Book review: Heavens on Earth – How to Create Mass Prosperity
For those who, after five years of austerity (and rising deficit), despair about how to create growth, Heavens on Earth is indispensable bedtime and boardroom reading. In it, JP Floru investigates eight countries which have transformed their economies to create lasting high growth. In different times and places the methods used to make the switch from scarcity to plenty have been remarkably similar. At times it is surprising: who would think that there are great correlations between the Industrial Revolution in Britain, 2013 Communist China, post-World War II America and Pinochet-era Chile?
“If Julius Caesar had met George Washington in 1760, he would have found the world barely changed. He would have been served food prepared by slaves in a stately home. The average age would have been twenty-eight to thirty-five. Just 250 years later he would have heard talk of missions to Mars...” So what happened? The book brings these arguments to life throughout with such insights.
Meet “Sideline Stan”, the New Zealand Minister of Labour who systematically refused to intervene in social conflicts. Meet Hong Kong’s John Cowperthwaite, who sent statisticians arrived from Whitehall on the first plane back: statistics would only be used to interfere and harm the economy. At the same time Heavens on Earth explains the main economic concepts which are relevant today: the Laffer Curve, Austrian economics, the wisdom of Adam Smith (no coincidence: JP Floru is a Fellow of the Adam Smith Institute) and the workings of Keynesian economics (or rather: why they do not work).
Although well-known existing ideas and quotes are used, at times the book is highly original: “Regulatory Failure Spiral” is the common enough situation of governments trying to rectify failing regulations with more failing regulations. The “Holy Trinity of Profligate Government: taxing, printing and borrowing” is extensively identified and lambasted. As said before, the links between highly different economic cultures may seem surprising. Some may also be surprised to learn that concern for the poor permeates the book. Poverty is not just a state in which people exist, it has to be created: it is created by economic oppression and only free markets can free the poor.
Heaven on Earth’s sub-title: “How to Create Mass Prosperity?” is laid out in chapter 9 but I won’t give the recipe away. The book is thorough, enlightening and fun, and a must-read in times like these.
Heavens on Earth – How to Create Mass Prosperity by JP Floru is published by Biteback and available on Amazon. The official ASI launch party is in Westminster on 18 March.
Chart of the week: US trade balance
Summary: The US trade deficit for December 2012 was the narrowest since January 2010
What the chart shows: The chart shows the US trade balance – exports minus imports – in millions of dollars.
Why is the chart interesting: US exports were surprisingly strong in December, rising by 2.1% from November, while imports fell by 2.7%. The data is important, both because it shows that the recent improvement in the US foreign balance continues, if erratically; and because it is likely to lead to a revision of the Q4 economic growth data. Last month the bureau of economic analysis said that the US economy shrank by 0.1% in Q4 2012. (Note that American growth numbers are given as the seasonally adjusted annualised rate of change from the previous quarter; in Europe, where the number is usually given as the quarterly change, the US number would have been -0.025%, ie, no change.) The unexpectedly strong trade numbers probably mean that this will be revised to show a small positive figure instead.
Chart and comments provided by Stein Brothers (UK), www.steinbrothers.co.uk.
Private schools are revolutionising developing world education. If only UNESCO would admit they exist
A so-called ‘fact sheet’ on education in Nigeria published by UNESCO in October 2012 suggests that Nigeria has some of the worst education indicators in the developing world. For example, since 1999, the number of out-of-school children has increased from 7.4 to 10.5 million, which means that Nigeria now has the largest number of out‐of‐school children in the world. Unfortunately, these statistics fail to take into account the thousands of unregistered low cost private schools that exist across Nigeria and the millions of children who attend these schools. Consider, for example, the following findings from a census of private schools in Lagos State carried out by DFID in 2010-2011:
The table shows that the vast majority (88%) of schools in Lagos State are private and they cater for 57% of all enrolments. Most of these schools are owned by individual proprietors and serve low income families. The report therefore concludes that ‘the education landscape in Lagos is dominated by the private sector, with the majority of pupils attending private schools of all types’. Critically, 74% (8,952) of these private schools are unregistered and therefore not included in the official statistics. If the average number of children in these private schools is 114 then this would suggest that over 1,000,000 children in Lagos State alone are not out of school but attending unregistered fee paying private schools.
Further research carried out by DfID in Kwara State also estimated that there could be a possible 417,600 private enrolments, compared with the official school census from 2010/2011 which only recorded 157,327 children in private schools. This would add another 260,000 children who are not out of school but attending unregistered fee paying private schools. There are thirty six states in Nigeria and my guess is that if similar research was carried out in each state then the total number of out of school children would be dramatically reduced to a fraction of UNESCO’s original figure of 10.5 million - which is clearly bogus and in no way, shape or form reflects the reality on the ground.
So what could possibly explain such an extraordinary level of incompetence on behalf of UNESCO? First, UNESCO benefits from exaggerating the extent of the so called global education crisis because they are the international agency tasked with solving the problem. Without an education crisis and UNESCO would quickly become redundant. Second, by widely exaggerating the number of out of school children, this also allows UNESCO to point the finger at Western donors for failing to meet their funding commitments. This also helps to deflect attention away from the enormous problems facing government education sectors across the developing world including rampant corruption, teacher absenteeism and an almost unbelievably low level of learning - problems which UNESCO have failed to address over the previous half century.
Finally, UNESCO’s legendary anti-capitalist bias used to manifest itself in direct hostility to all forms of private sector involvement in education. Today, their opposition is much more civilised – they simply turn a blind eye to the remarkable growth of private schools for the poor across the developing world and instead continue to preach to the world in blissful ignorance and in a complete state of self-denial.
We don't need repatriation from the EU – we need de-patriation
The debate over the UK's relationship with the EU has stepped up. The PM has adopted the position of negotiating with the EU with the threat of an in-out referendum in his pocket. Personally, I think Cameron is just about in the right position, in theory. As Eric Pickles has argued, quite sensibly, EU membership should be on a cost-benefit basis. If it is clearly the case that withdrawal would benefit the general good more than remaining in the EU we ought to withdraw and vice-versa, regardless of any special-interest privileges.
Whether Cameron can make this work in practice is unlikely. After all, the EU is a large and growing bureaucratic institution with many vested interests operating within it - bureaucratic powers are unlikely to be ceded any more easily in Brussels than they are in Whitehall.
The finer points of the political debate notwithstanding, there is definitely something missing from the debate. On the one hand, there stands a massive, wasteful, unresponsive bureaucracy led by profilgate politicians in hoc to special interests. On the other hand, there is the EU. The problem with the EU is not that it has absorbed powers which should be vested in Whitehall but that these powers are vested in any government whatsoever. The principle of subsidiarity should be extended to its ultimate conclusion - the proper authority for all bar a few aspects of socio-economic life must rest with individuals, not governments be they local, national or supra-national. What the UK and the EU needs is not repatriation of powers but (to coin a clumsy neologism) 'depatriation'. There is no point removing powers from Brussels and handing them over to politicians and bureaucrats in the UK. These powers should simply be handed back to where they belong, in the hands of individuals.
I would be very happy to be a fully paid-up member of an EU and even a Eurozone that, say: operated a sound, gold-backed currency, ferociously enforced fiscal discipline, liberated markets, open doors to trade and migration, drove privatisation and de-regulation across all areas, decriminalised drugs (well said the Lords, on that subject) and generally pursued free-market and classical liberal policies.
Sadly, that's just wishful thinking but it is not as if the British government under any party is likely to follow this course either. On balance, especially given the nature of many EU governments and societies and the EU itself, it is probably more likely that this would occur under a UK government than under a federal EU one even if the UK's track record on this score is fairly poor. Ultimately, Britain faces a Hobson's choice between large and profligate EU governance and large and profligate British government whilst under present conditions it is saddled with both.
Chart of the week – deposits in US commercial banks
Summary: The growth of deposits in US banks continues to accelerate. The numbers imply healthy broad money growth, eventually translating into activity.
What does the chart show: The chart shows the thirteen-week (ie, three-month) annualised rate of change of deposits in US commercial banks. The red line is total deposits, the blue is large time deposits (ie, deposits in excess of $100,000) and the green line is other deposits. The thirteen-week annualised rate catches the most recent trends, but can be volatile.
Why is the chart interesting: Broad money is a leading indicator of economic activity. Broad money consists of the bank deposits of the private non-bank sector (ie, households and non-bank companies) and of cash. But of these two, cash is just short of 1.1 trillion dollars, while deposits total some 12.3 trillion dollars and are therefore vastly more important. Since early December, deposits have grown by double-digit rates. This is a clear indication of continued healthy, if not spectacular, US activity in 2013. The threat of the fiscal cliff is very much a myth.
Chart and comments provided by Stein Brothers (UK), www.steinbrothers.co.uk
Christian Aid's If: Why won't these people read their own damn reports?
Another day another gaggle of idiots demanding that the world be run in their image. This time it's Christian Aid and the usual fellow travellers launching a campaign called "If".
Their basic observation, that's there's enough food that pops out of the fields of the earth to feed us all, is entirely true. Further, that despite this enough food there are those who go hungry, to the point of malnutition and starvation is also true. Thus it is also clearly true that it is desirable than we do something about this.
Excellent, but something must be done does not mean that this is the something that we must do. Their something(s) are that we should collect more tax, spend more in aid, bash the corporations and well, you've heard the list often enough, you can complete it.
Other than the obviously sensible idea that we should stop putting food into cars this is, I'm afraid, just the usual wibble. And what makes it so extremely annoying is that we've had a couple of reports recently telling us what actually does need to be done. Just last week it was IMechE and some months back Oxfam I think it was. They noted that food waste in this world divides into two. There's us people in the rich world who find food so convenient and cheap that we don't even bother to grind up the potato peels into nourishing gruel. Quite the shame on our society. In the poor parts of the world that's not the problem at all: anything not actually rancid that makes it into a poor household is going to get eaten.
There the problem is that up to 50% of the food rots or is envirmined between the field and the consumer. Our food waste could be solved by a good recipe for turnip scrapings. The poors' food problem could be solved by....well, by what? Well, by the same darn system that makes food so cheap for us. The commodity suppliers that do the trucking of food around, run the grain elevators, store the potatoes. The food commodity markets that allow the risks to be spread from farmers and consumers to speculators. The supermarkets and the industrial processing companies that extract every possible calorie and then present it to us in rat and roach free surroundings.
In short, what the poor world needs is a food industry as we have a food industry. One that gets the crops from the fields to where mothers can prepare it for their children without it rotting or being eaten by animals and bugs along the way.
So do they suggest that this is what should be done? The people who know how to solve the problem should be offered access to go and solve the problem? Do they heck:
If we force governments and big corporations to be honest and open about their actions that stop people getting enough food. Transparency and accountability are vital in the global food system. Decisions that can affect millions of people are made behind closed doors, without the participation of those affected. Corporates and governments must be more transparent about their affairs so that citizens can hold to account powerful players in the food system.
It's not that biig corporations aren't transparent. It's that big corporations who know how to do these things aren't there. Often aren't allowed to be there (as in India).
I'm all for solving problems like aiding the poor in gaining access to food. But I really do wish these campaigners would just bother to read what others have been trying to tell them on these very subjects.
After all, we are continually told that it's industrial agriculture and supermarkets that are making us all fat. And isn't that what we're trying to achieve? That the poor also gain an opportunity to get fat? So why aren't we recommending industrial agriculture and supermarkets as the solution?
I assume politics has something to do with this stupidity.
The EU's tariffs are daylight robbery
One attractive aspect of an EU exit would be the exit of the Common External Tariff. As Daniel Hannan has pointed out, the Single Market is more like a customs union than a free trade bloc. All goods coming into Britain from outside the EU are subject to tariffs, designed to protect European industries from cheaper competition.
Unlike VAT, which isn’t levied on essentials (although I’m not sure I like the idea that beer and wine aren’t essentials), the tariffs are highest on things like food and clothes. (Courtesy of the WTO, here is a list of goods affected by the Common External Tariff.)
There’s a 16% tax on bananas from outside the EU, a 17% tax on trainers, 12% on stoned fruit like peaches and plums, and 12% on shirts, suits, coats and school uniforms. Cars are taxed at 9.7%. Twine and string get a 9.2% hit. Knitted gloves carry an 8.8% tariff whereas non-knitted gloves are hit by 7.6%. You name it, they tax it.
The loser is the consumer. On its own, the European cucumber industry (protected by a 12.8% tariff) might not be very influential, but any threat to a tariff causes businesses and their lobbyists to circle the wagons.
The 'bra wars' ended with European consumers paying more for Chinese underwear – not because Big Brassiere is unbeatable, but because related industries recognised that, individually, they would fall, and marshalled their political representatives into action.
The most perverse part is that if we got rid of all these tariffs, many, if not most, producers would be better off too. They are consumers as well as producers, and tariffs make the inputs they use (like steel – 2.7%) more expensive. But they face exactly the same collective action problems as consumers at large do.
The old public choice problem holds: free-riding is more costly for members of small interest groups than for members of big ones. Ostracism from trade associations, and so on, is much easier (and more harmful) for firms that don’t go along with the lobbying. Unfortunately, there aren’t many people who will ostracise their fellow consumers for failing to renew their subscription to the Adam Smith Institute.
The public choice problem in politics is often overstated. Most of the people who march against austerity really do think the cuts are bad. Most of the people who want to keep out immigrants really do think that they’ll cost them jobs. And, no doubt, most people who support tariffs really do think that protecting native industries is a good idea.
But voters are not as aware of the Common External Tariff as they are of many other issues. It isn’t clear what the ‘left-wing’ position on taxing cheap clothes from China ought to be, nor the 'conservative' position on exposing native industries to the free market. It’s hard to escape the impression that the Tariff really is an example of businesses hijacking democracy. The External Tariff represents one of the biggest swindles of modern times: a collective theft from consumers by politically powerful producers.
JS Mill on Europe
What has made the European family of nations an improving, instead of a stationary portion of mankind? …Europe is, in my judgment, wholly indebted to this plurality of paths [of character and culture] for its progressive and many-sided development. But it already begins to possess this benefit in a considerably less degree. It is decidedly advancing towards the Chinese ideal of making all people alike.
John Stuart Mill, On Liberty, Chapter 3