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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

Technology: the limitless resource

Written by George Layton | Monday 12 August 2013

Environmentalists say we must change our behaviour to save the planet and pass on something to our children.  They often pick symbolic targets designed to raise our awareness, even where they make an insignificant impact on the problem.  The behaviour they favour is less materialistic, in that we are supposed to moderate our wants and live simpler, slower lives.  Although many environmentalists ally with the Left against 'materialistic capitalism,' their prescription is profoundly conservative, disdaining the pace and complexity of the modern world.

In fact it is technology rather than behavioural change which will bring more certain results because there are, or can be, technological solutions to modern problems.  With CO2, for example, a variety of sequestration methods can isolate it from the atmosphere.  It can be captured and compressed for use in enhanced oil recovery. This has been very successful at the Salah Project in Algeria.  The compressed CO2, transmitted through pipelines, is injected deep below the Earth’s surface in saline formations or in depleted gas or oil fields.  This prevents it polluting the atmosphere.

Since some 85% of the world's energy is wasted, there is considerable scope for technological means of conserving it.  Engineering advances have made cars far more fuel-efficient than they were even a decade ago.  Much energy will be saved with the gradual switch to electric cars, and driverless ones promise further efficiency gains. These changes will help curb the emission of pollutants such as sulphur oxides, nitrogen oxides and carbon monoxide.  Technology gives us choices as to how our electricity is produced, with shale gas having less than half the pollution of coal, and pollution-free photovoltaic electricity on a steeply falling price curve.

Environmentalists tell us to produce less, but it will be more effective to produce more cleanly, with huge advances made in air scrubbers and pollution extractors already making production far cleaner than it was.  Cleaner production costs more, but as we become wealthier we become more able to afford the worthwhile gains it brings.  The behavioural changes proposed are not without cost.  Living more simply often means living with fewer choices.  Walking or cycling to work might seem more virtuous, but it uses time that might have been better spent.

What technology offers, in effect, is a morning after pill, a way of achieving all that we wish to achieve without having to pick up the consequences; the party without the hangover.  It is unlikely that humans across the globe will change their behaviour sufficiently to make measurable differences fast enough, but it is highly likely that creative imagination will make technological advances that solve our problems in other ways.

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Enterprise, rather than aid, will boost the development of poorer countries

Written by George Layton | Friday 09 August 2013

The Adam Smith Institute featured on Bono's website when he discovered that the ASI had advocated canceling poor countries' debts before churches and charities promoted the idea. Now Bono features on our site for his speech at Georgetown.  He said: "In dealing with poverty here and around the world, welfare and foreign aid are a Band-Aid. Free enterprise is a cure."

This is correct. Simply giving developing countries money often does not benefit them in the long term.  Even in the short term the aid often fails to reach the people who need it; some of it might diverted to a corrupt government.  And sometimes it might be a used to prop up dictatorial regimes.

Free enterprise is the cure because it can enable poor countries to generate wealth instead of depending on tiny transfers of it from richer countries.  Developing nations become wealthy by enterprise and trade, not by aid, and inward investment is a potent way of assisting this with a range of spillover benefits.  It boosts the business environment by assisting capital investment; around the world it accounts for about 15% of domestic capital formation.

The OECD points to its role in triggering technological advance. Technology is transferred from the developed country in four ways  - migration of skilled labour; the internationalization of research and development; horizontal linkages with competing companies in the same industry and vertical linkages with suppliers or customers in the developed country.  Inward investment also leads to human capital growth (or formation) and contributes to international trade integration.  The OECD concluded that inward investment benefits income and factor productivity growth more than domestic investment.

Critics point to repatriation of profits and low taxes paid by multinational investors, but they miss the point.  It is the profits and the low taxes that attract them to developing countries, and their economic activity creates jobs and infrastructure there and efficiently channels the countries' natural resources onto international markets.

Developing countries can play their part.  They can privatize the nationalized corporations often corruptly run by political cronies.  They can set up special economic zones as Deng Xiaoping did so successfully in China.  They can boost education as Singapore did early in its development.  They can create a tax-friendly environment to encourage more investment, and they can have low local income tax rates to increase domestic consumption to help fuel their growth.

The developed countries also have their role.  In addition to investment they can set examples of responsible corporate policies that respect property rights, treat their workers correctly, and keep clear of corrupt officialdom.  Most of all, they can open their markets to the goods produced in poorer countries and enable them to create wealth by trade, just as they did themselves when their own economies advanced.

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Self-sufficiency appeals to some, but the world gains by going global

Written by George Layton | Thursday 08 August 2013

Calls ask us to "buy local," supporting domestic industry and cutting back on "food miles."  The reasons advanced include saving fuel used in transportation, and not "exploiting cheap labour" in developing countries.  Self-sufficiency is, however, an expensive delusion.

This morning few of us draw our own well water to wash in.  Nor did we grow our own cotton and weave it into shirts.  We did not grow even our own wheat and combine it with “oaty goodness” to produce Cheerios. This is because we stick to what we can do, which is none of these things.

Specialization preceded globalization and is a major source of the world's wealth.  It involves producers doing what they do well, and producing more goods more cheaply that people could manage themselves.  Globalization extends it on a larger scale and to more peoples.  It gives domestic firms access to increased demand across the world, and it enables them to obtain lower cost raw materials and thus become more competitive and create extra jobs.  Consumers benefit, too, from lower prices that leave them more money to spend on other things.

Globalization means that firms can invest in overseas production, gaining the benefits of local skills for worldwide markets.  The Nissan factory in Sunderland, for example, represents inward investment of over £3.5 billion.  Meanwhile UK firms invest in production in developing countries, creating jobs there that raise the local standard of living.

Some blame globalization for the collapse of domestic industries, whereas what it did was to expose industries that were not viable without subsidies and protective tariffs.  Uncompetitive industries have indeed closed, and been replaced by ones that can hold their own on a world stage and sustain jobs that did not exist before.

Other critics bemoan the 'over-standardization' of global products, with the majority using Microsoft PCs or Apple computers.  It is true that globalization makes many standardized products widely available, but with economies of scale that keep them falling in price, and with access to improved communication achieved by using standard systems.

Nowhere are globalization's benefits more widespread than with food.  Our supermarket shelves are stacked with choices because the world is able to sell us their produce.  Many developing countries depend on food exports to improve the living standards of their people. And world hunger?  In the UK we import 50% of our food, and we produce more and cheaper food with 3% working on the land than we did when it employed 90%.  As modern farming methods spread and use land more efficiently, the world is producing more food and feeding more people.  Globalization helps poorer countries most of all, and it provides a viable way to close the development gap.   Self-sufficiency does not.

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The unnecessary burden imposed by the UK's "green" energy policy

Written by George Layton | Wednesday 07 August 2013

Green was traditionally the colour of money, but with UK and EU energy policy, it is increasingly the colour of cost. The renewables obligation requires UK energy producers to obtain a proportion of their output from renewable sources that are more expensive to produce, and these costs are passed on to energy users.  The renewables obligation now costs consumers £2 billion per year, and Bloomberg New Energy Finance predicts it will increase household electricity bills by 54% by 2020.  Inevitably this raises costs for business, causing some UK firms to lose competitiveness and limiting economic growth. The obligation costs firms about £2 per megawatt hour, double what the government thought it would cost by 2020, with further rises expected.

The EU bears some of the blame because its Renewable Energy Directive requires that 15% of the UK’s final energy consumption is from renewable sources.  This hits the UK worse than other European countries; our government estimates that we will bear 25% of the total EU-wide cost of the directive.

In addition to this are the subsidies given to green energy paid for by taxpayers.  Estimates put the cost to each household in Britain at £600 a year by 2020 unless the Chancellor reduces them. Taxpayers also fund the installation of environmentally friendly boilers up to the level of £2,300.  Such policies have led npower to estimate that the average household energy bill will rise from £1,247 to £1,487 by 2020, with energyhelpline even suggesting that it may rise to £2,000.

The carbon price floor, introduced in April this year at £16 per tonne of CO2 used for power generation, will increase gradually every year to reach the Treasury's goal of £30 per tonne by the end of the decade, and £70 per tonne in 2030.  This puts up the price of electricity; and because it is higher than in the rest of Europe it will drive heavy energy users out of the UK to the advantage of countries with lighter regulations. This so-called "carbon leakage" will cause a loss of jobs and tax revenue to the UK.

Environmentalists argue that fossil fuels are running out, and that a "green energy" policy prepares us for that, while combating global warming. But shale reserves now identified in the US and the UK indicate that gas is available with over 100 years of reserves at estimated use, perhaps more as extraction technology develops, and is cleaner than both coal and oil.  We are also learning how to use fuel more efficiently.  The implication is that the green energy policy is both expensive and unnecessary.  It will constrain our economic growth without achieving results commensurate with its burdens.

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GM foods will be vital in feeding the future world

Written by George Layton | Tuesday 06 August 2013

Prince Charles and eco-warriors rail against them, but genetically modified crops are becoming the superheroes of agriculture, and they have special powers. Some are being developed to be pest-resistant, potentially saving the 50 percent of crops destroyed each year by pests.  This means less pesticides, less run-off and less river pollution; this limits soil erosion, pertinent in developing countries where over-farming poses a greater problem. GM crops have avoided 200,000 tonnes of insecticide and the multiple sprays of fungicide that potatoes need. One promising development is of crops that will host nitrogen-fixing bacteria instead of needing vast quantities of nitrate fertilizers.

Drought-resistant crops including maize (corn) have been developed, important in developing countries with unreliable rainfall.  Ones that can grow on marginal land enable more food to be grown without cutting back rainforest.  Others resist elements in acidic soil, and some have been developed to mop up toxic chemicals and return polluted land to fertility.

GM increases yields using fewer resources (and chemicals) and with less pollution. And yield gains have been larger in developing countries. For example in Mexico a herbicide tolerant soybean has given a 9% yield increase; in Romania a similar one has averaged yield increases of 31%.  In the Philippines an insect resistant corn has averaged yield increases of 24%; in Hawaii a virus resistant papaya has increased yields by an average of 40% and in India an insect resistant cotton has led to yield increases of more than 50%. This confounds critics who allege that GM has yet to produce benefits; they are happening now.

GM crops are being developed to combat dietary deficiencies, notably the 'golden rice' that adds the vitamin A lacking in ordinary rice.  Since 670,000 children die from vitamin A deficiency each year, the potential is huge.  Although critics castigate GM crops as 'frankenfoods' that are unsafe to eat, there is no evidence to support this.  They have been around for 13 years, with 80% of US foods containing them, and without ill effects.  Undercooked food is riskier than GM food because it poses a real hazard.

Scientists estimate that world food production will need to be doubled by 2050, which cannot be done with conventional farming methods because there is insufficient land. However, if GM crops can increase yield on existing land and save much of the 50% lost to pests, the problem will be solved, and solved using less pesticides and fertilizers.  Ironically, GM offers the chemical-free farming lauded by environmentalists.  But GM is high tech and scientific, and they want us all to revert to simpler ways…

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The future is shale!

Written by George Layton | Monday 05 August 2013

The UK Energy and Climate Change Committee has stated that shale gas will not be a "game changer" in the future of UK energy, but they are wrong; it will be. The recent British Geological Survey report pointed to 1,300 trillion cubic feet of reserves, twice previous estimates. A recent study by the Institute of Directors found that the shale gas industry could generate 74,000 jobs and could supply up to half the country’s gas needs by 2030. Furthermore it could also trigger an investment boom worth £3.7 billion a year.  Given the location of most of the reserves, it could also be hugely beneficial in reducing the north-south economic divide.

Shale gas reserves in North America can provide gas security to US and Canada for the next 100 years.  Shale gas released by 'fracking' has brought energy prices tumbling and helped trigger an economic upswing in the US, and is helping the US to become a net exporter of energy in the future.

Since gas puts out half the CO2 of coal, the switch to gas from coal-fired power stations is enabling the US to cut its emissions.  The UK achieved similar results when it began switching from coal to North Sea gas, until this was halted under Labour.  Shale gas is arriving just as North Sea supplies diminish.

Environmentalists have mounted a massive campaign against shale gas because they favour the vastly more expensive renewables.  Shale gas is indeed a fossil fuel, but is a relatively clean one in abundant supply.  Despite scare campaigns alleging water pollution, the US Department of Energy's latest report, based on a year's monitoring of fracking in Pennsylvania, found no pollution of water supplies or groundwater.  And the earth tremors claimed by environmentalists are debatable, but even if true are so minor that they are roughly on the level of a bus passing in the street.

Shale will have geopolitical effects, reducing the West's reliance on energy from potentially unstable sources such as the Middle East and Russia.  Saudi Prince Alwaleed warned his country last week to diversify its economy in the face of a falling demand for its oil as the shale revolution develops.  Shale offers us secure energy supplies as well as lower costs for our industry.  Many environmentalists are committed to the 'live more simply' mantra, and oppose shale because it provides the means for continued economic expansion.  They are correct.  It is a game changer.

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