Learning from history

In the Keystone Cops comedy that is the contending parties in the Scottish Independence referendum campaign, it seems that the Scottish No team have been making all the same mistakes that Canada’s No team made on Quebec independence back in 1995.

True, the Quebec referendum campaign ended in a narrow No decision – but so narrow that it kept the independence issue alive and grumbling. Next week’s Scottish referendum has become too close to call, but most polls are predicting a No majority – though again, one so narrow that it keeps the independence issue alive and grumbling here too.

It seems the No team have learnt nothing from Canada’s experience of nearly twenty years ago. Andrew Coyne of the National Post lists the similarities:

  • The same early complacency in the No camp.
  • The same unbridled panic as the Yes side surged in the polls.
  • The same unappealing mix of threats and dubious accounting claims.
  • The same blurring of the issues (devo-max, keeping the currency).
  • A charismatic Yes leader and a seemingly distant No Prime Minister.

As in Canada, says Coyne, an unwarranted legitimacy was conferred on the separatist project; then came attempts to pacify it with more powers and more money, only to see it grow more ravenous in response. And once again,  a Yes vote is probably forever, while a No vote just marks the start of fresh campaigning.

It all looks like one of the slow-motion car crash in those early comedies. Except this particular farce is deciding the UK’s future political and economic reality.

Strange fruit

Vishal was the 2014 winner of the Adam Smith Institute’s Young Writer on Liberty competition. 

The free trade of all goods and services seems likely to be optimal—however, given that there are countless lobbies and political pressures that make this situation currently infeasible, I will argue for the abolition of tariffs and restrictions on the trade of fruits and vegetables.

A global abolition of import tariffs and restrictions on fruits and vegetables would, on a static analysis, reduce tax revenue derived from them and increase demand for fruits and vegetables as their prices decreased. But dynamically, reducing the revenue derived from tariffs on fruits and vegetables may well be more than offset from the gains in labour productivity and the increase in national income (and tax revenues) that may result.

David Blanchflower, Andrew Oswald & Sarah Stewart-Brown (2012) found that, after controlling for various other factors, individuals who eat 7 fruits and vegetables a day are found to be significantly happier than those who do not. They further found that this improvement in psychological well-being is nearly as much as the increase in happiness from being employed versus being unemployed!

On top of psychological well-being, greater fruit and veg consumption may also improve general health—itself a benefit—and potentially freeing up healthcare funds. Furthermore, Andrew Oswald, Eugenio Proto and Daniel Sgroi (2009) found that there is evidence to suggest that happiness does raise productivity.

An increase in happiness would also be amplified by the dynamic, contagious effect of happiness: it would spread through the population, further amplifying the economic gains from the easing of import tariffs and restrictions. This phenomenon has been well documented, including in James Fowler & Nicholas A. Christakis (2008).

Some countries already have low import tariffs on fruits and vegetables (in the US tariffs on fruits and vegetables average less than 5% according to Renée Johnson (2014)). But there are several economies where the tariffs are substantially higher; more than three fifths of EU and Japanese tariffs on fruit and veg are between 5-25% and nearly a fifth exceed 25%. Other countries with relatively high import tariffs on fruits and vegetables include China, Egypt, India, South Korea and Thailand.

Perhaps most importantly, the abolition of tariffs and import restrictions on fruits and vegetables would be a big boost to society’s least fortunate, a group particularly hard up during an economic crisis like that from which we are only just recovering.

The abolition of tariffs on fruits and vegetables would reduce their price and increase their consumption. The initial drop in tax revenue would be offset by both the direct improvement in psychological well-being and its contagion that would work to enhance labour productivity, national income, health and happiness. Let’s pick the low-hanging fruit!

Some evidence that sweatshops are good for Bangladeshi women

I recently read an interesting paper by Rachel Heath and A. Mushfiq Mobarak, of the Universities of Washington and Yale, which looks at the impact that the garment industry has on young girls and women in Bangladesh. 

The results are quite amazing. According to the study, girls in villages close to garment factories (or sweatshops, as they are sometimes called):

  1. Delay marriage. On average, a young girl living near a garment factory was 28% less likely to get married in the study year than the average Bangladeshi girl. This effect was strongest among 12-18 year olds.
  2. Delay childbirth. On average, a young girl living near a garment factory was 29% less likely to give birth in the study year than average. Again, this effect was strongest among 12-18 year olds.
  3. Are much more likely to go to school. Exposure to garment factory jobs was associated with a 38.6% increase in school enrolment rates. Broken down, this translated into a slightly lower enrolment rate for 17-18 year old girls, who presumably were more likely to be in work, and a considerably higher enrolment rate for girls younger than that.

According to the study’s authors, these findings are probably due to some 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.

The paper is an important reminder that sweatshops may provide significant benefits to their employees and the places they are located. They are by no means all good, but they are not all bad either, which well-meaning campaigners against sweatshops would do well to remember. A working version of the whole paper can be accessed here.

I’m not sure the Russians have got the hang of this sanctions thing yet

I’ve been continually amused by the Russian reaction to the sanctions that have been imposed upon the country over Crimea and the Ukraine. First they ban imports of fruit and veg from the EU and US. That’s clearly and obviously something that damages Russian citizens more than it does anyone else. Then there was the delightful idea that they would have price controls on the supplies they could get: exactly what not to do to encourage domestic production and imports from new suppliers. And now we’ve got them closing down McDonald’s branches in Moscow over “food safety violations“.

Russia has shut down four McDonald’s restaurants in Moscow for alleged sanitary violations in a move critics said was the latest blow in its tit-for-tat sanctions tussle with the west.

The federal monitoring service for consumer rights and wellbeing announced on Wednesday that the offending outlets included the famous restaurant on Pushkin Square that opened just before the fall of the Soviet Union. The body said the eateries were being shut down for “sanitary violations” discovered during inspections this week.

No, no one at all believes that it’s for any reason other than those sanctions. Quite apart from anything else the floor in a Maccy D’s will be cleaner than the average food preparation table elsewhere in Russia.

But of course there’s more to it than that: obviously, those who would eat at McDonald’s, ie the Russian citizenry, are discomfited by this. McDonald’s Canada, which owns (last I heard at least) 50% of the stores will lose money. But here’s where it gets really fun. The other 50% owner is Moscow City Council (again, last I checked).

So, err, Russian sanctions against the US reduces the cash income of the local council in Moscow.

I’m unconvinced that they’ve quite got the point of sanctions just yet: you’re trying to hurt the other guy, not yourself or your own citizenry.

There’s no reforming the EU without understanding it

Once again the Daily Telegraph (“Brussels plots fresh City of London power grab”, 8th August) and like-minded media have become irrationally frenzied by EU moves that are wrong but nevertheless entirely rational.  London has been reminded that the three UK financial regulators will have to give up their regulatory powers to Brussels and become merely supervisors. As this Institute pointed out in our letter to The Times in June 2009, the UK governmentagreed that the previous March.  It was President Sarkozy’s price for attending the London G10 Summit in April.   The necessary legal framework was agreed by Parliament before that summer’s recess.

The government and the City were silent at the time and in the five years since.  It is no use yelping now.  Brussels is only implementing what we agreed.

The worry now is that the City and the government ignorance of Brussels and its processes make EU reform all the less likely.  One needs to understand and then work the system to succeed.  The UK negotiators’ failure is demonstrated by the 55 occasions on which we have sought to block some new Brussels initiative or other and been over-ruled each time.  The French and the Germans know how to garner support for what they want done; the British government clearly hasn’t a clue.

If the past five years, during which the EU financial regulation issue has been ignored by City and government, show anything, it is that the Foreign and Commonwealth Office and HM Treasury have been asleep at the wheel.  The FCO lacks backbone and is notoriously pro-EU. We need a new team.

Obviously some of the existing team do have some understanding of the EU.  Perhaps we need an exam, supervised by Michael Gove, to sift out the good ones and then complete the new team with our finest negotiators first to understand what has to be done and then to prepare the way.  It will make little difference to the UK’s position in the EU if our involvement, for the few years preparation will take, is little more than keeping bums on seats.

The Coalition has at least done some of the preparation in asking and thinking about what reforms Britain would like but that is no more than a Santa Claus wish list without a plan to achieve any reform.

A final thought along these lines is to put the new team under John Major’s charge.  He is the last British Prime Minister successfully to have negotiated any substantial matter with the EU.