The noble savage inhabits Vanuatu

At the risk of arousing the ire of colleagues with first hand knowledge of the island paradise of Vanuatu (which to my mind was memorable as the team with which it was hardest to win FIFA 98 on the Nintendo 64), I have just seen the most stupid article on the BBC News.

As my regular reader will know, the Beeb have set a pretty high standard, but this article leapt over its rivals with the grace of a gazelle.

The general premise of the article was a romantic paean for the simple life of the primitive islander. It stems from Vanuatu’s top place on the "Happy Planet Index" drawn up by the New Economics Foundation, which ought to set alarm bells ringing (for “new” read “no understanding of”). The people of Vanuatu are happier than any other nation on Earth, apparently, and yet they are poor and consume few resources. So begins a classic BBC dream-piece about the glories of the simple life and the happiness of the noble savage.

“I have food from my garden, no war, and nothing to fear” one islander tells us, and it is hard to deny that that sounds pretty idyllic. And perhaps I am a jaded Westerner who must always look for cold hard facts to counter an old woman’s perception of her homeland. But I do not have to look far to discover that the infant mortality rate is ten times that of the United Kingdom, or that life expectancy is a fifth shorter.

Not that I am denying that she is happy; I merely wonder how carefully Andrew Harding, the reporter, chose his interviewee. I note that he did not choose the woman whose fifth child had died, or who was widowed at 34. I do not doubt that many residents of Vanuatu are superbly happy, and even I can see the apparent attraction of their life (as painted by the BBC). But I also do not doubt that the reporters have carefully chosen their subject matter to present an Arcadian view of this furthest of tiny islands to their largely metropolitan audience. The article is not about life in Vanuatu; it is about dreams in Islington.

It was also strangely discomforting. The article particularly focussed upon the use of pig tusks as currency on the island of Pentecost. But it had an awkward feel to it; one was unsure whether this being presented as highly innovative or amusingly quaint. The only thing that was clear was that Harding seemed as confused as his viewers.

His lack of understanding of economics is also apparent. In the version of the article that appeared on the 10 O’clock News (which differs from the internet version), we were told that the country is becoming wealthier because there are more pig tusks. Those of a less mercantilist bent might wonder whether this explains the 15% interest rates that the banks are offering; the last time the UK saw 15% interest rates, we were fighting run-away inflation and a currency crisis.

“It all adds up to a stable and prosperous community,” Harding narrates. “There is a sense of harmony and happiness...” On the next island, development – which seems to include building modern housing – is described as turning the place into a dump. There is an interesting – some might say a stark – lesson here. What Vanuatu appears to have is a largely homogenous community, a traditional society and wide-spread poverty. As a result, there is no ethnic tension, no social unrest and nothing of which to be jealous. Harding implies that we could all learn from Pentecost, but are we really prepared to give up multiculturalism, our freedom to live an alternative lifestyle, and the ambition to improve ourselves?

In truth I must be a jaded Westerner, because I suspect there is a wilful blindness in Harding’s report. “There is no hunger here, no unemployment, no tax, no police, no crime or conflict to speak of,” he tells us, but I cannot help thinking that for these farmers and fishermen hunger must be a hazard of life, as it has been for all subsistence farmers and fishermen throughout history; that unemployment never exists if one is prepared to hunt and gather; that crime may be merely unreported, as the usual violence and petty wickedness that afflicts every society is considered routine; and that conflict may not be international, but must surely exist between individuals, families and gangs. If not, it would have to be more than just paradise. It would have to be unique in human history.

I don’t mean to knock the islanders. I hope they are as happy as Harding and the New Economics Foundation suggest. But I despise the glorification of their lifestyle by Western news crews that fly in for a brief taxpayer-funded film shoot before returning to their London flats where they will worry about their carbon footprints over cocktails atop the OXO Tower. This report says less about the levels of happiness to be found in Britain and Vanuatu than it does about what journalists consider to be The Good Life.

I note that Andrew Harding showed no desire to live there. I doubt the people of Pentecost would want him to.

No Panacea, but free trade is still vital for poor nations’ prosperity

Yesterday, Mark Valladares published a post in which he argued that free trade would harm the economic development of the people of Vanuatu, and so undermine their already fairly basic standard of living.

I replied with a comment to the post in which I disagreed. Sadly, this comment has not made it onto Mark’s blog. I hope this is due to a technical error, or that Mark has been too busy to approve it. I would hate to think that a Liberal Democrat blogger was censoring the comments on his site because he disagreed with the content.

(UPDATE: Edis tells me that Mark is in the South Pacific as we speak, which might explain why he isn't poised in front of a PC, like I am. I bet he's jealous though. I wonder if he's wearing a plain shirt, as he tends to wear Hawaiian ones when in the cold, dank recesses of Blighty.)

The reason that this so concerns me is that Mark opened his post by saying “I know that our International Development spokeperson (sic.) reads this blog feed, so if you have a moment, Lynne…” My comment replied that I hoped Lynne had not read his comments yet, as I wanted to ensure that she read my response too. As my comments have been lost to the ether, I will attempt to reproduce them below, so as to explain why Mark is mistaken in arguing that Vanuatu should not enter into a free trade with the European Union.

Vanuatu is a small, pacific island nation of approximately a quarter of a million people, with a subsistence economy and 70% unemployment. Its government is currently negotiating a free trade deal with the European Union, and Mark questions whether the EU is acting in good faith, as he believes that the benefits will be rather one-sided. “Vanuatu’s economy is dominated by Australian companies” he tells us. “Whilst the tourism industry still has a significant element of indigenous providers, this is likely to change as international hotel chains move in. Tourism requires initial investment, which is hard to come by in a subsistence economy.”

Mark suggests that “free and fair trade” would best be achieved by “allowing such small nations free access to our markets, without reciprocity.” This, he suggests “would allow these comparative micro nations to support their inhabitants and reduce their dependence on overseas aid.”

In essence, this is the classic “Fair Trade” argument promoted by the Trade Justice Movement, and it is fundamentally flawed. There are two basic errors which undermine Mark’s argument, and which result in it being a recipe for stagnation and perpetual poverty rather than growth and enrichment.

The first error is the belief that the benefits of trade come from exports. Mark’s explains that Vanuatu produces little or nothing that we would want in Europe, so whereas the EU will have a new market for its companies, Vanuatu will be able to sell little or nothing back to us. This is a founding belief of Mercantilism, which argues that nations are enriched by a positive balance of trade (exporting more than they import). Basically, it boils down to “Exports good; imports bad.” Nothing could be further from the truth.

By far and away the greater benefit from trade comes from imports. Imports are only possible if a supplier can meet demand better than domestic producers, perhaps by selling goods more cheaply or of a higher quality. The result is that consumers (for which, read everybody) can increase their standard of living. This does of course put pressure on domestic producers to be more competitive, but that is healthy. Inefficient production is no more useful in Vanuatu than in Nottingham.

Milton Friedman made the point pretty well in Free to Choose, when he noted that "We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports."

The second fallacy that underpins Mark’s concerns is the belief that because we can produce everything imaginable cheaper and more efficiently than the people of Vanuatu, we will undercut them in all things and destroy their home industry. In fact, as Ricardo made clear two centuries ago, it does not matter if one nation can produce everything more efficiently than another. What matters is that each concentrates on what they are best at and then exchanges goods.

To illustrate this, let us imagine two Vanuatu citizens, named (in traditional Polynesian manner) Andy and Bob. Andy is an excellent fisherman and a good boat maker. Bob is a fair boat-maker and a pretty lousy fisherman. By the logic of the Trade Justice Movement, Andy can out-produce Bob in both fish and boats, so Bob has nothing to gain by trading. However, as Ricardo demonstrated, it is far better for both parties if Andy concentrates of fishing while Bob makes boats. Andy is most efficient as a fisherman and Bob as a boat-maker, so if they both concentrate on what they are best at their combined yield is maximised, and they can then swap maritime equipment for fish in a mutually beneficial manner. Similarly with Vanuatu and the EU: as long as Vanuatu’s people produce what they are best at, it is worth the EU exchanging that for what the EU is best at – or rather, both make money selling what they produce best and buy what they are less good at producing.

In practice, the world is resplendent with examples of where this has worked. Vanuatu’s poverty is irrelevant: South Korea was as poor as Ghana half a century ago, but as it opened up its markets it has risen to become the world’s twelfth richest nation. Neither is size a problem: Hong Kong was a tiny, poverty stricken island colony after the war, but an aggressive policy of free trade and low taxes made it one of the world’s best place to do business, and prosperity followed. In this global electronic age, even distance is no longer a problem: Vanuatu could attract financial services companies with low business taxes and a light touch regulatory regime.

In fact, it is worth asking what Vanuatu has to lose from freer trade. If, as Mark suggests, most of the population are subsistence farmers and fishermen, then the worst that can happen is that they continue to be subsistence farmers and fishermen. On the other hand, if he is right that “Tourism requires initial investment, which is hard to come by in a subsistence economy”, then the influx of foreign capital will fund hotels that will bring jobs to some of those 70% that are unemployed. Foreign firms dominated Hong Kong, they poured in to soak up China’s cheap labour, and they are buying up UK “national champions” at a rate that some find alarming. The result has been prosperity for the recipients of this movement in capital, not some new colonialism.

If the EU is currently negotiating a free trade agreement, the current scenario must be one in which trade is not free. This has clearly not produced prosperity for Vanuatu’s population. But Mark is correct to doubt that both parties will benefit equally from a free trade deal. The European Union has little to gain from a tiny island nation with a small population. Vanuatu’s citizens, on the other hand, will reap enormous benefits from trading freely with the largest economic bloc in the world.

Free trade is no panacea, it is true. With free trade one also needs a stable society, good governance, strong property rights, democratic institutions, a liberal economy and the rule of law. But free trade remains a vital ingredient in generating prosperity across the world, be it in the high towers of global financial capital or the low beaches of a pacific island nation. Anything else requires governments to tell their citizens that they may not associate freely with whomever they wish: that buying and selling from some people is wrong, just because they are far away. It is an illiberal and misguided policy, which is why the Liberal and Liberal Democratic parties have always supported free trade. Long may we continue.