Monthly Archives: April 2010

Schubert and the GATT

From a 1984 speech to the Confederation of British Industry by Hugh Corbet, then Director of the London-based Trade Policy Research Centre.

The situation* puts one in mind ofthe report prepared by a well-known firm of management consultants commissioned to advise on the commercial difficulties of a famous symphony orchestra. Part of the report that was prepared dealt with a concert performance by the orchestra of Schubert’s Unfinished Symphony. The comments of the consultants read as follows:

  1. For considerable periods, four oboe players had nothing to do. The number in this section should be reduced and their work spread over the whole of the orchestra, thus eliminating peaks of inactivity.
  2. All twelve violins were playing identical notes. This seems to be unnecessary duplication and the staff in this section should be drastically cut. If a large volume of sound is really required, it could be obtained through an electronic amplifier.
  3. Much effort was absorbed in the playing of demi-semi-quavers. This appears to be an excessive refinement and it is recommended that all notes should be rounded up to the nearest semi-quaver. If this were done it would be possible to use trainees and low-grade operators.
  4. No useful purpose is served by repeating with horns the passage that has already been handled by strings. If all such redundant passages were eliminated, the concert could be reduced from two hours to twenty minutes.
  5. Finally, if Schubert had attended to all these matters, he would probably have been able to finish his symphony.

Just as the consultants overlooked the purpose of the orchestra, so trade negotiators appear to overlook the purpose of the GATT, which is to provide a stable institutional environment for the conduct of international trade, enabling private enterprises to know where they stand vis-u-vis their governments, and the governments of other countries, so that they can plan for expansion or if need be for adjustment – thereby facilitating the process of economic growth.

* 1984 was marked by rancourous disputes and ‘blowups’ over problems that were eventually addressed in the Uruguay Round: PWG

The suggestion that the negotiators (now WTO rather than GATT) have lost a sense of what the Organization is for, while building the complex maze of managerialist ‘fixes’ that is the proposed Doha deal, is still apt.

Where cane furniture comes from

DevelopedImportsMfrsFmDeveloping_tmb.png

A table (long) of developing country shares of developed country imports of manufactures (by HS 2-digit product groups). Made from ITC’s TradeMap data.

Download a CSV file of this data if you’re interested.

EU launches debate on farm subsidies

Expenditure on the CAP

“Following several weeks of consultations, the European Commission is expected to draw up a report on potential changes to the CAP in mid-summer. ” Extract from ICTSD • EU Farm Commissioner Launches Debate on Subsidies

I bet there are no surprises.

The overall strategy for the Common Agricultural Policy beyond the next budget horizon (2013) is already evident in the chart. It shows that nominal expenditure in €billions is being held nearly steady—or rising just slightly— despite the enlargement of the Union. But the value is falling in real terms (and as a proportion of GDP). This strategy plays to the cash illusion of farmers (assuming they still have such illusions) while keeping the lid on their incentive to expand production, which only adds to public stock woes and diverts the budget into disposal expenses (export subsidies).

But At 0.4% of GDP, the CAP still represents sixty percent of all expenditure by the Union. So sixty-years on from its launch, the madness of this giant re-distribution machine continues.

The more ‘varigated’ distribution of the funds diplayed in the chart—illustrating ‘CAP reform’—is a bit of furphy. The ‘coupled’ and ‘de-coupled’ payments direct to farms and the ‘rural development’ expenditure are nearly fungible sources of income for farmers. They all pay to keep farmers in a business where world market prices tell them they should not be (or would tell them were it not for the import barriers).

It’s ironic that the Commission has entitled this public consultation as “2013, Your Ideas Matter…”. Because ideas have long been junk where the CAP is concerned; only interests have any force.

Evidence on State hospital administration

Adam Cresswell in The Aus. offers us the data instead of spin. The impression of ‘excellence’ in Victoria fades in the light of the evidence.

“…[H]ealth experts say official comparisons show no evidence that Victoria’s system is any better: whether cheaper or, the more important question, whether patients emerge healthier on the other side” Extract from Diagnosis: state of mediocrity | The Australian

Another major public policy decision—the fight over State and Federal control of health funding—being spun, in public and in the Parliament at least, by hunches and impressions.

Economics’ standard model defective

Apt reminder from John Kay

“The standard approach [‘rational expectations’ theory: PWG] has the appearance of science in its ability to generate clear predictions from a small number of axioms. But only the appearance, sincethese predictions are mostly false. The environment actually faced by investors and economic policymakers is one in which actions do depend on beliefs and perceptions, must deal with uncertainty and are the product of a social context. There is no universal economic theory, and new economic thinking must necessarily be eclectic. That insight is Keynes’s greatest legacy.” Extract from FT.com / Columnists / John Kay – Economics may be dismal, but it is not a science

Return of industrial policy

Dani Rodrik is happy about it.

“Today the US federal government is the world’s biggest venture capitalist by far. According to The Wall Street Journal, the US Department of Energy (DOE) alone is planning to spend more than $40 billion in loans and grants to encourage private firms to develop green technologies, such as electric cars, new batteries, wind turbines, and solar panels. During the first three quarters on 2009, private venture capital firms invested less than $3 billion combined in this sector. The DOE invested $13 billion.” Extract from The Return of Industrial Policy – Project Syndicate

I think his three conditions for success are about right; but in practice, they’re far too idealistic. The problem with industrial policy—including infant industry support—is not that reasonable, honest, transparent governments can’t make it work but that it disguises the private incentives of the managers and beneficiaries alike to the extent that it doesn’t work.

Rodrik ends with a nice quote from Thomas Watson (IBM founder):

“If you want to succeed, raise your error rate.”
John Kay would approve.

NZ Apples, at last! But…

“THE World Trade Organisation has overturned Australia’s 90-year-long ban on importing New Zealand apples, according to NZ media reports, which are branding the decision ‘a win against Australia” Extract from Australia’s ban on New Zealand apples overturned by World Trade Organisation – report | The Daily Telegraph

The Apples Case should never have arisen because we should have welcomed NZ apples into our market decades ago. It should have been settled immediately by the Australian government at the consultations phase of the WTO dispute. The premiss (‘fireblight’ risk) was implausible and the subject of an earlier, definitive U.S. victory in WTO against similar protection in the Japan-Apples Case.

So, probably, two-cheers for good-sense, the NZ apple industry and Australian consumers.

Whether this is a robust or a pyrrhic victory is still to be seen.The decision (not yet published—so caution is warranted) is appealable by Australia—which could delay the entry of NZ apples onto our market. Also, there is nothing preventing the Australian government eventually adopting import orders just as onerous as the 2007 proposal.

Worse, by the time NZ apples finally hit the Australian shores (nine decades after they first sought entry) they may find that the Chinese have beaten them into the market. It’s enough to make a Kiwi weep!

I’ve argued for years that our Quarantine system was costly, overblown and unnecessarily protectionist. In the past, our quarantine barriers have hurt our rural economy by forcing us to sustain high-cost import-replacement industries (like the banana industry) at the expense of consumers and of more efficient export industries. The latter find their input costs raised by the protection and their export marketing efforts undermined by our trading partners’ scorn of Australian agricultural ‘protectionism’.

Slowly, following WTO pressure (our loss of the egregious Salmon case, in particular); pressure from our trading partners (e.g. in the Quarantine working groups set up under the Australia-USA Free Trade Agreement); criticism from the Federal Court when it reviewed individual cases, and; as a result of independent reviews, the regulations and implementation of our laws have both improved.

But the carefully (even torturously)-prepared decisions of BioSecurity Australia are prey to crass political manipulation—which is what happened to the 2007 decision from BioSecurity Australia (recapitulating a decision first taken in 2000) to approve imports of NZ apples subject to onerous conditions. The Australian Minister at the time, Peter McGuaran, failed to sign-off on the decision (after strong lobbying from the protected Australian industry and against the advice of his own Department and over  the objections of the National Farmers’ Federation) for simply protectionist reasons.