Yes of course Donald Trump is wrong about Nafta

More interesting is why Trump is wrong about Nafta:

Recently, Donald Trump made a strong claim about the North American Free Trade Agreement (NAFTA) in an interview on CBS 60 Minutes:

“It’s a disaster. … We will either renegotiate it, or we will break it. Because, you know, every agreement has an end. … Every agreement has to be fair. Every agreement has a defraud clause. We’re being defrauded by all these countries.”

And we have an, admittedly incomplete as yet, theory for why we think businessmen are often quite as bad as they are at economics. We would expect them, given that they are usually playing in the private sector, to be rather better than they are at how private markets work. And certainly someone in Trump’s industry should understand public choice arguments.

But our theory is that so much of what a business actually does is trying to beat economics that the knowledge of the underlying theory rather gets missed. Just as one example, every business is trying to gain market power, the ability to set prices. From the economic theory point of view this is a very bad idea: and it’s the competition that markets provide that stops every business from gaining that market power.

And something similar happens with trade: when running a business you are obviously going to try to reduce your inputs. Of anything: one of the ways to succeed is to minimise inputs. And yet when we talk about the whole economy, about trade, the aim and point of the entire exercise is to maximise those imports, those inputs. That’s why we’re doing it, to gain the maximal amount possible of the resources and labour of foreigners that our people get to consume.

So, much of the time, running a business is trying to beat economics. Thus a businessman can often have a distorted idea of what desirable economic policy is.

There are those who will make the leap from this claim to the one that therefore we must regulate businesses because they are “anti-economic”. To which we would respond yes, of course , we must do so. And we do do so, we insist on competitive markets which is exactly the correct antidote to such attempted behaviour.

On the consistency of Willy Hutton

Of the varied commentators that parade and prance across the national life we have a certain weakness for Will Hutton. As a wonderful example of the, umm, consistency which is required to remain as an authoritative national voice over the decades.

For example, it’s a very good idea, in fact we should remake British business in this image, that companies are largely family owned, with a secure shareholding structure, so that management can get on with looking to the long term of the business and not be distracted by the flightiness of the here today gone in milliseconds nature of the stock market:

The proposed new Companies Act would set out a new legal framework that will privilege long-term, engaged investment. Mutuals should be created to aggregate proxy votes, and cast them on behalf of shareholders. The basic voting share will continue as now, but it will attract more votes the longer it is held; if shares are lent, voting rights will be forgone. This will strike many in London as going too far – a dagger at the heart of British capitalism. But when Google floated, its founders Sergey Brin and Larry Page issued two classes of shares, with class A shares having 10 times more votes than class B – so Brin and Page ended up with 37.6% of the votes for 3.7% of the shares. As they said in the letter accompanying the initial public offering, “we have set up a corporate structure that will make it much harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long-term, innovative approach.” Ten years on from the flotation, who can say they were wrong?

LinkedIn offered its original long-term shareholders 10 times the votes when it floated in 2011, and the Glazers floated Manchester United in New York rather than London because American rules allowed the family shares to have 10 times as many votes. Owners in mainland Europe – from the Wallenbergs in Sweden, who have holdings in most of Sweden’s top companies, to the Piëch family, part-owners of Porsche – use similar devices. Where there is business success and innovation, look for non-British corporate structures.

This trinity – business purpose, trusteeship and a range of committed shareholders – will be the foundation for the creation of purposeful companies, freed to behave like long‑term trusts rather than dance to the tune of peripatetic day traders. They will be value creators rather than rent extractors. It would be stakeholder capitalism in practice.

These proposals must be supported by a new takeover regime. The argument in hostile takeovers should not just be over price: it should be whether business purpose is being protected – with both sides being required to ask their shareholders’ view – and long-term shareholders’ votes privileged over those who have bought for a quick buck. The government should refer bids that create public-interest concerns and use the Competition and Markets Authority more aggressively. In short, takeovers, especially hostile takeovers, should be the exception rather than the rule of British business life.

We quote at length to show that this is not some throw away line, but central to Willy’s vision of how business life should operate.

That was in February. This month we are told that it’s a very good idea, in fact we should remake British business in this image, that companies are largely not family owned, with a secure shareholding structure, so that management can get on with looking to the long term of the business and not be distracted by the flightiness of the here today gone in milliseconds nature of the stock market:

Former CEO Martin Winterkorn, who resigned last week over the scandal, claims he knew nothing of what was going on, blaming a few unnamed executives for making a catastrophic error of judgment. Winterkorn was the consummate German engineer, knowing every dimension of engine performance; if he did not know how the dirty diesel engines of some popular VW brands were successfully passing US emission tests it was only because he chose not to ask. He did not need to. He had the backing of the Porsche family, who own just over 50% per cent of VW’s shares and who agree to vote as a block; the support too of the state of Saxony with a further 20% per cent –and of union members on the supervisory board. Winterkorn could run a company of 600,000, as Süddeutsche Zeitung remarked, as if it were North Korea.

VW is about production and jobs which trumps concerns about environmental sustainability – a culture than unites unions as much as the Porsche family.

And that’s even in the same newspaper. So, umm, yes, the consistency of Willy Hutton. We wonder if he’s heard of consistency?

Six points about the Trade Union Bill

  1. Making striking more difficult might be a good thing. The most controversial part of the bill is the part requiring at least 50% turnout in strikes overall (so 25% of members must vote in favour), and for public sector strikes the backing of at least 40% of those eligible to vote. This certainly does make striking less easy, but it hardly makes it impossible. If workers really feel that they need to strike, they can still do so, provided they get 25% or 40% of total members (for private and public sector workers respectively) to agree with them. This does make it harder for people like Len McCluskey and Mark Serwotka to call strikes that most union members don’t want, though.
  2. Most workers aren’t in a union. Only 14% of private sector workers and 54% of public sector workers – 25% overall – are in a union. That means that strikes, even if they are good for union workers, only benefit a small number of workers. And everyone else is inconvenienced by them: strikes can be costly and time-consuming for people who use the services that the striking workers provide.
  3. People who are in a union are generally middle-income workers. According to the ONS, “Middle-income earners were more likely to be trade union members than either high or low paid employees. About 38 per cent of employees who earned between £500 and £999 were members of a trade union, compared with 21 per cent of employees earning £1,000 or more. The proportion of employees earning less than £250 who were trade union members was 15 per cent.” Also, “Employees in professional occupations are more likely to be trade union members” (this includes jobs like nurses).
  4. Why shouldn’t firms be allowed to hire agency workers to fill in for striking workers? Workers who take part in official strikes (as defined here) are protected from being fired, except after 12 weeks of striking if the employer has tried to settle the dispute. This privilege is popular but if the only reason to stop firms from hiring replacement workers is that it makes strikes less powerful it’s not clear why this is a bad thing.
  5. Some parts of the bill do seem draconian. Making strikers wear armbands may be justifiable if there is a problem with identifying workers who are actually working and who are taking part in the strike – I don’t know if this is the case. Requiring picketers to give their names to the police seems entirely overboard, though, and David Davis is probably right that it’s unnecessary.
  6. Strikes do cost money, though some might have a surprising upside too. Between 2011 and 2014 (inclusive) about 3 million days worth of labour were lost directly because of strikes. That’s costly and does not include the time lost from people working from home, leaving work early, coming in late, etc. (Giles Wilkes points out that over the same period 520 million days were lost to illness. With that context, 3 million doesn’t sound very high.) But there may be surprising upside too – a Cambridge paper released today says that the February 2014 tube strike was a net positives in efficiency terms, because 1 in 20 people who found a new route to work stuck with it after that, and the long-term savings to them from that outweigh the daily losses to the other 19 in 20 workers. I’m not sure if that scales to other strikes, but it’s quite a nifty finding either way. (NB: I haven’t read the full paper yet, so I can’t vouch for it.)

So, voluntary cooperation works again then

There really is, as Garret Hardin pointed out, a problem called the Tragedy of the Commons. When a resource is exploited on an open access basis (ie, a Marxian one) and if demand on that resource is greater than the regeneration capacity then some form of management is required or the resource will be exhausted. In the modern era this means that the bureaucrats get to write lots of regulations. However, as Elinor Ostrom went on to get the Nobel for pointing out, it doesn’t have to be this way:

The local Vezo people subsist, on average, on $1.72 a day, well below the $2 a day official poverty line, and depend on fishing. After detailed discussions with the charity .and in village meetings, they decided to institute a series of two to three month closures of just a fifth of their octopus fishing areas, to give stocks time to recover. Just a single, experimental such closure, in 2004, has so far been followed by more than 100 others along the southwest coast.
The results, the study shows, have been dramatic. Octopus catches in the month after the closures – carried out under traditional laws, and enforced by the local communities themselves – are seven times as great, on average, as in the month immediately before them. Partly this is down to a big influx of fishers to the newly reopened areas, but – even so – individual catches almost doubled. Average incomes shot up by over 130 per cent, and did not fall significantly during the closure periods because the people then directed their efforts to the 80 per cent of their areas that remained open.

An octopus fishery is hugely well suited to such a system. Relatively short lived creatures (perhaps 6 months in the wild) and they usually die shortly after their one mating extravaganza. But Ostrom’s point was much more than that, it was that voluntary cooperation, in a group small enough to be able to cooperate properly (up to some few thousand people perhaps), can indeed solve these sorts of problems. Perhaps, as here, people might need to be told how to do it but that’s fine, none of us know everything.

Of course, as all three of Hardin, Ostrom and Coase have pointed out, not all problems of this type can be so solved. Which means that our necessary trick is to work out which ones can be and to leave those to voluntary cooperation to solve. Those that absolutely do require government intervention (which would need the cooperation of tens of millions perhaps, thus requiring that element of compulsion that only government does have) would, well, they’d need government action.

That is, we should be cutting government back to only those things which must be done and which can only be done by government. The rest of it, the stuff we can do for ourselves, we’ll get on with ourselves.

Notes from a ‘slum-dweller’

Yesterday was quite a heavy one for the ASI Twitter accounts, with what seemed like the world and his politically-correct wife piling onto one the student winners of our ‘Young Writer on Liberty’ competition for his suggestion that Britain could benefit from the creation of slums.

Clearly, ‘slums’ is an evocative and emotionally-charged word: As the author conceded, there probably wouldn’t have been any pushback if he’d just titled the piece ‘Britain needs more microflats for dynamic urban communities’. And perhaps the title was ultimately misleading, because the post didn’t actually agitate for open sewers, no electricity and dysentry for the UK’s most vulnerable, but instead relaxing restrictions on the type of homes which may be built. Still, the competition asked for bold and original thinking, and that’s exactly what we got.

A common response to the article was (in more safe-for-work terms) ‘Pah! I’d like to see the author actually live in the kind of odious accommodation he calls for!’, and other retorts based on the idea that living in a sub-regulatory optimal stock of housing would in fact be unbearable. So, at this point I’d like to take one for the team, and say a few words in defence of slums. For, you see, I’m something of a ‘slum dweller’ myself. (You know what, I very much object to suggesting that where I live is a ‘slum’. But it fits the definition by reference of the original article, namely housing which fails to meet ‘acceptable’/ legal living standards, and would be labelled as such by critics).

I’m part of a growing group of ‘property guardians’, who protect and look after a range of disused buildingsfrom houses to churches to schools and offices—while they’re unoccupied and waiting to be refurbished, demolished or repurposed. With the company I’m a guardian for, none of the properties have gas, and they have only limited hot water points. They’re unfurnished, often with stripped-out floors, walls and kitchen equipment.  When they first come to be occupied they’re usually grimy and dirty, with broken light fittings and rubbish left by the original inhabitants. And, perhaps most controversially, guardians only need receive two weeks notice before they can be kicked out of their current place.

Most people instinctively recoil when they hear all this. But in exchange for these kinds of conditions, guardians get a place to live at far-below market rent, often in a prime location, and with a amount of living space otherwise unobtainable.

I’m currently living in an old library-cum-theatre-cum-community space in South-East London (see picture above), which was initially inhabited by squatters after the council closed it down. The first guardians to move in reported mouse droppings (from cannibalistic mice, it turns out, for they proceeded to eat my taxidermy collection), people’s urine and general filth. It’s covered in warnings about the asbestos, and we wash in temporary showers by the old cubicled toilets.

There’s no way in hell that these kind of properties would get built for human habitation.

You wouldn’t be able to put a tenant in one, either: The property guardian business only works by circumventing all the regulations and restrictions which apply to the rental market, instead registering guardians as live-in security and granting them a ‘temporary licence agreement’ for a particular room.

But instead of being trashed as exploitative and unconscionable, these property management companies (rightly) win awards for the innovative and socially beneficial service they provide. In London, such schemes are so oversubscribed that prospective guardians sometimes literally race to a new property to claim a space in it. I genuinely love being a guardian.

I’m lucky: I could afford a decent room in a normal flat, but I’d honestly just rather not spend close to 50% of my pay packet on one. The people I live with range from students to freelance artists to young professionals, some of whom have also signed up for the ‘luxury’ of lower rent and the excitement of living in unique spaces. For others, the scheme has allowed them to move to London to study or set up their business; an opportunity they otherwise wouldn’t have been able to afford.

That’s the kind of chance we want more people to have. Property guardianship will only ever be a niche offering available to some, while the current system restricts the type and level of further experimentation that can be done with alternative living setups.

The point of this post isn’t to prove that those with lower incomes can get by in far lower living standards, thankyouverymuch. Instead, it’s to show that there already is clear demand for affordable housing which doesn’t conform to current rental standards, and which may fall below the ‘acceptable’ or accustomed living standard for much of the population.

There’s more than one thing we can can do to help the UK’s housing crisis, some of which are more long-term or politically palatable than others. Personally, I still think building over some of that damn green belt is the best way to go. But underneath the clickbait title of Wednesday’s piece, there’s more than a kernel of truth to the idea that given the choice, some will willingly tradeoff regulations and protection for rent. And I’m one of them.