Topic: International Economics and Development

Should Scotland Reclaim Its Independence?

At USA Today, I write about Scottish independence, which the Scottish people will vote on this coming Thursday. I note that the late Nobel laureate Gary Becker wrote in 2005, like Simon Lester today, that the disadvantages of small nations are much reduced in a world of free trade:

My conclusion is that developments in the global economy during the past 50 years have greatly reduced the economic disadvantages of small nations enumerated for his time by Hamilton. In fact, being small now may even have efficiency advantages…. [As trade barriers have come down over the past half-century,] small countries can now gain the advantages of large markets through trading with other nations.

I go over arguments on currency, tax rates, and the likelihood that an independent Scotland could be as socialist as some of its political leaders would like if it has to create its own prosperity. In the end, I write:

In any case, the economic arguments will go on till the vote on September 18. Scotland certainly has the elements necessary to be a successful European country. The real question is whether the Scots themselves desire, to borrow an Irish anthem, “that Scotland long a province be/A nation once again.” As a descendant of Scots who helped America secure its independence, I hope so.

I wrote previously about Scottish independence here

Scottish Independence: Not That Big a Deal in Today’s World

Yesterday, my colleague Doug Bandow blogged about Scottish independence, concluding with the following: “Whatever the Scots choose on September 18, Americans should wish them well.” I just wanted to add a quick point here, drawing on something law professor Eric Posner said on this issue: “the benefits of a large country—mainly, security and a large internal market—are of diminishing significance in a world of free trade and relative peace.”

To me, this is a very important consideration. If Scottish independence meant an increased chance of war or high tariffs designed to separate the Scottish market from the rest of the world, it would be worrying. But those seem unlikely. In terms of war and peace, there have been no Mel Gibson sightings that I’m aware of. On trade, there may be some bureaucratic challenges, but it seems clear the goal is for Scotland to join the EU and be part of its large, single market. As for trade with the rest of the world, Scotland will take on the EU’s trade policy–which is not perfect of course–but has followed the trend toward liberalization that the rest of the world has pursued over the past few decades. In all likelihood, Scotland will continue to search for export markets for its whisky and allow the free flow of imports.

If Scottish independence meant it would become like North Korea, I’d be concerned. But it doesn’t seem like that’s the path it is on. With the exception of a few regions, we live in a highly integrated, peaceful world. Scottish independence would not change that.

Argentina: Down The Tubes, Again

President Christina Fernández de Kirchner has turned up her left-wing rhetoric as the economy goes down the tubes. Indeed, GDP has contracted for the past two quarters; inflation is galloping at 56%, not the official 15.01%; and the country has defaulted on its debt, again. Never mind. The President claims Argentina’s financial system is “one of the most solid in the world.” She asserts that Argentina’s woes can be laid squarely at the feet of foreign “vulture funds” and greedy capitalists who have speculated against the peso. Yes, the peso has lost 42.6% of its value against the U.S. dollar on the black market since the first of the year, and for very legitimate reasons.

But, for realists like me, a fact check is always worth a peso. Recently, Bloomberg’s Charlie Devreux and Pablo Gonzales penned some most edifying reportage on one thing that’s booming in Argentina: criminality. Bandits have put cargos of grain headed for the port of Rosario in their crosshairs. And why not – grain is traded in greenbacks, not pesos.

Property’s worst enemy is theft: theft makes property insecure. And unless property is secure, it can’t be accumulated and it is wasted. The increasing incidence of heists on grain, Argentina’s most valuable export, indicates that property rights are becoming more insecure and that the economy only has one way to go: down the tubes.

Indonesia Reform, Please

The Indonesian stock market has just hit a record high on the hope that the incoming President, Joko Widodo, will push through economic reforms. But, what path should he follow? My advice to President Widodo is the same as that I gave President Suharto, when I was his advisor in 1998: follow Singapore and Lee Kuan Yew.

When Singapore gained independence in 1965, Lee Kuan Yew developed a set of sound principles, which proved to be highly successful. Indeed, their implementation propelled Singapore to the top of the world’s competitiveness rankings. I have dubbed these principles the “Singapore Strategy.” It contains the following five elements:

  • First and foremost, stabilize the currency. Singapore achieved stability with a currency board system – a simple, transparent, rule-driven monetary regime.
  • Second, don’t pass the begging bowl. Singapore refused to accept foreign aid of any kind.
  • Third, foster first-world, competitive, private enterprises. Singapore accomplished this via light taxation, light regulation, and completely open and free trade.
  • Fourth, emphasize personal security, public order, and the protection of private property.
  • The final key to Lee Kuan Yew’s “Singapore Strategy” is the means to accomplish the previous four goals: a small, transparent government that avoids complexity and red tape. And one that is directed by first-class civil servants who are paid first-class wages.

Taxes, Tennis, and Transportation

We have an uncompetitive federal corporate tax rate of 35 percent compared to Canada’s 15 percent. Our Roth IRA is inferior to Canada’s TFSA, as Amity Shlaes and I discussed in the Wall Street Journal. And while Serena Williams still tops rising star Eugenie Bouchard, we should be paying attention to ”What Canada Can Teach Us About Tennis.”

Now we face another competitive threat from the north. This time it’s British Columbia seaports says Bloomberg:

Container ships sailing across the northern Pacific are carrying more cargo and are setting course for British Columbia to avoid delays from a possible strike by U.S. West Coast longshoremen. Traffic in Prince Rupert soared 49 percent in July from a year earlier, according to data compiled by Bloomberg Intelligence, while volume dropped 19 percent in Seattle, its nearest major U.S. rival.

Canadian ports are gaining an advantage over their U.S. rivals amid an economic recovery that’s increasing container volumes from East Asia. While U.S. West Coast ports are mired in a labor dispute and congestion hobbles local railways, Prince Rupert is winning customers with its shorter sailing times from China and efficient infrastructure that can whisk freight to the U.S. Midwest and beyond.

“If people are using the Canadian ports now out of concern for a slowdown, and they like what they see and they like the processing times and the experience, they’ll continue to funnel some of their traffic that way,” Emma Griffith, a director at Fitch Ratings in New York.

So Canadian seaports are gaining in the short-term because of our self-inflicted wound, but they may also gain in the long-term because of both natural and man-made advantages:

[Prince Rupert] lies ice-free 745 kilometers (462 miles) northwest of Vancouver, is as many as 68 hours closer to Shanghai in sailing time than is Los Angeles, according to the Prince Rupert Port Authority. Including rail times, cargo transiting from Shanghai through Prince Rupert would reach Chicago two days quicker than if the ships called at Oakland or Seattle-Tacoma, and three quicker than if they unloaded in Los Angeles…

One of Prince Rupert’s advantages is that inbound containers can be transferred directly to trains rather than trucks that head to a distribution center, which is what happens at other West Coast ports, according to Kris Schumacher, a spokesman for the port authority. This kind of traffic, which uses different modes of transportation, is known within the industry as intermodal freight, and it’s booming for Canadian National.

Meanwhile back on the United States, it’s antibusiness-as-usual:

…there’s no indication when new contracts will be signed for workers at 29 ports from Washington state to California. About 20,000 dockworkers represented by the International Longshore and Warehouse Union have been without a contract since early July. The union and the maritime association are negotiating over work rules, salaries and health-care benefits.

In 2002, the maritime association locked out U.S. West Coast port workers after contract talks broke down. The 10-day shutdown ended when then-President George W. Bush invoked the rarely used Taft-Hartley Act to reopen the ports. The dispute cost the U.S. economy $1 billion a day, according to the maritime association.

The Unintended Consequences of Environmental Policy: For the Birds

So, here is a story to make your blood boil. According to National Review, “the federal government acted with a bias, giving renewable-energy companies a pass on unlawful bird deaths while rigorously prosecuting traditional energy companies for the same infractions.” The NR article follows a string of recent stories complaining about tens of thousands of birds cut up to pieces or fried in the sky by windmills and solar plants.

Speaking of birds…

Five decades ago, Rachel Carson, of Silent Spring infamy, helped to ban a pesticide called DDT. Back then, DDT was widely used not only in agriculture, but also in malaria control. Carson argued, among other things, that the use of DDT endangered bird populations. The political left jumped on Carson’s arguments. After a massive campaign, DDT was withdrawn from agriculture and its use in malaria control was greatly restricted. Most countries followed the American example and banned DDT for use in agriculture.

Although developing countries could technically use DDT for disease control, no donor agencies (dominated by western leftists) would support its use. This amounted to a de facto ban of DDT in malaria control. Nobody knows for sure, but thousands of Africans, perhaps millions, have died of malaria since the use of DDT was prematurely discontinued, all because of a hysterical drive to save the birds in the West.

Today, tens of thousands of birds are dying to satisfy the newest progressive fetish: the drive for renewable energy. At least they are dying in an environmentally friendly way.

As the left likes to say, you cannot make an omelet without breaking some eggs!

The Future of Dollarization in Ecuador

A new “monetary and finance” law that was approved by Ecuador’s National Assembly in July, is expected to be signed into law any day now. Many suspect that this marks the beginning of the end for dollarization in Ecuador, which began in January of 2000. But the underlying threat to dollarization is the incessant growth of public spending. Losing dollarization would be a sad development, considering it is what has protected Ecuadorians from one of the worst evils of populism: high inflation.

The remarkable contribution dollarization has made to the Ecuadorian economy is worth noting. A 2010 study published by Ecuador’s central bank (BCE) analyzed the first decade of the absence of independent monetary policy and found that average GDP growth increased from -6.3 percent during the 1990s to 4.4 percent during the 2000s; annual inflation decreased from a high of 90 percent in September of 2000 to single digits within a year, and has averaged 3 percent since 2004. Additionally, interest rates went down immediately, thereby reducing the cost of capital. According to the World Bank, the percentage of Ecuadorians living on less than $2 a day (PPP) decreased from 37.7 percent in 2000 to 10.6 percent in 2009.

Of course, there are many problems dollarization cannot solve and the positive outcomes above are not solely due to it. But it probably has been one of the main factors contributing to Ecuadorian growth prior to and during our current “revolutionary” government. In fact, Ecuador owes its superior economic performance today–compared the two most prominent populist nations in the region, Argentina and Venezuela–mostly to dollarization.