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A vision for the Liberal Democrats

By Alex Chatham
June 16th, 2017 at 1:28 pm | 2 Comments | Posted in Civil Liberties, EU, EU Politics, Free trade, freedom, Labour, Tim Farron

The Liberal Democrats are looking for a new leader. Tim Farron has stood down after leading the party through a General Election campaign and increasing the amount of MPs the party had in parliament. The party’s pitch during the campaign was to offer voters an alternative to Brexit. The party’s heart isn’t in leaving the European Union but instead of promising to reverse the process, they suggested a second referendum with an option to remain.

The voters took no notice.

This has led commentators and politicians to claim that two-party politics are back and third parties have had it. Perhaps. But we have heard this sort of thing before. We have also read about the death of the Labour party and demise of the Conservative party. Support for parties ebb and flow. The Lib Dems could yet again capture the popular imagination or at least influence debate and public policy.

To do that, the party needs a vision. There are many ways to go but it will come as no surprise that a post from this site suggests embracing free markets and free trade. That means a change of direction on Brexit.

The Labour party’s position on Brexit appears to be ‘we will do it, reluctantly’. The Conservatives are still arguing among themselves with a few voices offering a clear path to the exit doors. Could the Lib Dems pivot away from a slavish love of the EU and truly embrace internationalism?

Free trade creates prosperity. That is real free trade not  regulated trade or negotiated trade. With Britain out of the EU, its government can opt for trade deals with other countries which impose regulations or tarrifs or it could go for real free trade. No tarrifs, just let companies trade with each other. What a difference that would make to the economies of Africa. Right now, those African countries are penalised by the EU because EU countries protect their farmers. Ironic isn’t it that for all the criticism of Trump and his ‘America First’ mantra, the EU has been putting EU countries first for a long time. The Lib Dems could set out a vision for a free trading nation, managing migration to allow people with the talent and skills from all over the world to come and work in Britain, not just the EU, reform of its own markets to stop ‘crony capitalism’ which ensured open, free markets. Coupled with the party’s commitment to civil liberties and personal freedom, this new addition would make a distinctive offering to voters.

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Tories call on David Brent to save the UK economy

By Tom Papworth
July 27th, 2011 at 8:12 am | Comments Off on Tories call on David Brent to save the UK economy | Posted in Book Review, coalition, Conservatives, Debt, Economics, Liberal Democrats, Liberal Philosophy

Politics makes strange bedfellows; coalitions especially. In the 1970s the Liberals made a pact with socialists despite socialism being the antithesis of liberalism; in 2010 the coalition finds us in bed with Conservatives despite the Tories opposing liberalism for centuries.

Coalitions therefore require us to remind the voters how we differ from the parties with which we are aligned in government. This week a new report from the Conservative-leaning think tank Civitas reminds us of one crucial difference: the Tories have always opposed free trade.

Reviving British Manufacturing: Why? What? How? appears to be a throw-back to a former time, when the Tories banned wheat imports to protect the interests of their landed backers. Between fawning praise for Margaret Thatcher (“No one doubts Mrs Thatcher’s commitment to a market economy, [Er… Yes they do – Ed] but she was no market fundamentalist and her pragmatic patriotism is often forgotten“) Civitas suggest that the UK should indulge in one of the most fundamental economic blind-alleys in the Handbook of Bad Government: protectionism.

The reason that Civitas cite for this bizarre and dangerous policy is the UK’s balance of trade deficit, which measures the net flow of payments for goods and services into/out of an economy. Civitas argues that “We already have a balance of payments problem… With the annual trade deficit in goods now at a new record of £97.2 billion… only radical Government action will prevent Britain’s permanent decline as an industrial society“.

In fact, they later admit that the real trade deficit is £46.2 billion, but that they are choosing to ignore the trade-surplus from services. This is an absurd confidence trick, which ignores the fact that the UK’s comparative advantage is in services (Yes, even financial services! – try to contain your disgust). This attempt to make us focus only on one part of the economy is risible: I suspect that if one ignored manufacturing and focussed solely on services one could argue that China is running a trade deficit; if so, the politburo do not appear too bothered.

Even accepting that there is a trade deficit, this does not matter. As Milton Friedman noted, £100 billion is only of use to foreigners because it enables them to buy £100 billion worth of British goods. The pounds themselves are useless to them: “they cannot eat them, wear them, or live in them. If they were willing simply to hold them, then the printing industry – printing [pounds] – would be a magnificent export industry… [that] would enable us all to have the good things in life provided nearly free by the” nations foolish enough to swap perfectly good goods and services for paper adorned with the Queen’s face.

In fact, many foreign nations seem quite prepared to do that, and worse: they then lend the money back to the UK. This has created twin problems: on the one hand, it enabled us to buy even more of the good things in life (such as the public services spending splurge from 2001 to 2010), but only by borrowing against our future and that of our children. Secondly, it kept our currency high and theirs low, thus making our exports less competitive and theirs more attractive, and so exacerbating the balance of trade problem.

The solution, one might therefore think, is to stop borrowing the money. If they can’t lend it to us, they will have to spend it in the UK, and so we will achieve equilibrium in our balance of trade (but with a weaker pound). However, if you are a Tory think tank, there is an alternative: protectionism.

“the Government should encourage an increase in manufacturing output by about £10 billion per year”, the report argues, (why not £11 billion? 12 billion? What’s so special about £10 billion?), but crucially, this should not be done through promoting exports (itself dodgy, but now is not the time), but by import substitution: “exporting is costly… in the short run … it will be much easier to focus on the home market and out-compete importers.”

Import substitution is economic madness: not even Labour recommends this sort of thing anymore. It completely ignores the Law of Comparative Advantage(aka. the Ricardian Law of Association) and indeed undermines the whole basis of trade, which is specialisation and the division of labour.

And what are the four industries that Civitas wants the UK to specialise in over the next few years? Where should we focus our efforts, expanding domestic supply by throwing up walls to prevent cheap foreign imports?

In a companion essay, Civitas cite four particular industries that might not strike the average reader as particularly promising: Paper; Glass; Steel and Motor Vehicles. Admittedly, we have some good companies operating in each of these industries, but the idea that Wernham–Hogg paper merchants will become engines of the British economy is hopelessly naive.

Add to this the suggestion that Britain should establish a “Ministry for Economic Growth, focused purely on reducing the trade deficit through increasing production” (where to begin with this one?) and a tacked-on side-swipe at the European Union and you have a classic piece of Tory wonkery.

In 1962 Milton Friedman argued that “It is not too much to say that the most serious short-run threat to economic freedom… is that we shall be led to adopt far-reaching economic controls in order to ‘solve’ balance of payments problems. Interferences in international trade can seem innocuous: they can get the support of people who are otherwise apprehensive of interference of government into economic affairs… yet there are few interferences which are capable of spreading so far and ultimately being so destructive of free enterprise.”

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To buy local is loco

By Tom Papworth
March 2nd, 2011 at 11:39 am | Comments Off on To buy local is loco | Posted in Economics, International Development

Over at Cafe Hayek, George Mason professor of economics Russ Roberts turns his guns on the ”buy local” fallacy.

Roberts is a far better economist than I am, and I have no doubt that he has a better understanding of the value of trade, but I am left feeling that somehow his article fails to get to the root of the issue.

I have therefore set out my own reasons why the Buy Local movement is actually harmful to human development and will reduce welfare. This boils down to the fact that it is anti-trade, preventing people from benefiting from the most effecient providers across the country or the world; that it undermines the principle of specialisation on which human development is based; and ignores Comparative Advantage, which makes it worthwhile for even the most and the least efficient producers to work together.

Please head over to the IEA website and take a look at the full article. I have closed the comments section below to encourage readers of this site to comment in the same place as readers of the IEA site.

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Fair Trade without the Froth

By Angela Harbutt
November 4th, 2010 at 3:51 pm | 8 Comments | Posted in International Development

Today, the Institute of Economic Affairs has released a new research paper Fair Trade without the Froth: A Dispassionate Economic Analysis of “Fair Trade” by Sushil Mohan.

It concludes that claims by the Fair Trade movement are seriously exaggerated. The IEA says that “.. It is likely that producers end up with only a small fraction of the extra margin consumers pay , that Fair Trade doesn’t benefit the poorest producers due to heavy administration requirements and fees involved” and that “Fair Trade does not focus on the poorest countries”.

We agree with all those sentiments.

Buying Fair Trade eases the middle class conscience and little more.

If you really want to help the developing world, fight loud and hard for the removal of trade barriers.

Back in summer of 2009 a guest contibutor to Liberal Vision – Franklin Cudjoe – made many of the points the IEA makes today and having re-read his post this morning I thought it worthy of a second outing…. so here it is….

GUEST POST for Liberal Vision by Franklin Cudjoe 10th July 2009

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In the New Statesman’s “Observations on Fairtrade” I was quoted as saying that free trade, not Fairtrade, is the key to developing countries like my own. Here are a few reasons why this is so.

Most of the Fairtrade premium charged by supermarkets does not make it to the poor in developing countries. It has been estimated that only ten per cent filters down, most of it consumed by Western retailers. No wonder that many people suspect that supermarkets are granting monopolies to their own-brand Fairtrade-approved goods for the sake of their own profits. They convince consumers that they are morally obliged to buy Fairtrade stock, offer no alternative, then pocket the difference.

But more importantly, even the amounts that do trickle down will not help economies to develop. Any subsidies provide perverse incentives that can delay development. Increasing prices artificially causes an increase in supply which results in too much produce being grown. As Fairtrade growers only pass on about 20 per cent of their stock to the Fairtrade scheme, the results are quite dangerous, and can result in the market price actually coming down (due to surpluses).

Instead, people in less developed countries need to be able to follow price signals and adapt to changing demands – both from our own markets and those in the West.

Sadly both of these markets are blocked from us by trade barriers. Your governments are partially to blame for this – but even more culpable are our own self-interested politicians.

Trade barriers between African countries are an extreme impediment to our economic development. Shipping a car from Japan to Abidjan, Côte d’Ivoire, costs $1,500 – yet shipping the same car from Abidjan to Addis Ababa, Ethiopia, costs over three times as much – $5,000!

According to the World Bank, removing regional trade barriers would earn Africa an extra $1.2bn a year.

So what can concerned people in wealthier countries do to help? For a start, you can lobby your governments to stop setting a bad example by imposing trade barriers themselves. Many people in poor countries say “rich governments protect their industries, why shouldn’t we?”. The result is that we all lose – but poor countries suffer the most.

We now have a global trade war, arguably prompted by President Obama’s “Buy American” policies in the USA. Ministers at the G8 preach free trade while building up barriers back at home.

Buying Fairtrade is a feel-good scam. It does not help. Those who really want to help should urge their politicians and the G8 to bring down trade barriers – and make a lot of noise about it.

This post was first published on Liberal Vision 10th July 2009. Franklin Cudjoe is the founder and Executive Director of IMANI Center for Policy & Education, a think tank based in Ghana. His work has been cited in House of Commons debates on aid and development in Africa.

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Africans: “We need trade not aid”

By Timothy Cox
January 6th, 2010 at 11:12 am | 4 Comments | Posted in International Development

dambisaAfrica remains the world’s poorest continent with the world’s worst employment opportunities. The International Labour Organisation estimates that up to 99 per cent of African employment is informal–outside of the fiscal system.

The situation is dire and imposes increasing  costs on taxpayers in donor states. In 2008 Labour spent £6.3 billion on Overseas Development Assistance and the Conservatives have pledged to increase this by almost £4 billion.

In times of economic hardship £10 billion spending pledges need to stand up to scrutiny. But this one does not. Four decades of development “assistance” and trillions of dollars in aid have done little to improve the situation in Africa. In fact, Africans are poorer now than they were forty years ago. Over 60 per cent survive on less than $1.25 a day, and one in four African children under the age of 5 are malnourished. Surely, by now it should be evident that this system of aid is not working? Money continues to be wasted on top down aid projects that, at best, do little to appease the underlying causes of the poverty. At worst they actually aggravate the situation by undermining local businesses and legitimising corrupt regimes.

There are a few dissenting voices. Outnumbered by well heeled NGO lobbyists, some economists are daring to incur the wrath of the Department for International Development’s (extensive) advocacy department and are speaking out. Articles like this recent editorial in the Kenyan Daily Nation reflect what many Africans are thinking; that freedom to trade is the surest route out of poverty. To borrow a phrase from another African tired of witnessing the futility of pumping good money after bad, Dambisa Moyo, “there is no doubt–we do want to help.” But help does not come in the form of DfID handouts; it comes from allowing Africans to do what has enriched the rest of the world–trade.

[For fuller accounts see ‘The White Man’s Burden‘ by William Easterly and ‘Dead Aid‘ by Dambisa Moyo – Ed.]

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