are quite likely but if true then perhaps not really deserving of the Western reaction, and 4 is the biggie on which the European and American response hinges.

Let's discount 1. For me, 2 and 3 do not seem to me to be reasonable pretexts on which either Europe's elite or America can have too many complaints, particularly if you consider their military escapades in the past few decades supposedly for the cause of self-determination and democracy. Which leaves us with 4. Now I'm no fan of the Putin regime - but I can't help thinking that if Europe and America's present response has been because they fear it is number 4 then it seems to me to be an extreme response.

Whichever is the case, the Western understanding of local Crimea issues is bound to be both exaggerated and inadequate. People immersed in the immediacy of the troubles are going to have a broader and clearer perspective of their own troubles than those on the outside. Think of the difference between our perception of the Iraq conflict and those caught up in the Iraq quagmire. Imagine the difference between the UK perspective of the Syrian crisis and those actually afflicted by the tragedy. Or, if you want an example with the signs reversed, recall when the IRA were bombing on UK soil and remember the difference in reaction between the American government compared with the British government (and its citizens).

Just as the reality of the situation is felt much more intensely at home in those three examples above, it is bound to be the case that the Crimeans' push for self-determination regarding their own destiny and identity is much more meaningful to them than it is to us.