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The minimum wage is little more than a political tool that ultimately harms the overall economy by raising the unemployment rate and driving businesses elsewhere Politicians have transformed the minimum wage into an indicator of social development. Governments often cite their raising of the minimum wage as an example of their commitment to fostering social justice and equality. This is all nonsense. The minimum wage is nothing more than a useful, simple tool that politicians can exploit without addressing underlying social and economic ills in society. [1] During times of economic expansion wages are generally rising as new businesses are formed and existing firms take on more capacity and workers. During such times, raising the minimum wage has no effect other than being a useful political move. In times of economic contraction, firms close and lay off workers and unemployment rates rise. In such times, the minimum wage hampers the market from clearing, keeping more people out of work than necessary. For markets to function efficiently, wages must be allowed to fluctuate freely, equilibrating with demand for labor and reflecting the macroeconomic situation. Minimum wages tend to lock in wages at pre-recession levels making countries less competitive and less quick to recover when economic downturns occur. Furthermore, minimum wages can often make countries unattractive for businesses to invest in, as the cost of hiring workers can serve as a serious disincentive. For this reason, businesses tend to locate in countries with no minimum wage laws, such as Germany, or where they are comparably low. In order to stay competitive, to bolster economic dynamism and gain global competitiveness, countries should treat labor like the commodity it is and allow the labor market to self-correct, and not institute minimum wage laws. [1] Dorn, Minimum Wage Socialism, 2010 | |
The minimum wage restricts an individual’s fundamental right to work Individuals are autonomous beings, capable of making decisions for themselves. This includes the ability to make a value judgment about the value of one’s time and ability. If an individual wishes to sell his labor for a certain price, then he should not be restricted from doing so by the state. A minimum wage is in effect the government saying it can place an appropriate value on an individual, but an individual cannot value himself, which is an absurdity as the individual, who knows himself better than the state ever could, has a better grasp of the value of his own labor. At the most basic level, people should have their right to choice maximized, not circumscribed by arbitrary government impositions. When the state denies individuals the right to choose to work for low wages, it fails in its duty of protection, taking from individuals the right to work while giving them nothing in return other than the chimerical gift of a decent wage, should they ever be able to find a job. [1] Clearly, the minimum wage is an assault on the right to free choice. [1] Butler, Scrap the Minimum Wage, 2010 | |
Businesses are concerned with their bottom line. They will pay workers as little as possible in order to maximize profits. Certainly in some businesses employers require highly skilled workers for which they will be willing to pay competitive wages. However, the people who most require worker protection, those on minimum wage, are generally unskilled and interchangeable with a large body of potential employees. For this reason there is little impetus to pay workers at the lowest echelons of firms anything but the lowest possible wages. Even if some firms are willing to offer comparatively higher wages to entice honest and diligent non-skilled workers, the overall wage schedule will be depressed as far as is economically possible. | |
An individual can maintain little dignity when he is subjected to outright exploitation from employers who are unconcerned about their welfare and who have no incentive to pay them anything but the lowest possible wages. A minimum wage ensures that people who find employment can feel real self-worth. Furthermore, if people do indeed only feel self-fulfilled when they are employed, people will be all the more likely to accept poor working conditions and low wages for sake of their self-image. Also, young workers do have means of gaining experience, such as through unpaid internship programs. The minimum wage serves to protect workers of all ages and skill-levels, as no one deserves to be exploited. | |
There are some assumptions made in the construction of this argument. First of all, you can’t hide the risk from the economic community. There is no guarantee that when issuing Eurobonds, the interest rates will drop. This is happening for two main reasons. Firstly, according to the proposition model, the bonds will still be issued at a national level, showing investors if the money is going to Spain, Italy or Germany, France. While these should in theory have the same interest rates will investors really buy Eurobonds where the money is destined for Greece if not getting much interest? Perception still matters to the markets; will Greece and Germany really suddenly be perceived in the same way. Secondly, even if the European Union decides to borrow money as a whole, its image is not a good one. Everybody knows the major problems that the union is facing right now so it is possible that concerns about the stability of the Euro as a whole will mean Eurobonds drive interest rates up, not down. Greece was still downgraded after its first bailout from CCC to C by the Fitch Financial Service even if the money were backed up by the ECB, being backed by the whole zone did not change the local fundamentals. [1] [1] AP/AFP, ‘Greek Credit Downgraded Even With Bailout’, Voice of America, 21 February 2012, | |
Eurobonds even up interest rates within the Union Introducing Eurobonds will lower interest rates for bonds issued by national governments so making the loans affordable. The most recent example of this problem is the need of recapitalization of banks in Cyprus. Although government debt and interest rates were not the direct problem if the government had been able to borrow at low interest rates to recapitalize its own banks then it would have not needed a bailout from the rest of the Eurozone. [1] In order to avoid these kinds of solutions and put people back to work in countries like Portugal, Italy or Spain, national governments need a bigger demand for their bonds so that interest rates go down. Right now, sovereign-bonds are not affordable for the government as their interest rates are extremely high. Greece has an interest rate of 9.01%, Portugal 6.23%, and Italy and Spain near 4.30%. [2] If we choose to bundle the bonds together we will obtain a single interest rate that will lower the price of bonds and permit countries to borrow more, the price would be closer to Germany’s than Greece’s as the Eurozone as a whole is not more risky than other big economies. More than that, the markets won’t be worry anymore of the possible default of countries like Greece; as the bonds are backed up by the ECB and indirectly by other countries in the union, the debtors will know that their loans will be repaid because in the last resort more financially solvent countries take on the burden. When the risk of default is eliminated, the demand for government bonds will rise and the interest rates will go down. It is estimated that Italy could save up to 4% of its GDP [3] and Portugal would see annual repayments fall by 15bn euros, or 8% of its GDP. [4] [1] Soros, George, ‘How to save the European Union’, theguardian.com, 9 April 2013, [2] Bloomberg, ‘Rates & Bonds’, accessed 15 October 2013, [3] Soros, George, ‘How to save the European Union’, theguardian.com, 9 April 2013, [4] Soros, George, ‘How to save the European Union’, theguardian.com, 9 April 2013, | |
The problem with long-term regulations is not that they do not exist but rather the fact that they are not imposed. There is no need for further control and regulation when the European Union already has a mechanism that will prevent economic crisis if it is stuck to. The Maastricht Treaty clearly states that countries in the European Union shall not have a government deficit that exceeds 3% of the GDP and the government debt was limited to be no larger than 60% of the GDP. [1] These measures should be enough to prevent any country in the union to collapse. The major problem was that the Maastricht Treaty was not respected by the member states and little or no sanctions were imposed to ensure compliance. Even comparatively stable countries have deficits above 3%, France had a deficit of 4.8% in last year. [2] The simple solution would be keeping the regulation of the already existing treaty and sanction countries that exceed their deficits and not impose new rules. [1] Euro economics, ‘Maastricht Treaty’, [2] The World Factbook, ‘Budget surplus (+) or Deficit (-)’, cia.gov, 2013, | |
Eurobonds help European integration One of the most important European Union principles is solidarity and mutual respect among European citizens [1] and this can only be achieved by more integration and stronger connections between states. The economic crisis has clearly shown that more integration is necessary if Europe is to prevent suffering and economic hardship. From the economic perspective, unemployment rates reached disastrous levels in 2012 with Greece at 24,3% and Spain 25%. [2] There is a lack of leadership and connection between countries in the European Union that is not allowing them to help one-another and solve the economic crisis. From the political point of view the result of this is that extremist parties are on the rise with the best example of Golden Dawn in Greece. [3] While in 1996 and 2009 the party didn’t win any seats in the Greek Parliament, after the crisis hit in June 2012 they won 18 seats. [4] In time of distress, the logical solution is not that every country should fight for itself but rather the willingness to invest and integrate more in the union to provide a solution for all. Eurobonds provides the integration that will help prevent these problems, it will both halt the current crisis of government debts because governments will have lower interest repayments and not have the threat of default, and it will show solidarity between members. This in turn will help any future integration as showing that Europe cares for those in difficulty will make everyone more willing to invest in the project. [1] Europa, ‘The founding principles of the Union’, Europa.eu, [2] Eurostat, ‘Unemployment rate, 2001-2012 (%)’, European Commission, 27 June 2013, [3] ‘Golden Dawn party’, The Guardian, [4] Henley, Jon, and Davies, Lizzy, ‘Greece’s far-right Golden Dawn party maintains share of vote’, theguardian.com, 18 June 2012 | |
Integration cannot happen on the hoof. The euro crisis and the political and social distress in the European Union have created negative sentiments when talking about the Union. The European citizens do not want these kinds of measures and there is a general sentiment of euro skepticism. Countries like Germany are no longer interested in paying for Greek mistakes and Angela Merkel is strongly opposing the idea of Eurobonds, saying that Germany might leave the union. [1] Clearly this is not the time to be forcing through more integration against the will of the people. More than that extremist parties are on the rise. An anti-Muslim, anti-immigration and anti-integration party, France’s National Front has come out top in a poll of how French people will vote European Union Parliament elections. [2] In contrary to the false connection between poor economy and extremism, it comes in hand the fact that the National Front reached the runoff in the 2002 French presidential elections. [3] In conclusion, people are not willing to invest more in the union but rather wanted to take a step back from integration even before the crisis. [1] Cgh, ‘The Coming EU Summit Clash: Merkel Vows ‘No Euro Bonds as Long as I Live’, Spiegel Online, 27 June 2012, [2] Mahony, Honor, ‘France’s National Front tops EU election survey’, euobserver.com, 9 October 2013, [3] Oakley, Robin, and Bitterman, Jim, ‘Le Pen upset causes major shock’, CNN World, 21 April 2002, | |
The long term benefits of Eurobonds The European Union should not only focus on the present but also try to find a permanent solution in resolving and preventing economic crisis. The solution that is implemented right now through the European Stability Mechanism is a temporary one and has no power in preventing further crisis. First of all, the failure of the European Union to agree on banks bailout is a good example. [1] As economic affairs commissioner Olli Rehn admitted the bailout negotiations have been "a long and difficult process" [2] because of the many institutions and ministers that have a say in making the decision. More than that, it sometimes takes weeks and even months until Germany and other leaders in the union can convince national parliaments to give money in order for us to be able to help those in need. Issuing bonds as a union of countries will provide more control to the ECB that will be able to approve or deny a loan – one option would be that after a certain limit countries would have to borrow on their own. [3] This will prevent countries from borrowing and spending irrationally like Greece, Portugal, Spain and Italy did in the past. The unsustainable economic approach can be easily seen in the fact that public sector wages in Greece rose 50% between 1999 and 2007 - far faster than in most other Eurozone countries. [4] Clearly Greece could make the choice to go separately to the market to fund this kind of spending but it would be unlikely to do so. [1] Spiegel, Peter, ‘EU fails to agree on bank bailout rules’, The Financial Times, 22 June 2013, [2] Fox, Benjamin, ‘Ministers finalise €10 billion Cyprus bailout’, euobserver.com, 13 April 2013, [3] Plumer, Brad, ‘Can “Eurobonds” fix Europe?’, The Washington Post, 29 May 2012, [4] BBC News, ‘Eurozone crisis explained’, 27 November 2012, | |
There is a common responsibility in the European Union for helping countries that are hit harder by economic crises than the others. If Eurobonds create winners and losers, the same thing can be said about the economic crisis. Germany was one of the winners and therefore has the duty to help the others. The Eurozone crisis has created a bigger demand for German bonds and lowered the interest rate they have to pay. Germany has such low interest rates because Spain, Italy and Greece are incapable of sustaining their debt, it is therefore a safe haven for people who want to buy government bonds. It is estimated that Germany gained 41 billion euros [1] in ‘profit’ from these lower interest rates as a result of the crisis and therefore has the ability and the moral duty to help countries that are worse-off. More than that, every prudent creditor has a profligate debtor. French and German banks could risk loosing a few hundred millions each if Greece defaults, the creditor accepted the risk when they lent the money. [2] We should remember that the core of the economic success of countries such as Germany has been the Euro helping to increase exports; these exports were what Greeks were buying with the credit they were getting from foreign banks. [1] SPIEGEL/cro, ‘Profiteering: Crisis Has Saved Germany 40 Billion Euros’, Spiegel Online, 19 August 2013, [2] Slater, Steve, and Laurent, Lionel, ‘Analysis: Greek debt shadow looms over European banks’, Reuters, 20 April 2011, | |
Sometimes, a leap of faith is what needs to be taken in order to fix such big problems. First of all the willingness of the union to do more in helping countries that having difficulties will improve its image both in these countries and abroad because it will show the EU sticking to its core principles. Even if we agree that Eurobonds might be a risky idea, something needs to be done to fix the economy. We have clearly seen how bailouts do not work and are not providing a permanent solution. The Eurozone is likely to decide on a third bailout for Greece in November 2013 and little proof that this will make the situation better for the Greeks. [1] Furthermore, the temporary solution of bailouts is taken without the consent of the electorate so the problem of a democratic deficit exists in both cases. Acting now to end the crisis will mean a possible end to such sticking plasters being applied without democratic consent. The EU will then be able to concentrate on demonstrating the advantages of the solution it has taken. [1] Strupczwski, Jan, ‘Decision on third Greek bailout set for November: officials’, Reuters, 5 September 2013, | |
Eurobonds create moral hazard The policy proposed will shift responsibility for bad economic decisions and create moral hazard due to the lack of accountability. If the European Union decides to introduce bonds with the same interest rate for all countries, everyone in the union will have to suffer for the mistakes made by Ireland, Greece, Spain, Italy or Portugal (or any other state that may make them in the future). The burden will be shifted to the whole union in the form of higher interest rates for the prudent and countries that made mistakes in the past will pay no price for their economic instability and poor decision-making. This situation will happen if the Eurobonds indeed function as they are planned to and the interest rates will be kept low by comparison to the current rates for Greece, Italy etc. More than that, this situation will lead to what economist call the moral hazard. Moral hazard appears where a person, institution or national government in this case is not made responsible for past actions and so does not change their ways in response; insulating someone from the consequences of their actions takes the learning out of their actions. If countries in distress are not made responsible for their irrational spending made in the past (not just governments but also having trade deficits, banks too willing to lend etc.), there is no reason why these countries should alter their approach to the economy. Accountability to the market is what will resolve the economic crisis and prevent another. This can only be done without Eurobonds. | |
Eurobonds would create problems for Germany The situation that is implemented in the Status Quo, with the Economic Stability Mechanism trying to save countries in collapse will no longer be an option after introducing Eurobonds. Previous arguments have explained how interest rates will not be lowered enough to make countries stable again but another problem is that they will inhibit any chance of a plan B. First of all, Germany has low interest rates for its government bonds and had it this way in the last few years through the crisis. [1] This is allows them to take loans cheaply helping to sustain their manufacturing industry and government spending, and allowing Germany to finance bailouts. If Germany's borrowing costs rose to the Eurozone average, it could cost Berlin an extra €50bn a year in repayments – almost 2% of its GDP. [2] This will clearly impact on Berlin’s ability and willingness to contribute to the European Stability Mechanism with the knock on effect that if despite Eurobonds another bailout is needed it may not be possible to raise the funds to actually carry out that bailout. Secondly, the Eurobonds create obvious winners and losers; Germany and other prudent nations such as Austria and Finland, as well as the slightly more profligate France will have to suffer the consequences of the economic crisis caused by other countries in the union; Greece, Ireland, Spain and Portugal. With higher interest rates they will need to engage in their own austerity campaigns to compensate which will affect economic growth and create discontent. Why should we punish Germany for the wrongdoing of other states? [1] Bloomberg, ‘Rates & Bonds’, accessed 15 October 2013, [2] Inman, Philip, ‘Eurobonds: an essential guide’, theguardian.com, 24 May 2012, | |
Eurobonds create a long term burden Introducing Eurobonds will increase the burden for the European Union as a whole and change the responsibility in the long-term. Right now, countries are willing to help one-another and the best example is the European Stability Mechanism, a program designed to help countries in distress with major economic potential. [1] This is happening because the European Union is not fully responsible for the mistakes of the countries in the Eurozone. Of course, Eurobonds is just taking a step further but it also promotes a bigger burden for the union. Such a long term burden should not be decided and imposed in a time of crisis. If we let the European Union and the ECB decide to back national loans and approve Eurobonds it will effectively be imposed upon the people. The idea is not popular with many national electorates and such a decision will have to be taken without their consent. Germany is the clearest example, in a ZDF television poll, 79% said that they are opposing the idea of Eurobonds. [2] The real problem is that this is a one way street, it would be very difficult to reverse course as interest rates would immediately shoot up again thus immediately recreating the crisis if there were such an attempt. Any attempt at imposition without a clear democratic mandate throughout the union could seriously damage the EU by creating a popular backlash. [1] European Stability Mechanism, ‘About the ESM’, esm.europa.eu, [2] AP, ‘Poll: Germans strongly against eurobonds’, Bloomberg Businessweek, 25 November 2011, | |
Moral hazard is not going to happen in the European Union because alongside the benefits of the Eurobonds comes the control from the European Central Bank or other measures imposed by the rest of the members. This is already happening in the status quo, where countries are forced to impose austerity measures in order to receive bailout founds. [1] Under the model proposed where the ECB can control the lending ability of any country in the union, by allowing the loan or denying it at a certain limit. Countries will most certainly be held accountable if they fail to pay back their loans by not giving them access to further bond issuing. Eurobonds are not a tap governments can use for spending recklessly. [1] Garofalo, Pat, ‘Greek Austerity, the Sequel’, U.S.News, 9 July 2013, | |
The Brexit can’t have it both ways that it will both deregulate promoting the free market and enable an industrial policy that allows subsidies. In practice unshackling the economy means damaging workers’ rights that are protected by EU legislation of which the Working Time Directive is just the best known. Leaving would also damage just those sectors the Brexit side says it will help; finance needs access to Europe, as do many other creative industries. | |
We need to unshackle the economy The UK needs to unshackle the economy from the restrictions the EU places upon it. EU bureaucracy and red tape holds back Britain’s service industries. Regulations on employment rights, hiring, and firing restrict the supply of workers pushing up costs to businesses. To take one example Britain is facing a curry crisis; curry houses are closing due to an inability to secure skilled chefs from the Indian subcontinent. [1] Being able to set the UK’s own migration system would enable the UK to hire people with the skills we need. [1] Robinson, Nick, ‘Who will cook your Indian curry?’, BBC News, 26 May 2016, | |
Most of the claimed £350 million per week either is accounted for by the British rebate, £4.8billion in 2015 [1] – which never actually leaves the UK – or is money the EU spends in the UK. The £120 million remainder is however buys access to the EU’s market. Norway pays €340 million per year – about £63 million per week if it had a comparable population to the UK – to get access to the EU market but does not have any chance to influence that market. [2] [1] 94.4million per week, HM Treasury, ‘European Union Finances 2015: statement on the 2015 EU Budget and measures to counter fraud and financial mismanagement’, gov.uk, December 2015, [2] Solberg, Erna, ‘The ‘Norwegian model’ would be a poor alternative to EU membership for the UK’, LSE, 19th April 2013, | |
Leaving would take back power to control the economy Voting to leave would take back the power over the British economy that the European Union currently has and give it back to the sovereign British Parliament. EU common fisheries and agriculture (CAP) policies control how many fish we can catch and what is commercially farmable. If the UK were to leave the British government would be once more able to shape an industrial policy; for example under EU rules it did not have the power to save Port Talbot as it is not allowed to provide subsidies to support the failing plant. [1] [1] Rankin, Jennifer, ‘EU sets tone as it cracks down on subsidies for struggling steelworks’, theguardian.com, 20 January 2016, | |
British government policy has been against state intervention in industry for decades. Rather since the Thatcher government the free market has been considered to know best and so companies or factories that make a loss should be allowed to go bust. | |
The UK is already insulated from the Euro crisis by not being a member of the Eurozone. With the pound sterling the UK is no more exposed in the EU than it would be outside of the EU. Finance is globally interconnected. Leaving the EU will make no difference to this. The UK has already negotiated, in 2015, a deal which ensures that the UK will not be liable for any bailouts in the Eurozone. [1] However Britain could cause such a Eurozone crisis, by leaving as the UK leaving would have an impact on the EU economies just as it would on the UK’s own. [1] BBC News, ‘UK ‘strikes deal’ over Greek bailout’, 16 July 2015, | |
There will be £350 million more to spend a week Through leaving the EU Britain will no longer send £350million per week to Europe so can spend it at home. [1] Of course much of this sum comes back to the UK but the UK will gain greater control over how and where the money is spent. Thus for example some money comes back in the form of CAP. We would however be able to decide how this money is used on farming rather than being dictated to by the EU or take the money out of farming all together. Even taking in to account money that comes back to the UK, and the rebate, the UK still sends £120million per week to Europe. [2] Money which would be freed up to spend on helping the NHS or building more affordable houses upon leaving. [1] ‘A vote to remain is the riskier option’, Vote Leave, [2] Ashworth-Hayes, Sam, ‘UK doesn’t sent EU £350m a week or £55m a day’, infacts.org, 25 February 2016, | |
A step away from a failing Eurozone The Euro is failing as has been demonstrated by the years’ long slow motion crisis involving Greece and other peripheral countries Ireland, Spain, and Portugal. The chancellor George Osborne has in the past said that a Eurozone recession is the biggest economic risk to the UK. [1] This is still true. The UK will be safer taking a step away from integration with Europe by leaving the EU. [1] Chan, Szu Ping, ‘Eurozone recession is biggest risk to UK, says George Osborne’, The Telegraph, 10 October 2014, | |
While it is almost certain that there will be a brief short term shock caused by uncertainty no one knows for sure what will happen in the long term. A Britain that is out of Europe will be better able to run its economy to encourage growth so will likely do better than it does under the status quo. | |
Britain can have free trade without all the baggage of political decisions being made in Brussels. Just as the EU accounts for a high portion of UK trade so the UK is a high proportion of EU trade; around 16% of EU exports go to the UK, [1] so the EU would want to have a deal with the UK to allow this trade to continue. [1] Portes, J., ‘After Brexit: how important would UK trade be to the EU?’, National Institute of Economic and Social Research, 2 November 2015, | |
Britain is needed to create a more business friendly Europe The UK is a leader among the countries in the EU that is in favour of greater deregulation, privatisation, and free trade. As such the UK has been a strong positive influence on the EU in favour of these things. In the same way the UK played a strong role in encouraging the EU’s expansion to create a bigger market. The UK needs to remain in the EU to ensure the organisation flourishes. Prime Minister Cameron’s deal with Europe prior to the referendum for example included a promise by the EU to engage in “lowering administrative burdens and compliance costs on economic operators, especially small and medium enterprises, and repealing unnecessary legislation” something that benefits not just the UK but the EU as a whole. [1] [1] Reuters, ‘Full text of EU's special status deal for Britain’, 19 February 2016, | |
Leaving may increase British unemployment Alongside this likely shock to the economy will most likely be a loss in jobs as a result in a loss in trade. Some big employers, such as many car makers, are located in the UK in large part as a result of the access to the EU market. It is estimated that three million UK jobs are linked to trade with the EU. [1] Estimates of the number of jobs lost vary considerably; the CBI has suggested 950,000 [2] while the Treasury thinks 500,000. [3] The number may turn out to be less but clearly a large number of livelihoods will be damaged. [1] Ashworth-Hayes, Sam, ‘Will 3 million jobs be lost if we quit EU?’, infacts.org, 15 March 2016, [2] Kollewe, Julia, ‘ Brexit could cost £100bn and nearly 1m jobs, CBI warns’, theguardian.com, 21 March 2016, [3] HM Treasury, ‘Britain to enter recession with 500,000 UK jobs lost if it left EU, new Treasury analysis shows’, gov.uk, 23 May 2016, | |
Leaving will cause a shock to the British economy The UK leaving the EU would likely be damaging not just to the British economy but globally with the G7 saying it would be “a further serious risk to growth.” [1] The damage to the UK economy would come for several reasons. First there would be uncertainty about what comes next; no one is quite sure what kind of deal the UK will get with the EU, or what will happen to EU migrants in the UK. Additionally businesses that trade with the EU will have uncertainty over that trading relationship and the UK will be a less favourable investment prospect because it is no longer a bridge to 500milion EU consumers. The treasury has estimated that GDP will be lower by 6.2% by 2030 as a result so many people will be considerably worse off. [2] [1] Asthana, Anushka, ‘Brexit would pose ‘serious risk’ to global growth, say G7 leaders’, theguardian.co.uk, 27 May 2015, [2] HM Treasury, ‘HM Treasury analysis shows leaving EU would cost British households £4,300 per year’, gov.uk, 18 April 2016, | |
Economic growth comes with closer integration with your neighbours Economic integration with neighbours is the best way to economic growth. Neighbouring countries are almost always the countries a nation trades most with; in the UK’s case the EU accounts for 44.6% of exports and 53.2% of imports. [1] It is therefore in the UK’s interest to increase integration to encourage this trade. Throughout the world the trend is towards regional integration rather than away from it with regional organisations from Mercosur in South America to ASEAN in South East Asia encouraging integration. [1] Office for National Statistics, ‘How important is the European Union to UK trade and investment?’, 26 June 2015, | |
There is considerable churn in the jobs market already; with 3.7 million jobs lost a year already but simply being replaced by new jobs. [1] Leaving the EU would therefore make little difference. [1] Bourne, Ryan, ‘The EU Jobs Myth’, Institute of Economic Affairs, March 2015, p.9. | |
There is no guarantee that the EU will actually implement anything in the agreement with David Cameron. The wording is clear enough but with no specifics about how or when the administrative burden will be lowered. Yes the UK may be fighting to create a more business friendly Europe but more important however is the way that the EU increases the regulatory burden on the UK. This regulatory burden can be much easier done away with by leaving the EU than by negotiating reductions with the rest of the Union. | |
Education is a crossover point; migrating for education may be about a sense of belonging but it is also an opportunity. A conservative culture that does not educate young women is not providing them with an opportunity that is available elsewhere. | |
Intellectual women migrants outnumber intellectual men migrants The need of belonging is greater for women than for men – Bardo and Bardo found that they miss home much more (5). On the other hand, unequal and discriminatory norms can be strong drivers of intellectual female migration (1). More young women than men now migrate for education and, in several European countries today, highly skilled migrant women outnumber highly skilled migrant men (1). Between 2000 and 2011, the number of tertiary-educated migrant women in OECD countries rose by 80%, which exceeded the 60% increase in the number of tertiary-educated migrant men. In Africa for example, the average emigration rates of tertiary-educated women are considerably higher than those of tertiary-educated men (27.7% for women and 17.1% for men). | |
Intellectual migrants do not necessarily discard a traditional value to replace it with a corresponding western value. For example, they seldom renounce their religion in favor of a western one (3). A weaker sense of nationalism does not have to mean greater internationalism. Instead there may be greater ties to traditional culture, to a region or village. There may be fewer ties to nation, but throughout much of the developing world religion has a far greater adherence than in the west. Thus with a couple of exceptions (Communist states such as China and North Korea) it is more developed countries that are mostly non religious.(12) | |
The inferiority complex within older generations in the developing countries affects intellectuals’ sense of belonging while in their countries An inferiority complex still exists among the older generations in the developing countries as regards the western technical know-how and organisation. A persisting attitude to place more confidence in the experts and specialists belonging to the developed countries than the educated nationals of the country (3) could foster a feeling of underestimation amongst intellectuals while in their countries, and becomes an additional driver of the continuous intellectual migration. | |
Some intellectual migrants already feel a certain degree of alienation towards their national culture before leaving their country Intellectuals need stimulation, organisation, freedom, and recognition (3) that they usually struggle to find in their countries of origin. Some intellectuals from developing countries already feel a certain degree of alienation towards their national culture before leaving their own country (3). This may be a result of government policy; a lack of intellectual freedom, or because of a generally conservative culture. Thus, they experience a strong lack of intellectual belonging despite the arising economic opportunities resulting from their countries’ investments. Family ties also play a strong role in aggravating or mitigating alienation. This is why it is the young, who don’t have dependents themselves, who are often the likeliest to migrate. | |
If there is really no freedom then these migrants will be asylum seekers and refugees not true intellectual migrants by choice. Even if there is some alienation from their own native culture these migrants are still travelling to a much more alien culture. This being the case it seems unlikely that alienation is the main cause. Rather they are travelling to a culture that is more alien because they believe there are better opportunities there. | |
It seems hardly likely that feeling undervalued for their skills is a main reason for moving. When moving abroad many will instead encounter racism and concern about increasing numbers of migrants which would at least balance against being undervalued at home. They go instead because the ‘value’ of their skills is monetary – therefore about opportunities – not in terms of reputation and confidence or belonging. | |
If these young intellectuals really are politically conscious then they should desire to stay in their native country and change its system of government. It is the intellectuals who are needed to create, and then grow a democracy so that it represents the whole spectrum of opinion within the country and respects intellectual freedoms. | |
Intellectual migrants are more impregnated by ideas of internationalism and universalism The concept of nationalism as developed in Europe during the 19th century did not undergo the same evolution in the developing countries. Intellectuals do not identify themselves with their countries the way Europeans do. They are more impregnated by ideas of internationalism and universalism than the western nationalist – for example Mohsin Hamid argues our views of liberal values should be extended beyond nation states with their often unnatural borders. Thus, if they stay abroad after having adhered to the western way of life, they consider themselves part of the great human lot, value free movement as a basic human right, and do not necessarily suffer from complexes of disloyalty towards their home country (3). | |
Most young intellectuals from developing countries are politically conscious and want to be "actors" in policy making Young intellectuals from developing countries are to a very large extent politically conscious and active. They want to be "actors" and not "spectators" in policy making, all the more so when their specialism is impacted by government policy. Those who grow up in an autocratic, or not very democratic state are likely to want to go where they can use their voice. Even in many democracies intellectuals often largely liberal views both for government and teaching are not readily approved by the conservative regimes of their countries where usually the older generation is in power and constitutes a barrier against their progress. | |
Making a start in encouraging entrepreneurship and gender identity is not likely to be enough to make a county attractive when compared against countries that are much further down the path. According to the Global Gender Gap Report 2016 Tunisia is still in the bottom quartile of the rankings on gender equality.(15) | |
Most job vacancies in African countries ask for a university degree even if a degree is ultimately not the most important attribute for the job. (13) So the opportunities are there for those who would be considered to be intellectuals, it is everyone else for whom opportunities in their native land are lacking. | |
Many migrants come from countries with strong sense of belonging Many migrants come from countries with strong sense of belonging, national identities, and political consciousness. For instance, they are European migrants, and in 2016, they were 19.3 million residing in a different EU Member State from the one where they were born (7). With migration an issue even from countries with strong national identities it is clear that that identity is not the major driver of movement. | |
Many developing countries support entrepreneurship and gender equality In many developing countries, entrepreneurship is supported to create jobs and dynamic work conditions, and women are empowered and politically represented reducing any concerns of feeling as if they don’t belong. For example in Tunisia, many initiatives are being introduced to promote the entrepreneurship ecosystem including angel investing and attempts to reduce administrative barriers (9). Moreover, regarding gender equality, Tunisia’s Parliament has approved an amendment ensuring that women have greater representation in local politics. This amendment includes a proposal for gender parity in electoral law. (10) | |
Developing countries have high unemployment rates and need to invest in job creation Developing countries invest in education and job creation because they have high unemployment rates (6). They need to address the lack of opportunities in order to improve their economy and reduce migration. This is as much the case for those at graduate level as for those who have less of an education. Africa’s 668 universities produce almost 10 million graduates a year, but only half find work.(14) It should therefore be no surprise that many migrate overseas for opportunities. | |
A strong national identity does not necessarily result in a strong sense of belonging. That national identity may have precluded other senses of belonging such as religion, or even close community ties and interactions. | |
Hosting can have a significant cost – the 1976 Montreal games left the city vastly in debt which it did not finish paying off until 2006 [1] . Venues may be under-used after the events, with the 2004 Athens games seeing a large number of venues as unused “white elephants” after the event [2] . [1] Davenport, 2004 [2] Smith, Helena, ‘Athens 2004 Olympics: what happened after the athletes went home’, The Guardian, 9 May 2012, | |
Economic benefits While hosting a major sporting event is relatively expensive (although Cape Town and Johannesburg already have a number of appropriate venues for some of the events already), hosting major sporting events creates major economic benefits. London got a £10bn economic boost from hosting the 2012 Olympics [1] . This may be higher – many of these benefits are difficult to calculate; how much of a tourism boost is a result of a successful games? Barcelona however just like London had a large boost of tourism following the 1992 Barcelona Games [2] . It raises awareness of the city, and the country, and what it offers as a tourist destination. [1] Flanders, Stephanie, ‘London 2012 Olympics ‘have boosted UK economy by £9.9bn’’, BBC News, 19 July 2013, [2] Davenport, Coral, ‘A post-Olympic hurdle for Greece: the whopping bill’, CSMonitor, 1 September 2004, | |
The Athens games did not create such a buzz. Many seats were empty in the games. This was in part a result of the poor performance of the host nation as Greece underperformed for an Olympic host nation, not entering the top ten of the medals table (in a games when South Africa only won one gold medal, that of their men’s 4x100m freestyle relay swimming team). Clearly this is a risk any host nation would take; the feel good factor comes from the national team doing well, not simply hosting the games. | |
Showcase for a nation and continent A key reason why countries host the Olympic games is in order to boost their image abroad – China held the 2008 Games in Beijing as part of an exercise in national promotion [1] . This would also be an opportunity to change the perceptions of Africa amongst some elements in the outside world, from an inaccurate picture of a “third world” continent with no features other than poverty and violence to a more accurate depiction of a continent which, while having challenges, is having economic growth and advancing human development. South Africa is the best nation to showcase the development of Africa; it is Africa’s biggest economy and one of its most developed. [1] Rabkin, April, ‘Olympic Games all about China, Chinese’, SFGate, 1 August 2008, | |
South Africa has held events before, such as the World Cup – did that change perceptions of Africa? A well run games can change perceptions among those who visit but it can also damage perceptions. The South African world cup also involved slum clearance as part of a campaign of “beatification”, such actions hardly showcase a nation at its best. [1] Due to its unique history, an event in South Africa may not have a halo effect for the entire continent. A games in one city will not affect other countries, or people’s perceptions of other African countries. [1] McDougall, Dan, ‘Slum clearance, South Africa-style’, The Sunday Times, 25 April 2010, | |
National “feel-good factor” Hosting very large sporting events is a great way to advertise a nation, and create a national feel-good factor. When London hosted the games in 2012, a successful event with a successful home team, there was a significant national “feel good factor” [1] . This can bring the benefit of bringing a nation together; particularly important for multi-ethnic countries such as South Africa, it will bring all ethnicities together in a shared experience helping to justify the label of ‘rainbow nation’. As Sports Minister Fikile Mbalula argues “Sport is said to be a national religion in South Africa. In recent years it transcends race, class, language and geographical location.” [2] [1] Hart, Simon, ‘Feelgood factor at London’s Anniversary Games next weekend as a new start for drug-tainted athletics’, The Telegraph, 20 July 2013, [2] Mabalula, Fikile, ‘South Africa: Remarks By the Minister of Sport and Recreation, Honourable Mr Fikile Mbalula At the National Press Club Briefing On the 2013 Afcon At the Csir International Convention Centre’, AllAfrica, 16 January 2013, | |
Football is also Brazil’s national sport, and Brazil was similarly placed (22nd) in the medal table in 2012. The Olympics need not be hosted just by the countries that are most competitive in the games. | |
Some Olympic events are held outside the main city. The football tournament uses venues across other cities (in the London 2012 games, Coventry, Cardiff and Manchester were amongst the cities hosting matches), and, being landlocked, Johannesburg would have to host the sailing at another venue. Sailing being held in another city is not unusual, in 2012 the sailing was held in Weymouth and in 2008 in Qingdao. Training camps are typically held across the whole nation, too. The national morale boost typically permeates far wider than just the host city, including the impact in favour of a more sporting culture in the country. | |
Cost of hosting The Olympic games is an expensive thing to host. The 2012 games in London cost nearly £9bn [1] . This cost largely falls on the taxpayer. These large events are notoriously difficult to budget accurately, the 2014 Sochi Winter Olympics having gone vastly over budget with suggestions that it could cost up to $50 billion [2] . It is too expensive to host for rich countries as it is – South Africa has a large problem with wealth inequality as it is, and is below the world average GDP per capita [3] . Although it is unlikely to reach such expense the $50 billion for the Sochi Olympics is twice the yearly South African health budget of ZAR 232.5bn. [4] South Africa would be better served using the money to combat HIV and poverty. [1] Gibson, Owen, ‘London 2012 Olympics will cost a total of £8.921bn, says minister’, The Guardian, 23 October 2012, [2] Kollmeyer, Barbara, ‘Russia’s in-perspective price tag for four-times-overbudget Sochi Olympics: 18 Oprahs’, Marketwatch, 27 November 2013, [3] The World Bank, ‘GDP per capital, PPP (current international $)’, date.worldbank.org, accessed 24 January 2014, [4] ‘Budget 2013’, PWC, 27 February 2013, | |
The Olympics are not South Africa’s ‘national sport’ South Africa in part hosted the World Cup because football is the national sport of the country. Sports Minister Fikile Mabalula has declared “In African popularity, the Africa Cup of Nations (AFCON) surpasses even that of a multi-sports event like the All Africa Games.” [1] While there is football in the Olympics other sports that South Africans support such as Rugby are not represented. In the 2012 Olympics South Africa was well down the medal table at 23rd. [2] While it makes sense to make a big investment for intangible benefits for a sport the country loves it makes less sense for the Olympics. [1] Mabalula, 2013, [2] ‘Medal Table’, BBC Sport, 13 August 2012, | |
Hosting only affects one city and one country Unlike a World Cup, which spreads the benefits more evenly, an Olympic games is focused on one city, generally one which is a major international city. It was expected prior to the games that 90% of economic benefits to the UK of the 2012 games would go to London [1] . It is dubious that there would be such big benefits for the continent. South Africa is seen by some in the outside world as somewhat aloof from the rest of Africa due to its particular history, its history of apartheid being rather different from the normal course of African decolonisation. It is doubtful that the 2010 World Cup boosted perceptions of the entire continent. [1] Grobel, William, ‘What are the London 2012 Olympics worth?’, Brand Valuation News, April 2010, | |
Everything costs money. While the costs are significant, the money spent will regenerate parts of cities, create an image of the host country as a place for business, and create a long lasting legacy through the venues and infrastructure built. While South Africa is not rich as the UK, Greece or Australia, its GDP per capita is around that of Brazil, which is hosting the 2016 Games. | |
The number of people defrauding the system is very small (only 0.007% of the total cost of the benefit system). The majority of people on benefits are seeking work. They will be hindered in so doing, because instead of applying for work, attending interviews and developing relevant skills they will be forced to attend their workfare scheme. Thus, people will remain on benefits for longer, costing the government more in the long term. | |
Workfare will eliminate scroungers, who are a financial drain on the system Making the unemployed work for their welfare benefits calls the bluff of those claiming benefit but not really looking for jobs. Such scroungers include the incurably lazy, those who are defrauding the taxpayer by claiming welfare while holding down a paying job, and those who are working in the black economy. Furthermore, workfare schemes require applicants also search for work whilst completing the scheme1. Moving from a traditional something-for-nothing welfare scheme to a workfare system stops all these individuals from being a burden on the state, cutting welfare rolls very rapidly and allowing the government to concentrate upon assisting the truly needy. 1: Kaus, M. (2000, April 16). Now She's Done It. Retrieved July 19, 2011, from Slate | |
Workfares have low standards that produce poor and potentially unsafe products. Individuals forced into workfare schemes lack incentives to work to a high standard, and may be actively disaffected. The work they do is therefore unlikely to benefit anyone much and raises a number of safety issues: would you drive across a bridge built by workfare labour? Would you trust your aged parent or pre-school child to a workfare carer? Would you trust them with any job that required the handling of money? Given these constraints, it is clear that the government may be unable to find enough worthwhile things for their forced labourers to do. | |
Workfare provides skills to allow the unemployed to work their way out of poverty Workfares offer the unemployed opportunities to develop skills to work their way out of poverty. Productive work raises the expectations of those involved by increasing their self-respect and provides them with more confidence in their abilities. It also develops skills associated with work, such as time keeping, taking and giving instructions, working in a team, accepting responsibility and prioritising. Such skills may seem mundane but they are very valuable to employers and their absence among the long-term unemployed is a key reason why they find it so hard to gain jobs. Individuals who are currently working are also more attractive to potential employers than those who are unemployed, especially the long-term unemployed. The evidence suggests Workfare is a success; studies of Workfare in Maryland found that 75 per cent of those who left welfare had earnings within 2.5 years1 .1: Kaus, M. (2000, April 16). Now She's Done It. Retrieved July 19, 2011, from Slate | |
Workfare schemes are of little use if there are no jobs out there for people to do– something which is an issue of wider economic management. Often the skills which employers are really demanding are literacy, numeracy and familiarity with modern information technology, which menial make-work tasks are unlikely to provide the unemployed with. Far better to invest in proper education and training schemes instead. Even if such skills might be developed through workfare schemes, will forcing people into such work really mean they get the benefits? Most of the long-term unemployed are older, made redundant from declining industries; they do not lack skills but suffer instead from ageist prejudices among employers. Finally, if the ‘workfare’ jobs that unemployed people are being forced into are real jobs that need doing, then they should simply be employed to do them in the normal way (either by the state or by private companies) | |
Workfare does not break the dependency culture. People do not seek unemployment and dependency on the state. No one voluntarily seeks to live on the very low income provided by state benefits, instead people become unemployed through no fault of their own; workfare stigmatises them as lazy and needing to be forced into work by state coercion. The schemes ignore the talents and ambitions of those involved, typically using them for menial tasks and manual labour that teach them no useful skills | |
Workfare schemes benefit society Society also benefits from the work done by those on workfare schemes: These might include environmental improvement in local communities, service to assist the elderly and disabled, and work for charities or local authorities. In many cases the labour they provide would not have been available in any other way, so the addition they make to everyone's quality of life is a welcome bonus to the scheme. Furthermore, a 2011 study in Denmark found a 'strong and significant crime reducing effect of the workfare policy.'1 1: Fallesen, P., Geerdsen, L., Imai, S., & Tranaes, T. (2011, March 1). The Effect of Workfare Policy on Crime. Retrieved July 19, 2011 | |
Workfare breaks the dependency culture Making the unemployed work for their welfare money positively breaks the dependency culture. Receiving unemployment benefit for doing nothing makes individuals too reliant on the state and encourages apathy and laziness; this is particularly true of the long-term unemployed and of those who have never had a paying job since leaving school. As President Clinton said regarding welfare reform, 'the goal is to break the culture of poverty and dependence'. Tying welfare money to productive work challenges these something-for-nothing assumptions and shows that the state has a right to ask for something in return for the generosity of its taxpayers. In New York, workfare pays slightly less than the minimum wage, preserving the incentive for the unemployed to use workfare as a stepping stone into a better-paid, long-term job1. 1: Kaus, M. (2000, April 16). Now She's Done It. Retrieved July 19, 2011, from Slate | |
Workfare projects can be designed so as not to displace low-paid jobs: Often workfare schemes are limited to non-profit organisations deliberately in order to avoid a negative impact upon the local job market. In any case, many workers on very low pay only do such work for a relatively short time before finding better jobs elsewhere, so this is not a rigid sector of the labour force, liable to be destroyed by workfare. | |
Workfare schemes are an investment in people. Spending money on workfare schemes is an investment in people, who gain the opportunity to lift themselves out of poverty, and the economy, which benefits from a better supply of labour. Although such schemes might cost more per person than just handing out dole money for doing nothing, their ability to deter fraudulent claimants makes them cheaper overall. Their success in moving the unemployed into real jobs also benefits the government and the wider economy, through taxation and increased consumer spending. | |
Workfare does not help people get jobs Workfare schemes are of little use if there are no jobs out there for people to do. The evidence suggests that ‘the vast majority of unemployment – over 9-10ths – has nothing to do with people not wanting work, and everything to do with a lack of demand for labour’1. As such, with few jobs on offer, it is of little use to demand welfare recipients come in for work, rather than search harder and deeper for the few jobs that are available. Regardless, often the skills which employers are really demanding are specialised and at a high level, which menial make-work tasks are unlikely to provide the unemployed with. It would be far better to invest in proper education and training schemes instead. In 2003, 60 per cent of New York’s welfare recipients did not have high school diplomas; if they want this majority to find jobs, they should be paying for them to go back to school, not clean streets2. 1 Dillow , C. (2010, November 8). Small Truths, Big Errors. Retrieved July 19, 2011, from Stumbling and Mumbling 2 New York Times. (2003, April 15). The Mayor's Mistake on Workfare. Retrieved July 19, 2011, from The New York Times | |
Workfare schemes limit the opportunities to look for work Putting the unemployed into workfare schemes actually limits their opportunities to look for work, by making them show up for make-work schemes when they could be job hunting. Even if the numbers of those claiming unemployment benefit are reduced by the threat of such a scheme, that does not necessarily remove them from welfare rolls – they may, for example, be pushed into claiming other benefits, such as disability allowances. Others may prefer to turn to crime for income rather than be forced into workfare projects that don’t pay enough to be an attractive option. The evidence of the Workfare program in Argentina suggests that the policy has little positive effect on finding jobs for participants; ‘for a large fraction of participants, the program generated dependency and did not increase their human capital’1. 1 Ronconi, L., Sanguinetti, J., Fachelli, S., Casazza, V., & Franceschelli, I. (2006, June).Poverty and Employability Effects of Workfare Programs in Argentina. Retrieved July 19, 2011, from PEP | |
Workfare will damage the existing labour market Workfare harms those already in employment but on very low pay, because their menial jobs are the kind of labour that workfare projects will provide. Why should a local authority pay people to pick up litter or lay paving, if workfare teams can be made to do it for much less? If low-paid jobs are displaced, the ultimate result may be higher unemployment. In New York, public employee unions actively opposed Workfare specifically because they feared it would put public employees out of work1. Even if workfare projects are limited to labour for charities and non-profit groups, they discourage active citizenship and volunteerism as the state is assuming responsibility for these initiatives. 1 Kaus, M. (2000, April 16). Now She's Done It. Retrieved July 19, 2011, from Slate | |
Workfare is more expensive than traditional benefits Workfare is actually a more expensive option than traditional unemployment benefit. The jobless are ultimately given at least the same amount of taxpayers' money but the state also has to pay the costs of setting up the schemes, paying for materials, the wages of supervisors, transport and childcare costs, etc. In a recession, when the numbers of the unemployed rise substantially, the costs of workfare schemes could be prohibitive and lead to the collapse of the policy. Furthermore, even if the state wanted to, they couldn't enrol everyone– ‘given that most people who lose a job find another within six months, there’s no point dragging people into these schemes who will find work anyway given a little more time’1. 1 Saunders , P. (2011, July 1). Those who can work must not be paid to sit at home.Retrieved July 19, 2011, from The Australian | |
Workfare allows people to demonstrate both to themselves and others that a day at work will not always result in failure. This greatly benefits the self-esteem of many, who have become trapped in unemployment because their past experiences (perhaps beginning with unsuccessful schooldays) have lead them to believe that they cannot be useful and successful when doing a day at work. Workfare demonstrates that to be false by allowing them to work in a job where they can see the results of their labour, and not lose out (indeed, gain benefits) as a result. | |
Workfare does help people to get jobs by increasing the perception amongst employers that the unemployed nevertheless have the potential to be productive citizens – they’re willing and able to work, and have gained skills from being in a working environment. This counters one of the key barriers to employment, which is the prioritisation of younger generations who have not been tarred with the brush of having had to claim benefits. Furthermore, many schemes allow welfare recipients to satisfy work requirements by counting class rime, work-study jobs and internships – therefore, if education is what is felt to be missing, Workfare does not discourage participants from going back to school1. 1 New York Times. (2003, April 15). The Mayor's Mistake on Workfare. Retrieved July 19, 2011, from The New York Times | |
The free market doesn’t invest in fundamental research this is research to understand fundamental principles as it does not have a commercial purpose and may never result in a commercial product, ultimately, fundamental research is the key enabler of innovation. Private companies don’t invest in fundamental research, because by its nature it is open ended and very expensive and as a result may never pay back the investment. One example is the invention of the laser: the foundations were laid by theoretical physicists like Albert Einstein. This theoretical work wasn’t done with the purpose to invent something like a laser, but to probe deeper into the fundamentals of reality. The first actual existing lasers emerged only 40 years later, and only then did corporations begin to be interested. More examples are Defense Advanced Research Projects Agency (DARPA), a military research lab, and CERN, the operator of the world’s largest particle accelerator. Between them, they serendipitously invented the key technologies of the internet, something that no one could have foreseen. Governments have both the resources and the patience to invest in open-ended and long-term projects like this, whereas for corporations, this would have been too risky to be a sensible business decision. | |
The free market best ensures innovation Companies in the free market not only compete on price, the also compete on innovation. This is because innovation allows companies to ‘leapfrog the competition’ by either driving their competitors out of the market by suddenly being able to provide a similar good for a fraction of the cost, or by creating a completely new market for a good or service. In the latter case, the company can expect to reap monopoly-profits for a while until the competition catches up. The corollary of this is that this innovation literally destroys older, more inefficient businesses in a process called ‘creative destruction’ (Capitalism, socialism and democracy, 2008). Currently well-known examples of this are Apples’ iPad, which created a market for tablet computers that didn’t exist before, Microsoft’s capturing of the PC-software market or Google’s search engine, which made the competition irrelevant overnight. These monopolies are, by their nature, temporary: the benefits of creating a new market are so large, that companies structurally and continuously dedicate resources to ‘out-innovate’ the current monopolies and create a new temporary monopoly for themselves. In this way, innovation becomes the key driver of every business (The Free Market Innovation Machine, 2004). | |
The procedural justice of free exchange is important, but is presumes that humans are born with equal talents and in equally enabling environments. This is obviously not true: people can be born to parents with high or low socio-economic status and the talents they are born with, like IQ, are normally distributed. Suppose you’re born with high talents but to parents with a low socio-economic status. That means your parents do not have enough income to spend on your education: their money is all spent on the basic necessities like food and housing. Since you don’t get the education you need to further develop your talents, you will also likely remain stuck in the same socio-economic class, as will your children, and their children. At the same time, the children of rich parents get more opportunities: even when they’re moderately talented, their parents can invest in maximally developing their talents or even give them a large endowment to live from. An example of this lack of ‘social mobility’ is the United States, where parental income is an important predictor of a child’s future (Upper Bound, 2010). This is not just a gross and unfair inequality: it is also an infringement upon the liberty of the individual, who, in a free market, is effectively and structurally constrained to develop his or her own talents. | |
The free market is the most efficient way to match supply and demand In a free market, goods are voluntarily exchanged at a price arranged solely by the mutual consent of sellers and buyers. The aggregate ‘market price’ is the result of all individual transactions and contains important information for both buyers and sellers. When there is more demand than supply, prices rise (because buyers have to ‘outbid’ each other), making it attractive for new producers to enter the market and thus adding supply. When there is more supply than demand, prices fall, causing some sellers to leave the market since their production costs are higher than the price at which they can sell. Thus, in the long run, markets settle on an ‘equilibrium price’ where demand and supply are exactly equal. Examples of the free market actually working are all around us: take the supply of the pen and paper used to take notes on. If the price is too high at one store, anyone would move to another store where it’s cheaper. Therefore, sellers have an incentive to provide the best quality at the lowest price. [1] Central planning can never be as efficient as myriads of individually planning buyers and sellers in reaching this equilibrium. For example, a central planner who sets a price floor will likely create excess supply in that specific market. This has happened in the European Union, where the EU set a price floor on dairy products. The result were the well-known ‘butter mountains’ and ‘milk lakes’. [1] It is of course slightly more complicated as there are multiple layers of supply and demand. There is a free market in the sale of pen and paper from stores to consumers. The stores themselves are also in a free market when it comes to sourcing the pen and paper from wholesellers or the producers. The producers are then also in a free market to source the materials to make the pens. The price at the retailer therefore has a floor below which someone will make a loss due to the cost of the production. | |
It might be that under theoretical conditions, free markets match up supply and demand in the long run, but as the famous economist John Maynard Keynes said: “in the long run we are all dead”. Even if a stable equilibrium is theoretically possible, in practice, it almost never happens, with high fluctuations in price, shortages and excesses as a consequence (A Tract on Monetary Reform, 2000). An example of a market never reaching equilibrium is the so-called, empirically observed, ‘Pork Cycle’. When prices for pork meat are high, producers flock to the market. Since it takes a while, anywhere from months to over a year, to raise pigs before slaughter, prices will continue to rise and producers continue to join – until suddenly, the new supply reaches maturity and there is a sudden excess of pork meat on the market. This excess will then last for a longer period, since many producers are ‘locked in’, waiting for their pigs to mature. The same dynamics operate in the market for skilled labour, since getting the required vocational training also takes time. Even if equilibrium is reached, the outcome isn’t necessarily fair. An example is the Irish Great Famine: due to circumstance and bad policy, potato supply in Ireland dropped dramatically. This caused prices to rise beyond the budget of the average Irish citizen, but England could still pay the higher price. The perverse result was that even during the Great Famine, Ireland was actually still a net exporter of food (The Great Irish Famine, 1996). | |
The free market is morally superior because it operates on liberty Liberty is one of the highest values human beings strive for. Liberty means that individuals ‘own’ themselves: individuals only decide for themselves what to do with their minds and bodies during their lifetime. Private property is an extension of this, because private property comes about by undertaking an activity with one’s own body or mind: when I pluck apples from a wild apple tree, they become my property through me using my own body to do the plucking. Similarly, free exchange is an extension of this, because it only comes about if both parties perceive the exchange to be beneficial to them: I will only sell the apples I plucked if I get more value in exchange than the value that continued possession of the apples gives me. Free markets are the only system of allocating goods and wealth in society that relies on these basic notions of liberty to operate. If someone becomes rich in a free market, then that came about through free exchange: this person has provided so many goods and services of value to other people, that they gave him or her great wealth in return. Compare this to the government redistributing wealth: that would require the government appropriating part of someone’s income via taxes. That income is private property. Appropriating private property, not voluntary exchange, amounts to theft, which means that taxes are a form of theft and therefore a significant harm to individual liberty. Free markets don’t harm liberty like this, which is why they are morally superior. | |
The notion that labour alienates might have looked true in Marx’s days, but nowadays, employers have learnt that if they want to get the most from their workforce, they need to make their jobs meaningful. Employers can do this by offering work that fits an employee’s ‘intrinsic motivation’ (Intrinsic motivation at work, 2009), and by designing the work process in such a way that it facilitates ‘flow’ (Beyond boredom and anxiety, 2000). Interestingly, these days, companies actually compete for labour by making their work environment more meaningful, as for example Google’s ‘Life at Google’-page shows (Life at Google). As to the idea of allowing a market in organs: if people willingly and knowingly choose to sell their organs, what is wrong with it? Also, consider the status quo: demand is still there, but the prohibition effectively lowers supply, leading to a significant number of deaths every year for lack of donor organs. Why is that morally more justifiable? | |
It’s not true that all markets naturally lead to a concentration of power. Whenever concentration of market power, even leading up to a monopoly, does happen, this is caused by the underlying cost structure of the industry, whereby a company experiences increasing returns to scale and relatively high fixed costs. This means it is most efficient for the first entrant in a market to become as big as possible, as fast as possible. An example of such a natural monopoly used to be the markets for utilities: when the distributing networks for water or energy weren’t built yet, the first company to expand would gain a natural monopoly. Given that a natural monopoly is a consequence of the underlying cost structure of the industry, there is not much one can do to change it. Basically, one can choose between a private unregulated monopoly, private monopoly regulated by the state, and government monopoly (Capitalism and Freedom, 2002). Of these, the private monopoly is best. A government monopoly would not just be a monopoly, but would also have the force of law to back it – the result would be the most direct form of regulatory capture, where the business interest takes over the public interest of the government agency. | |
The free market fails in providing public and common goods A ‘common good’ is a resource which has finite but replenishable supply but which is by its nature ‘non-excludable’ (meaning it’s hard to exclude individuals from using the resource). One example is the stock of fish in the sea. If all fishermen would refrain from overfishing, the fish population would have time to restore itself. But each individual fisherman has an incentive to capture and sell as much as possible. Since in a free market, there is no government coordinating supply and demand, each fisherman acts on their individual incentives. The result is rapid, irreversible depletion of the common good (Tragedy of the commons, 1968). A ‘public good’ is a resource which is also ‘non-excludable’ but is also ‘non-rivalrous’, that is a good whose consumption by one consumer still allows simultaneous consumption by other consumers. One example of this is the air we breathe: every breath I take does not prevent you from taking a breath, nor can I feasibly exclude you from breathing. Other examples of public goods are schools, roads and national defense. Public goods suffer from the ‘free rider’ problem: once the good is produced, no one has an incentive to pay for the good. Since the good is non-excludable, no one can prevent someone from using it. This also leads to what economists call ‘negative externalities’: industries can freely pollute the air we breathe and not bear the costs for it. The issues of climate change are a direct example of this: corporations aren’t forced to pay for the negative externality of emitting greenhouse gases, and so continue doing it. | |
The free market degrades human dignity The free market views the human body and the human mind as a mere instrument: the only value an individual being has is the value it can sell its labour (whether it be manual or mental work) for on the market. Workers don’t work because they want to produce something they themselves find inherently valuable; they work to earn a living. And given that most people are not entrepreneurs or business owners, this means that most people will spend the most of their waking day labouring for goals set to them by others, in partial processes subdivided and defined for them by others, all to create products and services which are only valuable to others, not to themselves (Alienation, 1977). This commodification of the human body and mind can go so far that humans actually start selling themselves: free market proponents propose to legalize the selling of one’s own organs. When humans start selling themselves, they perceive no value in themselves anymore – all they see in themselves is an instrument to satisfy other people’s desires, a product to be packaged and sold. This becomes even more pronounced when we take into account that the free market exacerbates inequality: if someone is born into a poor family and can’t get out of it, it might seem the only way to get out of it, is to sell oneself. Thus, the proposal to legalize the selling of one’s own organs amounts to an ‘unconscionable choice’: a choice which is, given the circumstances, unreasonable to ask of someone. | |
The free market naturally leads to concentration of power in the hands of corporations Many global markets are dominated by a few big firms: look, for example, to the markets in fast food, dominated by McDonald’s, or the market for drilling and selling oil, dominated by Exxon, Shell and BP. This concentration of market power is natural outcome of free markets, this is because of economies of scale – a production line can produce each individual unit faster and more cheaply than if products were made individually. Also partly because the transaction costs of markets are too high (i.e. the costs of negotiating, monitoring and managing all the exchange relations necessary for production and distribution of the good or service involved), corporations have an incentive to structurally organize themselves into large firms (The Nature of the Firm, 1937). This also creates barriers to entry; while an individual may be able to manufacture an individual unit it is much more difficult to set up a whole factory from scratch in order to compete, there is then little possibility of competitors entering the market as a result of price rises. Being so large gives them an unfair advantage towards both their suppliers and their consumers. Large firms can collude to form oligopolies. This generates more profit for the firms involved, but raises prices above the market clearing price for consumers as the firms agree not to undercut each other, this may also be informal simply raising prices by reducing the amount of choice or supply. Vis-à-vis their suppliers, these firms gain an equally unfair bargaining advantage. A prime example is the market for (low skilled) labour: with a surplus of (low skilled) labour, each individual worker either has to accept a very low wage or be replaced by someone who does want to work for that low wage. This unequal bargaining power keeps the price for labour very low, so low that workers have no surplus budget to invest in themselves to be able gain skills, negotiate better jobs and thereby lift themselves out of poverty. | |
A free market can only operate when some basic conditions have been met. One of these is the condition that exchange of private property is possible. It’s important to realize that private property is both a normative concept but also a legal reality: in everyday life, private property exists because there are contracts and title deeds that prove that something is my private property. This legal dimension of private property is key to realizing how the government can make free markets work even for common and public goods. The key is to create private property rights that are rivalrous and excludable, and enforce them accordingly. It is these private property rights that are traded, not necessarily the good itself (The Private Production of Public Goods, 1970). For the public good of roads, the private property right the government can create is the right to operate a toll booth on that road. For the common good of fisheries, the government can create conditional exploitation rights to private actors, and for carbon dioxide emitting industries, the government can create limited, tradable emissions rights. The most well-known example of government created private property rights is intellectual property: even though listening to music is non-rivalrous and with the internet, relatively non-excludable, the government’s enforcement of intellectual property allows a business like iTunes to survive and thrive. | |
Fears about national security are greatly overblown, and are often simply an attempt to justify protectionist measures. Very few companies pose a national security risk, and those that do are covered by existing regulations – so that, for example, the USA could veto Dubai Port World’s bid to take over American ports. Most SWFs do not seek full control of companies they invest in, so they are not in a position to manipulate their assets for political gain, even if they wished to. [1] In reality, countries set up SWFs for economic reasons and they represent a major national investment, the value of which would be expensively destroyed if they once tried to abuse their position. Nor are there any actual examples of a country trying to exert political influence through its sovereign wealth fund. Overall, tying a wide variety of states into the international economic and financial system is beneficial, as it gives them a stake in the peace which the global economy needs for prosperity and so makes them less likely to pursue aggressive foreign policies. Conversely, alienating the governments of other states by designating them as dangerous predators who cannot be allowed to invest in our companies is a sure way to create enemies. [1] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. | |
SWFs can harm national security Sovereign wealth funds raise worrying issues about national security. Unlike mutual funds or private equity groups, which seek only to maximise their investors’ returns, SWFs must be regarded as political entities. Rather than passively holding their assets, they may seek to use their purchases to gain access to natural resources, advanced technologies, including those crucial to our defence, or other strategic sectors. [1] For example Gulf states are using their SWFs to invest in food and natural resources from Latin America. [2] They may engage in economic nationalism, shutting factories in western countries to give an unfair advantage to their own industries [3] . While it has not yet happened they may even attempt economic blackmail, threatening to turn off the lights through their control of energy companies and utilities if governments do not fall in with their foreign policy aims. Allowing countries such as China, Russia and various Gulf states to buy up western companies at will is potentially very dangerous. Even if we regard these states as friendly at the moment, there is no guarantee that they will stay that way, especially as none of them share our political values. [1] Lyons, Gerard, ‘State Capitalism: The rise of sovereign wealth funds’, 2007, p.14 [2] Pearson, Samantha, ‘Sovereign wealth funds: Foreign cash has its drawbacks’, 2011, [3] Balin, Bryan J., ‘Sovereign Wealth Funds: A Critical Analysis’, 2008, p.4, | |
Transparency is a good thing, but it would be unfair to single out sovereign wealth funds for special punishment over this issue. Hedge funds and private equity groups are even less transparent than SWFs, and their influence in the global economy is much greater. [1] Some countries (e.g. Norway) already operate very transparent investment strategies. Many have agreed to the Santiago Principles which encourage transparency and disclosure of financial information. [2] It is likely that other countries will come over time to follow their lead voluntarily, as it is in the interest of their own citizens to see that the state is managing their money in an efficiently and honestly. [1] Avendaño, Rolando, and Santiso, Javier, ‘Are Sovereign Wealth Funds’ Investments Politically Biased? A Comparison with Mutual Funds’, 2009, p.9. [2] Ibid | |
Sovereign wealth funds must be regulated A number of possible models of regulation have been suggested for sovereign wealth funds. Some, such as Gilson and Milhaupt, have argued that state-owned investment vehicles that buy shares abroad should not be allowed voting rights in that stock. [1] Others would put a cap on SWF investments, so that they cannot take a stake of more than, say 20% in any business without government approval within the country the SWF is investing in [2] – meaning that they can only be passive investors. Both these proposals would ensure that they are unable to abuse a dominant position while still allowing countries to benefit from cross-border investment in a globalised economy. At the same time such rules would prevent any broader protectionist backlash so the Sovereign Wealth Funds themselves could welcome the regulation. [1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009. [2] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007, | |
Sovereign wealth funds can undermine economic independence Sovereign wealth funds (SWFs) have become very important players in the global economy. The already exceed the assets controlled by hedge funds and will surpass the stock of global foreign exchange reserves. [1] They are now so big that their activities can shift markets, such as Norway’s Government Pension Fund did when short selling Iceland’s banks, leading to panic and instability when they sell assets suddenly. [2] Their purchases can mean that companies owned by other states can end up dominating the economies of smaller countries, undermining their own sovereignty and economic independence. It is also worrying that many SWFs are controlled by undemocratic states which have a questionable commitment to capitalism; should we allow such states to exercise so much power over our economies? [1] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008, [2] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008, | |
Sovereign wealth funds are not new and they are still only a tiny part of the global financial system. They represent only about 2% of global traded securities, and are dwarfed by other financial actors such as mutual funds, or private equity groups and hedge funds. [1] What is more, in comparison with these other players in the global financial system, SWFs are long-term investors looking many years, even decades into the future. This means that they are likely to bring calm, rather than irrational volatility to markets, as they will not be rushed into dumping assets based on a few months of bad data. [1] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008, | |
Regulations already exist to prevent foreign investments that might compromise national security. [1] Other than this it would be unfair to discriminate against certain classes of investors. Wealth-creating capitalism relies upon investors seeking to maximise the value of their investments. Without voting rights or the possibility of exercising majority control of a company, SWFs would be unable to ensure that managers were working hard on their behalf, allocating resources efficiently and being held accountable for their decisions. [1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009. | |
While it may be true that the state is often a bad manager of assets and businesses in this case the state is not usually involved in the management of the assets. This is being done through the wealth fund which is often in large part run by people whose background is in finance rather than in government. This use of external independent asset managers in itself should be enough to ease worries over state control. [1] Because SWFs don’t seek to have control over the majority of the businesses they invest in discredited government economic planning is not an issue. [2] Indeed SWFs are operating much more like private companies than state owned enterprises. [1] Mezzacapo, Simone, ‘The so-called “Sovereign Wealth Funds”: regulatory issues, financial stability and prudential supervision’, 2009, p.46. [2] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. | |
Sovereign Wealth funds are not transparent Sovereign wealth funds suffer from an almost total lack of transparency. Most countries maintain secrecy about the size of their funds and the extent of their holdings, their accountability to government, their investment strategies and their approach to risk management. Without knowing these things, it is impossible to gauge whether political or economic objectives will dominate the SWFs’ behaviour, or indeed whether they will make safe and responsible shareholders in any business – secrecy breeds corruption. For these reasons, Jeffrey Garten of Yale has argued that SWFs should be obliged to publish independently audited accounts twice a year. He has also pointed out that many countries operating SWFs protect their domestic economy from foreign competition and investment. We should demand reciprocity, so that countries seeking investments abroad must open up their own economies fully before they are allowed to hold significant assets elsewhere. [1] [1] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007. | |
State ownership is not a good way of controlling funds The ownership of important businesses by sovereign wealth funds runs counter to the economic policy pursued by almost every government over the past 25 years. In the 1970s many states owned nationalised industries as part of an attempt at socialist economic planning that has now been discredited. State ownership distorted incentives, interfered with management and produced decades of underinvestment, poor service to consumers, and national economic failure with the most extreme example being the Soviet Union itself. Since the 1980s countries everywhere have followed the example of Thatcher’s Britain and privatised their industries, freeing them to compete efficiently and to generate more wealth and jobs than they had ever done in state hands. Going back to state ownership of business is a dangerous backward step, especially as it is now foreign governments that are doing the nationalising. | |
Fears about the unrestrained influence of sovereign wealth funds will likely stimulate wider protectionism anyway if effective regulation is not introduced. Protectionist politicians may exploit fears of foreigners to restrict any kind of foreign investment, and seek to build up national champions as a defensive measure. This risks losing all the economic benefits of globalisation, such as opportunities to unwind financial imbalances and to spread expertise, while directing capital to areas where it can have the greatest impact. Better to regulate SWFs now for fear of a greater backlash later. | |
In many cases sovereign wealth funds are not even good for the states that own them. Almost all are emerging economies with limited financial expertise available to them, and they are not equipped to invest the money wisely. This has led to SWFs paying inflated prices for dodgy western companies, whose share price has subsequently collapsed, resulting in the loss of billions of dollars of national wealth for example China Investment Corporation lost $500million on Blackstone, Qatar Investment Authority may have lost as much as $2billion in its attempt to buy Sainsburys. [1] Surely it would be better to invest the money at home, or even return it to their people in the form of lower taxes. [1] The Economist, ‘The rise of state capitalism’, 2008. |
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