“When hedge-fund managers and the Communist Party see eye-to-eye on any question, it’s time to be concerned.”
– Peter Oborne, writing in OpenDemocracy.
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I’d like to avoid a literal, not figurative, civil war, which is now no longer a preposterous notion. That is why I want actual Brexit rather than something that means this issue never ever goes away.
Six months ago I could seen the point of a compromise ‘deal’, but that is no longer an option as it is now clear a good-faith deal was never what was being planned, even if it takes cooperating with a Marxist anti-Semite to make a Brexit-in-name-only or No Brexit at all happen.
So we are now at the stage where I too see the value of holding my nose and allying with quite literally *anyone*, given that my enemies are clearly willing to do exactly that.
Now that the liars & thieves within the HoC have revealed their true purpose in denying & attempting to actively thwart the Referendum result of 2016, civil strife & disturbance becomes inevitable.
Whilst I fully respect the amount of balls it took to post this, I will humbly suggest that Mr Oborne doesn’t quite understand the impact of yearly reporting and the importance of YOY growth to businesses and shareholders.
The lack of clear direction is more harmful than a No Deal brexit, from an economic viewpoint. Another year of uncertainty will be devastating, not a welcome break.
(From a purely personal view, all it would take for me to get onboard is to guarantee current EU citizens rights, and I’d be golden with No Deal. And I say that as a former soft brexiter)
I work for a Zürich based fund and our view is that brexit is a major cause of non-investment in the UK, but not for the reasons many think.
Markets quickly adjust, and not being limited by EU regulatory constraints present as many upsides for UK business as downsides, perhaps more. But if the Conservative Party is not just damaged but effectively destroyed due to agreeing a deal that is widely seen as a political fudge by a significant portion of its supporters, the most likely result is a highly destructive far-Left Labour government after the next election. That is why a great many investors will not risk capital in the UK at the moment, not brexit as such.
Bootleggers and Baptists?
I find the Peter Osborne post too silly to take seriously for its logic, though serious as showing what we must fight.
1) Osborne says the Tory party, whose members will elect the next leader,
This is so silly as to be insolent. Cameron gave the referendum precisely because the Tory party was dangerously divided and vulnerable on the issue, with the ‘swivel-eyed loons’ (aka normal Tory party members) trending one way and the Tory MPs/establishment trending the other. One way in which ordinary Tory voters rather than members signalled to ‘their party’ was by voting UKIP. The referendum had an unexpected result but its intended effect – these voters overwhelmingly returned to the Tories, and Tory party members calmed down, trusting the promise that “the Government will do what you choose”. Osborne’s paranoid fantasy of “UKIP infiltration’ is used to avoid the obvious truth that Tory party members are now behaving exactly as anyone with a clue would have known they would. There was a reason the vote was held. Cheating on it will return that reason in much stronger force.
Polls show a majority for “no deal” overall and in every mainland area except London and Scotland. Polls are untrustworthy and can swiftly change, but Osborne has no business claiming to talk as if a majority is not as supposable as when the vote was held. This is just bull.
Osborne here accepts the logic of his claim – that the next Tory leader and his freshly-selected MPs will be chosen by ‘UKIP infliltrators’ (or, as I would put it, the “cheerfully furious” heads of many a Tory constituency party and similar) and will be PM (else it would be Corbyn battling the EU or not).
So, why would the next government Osborne envisions take two years? As regards enforcing our departure , why should such a government take two weeks to revert to doing what was voted for? As regards post-leaving negotiations with the EU, will we be negotiating with them for two months, two years, ten years? We will find out. The phrase “two years” comes from someone who is not thinking about the future, but grabbing “don’t do that” arguments. I’m not impressed.
Also unimpressive is “Mrs May’s deal, however sensible and well-intentioned”. People lie to you for the same reason they punch you in the face – to make you do what they want, not what you would choose. Natalie, I and others have documented the very specific quotes that show how dishonestly-intentioned May has been. I knew long before this that elitists think it sensible and well-intentioned to keep us common people from really voting against things they really agree on, sometimes by force, sometimes by deceit. I would never have joined this blog if I swallowed that.
One could go on, and on, but why bother. Near the end, Osborne pretends to think the fine imposed on VoteLeave reveals something about VoteLeave, not the remoaners who imposed it. Osborne has chutzpah to defend Parliament’s turning “We will do what you choose” into “If you like your doctor you can keep your doctor”, and then pretend to believe that!
More commentary at HuffPo – https://www.huffingtonpost.co.uk/entry/peter-oborne-brexit_uk_5caa4479e4b0a00f6d414e69
But he counters that the “bitter and angry debate” since has led him to conclude that “this is not just a simple problem of whether or not we are patriots”.
He says: “I readily accept that the European Union is a dysfunctional body beset by all manner of problems. But the lesson of the last two years is that we are much better off working inside the EU … for reform and not as a hostile neighbour.”
He also fears that “like almost everybody else” the importance of the Good Friday Agreement that brought peace to Northern Ireland has been “underestimated”: “We’ve all misunderstood the Irish question, even though it has loomed so large in our history for the last 500 years.”
After finally railing against the “false prospectus” offered by Brexiteers, he concludes the UK should “grab (Tusk’s) kindly offer of a year’s sabbatical”.
He adds: “Suspending Brexit will be greatly preferable to the alternative. How many important decisions in our own lives, too, have had to be taken on such a chilly and unexciting consideration? It’s time for a long pause.”
“When hedge-fund managers and the Communist Party see eye-to-eye on any question, it’s time to be concerned.”
Especially if you have money in that particular hedge fund.
Surprise surprise establishment stooge with nary an original thought in his head, returns to the fold, for maximum propaganda value.
He also fears that “like almost everybody else” the importance of the Good Friday Agreement that brought peace to Northern Ireland has been “underestimated”: “We’ve all misunderstood the Irish question, even though it has loomed so large in our history for the last 500 years.”
Its a manufactured issue, much like the majority of “debate” in the MSM.
Oborne, kiss my ass.
The arguments for Brexit were never economic. It was always about freedom and democracy .
Was Mr. Osborne seeking compassion from his countrymen with the observation that: “MPs are at the end of their tether. The cabinet is harrowed and exhausted.” ? Poor dears! I bet the guys at the end of D-Day felt much the same — but they kept on going.
The one indisputable thing the events of the last few years have shown is that the root of most of the UK’s problems lies with the foolishness, venality, and incompetence of those MPs and the chosen elite in the Cabinet. Inside or outside the EU, fundamental reform is required in the governance of the UK — but so far, it is not on offer.
“The arguments for Brexit were never economic. It was always about freedom and democracy”
Dunno about that. I certainly heard a lot of arguments invoking economics. Protecting jobs and wages for the British workers was one.
I see Lunchtime O’borne has taken a break from shilling for Imran Khan to write drivel about a different topic.
Two remarks.
1) In the Scottish indyref, it was noticeable (and tedious) how by far the most time was spent on economics even though the main difference there was “I’m Scottish, not British” versus “I’m Scottish and British”. Economics seemed to be an area of objective fact, so an area where each side imagined they could triumph over their enemies, could say, “See! Add my 2 and 2 here and reach my 4, you infuriating dissenter.” Arguing over nationality, feelings and etc., required greater understanding or at least greater polemical ability, and many have little ability to do more than shout their feelings as facts. The Brexit referendum had less of this but it was there. The attempt to reverse it has plenty of it. Osborne is a good example, superficially all about economics but repeatedly betraying his real concerns, e.g.
(Perhaps it is one thing to flirt with Brexit back in 2016 when Hillary was sure to be the next president, another when it is clear Trump will never be impeached.) I addressed those real concerns in my comment above, since Bruno W, above had already explained that – insofar as the UK economy’s currently outperforming the EU economy does not give the lie to his claims – the uncertainty caused by the policies Osborne is promoting is, of course, delaying investment. His “let’s dither and delay some more” policy will cause more of the problem he claims he wants to solve.
2) While many saw the freedom argument as the more important, there were economic arguments, and specifically government-spending-reallocation arguments in the Brexit referendum campaign. At the back of “Let’s spend our money on our own priorities” there was the patriotic emotion of “let’s us decide” and the freedom-oriented emotion of “it is better when decisions are made by the people concerned, not third parties professing to have their best interests at heart”, but over and above the “Let’s argue about numbers because they are objective – I insist you accept my numbers because I’m ignoring yours” there were straightforward economic arguments over the EU protectionism of the present versus the alleged UK protectionism of the future, and etc.
Niall Kilmartin – any chance you could post a link to those polls? I’ve been searching, and I only found polls from very soon after the referendum, suggesting that something like 42% of Leavers expected or wanted to stay in the single market post Brexit, which feels odd to say the least.
Peter Oborne is part of the very problem he complains about.
Mr Oborne writes for the Corporatist “Daily Mail”. Writes endless praise about Prime Minister Theresa May (a traitor to this country – and a fanatical enemy of liberty) and supports her sell out surrender “deal” with the European Union.
Peter Oborne is a liar and all-round-scum-bag who, for example, in his book on Iran pretends that the pro Soviet government in Iran was overthrown in 1953 to help ISRAEL – a direct lie, for Mr Oborne knows that what he writes is false.
As for the European Union – we could leave on April 12th 2019 (almost THREE YEARS after we voted for independence), but the Corporate Statist Theresa May has prevented this, fully supported by the Corporate Statist Peter Oborne, and the rest of Fascist Scum of the “Daily Mail”.
This is one of the better articles arguing against leaving the EU that I’ve seen.
“a resentful belief that decisions are actually made by remote and unaccountable elites” — It’s awfully depressing that to get something resembling free trade with Europe you have to put up with silly rules from the EC that are impossible to fight against. I blame the EU for all this, for overstretching its remit and not just focusing on removing barriers. The damage was done long ago.
“Jim Ratcliffe, the billionaire industrialist and Brexit apologist, who recently announced that he would be shifting his HQ out of Britain to save tax” — is this anything to do with the EU? If it is, perhaps it will be easier to reduce the size of the state, and reduce tax rates, outside of the EU.
“the WTO is fundamental to the Brexiteer economic model” — not really; I think unilateral free trade would work fine.
“Allegations of illegal overspending are deeply worrying” — meh, far more money was spent arguing for Remain.
“Investment-led growth has collapsed, and we need to stare that undeniable fact squarely in the face” — this is the meat of the article. Is it true? Will it continue? Or is it a result of short term uncertainty that will be resolved after we leave? And after, can we start working towards a smaller state that will encourage investment?
Rob Fisher: “I think unilateral free trade would work fine.”
This is an interesting (and important) issue. There is nothing new under the sun — the UK moved towards something like unilateral free trade in the second half of the 19th Century, following repeal of the Corn Laws. And over the following half century or so, the UK drifted from being the Workshop of the World to the Sick Man of Europe. Was there any cause & effect in this, or were other factors more important in the UK’s relative decline?
I have been trying to research this topic. If you know of any good historical analyses, it would be much appreciated.
Theory suggests that bilateral free trade between near-peers should bring benefits to both sides — comparative advantage, and all that. The case for unilateral free trade is on much shakier theoretical grounds, especially where non-tariff barriers also come into effect. Classic example is the Japanese automobile market, where there are strong social pressures against buying a non-Japanese brand, regardless of price or quality.
Yes, it’s true, but I don’t think anyone knows to what extent. We shouldn’t pretend it’s not happening.
It’s (in some instances) definitely due to uncertainty – why would anyone invest in something where they can’t even guess at future conditions? That’s where we are now, and I don’t blame anyone for not wanting to invest until they know (eg.) the likely state of trade tariffs in what should have been a short term (ie. two years, but now looking like three)
As to what happens after…I don’t know. Stability will certainly help, but whether it will be enough is up for debate. On the whole, I think Leavers were conscious of all of that, but were expecting to be closer to a resolution by now.
Moving towards small state will help, however I’m unclear on the steps needed. I don’t believe that “Small State Libertarianism in 4, 3, 2, 1 days! On your marks! Go!” is even slightly likely, not is it actually desirable.
“This is an interesting (and important) issue. There is nothing new under the sun — the UK moved towards something like unilateral free trade in the second half of the 19th Century, following repeal of the Corn Laws. And over the following half century or so, the UK drifted from being the Workshop of the World to the Sick Man of Europe.”
Some thoughts:
Not sure what other trade restrictions were removed after 1846. Would be interested to know. By the 1890s I believe the only tariffs were on wine, spirits, beer, tea & coffee.
I don’t think anyone described Britain as a “Sick Man” until the 1970s.
Britain ended unilateral free trade in the 1930s.
There was an awful lot of socialism about after the First World War (BBC, Grouping, airships) and especially after the Second (coal, hospitals, railways, roads etc).
People catch up. It is far easier to copy than invent.
“The case for unilateral free trade is on much shakier theoretical grounds, especially where non-tariff barriers also come into effect.”
You have aroused my curiosity. What reasoning is given for thinking unilateral free trade being better than double-sided trade barriers is on shaky ground?
neonsnake (April 8, 2019 at 9:10 am), you asked re polls.
– This ComRes poll shows a leave-on-no-deal lead (also some ‘don’t knows’ of course), and the geographical distribution I mentioned (relevant if it were an election; as Natalie mentioned a while back, the distribution is better for the Brexit side in that case).
– This briefer YouGov poll shows a narrower no-deal lead but still better than Theresa May got in 2017, and again has ‘don’t knows’. It also has a separate “if an extension were offered’ question (May’s “till 22nd”, I assume, would be the one in voters’ minds when that was asked)” where the don’t knows are now joined by some who would try that extension before deciding.
You will hardly need me to remind you that polls are unreliable and can change. 🙂
Nulius: “What reasoning is given for thinking unilateral free trade being better than double-sided trade barriers is on shaky ground?”
To be clear, free movement of goods and services is a good thing, subject to certain conditions. But what about free movement of capital? And free movement of labor? The free trade topic quickly becomes complicated! Would post-separation unilateral free trade require the UK to open its borders to all immigrants?
The Ricardoan free trade concept of comparative advantage implies that both sides to the trade use all their resources to the fullest. The people who are rendered unemployed in country A because of imported widgets from country B are assumed to find new jobs making something that gets exported to country B. If this does not balance the trade quickly enough, exchange rates are assumed to change to equalize the trades. So much for theory.
Unilateral free trade — it is a little analogous to a one-way valve. Country B can send its widgets to country A with no tariff barriers (and, probably more important, no non-tariff barriers); but it is difficult for country A to balance the trade, even if it has comparative advantage in other products. Free traders jump up & down and say (correctly) that the residents of country B are losing out due to their tariffs, since they are over-paying for locally-made items that could be imported more cheaply from country A. On the other hand, all the residents of country B are employed, whereas those residents of country A who lost their jobs due to imports from country B are now unemployed. Going beyond the immediate trade issue, country A has now lost the capacity to manufacture widgets, which shuts country A out from future economic development as country B’s industry develops the next generation of widgets. This is not just theoretical — look at the situation between the US and China, where the terms of trade have been very much in favor of China. The low tariff US has lost substantial industrial capacity and employment, and is running an unsustainable trade deficit with booming mercantilist China.
Unbalanced trade is dangerous for both sides. Classic example was UK versus China in the 19th Century — where the UK wanted tea & silks from China, and China wanted nothing from the UK. That led to the Opium Wars, and Brits becoming the world’s largest drug pushers. The issue of lost productive capacity can also be serious. A relatively minor example occurred at the beginning of World War I where the UK had to scramble to outfit its soldiers, because the Khaki dye the Brits had been using for uniforms came from Germany.
Real world trade issues are a lot more multi-dimensional than the simple theory of comparative advantage, which is why the costs & benefits to the UK of any proposed unilateral free trade post-separation need to be considered carefully. The advantage of unilateral free trade is that it would not require any negotiations — and the Brexit debacle has proved beyond question that the UK Political Class is not good at negotiations. The disadvantage is that the short term bump from cheap imports would further devastate the already weak UK manufacturing sector.
Gavin, thanks. You’ve answered my question – no need to argue further if you don’t want to. I’m going to disagree, and say why, but I don’t want my doing so to put anyone off answering similar questions. I was much more interested in finding out if there was a new and interesting argument against free trade than I am in defending it.
“But what about free movement of capital? And free movement of labor?”
The economic argument is the same for both. I realise it could be politically unpopular, since there are many people who believe in free trade for goods but revert to protectionism in the labour market, however the same reasoning applies. It’s economically better for everyone if we allow free trade in all markets, including immigrant labour.
(Incidentally, I’d make exactly the same argument for a free market in culture, too, which is even more politically unpopular. But that’s another argument.)
“The Ricardoan free trade concept of comparative advantage implies that both sides to the trade use all their resources to the fullest.”
That’s all the resources they’ve got – if part of their labour force is not redeployable, then they don’t have a resource there to be used.
Comparative advantage says that if the labour needed to make widgets and sprockets in country A is in a different ratio to that for country B, then the country with better comparative advantage for widgets can reallocate some of its resources to making widgets for the other, in exchange for the other country making more sprockets. If the resources cannot be reallocated, the shift doesn’t happen. Country A is not going to make any extra widgets for trade if there are no extra sprockets for sale, or vice versa.
The theorem is usually explained in the simplest case of perfectly redeployable resources, but if there are other constraints, then comparative advantage will only push the change in trade up to the point where it hits the additional constraint.
“Going beyond the immediate trade issue, country A has now lost the capacity to manufacture widgets, which shuts country A out from future economic development as country B’s industry develops the next generation of widgets.”
Comparative advantage always works with a *pair* of products. (Or more generally, any number of products larger than one.) Country B is better at producing widgets, but country A is better at producing sprockets. Both gain advantage by specialising and trading. So while country A has abandoned development in widgets, they’ve got a free rein when it comes to developing their capability in sprockets.
“Real world trade issues are a lot more multi-dimensional than the simple theory of comparative advantage.”
True. But the basis of free trade being better is more than just comparative advantage. That gives the reasoning in a particularly counter-intuitive case, but the free market principle is more general. Any free trade is always made for mutual advantage, or it doesn’t occur. So any barrier to trade, preventing exchanges that would otherwise occur, results in a loss for *both* the parties that would have engaged in it. The effects of those losses are shifted around in the economy in many obscure ways – as in Bastiat’s ‘that which is unseen’ – but they don’t disappear. Less wealth has been created to go round. *Any* barrier to trade reduces the sum total of human welfare. The fewer barriers, the less it is reduced.
“The disadvantage is that the short term bump from cheap imports would further devastate the already weak UK manufacturing sector.”
If our manufacturing sector is more expensive than the competition, then getting rid of it is an *advantage*, not a disadvantage. We can always find ways to employ people more expensively – half of them can be given jobs digging holes while the other half get the job of filling them in. Unskilled jobs are very easy to create, if they’re not required to pay their way by being productive. But that doesn’t create wealth, it wastes it, it destroys it. Employing people is not the point of industry. It’s a cost, not a benefit. Producing more stuff for less effort is the point.
Nulius — I appreciate your discussion. It is good to see someone who has really thought about the issue.
You are logically consistent about the free movement of labor. But many doughty Brexiteers would probably give a fairly frosty reception to the idea that free trade principles call for unlimited immigration (and not just from EU countries). What, then, was the value of separation?
We agree — in principle, free trade should maximize economic production, thereby maximizing wealth. But what about the distribution of that maximized wealth? If (to think about a hypothetical example) British financiers make a mint off moving Airbus wing manufacturing to China while some of the highly skilled former British aerospace workers find themselves “not redeployable”, the UK’s total wealth may have gone up — but the distribution of that wealth may have gone in a direction which undermines future national stability and growth.
A concern about the more dedicated free traders is that they tend to look only at the short term, and ignore long term costs. What does it do to a country over the long term if it loses the capacity to design & build? Many free traders seem to assume that no monopolist would ever try to drive its foreign competitors out of business and then take advantage of its monopoly position. In their view, it would be economically irrational for the would-be monopolist to take short term losses while establishing its monopoly — but the monopolist might be thinking quite rationally about the longer term, and (since we are talking about countries) including political considerations as well as economic. The US Air Force now depends on Chinese computer chips — how much was it worth to the government of China to accomplish that?
All the concerns about free trade are exacerbated when talking about unilateral free trade. What incentive does the other side have to agree to anything once you have thrown open the gates? Not everyone in this world is nice, and mercantilism is real.
Economic changes can take a long time to play out in the real world. It took decades for the UK to lose its position as the Workshop of the World, and (as Patrick Crozier points out) many other factors were changing over the same period that the UK practiced something close to unilateral free trade. Because theory has to be tested against reality, it would be good to have an understanding of what role (if any) unilateral free trade played in the UK’s relative decline. But I have not yet found any thorough analysis.
I think this example is misdescribed. China – the people of China – wanted stuff from the UK. The mandarin class of intellectuals who ruled China did not, in part because their pride made it astoundingly hard for them to think China could need foreign stuff. (The classic example is the chronometers that westerners offered the Chinese court, whose immense superiority these Chinese intellectuals utterly could not grasp.) As a result, only products whose customers would break the law – opium – were practicable. Much opium was sold and much money was made by corrupt mandarins who for that very reason were the more eager to retain the law banning its importation – how else could they get paid for looking the other way. Thus the stage was set for the wars that gave us Hong Kong.
Many (myself for one) do indeed offer a frosty reception to the idea that people should at their own will move here and immediately receive the welfare state, plus laws to punish anyone who criticises customs they bring with them, plus votes with which to ensure they go on receiving both. (Victorian England had none of these and bags of self-confidence – and survived fairly free movement well enough.)
There are issues beyond these – I seriously question the idea that free trade requires free movement, whatever arguments the latter might have in itself in some different world – but for now, the points I mentioned will suffice to keep Brexitters ‘doughty’ (in literal and punning sense 🙂 ) without needing to agitate the abstract case.
Gavin: “What, then, was the value of separation?” — to shed the regulatory burden of and the trade barriers imposed by the EU.
“what about the distribution of that maximized wealth?” — I think it is fair to say that wealth would be distributed differently. Then again, the people lobbying for trade barriers are doing so precisely to distribute more of the albeit smaller pool of wealth towards themselves. Trade barriers do not necessarily improve distribution.
“What incentive does the other side have to agree to anything once you have thrown open the gates” — I would hope the government of country B would have self-interest in not punishing citizens of country B for buying things from country A, given that there is no tit-for-tat game in play any more.
It does concern me that most analysis like this considers an eventual steady state. Most of the problems come from dynamics: moving from trade barriers to free trade changes things, and people who lose from the change will fight it with politics. The question of monopolies made from dumping is a dynamic game, too. However I know of one example cited by Tim Worstall of a mine in the US that re-opened when the Chinese monopoly producer of a resource increased prices, so I suspect the effectiveness of this game is overstated.
I should do a blog post specifically about unilateral free trade at some point. It seems to generate interesting discussion.
“You are logically consistent about the free movement of labor. But many doughty Brexiteers would probably give a fairly frosty reception to the idea that free trade principles call for unlimited immigration (and not just from EU countries).”
Then we need to work on educating them. Protectionism is a malady that can inflict both sides.
“What, then, was the value of separation?”
I regard it as two steps forward, one step back, with a long way still to go. It’s a smaller mountain to climb.
“We agree — in principle, free trade should maximize economic production, thereby maximizing wealth. But what about the distribution of that maximized wealth?”
The distribution of wealth is directed by, and directs, productive ability. If you can produce stuff people want for less than they can buy it elsewhere, you’ll get rich. And as a result, people trying to get rich will seek out ways to produce stuff people want for cheaper. Price signals are like the messages passed between brain cells in our hive mind – steering technological progress and steadily erasing poverty. Mess around with those signals – and it’s like the hive mind is on drugs. The economy stumbles and staggers from side to side and chases after the fairies.
Or to put it another way, it’s like evolution by natural selection. Gazelles are so fast and agile and graceful only because if they’re not the lions eat them. Put a bunch of birds on a tropical island with no predators, protected from competition, and you get Dodos. Slow, fat, stupid, flightless. You are messing with the forces that underpin modern technological society, that have driven humanity from a African apes scavenging, through subsistence farmers scratching for survival in the dirt, to this peak of space satellites and mobile phones and MRI scanners we live on. It seems callous, but the alternative is far, far worse. Mess with the signal, and the system crashes. If you don’t evolve, you devolve.
The distribution of wealth has to be directed by the ability to produce things people want more of for less effort. Once that principle is established, we can then direct our attention and efforts to the right question: how do we get the unemployed back into productive employment?
“A concern about the more dedicated free traders is that they tend to look only at the short term, and ignore long term costs.”
It’s generally the other way round. Long term, free trade is hugely better for everyone. The problem is the short-term costs during transitions. When the industrial revolution invented agricultural machinery, the huge numbers of peasant labourers who worked on the land were suddenly redundant. They had no skills besides farm labour, and suddenly there were all these machines doing it far cheaper than they ever could. And that had a huge short-term cost, as all those people suddenly had to develop new skills, and find new jobs. It’s what the Luddites were protesting about.
But long term, it was one of the most significant turning points in the history of humanity for lifting the poor out of poverty. Long term, industrial technology is faaaaaar better that subsistence farming by peasant labourers. But short term, the cost was significant.
And this is the argument we’re having now. Do we stop the progress of the industrial revolution, with all its long term benefits of tractors and harvesters, to avoid the short-term costs to the peasant farm labourers deprived of their livelihood? Do we really want to continue scratching in the dirt (relatively speaking), because it’s all we know how to do?
“What does it do to a country over the long term if it loses the capacity to design & build?”
It means there is a time delay if we find there is a need or advantage in rebuilding that capability. We can learn, same as anyone.
It’s like learning to cook. The highly paid software engineer can spend his or her time cooking proper meals, or they can order in takeaway. Having somebody else cook for them is a more productive use of the engineers time, and the pizza guy doesn’t have the skills to write software, but gains some of the advantages of others being able to do so by trading on their comparative advantage in cooking/delivering pizza. This symbiosis can develop to the point where the software engineer doesn’t actually know how to cook. But if the pizza guy should spot this, and say “Hah! Pay me more, or you’ll starve!” and raises his price past the point where it becomes worthwhile, he will discover that a software engineer can learn how to cook his or her own meals a hellll of a lot faster than a pizza guy can learn to write software!
Humans are general purpose problem solvers. We can learn how to solve new problems. And one of the things that makes us richer than China is that we can learn how to solve new problems a hell of a lot faster than they can. It’s why a lot of Western companies are not concerned about China’s industrial espionage activities – they steal our technology, but they’re always a couple of generations behind us. So long as we keep moving, it’s not a problem.
“What incentive does the other side have to agree to anything once you have thrown open the gates?”
That it makes their own society richer too? If somebody doesn’t understand why free trade works, and is stuck in a Mercantilist mindset, the solution is surely to educate them. And there is no better way of convincing them than showing that you really believe it’s true yourself.
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“Many (myself for one) do indeed offer a frosty reception to the idea that people should at their own will move here and immediately receive the welfare state, plus laws to punish anyone who criticises customs they bring with them, plus votes with which to ensure they go on receiving both.”
The real problem there, of course, being the welfare state! That’s not free trade if you subsidise part of the market.
As for customs, I would suggest that the same principles apply, and we need a free market in customs, too. You should, of course, be free to criticise their customs, as they should be free to criticise yours. But there should be no restrictions preventing anyone choosing what customs to follow besides those needed to prevent unconsented harm. Everyone can offer their customs and beliefs in the cultural marketplace. And everyone can pick and choose from them any that they like. The most popular culture wins, on its own merits, through people’s free choice to follow or reject it.
Trying to protect your culture from outside competition is an implicit admission that you think it’s not as good, not as powerful, not as attractive to free people as the alternatives. So you want to enslave people, and restrict their choices, so that they don’t choose ‘wrongly’. But the result of such protection is that your culture gradually but inevitably becomes like the dodo: slow, stupid, and vulnerable. It can’t fight, so it hides behind walls and barriers.
So yes, people should be allowed to criticise their competition and advertise the merits of their own customs. But no, you shouldn’t try to wall them out, or stop people making a free choice. It’s exactly the same principle.
Niall Kilmartin – much appreciated for the links. It’s awfully close – ComRes published a new poll today showing 40% favour Revoke, and 38% favouring no-deal (I use the word “favour” loosely)
This is the poll I was referring to earlier, showing 42% of leave voters (page 13 and elsewhere) believing that maintaining access to the single market should be the priority post-Brexit. The poll is from July 2016.
If nothing else, it shows that an awful lot of people had very confused ideas about what the single market means, vs the customs union, and possibly didn’t understand that it also meant agreeing to the four freedoms.
(Mind you, if I was negotiating, I’d probably have started with “I want access to the single market, without the four freedoms or any other restriction whatsoever”, since opening extreme is never a bad way to start)
Nulius – Congratulations! You make the economic case for a ‘borderless world’ very well. Still, there is an implication in the theory that everybody is rational & pleasant, and singing off the same hymnal. The reality of two millennia of European conflict might suggest rationality & pleasantness are not good assumptions. And today, we see China following a mercantilist policy and taking advantage of other countries’ low tariff barriers; we are not all singing the same song! Because of this, we really need to validate unilateral trade theory against historical experience.
Since WWII, the US has generally been more open to imports and more tolerant of capital flows than most countries – certainly not full unilateral free trade, but somewhat of an approximation. This trade policy was apparently adopted after WWII( to contain Communism by lifting up the economies of defeated Germany, Japan, & Italy and by helping war-damaged allies get back on their feet. It was a truly generous compassionate policy, but it was probably continued too long and extended too far (specifically to post-Mao China).
After decades of that liberal unbalanced trade policy, it would be very difficult to make the case that the US as a whole is better off. Yes, some Americans have become very rich through those policies, and many Americans have benefitted from cheaper consumer goods. But the price paid by society as a whole in other ways has been high. The country that could send a man to the Moon 50 years ago now cannot send a man into space without Russian help. Tens of thousands of factories have closed, often being dismantled and shipped abroad. Manufacturing and technological capabilities have been lost. Millions of people have dropped out of the labor force. Social problems have grown substantially.
Now, can this be blamed (at least in part) on adopting an approximation to unilateral free trade? Certainly, there have been many other economic, political, and technological factors at work over the same decades since WWII.
That is the reason for my interest in Britain’s more explicit move to unilateral free trade in the later 19th Century. Over the following decades, Britain also experienced a relative decline (and in the case of some industries, an absolute decline). But again, there were many other factors in play in addition to unilateral free trade.
Before we get too committed to the theoretical beauty of unilateral free trade, we ought to put significant effort into teasing out the lessons of history.
“Still, there is an implication in the theory that everybody is rational & pleasant, and singing off the same hymnal.”
No, there’s an implication that anyone who isn’t rational and pleasant enough to pick free trade will lose out. Protectionism is like farting in a lift. Protectionists think only the other side gets the nasty consequences, but they do too. (By the Lerner symmetry theorem, tariffs on imports have the same effect as taxing their own exports.)
“Since WWII, the US has generally been more open to imports and more tolerant of capital flows than most countries – certainly not full unilateral free trade, but somewhat of an approximation.”
It may be a closer approximation to it than what went before, but my understanding is that the US is not much less protectionist than the EU. Manufacturers run a huge operation to lobby congress, getting ‘Pork Barrel’ deals and favourable legislation, often in subtly deceptive ways. I was recently reading this which you may find interesting. It gives numerous examples.
“After decades of that liberal unbalanced trade policy, it would be very difficult to make the case that the US as a whole is better off.”
Seriously?! You think the general lifestyle of Americans in the 1950s, rich and poor, was better than it is today?!
“But the price paid by society as a whole in other ways has been high. The country that could send a man to the Moon 50 years ago now cannot send a man into space without Russian help. Tens of thousands of factories have closed, often being dismantled and shipped abroad. Manufacturing and technological capabilities have been lost. Millions of people have dropped out of the labor force.”
The USA could very easily go to the moon. But the public’s attitude is “Been there. Got the space-suit.” and they’re not interested. The later NASA moon missions were scarcely watched. Apart from beating the Soviets, there was no advantage to be gained from it. There’s no profit in manned space flight. It’s hugely expensive, for virtually no return. But technologically, it’s no harder now than it was then.
That they have Russia help them get into space more cheaply is precisely the free trade argument we’re making. They could do it themselves, but the Russians do it cheaper. I don’t know the numbers, but let’s say it costs $10bn for the Americans to do it alone and $9bn with Russian help. The Americans can either spend $10bn on getting a man into space. Or they can spend $10bn on getting the same man into space and also buy a billion dollars worth of other nice stuff for themselves in addition. What variety of insanity would turn down a billion dollars of free stuff just so you can say it was done by Americans? You’d be a billion dollars better off by trading.
If you don’t like it, the right answer is to find a way to do it cheaper than the Russians. Not to wall out the cheaper competition so everyone is forced to pay more than it’s worth.
Likewise, the factories have closed and capabilities have been lost because other people can do it cheaper, and it’s more efficient to specialise. Both sides gain. (Both the software engineer and the pizza guy benefit. The software engineer dropped the capability to cook his/her own meals because he/she doesn’t need it. It means more time to code.) If you don’t like it, find a way to produce the same stuff cheaper than the foreigners can do it. When technology moves on, you have to move with it.
These are all just the same arguments protectionists always use. If we allow the cheaper competition – whether from automation or foreigners – we will lose our jobs and our high wages. Before the industrial revolution we had more than 50% of our population working in agriculture. Today it’s 1.2%. That’s like 98% of England’s most important idustry wiped out! Is that a gain, or a loss for the poor of England?
“Now, can this be blamed (at least in part) on adopting an approximation to unilateral free trade?”
No. Correlation does not imply causation. And “blame” is the wrong word for it given that we’re better off from having done it. Is takeaway food “to blame” for us not having to spend hours every day in the kitchen cooking? Is our decision not to ban tractors “to blame” for 50%+ of us no longer having to live like medieval serfs on farms?
“Before we get too committed to the theoretical beauty of unilateral free trade, we ought to put significant effort into teasing out the lessons of history.”
It sounds to me more like an effort to resist an unpalatable conclusion! 🙂
I’ve got no objection. It’s good that people keep trying to find arguments against it. But it’s far easier to find evidence in the data if you know what to look for, which means it’s more effective to start with theoretical arguments for how/why it might not work, then make testable predictions from those hypotheses. That’s what I thought you meant by “The case for unilateral free trade is on much shakier theoretical grounds”; that there was some theoretical weakness in the argument.
Many thanks for the debate! I’ve really enjoyed it!
Nulius – Thanks for the discussion. It has been interesting on several levels.
There’s nowt so queer as folks, as the English say. Some of us human beings are totally driven by theory. In my professional life, I recall a senior executive who walked out of the room rather than hear evidence which conflicted with one of his strongly held theories. (Said executive went on to make a bad decision, of course – but that is another story).
We often see this fascination with theory among the Anthropogenic Global Warming crowd – not the political types who know they are pushing a convenient scam, nor the useful idiots who mindlessly parrot the talking points, but with the genuine scientific types who are so enthralled by the theory. Yes, human activities produce CO2, and CO2 is a radiatively active gas – but that is only one process among many active in global climate, and a rather minor one. A theory can be correct as far as it goes, but still not be a useful or complete description of the real world.
I come out of the scientific tradition: formulate a theory, and then test it against observation; if any observation conflicts with the theory, the theory has to be revised or rejected. One of the challenges with both Anthropogenic Global Warming and unilateral free trade is that we cannot do controlled experiments where everything is kept constant except the one variable we are interested in. Instead, we have to look at the historical record for evidence.
My guess is that the theory of unilateral free trade has some merit when applied to trading between near-peers – but the theory is incomplete. It ignores many real world factors, such as when countries have different objectives, different incentives, different standards. For example, there would be obvious difficulties for a post-separation UK having unilateral free trade with China. The UK has expensive regulations about pollution control and so-called “renewable” energy – China does not. Across the board, UK industry will therefore become uncompetitive with Chinese imports. How many pizza delivery men will a de-industrialized UK need?
Human beings have been trading with each other since we came down from the trees; if the theory of unilateral free trade is a sufficiently complete description of the real world, there likely should be historical evidence for its efficacy. Take it as a challenge – find the historical evidence that demonstrates unilateral free trade is beneficial.
“It ignores many real world factors, such as when countries have different objectives, different incentives, different standards. For example, there would be obvious difficulties for a post-separation UK having unilateral free trade with China. The UK has expensive regulations about pollution control and so-called “renewable” energy – China does not.”
That can go one of two ways. Either the UK decides the expensive regulations are not necessary, in which case the UK manufacturers will be able to use the same methods as the Chinese and make their products cheaper, or the UK can keep the regulations (justified by the environment, not trade) and the Chinese will continue to have to meet UK standards to sell in the UK. The point is they face the same level playing field.
Pollution is an externality, costs not captured by the market, and to some degree free marketeers accept that it can justify some distortion of markets. As with all non-market costs, it’s hard to get agreement on prices, especially in controversial cases like global warming. That’s a separate discussion we could have. But the negotiation of the regulations should be done jointly – how can we protect the environment most cheaply? If China have a better solution, the regulations should not be distorted to forbid it.
“if the theory of unilateral free trade is a sufficiently complete description of the real world, there likely should be historical evidence for its efficacy.”
Not necessarily. The data needed to test it might not have been recorded. The noise of all the other effects – known and unknown, may be too great.
If you want to test it, the method to use would be experimental economics, where you get people in a laboratory setting to engage in trades with one another.
Set up a set of different jobs people in two rooms each need to do, so that they can benefit by trading. For example, everyone needs to do shopping for food, and cooking the food. If everyone does their own shopping and cooking it takes a lot of time. But you can have one person do the shopping for everyone, and the others do the cooking. They can trade. And with different imposed costs for shoppers and cookers (e.g. distance to the shops, facilities in the kitchen) you can vary the trade-off point, the exchange rate they agree. In one room, the shops are a long way away, so doing the shopping buys a lot of cooking. In the other the shops are close, so shopping and cooking are traded on more equal terms.
Now open a door between the rooms. We let food (cooked or uncooked) go through in one direction for free, but with a cost imposed going the other way. So now you can get your shopping done by your room-mate, or by somebody in the other room. Likewise with the cooking. Will the room with the short trip to the shops choose to do some extra shopping, and trade that for cooked food from the other side of the wall? Will the people on the other side of the wall give up their long walk to the shops, and have an extra pair of hands for cooking?
It makes sense that if people in the first room can give up shopping (expensive) for a little extra cooking (cheap) they would do so. It also makes sense that if people in the second room can give up cooking (expensive) for a little extra shopping (cheap) they will. So uncooked food goes from the second room to the first, while cooked food comes back. However, if there is a barrier – a long walk in one direction, those facing the walk will charge a higher price, and those on the other side will be less willing to pay. If the barrier is absolute, no trade will happen. One side are not going to do extra work if they can’t get anything in return. Neither side benefits. If the barrier is zero in both directions, you get free trade and both sides benefit. If the one-sided barrier is something in between, the trade will be something in between. But is the effect symmetric? Can one side gain an advantage depending on which way the barrier is higher? In theory, it should make no difference. In practice, do you think you could find a way so it would?
Nulius — A little bit tongue in cheek, but I could not help thinking about the lessons of history when imagining how the experimental economics scenario might play out. Perhaps the inhabitants of one room would realize they were bigger, more numerous, & more aggressive than the inhabitants of the second room. They would then kick down the door, enslave the inhabitants of the second room, and make them do ALL the shopping & cooking. 🙂
More seriously, about your point: “… the Chinese will continue to have to meet UK standards to sell in the UK”. That is a trade barrier!
Let’s stipulate the Chinese can sell a widget in the UK for half the cost of making it in the UK because they don’t have to spend money on UK-style Health & Safety requirements during manufacturing. The UK consumer benefits from the low cost of the import; the former UK widget maker pays a price by losing his job; and the Chinese worker pays a price through on-the-job injuries. But the Chinese widget is functionally identical to the UK widget — meets all UK standards for widget performance & safety. What does not meet UK standards is the process by which the widget is made, which occurs on the opposite side of the world to the UK, and it may be very difficult for UK trade representatives even to confirm what the manufacturing process in China is. What does the unilateral free trader do?
Obviously every under=cut UK manufacturer is going to claim that the playing field is not level. Every Chinese manufacturer is going to claim that he is simply more efficient and therefore able to give UK consumers the benefit of a lower price. And if the UK demands that all Chinese goods sold in the UK have to be manufactured in processes identical to UK standards (very difficult to enforce), unilateral free trader UK will just have erected a non-tariff barrier. Many free traders seem to want to ignore non-tariff barriers to trade — but there is a case that non-tariff barriers can be more of a problem for free trade than tariffs.
Bottom line seems to be that free trade between near-peers, broadly following the same rules, is mutually beneficial. But it is not at all obvious that unilateral free trade with a party playing by different rules would be mutually beneficial.
I suppose the people in the UK will buy the cheap widgets from China at half the price. They won’t buy them from the UK, so this will “free up” the labour force in the UK to work on other things.
So the critical question is, as you asked: How many pizza delivery men will a de-industrialized UK need?
But it doesn’t just have to be pizza delivery. There is no shortage of things to do. Almost everyone can imagine having a full time assistant to help them with things. The problems are dynamics of moving from one situation to another. People do not like change and there are costs of re-training, and possibly some people would find themselves in lower paid jobs as a result of these changes. But still overall more wealth would be generated. The problems are political.
“There is no shortage of things to do.” True. But in a theoretically rational economic world (which seems to be the starting point for unilateral free trade discussions), would it not be reasonable to assume that everyone in a country is already working at whatever job will maximize his value-added contribution and hence his income?
So if (for example) Airbus wing manufacture moves to China post-separation, it is likely that those UK former aerospace workers will end up in other jobs which produce less value added and hence lower incomes. “But still overall more wealth would be generated.” Maybe true from a global perspective, but if the additional wealth generated is in China, it is not clear how the UK would have benefitted from unilateral free trade.
We should look to the real world for guidance. In the US, it is very clear that many of the formerly well-paid workers who have lost jobs in activities such as steel-making, automobile manufacturing, ship building have not found new work at equivalent or higher wages; many of them have not found other jobs at all, and have become a charge on the rest of society. Free trade on a level playing field is a good aspiration, but we should be aware of the downsides. That is probably even more true of unbalanced or unilateral free trade.
“So if (for example) Airbus wing manufacture moves to China post-separation, it is likely that those UK former aerospace workers will end up in other jobs which produce less value added and hence lower incomes.”
Which is good, because wages are prices. A society gets rich by prices coming down, not by wages going up.
The point of moving aircraft manufacture to China is that air travel is cheaper, which means transport of goods is cheaper, which means more marginal businesses are viable and more profitable businesses are even more profitable, allowing them to employ more people and produce more stuff.
The reason people find free trade so difficult to understand is that the costs are direct but the benefits are indirect, percolating throught the myriad network of economic transactions that occur as an adjustment to the lower prices. It’s all about “That Which Is Seen, and That Which Is Not Seen.” The industrial revolution did not make the poor wealthy because workers in the cloth mills earned high wages, but because good quality cloth was suddenly cheap, and within their financial reach. And as the mass market started buying cloth – instead of thousands it was suddenly millions – it would up that even more people were employed in the cloth industry than before.
Yes, wages come down. But people get more and better stuff. You need to stop thinking of the aim of practical economics being to get more money, higher wages, more jobs, and think instead of people getting more stuff – goods and services. The more stuff is made for the same effort, the more stuff there is to go around, and the wealthier everyone gets.
“In the US, it is very clear that many of the formerly well-paid workers who have lost jobs in activities such as steel-making, automobile manufacturing, ship building have not found new work at equivalent or higher wages; many of them have not found other jobs at all, and have become a charge on the rest of society.”
Why? Is it because they are incapable of learning? Or is it because there’s this handy welfare state there to provide an alternative source of income? Or some other reason?
Nulius — I think we are converging. I agree with you that there are strong theoretical arguments in favor of free trade (no tariff barriers and no non-tariff barriers) on a level playing field. And you are starting to ask yourself questions about why the implementation of free trade in the real world differs from theory, such as what real world factors result in workers displaced by free trade dropping out of the labor force instead of redeploying to other work. We are in complete agreement that the basis of the economy is the production of goods & services, and when people drop out of the work force there is a loss of production — the world is a poorer place.
We are not in complete agreement. It is not accurate to say that with free trade “costs are direct but the benefits are indirect”. The major benefits of lower prices or better quality on imported products are directly appreciated by consumers. Rather, an important issue with free trade is that the costs & benefits are distributed unevenly. In the short term, consumers benefitting from lower import prices outnumber former producers who are bearing the costs of job loss. But in the long term, an economy which produces less overall will have less for everybody. Unfortunately, we human beings tend internally to use a high discount rate, and we tend to ignore long-term costs when presented with the opportunity for short-term benefits.