Misconceptions about Europe

Madsen has written a think piece listing seven common misconceptions about Europe that are certain to feature in the referendum debate.  They are:

• The EU is "Europe"

• If the UK leaves, it will, like Norway, have to follow rules it cannot help shape

• That the UK has not lost sovereignty, only pooled it with other EU members

• That the EU membership involves sacrificing some sovereignty in return for substantial economic growth

• That huge numbers of UK jobs would disappear if the UK left the EU

• That foreign investment into Britain would cease without EU membership

• That special interests (such as universities and farmers) could not manage without the EU grants they receive

Madsen concludes:

It is quite possible that Mr Cameron will secure an advantageous deal from his EU colleagues that allows the UK to protect its sovereignty while enjoying a vigorous trading relationship with its partners.  If he does, the British people might well vote to accept that deal.  It will be better for the debate leading up to that vote, however, if the above misconceptions about the Europe and the EU are laid to rest.

You can read the full text of his piece here.

Is the single market possible in a 2-speed EU?

This week unites two crises: Greece and the UK’s proposals for EU treaty change.  The EU will get through both with a lot of fudging. Greece will stay in the Eurozone for now and Prime Minister Cameron will keep talking. The former is eventually bound to lead to tougher rules for the Eurozone whether Greece remains in or leaves it.  That in turn will lead to stronger UK demands for non-Eurozone members to opt in or out, thus creating a 2-speed EU with progressive integration for the former and demands for the EU to be merely a single economic market by the latter.  The fact that the latter is also the overwhelming preference of EU voters carries little weight in Brussels or, indeed, in the other countries where Treaty changes require referenda.

The difficulty of isolating economic from social and political issues is where the EEC came in and why the continentals never envisaged a purely economic single market.  This issue was downplayed when the UK joined.

The UK’s position remains that social and political issues should be a matter for the British parliament. David Cameron would doubtless accept John Major’s Maastricht opt out if that were possible.  Indeed the UK should reverse all Tony Blair’s EU give-aways and be grateful to Gordon Brown for keeping us out of the Euro.

But all that is history and the question now is whether the single market we desire is at all possible with a 2-speed EU.  At the beginning of the year, FT columnist Janan Ganesh proposed that the UK be allowed a veto over proposed EU financial regulations it disliked in much the same way that France has a veto on changes to the Common Agricultural Policy. The argument would be that financial services are as crucial for the UK as agriculture is for France.  With the possibility of all the other 27 member states demanding vetoes for their chosen “crucial” areas, German support would be unlikely.

One way to sweeten the pill would be to renounce all UK regulations additional to the EU ones.  In combination they must annoy foreign financial companies operating in the City just as much as they aggravate British ones.  That would help establish the principle that we need clarity on “competences”, i.e. for each area the EU, or the member state, should legislate but not both.  Both doing so drags the whole EU down competitively.

But Eurozone integration threatens that.  Distinguishing competences between EU and member states is hard enough but a three way split between Eurozone, other EU and then member states may escape Brussels’ rather limited imagination.

Something important that Mr Cameron should understand

As Mr Cameron sets about negotiating a new European Union arrangement better suited to the UK's needs and preferences, it is essential that he should understand something very important.  It is that the renegotiated terms are not about detail; they are about principle.

From the leaks and speculation surrounding Mr Cameron's ongoing diplomacy the observer might think that they hinge on such questions as to whether immigrants should receive benefits, or whether the UK will be able to exercise some control over their numbers.  These are details, details on which the ASI has differed with some in his party.  We have taken the view that immigrants, especially skilled ones, should play an important part in the country's future prosperity.

They are still details, however, and if all Mr Cameron returns with is a ragbag of assorted concessions here and there, he will have passed up an historic opportunity for Britain.  The principle at stake is sovereignty.  It is whether the British people through their elected representatives can make the laws that prevail in this country.

Yes, of course the UK should remain part of the single market, and yes of course the goods and services we export to fellow members of the EU must meet EU regulations and conform to EU standards.  The United States and China both meet those standards with goods they export there.  But what we do not want is a European Parliament that passes laws telling us how to feed our dogs.

Britain needs to distance itself from "ever closer union" if it is to protect the liberties that are part of its inheritance from Magna Carta onwards.  In most of the EU the laws tell people what they may do; in the UK the laws only tell us what they may not do.  Britons do not derive their freedoms from Parliament.  On the contrary, Parliament itself is a product of those freedoms.

Mt Cameron should remember that every concession on detail can be subsequently reversed.  John Major's opt-out on the working hours directive was subsequently re-imposed upon us through EU health and safety provisions.  What he must seek instead is a deal that recognizes the principle that our Parliament is sovereign in this country.

The hope must be that Mr Cameron will be able to negotiate a deal that puts Britain on the outside track of the EU, willingly going along with the economic aspects of union, but with UK sovereignty protected from those who seek a Europe governed in detail by Europe-wide laws.

The immigrant's pledge

I wonder if would-be immigrants to this country might find a readier acceptance if they were to undertake a voluntary pledge similar to this one.  I think most would readily do so.

"I am grateful that you have allowed me into your country to seek a better life.

I promise in return that I will respect your culture and your customs and I will learn your language.  I know that your ancestors fought for centuries to establish freedom of speech and I will support that freedom.  I promise that I will respect the right of others to seek to improve their lives, without regard to their sex or sexuality. 

I will do my utmost to be a good citizen.  I will do my best not to be a drain on your resources, but to make a positive contribution to your economy and to your essential public services through the work that I do and the taxes that I pay.

I will respect your laws and I will respect my fellow citizens and do what I can to prevent harm coming to anyone.

I will try to live my life in such a way that I will be a credit to my new country, so that those who allowed me to come here and contribute to its future will be glad that they did so."

Geography and economic policy

The Economist has an interesting look at the problems of countries without a coastline. Given the greater expense this loads onto international trade this makes those countries poorer. From which we can derive two interesting points:

With a few exceptions the world’s 45 landlocked countries are poor. Of the 15 lowest-ranking countries in the Human Development Index, eight have no coastline. All of these are in Africa, which is a poor region. But even compared with similar sea-front countries those without coastlines have lagged behind. Their GDP per person is 40% lower than that of their maritime neighbours.

The first and most obvious of these being that this is proof that international trade enriches a place not, as the autarkists would have it, impoverishes. Pleases that find it more difficult to trade are poorer than thoise who find it easier: pretty good evidence that all that import substitution malarkey is indeed that, malarkey.

The second is a policy point. The total trade barrier in and out of any economy is not just the tariff barrier. Nor is it the regulatory plus the tariff one. It's the costs of transport plus the tariff plus the regulatory. Thus, if you find yourself with high transport costs as a result of he above geography you should therefore be trying to be even more free trade in your regulatory and tariff attitudes. Because, as above, more trade makes you richer.

And interesting example of this is the US economy after the Civil War. Tariffs were raised considerably. This is often used as an example of a country developing successfully behind such trade barriers. But this coincided with the development of cheap ocean going steam ship transport. The total trade barriers into the American economy actually declined in this period. Late 19th century US development is an example of more trade leading to more development. We can check this too: trade did indeed rise considerably, despite those raised tariffs. And traded items converged in price across the Atlantic in this period: price convergence being a signal of freer trade.

The import substitution argument insists that some level of autarky makes places richer. The real world says that people with higher trade costs become poorer. We prefer to take our evidence from the real world, amazingly enough.

Nepal’s quake exposes hidden problems and solutions

Caught in Nepal’s 7.9 Richter Scale quake that left 5,000 dead acknowledged so far, New York Times correspondent Donatella Lorch observed: “People here help one another because they know the government often cannot. They reach out to one another, and they persevere. They open their shops, because what else can one do when the world is upside down?” She’s right.

Avalanches, mud slides and antiquated buildings boosted rural casualties compared to downtown Kathmandu, which suffered less than expected apart from relatively few old monuments and newer substandard dwellings. But walls fell down everywhere, chiefly surrounding government buildings and army barracks. “That’s because politicians and bureaucrats demand huge kickbacks, leaving the contractors no choice but to cut corners on safety,” explained a builder. “The private sector usually gets it right.” Elsewhere I met groups of young entrepreneurs bemoaning officialdom under-equipped and paralysed for days. We can never rely on government again, they concluded.

In a campaign limited to fearful whispers, Nepal’s late 2013 elections surprisingly trounced the Maoists, who fell from first to a weak third place. Just one of the Maoist leaders reportedly stole one billion dollars; yet the ruling centre-right Congress Party is less corrupt but irredeemably feckless. Post-earthquake frustration won’t drain the political and bureaucratic swamp, but mounting public irritation may offer a remedy.

The Red Cross Federation took only a few days to fly Scandinavian field hospitals into India’s Gujarat State after a deadly quake in 2001, but when they arrived the private sector was already there. “National trade associations for jewellers, the dairy industry and others were working in unison, providing food and medicine to tens of thousands of their countrymen, much faster than even the NGOs. We were amazed,” a Red Cross expert recalled. “When government officials arrived a week later, and started ordering everyone about, the businessmen told them to get lost. Everything was already so well-run that the bureaucrats had no choice but to fall in and cooperate.” Watching, and soon to become Gujarat’s Chief Minister, was the free-market Narendra Modi, now India’s Prime Minister. 

Part of the former Hermit Kingdom’s problem has been mistaking First World wealth for governmental competence. But thriving banking, telephone and IT sectors bring savvy young Nepalis home from abroad, and with them comes a can-do attitude. Private sector self-reliance may be what the country needs.

The progressive's immigration dilemma

The freedom and wellbeing of all human beings should be important to us, regardless of their race or nationality. Because migration allows very poor people to dramatically improve their lives, often increasing their income by an order of magnitude, we should have a strong preference for more liberal migration laws in the developed world, particularly laws that favour low-skilled workers from the poorest countries.

The progressive’s dilemma is usually seen as being the fact that higher levels of immigration seem to make voters support redistributive domestic policies less. People are less happy to share with people who aren’t much like them. David Goodhart discusses this here. But this is a two-way street: the more redistributive your state, the more sceptical voters are of (at least low-skilled) immigration – this polling seems to reinforce that.

This might be aggravated in cases where immigrants don’t do much or even have a negative effect on the wages of low-skilled native workers. Not only are these guys competing with you for welfare, they’re driving down your wages too – even if theirs are rising by five hundred percent, yours falling by five percent still hurts.

But that isn’t usually what actually happens: immigrants to the UK generally don’t drive down native wages, even for low-skilled workers in the medium-to-long-run, and in Denmark they actually seem to have had a significant positive effect on low-skilled workers’ long-term earnings. In the US, there is a big positive link between immigration and native productivity (which eventually translates into higher wages). In the UK that link is also positive but is very small, almost zero.

However, in France, immigrants do seem to hurt work outcomes for natives – both in terms of jobs and, for short-term contract workers, wages.

What explains the difference? The authors of the Danish study say Denmark’s flexible labour market is what allowed the market to absorb immigrants to make everyone better off, and the author of the French study says the rigidity of France’s wage structure is what makes immigration harm natives. Incidentally, the UK, where immigrants have a fairly neutral impact on natives, is roughly halfway between those two countries in terms of labour market flexibility (according to the Heritage Foundation’s Index of Economic Freedom).

This trend seems to hold across Europe: the more rigid a labour market, the worse immigration is for native workers. That must be a factor in considering the costs and benefits of any given labour market regulation.

Poor people's lives are made enormously better off by moving from poor countries to rich countries. Thanks to remittances, migrants also may have a significant positive impact on their home countries. For any progressive who wants to improve human welfare, facilitating more immigration from poor to rich countries should be an overriding priority.

Not only does a big welfare state reduce the number of immigrants that are politically accepted, a heavily regulated labour market seems to be associated with immigrants having a worse impact on natives. Even policies that seem like they would be good for Britons might still do much more harm than good if they make Britons less willing to accept higher levels of immigration.

This is a serious dilemma for any progressive who wants all humans to live good lives, not just ones of the same race or nationality. It means that these political concerns alone may demand a low regulation, low redistribution state.

Let the Mediterranean refugees come to work in Britain

There probably is no solution to the current Mediterranean refugee crisis, but letting more refugees come to Europe as economic migrants may be a viable way of at least making some people better off. Last week at the European Students for Liberty Conference in Berlin I listened to Martin Xuereb, Director of the Migrant Offshore Aid Station, describe the situation. He emphasised that 'push' factors beyond our control, like civil wars in Syria, Libya and Somalia, and poverty in general were far more important in driving people to come across the sea than 'pull' factors like rescue boats.

These people are desperate, he said, and the possibility that they might be found by a search-and-rescue team if their boat sinks isn’t likely the main thing on their minds. Though no doubt that is a factor.

Given that these push factors are so strong, I suspect there isn’t anything humane we could do to stop the boats. It’s unclear how strong a pull factor the search-and-rescue boats are, but I’d weigh the certainty of stopping at least some people from drowning very highly against the indeterminate number of people incentivised to come because of them.

As Left Outside says, many of these people partially economic migrants as well as being straightforward refugees. Most of the evidence says that economic migration is positive overall and does little or no harm to the wellbeing of even low-skilled native workers. But refugees may be different – since they are mostly being ‘pushed’, they may go to countries where there are no jobs. (Economists would call this an ‘exogenous’ shock, because it’s being driven by factors beyond labour market supply and demand.)

I’ve looked at two papers that study the impact of refugees, rather than normal economic migrants, on native wages and employment.

The first, by David Card, looks at the impact of a very large number of Cuban refugees to Miami after the Mariel Boatlift in 1980 – around 125,000, which led to a 20% increase in the number of Cuban workers in Miami and boosted the city’s workforce by 7%. Card notes that the data available here is extremely comprehensive and detailed, making this a very good case study to look at.

Most refugees stayed in Miami, and comparing Miami to other Floridian cities over the same period after the boatlift Card finds no effect on the wages or employment prospects of native low-skilled workers, including black or other Cuban workers.

To be fair, Miami may be an exceptional case, because it was used to a steady stream of Cuban immigration, though at a much smaller rate, and so had a significant amount of industry that could absorb new low-skilled labour, and language problems may have been less of an issue (though language difficulties might not be such a problem, at least for men).

The second study might get around some of those problems. Mette Foged and Giovanni Peri looked at refugee influxes from Yugoslavia, Somalia, Iraq and Afghanistan to Denmark between 1985 and 1998.

These refugees were distributed evenly across the country’s municipalities without any regard to labour market conditions. This counts as an ‘exogenous shock’, like the Miami case and like an new influx of refugees to the UK would.

Forty to fifty percent of these immigrants had only secondary school education or lower and “were in large part concentrated in manual-intensive occupations”. By allowing for a deeper division of labour, the “refugee-country immigrants spurred significant occupational mobility and increased specialisation into complex jobs, using more intensively analytical and communication skills and less intensively manual skills.” That meant that native workers who might otherwise have done low-skilled jobs were able to move into more specialised, productive, highly-paid work.

As with the Miami study, Denmark may have some factors that make it special. Its labour market is very flexible and competitive, so it is easier for workers to move between industries and easier in general for people to find jobs. But that’s generally true of the UK too.

In both of these studies, the result is clear that quite large influxes of refugees driven by ‘push’ factors still did not have negative effects on natives, and in Denmark’s case had significantly positive effects.

Clearly this is not comprehensive and clearly there are other factors to consider (such as crime and, at least in the Syrian case, terrorism). But it does suggest that allowing more refugees into Britain should not be harmful to native Britons’ job prospects or wages, and may be beneficial to them.

Creating something like a guest worker programme for Syrian or Somali refugees would not stop the boats, but letting more come legally and safely would free at least some people from the nightmarish civil wars that they are now risking their lives to escape.

Well, that's markets for you

Not only is this markets for you it's rather the point of markets for you:

The Co-operative Group has told its members that it cannot make an enhanced commitment to stock Fairtrade products because of tough competition among supermarkets and its shift towards convenience stores.

The UK’s largest mutual made the remarks in response to a motion tabled ahead of the upcoming annual general meeting asking for the commitment to Fairtrade – for which the group has prided its link in the past – to be reiterated and also retain the long-term strategic objective that that if a “Co-operative product can be Fairtrade, it will be Fairtrade”.

Saying it could not back all elements of the motion, the board blamed the current financial position of the group and “the austere market climate we continue to face and the strategic direction of the business into convenience shops which naturally increases pressure on space and range”.

There are some out there who desire to purchase Fairtrade products. We don't share that view, thinking them to be counterproductive at best, but we absolutely defend the more basic idea. If your worldview means that you either desire to, or desire not to, purchase products made in a particular manner, or place, of by a certain group of people or not, then that's rather the point of having a market economy. So that you may do so. If enough people share those values of yours then you might even be lucky enough to find that supply arises to meet your desires. This is true of bread without alum, of meat that isn't rotten, of food prepared to certain religious standards and, yes, to things made by poor people in poor countries. It's wonderful, it's glorious in fact.

However, it is worth noting that perhaps not everyone shares your particular worldview. As here: the Co Op finds that while there's enough people who care about Fairtrade to make it worthwhile not enough people care about it to make it compulsory. And that's where we'd slightly argue with the description of it being "competition" that causes this. Because yes, OK, the supermarkets are in competition to sate our desires. And some of us do desire to pay higher prices to provide that outdoor relief for the dimmer children of the upper bourgeoisie that is the real result of Fairtrade. But not all of us: and therefore it's not really the competition between the supermarkets being the problem here, it's that not enough of us Britons share the initial worldview.

Which is, again, one of the great glories of this free market idea. You get to maximise your utility by purchasing things made in the manner you approve of and so do I, we, them and they. According to our different estimations of our own utility.

New ASI briefing paper: The Ties that Bind

The ASI has a new short briefing paper, The Ties that Bind: Analysing the relationship between social cohesion, diversity, and immigration by James Dobson. Its key findings:

• Social cohesion is the strength of interactions between members of society. These interactions are characterised by a number of norms that include trust, a sense of belonging, and a willingness to participate.
• Measures of social cohesion include generalised trust, interpersonal trust, civic participation and volunteering.
• Evidence from the US suggests a strong relationship between rising diversity and lower levels of generalised trust. There is much less evidence for a relationship between diversity and other measures of social cohesion in the US.
• There are some cultural reasons to suspect that American evidence might not fully apply to Europe and the UK.
• European evidence at a national level does not suggest a negative relationship between diversity and trust or other social cohesion indicators.
• Evidence from the UK is mixed. There is some evidence to suggest an association between higher diversity and lower generalised trust – yet there is also conflicting evidence which finds no such association.
• There is little evidence to suggest a negative relationship between diversity and other measures of social cohesion such as: civic participation, trust in authority, or voluntary work in the UK.

Read the whole paper here.