Yes, obviously industrial production is down

We cannot quite share this shock and horror at the news that industrial output is down:

Britain’s industrial plight was laid bare today after official figures showed output at the end of 2015 fell faster than at any time over the past three years.
Industrial production contracted by 1.1pc in December from the previous month, the biggest monthly drop since September 2012 and much worse than the 0.1pc decrease expected by economists.

And for manufacturing:

The ONS also revealed that manufacturing production fell 0.2pc in December, the third consecutive monthly decline. The last time the UK’s manufacturing sector contracted for three months in a row was during the depths of the Great Recession in 2009.
Compared with a year earlier, manufacturing output fell 1.7pc, against expectations for a 1.4pc decline.

One reason we’re not all that worried is that manufacturing output is some 10% of GDP, meaning that a 2% fall in the sector is 0.2% of the economy as a whole. Industrial output is essentially energy and mining plus manufacturing and that’s not much larger as a portion of the economy. And we have all noted that the prices of fuels have dropped recently, meaning that an index of the value of what is produced is going to fall whatever happens to the volume of what has been produced. Essentially, these are minor changes in a minor part of the economy.

A second reason we’re not all that bovverd is that there isn’t anything special about manufacturing or industrial output. Sure, they’re nice things to have but they are no more valid or valuable than any other form of economic activity. The standard trope that making things you can drop on your foot is the only important form of production is simply wrong.

And the third reason we’re not worried is this:

David Cameron has hailed Britain’s technology sector as “extraordinary”, after a report revealed companies are generating £161bn for the economy.
According to the Tech Nation report, now in its second year, the digital economy grew 32pc faster than the rest of the economy between 2011 and 2014, and is creating new jobs at an unprecedented rate.
The sector accounts for 1.56m jobs across the UK, with this workforce growing by more than 10pc over the three-year period – three times faster than the wider UK job market.

Yes, obviously, that’s being bigged up by that quango but this is exactly what we would like to be happening. The current industrial revolution is in those digital thingies, those 1s and 0s being placed in precise rows. We Brits pioneered the first industrial revolution, rather lagged in the second and third, but seem to be doing well at the fourth. And just like doing well at the first made us relatively richer than everyone else, lagging at the next two led to a bit of relative poverty, getting this one right will lead to relative riches again.

And this is what an economy is supposed to do: over time move from doing that doesn’t add very much value old stuff to the adding lots of value new stuff. Something we seem to be doing rather well. We wouldn’t say that all is lovely in the rose garden but it’s most certainly not doom and gloom.

Delusions on the NHS

Sadly, one of the reasons that the political conversation about health care in the UK is so difficult is that a number of people taking part in it simply do not know of what they speak. And example here in the Guardian:

Four flawed beliefs have dominated the actions of UK governments on healthcare over the past 25 years: personal responsibility for health supersedes government responsibility; markets drive efficiency; universal healthcare is ultimately unaffordable; and it is entirely legitimate to view healthcare as a business.

Responsibility is a moral argument and not really our point here: no one at all says that universal health care is unaffordable, only that all healthcare that everyone would conceivably like to get is unaffordable. But of course it is legitimate to regard healthcare as a business: there’re inputs, there’re outputs, there are people in the middle doing the transformation, that’s a business. But that point about markets not driving efficiency is drivel: because this is the same NHS which is now separate organisations, NHS England, NHS Wales and NHS Scotland. And NHS England has had rather more of that market stuff applied to it. And NHS England has been getting more efficient more quickly than NHS Wales and Scotland too. The very subject under discussion disproves that assertion about markets.

But there’s more too:

The 2014 Commonwealth Fund report on 11 wealthy countries shows that the UK spends least but ranks first in healthcare performance; the US spends most but ranks bottom.

Actually, no. Healthcare performance was only one of the things measured. Things like equitable access and so on were also measured and the NHS did very well on some of those measures (that the Commonwealth Fund agitates for single payer health care in the US is not a result of such studies, it is the cause of their measurement methods). On actual healthcare performance, mortality amenable to healthcare, it came near last. And oddly, we do think that how well a healthcare system is able to treat things that healthcare systems can treat is a pretty good measure of how good that healthcare system is. Or, for the NHS, not very.

In the US, one in six citizens has no health cover and inability to pay healthcare bills is the primary cause for personal bankruptcies, yet we are witnessing extraordinary, deliberate moves towards a failed US-style healthcare model.

Absolutely no one at all (and we are ourselves one of those voices shouting loudly for NHS reform) is calling for a US-like system. Instead we’re calling for a system rather more like that of France, or Switzerland, or Singapore, all of whom have rather better healthcare systems than either we or the Americans do.

So why is this a problem if piffle like this appears in The Guardian?

Neena Modi is professor of neonatal medicine at Imperial College London, and president of the Royal College of Paediatrics and Child Health

Because this piffle is being spouted by people who really should know better.

Syrian Refugees in Jordan – What are they doing to the labour market?

With enormous numbers of refugees spilling of Syria due to the ongoing conflict, there has been a great deal of discussion around the effects of this displacement, particularly on the recipient countries. Although most of this discourse has focused on Europe, Syria’s neighbours, Jordan, Lebanon and Turkey have taken much larger numbers of refugees, in sheer numbers and as a % of the populations of the recipient countries.

A recent paper “The Impact of Syrian Refugees on the Labor Market in Neighboring Countries: Empirical Evidence from Jordan” by Ali Fakih and May Ibrahim aimed to find out the effect of the 700,000 or so refugees on local wages and employment rates. According to Fakih and Ibrahim, there is “no relationship between the influx of Syrian refugees and the Jordanian labour market.” With Syrians barred from formal work in Jordan, the informal labour market becomes more important, with 160,000 Syrians estimated to be engaged in informal employment, in sectors like agriculture, construction and food services. If displacement has little to no adverse effects on the Jordanian informal market, one should look to other examples of refugee influenced increases in the labour market to find out if these lack of effects hold true; this is what we tend to see.

Evidence presented to the SOAS Policy Forum by Sam Bowman on a wide ranging talk about the effects of immigration suggested the effects of displacement were beneficial, with a small rise in native wages.Other research suggests that over the long term, the displacement is beneficial for both refugees and host countries. Data from Denmark and Miami, Florida, facing similar situations (in that large numbers of refugees were arriving because of political conflict. In the Miami example, the labour force was increased by 7% by refugees from Cuba) further suggests these effects are true.

Although the political situation in Jordan is complex, the huge cost ($1.7 billion) of hosting refugee’s (both, for the host country and the immigrants in refugee camps) should encourage the Jordanian Government to consider lowering restrictions on labour force participation for immigrants, or at least allow a framework of legal employment within the refugee camps to protect native workers from the small but politically contentious wage and unemployment effects that have affected other ‘developing nations’. A better solution would be work permits for employment in the economy generally This would also allow the Jordanian Government to face lesser fiscal pressures from the lowered cost of providing for Syrian refugees thus supporting themselves through employment..

This is what many policy makers in the EU and Western World have been calling for, but this must be supported by trade concessions and increased global aid. The latter is being provided by the UK, to enable Jordan to mitigate political consequences of refugee influx. If allowing refugees to work has minimal effects on local labour markets, this should not only be a policy prescription for Jordan, but also for western leaders with much lower refugee populations.

The two unions

The European Union consists of two parts: an economic union and a political union. The economic union has a single market with the same rules applying to all member states. Non-members of the EU who export to the EU must comply with those rules for their goods, but not for goods they trade outside the EU. The economic union features a common customs tariff for goods entering the EU, but none on trade between EU members.

The political union has an elected Parliament with some legislative and budgetary powers; so does the Council of Ministers, composed of 28 ministers (one per member state). The European Council, composed of the 28 heads of state or government defines the EU’s policy agenda, and the European Commission is the executive, dealing with the day-to-day running of the EU and enforcing its treaties. It has one commissioner appointed by each state. The aim of the political union is “ever closer union,” increasingly giving the EU the characteristics of a unitary state. The aim of many of its adherents is a European state with its own army, embassies, and laws.

Several states outside the EU have negotiated trade deals with it giving them access to the economic union’s single market, without becoming part of its political union. If the UK were to leave the EU’s political union, it would certainly do the same, since this would be hugely to the advantage of both the UK and the EU. Similarly several non-EU states have agreed visa-free travel with the EU, though of course non-members have to pass through passport and customs controls, as UK travellers currently do.

The case for the UK’s leaving the EU amounts to advocating that the UK retains the advantages of the economic union, with access to the single market, and with EU access to its own market, while withdrawing from the political union that gives EU bodies powers over it.

The case for remaining in the EU ought to be about continuing to be a part of a developing political entity, pointing to any gains that derive from this. Instead it has thus far been almost entirely based on the fear of adverse economic consequences, many of them based on the utterly false assumption that the UK would not negotiate an agreement that kept it closely integrated with the EU’s economic union.

The UK’s citizenry has never wholeheartedly endorsed the political union. When it voted in the 1975 referendum to endorse the legislative decision to join, the arguments were almost entirely about the economic advantages of doing so. The case for remaining in the political union has never really been put to the test, and is not now being done. A vote to leave would be one to reject the political union, while remaining closely integrated with the EU’s economic union.

New Report: Migration and Development

The best international development policy would be to let in more workers from the third world in to work in Britain, according to a new paper from the Adam Smith Institute. Politicians should stop trying to save entire countries with foreign aid programmes and instead help their inhabitants by letting them move to developed countries, it says.

The report Migration and Development argues that doling out billions in foreign aid risks propping up corrupt kleptocratic governments and having little impact on development; letting people move to where they can be most productive is a reform that really works.

The paper, authored by Swedish policy analyst Fredrik Segerfeldt, suggests an immigration target, modelled on the 0.7% of GDP foreign aid target, in order to boost the welfare of the global poor.

Not only would this help the migrants themselves, but it would even help their source countries to develop, Segerfeldt says. Migrants send around three times as much home in remittances as governments send in foreign aid, and this private development aid is far better targeted, going directly to those in need and not through flawed institutions. The money is often used by developing country citizens to educate themselves and raise their human capital, helping to create a virtuous development cycle.

To assuage worries that migrants will empty the state’s coffers as a fiscal burden on the state, Segerfeldt advocates both that migrant work permits be temporary, and that the full suite of benefits would only be available to natives.

-2To access the full press release, click here.

To download the report for free, click here.