Topic: International Economics and Development

Matt Ridley Discusses the Improving State of Humanity

If you have a free ten minutes over the weekend, your time will be well spent watching Cato’s spanking-new interview with the best-selling author of The Rational Optimist, Matt Ridley. In it, Ridley, who is also a member of the Advisory Board of HumanProgress.org, argues that humanity’s impact on the environment need not be catastrophic. This is partly because there is a strong relationship between economic growth and a greener planet. I am going to reiterate that fact - acknowledged by no lesser authority than the IPCC - because everyone should know it: the richer we become, the lesser our impact on the environment will be. Since economic freedom and growth are correlated (i.e.: more economic freedom means higher growth), economic freedom encourages a higher quality of life and a healthier environment. Gloomy predictions about the future of the planet are based on unrealistic assumptions that are unlikely to happen. The current scare, in other words, may be just like the doomsday scenarios from the past that have never materialized. Watch the video here:

And if you have another few minutes, check out HumanProgress.org, Cato’s newest website. It is a data-heavy site that presents reputable, third-party data and a host of analytical tools. Use it to discover what Matt Ridley spoke about: the state of humanity is improving, and fast!

London Transport Regulator Gives Uber the Green Light

Today London’s transport regulator, Transport for London (TfL), said that Uber can legally operate in the U.K.’s capital. The news comes after drivers of London’s black cabs deliberately congested traffic last month in protest over how Uber, the San Francisco-based transportation technology company, was being regulated.

The Licensed Taxi Drivers Association (LTDA) said that it believed Uber was operating in violation of the Private Hire Vehicles (London) Act 1998, as I explained when writing about the protest last month:

The Licensed Taxi Drivers Association (LTDA) believes that Uber, the San Francisco-based transport technology company, is operating illegally in London. Thanks to the Private Hire Vehicles (London) Act 1998, it is illegal for a London vehicle with a private hire vehicle license to have a taximeter. Up until yesterday Uber’s website stated that anyone who wanted to be an Uber driver in London must have a private hire vehicle license. Today those requirements remain the same, however in response to the London protest Uber has opened to licensed black cabs.

TfL does not, unlike the LTDA, consider the smartphones used by drivers using Uber to be taximeters:

TfL’s view is that smart phones that transmit location information (based on GPS data) between vehicles and operators, have no operational or physical connection with the vehicles, and receive information about fares which are calculated remotely from the vehicle, are not taximeters within the meaning of the legislation.

TfL said it intended to have the High Court rule on the legality of Uber’s operation in London. However, TfL noted in its statement that the High Court would not consider the issue while separate criminal proceedings involving Uber drivers brought about by LTDA were being dealt with in the Westminster Magistrates’ Court, although it did say that the High Court would probably rule on the issue eventually:

… the LDTA (sic) has issued summonses in the Westminster Magistrates’ Court against a number of Uber drivers under s.11 of the 1998 Act. This now prevents TfL proceeding as we had intended as the High Court will not consider the issue whilst there are ongoing criminal proceedings on the same issues of law.

TfL is therefore now unable to seek early clarification from the High Court. In due course the LTDA summonses will be heard in the Magistrates’ court. The Magistrates’ decision is not binding, will almost certainly be appealed (by someone), which inevitably means the matter will end up, rather later than sooner, in the High Court.

It looks as if the LTDA has scored at least two own goals in its dealings with Uber. Firstly, the protest it supported was great free advertising for Uber, which reportedly enjoyed an 850% increase in sign-ups in the U.K. thanks to the demonstration. Secondly, LTDA’s actions against Uber drivers have prevented the High Court from considering Uber’s legality.

Can Egypt Cure Its Subsidy Addiction?

Egypt’s government spends more on subsidies of consumer products—most prominently energy and food—than on health and education combined. Subsidies distort markets, lead to waste, and are largely ineffective in helping Egypt’s poor. Therefore, it should be heartening to see the government tackling the problem, as part of its effort to bring down the country’s fiscal deficit.

According to Finance Minister Hany Kadri Dimian, in the new fiscal year 2014–2015, “[T]he allocation for fuel subsidies has been cut from around EGP144bn ($20bn) last year to EGP100bn in the new budget.”

On the surface, that appears to be a bold step, slashing spending on fuel subsidies—which are by far the biggest fraction of the total subsidy bill—by almost a third. But there is a catch. According to the budget for the past fiscal year, 2013–2014, the subsidies to oil materials were already supposed to be close to EGP100bn ($14bn). Yet, the actual spending was drastically higher, perhaps by as much as an additional EGP70bn ($10bn)

And, similarly, in the preceding fiscal year, 2012–2013, the budget for fuel subsidies was to be EGP70bn, in what was seen at the time as an attempt to bring spending under control, especially relative to the previous fiscal year. But again, the actual spending on fuel subsidies during the year was drastically higher. Some of the Finance Ministry’s revised estimates were at EGP100bn, while others claimed the real numbers were even more sizeable.

In short, in recent years the government of Egypt systematically—and quite substantially—underestimated the planned spending on fuel subsidies. One can blame that on many factors, most prominently on the political turmoil, but this track record gives little guarantee that this time will be different.

Although the awareness of the problem, as well as the wider use of smart cards to allocate subsidies, are both encouraging, one needs to keep in mind that the most recent announcement is a far cry from a genuine reform plan. Even if actual spending on subsidies were exactly equal to the amount allocated in the budget, in nominal terms that would only bring Egypt back to the spending levels of fiscal 2011–2012, which were already unsustainable. As I argued in an earlier paper, what Egypt needs is a plan to phase out fuel subsidies altogether and replace them with targeted cash transfers. Alas, such a plan is nowhere in sight.

NASA, Global Warming, and Free Enterprise

Yesterday, NASA aborted a third attempt to launch a probe that would measure the level of atmospheric carbon dioxide, where it comes from, and where it is stored. The agency may try again today, as the probe’s findings, we are told, will be “crucial to understanding how much human activity affects the planet’s climate.”

While we eagerly await NASA’s findings, it is well-known that carbon dioxide emissions are on the rise worldwide. We also know that developed countries emit less, or increase emissions at a slower pace, than in the past. Crucially, developed countries also show falling emissions per dollar of output and per person.

According to HumanProgress.org and the World Bank, developed countries’ growth in carbon dioxide emissions has slowed or reversed over time.

Not Just Another Friday in Brussels

While a typical summer Friday in the capital of the European Union might sound like a rather dull affair, today brought two significant events–one of them good, the other one less so.

First, the good news. Today, Ukraine, Moldova, and Georgia signed their association agreements with the European Union (EU). The treaties consist of, in part, free trade agreements between the EU and the three countries, and also a roadmap toward a prospective EU membership. Given the economic and political shape these countries find themselves in, the latter will likely take a long time and will not be without hurdles. After all, Turkey signed its association agreement back in 1963 and the country is still not a member.

There can be little doubt that free trade agreements with the EU will do good to these impoverished economies (GDP per capita in Moldova is just a little over $2,000) as well as to the EU. Furthermore, the prospect of a timely EU membership will hopefully serve as an impetus for economic and institutional reforms–just as was the case in the countries of Central and Eastern Europe that joined the EU in the past decade.

Of course, the EU is far from perfect and it is quite possible that these countries will soon grapple with the same problems as Slovakia, Czech Republic, or Bulgaria–namely how to manage the inflow of “structural funds” into their economies without encouraging corruption and entrenchment of venal elites. But arguably, that will not be the worst problem to have, considering that the alternative is the continuation of the status quo, muddling along from one crisis to another and being part of Russia’s zone of influence. Further enlargement, extending the common market and free movement of people further east, will likely prove to be beneficial to the EU as well.

Second, the bad news. The EU leaders have appointed Jean-Claude Juncker as the new head of the European Commission. Although initially the governments of Sweden and Netherlands had misgivings about his presidency, in the end it was only the UK’s prime minister, David Cameron, who decided to openly oppose the nomination.

The issue is not just with the personality of the candidate, but also with the process through which Juncker was selected. For the first time, the European Parliament took the lead in picking the head of the Commission, while no treaty empowers it to do so. While the appointment needs to rely on a parliamentary majority, the choice has always been made by the political leaders of EU member states, not by the Parliament. For those who do not wish to see the accountability of the Commission to national politicians wane completely, the Juncker appointment should be a cause for concern.

Let us hope that these two events are not completely unrelated. Hopefully, the prospect of another eastward enlargement will serve as an impetus for European policymakers to look for a model of European governance that provides the benefits of the common market and effective action on issues of mutual interest, without entrenching an obscure and unaccountable center of power in Brussels. 

Are Beef Prices at An All-Time High?

The press is reporting record prices for beef. According to a June 18 story in the New York Post,

“It’s a barbecue-season bummer! Meat, poultry and fish prices have spiked an average of 8 percent since last year — soaring to an all-time high, national data show. The cost of ground beef has gone up 11 percent… ‘Everything is going through the roof,’ said Jim Hopkins, 52, a supervisor at Associated Supermarket in the West Village, who has worked in the grocery business for 30 years. ‘I’ve never seen increases like this — where they jump as much as this.’”

 

 

Yet the World Bank data shows remarkable stability in the inflation-adjusted price of ground beef over the last half century. That is all the more remarkable considering that:

  1. There were 3 billion people in the world in 1960. Today there are 7 billion of us.
  2. In 1960, the average income per person was $3,000 (in inflation adjusted 2000 dollars). Today it is $7,500.
  3. More people earning more money = higher demand for meat, especially beef.
  4. Yet, beef prices are, roughly where they were in 1960.

So, cheer up and don’t let those pessimists spoil your barbecue-season.

How Political Repression Breeds Islamic Radicalism

Following the decision upholding numerous death penalties for Muslim Brotherhood members accused of a 2013 attack on a police station, Egypt has recently seen the conclusion of another sham trial, resulting in harsh sentences for three al-Jazeera journalists, accused of aiding terrorists.

While it is obvious that trials like these move Egypt further away from freedom, could they also be inadvertently helping Islamic radicals? My new development bulletin argues that political repression of the kind we are seeing in Egypt creates incentives for Islamists to use violence in order to attain their goals.

Iraq, where ISIS is making continual progress fighting the government of Nouri al-Maliki, is an extreme example of where things can end when political elites exclude a significant part of the population from democratic politics. Al-Maliki’s premiership has been marked by a strengthening of his own hold to power, progressively alienating the country’s Sunni population.

My paper argues that the electoral successes of Islamists in Arab Spring countries have relatively little to do with religion but rather with the organizational characteristics of Islamic political groups, which were typically active in the provision of local public goods and social services. Instead of seeing the rise of Islamic political organizations as a pathology that needs to be countered – possibly through repressive means – we should note that,

[I]n transitional environments, the electoral success of Islamists is a natural result of the political environment, which can be mitigated only by an increase in the credibility of alternative political groups. The electoral advantage enjoyed by Islamic parties can be expected to dissipate over time as competing political groups establish channels of communication, promise verification for their voters, and build reputation over time.

Furthermore,

There is no denying that religion and politics do not always mix well. However, the appropriate answer to the ugly side of religious politics is not political repression of the kind we are seeing in Egypt but rather open, competitive democratic politics.