Don’t blame demographics, blame the government
Niels Jensen’s Absolute Return monthly newsletter raises one of the major structural impediments to growth in Europe:
As [economist Woody Brock] pointed out when in London, ageing has only had a modest impact on GDP growth and inflation so far. Governments have ruined economic growth in Europe; demographics haven’t. If employment laws are such that employment is virtually for life, companies stop hiring. If you can’t fire, you don’t hire, as Woody pointed out….
Similar impediments are evident in Australia. If developed economies want to compete in global markets, they need to get their house in order. Raising barriers to free trade is not a sustainable alternative but will instead destroy any remaining semblance of competitiveness. Trade barriers result in a limited choice of products, forcing customers to pay higher prices and accept inferior quality. Lack of competition leads to the death of innovation. Quality deteriorates and we soon face another zombie industry dependent on government support. A prime example would be the motor industry — in Europe, North America, even Australia — over the last half-century.
Learning economic lessons from Asia | The Enlightened Economist
The Enlightened Economist reviews Joe Studwell’s book, How Asia Works: Success and Failure in the World’s Most Dynamic Region. He highlights three key steps:
- land reform, where large plantations are broken into smaller — and surprisingly more productive — family-owned farms;
- export subsidy of key domestic manufacturing industry, rather than protectionism through creating barriers to imports; and
- control of large-scale, high-end financial services while extending the scale of low-end consumer and small-business finance.
Read more at Learning economic lessons from Asia | The Enlightened Economist.
The Candlemakers' Petition
I was reminded of this amusing satire by Frederic Bastiat:
To the Honourable Members of the Chamber of Deputies.
(Open letter to the French Parliament originally published in 1845)Gentlemen:
You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry…….We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion, particularly because he has for that haughty island a respect that he does not show for us.
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat…….
Bastiat goes on to argue that such an action would raise prices, boost French industry and create new jobs — arguments put forward by many politicians for increasing protectionism — while ignoring the huge burden to the consumer.
Hat tip to Matthew Yglesias. Read the full petition at bastiat.org.
French Industrial Policies Are Aiding Rapid Decline of Peugeot – SPIEGEL ONLINE
By Dietmar Hawranek and Isabell Hülsen:
When Helping Is Hurting
Ironically, the victims of these two developments — focusing on production in France and high wage increases — are those whose cause is being championed by governments and labor representatives: the autoworkers themselves. Workers at the [Peugeot] Aulnay plant had to look on as their company went into gradual decline. Aulnay was once one of the most modern plants in the country, annually producing more than 400,000 cars. Today, fewer than 140,000 vehicles roll off its assembly lines each year. An auto plant that produces so few vehicles can hardly be profitable. If President Hollande and the unions compel Peugeot to keep the plant in operation, they will only accelerate the company’s demise.
via French Industrial Policies Are Aiding Rapid Decline of Peugeot – SPIEGEL ONLINE.
FedEx CEO on China's Effect on Global Market – WSJ Online
FedEx CEO Frederick W. Smith talks about how exports to China remain stagnant given China’s recent protectionist policies and its focus on “indigenous innovation.” He speaks with WSJ’s Alan Murray at Viewpoints West.
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