Topic: International Economics and Development

President of Senegal to Speak at Cato

Since becoming the president of Senegal in 2000, Abdoulaye Wade has been one of Africa’s most vocal proponents of liberal economic reforms. As he recently said, “I don’t want money, and I don’t want hand-outs. I want trade agreements….I believe in a liberal economy and have never put much faith in the state-run economy, because it fails….The state should intervene only to create the conditions necessary for the private sector to thrive. I am counting on the private sector, because it is crucial to Senegal’s future.” Join us on September 28 to hear President Wade discuss economic reforms in Senegal and the future of liberalization on the African continent.

Why Not Let Belgium Disappear?

The International Herald Tribune reports on the growing hostility between the French and Dutch regions of Belgium, which has manifested itself in a three-month failure to form a government. But why is this bad news? First, the absence of a government means that politicians are not concocting silly new ideas to waste money and over-regulate the economy (which is also why gridlock is a good thing in America). But more importantly, why not let the country divorce? Or, at the very least, engage in radical decentralization so that the two regions (or three, if Brussels becomes a capital city akin to D.C.) have complete fiscal autonomy?

[M]ore than three months after a general election, Belgium has failed to create a government, producing a crisis so profound that it has led to a flood of warnings, predictions, even promises that the country is about to disappear. …Officials from the former government — including former Prime Minister Guy Verhofstadt, who is ethnically Flemish — report for work and collect salaries. The former government is allowed to pay bills, implement previously-decided polices and make urgent decisions on peace and security.

…[T]here is deep resentment in Flanders that its much-healthier economy must subsidize the Francophone south, where unemployment is double that of the north. …Belgium has suffered through previous political crises and threats of partition. But a number of political analysts say that this one is different.

The article also has an amusing passage on a TV program that tricked many viewers into thinking the nation was in the process of splitting up.

RTBF, a Francophone public television channel, broadcast a hoax on the break-up of Belgium. The two-hour live television report showed images of cheering, flag-waving Flemish nationalists and crowds of French-speaking Walloons preparing to leave, while also reporting that the king had fled the country. Panicked viewers called the station, and the prime minister’s office condemned the program as irresponsible and tasteless. But for the first time, in the public imagination, the possibility of a breakup seemed real.

Will American Capitalism Be Surpassed?

Sallie James hit the nail on the head in her blog post today: ”business deals, and not formally negotiated trade agreements, are driving globalization.”

That made me think of this Deutsche Post webpage I came across. 

It sounds spectacular: The world’s largest shipping and logistics hub at the world’s largest airport, all in low-tax, freewheeling Dubai.

America used to do great stuff like this. But while we’ve still got a moribund and bloated government postal service, Germany’s privatized Deutsche Post seems to be at the leading edge in global shipping and business services.  We’ve got congested, government-owned, and union-dominated seaports, while Dubai will be host to a huge and efficient intermodal system.

America still has lots of world-beating companies such as FedEx and Intel. The problem is in Washington: federal policymakers sit on their hands doing little to improve economic productivity while ambitious upstarts such as Dubai and Ireland are providing more freedom and more opportunity for businesses to grow.

The True Leaders of Trade Liberalization

A great article today [subscription required] in the Financial Times reminds us that business deals, and not formally negotiated trade agreements, are driving globalization.

That’s not to say that a good outcome on the Doha round wouldn’t be welcomed (and things are looking up on that score). But preferential trade agreements are often not the historic breakthroughs that politicians make them out to be. They make great photo-ops, though.

Senate Now Debating the Manner in Which to Fleece You

After a disastrous result in the House of Representatives, the farm bill debate has moved on to the Senate, where the main conflict is about how to provide assistance to farmers. Senator Max Baucus (D, MT), who sits on the Agriculture Committe but also holds the purse strings as Chairman of the Senate Finance Committee, favors a permanent weather-related disaster relief fund alongside more “traditional” farm subsidies. The Chairman of the Senate Agriculture Committee, Tom Harkin (D, IA) prefers government subsidies based on farm revenue rather than commodity prices, and more spending on “renewable fuels” and conservation of farmlands.

Sen. Harkin wants about $10 billion dollars over the amount currently slated for farm programs to pay for his pet projects, but Sen. Baucus has made it clear that if Sen. Harkin wants more money, then he has to dance somewhat to Mr. Baucus’ tune. Sen. Harkin has in recent days appeared more open to a “modest” permanent disaster-assistance program if it means he gets his money (see here). Something tells me that Sen. Harkin’s definition of “modest” might be different to mine. Nor am I convinced that a permanent disaster relief trust fund would prevent Congress from approving extra disaster funds along the way.

The administration has issued a veto threat, but on ominous grounds. For example, the administration does not like the tax package that the House approved to pay for extra money for food stamps and sees the House income cap of $1 million dollars annual adjusted gross income as an insufficiently tight means test. As well they might, because it would affect only 7,000 farmers.

The veto threat is ominous because (a) it is based on things that are minimal and easily fixed relative to the entire package itself and (b) President Bush passed the similar 2002 farm bill without too much wailing and gnashing of teeth. At no point has the administration seriously questioned the rationale for these programs. While the President may have little to lose this time by vetoing the thing, Secretary of Agriculture Mike Johanns is reportedly seeking the Senate seat vacated by Sen. Chuck Hagel in Nebraska in 2008. Secretary Johanns has pushed strongly for reforms of farm programs until now, but presumably he would not want to campaign after being behind a farm bill veto.

Here’s an idea: instead of spreading the love around to more farmers (like the $1.6 billion in extra spending for fruit and vegetable growers who have traditionally missed out on largess), tinkering with the income limit and changing the method by which we give money to farmers, how about we scrap the whole thing altogether? See here and here for starters.

Fred Thompson’s Questionable Views on U.S.-China Trade

Fred Thompson’s relatively late entry into the presidential race has left people scrambling to discern his views on a range of topics from social issues to trade with China. I’ll leave it to others of probe his position on the former, but I came across something this week on the latter that is not encouraging for those of us who support free trade.

Two years ago, the former Tennessee senator was one of 11 commissioners to approve and sign the “2005 Report to Congress of the U.S.-China Economic and Security Review Commission.” The commission was established by Congress in 2000 to hold hearings and write reports on the implications of America’s growing trade with China.

Americans are right to cast a sober eye toward China’s foreign policy intentions and human rights record, but the commission also dabbles in the worst sort of economic populism toward U.S.-China trade. Among the questionable assertions in its 2005 report:

China’s “active participation in the global economy … is resulting in the movement of jobs, especially manufacturing jobs but increasingly service jobs as well, from the United States to China and other countries offering higher rates of return on capital” (p.3).

“U.S. producers of advanced technology products are also subject to the growing pressures posed by China. In 2004, the U.S. trade deficit in advanced technology products with China grew to $36.3 billion” (p. 4).

“The opening of the Chinese, Indian, and former Soviet bloc economies has led to more than a doubling of the global market’s work force and likely will put downward pressure on U.S. wages for workers at all levels, including higher levels of the wage scale. Mobile capital and technology flows accelerate this trend” (p. 5).

“Congress should consider imposing an immediate, across-the-board tariff on China’s imports at the level determined necessary to gain prompt action by China to strengthen significantly the value of the RMB [its currency]. The United States can justify such an action under WTO Article XXI, which allows members to take necessary actions to protect their national security. China’s undervalued currency has contributed to a loss of U.S. manufacturing, which is a national security concern for the United States” (p. 14).

Cato’s Center for Trade Policy Studies has systematically addressed economic concerns about U.S.-China trade at our web site, but here’s the crib sheet:

U.S. job losses from trade with China have been small and have been more than offset by jobs created in sectors that do not compete directly with China. The U.S. economy has added a net 16.5 million jobs in the past decade of expanding trade and the national unemployment rate is a low 4.6 percent.

Trade with China and other emerging economies has helped to boost living standards in the United States by reducing prices for consumer goods that make our lives better everyday. Average real hourly compensation (wages and benefits) paid to American workers is up 22 percent in the past decade. Tariffs on imports from China would reduce the well being of tens of millions of American households.

Real manufacturing output in the United States is up 31 percent compared to a decade ago. As my colleague Dan Ikenson shows in a new study for Cato, U.S. manufacturers enjoyed record output, sales, profits, and returns on investment in 2006. The “advanced technology products” that the commission worries about are overwhelmingly laptop computers and other consumer electronics. A WTO panel would rightly laugh at the claim that imports from China have somehow endangered America’s “national security.”

Which brings us back to Fred Thompson. Does he really believe the many questionable assertions in the 2005 report of the U.S.-China Economic and Security Review Commission that he approved? Or was he not really paying much attention? Or has he revised his views since 2005? An enterprising economics and business reporter should ask him.

If You Want To Be Loved, Try Being a Swede

No matter what we do, it seems like the world wants to hug us. We build a welfare state and the world loves it.  Try to reduce it, like the present government, and Roger Cohen in the New York Times says it’s funky.

But, ok, it is funky, moderately funky. The four center-right parties that make up the Swedish government since a year ago are influenced by market-liberal ideas from authors and think tanks, and some of the ministers wrote those books themselves. Three of the parties have fairly influential libertarian factions, and the leader of the fourth has said that he has Ayn Rand’s Atlas Shrugged on his bedside table. So expect more tax cuts, privatisation of state companies, an entrenched school voucher system, more private providers and competition in health care and a strong emphasis on deregulation and free trade.

But don’t expect labor market deregulation. When the trade unions organize 80 percent of the workers you don’t pick a fight. And don’t expect a real reduction in public spending. When everybody lives on everybody else’s expense, no one wants to be the first to try to quit. 

Above all, the government will act moderately. The biggest coalition party is actually called “the moderates”, and its ideology is called liberal-conservative – where liberal means liberal (it always confuses Americans), but conservative means that you shouldn’t be too serious, rapid or radical about your liberal ideals.

So in the end, the government will just tip the balance in an intact Swedish middle way between Anglo-Saxon and Continental. Open up and deregulate (after all, this is the country where the social democrats praise free trade) but also tax and spend (after all, this is the country where the new center-right prime minister says that “We don’t want to take away anything, we just want to add.”)