No, this is why Osborne’s cocaine allegations matter

I can understand the impulse to call for George Osborne’s head. Hell, I admire the self-restraint required not not ask for it on a silver platter. But I think it is short sighted. The argument is pretty simple. Taking drugs might not be wrong, but George is part of a government that says taking drugs is wrong. We must therefore hold him to that standard to illustrate that taking drugs is treated as serious crime, even though it shouldn’t be.

Now loads of people in the Coalition government not only used to be young (almost all I’m told) but many of them used to work in finance, advertising, and marketing…so… come on! Who are we kidding? Loads of these people have taken drugs. We can’t just punish those who are unlucky enough to be caught.

This is foolish. People who are liberal towards drugs need to stop this point scoring. The only effective method to reform the current system is to make the current system as absurd as possible and make people publicly discuss its ridiculousness and to want to change the system. It is already an unworkable system, but it trundles along anyway. It can’t just be an inherently bad system, it has to be a bad system people acknowledge as inherently bad.

Having a prime minister who may have smoked weed at Eton (I am fairly sure it is David Cameron is one of the Etonians caught smoking the reefer as referred to in Paul Gilroy’s “There Ain’t no Black in the Union Jack”. The dates match up precisely in any case.) and who probably took coke at work, with a former coke-head as Chancellor and a former novelist MP who probably took some drugs at some point will just underline the lunacy of the system.

So, although I’ve been accused of sophistry in the past, I think we should think about this a little deeper. A good place to start would be the Arab Spring. Timur Kuran has written on “preference falsification.” This occurs where social pressures lead people to publicly express opinions which would be rejected in private. This is why the Arab Spring took so many despots by surprise. They mistook publicly expressed opinions as honest reflections of private opinions when the opposite was the case.

Good drug policy campaigning will do its best to try and reach the tipping point when lots of people, the public and especially politicians, can express publicly the opinion that privately many hold. Prohibition doesn’t work, lets try legalisation.

There are two reasons people engage in preference falsification, the first is seeking social approval, sometimes this is to avoid bad looks, sometimes to avoid gunshots. The other is more subtle. People rely on one another for information and for a palate of opinions to compare their own. If nobody else expresses your private opinion then you will assume nobody else carries it, even if many do.

Now David, George, Louise, all probably think there’s nothing too bad in taking drugs. What we need to do is tip the public discussion into a place where the many people who agree with this can express it without having to obfuscate and lie. Part of this is keeping ex-drug users in Parliament. First of all, it makes the current system look ludicrous, because it is, and lowers the costs of criticising it. Secondly, because the more people with power who hold publicly denied but privately held opinions the easier it is to reach the critical mass where we can all admit prohibition isn’t working.

So that’s why I don’t think George Osborne should resign (well not about this) and why calls for him to be hoist on his petard is foolish.

India, Free Trade, Productivity and Sectoral Shifts

This is what I was talking about when thinking about the EU/India Free Trade deal. Will it help India shift workers from low productivity activities to high productivity industries? This doesn’t necessarily happen automatically. Look at a graph of Dani’s on Growth reducing structural change

The representative Latin America country has experienced faster productivity growth in its individual economic sectors than the representative Asian economy. (China is not included in this data set.) Why then did Latin America do so much worse overall? Because the reallocation terms have contributed negatively to overall economic growth. Note in particular the hugely negative “cross” term for Latin America (the green bar). In Latin America, labor has moved from sectors with high productivity growth to sectors with low (or negative) productivity growth, offsetting to a large extent the large “within” effect and the much smaller (but still positive) “between” effect.

This should be the worry for countries like India entering Free Trade deals with Europe. Will the trade help poor countries restructure their economies in productive ways or will it retard or reverse that process.

I’m tempted to believe it will with respect to India’s already well established services sectors. Demand from Europe should swell employment in the relatively high productivity service sector, which is what we want to see. A positive sectoral shift from high productivity to low productivity employment as a result of trade.

However, investment in agriculture will probably become depressed in India as competition from subsidised European crops depresses returns in this sector. This could increase low-investment subsistence farming and decrease large scale efficient farming methods. A negative sectoral shift from high productivity to low productivity employment as a result of trade.

Opening up to trade will induce all sorts of competitive pressures on all sorts of industries. It will cause relatively uncompetitive firms to close down. In an efficient economy more efficient firms will expand or new more efficient firms will be created to stake that market share.

Competition and the exit and entry of new firms are good ways of making a country more wealthy. However, it will not necessarily happen automatically, and a country like India, with very poor quality institutions need to be careful which policies they adopt.