Getting the principle right

If government has a duty to protect the lives, property and civil liberties of its subjects, ours is currently guilty of failing to display any meaningful police presence on our streets – beyond speeding yellow cars and vans blaring ear-splitting sirens that are actually more of a menace than a comfort. This failure to provide the most basic street-level protection is responsible, in part at least, for the soaring level of burglary and knife-crime even in suburbs reputed to be safe.

Police resources are increasingly stretched by having to deal with a relatively new breed of antisocial phenomena such as “hate-speech”, often religion-motivated and hard to prosecute. Yet, because these are classified as crimes, they absorb a disproportionate amount of police time. Additionally, there is the proliferation of public order offences; high-tech data theft; social media abuse; privacy infringement; electronic banking scams and many others – all necessitating police involvement and expertise.

Let’s think creatively: if public servants, paid out of taxes, are having to engage in prevention and prosecution of crimes that didn’t exist a few years ago, why not eliminate waste in other areas and reallocate the savings towards the visible law enforcement that is now missing?

The massive labour cost of trade “negotiations”

Take the huge salary costs of interminable trade negotiations. The regulatory environment inherited from decades of EU-dominated bureaucracy includes, literally, thousands of trifling variations on the protectionist theme. Pursuing all this nonsense is hugely wasteful of public resources and adds nothing to citizens’ welfare.

This screams out from every report on so-called negotiations between our trade ministers and their EU counterparts, bandying phrases such as “give-and-take”; “tit-for-tat”; “quid-pro-quo”; “cherry-picking”; “protecting jobs”; ”regulatory alignment”; “an even playing field” – and so on. All this bickering in the dark is an utter waste of time and money that would certainly be better spent on public protection.

Some will say “but these are separate issues, and it is wrong to think of them as alternatives”. But when it comes to getting value that best meets citizens’ needs that is exactly what the Chancellor has to do – allocate money to where it will do the most good. Therefore, by this criterion, let’s revert to trade and see whether savings can be made.

 

Trade is the timeless imperative

 

If our trade negotiators listened to the PM’s speech in the Greenwich Observatory in early February they will realise that he has a healthy grasp of free trade principles.

The Greenwich location for his address was no coincidence: in 1767, as part of the great 18th century quest to determine longitude, Neville Maskelyne, Astronomer Royal, introduced his Nautical Almanac – tables of “lunar distance” data based on observations at Greenwich using GMT as the time standard. These enabled navigators to find their position at sea no matter where they were, and in 1884 the Greenwich meridian was adopted as the basis for the global system of time zones. By that time over 70 per cent of the world’s trade depended on sea-charts that used Greenwich as the prime meridian of zero degrees longitude.

What does that trade depend on now? Sadly, our ‘navigators’ have evolved into ‘negotiators’. They cling to the belief that international trade between willing buyers and willing sellers somehow cannot take place without government “help”. Well, here’s a surprise: without any of that help, 200 of Britain’s leading private companies achieved an average 65% rise in their annual export sales over the past two years, surmounting all existing protective barriers while living up to their reputation for quality, trust and determination to scour the world for new global markets [Sunday Times,16 February 2020].

the uselessness of government “help”

Their collective experience embraces every commercial activity you care to name – whether automotive engineering, office furniture, recruitment consulting, digital marketing or vehicle cleaning products – and it belies the nonsense that a government deal is essential to secure international trade.

The theory is that domestic producers somehow need “protection” against foreign competition. Yet those same domestic producers are up against constant competition with other domestic producers in the home market. Without the essential element of competition we would soon be living under a communist-style dictatorship, with state-determined production and pricing. There would certainly be no research, product development, invention or incentives – until, as happens with every experiment in collectivisation, it ends in bloody revolt.

The hidden curse of “protection”

So why is the saving grace of competition suddenly thought of as a curse just because it happens to come from overseas? Let’s keep this simple for the sake of illustration. Assume, for a moment, that a new wonder drug is produced in both France and Britain, where its price is significantly less than in France. If the French government were now to slap a tariff on imported British goods in order to protect French producers, who is harmed?

Not British citizens – we are left in the same position as before. But French consumers, deprived of the chance to buy a British product of equivalent quality at a lower price? They are obviously harmed.

Now turn the tables. Let’s say that a French product could sell in the UK for less than our local equivalent. Our government, wishing to assist the domestic producer, awards it a “development grant” that enables it to reduce its price. It can now compete with the French producer “on even terms”.

……..always ask ‘who is harmed?

Again, who is harmed? Not French citizens, who are in the same position as before. The answer, of course, is that (i) UK citizens as a whole have been penalized by a tax, effectively equivalent in size to the amount of the grant; (ii) our domestic market has been distorted by a gratuitous transfer of resources from one competing sector to another; and (iii) an uncompetitive business and its employees have been shielded from the need to improve productivity, acquire new skills or diversify their product range.

The truth is that there are no economic entities called “France” or “Britain”. There are only French and British businesses competing with one another, regardless of national boundaries, in order to profit by meeting the needs of the market. Two hundred years ago David Ricardo expressed this in his law of comparative advantage, which applies to individuals and businesses alike, wherever situated.

Only unilateral is truly “free”

If our tireless negotiators were ever to reach a trading agreement with the EU, its nature would be bilateral – two-sided – and would, by definition, exclude trade with other countries. Multilateral is equally exclusive, except that the “club’s” trading terms have been agreed by a wider membership. Best of all, bar none, is unilateral free trade (UFT): it is “one-sided” for the very reason that it requires no agreements at all and leaves importing and exporting to the businesses that are doing it.

And please note that although Hong Kong and Singapore have embraced UFT, this has not stopped them from having trade agreements with many other countries. This is the beauty of it – UFT imposes no conditions on its trading partners. If, say, Ruritania were to put a tariff on goods imported from Singapore, so be it. The Ruritanian, not Singaporean, citizens would be harmed. It takes only one (not two) to tango under UFT!

Note Barron’s Maxim

Hence “Barron’s Maxim”: barriers to trade, be they tariffs, subsidies or quotas, harm only the citizens of the country whose government imposes them*.

UFT recognises that trade is the natural state of affairs and needs no political intervention or other involvement. It certainly has no place for the EU ideology of an “even playing field”. The fact that the playing field is uneven is what inspires trade in the first place!

* as expressed by Professor Patrick Barron

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ECONOMIC PERSPECTIVES – 73

[EMILE WOOLF, 21 February 2020]