An alternative ‘Agenda for Hope’

Owen Jones has written a nine-point ‘Agenda for Hope’ that he argues would create a fairer society. Well, maybe. I’m not convinced by many of them. Then again, it would be quite surprising if I was.

But it got me thinking about what my nine-point agenda would be — not quite my ‘perfect world’ policies, but some fairly bold steps that I could just about imagine happening in the next couple of decades. Unlike Owen’s policies, few of these are likely to win much public support. On the other hand, most of the political elite would think these are just as wacky as Owen’s too.

Nine policies to make people richer and freer (and hopefully happier):

1) The removal of political barriers to who can work and reside in the UK. Removing all barriers to trade would increase global GDP by between 0.3% and 4.1%. Completely removing barriers to migration, though, could increase global GDP by between 67% and 147.3%. Those GDP benefits would mostly accrue to the poorest people in the world. We can’t remove these barriers everywhere but we can show the rest of the world how it’s done. Any step towards this would be good – I suggest we start by dropping the net migration cap and allowing any accredited educational institution to award an unlimited number of student visas.

2) A strict rule for the Bank of England to target nominal GDP instead of inflation, replacing the discretion of the Monetary Policy Committee. Even more harmful than the primary bust in recessions is what Hayek called the ‘secondary deflation’ that comes about as people, fearing a drop in their future nominal earnings, hold on to more of their money. That reduces the total level of nominal spending in the economy which, since prices and wages are sticky in the short run, leads to unemployment and a fall in economic output. NGDP targeting prevents those ‘secondary deflations’ and would make economic busts much less common and harmful. In the long run, we should scrap the central bank altogether and replace it with competition in currencies (see point 9, below).

3) Significant planning reform that abolished the Town and Country Planning Act (which includes the legislation ‘protecting’ the Green Belt from most development) and decentralised planning decisions to individuals through tradable development rights (TDRs). This would give locals an incentive to allow new developments because they would be compensated by the developers directly, allowing for a reasonably efficient price system to emerge and making new development much, much easier. The extra economic activity from the new home building alone would probably add a couple of points to GDP growth.

4) Legalisation of most recreational drugs and the medicalisation of the most harmful ones. I think Transform’s outline is pretty good: let cannabis be sold like alcohol and tobacco to adults by licensed commercial retailers; MDMA, cocaine and amphetamines sold by pharmacies in limited quantities; and extremely dangerous drugs like heroin sold with prescriptions for use in supervised consumption areas. The sooner this happens, the sooner producers will be answerable to the law and deaths from ‘bad batches’ of drugs like ecstasy will be a thing of the past. Better yet, this would bring an end to drug wars like Mexico’s, which has killed around 100,000 people in the past ten years.

5) Reform of the welfare system along the lines of a Negative Income Tax or Basic Income Guarantee. As it is, the welfare system disincentivises work and creates dependency without doing much for the working poor. A Negative Income Tax would only look at people’s incomes (not whether they were in work or not in work), reducing perverse incentives and topping up the wages of the poorest earners. This would strengthen the bargaining position of low-skilled workers and would remove much of the risks to workers associated with employment deregulation. Of course, the first thing we should do is raise the personal allowance and National Insurance threshold to the minimum wage rate to give poor workers a de facto ‘Living Wage’.

6) A Singaporean-style healthcare system to replace the NHS. In Singapore, people have both a health savings account and optional catastrophic health insurance. They pay a portion of their earnings into the savings account (poor people receive money from the state for this), which pays for day-to-day trips to the doctor, prescriptions, and so on. The government co-pays for many expenses but the personal cost disincentivises frivolous visits to the doctor. For very expensive treatments, optional catastrophic health insurance kicks in. This is far from being a pure free market system but it is miles better (cheaper and with better health outcomes) than the NHS. (By the way, if you really like the NHS we could still call this an ‘NHS’ and still get the superior system.)

7) A school voucher system and significant reform of the state education and free schools sectors. This would include the abolition of catchement areas and proximity-based admission, simplification of the free schools application process, and expansion of the free schools programme to allow profit making firms to operate free schools. These reforms, outlined in more detail in two ASI reports, would increase the number of places available to children and increase competition among schools to drive up standards.

8) Intellectual property reform. As both Alex Tabarrok and Matt Ridley have pointed out, our IP (patent and copyright) law is too restrictive and seems to be stifling new innovation. Firms use patents as barriers to entry, suing new rivals whose products are too similar to their own. In industries where development costs are high but imitation costs are low, like pharmaceuticals, patents may be necessary to incentivise innovation, but in industries like software development where development can be cheaper than imitation, patents can be a terrible drag on progress. Tabarrok recommends that we try to tailor patent length in accordance with these differences; as a sceptic about our ability to know, well, anything, I’d prefer to leave it to private contracts and common law courts to discover.

9) Last but not least, the removal of the thicket of financial regulation and the promise of bailouts for insolvent banks. Known as ‘free banking’, this system of laissez-faire finance has an extremely strong record of stability – though bank panics still occurred in free banking systems, they were much less severe and rarely systemic. Only once the government started to intervene in the financial system to provide complete stability did things really begin to go wrong: deposit insurance, branch-banking restrictions, and other prudent-seeming regulations led to extremely bad unforeseen consequences. The financial crisis of 2008 probably owes more to asset requirements like the Basel accords, which heavily incentivised banks to hold ‘safe’ mortgage debt over ‘risky’ business debt, than anything else. Incidentally, the idea that having a large number of local banks is somehow better than having a few large banks is totally wrong: during the Great Depression, 9,000 of America’s small, local banks failed; at the same time not one of Canada’s large banks failed. The small banks were more vulnerable because, unlike the big banks, they were undiversified.

Now, if only there was a think tank to try and make these dreams a reality.

The net migration cap is hurting Britain

This morning’s Guardian carries a letter by the ASI, the Institute of Economic Affairs, the Institute of Directors, the Centre for Policy Studies, the Entrepreneurs Network and Conservatives for Liberty, on why we oppose the government’s migration cap. I wrote about why more free marketeers should care about immigration recently — we’re lucky that the UK’s foremost free market think tanks do.

The government’s net migration cap is hurting Britain’s economic recovery and long-term fiscal health. It can take around three months for a business to apply for a visa for a prospective employee, a significant unseen cost of the cap, and international firms may prefer to base themselves in countries where they can bring in staff from abroad more easily than they can in the UK.

Entrepreneurship is being affected, too: more than a quarter of Silicon Roundabout startup founders are foreign-born, and more than half of tech startups in California’s Silicon Valley are founded by immigrants. The cap on immigration is a cap on the innovative industries Britain needs to thrive.

According to the Office for Budget Responsibility, without net immigration of at least 260,000 people per annum, public debt will approach 100% of GDP by 2060 as we struggle to pay for a ballooning pensions and healthcare bill. Countless studies have shown immigrants create jobs, raise natives’ real wages and even boost productivity.

Public concerns about benefits tourism are legitimate but are better addressed by reforms that restrict access to the welfare state. The migration cap does not discriminate between the small number of would-be welfare tourists and the many people who would like to work productively to create a better life for themselves and their families. The cap is hurting Britain and should be scrapped.

Sam Bowman, Research director, Adam Smith Institute,

Mark Littlewood, Director general, Institute of Economic Affairs,

Simon Walker, Director general, Institute of Directors,

Ryan Bourne, Head of economic research, Centre for Policy Studies,

Philip Salter, Director, The Entrepreneurs Network,

Thomas Stringer, Director, Conservatives for Liberty.

Immigration controls are the new Corn Laws. Why don’t more free marketeers care?

If you had to name a single government policy that ruins the greatest number of lives, what would you pick? The 45p tax rate? Saver-hurting inflation? Green energy subsidies?

I’d say that the biggest one is the one that free marketeers are largely silent about: migration controls.

In 2011 Michael Clemens looked at the economic estimates of the global GDP growth that would come if every country in the world abolished restrictions on the movement of goods, capital and labour across national borders. According to the papers Clemens looked at, removing all barriers to trade would increase global GDP by between 0.3% and 4.1%; removing all barriers to capital flows by between 0.1% and 1.7%. Those are big gains that would make the world a substantially richer place.

Completely removing barriers to migration, though, could increase global GDP by between 67% and 147.3%. Think about that: simply letting anyone work anywhere could more than double global GDP. And that would be a long-term boost to economic growth, not a one-off. Even the bottom end of that, 67%, is an astonishingly huge figure.

It’s not as far-fetched as it might sound. As Clemens points out, workers can often create wildly different amounts of value by doing the same thing in different places (or doing them with different people). A taxi driver who might expect to make $1,500/year in a city in (say) Benin might be able to make $31,000/year in New York City by doing exactly the same thing. That shouldn’t be a surprise: bringing someone like Sergey Brin to work quickly, saving him an hour, is much more valuable in terms of his opportunity cost than, say, saving me an hour.

The institutions that most successful countries have are extremely valuable too. Corruption, instability and political uncertainty all have the potential to be extremely costly for firms, and they often prefer to pay a higher up-front cost in labour terms to locate their production in stable countries with good institutions. That’s one reason why Nissan still prefers to build some cars in Sunderland than Haiti: the institutions effectively boost Sunderlanders’ productivity enough to make their higher wages worth paying. If we let Haitians move to Sunderland, they could take advantage of those institutions and make a living for themselves too.

The counterargument will be that a Sunderland filled with Haitians will quickly stop being like Sunderland: Haitians might vote badly, or might be so culturally incompatible that the social institutions that are so important to Sunderland’s success, like trust, would break down and ruin things for everyone. That’s a valid argument and probably the main thing we should be talking about when we talk about immigration. But it’s also ambiguous: immigrants tend to have lower rates of crime than natives, and increased contact between immigrants and their neighbours can mostly overcome the cohesion problem.

But even if these arguments did prove to be true, they would be a case for country-specific immigration controls: even if Haitians proved to be too culturally incompatible to come to Britain en masse without undermining what’s valuable about Britain, that would not necessarily be the case for Chinese or Sri Lankans. If this seems ugly it is much, much less ugly than our existing blanket controls on immigration. Letting more people come to Britain should be the priority, not preserving the appearance of cultural neutrality.

What puzzles me is that my fellow free marketeers are often very indifferent (if not openly hostile) to policies that make it easier for foreign people to work in Britain. They cannot believe the economic claims that immigrants ‘steal jobs’ in an overall harmful way unless they also think that free trade does. There are many keyhole solutions to prevent immigrants from sponging off the welfare state. The cultural arguments, if they can be classed as such, are worth considering but certainly not so powerful that they invalidate the economic arguments. And free marketeers are usually pretty happy to let society adjust itself rather than try to engineer it to become or remain the way they like it.

Fundamentally, migration controls are not just laws about what foreign people can do, they’re laws prohibiting businesses from hiring people and property owners renting or selling to people who were unlucky enough to have been born in the wrong place. On the fact of it, these laws are so staggeringly invasive that no free marketeer could be comfortable with them; when you realise the economic costs it is amazing that anyone can tolerate them at all.

There are lots and lots of bad things governments do that ruin people’s lives. But few cause as much harm to the poorest people as the state controls of where people can work and live that we call ‘migration policy’. Even a marginal step towards a more liberal immigration policy would allow people to create an enormous amount of wealth, and probably do more good than almost any other possible policy. So why don’t more free marketeers start talking about it?

Post-mortem on migration debate

Last night I went to Bristol Freedom Society to debate Ryan Bourne, of the Centre for Policy Studies, over whether the UK should have open borders. It was very enjoyable, and while I won very marginally, convincing one person to switch sides from closed to open borders, I thought it was extremely close, and Ryan was certainly a very fluent and convincing speaker.

My main case was (a) restricting migration restricts extremely important rights, like the freedom to take a job you are offered and the freedom to offer a job to a desired applicant, (b) when we curtail these sorts of freedoms we need to have a preponderance of evidence that the costs are very high, (c) the economic evidence says immigration is pretty good for the recipient country, very good for the source country, and amazingly good for the migrant themselves, (d) the magnitude of the social/cultural impact (i.e. the effect of migrants on our institutions, customs, etc.) is unclear, (e) therefore, we ought to have open borders (or something very close to open borders).

Ryan’s counterargument centred on the claim that the benefits of restricted migration would not extend if it was unrestricted or close to unrestricted, because migration of certain amounts undermines the institutions that cause migration to benefit people at all. (It was more complex, but this formed the nub of the debate). As is suggested by my point (d), I think there is some plausibility to this argument, but I also think it is under-studied. I suggested this when we were able to discuss the points we’d made in our opening statements a bit more, and we had a lot of back-and-forth over the issue, but we didn’t resolve our disagreement. Without trying to guess at Ryan’s position or put words in his mouth, I will stake out three claims I think we must accept to have the debate within a rational framework.

1. All positions are on a continuum from complete open borders (as much gross immigration as non-natives wish/can afford) to complete closed borders (no gross immigration). Perhaps the best way of accurately describing positions is by how much migration they favour. Open borders advocates favour something close to 100% of the amount that would occur under open borders. Everyone else is somewhere on a spectrum from no gross migration to the 100% open borders case (past societies have also had forced immigration, i.e. slavery, so these aren’t the only theoretical positions, just the only persuasive ones.)

2. The supposed socio-cultural problems of migration come from particular numbers of migrants. No one thinks 5,000 migrants a year to a country the size of the UK will fundamentally undermine its customs, laws, institutions and so on. Many people think 5,000,000 migrants per year would. So to be anti-open borders you implicitly have to have an estimate of how much migration you think is going to occur. If open borders only led to 5,000 migrants per year, then almost no one would be against it. It is because open borders would be expected to lead to too much migration that people oppose it. This doesn’t change if it’s a question of probability distribution—then migration is opposed because it raises the chances of too much migration occuring to too high a level. Everyone must (at least implicitly) have an expected level of migration to oppose open borders.

3. Any claim that migration should be kept to a particular level, because of the risk of undermining British institutions, implies an assumption about how much damage the marginal immigrant does or will do (reliably or with some probability). One cannot cop out of the question, you need to have an answer. But no one has yet set out good evidence about exactly how much damage to institutions the marginal immigrant does or will dotypically arguments in this area depend on anecdote or things that people feel they “just know”. This won’t do when the benefits to immigration are so high. We cannot simply assume the cost to our institutions outweighs the other benefits.

I think once these three points have been accepted, there is a lot of room for good empirical work. But until they have, a lot of the migration debate will be unclear, vague, and people will be talking past one another.

The “Papers, please” immigration bill

In today’s City AM I highlight some of the worst parts of the government’s Immigration Bill. The Bill forces private citizens like landlords, nurses, wedding registrars and others to become de facto state informants, reporting anyone they suspect of being an illegal immigrant to the authorities:

But “papers, please” could soon become government policy. Whatever your perspective on migration, the Immigration Bill currently being debated in Parliament would turn thousands of private citizens into state agents, forced to report anyone they suspect of being an illegal immigrant. Almost every provision in the Bill will deputise some group of British citizens in this way, and would subject others to invasions of privacy.

Private landlords will have to run immigration checks on tenants, and will be at risk of prosecution if they fail to comply properly. The crackdown on “sham marriages” will expose more Britons to investigation. Marriage registrars are already required to report “suspicious” marriages to the state, but this Bill will double the period during which couples are under threat of being reported. Any Briton hoping to marry a non-EU citizen is open to investigation, and there will inevitably be mistakes that remove protections from legitimate couples.

Though concerns about health tourism are legitimate, the actual cost is tiny:

This week, it was reported that the NHS spends £2bn on treatment for temporary migrants in the UK. But most of this is on those, like students and temporary workers, who are already paying tax here.

The cost of actual health tourism – people coming to the UK specifically to get health treatment – is estimated by the government to be £70m, or 0.06 per cent of the NHS’s annual budget. Enforcing tighter controls may seem attractive. But if the cost is greater than the amount of money it saves, it doesn’t make sense.

Read the whole thing. I’d be interested to hear people’s views in the comments.