Topic: International Economics and Development

Left and Right in China

There’s an ideological divide in China, and it’s basically statist vs. classical liberal, as Tyler Cowen puts it.

Based on 171,830 responses to an online survey, Jennifer Pan and Yiqing Xu “offer the first large scale empirical analysis of ideology in contemporary China.” They “identify one dominant ideological dimension in China.”

Individuals who are politically conservative, who emphasize the supremacy of the state and nationalism, are also likely to be economically conservative, supporting a return to socialism and state-control of the economy, and culturally conservative, supporting traditional, Confucian values. In contrast, political liberals, supportive of constitutional democracy and individual liberty, are also likely to be economic liberals who support market-oriented reform and social liberals who support modern science and values such as sexual freedom.

This is interesting in several ways. First, of course, it means that China is no longer ideologically monolithic, as it was at least officially in the days of Maoism. And a significant number of people seem to support what we would call classical liberal or libertarian values – “constitutional democracy and individual liberty, … market-oriented reform … modern science and values such as sexual freedom.” The online survey isn’t scientific or representative enough to estimate the prevalence of each ideology.

Second, it’s refreshing to see ideological views lined up in a coherent way. Libertarians usually find the standard American ideologies inconsistent. Today’s “liberals” (unlike classical liberals from Locke and Smith and Mill to Hayek) tend to support democracy and at least some forms of personal and civil liberties, but not free markets. Today’s conservatives support free markets but have tended to oppose civil rights, drug decriminalization, and sexual freedom. In China those who support “the supremacy of the state and nationalism” also, quite understandably, support state control of the economy and state support for traditional values. That’s a bad package, but at least it’s coherent. And so is the opposing liberal ideology.

Understanding the World’s Energy Needs

A new documentary by Cato Senior Fellow Johan Norberg, shown recently on PBS stations nationwide, is a non-political look at the reality of the world’s energy problems. “Energy questions are complicated, and there are always trade-offs,” Norberg notes.    While bringing electricity to many remote villages in India and the Sahara causes an increase in carbon emissions, it also allows families to have refrigeration for their food, electricity to light their homes and the time to develop their lives beyond working just to sustain themselves every day.   “Don’t they deserve the same kinds of life changing benefits that power has brought the west?” Norberg asks.

This program explains how ALL sources of energy have their attributes and drawbacks.   It will take large amounts of low-cost power to fuel economic development in the third world, while also keeping up with growth in the developed world.  There is no “perfect” source to meet these needs:  Coal and oil make up a third of the current world energy supply, so while the infrastructure is in place and works fairly inexpensively, these fossil fuels are consistently tagged as “dirty.”  Natural gas is abundant and clean, and cheap and easy to use, but the means of getting to it (fracking) is controversial.  Nuclear energy power is one of the only large-scale alternatives to fossil fuels, but nuclear accidents like Chernobyl and Three Mile Island have made the public wary.  Hydro power is clean and fairly cheap, but dams have been targeted by environmentalist for harming fish populations. And, Norberg notes, most good sources of hydropower are already being utilized to their full capacity, leaving little chance to expand this resource.  Solar power is clean and abundant, but it doesn’t work when the sun doesn’t shine, and the infrastructure to capture it is expensive.  Wind supplies only one percent of energy globally because while it’s clean, it’s intermittent and doesn’t always come at the right velocity.

Norberg doesn’t make judgements, for the most part…except to say that top-down, government imposed “solutions” to the world’s energy problems have not worked yet, and are highly unlikely to suddenly start working. 

This is an excellent program for people who really want to understand the basics of world energy needs.  Watch it at Cato’s site here, and read more about the Free to Choose network here.

UN: Food Prices Are Lower Today than in 1961

Food prices are (slightly) lower today than they were in 1961. Yes, that’s right. Adjusted for inflation, the United Nations’ Food and Agriculture Organization calculates, the food price index in 2015 stood at 131.2. It was 131.7 in 1961.

In the meantime, the world population has increased from 3.01 billion to 7.28 billion – a rise of 4.2 billion or 135 percent.

If you are Paul Ehrlich, Lester Brown, William and Paul Paddock, Garrett Hardin, Rajiv Gandhi and countless other followers of Reverend Malthus, this should NOT be happening. But, it is. Human beings are intelligent animals. Unlike rabbits, who overbreed when food is plentiful and die out when it is not, humans innovate their way out of scarcity.

So, happy Thursday to you all.

Those Gruelling U.S. Tax Rates: A Global Perspective

The Tax Foundation released its inaugural “International Tax Competitiveness Index” (ITCI) on September 15th, 2014. The United States was ranked an abysmal 32nd out of the 34 OECD member countries for the year 2014. (See accompanying Table 1.) The European welfare states such as Norway, Sweden and Denmark, with their large social welfare systems, still managed to have less burdensome tax systems on local businesses than the U.S. The U.S. is even ranked below Italy, the country that has had such a pervasive problem with tax evasion that the head of its Agency of Revenue (roughly equivalent to the Internal Revenue Service in the United States) recently joked that Italians don’t pay taxes because they were Catholic and hence were used to “gaining absolution.” In fact, according to the ranking, only France and Portugal have the dubious honor of operating less competitive tax systems than the United States.

The ITCI measures “the extent to which a country’s tax system adheres to two important principles of tax policy: competitiveness and neutrality.” The competitiveness of a tax system can be measured by the overall tax rates faced by domestic businesses operating within the country. In the words of the Tax Foundation, when tax rates are too high, it “drives investment elsewhere, leading to slower economic growth.” Tax competitiveness is measured from 40 different variables across five different categories: consumption taxes, individual taxes, corporate income taxes, property taxes, and the treatment of foreign earnings. Tax neutrality, the other principle taken into account when composing the ITCI, refers to a “tax code that seeks to raise the most revenue with the fewest economic distortions.” This would mean that tax systems are fair and equally targeted towards all firms and industries, with no tax breaks for any specific business activity. A neutral tax system would also limit the rate of – amongst others – capital gains and dividends taxes, all of which encourage consumption at the expense of savings and investment. 

Even the two countries that have less competitive tax regimes than the U.S. – France and Portugal – have lower corporate tax rates than the U.S., at 34.4% and 31.5%, respectively. The U.S. corporate rate on average across states, on the other hand, is at 39.1%. This is the highest rate in the OECD, which has an average corporate tax rate of 24.8% across the 34 member countries. According to a report by KPMG, if the United Arab Emirates’ severance tax on oil companies was ignored, the U.S. average corporate tax rate would be the world’s highest.

IMF Proposes to Sabotage China’s Economy

For the people of China, there’s good news and bad news.

The good news, as illustrated by the chart below, is that economic freedom has increased dramatically since 1980. This liberalization has lifted hundreds of millions from abject poverty.

 

The bad news is that China still has a long way to go if it wants to become a rich, market-oriented nation. Notwithstanding big gains since 1980, it still ranks in the lower-third of nations for economic freedom.

Yes, there’s been impressive growth, but it started from a very low level. As a result, per-capita economic output is still just a fraction of American levels.

So let’s examine what’s needed to boost Chinese prosperity.

Earth Day’s Anti-Humanism in One Graph and Two Tables

Here, courtesy of Cato’s www.HumanProgress.org, is the quintessence of Earth Day’s anti-humanism. Botswana and Burundi started off as equally poor. In 1962, their GNI per capita was a paltry $70 per person.

By 2012, Botswana’s income per person rose by some 10,829 percent to $7,650. Burundi’s rose by mere 243 percent to $240. Botswana is an African success story, while Burundi is a failure–that is, if you judge the two countries by their income and, consequently, their standards of living.

If, however, you judge the two countries by their CO2 emissions per person, Burundi is the clear winner. Between 1972 and 2010 (the maximum number of years for which data on CO2 emissions per capita is available for both countries), CO2 emissions per person in Burundi increased only 62 percent. In Botswana it skyrocketed by 8,847 percent.

As my colleague Pat Michaels noted earlier, growing wealth necessitates higher carbon emissions in the short or medium term, but greater prosperity enables people to become both greener and more energy efficient in the long term. Denying cheap energy to the developing world will trap hundreds of millions of people in poverty and lead to more humanitarian disasters.

 

Chinese Free Trade Is No Threat to American Free Trade

I’m seeing a lot of support for the Trans Pacific Partnership (TPP) on the basis of reasoning along the lines of “we must stop China from dominating Asia.”  Here are two recent examples.

First, an analyst with the Third Way think tank says:

The Chinese economy is built on low labor standards, and they want to export these standards to the world.

This analysis of Chinese and U.S. trade deals demonstrates that, in the area of worker rights, there is an immense cost to ceding trade and commerce rules to China. And with China trying to impose those standards on the rest of the world, policymakers need to be extremely concerned with the effect on American workers.

Second, the Washington Post editorial board says:

the TPP would ensure that the Pacific Rim plays by U.S.-style rules and regulations, rather than by China’s neo-mercantilist ones

There are two arguments here: (1) China is imposing low labor standards on the rest of the world; and (2) China is spreading mercantilism through its trade agreements. Neither is true.  As I explain in this Free Trade Bulletin, China does not care what labor standards its trading partners use, and it is not trying to impose its standards on anyone through trade agreements.  In addition, Chinese trade agreements liberalize trade in goods and services, just as other countries’ trade agreements do; China is not using trade agreements to push for its trading partners to have more interventionist economic policy.

I conclude:

Chinese free-trade initiatives in Asia and the Pacific region should give the United States an incentive to get its own free-trade act together, but not for the reasons suggested by some. Chinese free trade is not a threat to American free trade. The justification for U.S. trade agreements is that free trade is good, not that China is somehow bad. Thus, the TPP should succeed or fail on its economic merits. The concerns about letting China write the rules are misguided. China’s trade rules are not a version of state-led capitalism. They are the removal of protectionist trade barriers, just as our trade rules are.

Pages