The future of freeports

In 1983, 36 years ago, Dr Eamonn Butler and Dr Madsen Pirie, founders of the Adam Smith Institute, wrote Free Ports. 3 years later, Dr Butler co-authored Free Ports Experiment. In 1981, the ASI had proposed freeports for the UK – and six were established – but their chances of great success were scuppered from both sides by the EU and HM Treasury. The European Union steadfastly refused to ease any of their choking regulations – and the UK Treasury, similarly, refused to ease VAT or tariffs. According to Dr Madsen Pirie in the Spectator today, ‘the freeports were effectively just reduced to being bonded warehouses, where goods could be stored, and only be taxed when they left.’

The Adam Smith Institute has long been clear that this isn’t what freeports should be about. Freeports could, and should, be hi-tech, high enterprise hubs for the British economy, springboards for regional and global competition through free trade, and gateways to local employment and prosperity.

Freeports aren’t a new concept – they rose to prominence in post-Renaissance Italy – and they aren’t a complex idea. As Dr Butler explains in his piece for the Telegraph today: ‘take a bit of land near a port or airport and treat it as if it were a foreign country as far as import/export trade is concerned. So, people can fly or ship in goods from abroad, store, consolidate, process, assemble, package or label them in the freeport, and fly or ship them out again. All this with no import tariffs, no VAT or any other taxes, and no paperwork when the goods leave. All plain and simple for the importers and exporters, and a nice generator of jobs, enterprise and investment for the local community.’

Despite the simple nature of freeports policy – and the limited cost to the public purse – government has insisted on getting them wrong in the past. The sites rolled out when the Adam Smith Institute first championed the idea were chosen by the government for political reasons, not for sound business ones. Freeports should have regulations which are as simple as possible – and tax codes to match. Freeports should be treated as foreign territory in many ways – and managed through an independent port operator – not a meddling government.

If done right, freeports can be a huge win for post-Brexit Britain. We can increase the capacity of our ports, develop strategic assets needed to be a serious global player on trade, and boost jobs and British products at the same time. As Dr Pirie said today: ‘Liz Truss, as the new International Trade Secretary should be bold. We should support her fight for real freeports, ones that can draw business, wealth and jobs to some of the UK’s ports, located in areas that have not kept pace with its economic expansion, and which could be regenerated with a such a boost. Low taxes and low regulation mixed with high-tech and tall global ambition — a recipe for success.’

Freeports are one of those policies which can make one really excited for the future – if they’re rolled out in the right way. Since 1981, the Adam Smith Institute has led the calls for freeports policy – and there’s now a wealth of evidence from around the world that shows we’re right. If done properly, freeports can be serious assets to an economy – we look forward to continuing to make the case for them. 

Doing a Harold Wilson

Just over three years ago coalition Prime Minister David Cameron promised there would be a referendum in the UK to remain in the EU or to leave it. He told colleagues that he was determined not to "do a Harold Wilson," referring to the previous 1975 referendum. On that occasion the Labour Prime Minister had negotiated meaningless and trivial "concessions" from what as then the EEC, but had claimed they represented a substantial change in the relationship the UK would enjoy with the rest of the EEC if it voted to stay. The UK voted heavily to remain, and the "concessions" were revealed to be inconsequential as the drive to concentrate more powers to the centre of the European project continued. UK voters thought they were voting to remain in an economic community, but they found themselves bound to what was increasingly a political union, indeed, one that changed its name to the European Union.

Despite his awareness of Wilson's action, and his determination not to repeat it, David Cameron appears to have done so. The renegotiation was not supposed to be about benefits and immigration, but about the fundamentals of the UK's relationship with the EU. It was supposed to be about the UK regaining ability to decide its own laws instead of having to accept ones decreed by the EU as a whole.

It is noticeable that the 'deal' - hailed at the time as an historic breakthrough - has scarcely been heard of since. Those campaigning to remain in the EU have hardly mentioned it, and the debate has simply been about whether the UK should remain within the EU as it is presently, or should leave. There is no status quo option. A vote to leave would engender some uncertainty, but so would a vote to remain. It would be a vote to remain within an EU committed to "ever closer union, with all the future uncertainties that this implies. The issue this time is not a vote about trivial "concessions." It is about UK sovereignty.

Larry Summers and the Donald Trump problem

This may or may not surprise you but we can't say that we're overly keen on Donald Trump. A Great National Upchuck against the standard ruling classes and Beltway Bandits, yes, that has its amusement and joy to it. But the specific beneficiary not quite so much. What won't surprise you at all is that Larry Summers is just horrified:

While comparisons between Donald Trump and Mussolini or Hitler are overwrought, Trump’s rise does illustrate how democratic processes can lose their way and turn dangerously toxic when there is intense economic frustration and widespread apprehension about the future.

We tend to think it's more frustration about the past or the present ourselves. Something of a rage at the way ion which whoever gets voted in it always seems to be the same government in power. But that's not our point here:

The possible election of Donald Trump as President is the greatest present threat to the prosperity and security of the United States. I have had a strong point of view on each of the last ten presidential elections, but never before had I feared that what I regarded as the wrong outcome would in the long sweep of history risk grave damage to the American project.

The problem is not with Trump’s policies, though they are wacky in the few areas where they are not indecipherable. It is that he is running as modern day man on a horseback—demagogically offering the power of his personality as a magic solution to all problems—and making clear that he is prepared to run roughshod over anything or anyone who stands in his way.

Summers goes on to give examples none of which please us any more than they do him. But again we would identify the real problem as being much more basic.

That is the expansion of Federal power over the decades. for those who believe in the power of government to fix all ills it is of course obvious that government should have more power to fix said ills. But democracies do indeed elect oddities from time to time and a useful rule of thumb is that you should never grant a power to an office that your worst enemy might be occupying in a year or seven hence.

But that is of course what the liberals and progressives have done over these past decades. Ever more power is concentrated in Washington DC, ever more in the executive and this produces conniption fits when there's even a possibility that "not one of us" might end up occupying the Oval Office. The correct solution to this, given that not one of us is inevitably, over the course of time, going to achieve that office is not to give it that power in the first place.

If the Federal Government was the size it should be, back down to the 4 to 6% of GDP that the Founders thought it should be, with executive powers to match, then who would care very much about who got elected?

The same of course applies to our own polity. Various left wingers (including, obviously, the author of The Courageous State) insist that government should have more power to do whatever. Which could even be true but they are missing the vital point that if we have a government with those powers the Tories will get in one day and enjoy those same powers.

Donald Trump is this year's argument for minarchism.

Ten steps towards changing entrepreneurship policy

In Kathmandu this week, I have just done a series of meetings for the excellent think-tank Samriddhi – The Prosperity Foundation.  Rather like the Institute of Economic Affairs and the Adam Smith Institute in the pre-Thatcher era, Samriddhi rather have their work cut out in Nepal. It is largely socialist and poor (as if I needed to say that – the two go together so regularly), and any capitalism there is mostly regulated beyond endurance, or survives through crony deals with the overblown government and bureaucracy. Ho hum. Anyway, they asked me to talk about how to engage the private sector – the bit that isn't yet wholly corrupted by this statist system – in policy reform. Luckily I have the experience of Philip Salter to draw on. He is running The Entrepreneurs Network (TEN), a think-tank within the ASI think-tank. An here is his formula for engagement, which I cribbed mercilessly.

1. Most entrepreneurs are far too busy to engage in policy development. And the ones that aren't are usually pushing some agenda of their own. So don't expect to engage business people easily in policy work.

2. But you can form coalitions around particular issues. For instance, the UK's clampdown on immigration makes it hard for entrepreneurs to come to the UK, and for UK entrepreneurs to hire talent. We're working on that.

3. Policy folks need to be honest brokers between government and entrepreneurs. Most business people have no party allegiances: but they share a language of innovation, competition, disruption and progress. And that's free markets, isn't it? 4. TEN offers something practical to entrepreneurs: such as meetings where a really successful entrepreneur will talk about their successes - and importantly, their mistakes. That helps to build a really effective group of like-minded entrepreneurs.

5. Philip writes for Forbes and Annabel for HuffPuff, using the ideas and experience of their network of entrepreneurs. That helps bring their ideas to the attention of policy makers.

6. Having built these networks, we can and do hold workshops between government and entrepreneurs, so there is direct communication.

7. Entrepreneurs do things. Government talks about things. So there is a cultural difference to overcome. With 40 years of experience, though, we can do that!

8. And having built this large network, we can now meaningfully survey entrepreneurs, providing governments with real evidence of policy obstacles that hold them back.

9. We also work closely with groups of MPs, like the All Party Parliamentary Group on Entrepreneurship, helping both sides to understand each other and plan future reform initiatives.

10. We succeed in all this because we have a long-term vision of what we want to achieve – basically, we want to make the UK the best place in the world to start and grow an enterprise. Now that's a vision – not just for us, but for countries like Nepal, where so many folk, especially governments and bureaucrats, simply do not understand the creative genius of a free people.

There's a declining marginal utility to government just like there is to everything else

We are perfectly happy to agree with the idea that government is a good thing to have. We are not, after all, anarcho-capitalists around here. However, we are at least economically informed, and are aware that there's diminishing marginal utility to pretty much everything. And thus, inevitably, there's also diminishing marginal utility to more government. Thus we have no objection to this basic statement from Noah Smith:

There’s a good argument that quality of government in North America, Europe and Japan improved dramatically in the 19th and early 20th centuries. Government became steadily more participatory and less predatory. Bureaucracies became more professional. Spending on infrastructure dramatically increased, funded by taxes. Public services such as urban sanitation -- which Gordon counts among the Great Inventions, but which is dependent on government efficiency -- curbed disease and improved health dramatically. Health and safety regulations helped as well. Public education greatly increased the skills of the workforce.

Libertarians often portray the state as a parasite, but there is a good argument that big government -- and, more importantly, good government -- was responsible for a significant amount of the growth in developed nations between 1870 and 1970.

That kind of improvement was probably a one-off.

We wouldn't, perhaps, emphasise it in quite that manner but the underlying idea is to us clearly true. Some part of the improvement in life over the past century or two was indeed because government became less predatory, more efficient and so on. However, we would also insist upon thinking about Maslow's Hierarchy (as Smith does in part) a little more with reference to government. Maslow's point being that some needs or desires become satiated and then our ever increasing wealth gets turned to sating other and different needs and desires. And we are really pretty certain that our need and or desire for more government has been sated.

Note the important point at the heart of Maslow's thinking: it is that at any point of income or wealth we have superior, normal and inferior goods. A superior one is where if our income (or wealth) increases then we will spend a greater portion of that new income on that good than we have previously being paying of our total incomes. Normal goods claim the same proportion of that extra income, inferior ones less than that average rate. And given that, the real point is that all goods are, at some income level, superior, normal or inferior. Yes, even including government and or governance.

We're entirely happy with the idea that at some level of income more government is a superior good. Medieval government was lucky to get hold of 5 perhaps 10% of the economy in any one year and yes, we do think that rather more than that devoted to a basic welfare safety net is entirely reasonable. But note again that at varied income levels absolutely everything becomes a superior, normal and inferior good over time.

All our contention is is that at this level of income government is an inferior good again. As our incomes rise we should be spending a smaller portion of our incomes on it. We've beaten the big problems that more government can beat: so, let's have less of it into the future as a portion of our incomes.

While we have our sympathies with Guy Fawkes, apologies, this just won't work

There's a great deal to like about this idea. Given that the Palace of Westminster needs billions in repair work, why not simply abandon it and stick the politicians in a series of rabbit hutches in Barnsley. Or, perhaps, Bradford. Rather joyous to contemplate in fact. However, sadly for our fantasies, we don't think it will work:

No matter how much those who have worked there love the rodent-infested, mock-Gothic fun palace, perhaps the time has come to let it go. And if we’re getting radical – and this will please the Chancellor – why not go whole hog and avoid the punishing costs of building in the dead centre of the Capital by relocating elsewhere?

The reason is this:

The Palace of Westminster has been a Grade I listed building since 1970 and part of a UNESCO World Heritage Site since 1987.

We most certainly can't knock down a Grade I listed building and there's very serious limits on what can be done to change it internally, too. Given the laws that have, err, been passed in that Palace there's not really anything we can do with that Palace except leave it pretty much as it is. Maybe with a spruce up, yes, but even trying to change the internal layout of rooms would almost certainly be verboeten.

That is, the choice is not between saving money by abandoning Westminster and locating elsewhere, it's between repairing Westminster (no, you cannot simply leave a Grade I listed building to collapse) and sticking the politicians back into it or repairing Westminster and paying a further fortune to stick them elsewhere (recall, the Scottish Parliament did not exactly come in on budget).

So, nice idea but not one that really passes the public expenditure test. We've got to repair that building anyway and we can't really use it for anything else. Joyous as it would be to have the Commons in, say, Radstock, and the Lords in, possibly, Scunthorpe.

Small Business Medicine is Poison

My teenage neighbour knows that good GCSE grades are better than bad ones. She has an idea that will help all students at exam time. Introduce a minimum grade level of C, so that no student, however bad, can be sullied with D, E and F grades as they enter the job market. Only joking. My teenage neighbour is not that silly. Apparently though my local council hasn’t got this point – having just advertised for a job vacancy in the department that subsidises small businesses. Unfortunately, the idea that it’s a good thing to subsidise small businesses extends far further than my local council – it is a nationwide misapprehension that needs correcting.

Most teenagers could work out that misleading students, parents, exam boards and prospective employers about pupils' scholastic abilities won't help anyone in the long run, because artificially altering GCSE grades to Cs and above gives a distorted picture of academic ability and employability.

Why can't politicians on the left work out similar logic when the case is small business subsidies? The answer, I suspect, is simple: competing parties are not primarily interested in logic, they are interested in securing votes - in this case, the votes of people that think too lazily to realise that small business subsidies are no better than GCSE grade subsidies - as both distort the market in which they operate.

The problem is, small business subsidies amount to the government taking taxpayers’ money and giving it to businesses that may or may not be viable enough to survive in a competitive market dictated by supply and demand. If taxpayers wouldn't voluntarily spend their money in these businesses then they are being artificially propped up against the majority of people's will. If taxpayers would voluntarily spend their money in these businesses then no subsidies are needed. The success of a business is not measured by the state's ability to prop it up, it is measured by whether it generates enough profit in a supply and demand market.

If demand for Jean's Knitwear falls, then prices may fall to increase demand. If Jean’s Knitwear can no longer generate a profit to live, the signals are there that her business is inefficient or that her products are low in demand. Prices in a free market are the signals that make what is being supplied adjust to the demand of those supplies. Alas, prices no longer provide this signal when politicians interfere with subsidies or controls - they stop prices exhibiting changes in the supply or demand for goods and services.

It's easy to see why small business subsidies are popular with voters. They make any party that endorses them seem caring, and mindful of struggling companies, as well as giving the impression of being supporters of the underdog against the often maligned multi-national corporations. In fact, I'd wager that most of the public like the sound of small business subsidies - so public support for them is a bit like pushing on an open electoral door. But like most things that sound too good to be true, the medicine is poison, because nothing comes for free.

The visible benefits are obvious - the beneficiaries are small businesses. But the losers are taxpayers who are having their money spent in places in which they wouldn't do so voluntarily. But more than that, the other losers - the invisible losers - are those missing out on opportunities to enter the market. Thanks to subsidies, Jean's Knitwear may now be staying afloat - but as well as taxpayer costs, the cost of such subsidies is the forgone opportunities for others goods and services suppliers trying to enter the market or stay afloat on their own merit. It's a shame when small businesses go under. But you cannot fix the problem by distorting price signals and forcing taxpayers to support them as if they were successful businesses. Only an fool would do that; well...that is, a fool, or someone who saw a popularity-winning policy and flaunted it to secure votes.

The Amy and Vicky Act: as naked a financial theft as you shall ever see

One of the things we must constantly guard against is one or other of the special interest groups managing to carve out for themselves some juicy little rent opportunity. It might be landlords arguing that we shouldn't have business rates because that's a tax landlords pay. It might be that we must have very special pensions for MPs, the people who determine MPs pensions, because MPs are very special people. But all such attempts to slice a juicy little piece off the body politic, from our hides, are to be resisted. And the latest attempt to do so is riding on the horrors of child abuse.

The Amy and Vicky Act, which has been passed by the Senate and is now before the House of Representatives, seeks to secure damages for victims of online paedophiles who possess indecent images of them.

We find ourselves in the societally odd position of being in favour of child pornography because we are against child abuse. All the evidence there is points to the fact that the porn is, on balance, a substitute for the act. Thus the way to reduce the number of acts is to increase the number of images in circulation. Obviously, that should be created digitally, not in any form of reality.

However, leaving that aside, this proposal is in fact one of the most naked attempts at carving out a rent, at securing a steady and consistent flow of other peoples' money, we have seen:

The Children’s Charities’ Coalition on Internet Safety – which includes the likes of the NSPCC, Barnardo’s, Action for Children and the Children’s Society – will on Monday publish an open letter to Michael Gove, the justice secretary, urging him to study legislation being drafted in America that would force internet paedophiles to make financial reparations for their actions.

You get caught with child porn then you should have to pay damages for the pain caused to the abused child caused by the knowledge of your possession. Looks pretty tenuous to us and the courts have thrown the idea out. However, look a little deeper:

John Carr, the coalition’s secretary, said a new law was urgently needed. Estimates suggest that paedophiles in the UK alone could be holding between 150 million and 360 million images of child abuse. “Conventional law enforcement methods are not working in this area, so we have to look for new deterrents,” Carr said. “I think this could be a very effective one. If guys know they could lose their house or their pension, they’ll think twice.”

They can certainly see a golden pot of money there. Further:

They explain that it would also help to take some of the financial burden off the state. “The sort of financial orders we envisage might cover an element of compensation to the victim, but also make a contribution to the cost of any necessary therapy or ongoing support the abused victim might need. Typically, this would relieve the state of some or all of the cost of providing such therapy or support.”

Oh, therapy and support eh? Our word, wonder who might be the providers of that? Possibly:

The Children’s Charities’ Coalition on Internet Safety – which includes the likes of the NSPCC, Barnardo’s, Action for Children and the Children’s Society....

Well, yes, obviously.

So to tell the story in a simpler fashion: if you change the law as we suggest then there's a vast pot of money that can be confiscated by us urging the change in the law, which will keep us, those urging the change in the law, providing therapy and support services at fat hourly rates from now until kingdom come. With lovely pensions to boot and all without any oversight from anyone at all. Which is why we propose this change in the law.

The correct response to this proposal is a sustained outburst of that Anglo Saxon invective which so enriches the English language followed by a "No". Even a "No!"

For some reason we also want to say something about sex and travel.

Well, yes Mr Tyrie, yes, you do have a point

It is entirely true that the ONS is not perfect. Nothing created by human beings ever will be of course but even then the Office does fall a little short of what could be achieved. So, Andrew Tyrie does have a point in stating that things should be better. The more specific criticisms are also true: no one as yet has quite got to grips with the effects of the digital economy upon the numbers in general and it really should be the ONS leading that charge. We'd also throw in our own bugbear which is someone getting to grips with the appalling layout and logical structure of the website.

However, there's one part of the critique which we think is most unfair:

“The ONS has fallen a long way short, lacking intellectual curiosity, prone to silly mistakes and unresponsive to the needs of consumers of its statistics.”

Because unless you're about to propose privatising the Office there's not much anyone can do about that is there? For you've just described government itself.

The re-emergence of the hard left

“Always after a defeat and a respite, the shadow takes another shape and grows again." "I wish it need not have happened in my time," said Frodo.

"So do I," said Gandalf, "and so do all who live to see such times. But that is not for them to decide. All we have to decide is what to do with the time that is given us.”

Some Conservatives short-sightedly welcomed the rise of Jeremy Corbyn to the Labour leadership because they hoped it would make Labour unelectable. It might, but accidents happen in politics. What it has done is to put lunatic policies into mainstream discussion. Because of his official status his pronouncements have to be covered by the media as if they were serious viable policy. We now have to listen daily to ideas that were discredited decades ago. Back from oblivion have come the nostrums of state-run businesses and punitive tax rates on those disapproved of. His appointment of like-minded colleagues has dispelled any notion that he might be a coalition builder and someone who can create the compromises that real-world government is built upon. The fanatical zealotry of some of his supporters, and the hatred they exude towards opponents, gives us some idea of the sort of politics that could be inflicted upon the country.

The danger has to be confronted. The ideas and arguments put out in support of extremist proposals have to be shown to be dangerous, impractical nonsense. These have been tried many times and have failed many times. The arguments for free choice, competition and enterprise, have to be made again and won again. We will play a part in that. Some of what we say will be well-known to some of our loyal readers, but it is worth saying it to a new audience who might otherwise be fooled into thinking that the state can run businesses efficiently, or that government can run people's lives better than they can do so themselves.

We will publish a series of posts which remind people of the core principles of why liberty and markets are usually better than governments and state officials at improving people's lives.  We will look forward, as we always do, and innovate ideas that can address problems and shortcomings with practical solutions.  But we will occasionally look back to the reasons why Socialism failed before, and why it would fail again, were it to be given the chance.