Adam Smith Institute

Over on the Cato-at-Liberty blog, Juan Carlos Hidalgo reminds us what Ken Livingstone's old chum Hugo Chavez has been getting up to lately:

Last week, he decreed a new intelligence law (no need for a National Assembly here) that basically turns Venezuela into a police state. The new law requires that people:

"… comply with requests to assist the agencies, secret police or community activist groups loyal to Mr. Chávez. Refusal can result in prison terms of two to four years for most people and four to six years for government employees."

The law also stipulates that the police agencies can conduct surveillance activities on the population, like wiretapping, without a warrant. Furthermore, the authorities can deny access to evidence to defendant lawyers under the grounds of "national security."

Too many people persist in believing that Chavez is harmless and well intentioned. It's time they woke up.

It is no secret that many Africans have little reason for optimism. Civil war tears countries apart while AIDS, malaria, famine, and pestilence rage across the continent. The best and the brightest Africans have little incentive to stay, leading to a continent-wide brain drain. Fred Swaniker, a 31-year-old Ghana native trained at Stanford, decided to do something about it.

Swaniker will open his African Leadership Academy, a high school aimed at giving Africans a professional network that will allow them to flourish on their native continent. After raising millions of dollars from various corporations, Swaniker hired top teachers from around the world and bought a first rate property for the school. 

As the adage says, “Losers focus on problems, winners focus on solutions.” Swaniker is a winner. His graduates will stay and invest their money in Africa, which will yield more people jobs. This will in turn improve infrastructure, give more Africans access to education, and create even more jobs.

This story illustrates two important points. First, governments that are corrupt, overtaxing, or that seek to redistribute wealth will encourage the most talented to seek greener pastures. Second, while government foreign aid to Africa can help with basic survival needs, private companies can solve the underlying structural problems that prevent growth and investment.

Swaniker will not solve Africa’s problems by himself, but he shows how much one person can do. 
 

There could hardly be a stronger contrast between the response of the Burmese government to the typhoon there, and that of the Chinese government to last week's earthquake.  Terrible pictures have been shown of both disasters; the difference is that the pictures from Burma were taken without the consent of the ruling junta, who have down-played the tragedy to their own people and to the world beyond.

The Chinese, on the other hand, have invited the world to share their grief, and have not minimized the scale of the disaster to their own people or to the world.  They have acted with commendable efficiency themselves, and have readily accepted offers of help.  The pictures from China have been heart-rending, reminding us all of Adam Smith's observations that our very humanity leads us to empathize with the emotions of others, sharing their sorrows and their joys.  The pictures remind us that the common humanity we all share is more important than the political differences which separate us.

Perhaps it is a sign of Chinese self-confidence that they can show us the catastrophe which befell them with an openness unthinkable even a decade ago.  China has grown more self-assured as it has grown richer, and when it rebuilds it will probably do so with earthquake resistant buildings, as has been done in California and Japan.  It is rich countries which can afford to do this, as Alex Singleton points out in the Telegraph.  Those who decry economic growth might reflect on the fact that natural disasters fall hardest on poorer countries which lack the resources to plan against them or to cope with them when they strike.
 

Says Barack Obama:

I believe that America's free market has been the engine of America's great progress. It's created a prosperity that is the envy of the world. It's led to a standard of living unmatched in history. And it has provided great rewards to the innovators and risk-takers who have made America a beacon for science, and technology, and discovery.

Very well said. But if well done is better that well said, why did he:

• 1) Vote against the Central American Free Trade Agreement?
• 2) Advocate raising minimum wage?
• 3) Attack Hillary for her support of NAFTA in the 1990s?
• 4) Vote for, and attack Bush and McCain for opposing, the recent farm bill, which would increase subsidies by $20bn, make the government buy sugar at twice the world price, and give subsidies to farmers with incomes of up to $1.5 million per year? (See here and here).
• 5) Propose raising the capital gains tax?
• 6) Advocate fair, not free trade, which will halt the rapid economic growth in poor and industrialising nations?

If the free market is the engine of economic prosperity, why hit the brakes and turn off the vehicle? The enlarging free-trade block in Europe, British economic reforms in the 1980s and 1990s, economists across the world, and the end of the cold war, all show what Adam Smith said in the first place — that the invisible hand, not central government, should guide our economies.

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?