The rich will pay more if you tax them at a flat rate
That first priority is particularly interesting, because many of Bush’s economic advisers are urging him to tear up the 55,000-odd pages of the US tax code and to follow the lead of nine other countries by replacing it with a simple, flat-rate tax.
Indeed, that is what his own administration has done in Iraq. Two months ago, Paul Bremer, administrator of the Iraqi Provisional Authority, signed an order establishing at 15% flat-rate tax in that country from 1 January. So who knows, Bush’s planned US tax reform might be “fundamental” indeed.
The idea of the flat tax is that everybody above a set threshold pays the same rate of tax. You simply scrap the complicated banding system of progressive rates, where big earners pay a higher rate of tax than middle earners, middle earners pay a higher rate than low earners. Out go the intricate adjustments depending on people’s age or marital status, and all the other exemptions, concessions and rebates deemed necessary to make a progressive tax system look remotely fair. With flat tax, the poor pay nothing.
And if the flat tax is back in fashion, it is because all of the nine countries that currently levy it have discovered it works. Three British outposts started things off. Hong Kong’s 1947 Inland Revenue Ordinance created a system that allows people to choose whether to pay a flat rate or to stick with the progressive system. Jersey in 1940 and Guernsey in 1960 switched from the British tax code to a flat rate of 20% on both individual and corporate income.
But more recently it is Russia and several of the former Soviet-bloc countries that have shown the world the potential of the flat tax. The Baltic states of Estonia, Lithuania and Latvia, plus Slovakia – all members of the European Union (EU) – have adopted it. So has Russia – a Group of Eight country – and Ukraine. And in every case they are feeling the benefit.
They have found that when you scrap all the complex rules and loopholes, you can set quite a low rate. Most of them have rates around 20%, though Russia leads the pack with just 13%. And when rates are that low, it is not worth people trying to evade it.
In a progressive system, failing to report a dollar’s worth of income might save you 50 or 60 cents, making evasion attractive. But it is not worth the risk of being caught if an unreported dollar saves you only 13 cents. Nor, if you want to stay legal, is there much point in hiring expensive advisers and setting up elaborate tax shelters.
Countries such as Britain, where the progressive tax system is particularly complicated – the tax-adviser’s bible, Tolley’s Tax Guide, now runs to 7,344 pages across four volumes – end up supporting an entire industry of lawyers and accountants, all devising elaborate avoidance schemes, often parking clients’ money offshore. But again, if all this feverish avoidance saves you only 13%, it becomes hardly worthwhile.
So the flat-tax countries are finding that – despite their low rates – revenues are increasing. Slovakia, which in October 2003 agreed a 19% flat tax on personal and corporate incomes – replacing an old system with a top rate of 38%, 90 exemptions, 19 potential sources of untaxed income, 66 tax-exempt items, and 27 items with specific tax rates – is a case in point. Slovakia’s finance minister, Ivan Miklos, told me: “I lost three nights’ sleep worrying about this proposal, which I expected not to be popular. But then I reasoned that keeping our old system would be even more unpopular, so we just did it.” Now, he says, the combined revenues from income tax and all the taxes he cut, are rising.
Russia found just the same after it scrapped its complicated system. In 2001, the first year under its flat tax, income-tax revenues were 28% higher than in 2000, and rose 21% in 2002 compared with 2001. In 2003 they rose even more.
The fact that low tax rates produce higher revenues puzzles politicians – even though it should be obvious that when rates are high, people will work less, avoid and evade more, and so pay less tax in total. Not just the new flat-tax countries, but even traditional countries such as America and Britain provide ample proof of it.
In the early 1920s, US President Calvin Coolidge cut the top rate of tax from 73% to 25%. Revenues increased as the US economy boomed. In the 1960s, John Kennedy cut the top rate from 91% to 70%: again, the economy prospered and revenues rose. Over the 1980s, following Ronald Reagan’s drastic pruning of the top rate from 70% to just 28%, total tax revenue nearly doubled.
It used to be thought that a flat tax would benefit only the rich. But in fact, low tax rates leave the rich paying more of the revenue. In 1979, the richest 10% of the UK’s earners paid around a third (35%) of all income tax. When Margaret Thatcher became prime minister she slashed the UK rate from 83% to just 40%. By the end of the Conservatives’ administration in 1997, the top 10% of earners were paying nearly a half (48%) of all income tax. Escaping the tax had become less than half as worthwhile. The same thing happened with each one of the United States tax cuts. And now the flat-tax countries are finding the same: when rates are low and flat, the rich pay more.
The transparency of the flat tax is also boosting competition between countries. The Estonians have found Russia and Latvia so successful at stealing business away from them – and see a further threat looming from Slovakia – that they now plan to cut their 26% flat-tax rate to 20%.
The message has not been entirely lost on Old Europe, either. Germany’s Chancellor Gerhard Schröder berated the Slovakians for introducing such a low rate, but now his own government has cut its rates for higher and lower earners, and is increasing untaxed allowances too. Even socialist Greece is making cuts.
Flat tax is back in fashion because it is clearly not just a rich man’s dream (as some thought when multimillionaire Steve Forbes made it the basis of his 1996 US presidential bid). On the contrary, the rich pay more, while the poor pay nothing. But it does promote enterprise and growth. Income is taxed only once, so the double-taxation on savings and investments is ended. Less time is wasted filling in forms or trying to escape tax. A simple and transparent tax system is more attractive to foreign investors.
A British or US flat tax might come in at around 20%. And just in case Bush or Blair are not fully convinced of its merits, they should reflect that the idea is even being discussed in China. Now a quarter of the world’s population signing up for the flat tax really would be a “fundamental reform” of taxation.
Dr Eamonn Butler is director of the Adam Smith Institute. This article was originally published in The Business on 21 November 2004.
Wealth depends on the rule of law
Property rights are the rules on ownership, use, and transference. It’s not just physical property like land – it could be rights like licences to develop something, hunting or fishing permits, and many other things. These are property, and their use is protected by formal laws like contract laws and property titles, but also by informal rules of custom and tradition. And those take time to build up. Sometimes centuries. The vital thing is that these rules must be enforced. You can enforce your own right of ownership by putting locks on the doors, but you need the authority of government too, to maintain the land registry and settle disputes; and that requires impartial and efficient courts. Governments have to get this right. Where there is no rule of law and proper enforcement of property rights, the rich do just fine – they can afford protection. But everyone else suffers. Too many countries have, not the rule of law, but the rule of men. When you have to get specific permission to do something, like start a business, then you depend on the officials who wield that authority. It is a formula for delay, bureaucracy – and corruption. Under the rule of law, by contrast, the rules of property are known, established, accepted and respected. Even the poorest people are protected by the same rules. And the government too has to work within the rules – there can be no arbitrary arrest, confiscation of property, or retrospective changes in laws and contracts. The rule of law and property rights work because they encourage people to take the risk of investing in themselves and their property. Private ownership also makes it more likely that property will be improved. If you rent a house, you have no reason to keep it in good repair or build a new room. If you own that house, then you know that the value you invest in repairs and improvements will come back to you when you sell it. The same in business: if you are working for yourself, you will make great efforts, becuase you could build up a business that will make you better off. But if you work for someone else, there is no reason to exert yourself more than you have to. Furthermore, if people have secure ownership of assets, they can borrow aginst them. That means they can build up the capital they need to start a new business and create employment and prosperity. In third-world countries, where people cannot enforce their ownership even of their own homes, they have no asset they can borrow on, and therefore they have no access to the banks nor ability to buy labour-saving capital equipment. Sound property rights make life a lot easier for the poorest, and open up opportunities for all – not just the rich. I know you have many problems in your legal system. I think many of them could be eased with very small changes in the rules, and by looking at best practice from other countries. But you need to clear that backlog, and do it fast, if you are to join the EU in five years’ time. Even more importantly, you need to do it because the rule of law is fundamental to building a market economy. You do not want to waste your energy on disputes about property. You want people to be secure in their ownership of assets, so that they improve them. You want the poorest people to acquire capital on the basis of a solid property right. That is the only way to create value, growth, and prosperity, and to spread genuind economic power throughout your population. Adam Smith, the eighteenth-century economist, wrote that prosperity depends only on peace, low taxes, and a good system of justice. Peace has not been easy to come by in your region. Tax reduction still needs a lot of work, though countries like Slovakia have shown the way. But you really must set to work on your justice system, and on speeding up the protection of property right, if you are to have any hope of future prosperity. Dr Eamonn Butler is Director of the Adam Smith Institute.
Free trade
Throughout the history of economic life, “free trade” has been the exception, not the rule.
Nearly a thousand years ago, the rise of Europe’s merchant class posed a challenge to the feudal system of the time. The merchants’ business was buying and selling, not working the land – so they owed no obligation to a landlord, and paid no taxes to the church.
But these feudal grandees found new ways to get their cut. They charged the merchants for transporting goods across their land. Or water: Cambridge’s riverside colleges became rich by charging tolls on every barge full of grain punted up from the fens to the town’s mills.
Monarchs had even greater powers to help them gain from the restriction of trade. Elizabeth I, keen not to be wholly dependent on Parliament for funds, sold monopolies in the manufacture and sale of a vast array of essential goods – salt, leather, glass, knives, sailcloth, starch, iron, paper, and more.
Then the tradesmen themselves started to use the system to rig markets in their favour. Under pressure from workers who knitted socks by hand, England’s government in 1623 outlawed a revolutionary machine that could do the job with much less labour. To defend other jobs, the importing of printed calico was made illegal. And cities prevented workers from coming in from other towns and competing with their own tradesmen.
The prevailing view was mercantilism – that a town or nation got rich by exporting as much as it could and importing as little as it could. To discourage imports, huge excise duties were raised on foreign goods like tobacco and brandy. And not surprisingly, a lively smuggling trade arose.
By 1776, the mercantilist doctrine had brought America into conflict with Britain, which wanted to use its colonies as cheap suppliers of raw materials and sell them back expensive finished goods.
But in the same year, the economist Adam Smith exploded the mercantilist idea in his influential book, The Wealth of Nations. A country’s wealth, he argued, lies not in the amount of silver in its vaults, but in the labour and enterprise of its people. Free trade benefits both sides: why build costly hothouses to grow grapes in Scotland, when you can buy wine cheaply from France? And his ideas led to the great Nineteenth-Century free trade era and the wide prosperity that came with it.
Yet protectionism has never been far below the surface. In 1930, the United States saw its domestic production threatened by ever-cheaper foreign imports, and raised tariffs on 20,000 different products. The measure led to wide retaliation that destroyed world trade and produced the chaos that led to World War II.
An enormous post-war desire to prevent a recurrence led to the establishment of GATT, the General Agreement on Tariffs and Trade.
Getting agreement, though, is always a hard slog. Some countries, particularly poorer ones, still cling to the mercantilist illusion. Others acknowledge the wider benefits of free trade, but still can’t resist favouring their politically powerful groups – Europe its farmers, America its steelmakers.
Understanding the merits of free trade, it seems, is not enough: if you want to have it and keep it, you also have to be tough.
Dr Eamonn Butler is Director of the Adam Smith Institute.
Oil price is a sign of global health for the environment
The media coverage of Russia’s long debate on Kyoto reminds me of the 1962 apocalypse movie, The Day the Earth Caught Fire, which closes with a printworker at the Daily Express waiting to learn whether the front page should read “World Doomed” or “World Saved”. After months of saying “World Doomed”, the papers this week were suddenly saying “World Saved”. Or at least, that the world would be saved, if only those anti-social Americans and Austalians joined in.
The reality is not so plain. Kyoto is vastly expensive – perhaps $150bn (£84bn, E123bn) a year, three times what the world spends on overseas aid. But it will make a difference to global warming? If we spent as much on problems that we could do something about – delivering clean water and sanitation to the billions of people without them, tackling starvation, Aids or malaria, say – we could certainly save more lives, more quickly and more cheaply.
The European Union has blackmailed Russia into signing Kyoto for two reasons. First, Kyoto is seen as a benchmark of political correctness, so even if it achieves nothing, the more countries we get to sign, the better we feel about ourselves.
Second, Russia is full of cheap, abundant energy. That gives it a big competitive edge over Europe – or in the looking-glass language of Brussels, an anti-competitive edge. So in return for a Kyoto signature and a hike in gas prices, they dropped a demand for cuts in Russia’s farm subsidies. (The EU’s own extravagant farm subsidies mean it cannot be out-competed on that front, anyway.)
But now that all the big industrial countries have signed up, America and Australia will come under increasing blackmail to join the Kyoto crowd, too. The stock argument is that America is immoral to hold out because it is the world’s biggest polluter, producing 24% of the world’s CO2 emissions. Of course, it generates 30% of the world’s output too, so its pollution-to-product performance is better than those doing the criticising. But it seems rude to point that out.
Global warming is a serious problem, but it needs a measured response, not a pointless, frenzied one. Politicians do not understand the science any better than the rest of us. But it is the loudest and most strident interest groups who catch their attention and that of the media. So the papers report, and politicians accept, that we are heading at great speed towards a cliff and that we need to do something. Anything. But if you think you are heading at great speed towards a cliff, it is hard to act rationally. Our response has not been rational.
The scientists agree there is a problem, but not that there is a cliff edge. The Intergovernmental Panel on Climate Change thought that average surface temperature might increase by 1.4 degrees to 5.8 degrees Celsius by 2100. But all such predictions depend on a zillion assumptions, and most of the estimates making up this figure are on the lower end of that, about 2 degrees or 3 degrees. That could cost us (on more heroic assumptions) between $5 trillion and $8 trillion, which is a few months’ worth of total world gross domestic product.
This is hardly trivial; but as I say, the world has lots of other non-trivial problems. We need to order our priorities. And the threat of global warming is, in important ways, a limited and indeed self-limiting problem.
A rise of 2 degrees or 3 degrees would have a net impact of about zero in the developed countries. They have good technology to deal with it; and being located largely in the cooler regions, their agriculture, tourism and trade might all benefit. But the developing world, already mostly hotter and with poorer technology, would suffer a large negative impact. Rather than dashing around wildly, we should focus our response there.
We also have to understand that countries get dirtier before they get cleaner. Thanks to the environmentalist hype, everyone assumes wealthier countries pollute more. The opposite is true. Take particulates in the air, caused by burning wood, coal and oil. It’s nasty pollution, claiming many lives through respiratory diseases – remember the notorious London smogs? But on the basis of hard measurements since 1935 and informed guesses before then, it is plain that this form of pollution got worse and worse up to 1890 and then started to decline. Today, it’s lower than in the time of Queen Elizabeth I.
This is a curve that everyone has to go through. Hungry people do not have the time or the energy to care much about environmental damage. They are prepared to cough a bit more, or hack down a few acres of rainforest for pasture, if it means they can feed, clothe and educate their families. Only when they grow wealthy enough to stop worrying about their urgent basic necessities can they start thinking about buying themselves better environmental quality.
China is now the world’s second-biggest economy in purchasing-power parity terms. Its industrialisation will be very dirty. But its people will only be wealthy enough to join the rest of us in cleaning up the planet when they have gone through that growth episode.
And when they have, they will almost certainly end up rich and more technologically advanced. Which will make them much better allies in fighting global warming than they could ever be if we were to impede their rapid growth.
Oil has not gone over $50 a barrel because Iraq has made it scarce. Every decade since 1920 we’ve been told that the world’s oil reserves will run out soon, and every decade we discover more of the stuff. Today we have more oil (and gas and coal) than we have ever had.
Our known shale oil reserves would keep us going for millennia. The trouble is that, after we have drilled the easy stuff, the rest becomes more difficult and more expensive to extract. So the cost rises. While on the demand side, China and others are soaking up vast oceans of the stuff to fuel their dash to development. It’s simple supply and demand.
The oil age is ending – not because we will run out of the stuff, but because other forms of energy are becoming cheaper. The cost of renewables has halved for three decades in a row. That cost does not have to keep falling so steeply for renewables to become competitive with fossil fuels by 2050.
We don’t need politicians or regulators to tell us to switch – market prices will tell us clearly enough. It is the market, not misplaced regulation, which will set the limit to the global warming problem.
Wasting billions now on Kyoto, or on vast uneconomic offshore wind farms, will not bring that turning-point any closer. Indeed, it will only make us poorer and less able to grapple with the world’s many problems.
Dr Eamonn Butler is director of the Adam Smith Institute. This article was originally published in The Business on 10 October 2004.
Blame politicians, not managers, for productivity gap
Britain's Economic and Social Research Council (ESRC) – a tax-funded research body – has produced another of its reports on productivity, arguing that productivity in Britain is 20% behind that of France and Germany.
That has provided a convenient peg for pundits to go on the radio and slag off British industry and management. Or to assert smugly that continental Europe’s more progressive social policies are obviously good for business.
What are these people on? If they believe that UK productivity is 20% behind that of France, all I can say is that their figures don’t mean much. The boffins might be better employed in examining the productivity of the ESRC itself, which costs £100m (E146m, $180m) – 14% up on the previous year – to produce all this useless research. Still, it gives academics something to do.
Business managers are not to blame for low productivity. You would be better to look to the public sector, which is now comprises more than 40% of Britain’s economy and is growing fast. Big, yes, but it’s notoriously unproductive. As I read through pages of newspaper advertisements for public-sector jobs, I wonder what output at all we get from the legions of local-government “walking officers” or “real nappy officers”, “youth and play service managers”, “democratic services officers” or “five a day officers” (who are supposed to encourage us to eat more fruit and vegetables, incidentally).
At least France’s public-sector hospitals have to compete alongside private ones, which must raise their efficiency. And they are locally managed, which helps. Britain by contrast tries to manage a million National Health Service (NHS) staff from the centre, on Stalinist lines. Heroic, but not exactly productive.
Education is run the same way and is another state near-monopoly. But go to Denmark, Netherlands, or Sweden, and you will see how the performance of municipal schools has soared as parents – armed with vouchers – have started to choose non-municipal schools more and more.
And Britain’s rotten education system has a wider effect on productivity. If you are turning out illiterates – and after 11 years of state schooling, about 7m British adults cannot read well enough to find a plumber in the telephone book – it hardly makes for a productive workforce. One boss told me of an assistant who filed things in random order because her “progressive” school had never taught the alphabet. Not great for office efficiency.
“The UK is behind France and Germany in terms of skills,” say the ESRC. Well quite, but don’t blame benighted managers, blame the politicians and civil servants who run education. And I wonder, too, how many British workers are struggling to be productive while coughing and wheezing due to bad health, or nursing the bad back that the NHS will not get round to looking at until it has become untreatably worse.
Planning and regulation are more ways in which an excess of government thwarts productivity. American retailing is 40% more productive than Britain’s, say the researchers. Maybe that’s because all development is resisted in Britain, forcing retail rents sky high and squashing stores into impossibly small sites. Try steering your trolley round a British supermarket and you will agree: the aisles in America are eight-lane highways by comparison.
And recently, the European Union (EU) has been passing about 100 directives and 2,400 regulations each year. Bad enough for anyone, but worse for the British, who, because of their quaint legal tradition actually feel obliged to enforce them. And indeed, to specify in intricate detail what they should mean – gold-plating, as it is known in the trade. So the cost of regulation on Britain’s business comes in at £20bn a year, according to the Chambers of Commerce. With overheads like that, it’s surprising British business manages to produce anything at all.
If Britain’s regulations are over-burdensome, so are its tax rules. Tolley’s Yellow Tax Handbook, the essential guide to the tax system, comes in at 7,344 pages this year, across four volumes. How many accountants do businesses have to employ to keep on the right side of the Inland Revenue when they are up against that? And what does it do to their productivity?
Burdensome taxes also curb investment – and thus productivity. High rates of inheritance tax – Britain levies 40% on estates as small as £262,000 – hardly induce people to think over the long term. But not to worry. A short while back, Chancellor Gordon Brown introduced a Research and Development Tax Credit, designed to get companies to invest. Trouble is, as an Ernst & Young survey found earlier this year, most firms had never heard of it, most of those that did thought it was not worth the paperwork of applying, and 40% of those who did apply found the Inland Revenue coming back to them with yet more questions.
Of course, one explanation of the productivity gap between Britain and France or Germany is that the latter have more capital invested per worker. I am sure that is true. But does it mean that Britain’s managers are perversely resisting mechanisation? No. What it means is that Britain’s labour market is much more flexible. Try firing someone in France or Germany and you will be in for a nasty shock. So you don’t employ people, you employ machines. Which is why Britain has lower productivity. And why Germany has unbearable unemployment. On balance, I think we have the better of that deal.
Dr Eamonn Butler is Director of the Adam Smith Institute.
Helping the public to go private
The schools’ charitable status has the perverse effect of encouraging them to plough any surpluses into yet more capital investment in facilities and equipment. Money that a private firm would distribute is instead put towards a new library, sports hall or information technology centre.
These additional facilities can be justified as extra selling points. They make the school more attractive to potential customers. The glossy brochure highlights the extra amenities as a competitive advantage, giving the school an edge over its rivals. A school that fails to add a modern science laboratory or an IT centre risks losing potential pupils to those that do. One headteacher recently compared this to an arms race in which schools spend on ever more expensive facilities simply to stay abreast of their rivals.
High on the list of other factors that make independent schools too expensive is the absence of a genuine competitive market. Real markets tend to be characterised by the widespread availability of information, by competition on price and quality, and by choices made by consumers. Independent schools have what is, in effect, a captive market.
The way the state organises its schooling is such that, in some areas, parents see private schools as the only way to ensure a decent education for their children. Those lucky enough, or devious enough, to live within the catchment area of a good state school can secure a high standard of education from the state. Others have to pay for it themselves. This does not put them in a good bargaining position with respect to private schools. It is one reason why they have to seek out the school place, rather than have the schools seek out their custom.
In most markets, the ability of newcomers to enter keeps the established suppliers on their toes. This is not true for fee-paying schools. The regulatory and planning hurdles that have to be cleared make it difficult, expensive and time-consuming to establish a new school. As a result, the innovative ideas and approaches that newcomers bring are largely absent from education.
A further reason why private education remains a luxury product is that its market is limited to those who can afford to pay twice. Parents who pay for a private school place have also to pay in full through taxation for the state school place that their child does not use. If anyone who bought produce from Tesco had also to pay Sainsbury’s for similar goods without using them, the economics of supermarkets would be very different.
The point about the fees charged by independent schools is not that they are too high for their existing customers. This is indicated by the fact that they have been increasing faster than inflation and by the steady increase in the numbers of fee-paying pupils. The point is that they are too high for a range of potential customers eager to secure an alternative to state education but unable to afford the premium, luxury product that is offered as the only alternative.
There are some similarities with the way the airline industry used to be organised. When nearly all airlines were in a cartel which mandated virtually identical prices and services, individual carriers used to compete on the basis of their food or their “friendliness”. The choice was straightforward: if you could not afford the high-price luxury product, you did not travel by air.
The industry has been very different since deregulation allowed entrepreneurs to tap new markets. There are now less costly alternatives, including travel along different routes, new types of service and a range of products at different prices. Perhaps there are equivalent markets waiting to be tapped in private education. Opinion polls indicate that the demand is there.
Several educational entrepreneurs are now talking in terms of new private schools that would charge fees not very different from the costs of a state education. The Conservative Party’s “school passports” would allow parents to choose such schools as alternatives to their local state schools. These schools would come without the centuries of tradition or the luxurious facilities, but they would offer a high quality education at an affordable price. There could be chains of successful schools reproducing the winning formula and management methods that bring results.
The future of private education may well be one of diversity of products and prices. There will still be luxury private schools at the top end of the market, as there is still British Airways first class travel. But just as easyJet and Ryanair have brought the joys of flight to many more people than could afford it before, so it may be time for new types of fee-paying school to spread the benefits of private education to a wider public.
Dr Madsen Pirie is president of the Adam Smith Institute. This article was originally published in the Daily Telegraph on 3rd June 2004.
The selfish greens
What we have discovered is that as our planet, the Earth, evolves it keeps its climate and its chemistry always fit for life, and the invisible hand that regulates the Earth System operates through feedbacks, negative and positive, between its living and non-living parts. But this knowledge, Gaia theory, is still in the domain of specialist science and is not yet understood or applied in the public world. As in politics, it took a long time before we recognised that feedback from market forces can not be ignored, so I suspect that we face a similar slow learning process about our relationship with the Earth. We are still trying to shape it to our ends and needs and we ignore, even disable, its own powerful guiding hand; in our hubris we believe that we can be stewards of the Earth long before we understand it. Perhaps Earth science and economics have more in common than we used to think.
It seems probable – even likely – that we will face huge environmental disturbances as this century evolves. But there are no certainties about the future, only probabilities, and there may be little or no global warming; we might even undo some of the harm we have done; or we might be rescued by a natural event, such as the eruption in sequence of large volcanoes each the size of Tambora. This would put the Earth back on course towards the next glaciation and leave us free to continue burning fossil fuel. But we would be unwise to continue with business as usual and expect something or other, natural or man made, to save us from the revenge of our outraged planet. It would be as inept as for a heavy smoker to assume that good genes or good luck will save him from its consequences.
European politicians appear to accept the near inevitability of global warming but, oddly, turn to the Green Movement and its lobbies for guidance, more than to their scientists. I see myself as a Green but I speak this afternoon as a scientist and I want to show that in spite of their good intentions, the majority of the Greens are unaware how serious are the global changes that soon may come; consequently, their advice to governments may be flawed. Indeed nea rly all of us see the world in humanist, not scientific, terms and it is too easy to be mistaken.
So how did it all begin? Rachel Carson’s book Silent Spring, is said to have started the Green movement; it was a book concerned with the natural world and the threat to bird life from pesticides. As the movement evolved it became politically active and soon it was people not birds that were seen to be threatened by the products of industry; it reflected the fears and prejudices of its mainly urban membership and showed less concern for the natural world. Two centuries ago, in Adam Smith’s time, it was natural and traditional to be concerned about people; there were less than a billion of us then and nothing we did significantly harmed the Earth. At that time we believed that the Earth was given to us and that we were in charge of it as its stewards. As population and industry grew we did not notice, until recently, that we were changing the atmosphere and the surface of the Earth. We ignored the fact that we depended on the other life forms not only for food but for the air we breathe and the climate we enjoy. Because we are by nature self-interested we took it all for granted and rarely ever noticed how much we depended on the Earth and were part of it. The all pervading error of the modern Green movement is its self indulgence, which has led to a near hypochondriac obsession with personal hazards to health such as: pesticide residues and other unwanted chemicals in foodstuff, nuclear radiation, and genetic manipulation. To judge from the supermarket shelves we seem to have the illusion that if the whole planet were farmed organically all would be well. We so ignore the Earth that we fail to see that the regulatory functions of natural ecosystems cannot be simply replaced by farmland.
With more than six billion hungry mouths to feed, and a burgeoning accumulation of greenhouse gases from our heavy industrial past and present, there is no returning to the romantic illusion of a pre-industrial Earth. We are like the driver of a car going down a steep hill who finds the brakes have failed. We could take our foot from the accelerator pedal but instead we chant the mantras of renewable energy or sustainable development. These will not undo the harm done, and we would have to stop what we call development altogether; there are just too many of us living the way we do now. What we need is damage limitation.
Renewable energy might be a good idea in the long term, and is a showy way for politicians to prove they are doing something, but it is already too late to expect it significantly to ameliorate the present crisis; global warming is already happening and is likely to intensify. To supplement the feeble energy supplies from renewables by lashings of natural gas is a risky option, particularly for the UK. The European encouragement of subsidized renewable energy might be justified were there no alternative tried and tested energy source but we do have clean and safe nuclear energy and it is immediately available. The Green objection to it is unscientific and perverse, but they have preached against it until some European governments have been forced by fear of disapproval to go against the public good and allow it to be phased out.
In January this year a conference was held in Cambridge organised by the Eart scientists, John Shepherd and Harry Elderfield, to discuss other ways that might serve to ameliorate global warming. The delegates presented a set of ingenious and well considered remedies. These included: space mounted sunshades, a method for increasing cloudiness over the oceans, and the removal of carbon dioxide from smoke stacks or even from the air. Unfortunately, none was free of disadvantages or available now. We left the meeting realising that it is easy to make mistakes when knowledge about the whole system is lacking and we are still amazingly ignorant about the Earth system. The economist, Shimon Awerbach, reminded us that the magical appearance of a completely clean, safe and economic source of energy would do little to stop the burning of fossil fuels; such is the human tendency to over consume. Indeed, the widespread use of wind turbines in Germany has been accompanied by an increase in coal combustion, the dirtiest of all fuels. The Earth system, Gaia, functions because within it are powerful restraints to growth, as we will soon discover. We have to make our own restraints if we are to avoid those the Earth will surely apply. Perhaps the unreasoning fear of nuclear energy is an advantage for it implies a built in restraint.
So what will happen and what should we do? I have heard of three alternatives but there may be more. The first is laissez faire: just continue to enjoy a warmer 21st century while it lasts, and make cosmetic attempts to hide global warming. I suspect that this is what will happen in much of the world. Second, is the deep Green way: eat nothing but organic food, use nothing but renewable energy and raw materials; and use alternative not scientific medicine. Either of these policies might restore the Earth to health but at the cost of a massive reduction in the numbers of people and possibly the loss of some civilizations as well. There may be a less unpleasant way: the high tech road. It would require us to take global change seriously and do our best to lessen the footprint of humans on the Earth. It would involve these things: first and most important, no more natural habitat destruction anywhere. To attempt to farm the whole Earth to feed people would make us like sailors who burnt the timbers and rigging of their ship to keep warm.
We must embrace science and engineering, not reject them; we need their skills and inventions to lessen our impact on the Earth. If more food comes from less land by genetic engineering then use it; better still, if food can be synthesised by the chemical and biochemical industries from carbon dioxide, water and nitrogen, then let’s make it and give the Earth a rest. We need a portfolio of energy sources, with nuclear playing a major part, at least until fusion power becomes a practical option; and we must stop fretting over the minute statistical risks of cancer from chemicals or radiation. One quarter of us will die of cancer anyway, mainly because we breathe air laden with that all pervasive carcinogen, oxygen. If we fail to concentrate our minds on the real danger, which is global warming, we may die even sooner, as did more than 20,000 unfortunates from overheating in Europe last summer.
We are like passengers on a large aircraft crossing the Pacific Ocean who suddenly realise just how much carbon dioxide their plane is adding to the already overburdened air. It would hardly help if they asked the captain to turn off the engines and let the plane travel like a glider by wind power alone. The Kyoto agreement and the Government White Paper on energy use are like this, small changes in the right direction but insufficient to alter the course of events and inadequate for stirring the altruism needed to curb emissions and our pressures on the land. My hope lies in that powerful force that takes over our lives when we sense that our tribe or nation is threatened from outside. In wartime we accept without question the severest of rationing and will readily offer our lives. Perhaps when the catastrophes of the intensifying greenhouse become frequent enough we will pull together as a global unit with the self restraint to stop burning fossil fuel and abusing the natural world. Astronauts who have had the chance to look back at the Earth from space and see what a stunningly beautiful planet it is often talk of the Earth as home. Greens, let us put aside our baseless fears and be brave enough to see that the real threat is to the living Earth, which is our nation and our home.
Talk at the Adam Smith Institute, 15th March 2004
Making super-size dupes of us all
The BBC – Britain’s politically-correct state broadcaster – got in on the act too, heralding the movie with its own ‘Healthier Britain Week’ and commissioning opinion polls claiming that the Brits are desperate for government to save them from their bad eating habits.
But this movie is in the worst tradition of that other ‘documentary’ producer of Bowling for Columbine and Fahrenheit 9/11, the (even plumper) Michael Moore. These movies are all pieces of advocacy, rather than an objective analysis of a key social issue. Certainly, they deal with important issues – America’s gun culture, events leading up to 9/11, and obesity. But they are all a clever, cynical and misleading use of film by partisans of the anti-conservative, anti-business cause. They pose as objective, but use the most misleading tricks of spin to promote a particular case, artfully deploying humour and emotional tricks to make us believe it.
The trouble for corporations like McDonalds and conservative politicians like George Bush, is that when these movies are done well, they make oodles of money, so their creators just go on and do more. Bowling for Columbine set the trend as the biggest grossing ‘documentary’ of all time, and now you cannot escape Moore in any cinema, bookshop, or even party convention. Spurlock’s effort cost $65,000 to make and had soon grossed over $10 million.
But it’s power without responsibility. However outrageous the spin, those attacked have no right of reply: websites like moorelies.com are hardly up to the job. Nor can these ‘social critics’ be voted out of office. And if they can convince other media like the BBC that there is truth in their claims (or even that it is just good entertainment), pretty soon the entire chatterati is peddling the same nonsense. It’s a perfect system for enthusiasts who can’t win an argument on the facts.
Superficially – and certainly in the headlines that herald it – Spurlock’s film suggests that eating at McDonalds all the time ruins your health and makes you fat. But it ain’t necessarily so. Certainly, eating three meals a day at the same burger joint is nobody-s idea of a balanced diet. But – if, after all the anti-fast-food hype you can believe this – it doesn’t have to make you fat.
You need to cram in 3500 extra calories a day over your natural metabolism (about 2500 a day for Spurlock, he tells us) to gain a pound. That’s a lot of eating. So Spurlock gorges at each meal, has hash browns alongside his breakfast, and drinks lots of fizzy sweet drinks and milkshakes. And just to make certain of it, he eats desserts with lunch and dinner, snacks throughout the day, and gives up any exercise at all.
This is eating absurdly – and for a purpose: the purpose of giving one of those nasty multinationals a poke in the belly. But, says Aaron Walker on the technology and business website techcentralstation.com, if Spurlock had reduced his intake to extra-value meals and had one less soft drink, he could easily have maintained his intake at 2500 calories. It’s not the restaurant that leads people to gain weight, it’s their choices.
That’s the problem. Movies like this send out a powerful message – the wrong one. The message that we’re not responsible for what we do, it’s all the fault of the wicked corporations. And that mind-set makes things perfect for the lawyers to move in and target these companies’ cash. Having bankrupted tobacco, now they’re working over fast food. What’s next? Booze, with Spurlock giving up water and drinking only spirits for a month? Snack foods?
But why should law-abiding businesses be castigated if we abuse their products? Like all businesses, McDonalds offers choice. You don’t have to force down ice-cream desserts. You can eat salads and drink water. Or go somewhere else.
We have become convinced us that only government save us from business, and from ourselves. Sadly, it does the opposite: why act responsibly when there’s a free state health service to patch you up afterwards?
MacDonalds have tried to fight back, saying how nutritious their food is. But this isn’t about rational argument. The ‘comedy-documentary’ genre has already taken things out of the realm of rationality. Hitler’s propaganda minister, Joseph Goebbels, knew that it was no good blaring out party slogans. Get people into the cinema with a good romantic movie, entertain them, and you can slip in the message underneath: subtle, emotional, powerful.
Corporations have been inventive at creating positive messages through their advertising. But there is no point in trying to argue facts against a movie like Super Size Me. They now have to learn to use some of the same techniques to defend themselves against the unfair, misleading, negative messages that the ‘comedy-documentary’ producers are popularizing. They’d better start getting good at it soon. Because now the anti-capitalists have learnt how to make a political point and clean up at the box office at the same time, they certainly aren’t going to go stop now.
Dr Eamonn Butler is Director of the Adam Smith Institute. This article was originally published in The Business newspaper.
Price Roads! Cut Taxes!
The Adam Smith Institute has long supported road pricing as the best way of paying for the scarce resource that is road space – a particularly scarce resource in many towns and cities at around 8.30 in the morning and 5.30 at night.
Huge unfairness. Research by Peter Mumford in the Adam Smith Institute report The Road From Inequity shows that the current system – where we pay for roads through tax on fuel – is completely unfair. People in rural areas have to drive long distances, so they pay a lot. But the roads they use are uncongested, there are few accidents, and they can drive at efficient speeds through relatively unpopulated areas. In towns, by contrast, people drive short distances and so pay little. But they contribute to major congestion, are involved in lots of accidents, cause noise nuisance to local residents, and generate extra pollution because their engines are running at low speeds.
Mumford estimates that the social costs imposed by urban drivers are seven times what they pay back in taxes. By contrast, rural drivers are overcharged three times for the cost of their road use.
For heavy vehicles going through towns in busy periods, the discrepancy is even greater. A heavy goods vehicle driving through a town centre at peak time imposes congestion, pollution, accident and noise costs that are a hundred times greater than those caused by the rural car user.
British industry estimates that billions of pounds worth of production are lost by road congesting, through wasted time, missed deadlines, failed deliveries. And that’s not even counting the sheer frustration of sitting in the jams!
Public transport use. If congestion charging allows traffic to run more smoothly, then it has benefits all round – particularly to the millions who use the humble bus. At the moment, there is no point in going by bus, because it is less comfortable, its timings are erratic, and it sits in the same traffic jam as everyone else. If traffic flows more smoothly, then buses run more to timetable, which makes them more attractive to use, which gets people out of their cars and on to public transport – a virtuous circle.
The London scheme
The unfairness and inefficiency of this system caused the Adam Smith Institute to look at how road pricing could be introduced, in its celebrated ‘Trafficflow’ project. We held a wide range of meetings and seminars with leaders from various cities throughout the UK – including London’s Ken Livingstone – and experts from motoring, public-transport and other bodies. And we published a report, Charging Ahead, which you will find on our Transport Issues and Publications pages.
Superficially, the plan we drew up for London looks a lot like what Ken is now doing. His map of the charging area is almost exactly what we proposed – we recognized that politically, it was important to get the South-of-the-River boroughs of Lambeth and Southwark in the scheme, even though the worst collection was in Westminster and the City. And there are other similarities.
Bad timing. But lots of bad ideas have crept in. For example, the London charge runs from early morning to early evening. We suggested it should be restricted to peak times only, which is when the worst congestion is. It’s 11am and as I look out of my window in Westminster’s Great Smith Street, I’ve seen precisely five cars go by in the last 60 seconds. When I look out at 8am, though, it’s nose to tail. So why keep the charge running all day? With a peak charge, drivers can spread their journeys to less congested times. With an all-day charge, you might as well continue to come in at 8am because it costs just as much to delay. And people on low incomes don’t get any option at all.
Moreover, the charge cuts out just as the West End is getting busy in the evening as people make their way into Theatreland.
Low technology. We also wanted to see an electronic road pricing system. The trouble with a ring system like London’s is that there are hard boundaries. So people just outside the ring find more and more drivers trying to park there, causing a local nuisance. With a more sophisticated electronic system, it’s possible to charge people different amounts in different rings or areas, so there are fewer boundary problems. And it’s also possible to charge different rates at different times – say to have a peak-hour charge, a shoulder charge (a little later in the morning) and a low or zero charge at quiet times in the middle of the day – which is both fairer and more efficient economically.
An electronic system, where roadside equipment checks a special device in your car, also allows better management of traffic. Information about how many vehicles are passing which points can be sent back to a central control room, where traffic lights can be adjusted to keep things running smoothly.
Manipulation. Of course, in London by contrast, people argue that traffic lights, road works and other obstacles have been managed deliberately to make the road pricing experiment work. Major development of Trafalgar Square has caused major traffic jams stretching right down to us in Westminster. And motorists complain that London’s traffic lights are set at red for much longer times than they were, as the Mayor tries – successfully, as it turns out – to discourage people coming in by car.
And then the Mayor has put a three-month ban on other major traffic works just as the congestion charging scheme comes in – which again, can be seen as a fraudulent way of making it look like a success, even if it really is not.
Black hole. And where does the money go? Well, in our researches we were definite that road pricing should be matched by a massive cut in fuel duty – perhaps to one-sixth of its present level. If road pricing is judged a success in London, then other cities will quickly copy it, but you can be sure that the Chancellor won’t be reducing the fuel tax. So road pricing becomes an extra charge, not a better way to charge, for road use. No wonder motorists are so deeply skeptical.
Our opinion polling found that motorists don’t trust politicians to use the money from road use wisely. Motoring groups already complain that, of the £32 billion raised in road taxes, £26 billion goes straight to the Treasury and is not spent on improving the roads. It will be the same with congestion charging. The politicians will get the money, and will probably use it for all sorts of pet schemes. Our solution was to vest the roads in an independent trust, which would use the charge income specifically to improve city roads to make traffic run more smoothly and improve the local environment for residents, walkers, and cyclists.
There are numerous other problems with the London scheme, such as the wide range of groups that are exempted. Congestion charging will work best only if everyone pays for imposing congestion on others. But people are likely to accept that only if there is a large corresponding cut in the fuel duty they pay.
The London congestion charging scheme is a bad scheme. But if it fails, it will put back the debate on road pricing for another twenty years, until we’re all in an even worse jam.