My CNE colleague, Jacob Arfwedson, has a terrific and sobering piece in the Wall Street Journal Europe about Nicolas Sarkozy:

French presidential hopeful Nicolas Sarkozy is often portrayed in the foreign press as a maverick who advocates market reforms and pro-American positions. Yet a month before the first round of elections, his rhetoric smacks ominously of traditional Gaullist and statist ideology.

His campaign speeches have become diatribes against capitalism and global free trade, and his constant calls for interventionism bode ill for France should he reach the ultimate pinnacle. In a March 6 speech in the Parisian suburb of Cormeilles, for instance, he used the word "state" more than 70 times and the verb "protect" more than 40 times in outlining his economic program. When he did talk about issues such as capitalism, innovation or entrepreneurship, it was only in dismissive or disparaging terms.

Do read the whole piece.

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I do like the videos which Daniel Finkelstein does. They really utilise the power of new media. Have a look at this latest one, on the Budget (not least becuse David Smith, by far the best economics commentator around, gives his take).

This will make you smile. A lot.

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Tim Worstall's site is a wonderful source of bracing sense. Here, he destroys a silly piece by Tristam Hunt:

At the heart of this immense darkness was the City: from the great finance houses of the Rothschilds and Barings to the scurrying Camberwell clerks caught so precisely in EM Forster's Howards End hero Leonard Bast. Yet like Goldman Sachs and Deutsche Bank today, the Edwardian corporate chieftains had ever less interest in their UK hinterland. The City looked out to the world - to the railways of Peru and the tea plantations of Ceylon. 'London is often more concerned with the course of events in Mexico than with what happens in the Midlands,' noted the Economist, 'and is more upset by a strike on the Canadian Pacific than by one in the Cambrian collieries.'

The result was a massive outflow of capital. Between 1870-1914, the United Kingdom was responsible for 44 per cent of global foreign investment - compared with 19.9 per cent by France. The consequence was that funds which might have gone into British manufacturing went on quick bucks abroad. The needs of industry were forgotten as London's counting houses bought low and sold high like the private equity funds of the day.

Quite disgusting, tragic even. One of the richest countries on the planet (as Britain was) sending its capital abroad to be invested in mines, railways, water systems, docks, mills and factories, where the poor of the world could find work and better life. I mean, really, who could possibly countenance the idea that the rich might spend their money improving the life of the poor? Ought to be a law against it, obviously.

(And this is in similar vein.)

Tim Worstall hits a bullseye.

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This sort of drivel gets me going:

On November 1, Ryanair quietly introduced a new “priority boarding” scheme. For £2pp, you can be one of the first 60 to board Ryanair’s 189-seat aircraft. Before this, families used to be let on first. Not now, unless you cough up £2 per adult or child (aged 2 or over) each way. It’s enough to make you never want to fly Ryanair again.

Take my friend who has four children — twins aged 2, a four-year-old and six-year-old. This is a family of hardy travellers who visit German relatives in school holidays.

If Maria had to compete with the usual stampede to board the plane, there’s no way she would be sitting next to any of her brood. She has to unfold the double buggy, struggle down two flights of stairs, squeeze out the double doors, hand the double buggy over to the luggage handlers, run back to the stairs for the straggling other children and get all four up the aircraft stairs on to the plane, secure a row for them all and stuff their anoraks/rucksacks and hand luggage in the overhead locker.

If Ryanair wants to charge £2 for priority boarding, there is not one valid reason why it shouldn't. If it wants to charge £500 for every flight, there is not one valid reason why it shouldn't. It can charge whatever it likes for whatever service it chooses, or doesn't choose, to provide. That's because it is a private company which stands or falls by the number of people who choose to fly with it, in one of the most competitive markets on the planet. If Maria doesn't like Ryanair's charges or arrangements, she can go with Easyjet. And if she doesn't like them, there's BA. Or any other airline. Or she can choose not to go at all.

It’s enough to make you never want to fly Ryanair again. So don't.

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Got to stop it, got to stop it...poking fun at the intellectually afflicted, that is:

And the neo-liberal fanatics of the Adam Smith Insititute, The Centre for New Europe and other 'free-market' think tanks would like the rest of Europe to go that way too. High Street diversity, where the small shopkeeper and small coffee house/cafe owner has a chance to flourish, means restrictions on the operations of multinational chains.

The genius that is Neil Clark appears not have noticed that phrase 'free market' consists of the words 'free' - that's as in free - and 'market' - that's as in market. And he appears not to have noticed that when you loosen rules to entry in a market, you promote diversity.

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Milton Friedman has died at 94. What a sad day. Friedman did more good in this world than most of us can ever dream of doing.

But instead of mourning his passing, we should celebrate his astounding achievements, which will last for as long as freedom is cherished.

He was also entirely lacking in the pomposity which men of his standing often suffer. As a young teenager I once wrote to him for his autograph, and was astonished when not only did he send me a long, handwritten letter in response (and a signed photo which to this day looks down on me as I write) but he asked me all sorts of questions about what I wanted to do when I grew up. And so I ended up in a correspondence with the great man which lasted for over a year.

That was some thirty years ago. Then, in 2004, I entered the Bastiat Prize, of which Milton was a judge. To have my work lauded by him (I came second) was, and remains, the intellectual achievement of which I am most proud. I can't imagine ever again matching the feeling of having one of the towering intellects of the age praising my writing for its clarity and intelligence.

Rest in peace, Milton.

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Tim Worstall has a typically trenchant and spot on piece about free trade:

Because it is imports that we desire — exports being simply the tiresome labour that we must ship abroad to pay for them — negotiating with other countries about their tariffs and quotas is ludicrous. Why should we care if the foreign governments make their own citizens poorer by denying them the products of the globe? We should concentrate on what makes us richer, the abolition of all those barriers to our own wealth that we impose upon ourselves.

Mind you, this argument from Joan Robinson is also spot on, which only goes to show:

[T[rade negotiations are conducted on the basis that we’ll stop throwing rocks in our harbours when you stop throwing rocks in yours: this is not rational.

Joan Robinson was as wrong as it is possible to be on almost every political argument. But almost everyone is right about something.

(I just made that sort-of aphorism up, and expect that commenters will soon point out that it is nonsense. Forgive me - I am still picking myself up off the floor after discovering that the Paris hotel into which I have just checked in has free super-duper wifi access).

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It's not often you read something and agree with every dot and comma. Gerard Baker's tirade against Gap (and others) for their attempts to show that it's ok, profits aren't evil, and producing and buying goods is fine, is one such piece:

My problem here is with what this does for the very idea of capitalism, for companies pursuing their real and entirely wholesome responsibility of making money. Free market capitalism, untrammelled by marketing people in alliance with special interest groups on a mission to save the world, has done more to alleviate poverty than any well-intentioned anti-poverty campaign in the history of the globe.

Indeed, as he puts it:

They are implicitly acknowledging that their main business — selling things that people want for a profit — is inherently immoral and needs to be expiated by an occasional show of real goodness. Rather than resisting it, they are nurturing and feeding an anti-business sentiment that will impoverish us all.

The Gap campaign had passed me by but, until it stops, I will not be buying any more t-shirts or chinos. Or does someone else sell them, too?

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Jamie Whyte is spot on (as ever) in his Times piece on the drivel some people speak about 'UK plc':

Despite its popularity, the idea that countries compete in international trade is nonsense. It is companies that compete, not countries. The competition between Renault and Ford is not a competition between France and America. An American politician who thinks it is, and imposes import tariffs on Renaults, only injures his people. He forces them to pay more for cars and diverts American resources to the car industry when they could more productively be deployed elsewhere.

The free trade that allows competition between companies from different countries is a form of co-operation between the countries themselves. It allows them to deploy their resources more efficiently. All countries that participate in the global economy benefit from it, even if (indeed because) some of their companies do not. A “win-win” arrangement isn’t a competition.

The idea that trade involves competition between nations stems from the tenacity of an early socialist misconception. Many continue to think of a country as a single, very large, company. The expression “UK plc”, typically used by those who like to think of themselves as economically astute, perfectly encapsulates the error.

BTW, do read his Bad Thoughts: A Guide to Clear Thinking if you haven't.

(It's just been announced that Jamie Whyte is shortlisted for this year's Bastiat Prize.)

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The WSJ had a terrific editorial last weekend on the 25th anniversary of Reaganomics:

Twenty-five years ago this weekend, Ronald Reagan signed the Economic Recovery Tax Act. The bill cut personal income tax rates by 25% across the board, indexed tax brackets for inflation and reduced the corporate income tax rate.

...The achievement of Reaganomics can only be fully understood by recalling the miserable state of affairs a quarter-century ago.

...The economy was enduring a cycle of rising inflation with growing levels of unemployment. Remember 20% mortgage interest rates? Terms like "stagflation" and "misery index" entered the popular vocabulary, and declinists of various kinds were in the saddle. The perception of American economic weakness encouraged the Soviet empire to ever bolder adventures, as reflected by Soviet tanks in Kabul and Communists on the march in Nicaragua and Africa.

...The results have been better than even some of its supporters hoped. The Dow Jones Industrial Average first broke 1,000 in 1972, but a decade later it was barely above 800 -- one of the worst and most enduring bear markets in history. In the 25 years since Reaganomics, however, the Dow has climbed to about 11,000, accounting for an increase in national wealth on the order of $25 trillion. To match that increase in percentage terms, the Dow would have to rise to some 150,000 in the next quarter century. American living standards have risen steadily, and U.S. businesses have created entire industries that didn't exist a generation ago.

Obviously, the economic policy path from 1981 to the present day has not been a straight line. The biggest detour occurred from 1990 through 1994, when George H. W. Bush and Bill Clinton forgot the Gipper's lesson and raised marginal income-tax rates; they suffered for it in the elections of 1992 and 1994. The arrival of the Gingrich Republicans in Congress stopped this slow-motion repeal of Reaganomics, however, and even helped to extend it at the margin with a cut in the capital-gains tax rate to 20% in 1997.

...even the Rubinites haven't dared to repeal indexing for inflation (which pushed taxpayers via "bracket creep" into ever-higher tax rates), and even the most ardent liberals don't propose to return to the top pre-Reagan income tax rate of 70%. They also now understand that, at some point along the Laffer Curve, high rates begin to yield less tax revenue. The bipartisan consensus in favor of sound money has also held.

Thus today, the top marginal personal and corporate tax rates are 35%, compared with 70% and 48% in 1981. In the late 1970s the tax on dividends was 70% and the capital gains rate was 50%; now they're both 15%. These reductions have increased the rate of return on capital, and hence some $3 trillion more was invested by foreigners in the U.S. between 1981 and 2005 than was invested by Americans abroad. One result: 40 million new jobs, more than the rest of the industrialized world combined.

The rest of the world, meanwhile, has followed the Gipper down the tax-cut curve. Daniel Mitchell of the Heritage Foundation finds that the average personal income tax rate in the industrialized world is now 43%, versus 67% in 1980. The average top corporate tax rate has fallen to 29% from 48%. This decline in global tax rates has been the economic counterpart to the fall of the Berlin Wall. Most of Eastern Europe has adopted flat tax rates of 25% or lower, and the Russians now have a flat income tax of 13%. In Old Europe, Ireland's corporate and personal income tax rate cuts have helped generate the swiftest economic growth in the EU.

Not bad for a President dismissed as a dreamy former actor. In his 1989 farewell address, Reagan said that "People say that I was a great communicator. It would be more accurate to say that I communicated great ideas." He was right, and a remarkable global prosperity has followed in his wake. The challenge for current and future political leaders is not to forget it.

Regular readers will know of my near hero-worship of Hernando do Soto, the Peruvian who has done more to promote prosperity in the third world than any number of organisations like the loathsome Christian Aid.

Edward Lucas has an excellent piece today in The Times on Mr de Soto and the real issues of wealth and poverty. As he puts it:

There is no example of a country where trade, competition and the rule of law have not brought prosperity. Bad government, the favouring of elites, protectionism and monopoly all entrench poverty. Modern prosperity is the result of specific institutions and habits. But like water flowing downhill, wealth trickles away unless it is well husbanded.

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Resuming my general miserableness about politics, there's one huge example of the infantile me-tooism that dominates what passes for thinking at the moment: the notion that restoring the link between pensions and earnings is, almost by definition, a good thing.

It's not often that I support the Chancellor for upholding sound economics and good finance, but in his resistance of such a move he was spot on (although of course when placed alongside his raids on pension funds, Mr Brown's report card looks rather less commendable). Now he's happy to be seen as giving up, reaching a 'deal' with the Prime Minister over restoration (albeit 'subject to affordability', which means he might easily - hopefully - wriggle out of it).

As for the proponents, the respositioning of Dave's Conservatives in favour is both shocking and yawningly predictable. Abolishing the link was one of the Thatcher government's most politically difficult and economically essential moves. For her successor to push for its restoration is short-term political posturing at its worst.

So overwhelming has the consensus become in favour of the link that I had started to feel that I was alone in such thoughts. Not so: Tim Hames has a terrific piece in today's Times on much these lines.

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It is not often that a political figure says something that is both completely wrong and spot on at the same time. So one has to hand it to Lord Heseltine for doing just that.

In his interview with The Times yesterday, he berated his own Conservative Party for talking about the public sector as “a bloated, badly run, inefficient impost on the taxpayers’ back”.

The elder statesman of the party first managed to accuse it of doing something it doesn’t — but which it should. Then he dismissed as a baseless caricature a view of the public sector that is wholly accurate. Quite a feat.

About the only firm policy announcement made by David Cameron has been to commit the party to unending support for the NHS. The Conservative Party simply does not refer to the public sector in hostile tones. Would that it did.

Lord Heseltine’s description of the public sector is, unwittingly, one of the most accurate and succinct imaginable. It is indeed bloated, badly run and an inefficient impost on the taxpayer’s back. Yesterday’s revelation, for instance, that some GPs are earning £250,000 a year is typical. It may be that in a market, where the public can choose how and with whom its money is spent, GPs would earn similar sums. But because of the way the system is structured, we will never know. Under the existing system GPs are handed taxpayers’ money not because of any increased efficiency or success in proving their worth but because the British Medical Association knows how to work the system and has stiffed the Department of Health in negotiating their contract.

The story is true across the public sector, a beast that the Chancellor has fed like a goose being stuffed for foie gras. Public spending now consumes 42 per cent of GDP, up from 37.4 per cent in 1999-2000. Much of that money has gone on the NHS. And much of that, as we have seen, has gone on arbitrary increases in salaries.

If that money was being well spent, or was being allocated to salaries as a result of consumers’ own decisions, it might not matter. But the Organisation for Economic Co-operation and Development (OECD) has found that NHS productivity fell just when the extra money was being taken from taxpayers and spent for them by the Chancellor. Indeed, a leaked internal report by the Treasury and Downing Street Strategy Unit found that public-sector productivity fell by 10 per cent between 1997 and 2003.

Lord Heseltine’s description of the public sector is pinpoint accurate. But too few, not too many, Conservatives point out what is happening. The Cameroonians’ desperation to show that Conservatives do not pull the legs off ladybirds for fun means that that they are starting to confuse looking like normal human beings with taking part in a me-too embrace of a dangerously high tax burden and an inefficient public sector. It looks as if we will have to get used to Browneronism, the 21st-century’s version of Butskellism, for the next decade at least.

It is no wonder that the leitmotif of Lord Heseltine’s career has been his Eurofanaticism, since his embrace of public sector corporatism is of a piece with his fellow Europhiliacs.

President Chirac’s capitulation over the modest proposed reforms in labour law has been much commented on, but French leaders’ cowardice in the face of difficulty is hardly novel. Even when they do decide to proceed with reforms, they are usually a waste of time. In 2004 President Chirac and Jean-Pierre Raffarin, the Prime Minister, promised to reduce the bloated state bureaucracy — more than a quarter of all French employees are in one of the three fonctions publiques. Yet the 2005 figure for job cuts in central government was just 6,847, which was dwarfed by new hirings by local government.

It would be wrong to point only to France. Gordon Brown’s trumpeted “Gershon review” job reductions do nothing more, if they even exist, than reduce the level of growth of public sector jobs.

Most of Europe is in the grip of public-sector bloat. This matters for many reasons, but not least because demographic changes within the EU make it unsustainable and threaten to bring the whole edifice tumbling down.

By 2020 a fifth of the EU population will be aged over 60, compared with around 15 per cent in 2005. Older people are, under present welfare structures, a financial burden on the community, requiring greater medical attention and thus imposing greater costs on national governments.

According to the Institute for Public Policy Research, the percentage of gross national product spent on long-term care can be expected to rise from 1.8 per cent in 1995 to 5 per cent in 2031. To put this in context, the NHS now consumes 6 per cent of gross national product in the UK. We face the prospect of an increasingly heavy tax burden on every new generation of workers, at a time when the proportion of jobs in the public sector, which produces no wealth and exists only on the back of taxes raised from the private sector, is growing.

The EU’s failure to implement even part of the Lisbon agenda — a series of liberalising measures to make Europe more competitive — shows how bleak the prospects are. Romano Prodi, in his former incarnation as President of the Commission, remarked on leaving office that “Lisbon is a big failure”. The failure was his, as it will be Italy’s under him as Prime Minister.

The European Central Bank’s analysis of public sector efficiency in 23 industrialised countries demonstrates clearly that the smaller the public sector, the greater its efficiency. The better we want the public sector to perform, in other words, the less we should expand it. Its tasks should be limited.

Lord Heseltine’s asinine remarks are a woeful symptom of the cause of today’s problems.

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It's Fairtrade Fortnight! Yippee! The Fairtrade Foundation is urging us to start buying products such as coffee and bananas with the Fairtrade logo on them.

A good thing, too. The very point of free trade is that consumers are free to choose what and from whom they buy. So even if Fairtrade products might cost a bit more than normally traded goods, those of us who want to spend our money that way have that option.

The underlying message of Fairtrade Fortnight — that trade is pivotal to making poverty history — is spot on. But if we are serious about such an aim, it’s a Free Trade Fortnight that we really need.

Fairtrade-approved goods have had a specific floor price level negotiated, and meet certain criteria about the reinvestment of profits. As voluntary arrangements they are to be lauded. Like many others, I often buy them. Indeed, sales of Fairtrade goods grew by 50 per cent in the UK last year.

The worries begin when fair trade is posited not as one option within a free-trade world, but as a morally superior alternative to it. Last week’s Conservative Party statement of values, for example, was worryingly ambiguous — “We will fight for free and fair trade” — as if the two were different. They are not. Free trade is, by definition, fair.

The real problem is not that farmers are not paid enough. An International Monetary Fund report last year found that greater aid (which the false fair trade price can resemble) actually reduced countries’ export performance.

It is tariff barriers — both those supposedly “protecting” the developing world but which actually keep resources in unproductive, low-return activities (such as some farming), and those imposed by potential importers of developing world products. Top of that league, shamefully, remains the EU.

Free Trade Fortnight would campaign for the end of the Common Agricultural Policy and the EU’s agricultural tariffs, which average 20 per cent and peak at 250 per cent.

As the newly found prosperity of Malaysia, Singapore, Thailand, South Korea and India shows, trade is the engine of growth, enabling the investment that brought about comparative advantages in the manufacture of an ever-widening range of products.

Fairtrade Fortnight is fine, so far as it goes. But the fairest trade of all is free trade.

You might think it odd that Peter Mandelson has the power to stop you wearing your favourite knickers, but he does. And he is exercising it.

In his capacity as EU Trade Commissioner, Mr Mandelson has ordered customs authorities to seize millions of items of clothing — trousers, shirts, sweaters and, yes, knickers — which high-street shops have imported to sell in their stores.

Mr Mandelson, who claims to be a believer in free trade, has decided that he must protect Europe’s textile industry from Chinese imports. Those dastardly Chinese, he has concluded, are committing the most appalling of crimes: they are selling their textiles too cheaply.

In January, the EU lifted its restrictions on cheap textile imports from China. You and I might have expected that imports would rise as a result, and quite right, too — that is what free trade is all about. But it seems that this outcome had not occurred to the geniuses in the Commission. So when some European manufacturers started squealing that they were losing business, Mr Mandelson’s response was not to tell them either to match the Chinese prices or move into a business where they were more competitive, but to impose quotas on Chinese imports.

Many clothes retailers, however, had already placed orders with Chinese manufacturers. Now that those orders are being delivered, customs authorities are impounding the clothing in a daily round of protectionism — 59 million sweaters and 16 million pairs of trousers so far.

In the great scheme of things, a shortage of trousers and blouses will not destroy the fabric of our society. But the EU’s behaviour in preaching one thing — free trade — and doing something very different — shutting out imports from the developing world — is all too typical.

We are hypocrites, and stupid too. When EU farmers sell their produce abroad their prices are kept artificially low by agricultural subsidies. For example, the EU pays 2.7 billion euros a year to farmers to grow sugar beet, and then offloads the resulting surpluses on the world market, undercutting the developing world’s unsubsidised growers. And we refuse to let them export to us. Not only does EU protectionism keep the poor in poverty, it also denies us access to cheaper goods. Everyone loses when Mr Mandelson decides to ban Chinese knickers.

Allister Heath, who is always worth reading, has an excellent critique of the Make Poverty Permanent/Live8 crowd:

The real question is: why are some countries rich and others poor? To the Make Poverty History crowd, the answer to this question, by far the most important in economics and all of the social sciences, usually lies with Western exploitation, insufficient aid and the alleged ravages caused by free trade or greedy multinationals. This conveniently omits to explain how so many poor nations in Asia have got rich; and many economists in developing countries no longer agree.

...Geldof and all those marching in Edinburgh could start by reading a report out this weekend from the International Policy Network. Its author, Moeletsi Mbeki, happens to be the brother of South Africas president, Thabo Mbeki, as well as an entrepreneur and political analyst. Mbeki argues that since the end of colonialism, most countries in Africa have been exploited by predatory national political elites who see the state as a means to acquire personal wealth through taxation and regulation.

The history of Africa since the 1960s is the history of groups of elites seeking the political kingdom with the primary purpose of enriching themselves, Mbeki says. To rectify this situation, he believes that Africas poorest people must be empowered through the institutions of the free society: property rights and markets: It is necessary that peasants who constitute the core of the private sector in sub-Saharan Africa become the real owners of their primary asset: land. To enable such ownership, freehold must be introduced and the so-called communal land tenure system, which is really state ownership of land, ought to be abolished.

...In a devastating report from the International Monetary Fund last week, Cristina Arellano, Ale Bul, Timothy Lane and Leslie Lipschitz found that greater aid actually tended to reduce a countrys export performance and the production of goods for exports. The paper also found that aid was usually used to fund consumption rather than investment.

...Between 1980 and 2003, more than $116bn (in 2002 dollars) in US development assistance alone went to 89 poor countries. Yet these recipients often experienced poor even negative per capita economic growth, says Brett Schaeffer, of the Heritage Foundation. Of these 89 countries, 37 experienced negative real annual compound growth in per capita GDP, 20 experienced minimal growth of 1% or less, and only 32 experienced growth of more than 1%. Half of these recipients in sub-Saharan Africa saw a real decline in GDP per capita.

Do read the whole thing.

Crack open the Krug. From today, everything you earn is yours to keep. Today is Tax Freedom Day — the day on which average taxpayers stop working for the Government and start working for themselves.

On second thoughts, perhaps a glass of Blue Nun would be more appropriate. Far from celebrating, we ought to be commiserating with each other. Last year, we could start keeping our own money three days earlier; when Labour took office in 1997, Tax Freedom Day fell on May 25.

Total public spending will, on Gordon Brown’s plans, have increased by 40 per cent in real terms between 1999-2000 and 2007-08 — the equivalent, after inflation, of an extra £120 a week cost for every household in the country. Someone has to pay for Mr Brown’s largesse, and that someone is you.

If spending on this scale is sensible, its wisdom ought to be demonstrable. The idea on which such a policy rests, after all, is that the Government knows better how to spend the country’s GDP than the people who created that wealth in the first place. The evidence suggests otherwise. The NHS budget, which has risen (in England) from £33 billion in 1997 to £76 billion this year, is a prime example. Spending increased in 2003 by 8 per cent; output rose by just 4.1 per cent. Productivity is falling just when — using the Government’s argument that increased “investment” is a prerequisite of improvement — it should be rising.

It is bad enough that the Government takes our money and squanders it; but in so doing, it compounds the problem by weakening the private sector. Private sector productivity growth is almost 5 per cent, compared with productivity growth across the whole economy of 3 per cent.

The Office for National Statistics labour force survey shows that a quarter of all jobs are now in the public sector (in fact it is higher, as the data excludes outsourced workers). Half of all new jobs created since 1997 have been in the public sector, a rate of increase twice that of the whole economy. This transfer of resources from the relatively efficient private sector to an underperforming public sector is the precise opposite of what is needed.

Tax is supposedly a complicated issue. In reality it’s quite simple: we are handing over more of our money, watching it vanish, and then seeing it limit growth. Bizarre or what?

You've probably seen a picture in the past few days of Kate Moss, languidly clicking her fingers above the caption “Make Poverty History”. It’s not supposed to mean that it just takes one snap from Ms Moss to abolish poverty. Each click — the adverts include celebrities such as Colin Firth, George Clooney, Brad Pitt and Claudia Schiffer — represents a life lost in the Third World through poverty.

The aim of the Make Poverty History campaign is, of course, laudable. There is, however, one problem. The sheer wrong-headedness of the campaign’s proposals to eliminate poverty leads one to think that Moss, Clooney et al are not mere adornments but have been responsible for the analysis underpinning them. The campaign could more accurately be renamed Make Poverty Permanent, such would be the effect of its proposals being implemented.

The group’s manifesto has three aims: “trade justice”, “drop the debt” and “more and better aid”. They are, respectively, dangerously misguided, pointless and counterproductive.

According to Make Poverty History: “We need trade justice, not free trade . . . ensuring poor countries can feed their people by protecting their own farmers and staple crops.” With that, the campaign destroys any claim it might have to serving the interests of the poor.

It might seem sensible at first glance to argue that nascent industries in developing countries need to be protected so that they can withstand competition from rapacious multinationals. But the evidence shows the opposite.

The engine of growth, without which countries remain in poverty, is trade. Tariff protection keeps resources in unproductive, low-return activities such as the type of farming which Make Poverty History seeks to entrench. Free trade shifts resources to more productive uses. Take Malaysia, Singapore, Thailand, South Korea and India: while they maintained their tariffs, they remained stuck in poverty, the only thing which tariffs protect. As recently as the early 1980s they were poor countries. Their incomes per head ranged from $700 (£350) to $7,000. Today they range from $2,000 to more than $21,000. Even India, one of the world’s poorest nations in the 1960s and 1970s, is on the road to prosperity. In 1991 the Indian Government reacted to a financial near-collapse by cutting forty years of bureaucratic control in seven hours. Its economy now grows much faster than its population and India is becoming one of the leading exporters of computer software and services. There is a vast new middle class of 250 million.

Trade with the rest of the world has allowed these countries to attract the investment that brought them comparative advantages in the manufacture of an ever-widening range of products. Sectors in which they have no comparative advantage have shrunk as a proportion of national output and been replaced by cheaper, better imports.

It is not just swivel-eyed market zealots who realise the importance of trade. According to Oxfam, if Africa could increase its share of world trade by just 1 per cent, it would earn an extra £49 billion a year; enough to lift 128 million people out of extreme poverty. Trade is the key, and the protective tariffs that Brad Pitt wants to impose on the populations of the Third World destroy trade.

The abolition of debt and an increase in aid — in effect the same thing — are red herrings. Far from rewarding governments for the disastrous policies that have kept their populations in poverty by handing over more aid for them to siphon off, a campaign to make poverty history would champion open trade, reduced regulation and, critically, property rights.

Much Third World poverty is the result of governments taking the decision, in effect, to remain poor. The conditions under which they can prosper are known, and available, if those in power choose to avail themselves of them. As Hernando de Soto (who has done much to alleviate poverty, not least through his seminal book, The Mystery of Capital) points out, it is easy to make a country prosperous. It needs only security of life and property, and markets in which property rights can be valued and traded. The West’s prosperity is built on property rights and the rule of law; it is the denial of those rights which causes poverty and prevents growth.

The World Bank report, Doing Business in 2005, shows many of the regulatory and bureaucratic obstacles to prosperity. Registering property requires one step in Norway, but 16 in Algeria. To incorporate a business takes two days in Canada, but 153 in Mozambique. In Haiti, it takes 203 days to register a company, 201 days longer than in Australia. In Sierra Leone it costs 1,268 per cent of average income, compared with nothing in Denmark. To register in Ethiopia, a would-be entrepreneur must deposit the equivalent of 18 years’ average income in a bank account, which is then frozen. In Lagos, Nigeria’s commercial capital, recording a property sale involves 21 procedures and takes 274 days.

If those behind Make Poverty History were serious about ending poverty they would be campaigning for property rights and the rule of law — for better governance, in other words. And they would campaign not to abolish free trade but to extend it — attacking, for instance, the EU Common Agricultural Policy and its immoral tariff barriers against the developing world. The EU spends €2.7 billion a year subsidising farmers to grow sugar beet; at the same time it imposes high tariff barriers against sugar imports from the developing world. And the EU’s agricultural tariffs average 20 per cent, rising to a peak of 250 per cent on certain products. The European market remains barely open to the majority of low-cost textiles from the developing world.

But it’s much easier to publish pictures of Kate Moss, and to parrot the same old nonsense about the evils of free trade which we have heard for years from those who prefer to act by clicking their fingers rather than engaging their brains.

I've beaten to the mark by the Adam Smith Institute. Like Madsen Pirie, I was struck as a I read Prospect that the write of their diary piece about the flat tax clearly hasn't a clue how it works:

If the threshold was set at £10,000, around 13m would have no tax bill. To raise, from the remaining 17m, the same amount of tax as was actually raised in 2004-05, the flat tax rate would need to be 31.5 per cent. Apply this to incomes of varying sizes and you find those earning £0-20,000 and over £60,000 end up better off, while the "hard-working families" on middling incomes lose out.

Duh. As Dr Pirie points out:

The idea that tax revenues are fixed, and that if some pay less others must pay more, is about as sensible as the 'wealth is fixed' outlook. The point of flat tax is that it broadens the tax base. People avoid less, evade less and declare more. Then they earn more. That is why a threshold of £12,000 and a flat rate of 22% raises more revenue than the present complex system of progressive rates and allowances.

If you happen to be in Paris on Tuesday, and at a loose end, I'm moderating the OECD panel on combating counterfeiting at 14.30.

On the other hand, I can think of quite a few things most people would rather be doing...

I've just seen this New Scientist piece, on the argument of a group of US and Dutch economists that modern humans may have driven Neanderthals to extinction 30,000 years ago because Homo sapiens unlocked the secrets of free trade.

Given that the Neanderthals lasted 260,000, I guess we can look forward to the abolition of the CAP and the removal of the EU's worst protectionism some time around 261962 AD.

I am thrilled to be able to publish an exclusive interview with the Peruvian economist, Hernando de Soto, founder and President of the Institute for Liberty and Democracy (ILD) in Lima, and an intellectual hero of mine. He has published two books about economic and political development: The Other Path and The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else – one of, if not the, greatest books ever published on the issue of poverty in the developing world. As Bill Clinton puts it: “De Soto’s ideas about how to empower the world’s poor represent one of the most significant economic insights of our time”.

De Soto’s main thrust is that much of the marginality of the poor in developing and former communist nations comes from their inability to benefit from the positive effects that property rights provide. Without legal titles and the necessary property-related institutions, the poor cannot fully exploit their assets. The challenge these countries face is not whether they should produce or receive more money but whether they can identify which legal institutions are required and summon the political will necessary to build a property system that is easy for the poor to access.

Dirk Verhofstadt, of the Belgian think tank Liberales, had an exclusive interview with Hernando de Soto in his residence in Lima, and he has generously allowed me to publish it here.

The Economist calls the Institute for Liberty and Democracy (ILD) one of the most important think tanks in the world. How did it start?

At the end of the left wing dictatorship in Peru in 1979, we wanted to bring in new ideas. All we had here were traditional leftist messages, some of which I found very interesting. However, it was also very important to realize that we had nothing that related to a market economy and the more liberal view of democracy. So, the beginning was simply bringing in ideas from Friedrich Hayek, Jean-François Revel, Milton Friedman, and original Marxian thinking as well. We wanted to clear the air and explain that there was more substance to the kind of thinking which supports freedom and the efficient economies of the world than they suspected. One of these ideas was the relationship between marginality — where people are forced to live and work outside the system — and the law. At that time, I saw the law as the main factor of exclusion.

Take for example the history of Latin America where liberal ideas have come to government many times, but haven’t succeeded. The main reason for that failure was that they never included the excluded. [This was a harder task than it seemed.] We found that most ideas that related to freedom and productivity were well known by think tanks but had not penetrated to the political decision makers and the average person. So, the focus of the Institute for Liberty and Democracy very much became this extralegal sector —particularly on the areas of property rights and free enterprise because they are the trusses to everything else.

Do politicians understand the importance of property rights?

If you are poor, like the majority of the people in the Third World or the former Soviet Union, you have only two things that allow you to survive —where you are living and whatever you are working with to provide you with an income. Poor people, for instance, put their simple belongings on a piece of unoccupied ground in the countryside or in the so-called pueblos jóvenes, favelas, ranchos, barrios marginales, bidonvilles or shantytowns around big cities in the developing world. If no one disputes his or her claim, a bit of a roof follows. As time goes by, and as the neighbours come to recognize the newcomer’s property, a regular structure will be added. Over time, not only do the neighbours recognize the squatter’s property, but also informal organizations may ‘register’ the ownership — unofficially, of course. The occupants have to dedicate all their time to protecting their possessions against such enemies as poachers, intruders, and, of course, the government.

If you want to understand the importance of property rights, a good place to start is the genesis of property, something that is not controversial for the entire political spectrum. Half of the governments we work for, for instance, are definitely on the left and understand that the poor do not have property and believe that they should. So the law gives a point of penetration were everybody is in an agreement. Property rights are even recognized on a global level in points nine and ten of the Washington-consensus. However, these are the only points that have never been implemented. The objective of these points is to establish free enterprise and property. This big gap needs to be filled in. That is the objective of the ILD.

In your book ‘The Mystery of Capital’, you write that capitalism is like a private club, only open to a privileged few, enraging the billions standing outside looking in. Can you explain this?

Almost 5 billion people out of the 6 billion in the world live in either developing or formerly communist countries, where much of the economy is extralegal. Capitalism doesn’t thrive in these countries because of their inability to produce capital. However, capital is the force that raises the productivity of labour and creates the wealth of nations. It seems that poor countries cannot produce capital for themselves no matter how eagerly their people engage in all the activities that characterize a capitalist economy. In fact, the poor inhabitants of less developed countries do have things, but they lack the process to represent their property in such a way that it can create and transfer capital. They have houses but no titles; crops but no deeds; businesses but no statutes of incorporation. In other words: their property is not registered, not formally legalised. This last fact is crucial, for only through property rights is it possible to obtain credit. Property converted into capital provides the potential to create, to produce, and to grow. Landownership can only be exchanged for a loan if it is registered. The main objective of the ILD is to establish and incorporate the invisible network of laws that turns assets from ‘dead’ into ‘liquid’ capital.

One of the conclusions in your book ‘The Mystery of Capital’ is that poor people are not the problem, but the solution.

They certainly are, and there are very simple reasons for this. First of all, wherever we go, we see that the poor have the majority of a country’s savings, which means that they have done the majority of the work. Look at the situation in Egypt. There, extralegals have accumulated up to $ 248 billion in their enterprises and homes. This is 37 times more than all the loans received from the World Bank. It is 55 times greater than all the direct investments in Egypt and 35 times more than the value of the companies listed in the Cairo Stock Exchange.

In fact, the total value of the assets held but not legally owned by the poor in the Third World and former communist nations is at least $ 9.300 billion. So, the poor are obviously the solution.

The history of many countries shows that very poor people have built today’s wealth. The poor today form a large entrepreneurial force, but it is a force that cannot leverage its assets. And that is the situation in all of the developing countries and in the former communist nations we have been in. There is no lack of entrepreneurship. There is no lack of a will to build assets. There just isn’t the legal system to allow these assets to be leveraged the way you can do so in the West. International financial institutions have traditionally not counted these assets. Poor people have always been seen as recipients of benefits. We are changing this around by saying that whatever you are giving to them is peanuts compared to what they themselves can do. So, the direction should be to enable them, to empower the poor.

So, to solve the real problem we have to make the informal world formal?

Well, that’s it, but it’s not the old formality. You’ve got to think of a new formality. The old one has been offered to the poor, but they have obviously rejected it. There is the law. Don’t forget that informal and customary systems of property rights exist, but mostly outside the legal framework of the country.

I am now a member of a newly created agency for foreign assistance. The Secretary General of the United Nations, Kofi Annan and the Administrator of the UNDP, Mark Malloch Brown, have set up a commission targeting private sector development. These kinds of agencies had never focused on the private sector, in spite of the fact that they are a big part of the world economy. So, the agenda seems to be moving in the right direction now.

But isn’t the main problem legislation? Don’t lawyers stick on to the existing laws?

That’s right. The legal and administrative mechanisms for creating live capital either do not exist or are complicated, these take ages to navigate and cost far too much for the ordinary person. Rich people, on the other hand, have easy entry to business; that is, they have easy access to the tools that facilitate their entry, such as lawyers, accountants, and legal advisors who are able to safeguard their interests in the labyrinth of bureaucracy.

If a squatter wanted to acquire a legal title to his or her property, it would take at least 13 years in the Philippines, over 11 years in Haiti, and 6 years or more in Egypt.

Moreover, in business, it takes you 549 days to get a license to operate a bakery in Egypt and that is with a lawyer. Without a lawyer, it takes about 650 days. In Honduras, it costs an individual entrepreneur 3.765 dollar and 270 days to legally declare, register, and start up a business.

To create a mortgage in Mexico it takes 2 years. It takes 17 years to get a title on a house in Egypt; in Peru it used to be 21 years before we corrected that, and in the Philippines it’s 24 years. These are but a few examples of complicated ownership legislation. The procedures for getting official authorization to build are so formidable that people chose to build without authorization. The entire phenomenon forces poor people into illegitimate and informal negotiations. It forces them to create extralegal means to gain access to a home or a business.

So, what the people in these countries need are transparent laws and efficient administration. One of the main reasons that laws are so complicated, and procedures are so costly and inefficient, is that legislators in developing countries only want to adopt western rules. They remain blind to the extralegal reality. In fact, they should leave their studies and offices and investigate the extralegal sector because that is where they would find all the information they need to create a legitimate legal system that everyone would understand and accept. By investigating and penetrating the ‘law of the people’, legislators and regulators can set up a better legal system. Most of the lawyers in developing countries are educated to protect the interests of their wealthier clients and write the law to assist them. However, they have an instinctive tendency to protect the legal status quo instead of to extend it or adapt it to suit the needs of an evolving reality.

You have been working in several developing countries by giving advice to their heads of state. What is your method of working?

To us the most important part of our work is that part that we call the diagnosis. When we are hired by heads of state, we form a team of maybe seven people from our side and a hundred from theirs. Then we draw a line and find out what’s inside the law and what’s outside the law. In the case of Egypt, we found that 92% of all the constructions and the land and 88% of all enterprises are outside the legal system. This means that the large majority of owners are not registered as such and are therefore not visible to councils, town planners, investors, banks, post offices, water companies, electricity providers, and other firms. The results of our diagnosis show politicians that something is very wrong. It even has a Marxists element of class, an element that has always been missing, even in liberalism. Because people do have specific positions. People in the so-called informal economy are the biggest entrepreneurial class in the world. There are more entrepreneurs in any Third World country than there are in the rich countries.

Over the past fifteen years or so, your Institute has worked in Peru, Egypt, El Salvador, the Philippines, Honduras and Haiti. In which country are you working now?

We are currently working with the Mexican government. We have finished the diagnosis. Seventy-eight million Mexicans — this is almost 80 percent of the total population — is either living or working in the extralegal economy. They produce approximately 35% of the GNP. In total there are about 137 million hectares of rural real estate, 11 million houses, and 6 million businesses that are not registered. Those are assets that can only be used as a shelter or as business tools, but not as a means to obtain collateral for a loan, to generate investment or to create additional functions to obtain surplus value. The whole value of this ‘dead capital’ amounts to $ 315 billion. That is equivalent to seven times the value of all known oil reserves in the country and 31 times the value of foreign direct investment. So, we are advising President Fox on the ways to reform all of this in order to integrate the excluded citizens. An efficient means is designing a legal framework to transform property and businesses into liquid assets. And by reducing the costs and increasing the benefits of operating legally, they can increase public tax revenues.

Is there a relation between corruption and the lack of property rights?

Yes, of course. Because a great part of corruption is essentially the purchase of the law; that is, you pay somebody to stop looking your way or to draft the law in a certain direction. When I was working in the Middle East, there was an entrepreneur that I got to known so well that I could ask him about corruption and pay-offs —‘baksheesh’ is the local word. He explained: “I love baksheesh because it gives me certainty and predictability.” They change the law continually. We have calculated that the government brings out about 30.000 new rules every year. None of these is enacted in a transparent manner, with public participation. The result is that the law is totally unpredictable and only serves the powerful and htose who have the means to remain informed. So, from this point of view, ‘baksheesh’ gives a kind of predictability. All the entrepreneur had to do was pay-off five key policemen either near his workplace, or where he made his transactions. And he knew what his outcome would be.

Now, traditionally that is what the law is supposed to do — give you predictability. However, if the law is inadequate, then your way of getting predictability is corruption. Therefore, when you have property rights — understanding “property rights” as your right to do business, hold shares and carry out business transactions —, it is clear that people will not look to corruption for security and predictability, wherever you go in the world.

Some people say that culture is separating the Third from the First World. Do you agree?

That is a myth. I really don’t think culture has very much to do with the fact that some people are desperately poor and others are wealthy. It’s an unfair proposition. It predisposes people to do the wrong things. It may even have racist implications. Instead of focusing on culture, let’s take away all of these enormous legal obstacles that poor people have to face. We’re absolutely convinced it does work because people are actively in enterprise all over the world. Countries that are less occidental than Latin American nations were poorer than us barely 50 years ago –like Japan, Taiwan and South Korea—changed their laws and are now in average 10 times wealthier than we are. Most of the people who say that ‘cultural’ handicaps do exist don’t have much solid facts to prove it. Development will not be achieved by throwing money at the problem but rather by radically changing the legal systems. And I don’t think it is primarily an IMF or World Bank responsibility. I think it’s a local responsibility.

Despite privatisations and deregulations, the Russian economy is not doing well. Do you attribute this situation to a property rights problem as well?

There is only one way of knowing that and it is by getting the numbers on the shadow economy, which is precisely what we at the ILD do. It’s like in medicine: the doctor has to see the patient. You can have the best written law in the world, but if it doesn’t work on the ground it is only ink on paper. I wouldn’t be surprised if in Russia the law looks good on paper, but, on the ground, it doesn’t work. This is why a very important ingredient of any reform towards the market is feedback from the people so that you can create law based on general consensuses and on people’s beliefs. There is no way of designing it in the air as bureaucrats of the old class often do. If you want to get law that is enforceable you’ve got to go get to the street!

How is it possible that those liberal ideas were never popular in Latin America?

Since liberation from Spain in the 1820’s, many governments have tried to bring in a liberal revolution in Latin America several times. We have tried to follow the US model or the Western European models. Latin Americans have privatized railways, lowered tariffs to zero, and opened our economies to foreign investment. And we have failed nearly every time . The reforms made sense for a very small group of people at the top, but for the majority, it didn’t fit their interests. The big mistake each time has been that although people were inspired by liberal ideas, in fact, they never had much interest for the poor. I would say that these people who pretended to be liberal, were not liberals but conservatives. By not caring for the poor, they gave the opportunity to the populist and communists to gain much ground.

Can we say that capitalism is in trouble?

Of course capitalism is in trouble, because, as usual, it is only catching among the top 20 or 10 percent of the population in Latin American countries that have got their property rights paperized in a way that they can enter the market. Capitalism is in trouble in the sense that it isn’t working for the majority. I insist that capitalism doesn’t work without universally accessible property rights. Capitalism definitely did not win the battle against communism: what happened is that communism collapsed. The main ideas or concerns held by the early communists and socialists are still around.

Do you agree with libertarians that plead for a minimal state? What is your position with regard to libertarianism and liberalism?

I think that some of the most resourceful sophisticated thinking comes from libertarians. To me, they are the ‘avant garde’ because, among other things, they point out the dangers of concentrated power. They are a continual source of inspiration to me but it is the gap between their proposals to do a way with government and reality. I am not too sure they understand that government is important to enforcing freedom and democracy --maybe this is because they do not know what it is like to live without any government like some of us in the Third World. The rule of law has to be managed and enforced by strong government if it is to prevail. In my case, I would say that I am a classical liberal, corresponding to the liberal ideas of the 18th and 19th centuries, which were characterized by being radically opposed to the concentration of power and the causes of the poor.

The reason I study the 18th and 19th centuries of Europe and North Ame3rica is not because I like the past, but because they provide me with lead to understand the present with regards to developing countries. There is a sense that individualism becomes clearer with the Renaissance. Before, people could not envisage themselves as being anything other than part of a whole. That phenomenon of individualism is now starting to take shape in Latin America. In Mexico, for example, where we are currently doing our biggest project, one of the areas we have to focus on is the ejido, which is an indigenous collective property system. We found out that the average age of the Mexican farmer is 65, which means that most of the young people have already left to the city and are becoming individuals. In other words, we are at that stage of individualization that you in Europe were at a couple of centuries ago. Europe’s 18th and 19th centuries intellectual debate are very relevant to developing countries in former Soviet Union nations in the 21st century.

Madsen Pirie makes a series of important points about the 'causes' of poverty:

• There are no 'causes of poverty.' It happens naturally when you do nothing. It is wealth that has causes.

• Poor countries are not poor because others are rich, but because they are not rich themselves.

• Rich countries have created nearly all the wealth they enjoy, and poorer countries could do likewise.

• Humanitarian aid is a worthwhile way of helping to tackle such things as conquest of disease and access to clean water. By contrast development aid to invest in industry is less successful and less worthwhile, especially as it is usually directed by governments.

• The gap between rich and poor countries is less important than the attainment by poor ones of enough wealth to lift them from deprivation and give them access to sufficient food, water, healthcare and education.

• The wealth-generating process is robust enough to withstand many things done wrong in a country. It cannot, however, survive genocide, civil war and socialism.

• Corruption is endemic in many poorer countries because without a vigorous economy, political and bureaucratic careers are among the few avenues open to advancement.

• Trade barriers do more harm by rich countries than all of the good they try to do. We could help counties lift themselves from poverty by buying their goods.

• Foreign investment can greatly accelerate economic growth and development.

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Some commenters have made the perfectly reasonable point that the figure cited in my column below, that one person dies every 13 seconds because of EU protectionism, is suspicious. (One person asks if I have read the CNE paper (available here) from which it is taken. Since I am named on the cover as one of the authors, I might ask the same question in return. I'm not sure how it's possible to write something but not to have read it.)

Here's the reasoning from the paper by which we came at that figure:

24,000 people die every day from starvation, or from causes directly related to malnutrition. Let us make a reasonable assumption, erring on the side of caution - that 20,000 of these people do not die from the purely local causes of civil war and crop failure. In a world of potential abundance that could be made actual by more open trading rules, the European Union accounts for a third of trade protection. Thus – given the earlier assumption - 6,600 people die every day in the world because of the trading rules of the EU. That is 275 people every hour of the day.

In other words, one person dies every 13 seconds somewhere in the world – mainly in Africa - because the European Union does not act on trade as it talks.

As we then go on to write in the very next sentence:

These are questionable, if not unreasonable, figures.

Let's say every element in that calculation is wrong, and that the figure is therefore entirely wrong. We accept - how could we not? - that the figure may be wrong. So here's the challenge: what is the right figure?

Is it one person every minute? Every hour? Every day? Every week? Every fortnight?

Is that higher figure somehow OK? Is that an acceptable price to pay for the EU to protect its farmers and block the chances of developing world producers from creating prosperity?

The whole point of asserting such a bald statistic is to prompt thinking about the issue. And that's exactly what it has done.

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Do you want to help to kill an African? It’s very easy. Just sign Christian Aid’s petition against free trade.

According to the charity’s current campaign: “Millions of farmers in poorer nations are being gradually ruined by free trade.” As evidence for this, it cites “the onion farmers of Senegal. With free trade forced on them, they’re unable to sell their produce because their local markets are flooded with onions imported from Europe.”

That statement is true, apart from one detail: it is not a description of free trade but of its opposite, protectionism.

The EU foodstuffs market is warped by the subsidies of the common agricultural policy (CAP). When EU farmers export, they sell products which would not have been grown without subsidy. The EU spends €2.7 billion a year paying farmers to grow sugar beet, for example, while it imposes high tariff barriers against sugar imports from the developing world.

The CAP generates immense surpluses that cannot be sold within the EU. Much of these are exported at low prices that undercut those charged by the developing world’s unsubsidised producers. And when they attempt to export to the EU, their access is blocked by trade barriers. The EU’s agricultural tariffs are as high as 250 per cent. Free trade is the solution, not the problem.

According to Oxfam, if Africa could increase its share of world trade by just 1 per cent, it would earn an additional £49 billion a year — enough to lift 128 million people out of extreme poverty. That will happen only if trade barriers are lifted.

There are two possible explanations for Christian Aid’s misguided campaign. One is that those behind it are so stupid that they simply do not know that free trade involves abolishing subsidies, pulling down trade barriers.

The other is that they know that full well, but have an anti-globalisation, anti-prosperity agenda that they are attempting to disguise with an apparent but misleading concern for the developing world.

A recent paper by the Centre for the New Europe calculated that one person dies every 13 seconds somewhere in the world — mainly in Africa — because of the EU’s protectionism. The Christian Aid campaign’s stated aim would make that figure even worse.

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The ASI blog has a link to the World Bank's Doing Business in 2005 report, which shows many of the regulatory and bureaucratic obstacles to prosperity:

For example, registering property requires one step in Norway, but 16 in Algeria. Incorporating a business takes two days in Canada, but 153 in Mozambique. Sacking a worker in Guatemala costs a firm three years’ worth of wages, compared with almost nothing in New Zealand… In Haiti, for example, it takes 203 days to register a company, which is 201 days longer than in Australia. In Sierra Leone it costs 1,268% of average income, compared with nothing in Denmark. To register in Ethiopia, a would-be entrepreneur must deposit the equivalent of 18 years’ average income in a bank account, which is then frozen. In Lagos, Nigeria’s commercial capital, recording a property sale involves 21 procedures and takes 274 days. Official fees amount to 27% of the value of the transaction. In Norway the task takes less than a day and costs only 2.5% of the price of the property.

I've written before about Hernando de Soto's The Mystery of Capital, one of the great books of our time. If you haven't read it, do. You won't regret it. de Soto's outlining of the importance of property rights and the problems caused by such bureaucratic problems as those outlined above is a must-read for anyone who wants to understand how third world countries can prosper.

Their lack of prosperity is not because of poor resources. Some are blessed with wonderful natural resources; others not. Both those with and those without can both thrive. Their poverty is the result of taking the decision, in effect, to remain poor. The conditions under which they can prosper are known, and available, if they - specifically, those in power - choose to avail themselves of them. The job of anyone who cares about the alleviation of human misery and the spread of wealth is to persuade them that the solution to their poverty is in their own hands.

(4)

Excellent article by John Blundell on Adam Smith, road pricing, and why the supposedly market-friendly Conservative Party are the conservative party in this respect:

All Conservatives seem to have this blind spot. How extraordinary that an old-style Leftist such as Ken Livingstone should experiment so well with London’s congestion charge while the Tories oppose road pricing at every turn. The Tories in London are opposed to road pricing "even if it works".

In 2104 people will marvel that we ever supposed traffic jams and choked streets could not be cured by the equations of supply and demand.

(7)

Eamonn Butler demolishes the non-arguments about whether choice is a good or - yes, indeed, there really are some people who think this - bad thing.

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I can barely contain my joy. Ryan of Manchester - he of the gloriously ill-informed, illogical and plain stupid economics - has posted a comment beneath Oliver Kamm's latest Times piece.

He includes this glorious paragraph:

Regarding Oliver's statement that there is no market failure here, I would say that when farmers are being paid a price that does not cover their costs of production, this can reasonably be called a market failure. Surely the market is failing coffee producers when many do not receive a living wage for the job they do.

As the great Mr Littlejohn would say, you couldn't make it up.

Enjoy.

(3)

One of my commenters has supplied a link to the Blundell piece which works: here it is.

(1)

This may be sub only, in which case I'm sorry, because it's a wonderful piece by John Blundell on Hernando de Soto, who is tonight being awarded the Milton Friedman Prize.

If you haven't read his masterwork, The Mystery of Capital, rush your fingers to Amazon and order it. It will convince you that the real reason why so much of the world remains in poverty is because of the absence of property rights.

As John Blundell puts it:

Every Third World city has its shanty towns. To the naive donor nations these are proof of poverty. Yet these places, bereft of services we regard as normal, are clearly a step up from the deeper poverty of their rural hinterlands. These shanty towns, it turns out, have subtle property rights and adjudications but of course no recourse to normal contract law. Brazilian companies will not run electricity or water or gas to such sprawls of population because the authorities will not permit them.

Mr. de Soto's analysis is subtle. Often you cannot see the Third World's intangible webs of licenses, permits, consents, tariffs, levies and extortions. He offers no excuses to the World Bank and all the other well lubricated official aid agencies. He says in every case they connive at the barriers. They make matters worse and often preserve the worst of the agencies of these failing states.

The people of the immiserated nations are just like the readers of The Wall Street Journal. They are as agile. They are as dexterous. They are as intelligent. They work the long hours. Yet their daily strivings seem to produce little. This is not because they are obtuse or stupid or misdirected. It is because they do not have the assurance and clarification of who owns what.

Place a Harvard MBA in a favela next to Sao Paulo in Brazil and he would be lost. He would be lost because he could get no credit as no property rights are permitted by the State. Try being a financial wizard without any access to finance. Try selling shoes or furniture or beans. So, the people of the Third World do not need injections of "aid" or even well-meaning Peace Corps volunteers. They need property rights.

It is a book with the power to change the world, entirely for the better.

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Whodathunkit, eh?

Smaller-than-expected tax refunds and rising individual tax receipts will pare back federal borrowing significantly for the first half of this year and could reduce the $521 billion deficit projected for the fiscal year by as much as $100 billion, Treasury and congressional budget officials said yesterday. ..."The 5.5 percent average [economic growth] pace in the latest three quarters was the largest since 1984," said Mark J. Warshawsky, assistant Treasury secretary for economic policy, in a statement to the department's borrowing advisory committee. "With the assistance of tax cuts, growth has become self-sustaining."

I'm far from in agreement with President Bush's economic policy; his reckless spending and introduction of yet more entitlements seem to me to be indefensible - nothing more than a blatant example of pork barrell politics. But the problem with his economic policy is not the tax cuts. It's the spending.

The single most important lesson from the 1980s is surely this: the Laffer curve is not only true; if it's acted on, it has knock on benefits to the economy.

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I've been meaning for ages to flag up the site of David Smith, Economics Editor of the Sunday Times and much the best economics writer in Britain.

His site is here, and is very useful as it has an archive of all his columns.