Topic: International Economics and Development

May Day in Latin America

This Tuesday, May 1, Venezuelan ruler Hugo Chavez will take control “of Venezuela’s last remaining privately run oil projects.” The symbolism is obvious: the socialist May Day. Last year, Bolivian president Evo Morales sent his soldiers to occupy the gas fields in his country on May Day.

So I’m reminded, as I was last year, that May 1 is also the anniversary of the institution of private retirement accounts in Chile. Since then Chile has been a great economic success story.

Perhaps 25 or 50 years from now, we will know whether Chile’s privatization or Bolivia’s and Venezuela’s nationalizations brought a higher standard of living to their citizens.

Irish Policy Makers Resist Tax Harmonization

Tax-news.com reports on the growing concern in Ireland about European Union plans to harmonize the definition of taxable income for corporations. Such a scheme, particularly if it is voluntary, is not automatically objectionable. But Irish lawmakers correctly fear that a common tax base is merely the first step on the path to harmonized (and higher) tax rates:

European Union Taxation Commissioner Laszlo Kovacs has reportedly told Irish business leaders that formal plans for a common EU corporate tax base will be unveiled by the European Commission next week. …despite Kovacs’s assurances that the system would be optional for businesses, many member states, including Ireland, are strongly opposed to the CCCTB plans, wary that it would be the first step towards the harmonisation of corporate tax rates across the EU, an idea favoured by France and Germany. If this was the case, Ireland would certainly have a lot to lose, as its 12.5% corporate tax rate has been cited as a major ingredient in Ireland’s economic revival in recent years, and investors certainly would not welcome European interference with Ireland’s corporate tax regime. Consequently, organisations such as IBEC, and Irish politicians, have been lobbying in opposition of CCCTB. …Irish MEP Eoin Ryan…told MEPs that he “cannot and will not accept” moves towards a common corporate tax base. “Tax competition is healthy for the economic development of the European Union. It provides a clear incentive to European Governments to manage their public finances carefully and to build a corporate tax regime that encourages enterprise,” he stated. “The bottom line here is that no one size fits all policy covering corporate taxation matters in Europe is going to succeed. It is neither sensible nor realistic to seek convergence of corporate tax rates across Europe. EU member states have different demographic and social priorities. EU member states need to use their corporate taxation policies in different ways so as to entice foreign direct investment into their countries and generate employment.”

Shed No Tears for U.S. Manufacturers

I’m going on BBC radio shortly to comment on the creation of a new lobbying group called the Alliance for American Manufacturing. Funded in part by the United Steelworkers Union, the group promises to agitate for trade restrictions against allegedly “unfair” imports from China.

Putting the “unfair trade” charge aside for a moment, there is no evidence that U.S. manufacturing as a whole is suffering from import competition, whether fair or unfair (whatever that means). Consider a few facts that you probably won’t find on the AAM’s slick new website:

U.S. manufacturing output is up 40 percent in the past decade by volume. American workers continue to produce more chemicals and pharmaceuticals, more semiconductors and sophisticated medical equipment, more aircraft and even auto parts than ever before.

After-tax profits of U.S. manufacturing companies topped $400 billion last year.

Imports from China have displaced relatively few Americans workers. Workers who have lost their jobs because of imports from China account for only about 1 percent of annual U.S. job displacement. The sectors where China has been most competitive tend to be in lower-value goods such as clothing, shoes and other labor-intensive products.

Manufacturing jobs have been declining, not because of falling production, but because of soaring productivity. We are producing record volumes of manufacturing output with fewer workers because remaining workers are so much more productive.

China represents the fastest growing major export market for U.S. manufacturing exporters.

To get more details and analysis on our trade relationship with China, check out my 2006 Cato Trade Briefing Paper, “Who’s Manipulating Whom?”

No Pearl(stein)s of Wisdom

Count the Washington Post’s chief business writer, Steven Pearlstein, among the disciples of “Dobbsonomics.” In his column today, Pearlstein writes:

There is a reason that, when it comes to trade and globalization, more Americans believe Lou Dobbs than Hank Paulson and Ben Bernanke — and it’s not because they’ve been bamboozled. The reason is that Americans perceive, correctly, that in recent years liberalized trade has not delivered as promised…(emphasis added)

Exactly what were those promises, Steven? Since 2001, the year of our last recession and the year China joined the WTO, U.S. GDP has increased 32 percent and about eight million net new jobs were created in the economy. Today’s unemployment rate stands at 4.4 percent. And don’t tell me that those 3 million people who lost manufacturing jobs at the beginning of the decade are flipping burgers or just stopped looking for work. The median salary in the services sector recently surpassed the median manufacturing salary.

A lot of the criticism of trade these days seems to be nothing more than expressions of self-loathing. As uneducated, unsuspecting, indebted sloths, Americans are living on borrowed time. Surely there will be hellish consequences to pay for our present profligacy.

Next time, let’s see the facts supporting the conclusion that U.S. trade policies have not delivered.

Stacked Deck

The Senate Agriculture Committee continues their hearings today with a focus on Title I – that’s the part of the farm bill that deals with farm subsidies. In the list of witnesses (available here), you will see significant representation from the main commodity groups (corn, soybeans, wheat, rice and a few others) and farmer groups (American Farm Bureau Federation, National Farmers Union). From what I can see, only two witnesses (out of the list of sixteen due to appear) could be expected to give a different take on farm programs: the North American Millers Association, as a user of commodities, might speak up about the damage commodity programs do to markets, and Bread for the World are rightly concerned about the effect of American farm subsidies on poor people around the world.

To be sure, farmers are affected by these programs and deserve a seat at the witness table. But where are the taxpayer groups? The food producer associations? Is the Committee even interested in the effects these programs have on the rest of us who pay for farm welfare? I guess that’s a rhetorical question.

One-Half Cheer for a Weaker Dollar

I spent two days last week in Oslo, Norway, for a conference and naturally wanted to sample one of the country’s fine beers. My pint of Ringes was served cold at Lorry’s, a popular and slightly low-brow pub near the Royal Palace. I nursed it slowly because it cost 61 kronor, which converts to slightly more than $10.

It seems I’m not the only American traveling abroad these days who has found that our once mighty dollars do not go as far as they used to. As this morning’s Investor’s Business Daily reports:

The dollar last week sank to a 26-year low against the British pound and is nearing record lows vs. the euro. Even the lowly Japanese yen has gained some ground against the greenback. 

Analysts say the dollar’s fall is the result of a cyclical shift in the global economy: Growth and interest rates in Europe and Asia are outpacing those in America, drawing capital away from U.S. stocks, bonds and other assets.

Most politicians and many economists believe that a weaker dollar is just what the U.S. economy needs. A depreciated dollar means U.S. exports are more affordable abroad and imports more expensive at home, promoting sales and profits for U.S. exporters and putting downward pressure on the trade deficit. 

Count me on the side of Milton Friedman in believing that exchange rates should float freely without government interference. But excuse me if I can’t work up much enthusiasm for the depreciating dollar. And it isn’t just because I want to pay less for a beer in Oslo.  

A weaker currency cuts like a double-edged sword in our domestic economy. On the downside, it raises prices for millions of American families that buy imported clothing, shoes, food, and consumer electronics.  It raises input costs for U.S. businesses. It puts upward pressure on the price of oil, which is universally quoted in dollars.  In fact, I counted the many ways in which we will all pay for a weaker dollar in an op-ed a few months ago. (Don’t be fooled by the headline written by a distracted copy editor!) 

So pardon me if I don’t lift a hearty toast to the weaker dollar.

Free Market Has Lifted Millions Out of Poverty

Free market incentives are spectacularly changing lives over much of the world. In the last 25 years, hundreds of millions of people—400 million in China alone—have climbed out of the dire poverty of living on less than $1 per day. It is the largest movement out of poverty in human history. At 10 p.m. EST on Tuesday, April 24, HDNet will be premiering the documentary The Ultimate Resource, which tells the story of what can happen when ordinary people around the world are given the tools to help themselves. Cato senior fellow Johan Norberg, James Tooley, the author of several Cato policy papers, and noted scholars Muhammad Yunus and Hernando de Soto, are featured in the production.