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.