The mercantilists strike back

Professor Dani Rodrik at Harvard University has offered up a challenge for free market liberals. He is openly, and unashamedly mercantilist: the very ideology that Adam Smith originally set out to defeat back in 1776. While rejecting the historical obsession with amassing precious metals, Rodrik proposes a mercantilist alliance of government with corporations towards common objectives like economic growth.

Swatting aside accusations of cronyism, he offers two reasons to be mercantilist. Firstly, he claims that it works: the recent Asian experience of modern economic growth suggests so, along with the fact that classical liberalism only became dominant in Britain around the 1840s, after it had already started to industrialise. But both of these claims are dubious at best. Regarding the Asian economies, most of them are experiencing catch-up growth, skipping stages of invention. For example, they needed only to import smartphone technology, rather than going through the painstaking process of inventing every single model of mobile phone from the clunky ancient ones to the iPhone. The adoption of capitalism they experienced was not the alliance of the state with business, but the openness to adopting ideas. Indeed, countries like Japan who have recently caught up now experience stagnation. The mercantilist structure does not seem to be quite so conducive to sustained, original innovation, and hence modern economic growth.

As for the British experience of the Industrial Revolution, the original technical innovators, Rodrik's claim does not imply that mercantilism is the better system. Just because the British state did not adopt a liberal attitude to innovation until the 1840s does not necessarily mean that pro-innovation liberalism was not already in action before the Establishment adopted it. If anything, the liberal view is the anti-Establishment view. It wasn't in state-subsidised or state-monopolised industries or businesses that the unprecedented innovation took place. If anything, the much-admired cotton industry of the time had to operate despite protectionist laws like the Calico Acts. Similarly, the invention and increasingly sophisticated application of steam power had almost nothing to do with the government whatsoever. We also have a useful comparison, as post-Revolutionary France was desperately intent on copying the British industrial experience. Yet despite massive subsidies, early attempts consistently failed.

Secondly, Rodrik says that under mercantilism, it is producers rather than consumers who are king. He claims that mercantilists subsidise liberals' vaunted consumption. The obvious question is "Why?" What is the purpose of production if not to satisfy someone's wants or needs? Even people who value work for work's sake are "demanding" the production of something that meets those values. What is the point of having an economy, of interacting and exchanging with others, if not to acquire value for yourself? This does not necessarily mean that you are some selfish miser, obsessed with money, but includes the whole panoply of values you can hold, from equality, to community, to family and to love. If Rodrik's mercantilist challenge is to have weight, he needs to explain what the point of production is, if not to satisfy demand.


European Students for Liberty Conference 2013

On March 8th-10th, European Students For Liberty (ESFL) will present the second ESFL Conference, hosted by the Classical Liberal Students Association at the Catholic University of Leuven (15 minutes away from Brussels) in Belgium. Inviting students, graduates, and guests across the continent, ESFLC will feature lectures from scholars and activists in the liberty movement, free meals, books, pamphlets and campus swag for student groups to take back to their universities. Students will be able to connect with top liberty organizations to find information on internships, jobs, seminars and conferences at the liberty fair. Evening socials with speakers and students will top off Friday and Saturday nights in the Leuven area for lively discussions and good cheer for liberty.

Confirmed speakers include James Turk of the GoldMoney Foundation, Tom Palmer of the Atlas Network, David and Emily Skarbek of King’s College, entrepreneurs like John Chisholm and Daniel Model, and more. A lively student debate on rival concepts of liberty will give students an exciting and thought-provoking opportunity to engage with their peers. ESFL invites all students to participate and join the largest pro-liberty network among young people across Europe. With registrations currently spanning over twenty five countries, this will be a prime opportunity to forge new friendships, share ideas and further advance key debates and conversations about the philosophy of liberty. All conference details and registration information are located on ESFL’s conference webpage.

Seats are going fast, so those interested should reserve their spots sooner rather than later! We expect more than 300 friends of liberty to come to the ESFLC. The ESFL team is looking forward to seeing you and your friends in March!  Gathering the brightest young minds interested in liberty helps bring us one step closer to a free academy and a free society.

Check out last year's conference video.

When: 8th-10th of March 2013

Where: Leuven, Belgium. Located 15 minutes outside of Brussels

Conference fee: 30 Euros students / 45 Euros non-students (until 31st of January). Late registration: 40€/55€

Your registration fee includes: all meals provided, three days of speakers, Liberty Fair, networking, and awesome socials

Expected number of participants: more than 300

Conference website and registration link: ESFL’s conference webpage

For more updates please check out Facebook and Twitter.

To spark a shale gas revolution, shift mineral rights from the Crown to landowners

Shale gas seems to be sparking an energy revolution in the United States, but has made little traction in the UK. In his column for The Scotsman yesterday, Peter Jones discussed the main problem with shale in the UK compared with the US:

The big reason was succinctly put by Charles Hendry MP, when he was energy minister: “The situation here is very different from that in the United States, where, for example, landowners own the mineral rights beneath their homes. That is not the case in this country, so there is not the same economic driver.”

Discussing this recently with two Scottish economists, Gavin McCrone and Donald MacRae, the answer suddenly occurred to me. Why don’t we create the economic driver?

Simply put, we could do that by changing the law so that the rights to minerals in the ground under our feet belong, not to the Crown (ie, the government) but to the landowner. Scotland, why have onshore wind turbines multiplied? Partly, it is because the owners of the land on which they sit, mostly moorland with otherwise little economic value, get an annual rent with payments also often going to nearby communities. Without that income, I doubt that the onshore wind industry would be half the size it is.

By changing the law, the same could be done to popularise shale oil and gas.

It's an interesting idea. Of course (as Peter admits), it would be over-optimistic to hope that such a move would yield as much gas as it has in parts of the US, but it would give people more of a reason to look.


EU renegotiation: UK must play hardball, with referendum threat

There is talk of Britain renegotiating its relationship with the European Union, and the ‘in’ and ‘out’ lobbies have been marshalling their troops. But a report for the Adam Smith Institute concludes that, whichever outcome it prefers, the British government needs to raise its game to get anything at all from the talks.

In Britain and the EU: A Negotiator’s Guide, City analyst Miles Saltiel says the Prime Minister should not rely on civil servants with EU ‘form’ but instead recruit ‘tag-teams’ of hardened negotiators who have ‘iron discipline’ and the stamina to survive gruelling late-night bargaining sessions. They will need the backing of experts in law, economics, politics and negotiating psychology;, and must be prepared to use not just the media and public opinion, but the ‘dark arts’ of every aspect of negotiationing too.

Saltiel asks how much commitment the government is willing to invest in the renegotiations. If the UK really wants to stay in, will it challenge the other side enough? Will its team be full of tough negotiators who can look at what’s offered objectively, or ‘old Europe hands’ who will easily fold? Will it be prepared to play hardball?” Will it threaten a referendum if deal-breaking conditions are not met?

Britain’s best negotiating chip is that it is not getting enough tangible benefits in return for giving up sovereignty. Specifically, the EU has not yet delivered a free market in services – crucial to the UK because of its large financial sector. Its negotiators should set a deadline on this, and other failures.

Saltiel, an experienced international negotiator, says that the government must be prepared to stand on the brink, even if it does not want to step over it. To strengthen its hand, it should hold two referendums. The first would provide a mandate to renegotiate, and would set a deadline to prevent the talks dragging on indefinitely. The second would seek voters’ approval of the eventual deal – or their permission to get tougher if the negotiations are stalled.

Analysing the arguments and counter-arguments that will be raised on the key issues, Saltiel says that the UK needs to marshal its opening, fallback and hardball positions, and will achieve little if it is not prepared to play hardball.

But would a hardball threat to pull out of the Union be credible? There would be disruption in terms of diplomacy, trade, investment, business and consumer confidence, he warns. But on most fronts, he concludes, Britain could survive out of the EU, given “good luck and good management.”

Download the report


Congratulations to Sam Bowman!

The ASI's Sam Bowman has topped Lib Dem Voice's poll to select "Liberal Voice of the Year," beating off stiff competition from rivals such as Hugh Grant and Rowan Williams.  While this is by no means a Nobel Peace Prize (such as was won by Al Gore, Barack Obama and the European Union), it is nonetheless important recognition of Sam's brave stance for free market social justice, immigration, drugs law reform, equal marriage, and his opposition to bank bailouts.  Sam has tirelessly appeared on numerous radio and TV programmes as the voice of liberal sanity and decency amid a cacophony of intolerance and pack-hunting populism.  It is recognition, too, for the ASI's continued commitment to a libertarian free-market stance at a time when others pursue witch-hunts against business people and other wealth creators.  Bravo Sam; it's a well-deserved honour.

Two cheers for the new state pension rules

The new state pension arrangements announced this week follow the recommendations of a 2004 Adam Smith Institute report by the actuary Alan Pickering. We had to wait eight years, but at last the bureaucracy has got there.

The current state pension system is absurdly complex and out of date. It has two different components, a basic pension and an earnings-related pension. You might think that the idea of the state pension is simply to keep retired people out of poverty and give them a decent income. But no. If you earn more, you pay in more and get a bigger pension. Nice for the higher earners. But even with that supplement, your pension still won't be enough to live on and you are forced to supplement it with welfare. If you save for yourself, you will of course lose that welfare supplement because of means-testing. It's a system that seems almost designed to trap people in poverty and make saving pointless.

Meanwhile the arrangements for women also reflect a postwar world in which women were expected to be dependent on their husbands. This has disadvantaged women who take time out to look after children or elderly relatives: without a full set of national insurance contributions, they get an even smaller pension.

Oh, and actually higher earners can contract out of the earnings-related bit and do their own thing instead. Simple, huh?

The new arrangement, starting in 2017, will provide a simple flat-rate pension that will be higher than the means-tested welfare floor. So if you save for yourself, you will get the reward for doing so. There are credits for those who cannot pay national insurance contributions because of their responsibilities as carers. It is a lot simpler, and it does what the state pension is there for: to make sure that people save enough during their working lives to allow them to live decently and not have to rely on the welfare support of taxpayers.

Generally the state should not force people into saving – it should be their decision – but when you have a welfare system, problems arise if you do not. If you are going to force people to save, you should do it in a simple way that does the job and no more. The new system will be very much simpler and will achieve the basic aim without trying to do more and getting everyone in a bureaucratic model.

So, from 2004 to 2017…by current standards, thirteen years is pretty short time for a good idea to actually come into effect in legislation. Bad ideas usually get through a lot quicker. A muted cheer.


More Quantitative Easing will be a sign of real trouble ahead

Fund manager and commentator Liam Halligan argues much the same as we do in a paper by Robert Miller due out later this month – that the first bouts of Quantitative Easing might have been wise, but any more could prove highly destructive.

The argument actually goes back to Hayek, who of course devoted many years of his career to the study of boom-bust cycles. These cycles, he concluded, start with the central bank easing credit – say, by keeping interest rates too low. That makes loans and mortgages cheaper, so householders buy bigger houses and businesspeople invest more on plant and equipment. But at the same time, low interest rates put off savers, and the funds needed for all this investment dry up. There is a crisis, and then a painful recession as investments are written off, house prices fall and productive equipment is sold for scrap.

What Miller explains elegantly in his forthcoming paper is how the banks amplify both the boom and the subsequent bust. That is because of the 'fractional reserve banking' system. When you pay money into your bank account, the bank keeps only a tiny amount on hand and lends out the rest to businesses. When those businesses buy equipment (say) from their suppliers, the suppliers pay that money into their account too. The bank keeps only a tiny amount on hand and lends out the rest to... well, you get the idea, it's a spiral. In fact, if the banks keep on hand just 3% of each deposit (as the Basel rules allow), then your original £100 turns into £2,219 of deposits after just 36 cycles. And when things turn sour and they start those same loans, exactly the reverse happens.

So the banks can create money out of thin air – and destroy it again – exaggerating the boom and the bust. That is why the Bank of England and the Fed reached for Quantitative Easing to repair the sudden post-crisis fall in the quantity of money. In so doing, they might well have saved us from a damaging depression.

So if Quantitative Easing can stop us going down, can more of it float us upward? No, says Hayek. In the boom, people invested their capital in the wrong places. More money will not do any good until productive assets are re-shuffled into more realistic uses. It just prolongs the problem. So if you see the authorities reaching for Quantitative Easting again, you can be sure that things are going to get worse, not better.

Let's get medieval about paying MPs

Our Honourable and Right Honourable Members of Parliament are offering us one of the less wholesome sights in politics: the discussion of how fat they should wax upon our money once again. Unsurprisingly for a group who get to decide themselves about how much of our money they should be paid the answer seems to be "more". More than they have been paid and more than almost all of us earn: earnings that must be scalped to pay them.

It's not an edifying sight their trotting out the usual arguments. They're terribly important so they should be well paid. I am particularly amused by their insistence that higher pay is needed to attract the "right types". They're too dim to understand that if higher pay is indeed needed to attract the right types then this obviously means that the current pay is insufficient to attract the right types. Which is why we've got the bozos we do, namely those arguing that their pay is too low to attract the right types.  All those MPs thus making this argument are people arguing that they themselves should not be MPs. Which they may well be right about of course.

Given my own increasing age I am becoming increasingly convinced of the righteousness of the old ways of doing things. I would thus suggest that we should get properly medieval on the subject of political pay. Not quite to the extent of determining the sum in groats but certainly to adopt the method of determining how many groats it should be.

Simply abolish payment to MPs from central tax funds. Indeed, abolish payments to MPs from taxation altogether. My thanks to Mr. Dillow for having found this parliamentary document upon the historical pay of MPs. From which we get the following:

Payment of Members of Parliament can be traced back as far as the 13th century, when the shires and boroughs allowed their representatives certain wages for attending Parliament; knights received four shillings a day, and citizens and burgesses two shillings a day for the duration of the Parliament.

In modern terms this would be the constituency itself paying the constituency's representative. This of course is as it should be. Rather than some deduction from central funding the link between MP and the represented would be immensely strengthened by such a system. Local and regional variation would inveitably follow:

For example, in 1296 the two Aldermen representing the city of London were paid ten shillings a day and, in 1463, the Borough of Weymouth paid its burgesses with a wage of five hundred mackerel.

I admit to finding the thought of Richard Drax being paid in mackerel amusing. But over and above the amusement there is an important point here. MPs are not the centre's appointees over us. They are our appointees over the centre: we should thus be paying them directly, at the rate we approve of and are willing to dig into our pockets to provide. Their pay should not be some abstraction from central funds at all.

Another way of putting this is that we should reverse the nationalisation of how politicians are paid. This would truly be a return to a welcome localisation.

I see one further glory in such a system. There are plenty of constituencies where the election result is a foregone conclusion. It is the nomination proicess for one or another party that actually determiners who the MP is. By demanding that, even after such a pocket borough process, pay for the MP must be raised, directly and voluntarily, from the constituents we would produce a welcome diminution of party political power in our democratic processes. If some ass with a blue rosette, donkey with a red, does indeed get imposed by the central party machine they've still got to be competent enough to convince the provincials to actually pay them.

I am also convinced by this argument:

In general, the payment of Members by their own electors had ceased by the end of the 17th century. Samuel Pepys' diary entry for 30 March 1668 remarks:

"At dinner ... all concluded that the bane of the Parliament hath been the leaving off the old custom of the places allowing wages to those that served them in Parliament, by which they chose men that understood their business and would attend it, and they could expect an account from, which now they cannot."

If it was a good enough system that old Sam would mourn its passing it's a good enough system for me to advocate its reinstatement.

Of course, this is partly a result of my increasing age and my consequent reaching back into history for examples of how much better it all was before it went to the dogs as a result of the youth of today. Give me a few more years and I'll be reviving millennia old ideas. Although for the life of me I cannot even at present see why a decently bred horse couldn't do a better job than some of the current executive so perhaps Caligula did have something apposite to teach us.

But even if this could be dismissed as just an old way of doing things, we are constantly urged to at least consider the wisdom of the ancients, aren't we?

Do you want the food to be wasted before it gets to the supermarket or afterwards?

We've another report telling us that just much too much food gets wasted and that we all must do something about it. The important something we must do being resolutely ignored by those who would comment on the report. This time the report comes from the mechanical engineers and here's the essential precis:

1. The UN Food and Agriculture Organisation (FAO) works with the international engineering community to ensure governments of developed nations put in place programmes that transfer engineering knowledge, design know-how, and suitable technology to newly developing countries. This will help improve produce handling in the harvest, and immediate post-harvest stages of food production.

2. Governments of rapidly developing countries incorporate waste minimisation thinking into the transport infrastructure and storage facilities currently being planned, engineered and built.

3. Governments in developed nations devise and implement policy that changes consumer expectations. These should discourage retailers from wasteful practices that lead to the rejection of food on the basis of cosmetic characteristics, and losses in the home due to excessive purchasing by consumers.

One is telling us that we people who know how to do these things should be aiding the poorer countries in building efficient food harvesting, collection, transport and distribution systems for food. You know, exactly the things that Tesco's, Sainsbury's, Morrissons etc know how to do and do: run supermarket supply chains.

Two is telling us that the poor countries have to let the supermarkets in to run these efficient supply and logistics changes. And three, well, three is telling us in the rich world that we've got to stop being oiks now that we've got reliable and efficient food supply and logisitics chains.

No prizes for guessing what Rose Prince went with:

We wasted far less food when there was no supermarket culture, when what we bought was the food we needed – as opposed to what is now skilfully marketed to us. It does not shock me so much as provoke anger to hear that, according to the Institution of Mechanical Engineers, we are throwing away half the food sold to us by supermarkets, worth some £480 a year per family. Put in context, there is even something obscene about the situation.

As that wise boat, Raedwald, pointed out, there something hinky about that waste number:

In fact the IME acknowledge that only a tenth of the £480 'worth' of food thrown away by each family is edible. That makes £48 a year. Or about a pound a week. But I guess the headline "British families throw away £1 a week each of edible food" isn't what they're after.

But that's not what is obscene. Nor even her delusion that £480 is half an annual food bill. No, the obscenity is focusing on the triviality of minor waste from the supermarket system when what the report is really saying is that the starving can and would be fed if only they had access to supermarkets. It is the very lack of this developed world food distribution system that is the problem for them.

Let's get everyone suffering from the problems of cornucopian wealth before we start worring about those problems of cornucopian wealth, eh? The time to worry about us being oiks is after they all have the opportunity to be oiks.