Left Outside

Bulgaria under the yoke of Communism again

Spiegel: Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union…

…Bulgaria, the EU’s poorest country, is attractive as a labor market because it is an oasis of cheap wages and low taxes. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers.

(H/T). Some thoughts:

  1. Don’t overweight cheap labour and underweight transport costs and clustering in thinking about global trade.
  2. There will be more of this. In the end the country with the most people wins – that means China for a while and India afterwards.
  3. There should be less of this, trade barriers mean international investments need to be made that would not were the EU a true open borders free trade area.
  4. East Asian labour is remarkably low-skilled and poorly educated despite what positive prejudices  you might hold.
  5. Technology is highly mobile and drives convergences in incomes all round the world in interesting ways.
  6. The future prosperity do the world depends on the rich world restraining its xenophobic hostility to foreign capital, as much as foreign workers. You boss may one day speak another language and earn much of his money in a foreign currency, that should be fine so long as she still pays your wages.
  7. We live in interesting times.

Filed under: Economics, Society, , , , , , ,

An Argument in Favour of the CAP

EU FlagThe Common Agricultural Policy of the EU is one of the largest subsidies in the world “it represent[ed] 48% of the EU’s budget [or] €49.8 billion in 2006.” That is a lot of money in anyone’s book, but when it appears hardly anyone is happy with the outcome generated it starts to look anomalous.

From the right, it is attacked by The Economist, which itself is flanked by the Adam Smith Institute.

[European consumers and taxpayers] will have to continue paying for this wasteful and wicked system. It is terrible for poor-country farmers, who have long suffered from being shut out of rich-world markets, and having rich-world products dumped on them. Now they can hear the gates of fortress Europe clanging shut just when world prices should be triggering an export boom. And it is dreadful news for the hungry poor, because restricting trade in food exacerbates shortages.

Similarly, the left attack the CAP for hurting smaller farmers while handing huge handouts to a handful of larger producers.

In a detailed breakdown of aid payments across the EU in 2000, the EC calculated that 78 per cent of EU farmers receive less that 5000 per year in direct aid. Furthermore, fewer than 2000 of Europe’s 4.5 million farmers between them rake in almost €1bn in direct aid from the CAP. Farm subsidies also vary in scale across Europe. In Portugal, approximately 95 percent of farmers receive less than 5000 each year, compared with 43 per cent in the UK. Moreover, 380 of the UKs landowners and large-scale agricultural businesses glean aid in excess of the 300,000 per farmer ceiling on annual payments proposed in the mid-term review.

By concentrating subsidies in the hands of its richest agricultural landowners, EU agricultural policies are hastening the demise of smallholder agriculture in Europe. (pdf)

Please allow me to take you back a century and a half.

The British Corn Laws were import tariffs designed to protect British agricultural workers and the landed aristocracy. In a way, they worked similarly to the CAP. Their effect was certainly similar, higher domestic prices and a reduced market for the agricultural products of the developing world. Of course at this point the developing world was Western Europe and the USA.

The Economist argues that the CAP is terrible for the contemporary developing world because it artificially deflates the value of their agricultural products and it hinders their access to markets for these products.

Famed free marketeer Richard Cobden may have taken an altogether different view on matters. He was a prominent member in the Anti-Corn Law League and argued voraciously for their abolition so as to lower the cost of food for the British.

But he did not argue for the abolition of the Corn Laws out of a sense of altruism for the poor wronged American, German and French citizenry.

He argued that the continuation of the Corn Laws positively aided the catching up of the developing world with Britain.

The factory system would, in all probability not have taken place in America and Germany. It most certainly could not have flourished, as it has done, both in these states, and in France, Belgium and Switzerland, through the fostering bounties which the higher priced food of the British artisan has offered to he cheaper fed manufacturer of those countries.

Perhaps The Economist is wrong. Perhaps the CAP has the potential to act as an additional stimulus to the developing world to move from agriculture  to higher value added activities like manufacturing.

Perhaps the abolition of the CAP is just another form of free trade imperialism designed to keep the third world in its place, out on the periphery.Well, done, you highlight when you read just like me and this white text has shown up. I’m hoping this post might cause some controvery so I’m hiding a disclaimer here. In my opinion the abolition of the CAP wouldn’t be a piece of free-trade imperialism, nor would it hurt the industrialisation of the developing world. Of course on the other hand its abolition wouldn’t be the panacea some describe it as, as always I think you’ll find it’s a bit more complicated than that. (Previously white on white. I’m sick of people thinking I’m a moron unnecessarily. There’ll be enough reasons for the Working Class Tory to hate me without making extra ones up)

Filed under: Economics, , , , ,

When NGDP is Depressed, Employment is Depressed

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