How the European Union is shafting the Cambodian farmers
Apparently the actions of the European Union mean that scores of thousands of dirt poor Cambodian farmers are being thrown off their land. This could indeed be something that we could become righteously outraged about: despite the fact that the information source is The Guardian.
If you're reading this article with a cup of coffee, you should think twice before adding sugar to your brew. If it's from Cambodia, it may be tainted – not by chemical pesticides or fertiliser, but by human rights abuses. And if you're reading this in the European Union, here's something else you should know: EU trade policy is encouraging these abuses, and the European commission has yet to do anything about it.
Cambodia falls under the Everything But Arms (EBA) tier of the EU's Generalised Scheme of Preferences (GSP), which means that it – like other least-developed countries – can export sugar and a host of other products to the EU duty free. It might seem like a pretty sweet deal in theory, but it has not been so great in practice for many Cambodians. In fact, it's been a disaster. The underlying issue is a fight over land. Cambodia is in the midst of a massive land-grabbing crisis that has seen nearly 2.2m hectares taken from mostly poor farmers and given to private firms as long-term economic land concessions.
In just half of the country where the Cambodian League for the Promotion and Defence of Human Rights (Licadho) works, land-grabbing has affected at least 400,000 Cambodians since 2003. These victims are rarely, if ever, paid appropriate compensation. Sugar is among the worst sectors for land-related human rights abuses, marked by violent evictions, the use of the military against civilians, and attacks and arrests of community activists.
OK, yes, I am righteously outraged. The EU gives trade preferences to Cambodian sugar, these trade preferences lead to evictions and further impoverishment of some of the poorest people in a very poor indeed country.
The question is, what should we do about it? The suggestion in the article is that the EU should refuse those trade preferences for Cambodian sugar until there is evidence from the various NGOs that such abuses have ceased to happen. Hmm, forgive my cynicism but that sounds like a great way to embed the NGO budgets in the Brussels one.
So why not have a truly radical policy? Why don't we just abolish sugar trade preferences for everyone? Including, of course, all those sugar beet farmers within the EU who currently get vastly over the world price for their sugar. And the massive import duties imposed upon cane sugar from elsewhere that allow that sugar beet price to stay high. For if there are no import duties upon cane sugar then there will be no benefit to thowing Cambodians off their land in order to grow sugar that doesn't have to pay those import duties, will there? Cambodian sugar would be worth only the world price and that's not enough to encourage these evictions: clearly not, for the evictions didn't start until the sugar barons could get that vastly higher EU price for the Cambodian sugar.
That is, the whole problem really starts with the way that the EU makes the intra EU price of sugar some multiple of the world price. Remove that distortion and we remove the Cambodian one.
Oddly, that's not a solution that the NGOs suggest: but then I'm already sufficiently cynical to have an idea why.
Mongolia chooses right in plans for the future
Last Sunday saw Mongolia’s 6th Presidential election. I was glad to see the incumbent President, Tsakhia Elbegdorj, win with just over 50% of the vote. Mr Elbegdori, the candidate for the centre-right Democratic party, was heavily involved in the movement to end 70 years of Communist rule, which was finally successful in 1990. He has a good track record of loosening the grip of government on the country’s businesses, and he is passionately anti-corruption. Another of his achievements (in my opinion) is his work to abolish the death penalty.
It’s great to see an emerging democracy choosing to shrink the state. It may be unsurprising that the people want to get away from the Communist ideology of the past, but the false promises of socialism are always tempting. Mongolia has great mineral wealth, and everyone will want a slice of the pie, but the best way to get rich is through laissez-faire economics. The focus of the presidential race was on Oyu Tolgoi, a huge copper and gold mine: both of Mr Elbegdorj’s rivals advocated a renegotiation of the government’s contract with Australian mining giant Rio Tinto. But Rio Tinto has put a lot of investment into Oyu Tolgoi, and too much government involvement may cause problems. Mr Elbegdorj is more friendly to foreign investors, which bodes well for Monglia’s future.
The country has been doing well recently: this year it is the world’s fourth fastest-growing economy. Poverty has been decreasing, from 39.2% in 2010 to 29.8% in 2011. Of course, there are still obstacles to be overcome, but at the moment it looks as though Mongolia is in capable hands.
Globalization drives cultural diversity
Donald Boudreaux recently reposted this 2010 essay on the impact of globalization on culture. Globalization is not about 'just stuff', he says, it's about increasing diversity by allowing different parts of different cultures to mix:
A century ago, there were no internationally franchised restaurants in Paris, France or, for that matter, in Paris, Texas. A century ago, residents of neither Omaha, Nebraska nor Birmingham, England could find sushi restaurants near their homes; today, sushi restaurants are all over the Western world. A century ago, blue jeans were not the international fashion that they are today. A century ago, the typical man's business suit worn by New York lawyers and London bankers was not widely worn in Africa and Asia, as it is today. In many ways, global commerce has indeed made the world more homogeneous.
But look more closely. While the differences between Paris, France and Paris, Texas are fewer than they were in the past, the cultural richness of each of these places today is far greater than it was just a few years ago. For a resident of Paris, Texas, circa 2010, the richness of the cultural smorgasbord available to him or her right at home is vast. A Texan can stay in town and dine on Vietnamese, Italian, or Greek food—or on barbeque. A Texan can listen to German symphonic music or medieval chants or Irish dance music or Edith Piaf—or country and western. A Texan can buy French neckties, English raincoats, and Italian scarves—and cowboy boots. Likewise a Parisian can choose croissants or New-York-style bagels. A mere century ago—even thirty years ago—the cultural diversity of both places was much less than it is today.
It's easy to be annoyed at the 'touristification' of a place like Thailand, but what that really means is more people get to experience somewhere they would only be able to imagine visiting fifty years ago. Perhaps it's no coincidence that this complaint usually comes from the people who can most easily afford foreign holidays and expensive exotic meals in their home cities. I'm tempted to say that they should check their privilege.
Boudreaux's piece is worth reading in full.
If only Britain had joined the Euro?
Will Hutton tells us, in last Thursday's Guardian, that widespread consensus on the UK's staying out of the EU is wrong-headed—joining would have kept our exchange rate low, which in turn would have meant no financial boom and an economy based (more) around producing manufactures. To add to this, our entry would have meant a more activist European Central Bank, which would have been willing to intervene when necessary. There is more wrong with his article than I could possibly tackle in one post, so I will focus on the key elements I've summarised above. None of what I say implies it necessarily would have been bad to have been in the Euro over the past ten years—such an alternative history is almost impossible to conclusively support—just that the arguments Hutton uses are extremely weak.
Pretty much all of his argument is bizarre, utopian and uneconomic. Devaluations work not because they make a country's products cheaper to foreigners, adding to net exports and driving GDP growth. Devaluations work because they boost inflation, which gets around nominal wage stickiness, allowing markets (particularly labour markets) to clear and giving relative prices the space to adjust. They make no difference to the price of a country's goods to foreigners, and in practice often boost imports as much as or more than exports, due to improved conditions. This is even true if we devalue by decree, as Hutton's desired artificially low €-£ exchange rate would be—it's just that the inflation could take slightly longer to come as firms and households bid up prices.
What's more, this is a Good Thing. We don't want to spend energy, time, labour and capital hours, as well as space, producing valuable things only to sell them in exchange for artificially few foreign goods. If countries are happy to send us desirable stuff in exchange for less of our stuff then that's great, and in any case it sows the seeds of its own balance, as consistent deficits (ceteris paribus) will drive down the exchange rate. This may eventually force the UK to run surpluses, but this would not be a Good Thing. Running surpluses means lower social welfare because we are consuming less leisure or goods or services than we would otherwise be able to enjoy. And we may never even have to run one if we keep creating loads of property or financial wealth to pay for our imports.
But let's imagine that Hutton could have subverted economic rules as basic as gravity and magically have kept the exchange rate at his desired low rate without any of the obvious expected balancing effects from wages and prices. And let's imagine that we want to send more goods abroad to get less in return. Would this have supported the manufacturing industries he wants? It's difficult to see how. If the City was providing the best financial services options for the world at £1 = €1.25 then it's not obvious that a cheaper pound, and cheaper financial services, would make them less attractive. The UK's economy contains a relatively large contribution from financial services because the UK is relatively good at financial services—as well as hi-tech manufacturing, advertising, and many service sector areas. These are the UK's comparative and in some cases absolute advantages.
And would the UK be better under the ECB (albeit with some British influence) rather than its own Bank of England? It's hard to see why Hutton thinks this. The BoE let inflation rise to hit 5.2% on the CPI measure, and has consistently allowed inflation to stay above target—the ECB has inflation below its 2% target, despite the obscene jobs crises in Spain, Greece and other crisis-hit countries. It is basically refusing to do any monetary stimulus. There is essentially no debate in Europe over whether the ECB should actually meet its inflation target, or indeed consider other economic variables, or go yet more radical and drop inflation targeting altogether. Would the UK's input really outweigh the massive consensus there, especially when the UK is divided on the issue itself? Again, I am sceptical. Strangely, Hutton seems to think that pointing to the UK's own situation and reminding us we're not living in "a land of milk and honey" is sufficient to gloss over the fact that most of the Eurozone is doing so much worse!
This laughable logical leap is nothing compared to his claim that both sides of the political divide are "united only in their belief, against all the evidence including Britain's export performance, that floating exchange rates are a universal panacea." As might be expected, he doesn't give the tiniest shred of evidence that the consensus view holds that floating exchange rates are not only the best exchange rate policy, but a panacea for all types of economic ills. But really, that's not the point. Even if everyone did—ridiculously—think that floating exchange rates were actually a panacea for economic problems, that wouldn't go any way to implying that they weren't better than fixed exchange rates.
Will Hutton's argument is completely invalid, though perhaps he gets some points for making such an outlandish and unpopular case. If it would have been good for the UK to enter the Euro 10 years ago, then it is not because it would have allowed us to permanently rig all markets to send off more of our stuff for cheaper than it is worth. And it seems completely implausible that the UK could have influenced the ECB enough to see it ditch its destructive hard money policies during the crisis, instead it seems more likely the UK would be just another country suffering under its negligence.
Does speculation really harm the world's poor?
Development activist Deborah Doane said yesterday on comment is free that Goldman Sachs should admit it drives food prices up through speculation. She excoriates the finance giant for what she sees as its role in 44m across the world being in food poverty, suggesting its charitable efforts amount to little given its speculative activities. She assembles an array of sources purportedly supporting her case.
But the way Doane does this is perplexing. She implies in her first paragraph that the World Bank agrees with her conclusion, but the link she includes mentions only a UN official's opinion, making no reference to the WB. And while, apparently, more than 100 studies support her argument, her article provides no evidence this is the case. Moreover she makes no attempt to deal with the basic economic argument against her thesis.
On the one hand the most limited version of Doane's thesis—that speculation increases prices—is undeniable. When speculators buy into the market, they raise the price then. But the overall case makes little economic sense. If speculators' influence is big enough to boost prices when they buy in, it is big enough to cut prices when they sell out. That is, speculators both add to, and take away from, prices.
A speculator makes money by buying in times of relative plenty, when prices are low, and selling in time of relative scarcity. For helping society ration effectively—making sure the differing scarceness of a good is reflected in its price, thereby improving individual decision-making—the firms earn a return. If a speculator, by contrast, buys in at the top of the market, reducing supply when it is most needed, and sells at the bottom, when it is least needed (relatively) they lose money. This is how the profit and loss system, in a good institutional structure, encourages and rewards socially-minded behaviour. And speculation should smooth volatility in markets. A jump in price will encourage sales from speculators, bringing the price back down. A dip in price will encourage speculators to buy, bring the price back up. This result dates back to a 1953 paper from Milton Friedman, which is hard to find online, despite being cited 2411 times according to google scholar.
Having said all this, it's possible there are some circumstances where this simple common sense argument fails to obtain. A widely-cited 1990 paper by Andrei Shleifer, Larry Summers, Brad DeLong and Robert Waldmann finds that the way other traders buy and sell can change the way speculation works. If so-called noise traders' buy, rather than sell, when prices rises hit, i.e. their strategies include elements of positive feedback, early buying from speculation can trigger a spike. Anticipating this, speculators will have an incentive to buy extra, generating a bigger price increase and a bigger return, along with more volatility in the face of new information.
The authors look at some hugely interesting survey, experimental and real world evidence supporting the assumption that some traders might use positive-feedback strategies, and even argue that the strategy could persist in the long-run, despite its irrationality. Though on average those pursuing the strategy will be driven out of the market as they lose money, investors see different episodes differently, and some will enjoy huge returns through holding extra risk. So it is actually rational for speculators to target price movements driven by others' irrationality, rather than market fundamentals.
All this said, it's unclear this model delivers the results Doane relies on. Certainly markets working in this way would produce bigger spikes in both directions, but there's no reason to expect prices would be higher overall. If anything, the suggestion seems to be that prices would be below where fundamentals suggest in times of scarcity and above in times of relative plenty—alleviating shortages more than under the more straightforward model. The extra profits speculators make would come out of the pocket not of the poor commodity consumers, but from the noise traders, following their irrational strategies.
Ten reasons why the Left should like the ASI, 8: Immigration
The Left, traditionally supportive of immigration, should admire the ASI's stance in consistently arguing that the UK benefits by welcoming immigrants to our shores.
ASI writers have consistently pointed to the benefits that immigrants bring to the UK. Their skills help generate economic activity and augment output and wealth-creation. This is more obviously true of those with qualifications and a degree of expertise in some professional field such as medicine or finance, but it is also true of those with more modest skills. As long as immigrants have a command of English, some education, a willingness to work and a readiness to respect our culture and values, they can make a positive contribution. Their willingness to take on demanding jobs at relatively low wages benefits the population by enabling UK goods and services to be more widely available and to be produced more cheaply.
But migrants make more than an economic contribution. Over the centuries successive waves of immigrants have been absorbed into British culture and have enriched it by their contribution. From Flemish weavers and Huguenot glass-makers to Italian ice-cream manufacturers and more recently the celebrated Polish plumbers, they have made a cultural as well as an economic contribution.
Obviously any would-be immigrants not prepared to work and to integrate into our culture come into a different category, but the majority of our immigrants, and certainly most of those from other European countries, are not like that. They want to work and get ahead, and can make a contribution to our society. The degree of immigration matters, as does its concentration in certain areas, in that it should be within our ability to cope with the extra demands resulting from their arrival. But these are problems that can be solved, and in no wise affect the principle that immigrants should be welcomed.
Is nationalism a force for good? Yes
The nation state is—in its fundamental nature—a free and tolerant political system. National loyalty requires only fondness for a geographical location (and its history) which can be acquired by anyone who moves to a nation, as well as those born and brought up there. In principle national loyalty requires no significant revision of values, nor does it exclude people on the basis of their family, colour or any other unsavoury criteria. It is, taken on its own, a remarkably benign form of attachment.
Loyalty is necessary for political institutions to uphold their laws. Laws protecting private property, free speech and so on do not hold sway because they have been written down by a legislator but because those subject to them believe they are authoritative. This requires general acceptance of their content and the body charged with enforcing them, which in turn requires a loyalty and trust for that body and for other citizens. In non-nationalistic countries such as Kazakhstan trade can't rely on its participants' having particular reason to trust one another. Nationalism avoids such pitfalls by enabling a trust of a pool of strangers – something which characterises flourishing societies.
The strongest ties among humans have proved to be religious, tribal-ethnic and national. They are typified by attachment to that which is familiar. The first two of these however, when elevated into political form, are intolerant of differing values and of differing bloodlines. The conflict between family love and religious obedience has characterised some of the worse strands of the Middle-East's history. In Africa tribal loyalties have underpinned devastating atrocities – in the 1994 Rwandan genocide for instance the Hutu people massacred the Tutsi (a group seen to have different physical characteristics). Twenty-two years earlier the Burundi Genocide had seen a reversed tragedy. Similarly fascism is not an extreme form of nationalism but an extreme form of tribalism—members of Hitler’s Aryan race were identified by their appearance and bloodline, not their attachment to a particular nation. We would do well to celebrate our often mocked pride for the rolling hills. Other attachments have proved much less tolerant of our differences and freedoms.
Another reason is philosophical. Where we happen to have been born and brought up is certainly arbitrary from a moral point of view – but this is no good reason to rule it out as mattering. Which mother we happen to have been born to is arbitrary, and yet no one claims we should shun her on that basis. Similarly we come across our friends arbitrarily, even if they have been chosen carefully from those we’ve met. My point is not that we should consider important all aspects of our lives that aren’t up to us, but rather that their being arbitrary shouldn’t be a reason not to think them important. In other words, arbitrariness should give us no reason to feel uneasy about the benefits that national attachment brings.
Is nationalism a force for good? No
My colleague Geoffrey Taunton-Collins argues that nationalism is a force for good, as the loyalty and fellow-feeling it generates are necessary to create high trust law-abiding societies. He says that examples of atrocities committed partially in the name of nationalism—the Rwandan genocide, the second world war and Holocaust, strife in the middle east—are all better explained by ethnic tribalism or religion. I disagree. Firstly I'm sceptical that successful modern societies are driven by nationalism, secondly I think it's impossible to disentangle the nationalist element in many of the terrible occurrences he lists, and thirdly I think that nationalism underlies some very bad policies adopted by many modern societies.
Why does an individual obey the law? One obvious reason is that the penalties for disobedience, weighted by the likeliness of their being incurred, often outweigh the benefits from breaking the law. A second reason, is that individuals believe there is some sort of justice in the laws. This is why people give "because it is against the law" as a reason independent of any further explanation for why a course of action ought not to be followed. Anecdotally, the arguments people give for the duty to obey the law—if these can be taken as also being the reasons they actually do obey the law—seem to go against Geoff's claim, centring on reciprocity, universality and fairness. And the cases where people disobey the law appear to go with my analysis. Consider illegal downloading: some estimates say PC games are illegally downloaded as many as 20 times as they are bought legally. People seem unswayed by the laws—brought about by the authority of the nation state they are supposedly loyal to—requiring them to buy games (or films, television programmes, music) legally. Because others are not following the law, and because the likelihood of punishment is low, they don't themselves.
Can nationalism and ethnic strife be disentangled? Certainly Hitler's regime looked no more favourably on the many proudly German Jews who had served the Kaiser honourably in the first world war than they did on any with Jewish ancestry. And certainly Nazism was centred on the idea of a Volk—a people—united despite the borders of Weimar Germany. But the purest form of an ideology is rarely what gets through and propagates throughout society, and the Dolchstosslegende—the idea that Germany didn't really lose the first world war, but was stabbed in the back by a Jewish-Bolshevik conspiracy—was a vital part of the Nazis' appeal. I think the general bleeding of racialist, ethnic and religious ideas into nationalism and national identity is inevitably tied into Middle Eastern conflicts and the two major central African genocides.
And finally, look at the policies nationalism produces. True, as Geoff points out, there is no necessary reason why nationalism should exclude anyone born outside the country, if they are willing to switch their loyalty to their destination nation, but in practice we know that's what happens. Taking the UK as an example, the tide of anti-immigration feeling has been rising and rising since Gordon Brown's 2007 pledge to provide "British jobs for British workers", culminating in the rise of UKIP and Tory policies like the 99,999 or less net inward migration pledge. Surely it can't be denied that a sense of nationalism, that the UK is collectively owned by only its current inhabitants, a sense of insider and outsider, is intimately connected to this ethically indefensible and economically incompetent trend?
As far as I can tell, actually-existing nationalism is not responsible for our generally law-abiding society, cannot be disentangled from many gross moral horrors, and is responsible for bad policy. Therefore I conclude that nationalism is a force for bad.
The euro is at the root of Ireland's economic disaster
"Most of the Irish establishment is sadly mistaken in thinking that our problems are rooted in rogue banking behaviour or lax political oversight. The real problem was systematically mispriced credit resulting from our EMU membership." So says Cormac Lucey at Liberal Ireland, who argues that the factors in Ireland's ruin all seem to have one point of origin — the euro. Here's a graph of Dublin property prices, before and after entry to the euro:
The problem is that nobody can know what the natural rate of interest should be to prevent excess savings or borrowing. I am probably in a minority of people who think that euro rates were both too low during the boom, and are now too high — the worst of both worlds and a major factor in the Eurozone's continued recession. Contrast that with a country like Sweden, which has managed to keep nominal GDP fairly steady over the last few years and has avoided the worst of the global recession. As a less-bad option, the case for lots of different central banks with their own currencies trying lots of different monetary policies grows.