We should have a referendum on Europe

Constitution or amending treaty? Rationalisation of institutions or a major change in our relationship with Europe? “Properly protected as a country to make our own decisions” or a “major shift of power”? Too far? Just far enough? Or not even close? Europe’s leaders may have agreed on a new European treaty, but citizens and politicians in the UK are bitterly divided.

The contents of the new treaty having been decided for us, the big question now revolves around whether to have a referendum to approve the treaty, or whether Parliament should decided. Normally, this would be a straightforward matter. The UK has never ratified a Treaty through a referendum; the 1975 referendum was not related to a particular treaty. There is no constitutional need to hold a referendum; indeed, referendums have no place in the British constitution, which is a representative democracy in which parliament is sovereign. (Unless I’m mistaken – and let me know if I am – the 1975 referendum was the first and only nationwide referendum the UK). Thus it is perfectly acceptable and indeed normal that a new treaty should go parliament to be ratified.

And yet to avoid a referendum would be wrong, for four reasons: it would be undemocratic; counter-productive; possibly self-interested; and a missed opportunity.

Under normal circumstances, it would be perfectly democratic for parliament to ratify the treaty – as explained above, we are a representative democracy that elects parliamentarians to take these decisions for us. But in this particular instance, every one of those parliamentarians was elected promising to offer the British people a referendum (at least, the three national parties, which between them constitute 95 per cent of the House, gave such a promise). Thus parliament’s mandate does not stretch to the ratification of a constitutional treaty for the European Union. On the contrary, the election demonstrated an overwhelming demand for a referendum. Based on the convention (one might fairly call it a fiction, even a conceit) that votes express a will and a mandate for manifesto commitments, the vast bulk of voters expressed a desire for a referendum on any constitutional treaty.

The response from our leaders is that this is not a constitutional treaty. The original plan, set out in 2004, was for a European Constitution and all that that entailed. But it was rejected, and so Europe’s leaders have confined themselves to a mere tidying up exercise, an amending treaty to make the EU run more smoothly. Leaving aside for the moment whether or not this is poppycock, the fact remains that to many this appears less like a tidying up exercise than a tucking up exercise. It is clear that many EU governments wanted to incorporate as much of the old constitution as possible – in effect, the articles but not the name – and it is also clear that this is part of the ongoing constitutional process, even if it has been radically trimmed down. Within the perception of the people, it is essentially the same – albeit perhaps more modest – treaty and they expect to be consulted. If not, their vote in 2005 has been ignored; Parliament has found a way to weasel out on its promise to the people. This is exactly the sort of thing that undermines faith in and respect for politicians, parliament and indeed democracy.

This last is a very important point, because there is a nasty whiff of self-interest about the sudden freedom from the requirement to hold a referendum. It is widely believed that Tony Blair’s decision was one symptom of his famous “wobble”, when he also agreed to stand down after his third term. Blair never wanted a referendum, because he knew he would lose. The Tories wanted to win one, but there is a nervousness about reopening old wounds; like a mangy dog, the Conservative Party has a habit of picking at its sores. And for the Liberal Democrats, a European campaign risks diverting precious funds to a cause that is popular with the activists but will not yield greater power or any long-term benefit, yet risks positioning us more clearly than ever in the minority camp. Thus it may be that a referendum is in no politician’s interests (though it may be in the interests of the opposition to be seen to demand one that they don’t actually want). Whether or not this is in fact the case, it would be hugely damaging to politics in general in this country if voters believed that they had been denied a referendum because it was inconvenient to politicians, rather than for sound constitutional reasons.

Yet there is a fourth reason for holding a referendum, and one that has been largely ignored in the constitutional minutiae. A third of a century has passed since the last referendum, and that referendum was on a very different Community from the Union in which we now find ourselves. Political debate about this has failed; it is widely believed that politicians – even in the Conservative Party – are out of step with public opinion. The real questions of Europe are not debated in Parliament or by politicians in public; instead, debate revolves around the size of rebates and whether we should join the Euro now or later. These are proxy wars for the real debate that is being avoided: what is the role of the European Union? What are its limits? What should be the balance of power between the Union, its member states and the citizens at large? And what role does the UK want to play within both that debate and the future Europe? By avoiding this referendum we are once again sidestepping these issues.

Many in the political classes are terrified of the outcome of that debate (Europe has for too long been an elite-driven, top-down process). Yet as long as that debate is avoided, the underlying need for resolution will eat away at the heart of our politics.

So I say let us demand a referendum on Europe. Let us begin to have a proper debate about our and Europe’s future. We may not like the outcome of the debate, and we may not get the referendum result that we desire. But this is one of the most important issues in British politics today, and it is not being adequately addressed.

It is time to throw the pieces in the air and let them fall where they may. It is time to trust the people.

Hurray for George Bush!

Tuesday’s announcement by President Bush that he is imposing stiffer sanctions on the Sudan for its genocide in Dafur is welcome news, and puts the rest of the world to shame.

“Too long the people of Dafur have suffered at the hands of a government that is
complicit in the bombing, murder and rape of innocent civilians,” President Bush
said at an 8am press conference. “My administration has called these actions by
their rightful name: genocide. The world has a responsibility to help put an end
to it.”

Too right. After the genocide in Rwanda in 1994, the world’s leaders descended into miserable self-reflection which resulted in a collective agreement never to allow such a tragedy to recur. And yet ten years later it did recur, and now estimates of the death toll range between two and four hundred thousand. If between a quarter and a half as many have died as in Rwanda, then the difference is merely quantitative; in essence, the genocide has happened again, and every government that has stood by and allowed it to happen is stained by it.

This latest ratcheting up of the pressure remains fairly token; while 31 companies and four individuals have been targeted, the Sudanese government has long expected this action and has moved to protect its assets. Nonetheless, this sends a strong signal, and I hope the first of many. It is now beholden on the European Union and any country whose citizens believe in, and whose government claims to uphold, human rights to at least equal these sanctions, and to come together to discuss further efforts to force Sudan’s government to end the state sponsored killing.

Britain’s own government has been timorous in its response – when I confronted Kim Howells on this last year, he fudged the issue. Little of worth has so far come from the European Union. Meanwhile, China continues to invest in Sudan and prop up its murderous regime, and Russia is becoming more obstreperous. However, whether or not we can persuade China to change its ways, or dissuade them and the Russians from vetoing a UN Security Council resolution, we have a duty to do what we can to protect the innocent victims of Dafur.

Our leaders seem to have forgotten. It seems that it takes George W. Bush to put this back on the agenda.

One down. A few more to go.

The European Union has decided to scrap regulations for timber quality and packaging sizes in a drive to reduce red tape. This is good news.

I struggle to see why Europe needs a uniform standard for packaging sizes - I'm a bright chap; I can figure out the difference between an 800g loaf and a 1000g loaf. And if my wood is too knotty, I'll not use that supplier again.

I hope that this drive to reduce red tape keeps going. I can think of a few more regulations that need not be taken at a level so elevated as to standardise across nearly half a trillion people.

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.

It must be the internet: we’ve mentioned the Nazis!

An excellent post from Jonny Wright has encouraged me to break cover on the suggestion that the EU should ban holocaust denial throughout the Union’s 27 members. I probably don’t need to revise the background. Suffice to say that there are two questions: should one ban holocaust denial? And is it right that this should be legislated upon at an EU level?

I have written before on the subject of banning holocaust denial. There is something truly grotesque about the attempt by some pseudo-historians and anti-Semites to rub the extermination of millions out of the pages of history. If any false-theory or misguided belief deserves to be banned it is this.

But it doesn’t. No matter how distasteful holocaust denial may seem, it is as nothing compared to the dangers of legislating against people's freedom of speech. It is trite beyond belief to equate one’s opponents with the Nazis, but when one begins to impinge upon the fundamental freedoms upon which a liberal society is built, one takes a first step down a slippery and dangerous path. Freedom must also include the freedom to be wrong, and liberty requires tolerance of those whose views challenge or even disgust us.

Why, anyway, are we so afraid of this tiny minority of twisted fools, that we should seek to muzzle them with the full force of the state? If we are so sure of our truths, can we not defend them with evidence and reason, rather than legislating to protect them? Let the holocaust deniers shout from the rooftops; they just draw attention to an evil that might otherwise fade into the distance.

As for European-wide legislation, it is neither necessary nor warranted. There is no compelling reason why EU member-states need to harmonise their laws on freedom of expression (though if they happened to all adopt a policy of tolerance towards opinions with which they did not disagree, I would rejoice!). The EU remains – at least for now – an single economic market, onto which has been grafted a few additional competences such as justice and foreign affairs co-operation. We remain 27 nation-states, each perfectly capable of deciding for itself what laws need apply in its jurisdiction.

The EU recognises this: it has a principle called “subsidiarity” that says that decisions should be taken at the level nearest the citizen (a principle that might usefully be applied within nation-states!). Sadly, the EU has always treated the subsidiarity clause with contempt. Like all bureaucracies, the Eurocracy seeks constantly to expand its powers. To our shame, Liberal Democrat euro-parliamentarians are all too ready to assist that creeping arrogation of power.

Thus this proposed law is the worst of both worlds, and highlights the fact that the EU is not in practice a liberal institution. The EU exists to further the free movement of goods, services, capital and labour and so foster greater harmony and co-operation between nations. In the process it has expanded its responsibilities far beyond what is necessary to achieve these goals, taking decision-making – and thus power – ever further away from the citizen.

As liberals we can be proud of our support for the Union, but that support must not blind us to its faults. We must not become partisans for the Union against our principles or the wishes of our countrymen. If we are going to fight to keep Britain in the Union, we must fight twice as hard to keep the Union liberal. If we fail in that, we will fail the British people twice over: we will saddle them with an illiberal institution; and when eventually it becomes to much to bear, we will share the blame for Britain’s withdrawal.

At last, some good news from Brussels

I have just transferred some money between two bank accounts, without leaving my desk, with just a few clicks of my mouse. It is called eBanking. It is not very exciting; indeed, it seems too prosaic to mention. Certainly, it should go without saying that it cost nothing to make the transfer. Why should it? It is just one computer telling another computer that it has reduced a number by a certain amount, and the other computer can add that amount to a number it stores. There is no marginal cost.

Add one more calculation, however, and a fee is charged. Lets say that the receiving computer has to take the first figure and pass it through a very simple formula before adding the figure to the number it stores. Let us call the first number “pounds” and the second number “Euros” and the formula the “exchange rate”. Since time immemorial banks have been telling us that this, for some reason, costs money. To transfer pounds from London to Scotland is free; to transfer them from London to Calais costs money.

I remember having a stand-up row with a bank clerk in Stockholm about this. Why, I demanded, was there a fee? What cost was I incurring? What was the difference between sending money to another Swedish bank and sending it to an English one (even one that had branches in Stockholm)? She was unable to answer the question, of course.

The answer is that there is no extra expense. It is a money-making ruse. It is not the bank’s fault as such, however: they are merely the beneficiaries of national legislation that has failed to inject competition into the banking industry. This may be about to change.

Yesterday, European finance ministers passed the Payment Services Directive. The aim of this is to create a “Single Payment Area, in which citizens and businesses can make cross-border payments as easily, safely and efficiently as they can within their own countries and subject to identical charges.” This means that one can have one’s salary paid into a foreign bank (handy if you are on a short-term contract), debit and credit card payments will be easier (though I’ve never had much difficulty) and those unnecessary bank charges should begin to disappear.

It will also open up the retain banking market to more competition. This is good for everyone, and particularly good for the British. Everybody benefits from competition, and sometimes it does seem that things are a little cosy on the high street. But actually, the UK has a fairly competitive banking sector. Our European allies may get a bit of a shock when HSBC and the Royal Bank of Scotland open up branches in Paris and Munich. And it will make it even easier to pop to the cash machine for a few Euros without having to pay £1.50 for the privilege.

And things should be a bit calmer in SEB without an irate Englishman hectoring a poor Swedish bank clerk.

And to CAP it all…

Is there anything worse than subsidising First World farmers to produce crops so that they can undercut the prices that Third World farmers would charge, were they not also excluded from our markets by tariffs? The European Union found a way a couple of years ago when it decoupled subsidies from production. Farmers are now paid whether or not they produce food. Nothing could be more execrable than paying farmers not to farm, surely.

Well, the EU has found a way. Not content with paying farmers not to farm, it now transpires that the EU is paying non-farmers not to farm.

As Richard Howard at the Globalisation Institute notes, “Technically, the subsidies can only go to farmers, however, the definition of farmer has been relaxed so greatly over the years that to be classified as one, you now only need to own 1.7 hectares of land for a ten month period and you never even need to visit it.” Clever speculators that own a few acres of land are buying the rights to receive payments under the Common Agricultural Policy, which are tradable and which can yield returns ten times as great as a bank deposit.

As regular readers will have guessed, I admire speculation – taking a punt in the hope that it may prove profitable. But I abhor rent-seeking, exploiting the legal and regulatory system to extract money that is not earned and would not exist if bureaucrats were not meddling. The bad-guys in this scenario are not the speculators, however: they are making a perfectly legal and sensible investment. Nor is it the farmers, who are often selling their rights to fund their retirement or even to invest in their farms (thus, presumably, boosting production – the opposite of what was intended). It is the Eurocrats and their political masters in the European capitals that have enabled this ridiculous system to develop.

The CAP is an inexcusable misuse of billions of Euros of taxpayers money. It keeps in business farmers that should not still be trading; it excludes Third World farmers from access to markets that would lift them out of poverty; it milks First World consumers by forcing them to pay over the odds for basic commodities; and it feeds a massive, pointless bureaucracy. Now it is paying non-farmers not to farm. As Neil O'Brien, the director of Open Europe, told the Times, “This is the final reduction to absurdity of the Common Agricultural Policy.”

A spokesman for the National Farmers’ Union told the Times “Farmers couldn’t survive without subsidies.” The same could be said for the Coal Miners or the workers at MG Rover, but nobody bailed them out to the tune of billions. There was a time when Britain’s farmers were some of the most efficient in the world. Without the molly-coddling of the CAP, many of them could be again, and so would thrive in a market where local produce and niche production is ever-more popular. Meanwhile, producers in Africa and consumers in Britain would benefit from free trade in agriculture, across Europe tax burdens would fall, and urbanites like me would have to not farm on our own time.

It is high time the CAP was dismantled. In the meantime, I wonder if my wife’s allotment covers 1.7 hectares!

…and what should be done to tackle climate change.

The European Commission has produced another daft and damaging proposal in their efforts to combat climate change. This is regrettable both for the commission’s image and for the climate cause.

My efforts to comment on this have produced an essay, so I am going to post it in three parts, which readers may read from as they will. In Part 1, I explained why I believe that Europe is the right forum in which to address climate change. In Part 2 I looked at Wednesday’s announcement and explained why I feel it is misjudged. I also touched upon the failing of the EU’s existing cap-and-trade system. In this part I will offer a liberal alternative to the authoritarian socialism that has suffused much of the environmentalist debate.

The European Commissions proposal highlights a far broader problem that infuses the climate change debate: that it is a Trojan horse for authoritarianism and socialism. The commission’s plan is a classic example: to save the planet we are to be told how to drive. Other examples are legion: subsidies for favoured industries and technologies (wind power, trains); protectionism (dressed up as reducing “food miles”); rationing (aka. “carbon quotas”); population control (which needs no explanation); over-regulation (housing and vehicle standards). The list could go on. These methods may or may not curb climate change, but in the process they will curtail freedom and condemn millions – perhaps billions – to poverty.

The Left was quick to see the opportunities presented by global warming and environmental degradation, and have moved quickly to occupy the commanding heights of the debate, from where they will once again seek to control the economy and curtail individual freedom. Climate change may be the justification now, but the techniques are the same, and the desires within the rationalist-progressives are also the same, rooted as they are in a belief that a few intelligent people with the time to think it through can create and manage a better society than we all can as individual actors perusing our interests.

So what’s a liberal to do? Nobody wants to fiddle while Rome burns, but neither do we want to place our writs willingly in the state’s shackles and accept the slavery that we fought so long to resist. Fortunately, there is a liberal alternative. In fact, there are two.

The first, and one that appeals most to me, is a carbon tax. Rather than ration supply by issuing quotas, or picking particular egregious sources of emissions and stamping down on them, we set a price for carbon and let the individual decide how much to pay for. After all, there is nothing wrong with a 4x4 emitting exhaust, or with a skier jetting off to Aspen; what is wrong is the global excess of carbon emissions. Reducing the emissions produced by power stations is not an end in itself; the end is reducing all emissions. Focussing on individual types of emission is arbitrary, because it squeezes some more than others, and it also harms us all more than it needs to because uneven economic meddling reduces the efficiency of economic activity, which means less wealth to go round – wealth that may pay for my holiday, your school or a Gambian’s dinner.

A carbon tax, by comparison, allows us all to continue to make the same individual decisions in our own best interests that we have always done, but forces us to bear the cost of our pollution. If I drive inefficiently or fly to Aspen my activity carries a cost; if I fit solar panels to my house or buy a bicycle my carbon-tax bill will fall. It is easy to apply and hard to avoid (it would be like VAT). It would be easy to control emissions: if they are too high, the tax rises, if they are well within tolerable limits, it can be reduced. But most importantly, it would not hand power to state officials who are at best fallible and at worst arrogant, capricious or venal. Neither will it admit the command economy through the back door. At worst, there is a danger that it could simply be used as a new tax to fill the coffers of some grasping finance minister, but any government of principle would seek to make the change revenue neutral, and voters would be able to judge their politicians against their tax burden and the state of the world.

The alternative method, favoured in both Europe and the United States (due to the visceral reaction that the word “tax” engenders) is a “cap and trade” system, whereby companies buy permits to emit and then either use them – and hand the costs onto the carbon-consumer – or trade them on the market. While this has had some serious problems (caused in Europe by allowing national governments to issue too many permits, and by the decision to give them away rather than selling them – a licence to companies to print cash) it still has the merit that it leaves individuals in the position to allocate their resources as they see fit, perhaps by driving a big car (which they may need if they have a big family or a big farm) but never flying, or doing both but buying solar panels, or making any number of choices that would see their overall “carbon footprint” reduced, while allowing them to reduce it in the manner that best suits their needs and their lifestyle.

In a seminal essay, Friedrich Hayek explained that the bipolar view of the world as divided between Left and Right wings is inaccurate, a result of conservatives and socialists associating liberals with the other camp because liberals may share common ground with other groups on certain issues. The environment is a classic example of where liberalism is clearly distinct from the other two creeds.

For socialists, global warming requires interventionist measures, complex planning and more power to the bureaucrats. It provides the excuse that for a decade and a half they have lacked for implementing the policies that until the 1980s they advocated on the grounds of economic efficiency. Conservatives for a long time denied global warming; now their responses are typically authoritarian. Liberals are open to the evidence of global warming, but not to the autocratic solutions that most environmentalists propose. The solution is to encourage and enable individuals to find their own way of reducing the negative impact they have upon the environment, rather than force centralised solutions down from above. For liberals, a world in which we are subject to the state is not much better than one where we are subject to the elements.

…why the European Commission is doing more harm than good…

The European Commission has produced another daft and damaging proposal in their efforts to combat climate change. This is regrettable both for the commission’s image and for the climate cause.

My efforts to comment on this have produced an essay, so I am going to post it in three parts, which readers may read from as they will. In Part 1, I explained why I believe that Europe is the right forum in which to address climate change. In this part I will look at Wednesday’s announcement and explain why I feel it is misjudged. In Part 3 I will offer a liberal alternative to the authoritarian socialism that has suffused much of the environmentalist debate.

I have explained in a previous post (probably to the boredom of many of my readers) why economics compels us to treat carbon pollution as a European phenomenon (efforts to create a world-wide approach having failed). Sadly, European solutions are not promising.

The proposal announced by the commission on Wednesday is aimed at improving the efficiency of our driving. Apparently, we are all driving inefficiently, and this is causing our cars to emit more carbon-laden exhaust than is necessary to get us from A to B. Late gear changes, sloppy breaking, stop/start driving, the speed at which we drive and low tyre pressure make our driving inefficient. Something needs to be done.

In the worst traditions of untrammelled bureaucracy, the solution proposed by Industry Commissioner Günter Verheugen is to micromanage our driving. Manufacturers are to be required to fit new cars with electronic stability control, emergency braking systems and warning lights that tell drivers when to change gear or pump up their tyres. The commission also plan to make it compulsory to use headlights even in broad daylight – a policy that might have some merit on grey days in northern Europe, but which will baffle Spaniards in the blazing sun of June.

The commission is not alone in this sort of enviro-economic engineering. Mayor of London Ken Livingstone is expanding his congestion charge by creating a Low Emissions Zone. Richmond Council is to penalise drivers of “gas guzzling” cars through a graduated price for parking permits. These, too, are blunt tools that unnecessarily obstruct freedom of choice. There is something particularly egregious about the European Commission’s plans, however.

While there is probably some merit in encouraging people to drive more efficiently, doing so in this interfering way is likely to generate anger and derision in equal measure. The car is a symbol of freedom for many, and its operation an art. To have it reduced to a science and guided by a bank of irritating lights on the dashboard is likely to infuriate drivers; rather than improving driving quality, it will simply cause drivers to curse the European Union while sticking black tape over the lights. The danger of flicking lights distracting drivers needs also to be considered – I would prefer drivers near me watched the road rather than the dashboard.

As I will explain in Part 3, there is no reason why efforts to curb carbon emissions need to involve bureaucratic control of the minutiae of decision-making. What matters is the aggregate amount of carbon mankind emits; individual decisions as to the source of those emissions are unimportant.

Ironically, the proper solution to car emissions – as a result of both the quality and the quantity of our driving – is revealed in the Commission’s own case. In response to industry criticism that the new bells and whistles may add up to £2,000 to the price of a new car, the Commission argues that drivers will save more in the long run due to lower fuel bills. If this is true then it is surely in the drivers’ own interests to drive more sensibly, in which case this intervention is not needed.

What is needed is a system that makes polluters aware of and bear the costs of their pollution, but one that does not arbitrarily punish some emissions or emitters over others, instead letting individuals continue to make decisions about how to allocate their resources (including the carbon they are prepared to ‘buy’) as they see fit. In Part 3 I will set out the options.

Why carbon emissions need to be dealt with at a European level…

The European Commission has produced another daft and damaging proposal in their efforts to combat climate change. This is regrettable both for the commission’s image and for the climate cause.

My efforts to comment on this have produced an essay, so I am going to post it in three parts, which readers may read from as they will. In this part, I will explain why I believe that Europe is the right forum in which to address climate change. In Part 2 I will condemn the announcement that was made yesterday. In Part 3 I will offer a liberal alternative to the authoritarian socialism that has suffused much of the environmentalist debate.

Let me be clear about where I stand from the outset. There are things which should be settled at a European level, and there are things which should not. One of those that should is carbon emissions.

Pollution is a classic “free rider” problem. Firstly, pollution is an “externality”, dull econospeak for a cost which an individual (business or person) can place on society while reaping the benefits themselves; I gain from driving my car, whereas the cost of the exhaust is shared equally by all of us. Secondly, reform costs the producer a lot and the benefits are shared across everyone; I give up a lot if I decide to forego the car, but the benefits are spread very thinly across lots of people. Consequently, as Jean Jacques Rousseau pointed out so eloquently in the C18th, the rational choice for the individual is to encourage others to do the right thing while being selfish oneself.

Producing energy from carbon is cheap, because the producer bears only some of the “social cost”, the rest being “externalised” to the wider population through pollution. If we are to curtail pollution, we must make individuals (be they businesses or people) bear the full social cost of what they are doing. However, national governments cannot be trusted to do this, again, due to the free rider problem: restricting activities that generate waste carbon dioxide will reduce short-term and localised economic efficiency, while the benefits are long term and widely distributed. Consequently, it is in any one country’s interests to let others confront climate change while the country in question carries on in the most individually-economically efficient manner; so China may burn coal like there’s no tomorrow, while hoping that the USA joins the EU in sweating about climate change.

The economic principle behind the European Union (not always treated with due respect by its member states) is that no country should seek economic advantage by trading unfairly. This is why we are faced with sometimes baffling European directives: it is only if a German customer knows what a Portuguese manufacturer means when they say “widget”, and what has gone into producing it, that the German customer can make an informed choice as to whether the Portuguese widget is worth buying in comparison to the (perhaps more expensive) German variety. Sometimes this goes too far: if the rules require that everything going into the widget be the same, including (for example) the cost of labour, then the Portuguese lose their competitive advantage and, potentially, if over regulated to the point of uniformity, the whole point of competition is lost. Thus not everything needs to be regulated at a European level.

Carbon emissions are one area where European collaboration is required. No individual nation-state can be relied upon to curb carbon emissions if it requires the government to cut off the nation’s economic nose to spite the world’s polluting face. In truth, as this is a global problem, this probably requires a global solution. The flawed Kyoto protocol aside, however, this remains a pipe-dream – or perhaps a nightmare, if too much universal government is the price that must be paid. However, in the absence of a global solution, a multilateral scheme among some of the world’s largest economy’s, which between them form the largest single economic union in the world, seems like a good place to start.

France (say) will never cut carbon emissions if it fears that Italy (for example) will thumb its nose at such efforts and gain an economic advantage by carrying on as normal. But if enough major economies take a stand, the costs will be spread, the benefits tangible, and other nations may just be shamed into pulling their weight.

Only through working together can climate change really be addressed. Collaboration is essential, but it alone is not sufficient. The right policies are also required.

Liberal Democrat MEPs are being seduced by centralised power

It was an unusually good edition of Liberal Democrat News (the in house tabloid that Mark Valladares once referred to as “our very own Pravda”) – if by good one means that it gets the pulse racing.

The story on the European Parliament’s report on rail transport earned my particular ire. According to Liberal Democrat News:

‘Liberal Democrats have backed (CHECK) [sic.] a crucial European Parliament report that will vastly improve rights for rail passengers…

‘The Lib Dem Economic Affairs Spokesperson Sharon Bowles MEP said: “The
Parliament has stood firm and is calling for this directive to apply to all rail
journeys regardless of whether they are international or not…”

Liz Lynne MEP, Liberal Democrat Employment and Social Affairs Spokesperson… has tabled and amendment to this report on behalf of the entire ALDE Group… to ensure accessibility for… people with reduced mobility…’

While the objectives being sought here are undoubtedly laudable, it is another unfortunate case of the European Parliament arrogating powers that should be exercised at a national level. There is absolutely no reason why policy regarding the railway system of the United Kingdom – which is, except for one discrete rail line, completely separate and independent of the rest of Europe – should be set at a supranational level.

There may be a case, because of greater connectivity among our continental European partners, for an agreement binding transnational rail travel. But when the European Parliament specifically suggests that such a ruling should apply to purely intra-national railway journeys (such as “Cornwall to London, Edinburgh to Southampton”, as Ms. Bowles enthused) it is a clear violation of the much-vaunted but rarely-seen principle of subsidiarity – that decisions should be taken at the effective level nearest the citizen.

It is deeply disturbing to see Liberal parliamentarians championing this un-necessary centralisation of power, decision-making and regulation. It is also disturbing to see Democrat parliamentarians using the European Parliament to pass into law what is effectively domestic regulation, rather than seeking to do so through national parliaments – where, presumably, they would expect to meet more resistance.

No matter how worthy the aims or how desirable the outcomes, they do not justify the use of inherently illiberal and undemocratic means. It suggests that our MEPs, like all too many of those who find themselves in positions of authority, have ‘gone native’, becoming co-opted by the institutions they have joined and seduced by the power to ‘do good’, irrespective of the principles of liberty and democracy that first brought them there.

The Liberal Democrats should be promoting subsidiarity in Europe just as we seek localism in Britain – irrespective of the urge to reform society from the centre. As I argued last week, Britain’s place is in Europe. But it is in a liberal Europe.

Our place in Europe

As Tristan has noted, Cicero has another well-thought-out post on his blog. Personally, I’m kicking myself as I nearly went to Andrus Ansip’s lecture at the LSE but bailed out at the last minute. (I might have known Cicero’s true identity!).

Cicero writes “The Liberal Democrats have an opportunity to speak out for a genuinely Liberal Europe… in favour of free trade and freer movement in services and agriculture, [and] against a European super state and "ever closer union". He is spot on.

I have been advocating for some time a shift in emphasis for the Lib Dems from “The party of Europe” to “The party of European reform”. This would contrast with Labour, who are largely in favour but have learnt to keep quiet and not rock the boat for fear of alienating the voters, and the Conservatives, who largely want to leave but have learnt to keep quite and not rock the boat for fear of alienating each other.

I agree that it is in Britain’s interests to be in Europe, but it is not in Britain’s or anyone else’s interests for Europe to pursue “ever closer union” or to develop into a socialist state.

The European Union needs to trim down its areas of competence and embark on a massive liberalisation and deregulation programme. As liberals we should not meekly go along with the European agenda; we should be pressing loudly for an end to farm subsidies, an unfettered free-market within Europe (for goods, services, labour and capital) and less protectionism against imports (from any of those four categories) from abroad.

What is more, “harmonisation” should not be used as an excuse to eliminate variety, innovation and competitive advantage. There is no reason why a single market cannot thrive where different tax codes, different regulatory regimes and even different currencies exist. Of course Europe should not tolerate manipulation of regulatory regimes as a covert form of protectionism, but neither should we assume that bland uniformity from Athens to Aberdeen is a necessary feature of any market. There is no amount of economic efficiency or market clarity that justifies refusing to allow individuals to transact in their traditional quantities and measures.

Neither is there any reason why job protection should be the same in every corner of the Union: can workers not judge for themselves when considering taking a job abroad how the labour laws will affect their future? Or do we need a paternalistic super-state to protect us from the effects of making a decision.

Again, there is no economic justification for suggesting that one member state should not be allowed to experiment with a low-tax high-growth model while others opt for a high-tax high-welfare system (Oh! That the UK could be allowed such variety!). Efforts to impose tax harmonisation are an attempt by high tax economies to undermine the comparative advantage of lower tax competitors in the name of the “level playing field”.

Britain’s place is in Europe. But it is in a liberal Europe. The Liberal Democrats should press that point home in Brussels, Strasbourg, Westminster and their constituencies. It will appeal far more to voters than unquestioning loyalty to European integration or a shy admission of support. It is also the right position to take.

Obstructing patient mobility won’t improve health standards

There is an ongoing struggle between Whitehall and Brussels to see who will undermine the liberalising measures of whom. Today, it is bureaucrats in Whitehall who are objecting to an European effort to liberalise the market in one of the most essential services: healthcare.

In 26 September 2006 the European Commission launched a consultation on a legal framework to enhance cooperation between member states’ health systems. This month it stated that it was not necessary to get approval from one’s national healthcare provider or health ministry before travelling to a neighbouring EU member for treatment.

This is causing panic in the NHS. On the one hand, they may be called upon to reimburse unlimited numbers of patients – whereas individual Primary Care Trusts and/or the National Institute for Health and Clinical Excellence may approve or decline treatment based on cost, they would not be able to decline treatment abroad.

On the other hand, the NHS is understandably concerned about the competition this will impose. Figures from the NHS examined by organisations such as The King’s Fund suggest that relative to the wealth of our population and the amount we spend on healthcare, tens of thousands more Britons die of cancer and heart disease as the averages for the EU or the OECD (the club of 30 rich countries).

The Stockholm Network sums up the problem nicely: “The problem appears to be the [European] Commission’s application of admirably free-market principles to an industry which remains dominated by state provision in large swathes of the continent.” Unfortunately, the vested interests have the ear of ministers. “Only a system where market principles of open competition and profit motivation prevail can prevent this commendable proposal for freer movement being thrown out by national governments.”

So if you’re struggling to find an NHS dentist, why not hop on a no-frills flight to Budapest and let an excellent Hungarian dentist do the work. Better than queuing up the street in winter in the hope that the NHS will do the work.

Welcome to Europe; don't come here

Two stories in the news struck me particularly: the accession of two new countries to the EU and Government plans to change the legal age of smoking.

I doubt I am alone in being angered by the government’s decision to limit the number of EU citizens from Romania and Bulgaria entering the UK. As with the 2004 accession countries, the new entrants should enjoy the same free movement of goods, services, capital and labour that the older members enjoy. What is more, anyone who wants to work hard, pay taxes and obey the law should be welcome in our country.

Whether one believes Mr. Brown has been masterful or fortunate in his tenure as Chancellor of the Exchequer, the decision not to follow most of our European neighbours in restricting the free flow of labour from the 2004 accession countries was a masterstroke. It has been estimated that Britain has enjoyed a boost of 0.5 per cent of GDP over and above the growth that would accrue simply from a larger population: in other words, our society is £5 billion richer. In Labour’s high-tax society, that means our government is £2 billion richer. That buys a lot of teachers.

Labour’s failure to repeat this trick and gain another one-off dividend by admitting the hard-working taxpayers rejected by our protectionist neighbours is a sign of their weakness. Rather than explain to the electorate why everybody benefits from economic migration, Labour has preferred to bow to ignorance and pander to fear. As a result we have a policy that insults the new members and demeans the old.

Don’t swallow that note, or that argument, either

Yesterday, Adrian Sanders MP wrote an entry in his blog (speakers on when you visit it!) entitled Don’t swallow that coin, in which he argued that early doubts about the euro have been proved unfounded. I am unable to leave a reply on the blog (MySpace is fighting me!) so I am obliged to do so here.

Though it is true that early scepticism about the euro has given way to cautious optimism, the evidence that Mr. Sanders gives for hailing it as an untrammelled success is flawed. His statement that “the new currency is competing with the Dollar for top spot in the world's list of currencies” is at least a bit premature. The Euro accounts for only 25 per cent of global foreign exchange reserves as compared with 66 per cent for the dollar.

Similarly, his claim that “ more and more of the world's goods and resources are being priced in Euros rather than Dollars”, though perhaps true, may exaggerate its significance. While the accession of ten new members to the European Union (and in three days it will be 12) has required them to peg their currencies to the euro rather than to the dollar, the enlargement process is stalling, and anyway is ultimately limited. A few other countries may be seeking to shift their own currency peg to the euro, but the dollar remains the yardstick by which others are measured.

In fact, some of Mr. Sanders’ claims are frankly outlandish. That the face value of printed notes is now greater than that of the dollar, having doubled in five years, is neither relevant nor automatically to be welcomed. The dollar’s fall relative to the euro may have assisted this transition, but it is not helping European exporters (at least, not on the Continent). Meanwhile, the fact that the money-supply has doubled in five years is usually a sign of inflation.

Of course, if the European Central Bank had deliberately chosen an inflationary policy it might be understandable, as some of the larger Euro-zone countries have been struggling with deflationary pressure over the past few years. Certainly anything that could save Germany and France from their stagnation should be welcomed. However, the UK has been happily free of deflation and growing steadily over the past few years – in fact it is inflation that under Gordon Brown has been causing us concern. Thank heavens, therefore, that we have an independent central bank that can respond to our specific economic circumstances!

Mr. Sanders attempts to ridicule Britain’s monetary independence by suggesting that “by staying out, [all] we retain [is] the Queen's head on the bits of paper we exchange for goods and services, our banks make massive profits out of us, and we keep our coins”. In fact, the Bank of England has done (and forgive me for what must be one of the most apposite puns in history) a Sterling job in maintaining price stability – far better than the ECB, which has overseen a mini-recession in Germany while other member-states have witnessed inflation.

Furthermore, the pound has managed to steer a course between the euro and the dollar, which is handy because half our trade (the half Mr. Sanders ignores) is still with the dollar zone. So while Mr. Sanders may be right to say that “If you run a business that trades with the Euro zone you pay exchange rate commissions to the banks on your transactions, that increase your costs and reduce your competitiveness”, he neglects the fact that if you run a business trading with the dollar zone and we had adopted the euro, you would have experienced massive and unpredictable volatility in exchange rates that would have disrupted any long-range economic calculations. This is far less of an issue for our European neighbours, as they have increasingly shifted from trading globally to trading regionally, but the fact that they are doing so does not prove that the Single Market generates better returns than global trade; it merely proves that trade will follow the path of least resistance.

Mr. Sanders’ suggestion that “The Euro is achieving … a single currency zone and market that could match and compete with the Dollar and US economy on equal terms” is ludicrous. The European economy may be as large as that of the USA, but this was not caused by the Euro. Neither has the euro-zone’s economy performed as well as that of the dollar zone, though America does appear to be moving into a period of slower growth.

It is clear from his blog that Mr. Sanders has been drawn in by the economic (supra-)nationalism of the euro’s perceived success against the dollar and has lost sight of the real goal, which is the British economy. This is a shame. Whether Britain will fare better within the euro-zone or with its own currency is a matter of national policy that should be based on sound economic reasoning and not a puerile competition with the Americans over whose currency is the biggest. I would heartily concur with Mr. Sanders that one should not swallow either euro or British coins. I suggest one should not swallow his argument, either. Whether we decide to swallow the euro will require more – and more elevated – debate than Mr. Sanders provides.