A brief endorsement of ‘Markets for Managers’

I’m often asked by people who are just getting interested in economics what they should read. There is no shortage of good ‘pop economics’ books to recommend to them: Freakonomics is the most famous and The Armchair Economist is enjoyably contrarian, but for my money The Undercover Economist is the most interesting.

But none of these teach you the sort of economics you’d learn if you studied economics at a university. And that’s where Anthony J Evans’s Markets for Managers comes in. It’s aimed at ‘managers’, by which Evans means people who make strategic decisions for their firm, and makes the case that managers who understand the principles of economics will have an advantage over their rivals. But in explaining those principles Evans inadvertently gives an introduction to anyone who wants to learn about them.

The ‘applied economics’ method that Evans uses is extremely readable. If, like me, you prefer to learn by applying abstract ideas to reality, Evans’s approach is ideal. And for British audiences there is something quite nice about reading examples applied to Fernando Torres rather than basketball players I’ve never heard of. What’s most impressive about the book is that Evans even covers the drier parts of economics, like international trade and macroeconomic policy, that the ‘pop economics’ books don’t bother with.

Evans is a Senior Fellow of the ASI and can claim to be one of the UK’s only “Austrian school” economists, and these perspectives do shine through, though not to the detriment of the economics being discussed. What he’s done with Markets for Managers is to give a clear, interesting and comprehensive primer in economics as it’s taught in the classroom. No doubt many managers would benefit from reading it but even more so I find myself recommending it to university students who are not studying economics. For historians and political science students especially, the boot-camp in economics it gives might well give a surprising new way of understanding their own fields.

Markets for Managers at Amazon.co.uk

Markets for Managers at Amazon.com

Owen Jones is entirely right here: refugees’ lives matter too

It’s not often that we write with unreserved praise for Owen Jones but his piece today deserves it:

As the news of up to 200 dead refugees, drowned off the coast of Libya, filters fleetingly into news coverage, the only guarantee is that more will drown. And with news of more than 70 refugees found dead in a truck in Austria – to try to imagine their last living moments triggers a horrible feeling in the pit of the stomach – we know that more bodies will be found in more trucks. Those of us who want more sympathetic treatment of people fleeing desperate situations have failed to win over public opinion, and the cost of that is death.

For those who believe that hostility to human beings from other countries who lost the lottery of life is somehow hardwired into us, there is evidence to the contrary. Germany takes in around four times as many refugees as Britain does; and for every Syrian asylum seeker received by Britain, Germany gets 27. And despite German generosity comparing starkly with our own, half of Germans polled support letting in even more refugees.

Like Alex Tabarrok, I am not aware of any mainstream moral theory that does not tell us that all humans matter, not just the ones who look like us or were born near us. I often wonder how different our approach to trade and immigration policies would be if we took it as axiomatic we don’t just care about people lucky enough to be born in Britain. This is the ‘big assumption’ I ask people to make when I talk to them about liberalising immigration – and if we made it, the debate about immigration’s impact on natives’ incomes would be a mere sideshow.

There are valid questions about the most humane policy towards the asylum seekers trying to cross the Mediterranean or English Channel. And I am much more optimistic than Owen about the potential for migration to reduce global poverty. But, as he rightly says, the baseline for all of these debates must change. When people are dying from drowning and suffocation, we have to accept that we are not the only ones who matter.

If you hate sweatshops, you should love immigration

Last week I argued that sweatshops are good for workers in poor countries. They usually pay more than the alternatives their workers have near them, they seem to reduce child marriage and pregnancy rates for girls who live near them, and when you actually ask workers in poor countries, they tell you that sweatshops are the best options going.

But that isn’t sufficient, because compared to even very bad jobs in Western countries, sweatshop jobs are still exhausting, poorly paid, and dangerous. Garment workers in England are typically paid far, far more than garment workers doing almost the same job in Bangladesh.

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Branko Milanovic argues that location is the main determinant of income, not class – you’re better off being near the bottom in a rich country than being near the top in a poor country:

All people born in rich countries thus receive a location premium or a location rent; all those born in poor countries get a location penalty. [In a world of low international migration] most of one’s lifetime income will be determined at birth. [Chart above from here.]

Why might this be? Different skill levels are certainly a part of the difference, but a worker who moves from Bangladesh to England can still expect to significantly increase their earning power. There is a network effect whereby working with people with better skills boosts your own productivity. Christian Benteke is likely to score more goals at Liverpool than he did at the lower-quality Aston Villa, and Uber drivers in New York City make more than Uber drivers in Mexico City.

Capital differences are crucial, of course. Infrastructure and factory equipment are usually better in richer countries. And one big reason for this is institutional quality – the risks of capital investment are much lower in the developed world.

Things like the rule of law and decent, stable governance make it easier to invest with confidence, and seem to be some of the hardest things for poor countries to develop themselves. The cost of running a factory is lower in places where you know that factory won’t be seized by the state. I am not quite convinced that institutions are the most important driver of economic growth but they clearly matter a lot to maintaining a decent level of development.

All of which strikes me as a good reason to try to allow would-be sweatshop workers in the developing world to come to the richer world to work. Letting them work here effectively allows us to stretch our institutions over them, boosting their incomes productivity and incomes.

Given political constraints, this might be best done in the form of a new ‘guest worker’ visa that allows firms to bring people guaranteed a job from poor countries to the UK to work. The firm could be required to post a bond equal to the cost of that immigrant returning home, so nobody is stuck here against their will, and so that we don’t have to worry about immigrants sponging off the state (not that that happens much anyway).

If we targeted this guest worker scheme at people from the poorest countries in the world, we would be able to reduce poverty dramatically. We might see the emergence of industry built specifically for those low-paid workers, who nonetheless would be earning far in excess of what they would earn at home. There is evidence from New Zealand’s guest worker programme that this has large positive effects in the long-run for migrants’ families as well:

We find that the RSE has indeed had largely positive development impacts. It has increased income and consumption of households, allowed households to purchase more durable goods, increased subjective standard of living, and had additional benefits at the community level. It also increased child schooling in Tonga. This should rank it among the most effective development policies evaluated to date

The Gulf States’ guest worker policies, on the other hand, are ugly and brutal in many ways, but people still keep coming because their alternatives are worse. Sweatshops are ugly and brutal in many ways, but people want to work there because their alternatives are worse. How good it would be if for once we could give poor people a better alternative – just by letting them come here to work.

There is no right time to sell the RBS shares

This is a simple point, but it’s one that some people who should know better seem to keep getting wrong. Share price movements are unpredictable and there is no more reason to think the price of shares will be higher next year than to think that they’ll be lower. Which means that there is no ‘right time’ for the government to sell its RBS shares.

If we thought that RBS shares would each be worth 50p more by Christmas then we’d be buying them now and bidding up the price towards 50p now. The price wouldn’t quite reach 50p because there’s still the chance that we’re wrong.

And indeed that is exactly what happens, and why we can only assume that share prices reflect what we expect them to be worth in the future. Because share prices can go down as well as up, we get a return from investing in the stock market above what we get if we invest in safer assets, like government bonds.

You would think this was obvious, but the BBC quotes:

Ian Gordon, a banking analyst at Investec, told the BBC’s Today programme: “The taxpayer is being short-changed.” The shares could have been sold for a higher price in February, when they were changing hands for more than 400p, he said.

But of course we had no idea in February that they would fall, and we have no idea what will happen to them next. Like the Royal Mail shares they might rise after we sell them off, or they might fall. Or they might not move at all.

BusinessInsider’s Mike Bird makes this point very well, and as well as reminding us that the RBS bailout was always going to be a money-loser, he points the people who think we can just wait and hold on to the shares until they rise back up to their 2008 level to this chart showing RBS’s share price since 2007:

rbs bailout

To be fair, quite a lot of RBS has been spun off so it’s a much smaller company than it was in 2008 anyway, but the point still stands that there is no rising trend that we should be riding, as many people seem to think.

The flipside of all this is that Gordon Brown is equally blameless for selling off the government’s gold at ‘historically low levels’, except to the extent that we might want the government to own gold for other reasons.

So there is no ‘right time to sell’ except to the extent that we do or do not want the government to own shares in the banks, or to try to make money by taking risks. If we don’t want the government playing the stock market, the ‘right time to sell’ is always now.

Sweatshops make poor people better off

Sweatshops are awful places to work. But they are often less awful than other jobs sweatshop workers could take. And this is the basic argument in defence of sweatshops. When people argue against them, the question we should ask is: “Compared to what?”.

Most evidence suggests that sweatshops pay better than the alternatives. It’s hard to collect reliable data in many poor countries, but Ben Powell and David Skarbek’s 2006 paper “Sweatshops and Third World Living Standards” uses wage data given by anti-sweatshop campaigners­ to estimate wages for sweatshop workers in ten countries compared to average National Income. This, if anything, should underestimate sweatshop workers’ earnings.

Again, it’s difficult to know how many hours the average sweatshop worker does every week, but most anti-sweatshop campaigners suggest that it is more than 70 hours per week. The results should be taken with a pinch of salt, but Powell and Skarbek found that sweatshop wages exceed average income in between eight and ten out of ten countries surveyed, depending on how many hours were worked.

In nine out of ten countries, “working ten-hour days in the apparel industry lifts employees above (and often far above) the $2 per day threshold.” And “in half of the countries it results in earning more than three times the national average”! (Powell’s defence of sweatshops, here, is excellent. His book on the topic is self-recommending.)


Critics of sweatshops point to the 1,000+ people killed and 2,500+ people injured by the collapse of the Rana Plaza sweatshop in Bangladesh in 2013. This was indeed grotesque, and evidence of the poor conditions that many sweatshop workers have to work in.

But what is their next-best alternative? Subsistence farming still dominates many of the countries that sweatshops operate in – in Vietnam, 59% of workers are self-employed in farming; 1.5% work for businesses owned partially or fully by foreign firms. And farming – particularly subsistence farming – is one of the most dangerous occupations in the world.

The International Labour Organisation estimates that agricultural workers suffer 250 million accidents every year, and say that in some countries the fatal accident rate is twice as common in agriculture as in other industries. “Out of a total of 335,000 fatal workplace accidents worldwide,” say the ILO, “there are some 170,000 deaths among agricultural workers.” As horrendous as the Rana Plaza incident was, anti-sweatshop campaigners have not shown that sweatshops are more dangerous than sweatshop workers’ next-best alternative.

Sweatshops seem to have good impacts on women in particular. A study by researchers at the Universities of Washington and Yale that I blogged about last year looked at different villages in Bangladesh – some close to sweatshops, some not.

In the villages close to sweatshops, girls were substantially less likely to get pregnant or be married off (28% and 29% respectively, and this effect was strongest among 12-18 year olds) and girls’ school enrolment rates were 38.6% higher. The authors say that these effects were likely due to a combination of wealth effects (richer families need to marry off their daughters less early, and can afford to send their daughters to school for longer) and the fact that garment factory jobs reward skills, increasing the value of education.

And what do workers themselves think of sweatshops, given not just wages but other non-monetary compensation as well? Using field interviews with thirty-one sweatshop workers in El Salvador, David, Emily, Brian and Erin Skarbek found that “workers perceive factory employment to provide more desirable compensation along several margins.”

This is not to condemn all work done ‘against’ sweatshops. Using data from Indonesia, the World Bank’s Ann Harrison and Jason Scorse found that 1990s campaigns to improve conditions for sweatshop workers in the developing world seem to have led to real wage increases without significant unemployment effects, though some smaller factories did close.

The lesson here may be that work that focuses on improving wages and conditions for sweatshop workers, not closing down sweatshops and trying to wash our hands altogether, may be the best approach. Persuading consumers to continue buying things from sweatshops, but to pay a higher price to give those workers a better wage, might be a decent way of essentially ‘bundling’ a charitable donation into a normal purchase. Unfortunately, most campaigns in Britain seem to be straightforwardly anti-sweatshop.

And even the most noble-seeming campaigns can backfire. UNICEF argues that early 1990s campaigns to reduce child labour in Bangladesh’s formal economy led to children looking for income in much worse places: stone-crushing, street hustling, and prostitution.

It is understandable that anti-poverty campaigners find sweatshops appalling, and work done to improve conditions in sweatshops might be valuable, but too often people forget that blunt campaigns against sweatshops probably end up hurting people. Instead, people should use the awfulness of sweatshops – and even greater awfulness of other jobs – as proof that we need to do more, much more, to give better options to poor people in other countries.

One option might be guest worker programmes, targeted at people from the poorest countries in the world, to allow them to come and work in the developed world so that they can send more money back home for investment. And lower trade barriers to goods from poor countries would help them grow, too.

Sweatshops are particularly horrifying because they make us feel complicit in the suffering of the poor. They are not a good option, but they are the least bad option currently available to many people. Washing our hands of the situation and just closing the sweatshops would make their workers worse off, potentially much worse off. If we want to help people, we should give them new options, not take away existing ones.