One one things

Who said facebook was useless? The following was inspired by an insipid wallpost about the previous night’s mishaps.

Last Night

Last night a friend was leaving,
To Commons we went to see him.
A cappuccino was had, not espresso i’m glad,
But cup of tea before leaving.

After that coffee and tea,
I couldn’t sleep till three.
I dragged myself out of bed with difficulty,
Looked at the clock it was eight thirty.
Good lord at work I should be.

“Bernard : Humphrey doesn’t understand economics sir, you see he got a degree in Classics.
Hacker : Oh I see, what about Sir Frank (foreseeing the financial crisis)?, he is the head of the treasury.
Bernard : well, I am afraid he is in even a greater disadvantage in understanding economics. He is an economist.”

- A real Partnership, Yes Prime Minister.

Whilst this is amusing, it is unfortunately not true. Of late I have been continually frustrated by ppl attempting to argue on economic issues without the mildest understanding of economics. I just commented on a blog where some chap (not the author) was arguing that reducing imports saves money for the country. The scary thing is, i’m willing to bet that 90% of ppl will probably agree with that sentiment at first glance. There is this odd perception that a country is like a business, exports are sales, imports are costs, and the difference is the loss or profit. America has a massive massive Balance of payments (exports - imports, to be very simplistic) deficit, but they seem to be doing OK, yes? I’ve tried to provide a skeletal argument against this in that comment which I am not going to reproduce here.

I was at a couple of conferences last month where similar arguments were put forward, but this time by respected individuals who were presenting ideas in international public forums. One of the discussions was on the WTO and the status of the Doha round and its developmental impacts. After much discourse on the detrimental impacts of the agreement on agriculture, sweeping statements were made along the lines of “the liberalisation of agriculture has no developmental benefit to asia”. Participants clapped and thumped their tables tables in approval, the presenter looked smug. There were two WTO guys present, and they looked at one another and shrugged, I guess they must be used to this. I pointed out that the gradual liberalisation of agriculture, if done evenly and properly, provide massive potential benefits to consumers. With cheaper alternative imports of food stuff consumers stand to gain a lot, and specially the poorest consumers, the subset of the population who spend the largest share of their income on food. If food becomes cheaper their real income shoots up, development? yes. The speaker countered by arguing that producers are consumers as well, and if they lose their jobs, who’s going to consume? (more approval from the audience). Surely that is not an argument against liberalisation, bc liberalisation does not necessarily entail loss of jobs in the long run. It does entail a movement of resources away from the production of inefficient goods to more efficient ones. The speed of this movement depends on flexibility of factor markets, information and availability of credit. It is true that in developing countries most of these conditions do not hold, but that is not an argument that we should sit on our haunches and say we’re not ready. Sort it out. Reform education so that ppl can shift between jobs more easily, reform labour markets, access to information, that’s what needs to be done.

These guys were just saying we need to protect our farmers, well true, but for how long? Agriculture in Sri Lanka has without doubt been the slowest growing sector of the economy with the least scope for improvement in income. And why do ppl still work in agriculture? Part of the reason is bc the govt creates incentives to keep ppl in agriculture without encouraging them to move to more productive sources of employment. Even within agriculture there are sectors where a lot of money can be made, cinnamon sells for about a pound a stick in england, that is 220 bucks for 1 stick of cinnamon. But if you’re protected by the state there is no incentive to shift from your inefficient product, there is no competition bc you’re protected by walls of tariffs. That just keeps ppl in poverty. I don’t mind protection if it is only until some domestic capabilities are in place to be ready for liberalisation, but in almost all cases of protection there is no such improvement taking place, it’s just protection ad infinitum. That is bad for consumers, it’s bad for producers.

Ok so the agriculture argument was at least interesting bc the WTO negotiations have really gone nowhere meaningful. The only useful thing that came out of Hong Kong was that export subsidies will be eliminated by 2013, but the EU will remove export subsidies before that anyway as part of the CAP refomrs, and I don’t think the US has major export subsidies anyway. So yeah, bugger all it is. This failure just undermines the negotiating skills of governments, it does not undermine the benefits of liberalisation of markets. But what took the cake was this guy who started talking about the developmental impacts of NAMA (Non-Agricultural Market Access - ie. negotiations on the reduction of tariffs on non-agricultural exports). He started going on at length about how removal of tariffs in industrial products will bring ruin to Bangladesh, specially the garment industry. And then to my infinite amusement he said that NAMA will cause the downfall of the Sri Lankan garment industry (!!). I almost choked on my coffee when I heard that. He started rattling off figures on job losses, export market loss and other doomsday predictions. Now I had no idea where he was cooking this stuff up from, I mean Sri Lanka would love it if the EU and US bring down tariffs on garments, and our garments are produced for export markets and if we bring down our own tariffs it will have hardly any impact on garment production. So I was genuinely confused, what was he smoking? He finished up and I could see the protectionists salivating at the figures he had gifted them. So I pointed out that SL and all developing countries stand to gain from developed countries bringing down their tariffs on industrial products and explained why SL reducing their own tariffs would not “bring ruin to the garment industry”, I think i got under his skin when i questioned the credibility of his figures. He started quoting the sources, GoSL, Ceylon Chambers of Commerce etc. etc. and then he made a direct quote; “The reduction of tariffs in the EU will undermine SL’s access to these markets since there will be increased competition from other garment exporters who do not enjoy the GSP scheme..”

Oh my God. He was talking about preference erosion. He was using preference erosion to argue that NAMA is against the interest of developing countries. I honestly could not believe it. In a nutshell - Sri Lanka enjoys preferential access to the EU and US markets bc of good labour standards and so on. To take an arbitrary example, if the rest of the world has to pay a 10% tariff on an export into the EU, SL would pay say 5%. This learned gentleman was arguing that with NAMA, the rest of the world (including most developing countries) will pay say 7%, and thereby making it more difficult for SL to sell into the EU, and from that it supposedly follows that NAMA is detrimental to development interests in general. The thing is, when i explained to him about preference erosion, he clearly had no idea what this was. He just saw the figures on job losses, got a bit randy, and tried to use it against trade liberalisation and the multilateral system. I mean this is the problem. There are flaws in the system, there are genuine concerns about liberalisation, about the pace and extent at which it should be carried out. But proper rational argument and discussion on these issues is masked when you have supposedly intelligent individuals talking through their hat using baseless and flawed argument simply to sensationalise the issue. Civil society has long wanted to have a seat at the WTO negotiations, but if this is what civil society can produce, please, stay away (ok i know that’s a generalisation, but i’ve seen enough of it to say this).

To state another example, I was at a conference where we were discussing international aid relations, and the discussion moved to neo-liberal economics and its dominance of present economic discourse. A couple of Latin American Chavez lovers were going on about the failure of economic liberalisation and neo-liberal reforms to bring about development in their countries. They quoted figures on poverty, unemployment and industrial change. Well, the fact of the matter is, you can’t just liberalise markets and sit on your ass expecting wealth at your doorstep, a lot of work needs to be done. Look at Sri Lanka, 30 years of liberal economics and look at the state of Sabaragamuva, Uva, NCP. Poverty rates at around 40%, each contributing around 3.5-4.5% of national GDP. Surely the reforms have failed, yes? I’m afraid not. Look at the Western Province, where education levels are RELATIVELY good, infrastructure is relatively good and access to information is good - 49% of GDP, poverty levels of less than 10%, per capita income more than double the national average. So why have the other provinces been left behind? They do not have access to markets. Road connectivity is rubbish, infrastructure - communications, electricity etc. rubbish, education levels - not a patch on the WP. How can ppl take advantage of the benefits of liberalisation when this is the reality? Unfortunately when ppl see the achievements of the provinces other than the WP they think liberalisation has failed us, it’s time to move on to a new system. That’s what the Latino guys were saying, “we need a new paradigm”. But that’s nonsense, when something is faulty you don’t throw it away and find something new. You look for the problems and you fix it. Out of interest, the new paradigm they were referring to was a kind of regional solution to get away from US economic, social and political hegemony. Led by Chavez’ Venezuela’s oil reserves, they wanted South America to form its own bloc of natural resources, financial pools and export markets. It’s the 60’s dependency theory all over again! Good luck enjoying the Venezuelan hegemony. I smell sulpher. Yeah.