Adam Smith Institute

A clash of titans: In corner one, we have Google. The company was founded in 1998 by two Phd students at Stanford University. The initial investment was $1.1 million and the company was launched in a private garage. Eight years later, at its first public offering, it was worth more than $23 billion. In corner two, we have the French Government. France invested £75 million in 23 different technology companies for their QUAERO project, aimed at creating a European Google-Killer.

Who will win the battle? Turns out, this clash of the titans is little more than a scrawny schoolboy trying to compete with seasoned professionals. As Business Weekly recently reported, the project "will swallow £75 million of European taxpayers' cash and vanish."

The French Government will learn the sad lesson once again: government cannot take the place of private industry and entrepreneurship. An introductory book to economics or a quick glance at history would have saved Europeans £75m and the French Government a lot of embarrassment. At least we can thank France for providing further proof that free-market economics is the best way for industry and commerce to function.
 

The US economy, as a whole, is just staving off recession yet there are some states that seem intent on making their own localised versions of the downturn worse by excluding the very people who could help. It appears that in many states lawmakers facing tight budgets are fishing for income amongst those who own private planes or yachts via use tax laws. For example, in Maine if your private choice of transport is in the state for longer than 20 days then you are charged at 5 percent of the purchase price (only for the year post purchase) and if their judgement relates to a previous year then there's interest to be added. The quote from Mr Khan (who is being asked for $25,000 relating to 2003) sums up how people will act, "I know of half a dozen pilots who have cancelled their vacations to Maine and are going to some other state where they feel welcome. It's definitely going to hurt their business."

Maine isn't alone in shooting itself in the foot, other states with similar laws include Florida, Illinois and Washington, and due to the downturn they are all replicating Maine's actions. Whilst the US is in this precarious position states should not be turning visitors away. They should be encouraging the wealthy to visit in order to aid growth and redistribute wealth in the natural way rather than through the use of legislation and the threat of inhibiting people's freedom. The money that the state will take from a handful of people may cover up some revenue shortage, but after it has leeched through the state government the people of Maine will not benefit as much as had the wealthy been allowed to spend it has they saw fit.

The legislators in Maine have just ensured that their State's downturn will be slightly worse; other states though are opening their arms and welcoming the wealthy and the benefits they will bring to their communities.
 

One of the worst aspects of the Clinton–Obama battle for the Democratic presidential nomination has been the increasingly protectionist rhetoric coming from the candidates. Each seems desperate to appear more isolationist on trade than the other. This is a shame, because as this excellent new trade briefing paper from the Cato Institute points out:

[F]ree trade is a vital component for maximising economic growth. America's ongoing commitment to expanding trade – a commitment shared by previous Republican and Democratic administrations – has resulted in lower prices and greater product variety for consumers, job growth for exporters, and higher levels of productivity and innovation that increase prosperity in America and abroad. Accounting for the phases of the business cycle, indicators of American worker and household well-being and prosperity continue to improve. The decades-long decline in manufacturing employment (although not matched by a decline in manufacturing output) has corresponded with an increase in service-sector jobs, with a net 26 million new jobs added since NAFTA took effect in 1994, and an increase in real compensation of nearly 23 percent.

What makes it worse is that I'm sure Hillary Clinton and Barack Obama both know this. After all, Bill Clinton was an enthusiastic free-trader who passed the now much-maligned NAFTA (don't forget, Hillary was a 'key part' of that administration...), while Barack Obama's advisers told Canadian diplomats that his protectionism "should be viewed as more about political positioning than a clear articulation of policy plans." Perhaps whoever wins will swing back to the centre once the primaries are over, but I wouldn't want to bet on it.

Earlier this month Democrats in the United States House of Representatives managed to delay the establishment of a free trade agreement between the United States and Colombia. This protectionist stance reflects the positions taken by Hilary Clinton and Barack Obama, the two contenders for the Democratic nomination. This is despite the fact that both countries would clearly benefit from the agreement. Robert J Samuelson articulates this well, pointing out the blindingly obvious (though clearly not to many democrats): that this agreement would increase trade, helping U.S. manufacturers.

The decision for the Democrat led house to delay President Bush’s agreement with President Álvaro Uribe Vélez is mired in cheap political opportunism with little thought as to the consequences. The free trade agreement would benefit people in the United States by stripping out Colombia’s tariffs that are as high 35% on cars, 15% on tractors and 10% on computers. This will obviously give U.S. businesses a fairer chance of competing with imports from elsewhere.

The principal benefit for Colombians is different. Colombia's exports already enter the U.S. market duty-free under the 1991 Andean Trade Preference Act. For the people of Columbia, the Free Trade agreement offers the permanency that the 1991 Andean Trade Preference Act lacks, as the latter has to be renewed leaving businesses uncertain on the future.

Although the Democrats lead the delay on the Trade agreement, there is a split in Democratic Party ideology between Lou Dobbs-style populism and Bill Clinton-style free trade. As such, prominent Democrats have written an open letter to Congress in support of the U.S.-Colombia free trade agreement.

Whether Clinton or Obama are true advocates of protectionism or just posturing for popular appeal, they are undoubtedly damaging the economic prospects of their country. In contrast, straight talking John McCain has the guts and integrity to stand up in Ohio and make the case for free trade to the people. He seems wise enough to know that free trade begins at home.
 

Michel Barnier, the French Agricultural Minister, has called upon Europe to increase protectionism in the face of rising food prices. On French radio he stated "We cannot and we must not leave food for people to the mercy of the rule of the market alone and to international speculation." Framed as a humanitarian gesture, it is nothing of the sort. The position is an attempt to upload France’s national policy to the European level, protecting their own uncompetitive farming industry in the face of increasing pressure as the biggest receiver of EU subsidies.

Concerns from many about the price of staple foods have long been on the agenda for a while. However, the argument used to be that the price of food was too low, and that this was having a negative impact upon farmers. Now it is being acknowledged that rising food prices are impacting upon the wider population in developing countries, with serious effects.

Barnier's solution is the wrong way out of the situation. In fact, it is a thinly veiled cover for what he perceives as France’s self-interest. He is wrong even about France’s own self-interest. The appalling impacts of protectionism (on consumers at home as well as on producers abroad) have been clearly acknowledged by any self-respecting economist.

Rising food prices are a real problem. However, looking towards the Europe Union for reasonable solutions is like consulting Robert Mugabe on improving the economy. The ludicrous goal of having 10 percent of transportation fuel made from biofuels by 2020 is still sadly in effect. This Brussels backed initiative is exacerbating the high food prices. The International Food Policy Research Institute in Washington suggests that biofuel production accounts for a quarter to a third of the recent increase in global commodity prices. It is about time the plug was pulled on this harmful policy.

The US is in recession – it's official. Well, maybe not quite official, but according to quite a few people like former US Treasury Secretary Larry Summers it is, while folk like Lehman Brothers are predicting negative growth for the first two quarters of this year – which would indeed be a recession on the standard definitions. Some think that as people lose their jobs and fail to meet their mortgage payments, that could just deepen the banks' problems even further.

I suppose – unfortunately – that is good news for Hillary Clinton. She's been doing well in the industrial states where workers have seen their jobs undermined by global competition and the (to them and Hillary) hated NAFTA. Southern states may well have large black populations who would like to see one of their own make it: but they also have large populations of all sorts who have lost their jobs and think that Clinton's more protectionist stance would help them.

It wouldn't. And in the longer term, more US protectionism would be bad not just for America – but for everyone else too. The UK is highly dependent on US trade, and there is less of that already. Even mighty China has seen its steel exports suffer a big fall as American housebuilding slows. Greater US protectionism – even the threat of it – would rein in trade even more. Sorry, Hillary, but that's not a welcome prospect.

Fidel Castro’s retirement seems to offer a “once in a dictator’s lifetime” opportunity for Cuba to escape the injustices of Communism. However, with reports that brother Raul is of equal mind to Fidel, freedom could be as far away as ever. With the internal strangleholds over internal revolution, this may be a good time for the US government to change their policy towards Cuba, undermining the new leadership through trade and engagement.

If life is to improve for the people of Cuba, the US should consider ending its long-term trade embargo. It could be the necessary catalyst to move the country from the dead-end limitations of Venezuelan oil money to the limitless wonders of free and varied trade. However, President Bush (like those before him) is in a tight corner. The Cuban-American lobby puts strong pressure on the US to continue its embargo, a valid position in view of the many freedoms taken for granted in the US but routinely trampled upon by the Cuban government.

However, efforts like the Condozeela Rice led United States Commission for Assistance to a Free Cuba (CAFC) have failed. The best way to put pressure on the inadequacies of the Cuban system is to trade with them. Such a position was argued convincingly in the Financial Times last month. Cuba’s future may not come from the withered seeds of its home grown kleptocracy, the passing of power from dictator to dictator. Instead it could come with the inauguration of a new President and a change of US policy: from the energised democracy, ninety miles across the Straights of Florida.

It was the absolutist Louis the XIV who extended the Palace of Versailles to all that it is today. It is therefore an ironically appropriate setting for the French government to ignore the wishes of its people. Both houses met to change the French Constitution, so that by the weekend the other Constitution (under the guise of the Lisbon Treaty) can be signed and sealed by President Sarkozy.

Despite general support for a referendum throughout France, those protesting outside the Palace were sadly the anti-globalization posse. It is a shame to see the debate again framed as a battle between those on the extremes of the political spectrum against those in at the centre. This is a misunderstanding by many as to what is at stake. The fundamental concern with the latest move towards the EU's ever-closer union should be that largely unaccountable European institutions are undermining national liberal democracy.

The central problem is that the Lisbon Treaty centralizes decision-making power, taking it away from the places in which that power is exercised. This has opened up the corrupting tendencies so apparent in Brussels, with lobbyists – whether business or NGOs – pumping in money to sway unaccountable decision makers. Corrupt as politics appears in this country, at least it does appear: the media and the public are mostly interested. Last November the EU failed its annual independent audit, with the auditors claiming in the report widespread financial abuse both within Brussels and member states. As this is now the thirteenth time in a row that the EU has failed the audit you would think there should be a Europewide outcry.

It is not just us who are impacted. Given that the annual budget of the EU is €121.9 billion, the way it spends our money can have a terrific impact on the lives of many around the world. Around 43 percent of the budget goes on the needless protection of European agriculture, restricting free trade with poor countries, with devastating impacts on the prospects of the developing world. Isn't it time that the anti-democratic injustices thrown up by the latest European Treaty/Constitution (delete as appropriate) be made the centre stage of the debate?

It's not taken long for President Sarkozy to resort to the age old practice of taxing the hardworking of France. His latest initiative, part of his "policy of civilisation", is to tax the revenues of the private broadcasting channels' advertising streams as well as revenues generated by internet access and mobile phone technology. This would allow the two public broadcasting channels to rid themselves of advertising and also free up the £598 million they previously earned in this way.

Frankly, it is about time all politicians set free "public broadcasting" and let it pay for itself. For it to be truly free and publicly owned it should take on the form of a non-profit organization funded by the donations of the watching public. Its funding revenues could be sourced in a similar vein to that thin slice of money raised from telethons or pledge drives that the American PBS channel utilises as a top up to its own government funding. Or, as the earnings of the French channels show, they could take advertising to pay for themselves. Whether a channel has advertising or not is increasingly irrelevant in the modern times of choice. It's the content that counts. And channels that provide poor content only have themselves to blame when the viewers switch over.

Mr Sarkozy is merely attempting to dress up a tax hike on the whole of France. It should be economically obvious that the tax rises, "no matter how infinitesimal", are passed down the financial chain to the consumers through higher charges. It may seem to the French President that he only taxing that most hated of entities in France, the private company, but in reality he is taxing the man on street. Could it be that Mr Sarkozy is the same as every other French President? Both publicly and privately...

Dani Rodrik asks an interesting question about the World Trade Organisation. Why does the US actually (eventually, grumbling as it does so) do as the organisation insists it must, while refusing to join or obey other such international ones?

I would love it if somebody would come up with a sensible story as to why the U.S. has ceded so much power in trade, while zealously guarding its sovereignty and right to unilateral action in every other domain.

And the answer is I think quite simple.  The comments allude to several points, like the usefulness of using the WTO to face down internal protectionist pressures, but the most basic one is that the WTO is not in fact a giving up of sovereignty. It's a purely contractual relationship. Upon joining the WTO you agree to a certain course of action: we'll do this and this on trade for example. Everything that you will have to do in the future is spelt out: and those duties cannot be changed without your express agreement, for each and every country has veto power. What this means is that, having joined, a country is not sucked into a further widening of the agreement, the imposition of further duties and responsibilities, without the express agreement of that country.

Compare and contrast this with the European Union, the use of Qualified Majority Voting, the lack of such vetoes in many areas and thus the ever widening remit of the organisation and the imposition of policies that were not agreed at the outset and cannot be refused now.

The general international policy of the US is not to join things organised upon the latter lines, but to do so when they are organised along the former. The lesson to be learned would therefore seem to be that if you want the US to join something, you need to make it something purely contractual, not something that does indeed impinge upon sovereignty by having an ever expanding remit without that veto power.

Something worth remembering as people struggle to create Kyoto II perhaps? 

How do you ostracise 30 million people? One simple way is to explain that, "freedom requires religion just as religion requires freedom... freedom and religion endure together, or perish alone." This is what Mitt Romney fundamentally did when he uttered those lines in his speech on the presidency and its relationship to belief. The Economist this week draws attention to the fact that there is a forgotten mass of people within the US who's votes are hardly ever courted.

Currently around 10 percent of Americans class themselves as being agnostic or atheist, a figure that has doubled in ten years. Unfortunately for them though they are a disparate group, and they are increasingly being forgotten. Especially as politicians are becoming more than happy to clothe themselves in religiosity as a way of proving that they are trustworthy and honest. (Even though the innumerable scandals prove that many are ordinary fallible human beings.)

Those who have no religious belief need to join together and begin to ask tough questions of those seeking election to office. There is a rightful place in the political arena for them, especially as a voice against those who seek to hold back scientific advances in the name of religion.

Mitt Romney et al. need to realise, as George Bush did, that even people without faith are Americans and that they, and their views, need to be incorporated into campaigns and politics. Religious belief, or lack of it, should never be a reason for exclusion from the political process. Having said that, we are surely light years away from ever seeing an unbelieving president.

Not long ago Fred Thompson, the former Tennessee senator and Law & Order star, was the great hope of many US Republicans, who excitedly compared him to Ronald Reagan and willed him to run for president. But since announcing his candidacy, Thompson's campaign has been lacklustre at best. Yet the criticism most often levelled at Thompson – that he is just a TV personality – is unfair.

If anything, his policy platform and his commitment to small government principles are stronger than his competitors', while it is his media skills that have proved surprisingly disappointing.

His tax plan illustrates this perfectly. Having announced the policy on Fox News, he didn't make a single public appearance for three days and his plan sank without trace, which is a great shame, since it is extremely promising and would undoubtedly appeal to Republican voters if only they knew about it. Thompson would permanently extend the Bush tax cuts (which have done much to keep the US economy afloat) and reduce corporation tax from 35 to 27 percent – a vital move for America's global competitiveness. The death tax would be abolished, as would the Alternative Minimum Tax, which was meant to hit the rich but now catches countless middle-income Americans in its net.

Best of all, Thompson proposes a new, alternative income tax code, which people could choose to opt into. Instead of the complexities of the existing system, people could choose a simple $15,000 personal allowance, paying 10 percent on their next $35,000, and 25 percent on everything over $50,000.

Eventually, I suspect most people would opt for this simpler tax code, and the US would have shifted to a simpler, flatter tax system without ever fighting major political battles over the removal of popular complexities. It's a clever policy, and one that could work this side of the Atlantic too.

It goes to show: Fred Thompson has plenty of potential. He just needs to raise his game before it's too late.

Kimberly Strassel, in the Wall Street Journal, and Quin Hillyer, in the American Spectator, have good pieces on Thompson here and here.

The Campaign for Fighting Diseases, run by Philip Stevens (formerly of the ASI), does excellent work on health policy issues in the developing world. Most recently, they have been pointing out the flaws in the World Health Organization's approach to climate change.

Although WHO claims that climate change is responsible for all manner of health threats to the developing world, the evidence suggests this is not the case. Take malaria – contrary to NGO claims the geographical incidence of malaria seems to have little to do with climate, relating more to the wealth of a country than to its temperature. Malaria existed in Europe throughout most of history, and it was not a change in temperature than eradicated it, but economic development and its consequent change in land use.

Another example is natural disasters. We are always hearing that climate change is going to cause more natural disasters and kill lots of people (particularly in the developing world), but deaths from climate related natural disasters have in fact fallen dramatically since the 1920s. This is purely the result of economic growth and the technological advances it has brought.

The point is clear: rising wealth will reduce the incidence of malaria and lessen the human cost of natural disasters in the developing world, regardless of climate change. You would think, then, that the WHO would be doing everything it could to promote the economic development of poor countries. Yet the global emissions caps they advocate would undoubtedly hurt the poor by retarding their economic growth.

The WHO should forget environmentalism and focus on the real barriers to good health in poor countries. The taxes and tariffs many governments impose on medicines would be a good place to start.

Mitt Romney, the former governor of Massachusetts and Republican presidential hopeful, has enjoyed buoyant support in the key early states in the primary calendar – due in large part to his social conservatism. However, the boost in support for the blues-guitar playing Baptist minister Mike Huckabee has seen some of his popularity ebb away. The main problem seems to be Romney's Mormonism, which troubles many American voters. Last week he sought to put this behind him, with a speech only a few miles from where JFK allayed concerns about his membership of the Catholic Church in 1960.

The thought of a candidate giving a major campaign speech about their religious faith is troubling to many Europeans. However, the word ‘Mormon’ was used only once in the 20-minute speech, in which Romney focused more on the relationship between faith and public life than on his own religious convictions. As Joe Loconte wrote in response to Romney's speech, the purpose of American secularism "is not to quarantine religion from public life, but to protect the religious liberty of people of all faiths, or none." So just as Romney promised not to serve any one religious or interest group while in office, and demonstrated clear enthusiasm for the institutional separation of church and state, he simultaneously promised not to separate America from "The god who gave us our liberty".

Romney went on to tell of the strong admiration he had for every faith he had encountered, and how he wished that aspects of them were present in his own. In his most confrontational moment, he warned of the perils of an established state religion, pointing to Europe where he claimed that magnificent cathedrals had become little more than a "postcard backdrop" thanks to government dominance.

Clearly, the primary goal of this speech was to diffuse Christian concerns about Romney's Mormonism just a month before the primary selection process begins, but it also offered a brave and refreshing explanation of the place for religion in a structurally secular country in which faith remains an important part of many people’s lives. It remains to be seen whether Romney has overcome his doubters, but if he has, the Republican race could be blown wide open.