Why freedom matters

When I decided to attend a discussion of Why Economic Freedom Matters at the International Policy Network, I had no idea that I was going to meet one of the most important figures currently influencing the debate between liberalism and the managed economy. Robert Lawson is not a household name, but his Economic Freedom of the World project, published by The Fraser Institute, is one of the most powerful arguments in favour of economic freedom.

Lawson explained that the idea was born in the hot and alcohol-fuelled debates of his undergraduate days. He was an early adopter of liberal economics, citing Smith and Friedman in the face of his friends’ Marxism and Keynesianism. The result of these debates was one familiar to many of us: not once did he recall changing anybody’s mind, nor did he ever question his convictions. For all the wonders of abstract philosophical debate, none of it proved much.

As a professional academic, his solution to this problem has been empiricism. Rather than debate what the effects of different economic policies should be, he has looked at what they actually are. Unable to conduct laboratory experiments, he has instead gone about grading the countries of the world against 42 different economic indicators in five broad categories

Size of government (the level of tax, government expenditure, state enterprise etc.)
Legal structure and security of property rights (including the rule of law, independence of the judiciary and the role of the military in government)
Access to sound money (mainly the avoidance of inflation, but also freedom to hold foreign currency)
Freedom to exchange with foreigners (tariffs, capital controls, regulatory burdens, black market exchange rates)
Regulation of credit, labour and business (how much government meddles)

The results are quite fascinating, and also quite telling. The ten most free economies in the world are

1. Hong Kong
2. Singapore
3. New Zealand
4. Switzerland
5. United States
6. United Kingdom
7. Canada
8. Estonia
9. Ireland
10. Australia.

By comparison, Germany is 18th, Sweden 22nd and France 52nd. The highest African country is Botswana (38) while the lowest is Zimbabwe (141st), the bottom of the league (with the remaining 50 countries providing too little data for Lawson to make an assessment). Venezuela, which was 11th in 1975, is now 135th. Interestingly, China is only 86th, but Lawson explains that while the Special Economic Zones by the coast (some of which are huge: Hainan is larger than Belgium) are probably the freest places in the world, the hinterland is as backward and restricted as ever.

All interesting stuff, and there were some fascinating case studies, but the real fun starts when one compares the index to other indicators. Firstly, income: there is a clear trend of greater freedom translating to greater income (measured per capita at PPP, for the economists among you); each quartile contained populations approximately twice as wealth as the quartile below. The pattern with regards growth was less clear: while the lowest quartile hardly grew at all, the third and first quartile outperformed the second; the presence of China in that third quartile may have played a part there, however, and its economic status is unclear, as noted above.

Perhaps the most interesting findings relate to the relationship between freedom and poverty, however, for the critics of liberalism usually blame it for impoverishing the poor. This is not what Lawson found, however. Proportionally, the share of national wealth owned by the poorest 10 per cent of the population rose ever so slightly as freedom increased, but not evenly: again, the third and first quartile were more equitable than the second and fourth. But if one looked at the overall wealth of that poorest 10 per cent, it was dramatically apparent that it is better to be the poorest among the rich than the poorest among the poor. While in the poorest economies the average amount held by the poorest 10 per cent was just $905, in the third quartile it was $1,545, in the second $2,656 and in the freest economies even the poorest 10 per cent had $7,337 to call their own. As noted above, these are PPP figures; the extent to which a dollar stretches in each country has been evened out.

A few other factors are worth noting (though many follow from the above): life expectancy and access to clean water and sanitation rise in line with economic freedom. Meanwhile, incidents of tuberculosis decline as economic freedom rises, and so, intriguingly, do abuses of civil rights. For it appears that Hayek was right; economic freedom is directly related to political freedom. It may be that the command economcy needs political oppression to make it work (to silence the critics of failing policies), or conversely that a lack of political freedom stifles economic freedom (who can do business without the rule of law?) but socialism and tyranny go hand in hand.

Finally, and also contrary to popular belief, it appears that economic freedom correlates with care for the environmental. This is again the reverse of what is often said – that without regulation unscrupulous countries will dump their waste on society; and that fast-consuming capitalist societies are raping the planet. If one compares environmental performance indicators (local air quality, water quality and so forth) to economic freedom it is again the free who come out best in a clear ascending curve.

Liberals have long maintained freedom was not merely an end in itself, but a means to help achieve better outcomes for everybody in society, to free everyone to maximise their own potential and gain most out of society. Their “discontents” have countered that liberalism (or “capitalism”) exploits the working masses to benefit a privileged few and that it would be fairer and better for all if the economy were managed, businesses regulated and money-supply served the goal of full employment. They are wrong, and the Economic Freedom of the World project proves it.

If greater wealth, health and prosperity are exploitation, I wish the bosses would come for me!

Lib Dem’s turn to have Darling steal their policies

The great policy thief looks like he is about to strike again!

Alistair Darling, Labour Chancellor and policy plagiarist, is rumoured to be about to “unveil a host of new measures in his first budget on Wednesday aimed at cutting carbon emissions” in what is to be billed as “Labour’s greenest [budget] to date.”

Should we be surprised? Of course not. In his first pre-Budget report, Darling ditched months of Labour plans in a naked attempt to out-Tory the Conservatives by offering an Inheritance Tax cut that Nick Clegg argues will help just 6 per cent of the population. Nick suggests that these are richest 6 per cent, though the most South Easterly 6 per cent might be nearer the mark!

Now, Darling appears poised to out-Lib Dem the Liberal Democrats by finally addressing Climate Change in his budget. Naturally, however, the real motivation is not the global but the financial climate, as he faces a hole in his budget that will require tax rises of £8 to £9 billion a year

In truth what we can look forward to is a token gesture on the environment in a budget that will not satisfy environmentally or equitably.

The Liberal Democrats have proposed a massive shift of taxation from income to pollution. Lib Dem proposals would seek to raise (if I remember correctly) £18bn a year from new environmental taxes, with which we would finance a massive tax cut off the basic rate, reducing it to the lowest level since… well… the last time the Liberals were in power. The personal allowance would soar to well over £7,000 a year, so that those on very low wages would pay almost nothing. And the Council Tax would be abolished forever – a long overdue measure.

By comparison, we can expect a rather lukewarm series of ill-thought-out measures from Darling. For example, the rumoured "showroom tax" of £2,000 on the price of the most gas-guzzling cars may indeed discourage consumers from buying them, but it is not the purchase of these cars but driving of them that is the source of pollution: this measure will not only unnecessarily penalize those who drive very short distances in very flash cars, but will also create no incentive to those who have already bought such a car, or who choose to do so despite the new tax, to economise on fuel. Indeed, perversely, economic theory suggests that if the car is more expensive, the owner needs to drive it more to ensure that they get their money’s worth!

By far a more effective means of tackling carbon emissions would be to abolish all taxes on the purchase of cars, and raise the money instead by increased in fuel duties. As somebody who has become painfully aware of the cost of petrol recently, I can attest to the fact that there is nothing more effective at encouraging economic use of fuel than seeing the counter on the petrol pump spin round.

Sadly, while it is unlikely that Darling will satisfy anybody with his budget, it is equally unlikely that the media will recognise that he is beginning to accept the wisdom of Lib Dem policy. And with a General Election probably two years away, we are saddled with Labour incompetence for some time to come.

Lessons from Rwanda VI: Account of the genocide

A while back I wrote several accounts based on Shake hands with the Devil: The failure of humanity in Rwanda, an account of the Rwandan genocide by Lt. Gen. Romeo Dallaire. For some reason I never got round to posting this final extract.

In the previous five posts, I had only mentioned the horror in passing, partly because the true enormity of the horror was hard to describe. Instead I offer this extract as a microcosm.

The following is the account that Colonel Isoa Tikoca, the Fijian Chief Military Observer, gave of the situation in Gisenyi, a border town on lake Kivu opposite the Congolese town of Goma:

“…by noon on the 7th [the first day of the genocide] they were going from house
to house… they killed some people on the pot but carried others away to a mass
grave near the airport where they cut their arms and legs and finally massacred
them, as observed the by UNMOs [UN Military Observers]. The [Rwandan] Army and Gendarmerie did nothing to stop these killer-groups… they closed the border with Goma, Zaire. The UNMOs were threatened and they regrouped at the Meridien hotel where foreigners were massing for protection. Stories of massacres all over the
region were reported by these eyewitnesses. A priest assembled in the church with about 200 children for protection, after prayers the killers opened the doors and massacred all of them… another chapel was burned with hundreds of people inside. Children between the ages of 10 to 12 years old killed children. Mothers with babies on their backs killed mothers with babies on their backs. They threw babies into the air and mashed them on the ground. At Rsumbura, 3 Belgian teachers, 2 males and 1 female, and 3 local priests were killed. On the night of the 8th, an expatriate convoy was allowed passage to Goma. On the 10th, Madame Carr, famous because of the movie Gorillas in the Mist left her house for the first time. She has been in Rwanda for more than 45 years. The 85-year-old woman said that what she saw was terrible…
“Were able to conduct some patrols but the streets too littered with roadblocks and dead people. Ordered to evacuate on 13th, spent two nights between Rwandan and Zaire border posts. Finally made way to Mkumba and moved to Kigali. Communications very bad.” (Shake hands with the Devil: The failure of humanity in Rwanda, Lt. Gen. Romeo Dallaire, pp313-4)

The slaughter covered the whole country and lasted three months. The above describes one town over a single week.

Urban Planning in the absence of a Land Value Tax

In the rarefied atmosphere of the Institute of Economic Affairs (IEA), “planning” is generally considered to be a rude word. The patron saint of the IEA wrote his most famous book attacking economic planning and the IEA has generally adopted a libertarian position on most things since then.

Yet few would argue that towns could exist without planning. So Wednesday’s panel debate on Urban Planning was an unusual affair in which the speakers generally accepted that planning was necessary, but sought to root it in market principles and so enable it to work more successfully.

The problem cannot be denied. The UK is building tens of thousands few houses than we need each year; Council’s see little gain and significant costs (both financial and political) in allowing increased urbanisation; the quality of the homes we are building are poor by European standards.

As Dr. Oliver Marc Hartwich noted, in every other walk of life our increasing prosperity has led to our being able to afford more and better, but in housing we have seen regress: houses are getting smaller even as we get richer. Real house price inflation has averaged 4.1 per cent since 1971; if only wages had done the same! Yet planning alone was not the problem: Germany is so regulated that it drove Dr. Hartwich to move to England (had he heard of Gordon Brown?!), yet German cities manage to plan successfully. The reasons are simple (and go beyond urban planning): fiscal federalism and tax competition between authorities led them to compete for citizens, increasing their tax bases so as to reduce individual tax rates. Germans cry out for more housing so that more shoulders will bear the tax burden.

Dr. Hartwich’s comments about shrinking homes echoed two of the four false beliefs about Britain that Professor Alan Evans highlighted:
1) Britain is not overdeveloped – only 10 per cent of the UK is urbanised (less than, say, The Netherlands);
2) “Brownfield” land in the UK is not former industrial land but any land that has previously served an urban purpose, meaning that in many cases regulation to build on “brownfield” land actually means building on gardens, allotments and sports fields;
3) High density housing does not – as commonly believed – reduce fuel consumption; and
4) People do not want to live in flats – despite the planners’ desire to cram us all into flats, around 60 per cent of the population wants to live in a dethatched house with a garden.
In this respect, Urban Planners are like economic planners: they seek to tell us what we should want, rather than give us what we do want.

Dr. Richard Barkham alone focussed on something other than housing. He noted that while industrial and agricultural rents have fallen over the past 30 years (as supply has outstripped demand) residential and retail rents have risen because of supply constraints. This had forced retailers to be more productive – which in itself is no bad thing – but that had driven small, marginal retailers out of business and fuelled the rise of the out-of-town shopping centre and the Clone Towns. Those who would like to “Save our town centres” and preserve independent retailers may wish to take note: the only solution other than harmful subsidies may be to free up retail development.

The problem, noted Professor Stephen Nickell, was the Derek Hatton effect: for a quarter of a century, central government has not trusted local authorities to raise or spend their own money. This was unlikely to change, an the result was that we would continue with a Stalinist approach of top-down solutions to planning.

Which is a shame, for Dr. Timothy Leunig had a perfectly good solution to the problem. This is in fact already Liberal Democrat policy, appearing in two separate policy papers. However, the policy paper that addressed it specifically (rather than instituting it as part of another policy) was referred back to the Federal Policy Committee by the September conference – a sign, noted Dr. Leunig, of the confusion and illogic that characterises the policy making process of the party to which both he and I belong. Dr. Leunig’s plan is to capture planning gain (the unearned wealth that accrues to land purely as a result of its being re-classified by local authorities from, say, agricultural to domestic). Local authorities would be given a monopsony on buying land for development, and would then sell that land on to developers. By using sealed auctions by both sellers and buyers, the local authorities could buy land cheaply (for, say, five times its current value) and then sell it expensively (for a large part of its new value after the council had granted planning permission). The result would be more land available for development, local authorities with an incentive to build (because they would make a LOT of money) and Nimbies turned into Imbies because of the benefits local people would gain from seeing tens of millions pouring into their local authorities’ coffers (such as a six year moratorium on Council Tax or an enormous urban renewal programme). One could even literally bribe the electorate to accept development: build a million homes around Cambridge and one could probably give each existing household hundreds of thousands if not of pounds compensation.

As Dr. Mark Pennington noted, this is a far more effective way of measuring people’s priorities than simply asking them. Ask anybody if they’d like to see fields or flats outside their window and they will say fields; “preserving the greenbelt” is an easy sell when there is no opportunity cost. But offer them thousands if not tens of thousands of pounds in return for agreeing to develop green-field sites that are not in direct line of sight and they will probably jump at the chance – and if they don’t, if they really want to protect the green spaces so much that they will forego wealth to do so, then they would remain free to do so. Dr. Pennington also argued in favour of private property rights, noting that private landlords (such as at Bluewater, the Grosvenor Estate and other planned communities) could attach conditions to the sale of property to regulate planning without the need of government.

There was one gaping hole in all this, however (or two, if you count the empty chair from which the Rt. Hon John Gummer MP was supposed to speak): not one of the speakers mentioned Land Value Taxation. Unable to believe my empty ears, I raised this with the panel. It received almost no response except for the repetition of two common criticisms, both expressed in one sentence: “It doesn’t work in practice” said Dr. Barkham (who has clearly not been to Denmark, Australia, New Zealand, the Baltic States, Jamaica or Hong Kong); “It is not politically possible” said Prof. Evans (which is probably what they said about denationalisation or controlling inflation 30 years ago).

Not satisfied with these answers I took this up again in the reception afterwards. I am not a committed Land Value Taxer: I consider it to be an interesting and intriguing idea that appears to have merit, and I have yet to hear a truly killer argument against it (despite Dr. Hartwich’s best efforts), but I remain open minded. However, within the halls of the IEA the idea was universally reviled (proving, if ever there was doubt, that the IEA really does not have a corporate view on anything). Whether or not Henry George was right about other issues of Land Value Taxation, in one respect he was clearly correct: the ranks of the economic establishment are clearly lined up against it.

Lessons for an Archbishop in the Rule of Law

Serendipity is a wonderful thing. I have recently taken up The Road to Serfdom again, and happened in the last couple of days to be reading the chapter entitled “Planning and the Rule of Law” when the Archbishop of Canterbury, Dr. Rowan Williams, made his comments about the adoption of Sharia in the UK being “unavoidable”

Sharia is an emotive topic, tapping in to British fears of public beheadings and the ill-treatment of women. Consequently, much of the commentary around the subject has been rabid, suggesting that Dr. Williams is opening the gates to the barbarians. In fact, he is making a subtler but no less flawed point: that the law should take account of the personal beliefs of individuals.

This flies in the face of Western legal tradition, in which laws are supposed to be blind to the circumstances of the citizen.

Laws do not exist merely to stop people doing things that are harmful to others. Laws act as signposts, guiding us through life. At each fork in the road, the signposts tell us what we may expect and what the consequences are of our actions. But these guidelines only work if they apply equally to all, because otherwise life is entirely unpredictable.

It is the law of this land that drivers drive their cars on the left (Savoy Court aside). There is no moral purpose to this; it is entirely practical. It makes it possible for traffic to move safely. But it only works because it applies equally to all. If I am driving and I see a car approaching in the distance, I do not need to worry about what side the other driver will attempt to pass; I can plough along at the speed limit, confident that s/he will do the same and will fly past my right wing-mirror with a few inches to spare.

Similarly, if I do business with somebody, I know exactly what will happen to them if they seek to defraud me. This helps facilitate business. However, if I had to worry about what jurisdiction applied to my partner, it would make the practice of doing business more difficult. One need only look at the complexities of trading (particularly in services) internationally to see the difficulties that can result from trading in two legal systems. But at least a company is France is predictably bound by French law, even if it differs from UK law. The same would not be the case if different legal codes applied to individuals in Britain, or if the law was applied differently based on individual circumstances.

Yet this was exactly what obtained in previous times. One of the characteristic features of medieval society was differing jurisdictions: the clergy were subject to cannon law, even in civil matters; townsfolk were subject to royal and municipal law; peasants to manorial and feudal law. As (despite legal strictures) a cleric might not actually dress as a cleric, one could find that a person with whom one had entered into a contract was able to resort to an entirely different laws and courts from those one would have predicted. Not only did this make society very unpredictable (and thus less safe) for all concerned, it was also the cause of constant strife. Bluntly speaking, wars were fought over the primacy of a single font of the law.

As for the suggestion that judges should take into account the views of individuals (or, for that matter, their circumstances or how “deserving” they might be) when applying the law, this undermines the very principle of the Rule of Law, for it makes the application of laws arbitrary.

In mitigation, this does not entirely exclude some of the things that Dr. Williams was suggesting. There is no reason why Sharia courts could not dispense divorces if both parties were willing to subject themselves to the courts, in the same manner that two parties to a contract dispute might accept binding arbitration rather than go through the long and costly process of litigation. There should be nothing in the law that prevents free individuals entering into contracts bound by different rules, just as I am bound by the rules of the various groups and societies to which I belong (such as those of the Party and of my employer). Sharia or other courts or tribunals could retain the right to dispense punishment (such as expulsion, exclusion or even – if the subject were willing to accept it – more strict, physical or material penalties). But the individual should always have recourse to the law, to seek protection from the binding ties of conformity. And similarly, victims should have the right to demand that the same law applies to their persecutors as applies to all people.

Equality before the law is fundamental to our society. The threat to our society from Dr. Williams’ proposal would be hard to exaggerate, for the Rule of Law is probably more fundamental to freedom than any other institution, including democracy. As both Voltaire can Kant (quoted) observed, “Man is free if he needs to obey no person but solely the laws.”

Why we don’t need women-only or BME-only shortlists

The statement that “Parliament should reflect the society that it seeks to govern” is a commonplace one, but that does not make it correct. As with all jobs, parliament should be filled with those best suited to legislate.

This is not to say that parliament should be made up of lawyers (in fact, it would probably benefit from fewer lawyers, given the propensity of “learned members”) or other types of expert; we do not want a technocracy. But is should be made up of intelligent, talented individuals with an understanding both of what makes good law and what their constituents want.

Recent comments by Philip Davies MP that having BME-only shortlists or women-only shortlist would be the equivalent of having criminal-only shortlists are confused. As Linda Jack points out “YOU DIDN'T CHOOSE THE COLOUR OF YOUR SKIN, OR THE IMPACT IT HAD ON YOUR LIFE CHANCES...........IF YOU ARE A CRIMINAL, YOU MAY HAVE HAD A MODICUM OF CHOICE IN BECOMING ONE”. This is a liberal distinction that is often lost on Conservatives.

However, in criticising Davies, Linda appears to make a different but no less significant error: that factors that are not the result of choice should be discounted. The role of legislator is filled in the here-and-now, not in the past. If one person is less suited to job than another person, they should not be given the job, whether their inferior skill results from personal choices or factors beyond their control. After all, intellect is as much a function of biology as are race and gender, yet one would not suggest that parliament should reflect the full intellectual range of society, nor suggest shortlists confined to those with IQs less than 100.

(Insert jokes here).

The point about race and gender is not that parliament should reflect society as a whole – heaven forbid! It is that there is no link between race or gender and one’s ability as a candidate or parliamentarian. Thus any discrimination against BME or female candidates (as opposed to discrimination against stupid or antisocial candidates) is unwarranted.

If, however, a particular BME candidate is less suited to the job than a white alternative because of disadvantages inherent in their race (for example, the fact that black families tend to be poorer and therefore black boys tend to perform less well at school) they should not be given an unfair advantage in a particular selection so as to redress the balance. This can only result in a less talented group of MPs. The solution is to break the link between (in the example cited above) economic status and race, and academic performance and race, so that in future this problem does not arise.

Furthermore, even if women and those from ethnic minorities are as likely to make good candidates and MPs but are still not being chosen by parties, this does not automatically justify dedicated shortlists. Society is a self-regulating mechanism, after all, and the system will police itself. Parties that fail to promote BME or female candidates because of prejudice will have a smaller pool of good candidates to choose from, which will make it more difficult for them to win votes. Furthermore, if they discriminate against people with any regularity, they will be seen to be prejudiced, which will further hurt them at the polls.

The real reason that there is a lack of BME candidates for parliament is that there is a lack of BME members of political parties; there are some, just as there are some candidates and even elected officials, but the ranks of all three parties are not reflective of our society as a whole. The answer is not some form of positive discrimination, however, but more open and imaginative efforts to attract members. As a Lib Dem Council Group leader recently remarked to me, too many of our social events (for example) centre around alcohol, which may discourage (for example) Muslim members from joining. Ultimately, if we attract intelligent and talented people into our party, we will get intelligent and talented candidates – no matter what their race or gender.

Duncan Borrowman, MP

The BBC has just had an interview with "Duncan Borrowman, MP" to discuss the Derek Conway scandal.




Now I know that things are bad for the fiddling Conservative, but I didn't realise he'd already lost a by-election!