Saturday, 26 March 2016

If the British left want an earthly paradise they should look at home.

We all have - and the left especially has - a desire to seek out earthly utopias where the things we think important are revealed and our ideology is justified. For socialists the list is long - from the Soviet Union in the 1930s through Cuba and Nicaragua to Venezuela in recent times. There have been detours through Sweden and Denmark and occasional enthusiasm for Canada or San Francisco. It's all a bit futile:

But the left has always – and perhaps has always had to – cast its net rather wider when looking for shining examples and sources of optimism, revolutionary or otherwise. Sadly, however, the sheer variety of countries in which it has invested its hopes, as well as the sometimes wilful naivety that helped nurture them in the first place, has seen those very same hopes dashed time and time again.

And those hope will always be dashed or at least so long as the left is excited by the idea of being 'anti-market' rather than just 'pro-poor'. It is odd that the chasm in politics left by the enduring legacy of Soviet-style central planning has never been properly filled - even centrist social democrats can't help but tinker with prices, with subsidies, with protectionism and with market fixing. So those social democrat ideas of lifting the poor from poverty, of creating a fair and equal society are crushed because the left simply choose the wrong policies.

The left tend to assume that the heroes of the 'right' are those authoritarians they despise (while enthusing about similar despots who lay claim to leftiness). Yet, if we're to seek for places that capture the idea of neo-liberalism best, that demonstrate how markets work for everyone, we aren't going to find it with authoritarian nationalists. It's more like this:

But Hong Kong too was once a basket case. "Devastated by Japanese occupation, the British colony's population had declined from 1.6 million in 1941 to 600,000 by 1945. Then, after the 1949 communist victory on the mainland, a million refugees arrived. Most of them were penniless."

Hong Kong owes its current prosperity to John (later Sir John) Cowperthwaite, a young official sent out to push the colony's economy toward recovery, which he did by reducing or abolishing taxes. "Even now, Hong Kong has no sales tax; no VAT; no taxes on capital gains, interest income or earnings outside Hong Kong; no import or export duties; and a top personal income-tax rate of 15 per cent.

"During Cowperthwaite's tenure, Hong Kong's exports grew by an average of 13.8 per cent a year, industrial wages doubled and the number of households in extreme poverty shrank from half to 16 per cent."

Indeed those of us who believe in neo-liberalism, who think that open markets, free trade and free enterprise are the route out of poverty - we have loads of examples of how what we believe in works. Whether it's Hong Kong or Singapore, Taiwan or Malta, Chile or Ghana, we can point to example after example of places where adopting the core ideas of laissez-faire led to economic growth and a better life for nearly everyone in those places. With the finest example being Britain itself - the place that started it all off.

So why is it that socialists have stopped being bothered by who owns things and become obsessed with how things are bought and sold. Why is it that the left want us all poorer from protectionism, corrupted by fixed markets and left with shortages or gluts from price-fixing? Whether it's energy prices, rents or, in Venezuela's case, loo paper, how is it that despite two hundred years of solid evidence telling them they're wrong, left-wing governments continue to think they can buck the market?

And why does the left support protectionism. OK it's not the old fashioned approach - the import substitution strategies that near bankrupted Brazil and Argentina or the tariff barriers that fooled European basic industries into believing they were competitive. Rather it's a new approach - we get a local or regional protectionism based on the deluded idea that small businesses are more efficient, greener and resilient - here's one of it's leading advocates David Boyle:

The prevailing economics of regeneration is based on the idea of comparative advantage. Places need to specialise, otherwise – heaven forfend – everywhere will have to build their own radios or cars or anything else.

Or so the old-world economists mutter when you suggest that ‘comparative advantage’ might be taken too far.

Because when it is, what you get is too few winners and far too many losers, places that are simply swept aside in the narrowly efficient new world, where only one place builds radios. Or grows carrots.

The problem is of course that Boyle is simply talking nonsense - as that well-known right-wing economist, Paul Krugman observed:

At the deepest level, opposition to comparative advantage -- like opposition to the theory of evolution -- reflects the aversion of many intellectuals to an essentially mathematical way of understanding the world.

And alongside this we get a set of 'ethical' protections - barriers based on environmental standards, health standards or worker 'rights' that serve to make both poor countries and rich countries poorer. Cries go up for 'anti-dumping' measures that merely serve to make the steel or paper or wool or whatever more expensive thereby reducing economic growth and damaging future prosperity.

Protectionism - whether it's called 'resilience', 'local purchase preference' or anything else - is wrong and benefits a few at the cost to the many:

Many people have argued over the years that U.S. prosperity in the late nineteenth and early twentieth centuries sprang in large part from the high-tariff policies in place during those times. Apart from the economic nonsense this claim exhibits, it is akin to claiming proudly that the great economic success of the mafia in the twentieth century sprang in large part from the organization’s “taxes” (demands for protection money) laid on members of the public.

Yet this economic nationalism is now a core feature of the left's economic policies alongside all sorts of market-fixing ideas - rent caps, energy tariffs, regulatory barriers to entry, de facto guild systems and a strange belief that places can be both part of and separate from the global economy.

Finally the left seem to believe, again despite all the evidence telling us they're wrong, that somehow if we just taxed the rich a little more then there'd be enough money for all their grand schemes. Books filled with reams of statistics tell us that enormous sums languish in supposed 'tax havens' waiting for us to apply the right rules so that lovely lolly ends up in the government's coffers rather than Scrooge McDuck's Caribbean vault.

Again this is just stupid. As if that cash is sitting in piles in some bank - it's not, it's funding businesses, supporting pension funds and a whole host of other useful things. If the government takes a load of it to spend on welfare benefits, doctors wages and what not then it's not available to provide that investment. This might be all fine and hunky dory but it isn't costless - there will be a negative effect on growth, on employment and on interest rates as a result of whacking that big tax on those rich folk's off-shore hoards. Plus, of course, we can only spend it once.

There is no utopia. There is no ideal model of government despite all the efforts of clever men to create one. We don't have the knowledge or capacity to do a better job - in nearly every case - than the market does in allocating scarce resources. So by all means promote socialised forms of ownership. By all means argue for high taxes so as to enable more income redistribution. And by all means argue for greater transparency and openness in markets. But don't lie to people and tell them that you've found a magic system that's better than those markets.

If the left want their earthly paradise they shouldn't need to look beyond Britain. Take the long view and consider how much richer we are than 20, 30, 50 or a 100 years ago. Not just the elite but everyone from the monarch down to the cleaning lady with a severely disabled son. For sure, it's a pretty flawed paradise and one that could be improved but it's as good as anywhere on earth in almost every aspect of life. And capitalism, free markets, free trade and free enterprise are a pretty big part of why that's the case.


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