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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

The sale of Royal Mail was well handled

Written by Dr Madsen Pirie | Tuesday 01 April 2014

The National Audit Office, some of the media, and the Opposition (of course) are saying that the sale of Royal Mail was "too cautious" and lost "hundreds of millions of pounds" for the taxpayer.  This is nonsense, and its currency shows how little some people understand about privatization, or perhaps how much people have forgotten by not doing it.

It was the first major privatization in two decades, and the aim was not to raise the greatest possible sum for the government, but to turn a state-run corporation into a successful and flourishing private business.  This was always the aim of the privatizations of the 1980s and 1990s.  When the major state industries and utilities were brought to the stock market and put into private hands the aim was always to achieve a first-day premium so that investors would feel satisfied that it was a success, and feel confident about its future.

No-one knew what the "correct" price was for Royal Mail, any more than they did for BT, British Gas and the dozens of others.  Since they had not traded in the private sector, or had to attract private investment, no-one knew how they would be valued.  Government took expert advice knowing that it would be, at best, an estimate.  It covered itself by retaining a proportion of the shares so it could gain later from any increase in value.  In the case of Royal Mail it has retained 30% for later sale at a higher price.

The pricing was cautious, as it was in the earlier privatizations, because government wanted a successful launch into the private sector more than it wanted the highest possible price.  Privatization was always a political as well as an economic act.  Its major aim was to replace state ownership and direction of industry by commercial and (where possible) competitive private sector activity.  It did so because the private sector is exposed to improving disciplines absent from nationalized industries.

The threat at the time of a Royal Mail strike cast more uncertainty over the company's valuation, even though that threat was later withdrawn.  We now have a successful private company holding its own in a competitive market, a company that has become one of the UK's leaders, and one whose future prospects look good.  This was a successful sale, and those who carp about not gaining the maximum possible price simply do not understand what privatization is all about.  It isn't about selling off stuff for the top price; it's about building up companies that can thrive by providing goods and services in a dynamic competitive market.

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Ireland prepares to leave the bailout, after a policy of spending cuts and tax increases rather than the fiscal stimulus that some urged upon it

Written by Dr Madsen Pirie | Tuesday 15 October 2013

It's reported that the Republic of Ireland will leave the 85bn euro bailout package it undertook when its banks collapsed in 2010 by December this year.  Prime Minister Enda Kenny says that Ireland's 4.8% deficit next year will be well ahead of its 5.1% target.

This was done without the massive fiscal stimulus advocated by neo-Keynesians.  It was done by austerity.  The initial plan was for spending cuts to outweigh tax increases by 2:1, though the outcome has been more like 1:1. Ireland has cut child benefit, unemployment insurance, some health services and the capital budget for new buildings and roads.  Tax increases have seen a Universal Social Charge imposed as a surcharge on income tax, starting at 10,000 euros and ranging from 2% to 7%.  There have been increases in property taxes, effective income taxes and PRSI (their equivalent of National Insurance), and in VAT, plus a big increase in wine duty.

While unemployment has fallen, this is mainly down to emigration.  Even so, those leaving tend to acquire new skills abroad, remit funds home, and will probably return when the economy has picked up sufficiently.  Unemployment is about 13.5%, which, while high, is nothing like the levels seen in other bailout countries.

There are still problems, with the economy hovering in and out of recession and a mortgage arrears crisis that has 1 in 8 mortgage holders more than three months behind on payments.  Still, bad banks are being wound down and the future looks quite promising.  It was done by fiscal responsibility rather than fake stimulus, and Ireland firmly and bravely refused to give up its low corporation tax policy despite great pressure to do so, and thus remains an attractive location for business and expansion.

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The empathy that John Donne and Adam Smith had in common

Written by Dr Madsen Pirie | Monday 23 September 2013

Both John Donne and Adam Smith expressed the view that we empathize with our fellow men and women.  Donne said that "any mans death diminishes me, because I am involved in Mankinde."  A century and a half later in his Theory of Moral Sentiments Smith wrote, "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it."

Smith referred to this as a 'sympathy' for others, though in modern parlance we might call it an 'empathy' with our fellow human beings.  I share that feeling that Donne and Smith expressed.  I am not saying it is how people do feel, or how they should feel, although it may be either or both of those.  I am simply saying that it is how I feel.  I identify with other people in some respect simply because they are human.  I feel a kinship with them and an awareness that they are in some degree like myself.  It is not an empathy felt equally with all of them because its force declines with distance.  It is experienced most strongly with friends and family, then with those in my community, and it diminishes like the slope of a hill as it recedes from the summit towards those farther away.  But it never reaches zero, and I am with Donne and Smith in recognizing it for every human being.

We were all born in the same way.  We all cried, soiled our nappies and took warm comfort in our mother's milk.  We all learned by example and experiment how to make sense of the world, and to make our way in it.  We all seek to better our lot and to care for those who command a special place in our affections.  These experiences and impulses are common to humanity. 

These feelings of a common lot with others of our kind can be erased and overcome, alas with ease, by the fanaticism of a religion or an ideology, and we can be conditioned to regard others as less than human and unworthy of our respect and consideration.  But I think the default condition, expressed by both Donne and Smith, is that of a sense of fellow-feeling with others of our species, and a recognition that they share much in common with ourselves.

News of a distant tragedy moves us, not because we know or will ever meet those involved and affected by it, but because we feel a common sense of identity with them, an identity that derives only from our common humanity.  Donne spoke for himself, as I do, whereas Smith expressed the view that this general ability to project ourselves into the experiences of others "is a matter of fact too obvious to require any instances to prove it."  I believe, like Smith, that this feeling is the basis for the decent treatment of other people and lies at the bedrock of our relationships with others.

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The good news about world poverty and globalization

Written by Dr Madsen Pirie | Wednesday 24 July 2013

On my own website today I draw attention to the Economist story about the progress of world poverty between 1990 and 2010. I point out that:

"World poverty has halved in two decades. The measure used is the $1.25 a day of consumption that is the average poverty line for the 15 poorest nations. This figure shrank from 43 percent in 1990 to 21 percent in 2010. This was not achieved by redistributing wealth from richer countries, but by having wealth created in poorer ones by economic growth."

The ASI responded to the "Make Poverty History" wristbands that celebrities popularized in 2005 by pointing out that the slogan did not indicate how this might be done. It implied redistribution, with more aid to flow from rich countries to poorer ones.  We produced our own wristbands that read, "I buy goods from poorer countries," and sent them out free to anyone who asked for one.  We gave away many thousands. 

Our point was that poorer countries become richer if we open our markets and buy their goods.  It is this, rather than aid, that has made a difference to the lives of a billion people over those two decades, and can change the lives of the billion still to be lifted from poverty.

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Libertarian film screening of Brazil

Written by Dr Madsen Pirie | Monday 15 July 2013

Tom Stringer has arranged a really fun Saturday morning outing on Saturday August 3rd.  It's a showing of the movie "Brazil" in the Everyman theatre at 96-98 Baker Street.  There's a coffee bar for pre-movie snacks, and a real bar for those who can't wait for their gin and tonic.  Everyone's in for a treat, with most going along to local pubs afterwards for lunch with a pint.

"Brazil is set in a dystopian world in which there is an over-reliance on poorly maintained (and rather whimsical) machines. Brazil's bureaucratic, totalitarian government is reminiscent of the government depicted in George Orwell's Nineteen Eighty-Four, except that it has a buffoonish, slapstick quality and lacks a Big Brother figure."

Sign up quickly for this on the facebook page.  You won't want to miss the movie and the camaraderie of like-minded  fans.

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Professor Kenneth Minogue

Written by Dr Madsen Pirie | Monday 01 July 2013

Sadly Prof Kenneth Monogue has died. Born in New Zealand and educated in Australia, he taught at the LSE since 1959, eventually being appointed Emeritus Professor of Political Theory. He fought tirelessly and bravely for freedom at a time when it mattered most, and has a huge range of scholarly works to his credit, including "The Liberal Mind," "Nationalism," and "Alien Powers - The Pure Theory of Ideology." He made an important contribution to the understanding of ideologies, and took apart some once-popular ones with forensic skill.

He was a good friend and supporter of the Adam Smith Institute, along with other right-thinking think tanks. We knew him personally for over 35 years and enjoyed his wit and charm as well as his insight. He often attended ASI functions and was widely liked and admired by our members.

He was 82 when he died, having just attended and delivered a paper at a successful conference of the Mont Pelerin Society in the Galapagos Islands, which both Eamonn and I attended. He was a former President of the Society. He remained lively and alert to the end of his life and died quickly and among friends. His shrewd observations and mischievous sense of humour will be much missed.

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Three ideas that will not be in the Queen's Speech

Written by Dr Madsen Pirie | Wednesday 08 May 2013

I was on the Today programme on BBC Radio4 alongside Tom Papworth of Centre Forum.  John Humphrys asked each of us to nominate three pieces of legislation we'd like to have seen in the Queen's Speech setting out the government's priorities for the year.

My first was a bill to allow all employees of small businesses to be registered as self-employed.  This would create huge numbers of new jobs by lowering the non-wage costs borne by employers.  It would also reduce the paperwork they have to cope with, freeing up time to drum up more business, and keeping prices down by lowering their costs.

Secondly I proposed a bill to set the income tax threshold at the minimum wage level for an average working week, making it so that no-one earning less than that would have to pay income tax.  This would give the low-paid the so-called 'living wage' without it costing jobs by raising the costs to employers.  It would indeed involve lost revenue, but there would also be supply side effects as work became more attractive and significant numbers moved off welfare and into work.

For my third point I called for hard drugs to be medicalized, meaning available to addicts at clinics run by doctors and nurses, and for recreational drugs to be legalized.  I pointed out that the so-called 'war on drugs' was being lost, as it has been for half a century.  The new proposal would take the crime out of drug use.  I said I thought politicians would carry on doing more of what they knew did not work, but that more and more were admitting that a new approach was needed.

None of my proposals is in the actual Queen's Speech, but I am confident that at some stage in the future all of them will.

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Ten reasons why the Left should like the ASI, 7: Killing nanny

Written by Dr Madsen Pirie | Tuesday 07 May 2013

The Left should back the ASI's objection to having the state make decisions for working class people under the claim that it knows best what is good for them.

The ASI opposes the paternalistic notion that working class people in Britain are incapable of making their own choices.  People in authority, including many involved with the medical profession, often take the view that they know better than ordinary people and are therefore entitled to impose their choices.  They seek both laws and punitive taxes to constrain people into living the lives that 'experts' think they should live.  They ban indoor smoking and hide packets from view, and call for plain packaging and ever higher taxes, and justify all of this on health grounds.  The ASI view is that people are entitled to do unhealthy things if they wish, and while it is acceptable to warn them, the choice must be left to individuals to make.

The same applies to high taxes on alcohol and calls for minimum pricing and restriction on its advertising.  Again, health grounds are adduced, even though Britain is among the low consumers among EU members.  If people feel they derive sufficient pleasure from alcohol to justify any adverse consequences, that is a decision they can freely make.  It is no function of the state to treat them as children incapable of making choices for themselves.  Such an attitude is patronizing.

This is also true of foods deemed by experts to be unhealthy, including fats, salt, sugar and fizzy drinks.  There are proposals for fat taxes, for taxes on fizzy drinks and limits on the salt and sugar content of foodstuffs.  Labelling is acceptable so that people know what they are doing, but measures to force them into diets favoured by 'experts' demean and diminish the values of ordinary people.  These 'experts' never seem to consider that ordinary people, especially low-income people, might find that tobacco, alcohol and appetizing foods add interest and satisfaction to their lives.  These might be what some regard as unwise choices, but they are for people to make as adults, not as the protected wards of an over-mighty state.

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Calling on the affluent elderly to send back their benefits

Written by Dr Madsen Pirie | Tuesday 30 April 2013

Iain Duncan Smith, Secretary of State for Work and Pensions, has called upon wealthy elderly people who do not need benefits to return the money to the government.  His case is that the winter fuel allowance, the Christmas bonus and travel passes are handed out to the elderly without means-testing, so that some undoubtedly go to the comparatively well-off.  Iain Duncan Smith's plea calls to mind the recent paper from the Fabian Society calling for older people to pay more tax, since pensioner couples are in the top half of UK income distribution for disposable incomes, with 80% of them owning their own homes. 

There is no easy mechanism for the affluent elderly to return benefits, as a few celebrities discovered last Christmas when a high-profile campaign was started to encourage people to hand them back.  Even if significant numbers did return their benefits, it would amount to no more than a pinprick to the department's budget, having no more impact on real-world events than the tiny windmill David Cameron installed on the roof of his house.

Not many people think the government would make a better job of spending money than they could manage themselves.  Those who feel their comparative affluence does not entitle them to the benefits have the option of giving the money to a charity instead.  If they choose an appropriate charity, better use will probably be made of the money than the government could manage, given its record of profligate wastage. 

This assumes that a charity will be chosen wisely, of course.  It should not go to a charity that spends most of the money it receives on political campaigns for more taxpayer funds, or on advertising for yet more funds to pay for yet more advertising, all in the name of "raising awareness."  And of course it should not go to charities that spend huge sums on anti-business advertising instead of on actually relieving poverty.  Given these obvious caveats, the chances are very high that the money will be better spent than it would be by government.

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Figaro wonders why people are leaving France

Written by Dr Madsen Pirie | Monday 22 April 2013

The cover of Figaro magazine says it all.  “They are leaving for London, Brussels or New York,” it says, and asks, “Why are they leaving France?”  It then talks of “the ravages of fiscal banishment” and “the youngsters who leave to succeed elsewhere.” The young people shown seem to be happily waving goodbye to France’s punitive taxes.  It bears remembering that there are misguided people in Britain who tell us that taxes do not make people change their behaviour…

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