PLAIN TRUTH NEEDS REPETITION

ECONOMIC PERSPECTIVES – 102 [July 2021]

“The Government has a duty to the next generation to build more homes” – reads a recent headline, quoting the Housing Minister, whose choice of words masks his preferred role, which is to get out of the way and dismantle the regulatory complexity that interferes with and obstructs what is best left to markets, if they are allowed to work.

The volume and intricacy of rules on planning, safety, building regulations and the appeals process are legion. Whether they relate to right-of-way, tree or hedgerow preservation, party walls or scaffolding – the scope for simplification is vast. It is this regulatory maze that allowed the Grenfell cladding failure to remain uncorrected until tragedy struck.  The 1990 incarnation of the Town & Country Planning Act is an overburdened tome of 337 Sections and 17 Schedules occupying 550 pages – a veritable minefield in the way of anyone who just wants to build a house!

At root, all this documentary piffle is a monument to lazy thinking that confuses pen-pushing with constructive work. This is why each crisis is an incarnation of the last one – and evidence that the important lessons are rarely learnt.

Protectionism – it still persists

 Last Sunday’s headline reads: “Ministers clash over protection from cheap imports for steelmakers”, an issue that refuses to go away. Political advocates of protectionism in international trade believe their own myths, which are always resistant to reasoned argument.

businesses, not governments, trade

 

Liz Truss, our International Trade Secretary, appears to have an unusually clear grasp that businesses – not governments – trade. She appreciates that her role is to facilitate trade deals between willing partners, there being no need to concoct them. Removing barriers is the best way to achieve this, but such is the weight of false doctrine that her scope remains severely circumscribed.

Representatives of steelmaking constituencies, and the trade body, UK Steel, mouth the familiar platitudes: “Removal of tariffs would be a ‘hammer blow’ to the sector as it could not possibly compete with products from foreign steelmakers, many of which are state subsidised, thus putting thousands of British jobs at risk. Our competitors are keeping their own trade protections in place, and therefore dropping our protections would leave us exposed to steel imports.”

 Well, as my mentors usually put it, there’s a semester’s worth of hogwash to unravel in that lot!

Victims of “doublethink”

 The first thing to note is the distinctly emotive tone of this self-interested rhetoric. If the purveyors of this mercantilist dogma stood back and reflected for a moment on what they are actually saying, they might recognise that they themselves have a dual role: they are individuals who, like the rest of us, have a nose for lower prices when shopping. They should therefore recognise the factors that make lower prices possible: trans-border cross-fertilisation of technological advances, for example, lowers prices everywhere. They also benefit from not having to bear the subsidies (taxes) that favour domestic sectors. If they are so obsessed with “buying British” their cost of living will soon become unaffordable.

…gift to British citizens

 

Instead of lobbying on behalf of partisan bandwagons, their MPs should be educating them in a few basic truths. If a foreign company is able to produce steel of a quality that is fit for purpose, and can export it to Britain at a total cost below our home-produced commodity, do we really want our government to renounce this gift to British citizens by imposing a tax on its import? A tax that we are all subject to?

The counter-argument normally advanced is equally familiar and runs something like this: if the government of a foreign country subsidises its widget-makers to help them undercut the price of British widgets, thus unfairly creating an uneven playing field, our patriotic response is surely to give them a taste of their own medicine.

 Well, no. Look at the mechanics more carefully: that foreign government’s subsidy is gift to their widget-makers, who are now able to reduce the price of their widgets. In this way their gift is passed on to British buyers of widgets, courtesy of foreign taxpayers. Again, why should our government interfere?

 The moral issue

 There is, however, a moral dimension to all this: French prosecutors are now investigating textile companies accused of being complicit in “crimes against humanity” by buying Chinese cotton produced by Uyghurs in the Xinjiang region under horrific conditions of torture and forced labour. This evokes strong feelings in all of us, but is it necessary for the state to take action? If the groundswell of popular revulsion is so strong that people, as individuals, take steps to avoid tainted products (assuming they can identify them) there would be no need to resort to tariffs, let alone involve state prosecutors – blunt instruments at best.

springboard to future tyranny

 

And if that revulsion is not, after all, strong enough to resist the temptation to buy cheap cotton, lobbying the state to make moral judgments on our behalf is a springboard for future tyranny. Once given that power, it will not readily be relinquished.

While we are about it, what about the import of dangerously addictive drugs? Or meat products from animals known to be treated and slaughtered under barbaric conditions? Assuming we are aware of it we can exercise our free choice on what to buy and what to avoid. Expecting “the state” to make ethical judgements on our behalf is always an easy option, but it poses its own dangers: just as the protestors against cheap foreign imports are also bargain-seeking shoppers, the government officials handed the power to exercise moral choices for the rest of us are also individual citizens with, like the rest of us, their own prejudices and fallible judgments. We know, from our own lockdown experience, what it’s like when petty-officialdom is handed power to monitor our behaviour so obtrusively.

We can see that this is not a cut-and-dried issue and we must tread warily. When, for example, our government, on our behalf, slaps tariffs on cotton made in, say, Ethiopia, its trade policy is intentionally to harm Ethiopia’s export market – which sounds innocuously impersonal. But are we not at the same time endangering the livelihood of thousands of indigenous workers who depend for survival on the appeal of their products to British customers? Is it sensible for our government to feather-bed UK clothmakers by taxing the import of competing materials?

“Saving British jobs” – more hokum!

The idealistic zealots whose placards cry “Save British jobs!”  don’t realise that division of labour, the principle that underlies the entire ethos of productive capitalism, applies equally across borders. It’s the archetypical “no-brainer” – if identical commodities can be produced more cheaply abroad, it would be a crime of self-harm to resort to tariffs to keep them out.

Can you identify “country of origin”?

 

In any case, I wish you luck in trying to identify a “country-of-origin” in a world of global supply chains involving thousands of components produced in dozens of countries. It’s markets, not politics, that dictate trade!

Oh, but those jobs? Our industrial history is littered with instances of creative destruction. At the corporate level, entities with cost structures that leave no margin for exigencies face extinction virtually daily, and jobs are having to migrate to meet skill shortages elsewhere. New technologies and innovative production methods will always find commercial expression, and redundancies are implicit – but today’s tragedy may well be tomorrow’s triumph.

__________________________________________________________________

EMILE WOOLF  –  1 JULY 2021