Don’t fear the trade bill

We do admit we find this all rather amusing. We’ve all been shouted at for months now that the transatlantic trade deal (and various others under discussion) will allow such evils as tobacco companies suing if they are deprived of their intellectual property as a result of plain packaging. Thus we must reject said trade deals. And then this happens:

One such measure is the introduction of plain cigarette packaging – a policy that David Cameron’s successful spinmeister and tobacco lobbyist, Lynton Crosby, thankfully failed to block. But now the tobacco companies are fighting back, suing the government for up to £11bn on the basis that it would constitute “deprivation of a highly valuable intellectual property”.

This is an absurd example of how the law values property over people. Our government is democratically elected. Yes, that rightly means there have to be checks and balances, and policies must abide by the existing framework of the law. But if the law enables tobacco companies to extort £11bn from the government – money, ironically enough, that could be used to treat people suffering from tobacco-related illnesses – then the law is wrong. If the law does not value people’s lives and wellbeing over the rights of tobacco companies to make profit from cancer sticks, then the law is morally bankrupt.

This privileging of corporate interests over democracy is only going to get worse. The Transatlantic Trade and Investment Partnership – a treaty being hammered out between the EU and the US with woefully little scrutiny – could grant companies the same legal rights as nation states, enabling them to sue elected governments in secret courts to block policies that dent future profits. And sure enough – using a similar treaty – Philip Morris sued the Australian government for the same policy. It used the same tactic against Uruguay’s government for enlarging health warnings on cigarette packages.

How it is going to get worse if these provisions are already in domestic law?

At which point we can point out the two important points here.

The first is that the law, rightly, contains provisions on such things as eminent domain, just as it contains provisions of rights to property. The government can indeed confiscate property on the grounds of greater national need. It can force you to proffer up your house for the building of a railway line. It can force you to give up your business to the government. That is, nationalisation is entirely legal under both domestic and international law. However, that right to property part also means that the government must pay full market value for that property that it is taking (and the Americans have it even more anchored in their law as “a taking”).

This is of course as it should be. If the value of that railway line, that nationalisation, even that imposition of plain packaging, is sufficiently large in the national interest then there must be, from the value added by the scheme to make it sufficiently large in the national interest, enough to compensate the original values of the properties. Moving an asset from a lower to a higher valued use is the very defintion of wealth creation after all: so, if we are indeed adding that value then some can be used to compensate.

This argument also works in reverse: if there is not the value being added to compensate those original owners at that original price then the scheme is not in fact value adding. If that plot of land as a place for a house is worth £200,000, but it’s only worth £20,000 as part of a railway line then that railway line is not value adding: it is value subtracting, thus something that makes us poorer.

So too with plain packaging. We’ve no idea whether the £11 billion is a realistic number or not: but we do insist that if plain packaging is in fact value adding then it must be possible to compensate those having their property confiscated to reach that goal. Otherwise, if the value isn’t there, then the scheme itself is not value adding. If that’s true, then why are we doing it?

Which is one of the values, over and above the civil liberty of secure property rights, why such a legal position is so useful. It insists that those who talk up the value of a scheme actually have to prove, by providing the cold hard cash, the value of that scheme.

The second point is about those tribunals and so on. Given that these rights already appear in UK domestic law there’s nothing to fear from our signing a treaty that also includes them. It would be like our signing a treaty that insists that murder is a crime. Yes, we agree, so why not sign?

However, there are places out there not so blessed with a largely honest and largely reasonable legal system. And treaties are always reciprocal: what we agree to domestically the other side is also agreeing to in their domestic arena. So, the real value of the treaty (ies) is that it extends those rights which we have, as Britons, to those who have the unfortunate circumstance of not being Britons. And quite why this is a bad idea escapes us.

What excellent news about British social mobility

This isn’t the way that anyone intends we should read this ONS report of course but it is also a true and valid way of reading it.

Almost a third of the UK population experienced income poverty in at least one year between 2010 and 2013, official data shows.

The figures, published by the Office for National Statistics (ONS) on Wednesday, show that approximately 19.3 million people had a disposable income of below 60% of the national median at some point during the four-year period.

Word. And the actual ONS figures:

In 2013, the UK persistent poverty rate was less than half the overall poverty rate of 15.9%. By comparison, in many other EU countries, the persistently poor make up a higher proportion of those in poverty.

Since 2008 (the first year for which comparable EU longitudinal data are available), the UK has consistently had a persistent poverty rate lower than the EU average.

Almost a third (33%) of the UK population experienced poverty in at least one year between 2010 and 2013, equivalent to approximately 19.3 million people. In contrast, across the EU as a whole, a quarter (25%) of people were in poverty at least once during that period, with a larger proportion of people in the UK experiencing poverty at least once over those 4 years than in many other EU countries.

Worth noting one point: this is relative poverty. So, it’s against median income. Further, it’s against median income in each country. So we are not, not at all, stating that people in Britain have a lower living standard than those in, say, Romania.

Note first that that persistent poverty is half the average rate. That’s pretty good, don’t we think? And note also something else. Britain has greater variability in poverty. Variability in income is also known as economic mobility (or as the phrase has become these days, social mobility). For us to have more people who slip into poverty for a time, but not have more people in poverty overall, means also that more Britons must rise up out of poverty. That is, we really do have greater social mobility.

We doubt very much that anyone else will make this point.

Discrimination and the free market: hardly a piece of cake

We read this week that a judge has ruled that a Christian-run bakery discriminated against a gay customer by refusing to make a cake with a pro-gay marriage slogan. I’m uncomfortable with this particular legislation. Some people have been claiming that such a ruling is a victory for anti-discrimination proponents. The irony seems lost on them – that there is still discrimination going on – it’s just that in this case the discrimination is against the Christian couple running the cake shop.

The Christian couple’s view on homosexuality isn’t one I share, but I defend their right to choose to run their business according to their own religious beliefs and values, and in this case the State should do likewise.

Disapproving customers are free to walk away and shop elsewhere. They are even free to share their disapproval on social media and encourage others to join them in shopping elsewhere. Such responses are powerful in business, because they put pressure on socially undesirable behaviour, and they penalise discriminatory business owners with lost custom, diminished profits, and in extreme cases, bankruptcy.

Any law that makes it illegal to run a business according to your religious beliefs is a law that infringes on the liberties of the business owners in a way that is, in my view, socially undesirable. Saying that, however, doesn’t mean I think all anti-discrimination laws are undesirable – far from it. They just need to be applied more prudently.

As always, society involves tension between a) accommodating people’s right to hold views and beliefs, and b) protecting others from unwanted discrimination. It is probably socially desirable for a racist café owner who wants to put a ‘No Blacks’ sign on his door to be forced not to discriminate. But at the other end of the spectrum it is also socially desirable for another café owner to be allowed to discriminate against under 65s by offering a pensioner discount on Wednesdays and Thursdays. In this case, I prefer the café owner’s right to introduce pensioner discounts over any societal claims that under 65s are being discriminated against.

The question the cake shop case elicits is where on that spectrum do religious views sit? I think people’s religious views should not be legislated against in business such that their freedoms are encroached upon in ways that are unacceptable. It’s quite clear to me that if the choice is between a) forcing a businessperson to make/sell a good they do not wish to, or b) compelling a dissatisfied customer to use another business, it’s a no-brainer that society should prefer the latter. A law that effectively wants to commandeer someone’s bodies and cake-making facilities is to me far more repugnant than the offence these Christian bakers are supposed to have committed.

One final point: the market does a very good job of weeding out discrimination. Suppose racist Jim opened up a shop in 1960s apartheid South Africa but wouldn’t serve any of the majority blacks – he obviously shoots himself in the foot because his restricts his trade options to a minority few and excludes the majority of potential customers.

In short, in a free market it pays not to unfairly discriminate, because whether on large scale or a small one you’re going to limit your potential custom. The more socially undesirable your discrimination, or the more people your discrimination negatively impacts, the worse it will be for you. It is no coincidence that the time at which humans started to trade was also the time that we started to become more civilised and improved our methods of co-existence.

To be able to trade in any age, and in particular, the modern age, you need to be able to think of others; firstly, by coming up with something (goods, services, entertainment) that others want; and secondly, by being honest, ethical, friendly, and developing a good reputation for your business. Far from being a vortex of selfish, uncaring and unethical behaviour, free markets necessitate qualities that make trade conducive, with your success dependent (in most cases) on your being a reputable person who welcomes all and treats everyone well.

An interesting and important question for Nick Stern

We’re willing to go along with the concept here but can we please have an actual number?

With oil prices currently at a low level, now would be the ideal time to introduce levies that remove the implicit subsidy for pollution from petrol and diesel. The revenue from these levies could more than compensate the poorer members of the community for the price increases, give a boost to research and innovation, and contribute to the cleaner and more attractive investments that we need.

We know, we’re rather keener on Pigou Taxes than many others are. But, following the IMF report on subsidies to the energy sector (please note, it wasn’t an IMF paper, it was a paper by people at the IMF. It’s not purely about fossil fuels, it’s about the energy system. And it does depend on the idea that the tax system should be hugely regressive in order to reach its totals about how much tax should be raised by consumption. For example, it argues that the lower rate of VAT for domestic fuel is a subsidy. And you can think of it that way if you like. But two points: that subsidy also applies to renewables and can you imagine the furore from the usual suspects if we argued that to save the planet we must charge 20% on domestic fuel?) we have the above from Lord Stern. And the obvious question is, well, how much?

For there’s a very important point about Pigou Taxes. The entire logical case for them, the justification, is that there is one just and righteous rate at which that tax should be levied. Add up the costs of all of the externalities and that is that tax rate. You cannot, not if you are being intellectually consistent, march around shouting “more”. You must, in each circumstance, calculate what the rate is.

So, some 80% of the cost of petrol these days is tax. Is that enough? For example, Stern’s $80 per tonne translates into a righteous carbon tax of 11 p on a litre of petrol. Ken Clarke introduced the fuel duty escalator to “meet our Rio committments”. Which we take to be a synonym for a carbon tax. That escalator has added 23p or so to a litre of petrol. So, purely on the carbon emissions basis we are already paying too much in the UK.

This newer calculation tells us that there’s more. Air pollution and so on. OK, that’s fine, so, what’s the number? What’s the righteous Pigou Tax for that? They also say that a significant portion of the costs of petrol is congestion, accident damage etc. That’s not something that can be attributed to the fuel: if we were all driving electric cars those things would still be there. That’s a cost attributable to the transport system, not the fuel. And by far the largest part of the costs they attribute to this sector is the idea that consumer purchases should be taxed in order to raise revenue. And that if the tax is less than the amount they declare is correct, then that’s a subsidy. But no one can say that UK petrol isn’t paying tax. So that’s out too.

So, in our calculation of what the correct petrol tax is in the UK we’ve got those two things. Carbon emissions, which are already being overpaid for, then pollution costs. So, what’s the number, what should be the tax? And as above, “more” isn’t a serious answer.

We have a very strong suspicion here. The reason we’re not told what the number is is because that correct, just and righteous, number is actually lower than we’re all being charged currently. Which is why Stern, the IMF and everyone else doesn’t actually calculate it. Of course, we’re willing to change our minds if they would calculate it and also let us see their workings….

Madsen Pirie writes for the Times on EU subsidy of rapeseed

Madsen has a piece in today’s Times (paywall). He links the yellow fields of rapeseed that are making hay fever sufferers sneeze and wheeze to EU subsidies. After the Canadians bred a low acid version of rapeseed in the 1970s, the EU originally subsidized the seeds and the planting of it, not the actual crop. Then it went on to subsidize it for making bio-diesel, because it wanted a renewable energy source. So our green fields have been overtaken by a lurid yellow that many people dislike, and hay fever sufferers dash to the chemist’s in large numbers.

By careful breeding, Canadian scientists produced a low acid version. Rapeseed was transformed, and spread rapidly across Britain, changing the look of the spring landscape with its lurid yellow flowers. Its UK production soared from about 1,000 tonnes in 1970 to more than two million tonnes in just a few years.

It was not the crop itself that made it a farmers’ favourite but the EU subsidy paid to those who planted it. The EU paid cash not for the crop that resulted but to fund the seeds and planting. It was a bonanza for landowners.

Read the full article here (paywall).