ECONOMIC PERSPECTIVES – 97
WHEN GOVERNMENT STOPS INTERVENING
My recent essays have focused on the boost to economic growth that occurs quite naturally when obstacles are removed. I cited the positive economic consequences of Margaret Thatcher’s decision to allow markets, including the labour market, to operate freely by curbing the vice-like grip of the unions; lowering taxes; and encouraging home ownership through the sale of Council-held properties.
free trade- more important than ever
Free trade is more important than ever when so many nations are embarking on trade wars against others viewed as competitors rather than trading partners – despite the impoverishing effect of tariffs on the people of their own country. This malign notion is based on the belief that an increase in exports produces a current account surplus (a “good” thing) whereas higher imports may produce a current account deficit (a “bad” thing), and ignores the fact that it’s impossible for every country to have a current account surplus at the same point in time!
Currency manipulation delusions
Competing for excellence is the platform for commercial success, as every business-owner knows. Government intervention in markets, such as using taxpayers’ money to subsidise failing sectors, is a distortion that flies in the face of this principle. Yet, while most of us acknowledge the importance of competition between producers as being healthy for the economy, competition between nations becomes a source of great bitterness whenever the playing field is rendered uneven by the manipulation of currency exchange rates.
The myth persists that any particular country’s economic woes, including comparatively inferior living standards of its citizens, may be alleviated by a devaluation of its currency on the basis that this would boost its exports by making them cheaper to overseas customers.
what if the currency were gold?
Let’s pause for a moment and exercise our reason: if all these “competing” nations just happened to be using the same currency, say gold (as was once the case), it would be impossible for any one country to improve its situation by devaluing its currency – indeed, the very idea would be meaningless. Yet the disparity in living standards between different nations, as is certainly the case with EU nations, would still exist. However, the government of a country with a weak economy wouldn’t be able to blame its currency – after all, every eurozone country is using it! So the reason for relative prosperity or poverty in respective nations must lie elsewhere. How to resolve it?
Competition is critical
For any country’s economy to be “competitive” it must simply be able to produce goods and services of a quality acceptable to overseas customers at prices they are willing to pay – and that payment can be made in any currency nominated by the seller as trustworthy. Which begs the question of why some currencies are trusted more than others.
Forgive me for stating the obvious: whoever receives payment for the goods or services they have sold must be able to use that money to pay for their own purchases; and that means the money must maintain its purchasing power, often over an extended period. That will not happen if its function as a medium of exchange is compromised by, say, unbridled money printing by the central bank, or by uncontrolled fractional reserve lending by deposit-taking commercial banks. Such inflationary practices have a directly adverse impact on production costs throughout the supply chain, forcing a descent into uncompetitive pricing and the ensuing industrial slump.
The regulatory millstone
How, then, does a nation’s trade become internationally competitive when currency manipulation is not an available option? Maintaining a low-cost, smooth-running industrial framework is a huge plus for productivity. But, once again, today’s big-state regulatory structure is a millstone round industry’s neck.
a regulatory cull would be a good start
If the Club-Med countries seriously wish to compete they should forget the malarkey about needing to devalue their own currency. A serious regulatory cull would be a brilliant start. It would, of course, fall foul of a thousand EU regulations – but that’s their cue to demonstrate independence.
We have just witnessed at first hand the EU’s determination to destroy UK competitiveness by imposing bureaucratic form-filling obligations on its ferry and lorry transport chains. When it comes to regulatory insanity, the EU has no rivals. Right now Brussels is planning a “carbon border tax” that will inflict penal tariff rates on imports from countries perceived to have lower environmental standards.
In the UK the Supreme Court has effectively attached great swathes of employment protection provisions to the engagement of gig-workers previously classed as self-employed freelancers. In Spain too: from this week, “platform workers”, aka Deliveroo cyclists, will be classed as employees, like it or not.
Nanny takes over
What’s behind this? Those who believe the propaganda surrounding all this folderol will say that it’s being enacted in the workers’ interests to safeguard them against exploitation, and hence improve their working conditions. That’s all very well, but is there another motive? Could it be that government officials will be able to access still more intrusive personal data and facilitate tax collection?
Either way, what they never do is consider the big picture: can they not see that “standing up for the workers” shrinks the market in which they work? It’s at the margin that maximum damage is inflicted. This is where small businesses, compelled to grant their contract workers all the benefits of employment status, are forced to close.
wasteful virtue-signalling costs: and unemployment results
So insidious is slippage into big-brother domain that many large conglomerates are now complicit in abetting the state’s strictures. Some now insist that a “living wage” is paid throughout its supply chain, notwithstanding the impossibility of monitoring its operation in a host of domains, or the inconsistency of its rates and measures. Being cocooned from the tribulations faced by thousands of smaller businesses they remain untroubled by the unemployment that follows when businesses (that might have presented some unwelcome competition) are forced to close because they can’t afford to pay an arbitrarily determined minimum wage. There’s always work for conniving statisticians, heedless of the impact of the folly they inflict.
It costs plenty – does it add value?
The only certainty in all of this is its impact on costs – and hence competitiveness. Many businesses are compelled to indulge the increasingly fashionable touchy-feely culture and provide such goodies as diversity training and “unconscious bias” courses – all commercially unproductive, occupy inordinate amounts of time, enforced by a government whose budget deficits stand at wartime levels.
Some businesses can either absorb these extra costs or pass them on in their pricing structures – but because the nature of these fads is essentially uncommercial, adversarial and obstructive, they add no value. Never forget that those costs are not borne out of past savings – their outlays are yet another manifestation of the good old reliable printing press. The result? You’ve guessed it: an inflationary spiral in which prices will soar, pushing up the cost of living of everyone in the wider economy. It’s coming, be sure.
Are “Conservatives” in power?
What kind of nonsensical melange is this? The founding father of Conservatism, Edmund Burke, stood for preserving (not replacing) the inalienable rights of citizens; free markets; and free trade. Two-and-a-half centuries ago his own constituents in Bristol urged him to oppose free trade with Ireland, but he stood firm, even if it meant losing their support at the ensuing election: “My conduct will stand as an example to future representatives that one man at least had dared to resist the desires of his constituents when his judgment assured him they were wrong.”
Edmund Burke – the true founder of conservatism
He was a great shredder of old laws that supported the abuse of privilege, and managed to abolish 134 state-funded offices in the royal household and civil administration. He incidentally held that slaveholders were a danger to society and should not be permitted to sit in the House of Commons, slavery being incompatible with traditional principles of British liberty.
………..and the present!
“Why is Keir Starmer making life so easy for the PM?” is the question posed on the cover of the current issue of “The Spectator”.
The plain answer is that Starmer couldn’t possibly do a better job of propagating and enacting the ideals of big-state socialism than the present Conservative government.
EMILE WOOLF 19/3/21