Topic: International Economics and Development

The European Commission Is Free Market?!?

There is nothing terribly newsworthy in a story from the EU Observer about a move to the left by the European Commission, but it is revealing that the report indicates that the Brussels-based bureaucracy has a free market reputation.

This is, after all, the bureaucracy that pushes for tax harmonization between countries and operates a Soviet-style agricultural subsidy system. But, then again, maybe the bureaucrats are free market when compared to French and German politicians:

The European Commission on Wednesday appeared to be trying to shrug off its reputation as a free-market bulwark, releasing a vision on the future of the EU’s single market which is notably sensitive to social concerns. 

…The current team of commissioners led by Jose Manuel Barroso generally has a pro-market reputation, not least in Germany and France.

…The paper also states that “many European citizens have raised concerns about the perceived disruptive impacts of globalisation,” adding that it is a “matter of social justice” to “anticipate and accompany change for the people and sectors directly affected by the market opening.” Brussels already runs the so-called Globalisation Adjustment Fund which was introduced by Mr. Barroso in 2005 after French president Jacques Chirac criticised the EU for failing to respond to massive lay-offs in France by U.S. computer maker Hewlett-Packard.

The Wisdom of Walter Williams

George Mason University’s Walter Williams is a skilled economist who can spout jargon when necessary, but it is his ability to put economic principles in common-sense language that sets him apart from most of his peers. How many Americans would cease worrying about the trade deficit, for instance, if politicians copied Walter’s words and explained that America and Japan (or China, or Germany, etc.) do not trade with each other:

When I purchased my Lexus, did I deal with the U.S. Congress, the Japanese Diet, George Bush and Shinzo Abe, or did I deal with Toyota and its intermediaries? If we erroneously think of international trade as occurring between the U.S. and Japanese governments, then all Americans, as voters, have a say-so. But what is the basis of anyone having a say-so when one American engages in peaceable, voluntary exchange with another person, be they Japanese, Korean, British, Chinese or another American?

Tax Cuts North of the Border

America traditionally has enjoyed a competitive advantage over Canada, but the Conservative government in Ottawa has announced addtional tax cuts, including reductions in the corporate rate. The rest of the world is responding to tax competition, and the high corporate tax rate in the US is becoming an ever-larger problem for American companies in the global marketplace. Unfortunately, there is no groundswell – or even idle gossip – for a reduction in America’s punitive corporate tax. Tax-news.com reports on the new tax cuts in Canada: 

Jim Flaherty, Canadian Minister of Finance, has announced that he will table the second budget of Canada’s Conservative administration under Prime Minister Stephen Harper on March 19, 2007. …Key tax measures contained in the 2006 budget included the long-promised 1% cut in Goods and Services Tax to 6%, a 2% cut in the general corporate tax rate by 2010, eliminating the corporate surtax on all corporations by 2008, axing the federal capital tax, and increasing the amount of income eligible for the lowest rate of corporate tax for small businesses. In addition, this bottom rate will be reduced by 1% to 11% by 2009.

Mugabe Eats Cake, Zimbabweans Eat…

My Cato colleague Marian Tupy is currently traveling in Africa and unable to blog, so I thought I’d post this snippet from from a New York Times story that would be dear to Marian’s heart:

JOHANNESBURG, Feb. 21 — President Robert G. Mugabe of Zimbabwe turned 83 on Wednesday to the strains of the song “God Bless President Mugabe” on state-controlled radio, along with an interview on state television, a 16-page paean to his rule in Harare’s daily newspaper and the prospect of a grand birthday party — costly enough to feed thousands of people for months, his critics argued — on Saturday.

Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.

Mugabe is a piece of work: Not only has his thugocracy destroyed the civil society necessary for a healthy nation and economy, not only has his monetary policy imploded the Zimbabwean currency, not only will history remember him as (in the words of Nobel laureate Archbishop Desmond Tutu) a “caricature of an African dictator,” but he has the audacity to stage a phony national celebration of his birthday.

Hat tip to the NYT for the great headline, photo, and endquote.

Fine-Tuning Competition

The Washington Post reports today that the Justice Department has ordered Arcelor Mittal (the world’s biggest steel company) to sell off its Sparrows Point mill in Baltimore “to preserve competition in the eastern U.S. tin mill market.” 

Prior to the Arcelor-Mittal merger last year, three firms supplied most of the tin mill products (steel used for food, paint, and aerosol cans, etc.) consumed in the eastern United States: U.S. Steel, Mittal, and a Canadian subsidiary of Arcelor.  Post-merger, only two firms supply most of the tin to that market and the Justice Department deems that to be a threat to competition. 

Interestingly, just eight months ago, the U.S. International Trade Commission voted to continue antidumping restraints against tin mill products from Japan, citing a domestic industry that was vulnerable to a recurrence of injury from imports in the foreseeable future. 

So, while the Justice Department forces companies to break up to promote competition, the ITC sanctions duties to quell it.  If both agencies took long sabbaticals, I suspect the competition thing would resolve itself.

Swiss People and Swiss Cantons Reject Fiscal Interference from Brussels

The Neue Zuricher Zeitung reports that an overwhelming majority of Swiss voters are opposed to attacks on their nation’s fiscal sovereignty. The story also quotes Switzerland’s Finance Minister, who notes that the European Union would have a hard time getting unanimous agreement in order to impose sanctions: 

A new survey shows that…[t]hree-quarters said they opposed any interference from Brussels… The poll of more than 1,000 people was commissioned by the SonntagsZeitung newspaper. …Many EU countries are angry that tax revenues are being lost as companies relocate to Switzerland - mainly to small cantons which offer low levies. …The survey results also hinted that the latest dispute has put the EU in a worse light among the Swiss. Only 41 per cent said they favoured providing financial aid for the latest EU member states, Romania and Bulgaria, as requested by the EU earlier this year. …[Swiss Finance Minister Merz] said Brussels would need unanimity from its member states to succeed with its attack on Switzerland’s tax regime, but that, he said, was unlikely since some EU countries also offer similar tax breaks. Merz said Switzerland did not want to set a dangerous precedent. “It could reach the point where the EU demands that we double the rate of our Value Added Tax so it’s in line with the EU average,” he warned.

Equally important, Swissinfo.org reports that cantonal governments also reject meddling by the European Commission. And since any change to Swiss policy would require approval from a majority of voters and a majority of cantons, the Euro-crats face an uphill battle in their campaign to hinder tax competition:

Swiss cantons say the latest European Commission attack on Swiss corporate tax breaks will fail without a referendum to end the cantons’ financial independence. …The report was presented to the Swiss federal authorities, but central government would be powerless to make the cantons cooperate even if ministers changed their position of defending the system. “The Commission clearly does not understand our political system. The federal authorities have no say in this matter,” Kurt Stalder, secretary of the Conference of Cantonal Finance Directors, told swissinfo ahead of the EC report. “It is written into our laws that cantons set their own taxes and there must be a national referendum to change this. The people have had numerous invitations to make a change in the last few years but they have always voted to accept the system.” Stalder added that the 26 cantonal finance heads had voiced a unanimous resolution to resist pressure from Europe during a recent meeting of the Commission.

Putin’s New Deal

According to David Ignatius of the Washington Post,

To explain the Putin phenomenon, the Kremlin’s chief ideologue, Vladislav Surkov, recently compared him to Franklin Delano Roosevelt, another president who brought his country back from economic disaster and restored its pride. Like FDR, Putin is using “presidential power to the maximum degree for the sake of overcoming the crisis,” Surkov said.

Inasmuch as FDR’s economic policies were a failure until after World War II, let’s hope that Putin and Surkov aren’t planning to emulate him too closely.