Lord Davies and Adam Smith

It has been a challenging and rewarding first ten months as minister for trade. Even doing this job at such a difficult time for the global economy and for UK businesses, I’ve been constantly impressed by the ambition, tenacity and success of UK firms.

I’ve been disappointed, however, by the fact, that although we are a nation of small and medium-sized businesses, we are not yet a nation of exporters.

Umm, if any of the civil service type bods in the UKTI would like to dig out a copy of Wealth of Nations (it\’s available free online if the taxpayer doesn\’t want to spring a tenner for it) for the Minister?

That businessmen prefer home to foreign business was explained all the way back in 1776. It\’s actually the only use of the phrase \”invisible hand\” in the book. Given the difficulties of dealing with Johnny Foreigner, language, law, distance, time, capital turnaround, even if the total profits over time are slightly greater in foreign trade, businessmen \”will be led as if by an invisible hand\”* to prefer domestic trade.

It\’s also true that there\’s no particular joy in exporting: we only need to export sufficient to pay for what we import, no more. The idea that he who exports most wins is what underlies mercantilism and is, to put it mildly, a very stupid idea.

There is another point to be made here as well. Our biggest net exporter is actually The City. That very part of the economy that Lord Turner is insisting should shrink. Is this the joined up government we were rpomised?

Finally:

UKTI provides excellent value for money; adding £16 in additional profit for British companies for every £1 of taxpayer spend.

Don\’t believe you. With corporation tax to be paid on such profits, that would mean the taxpayer gets back, what, £4 for every £1 spent? Sorry, simply do not believe that any government has found such a magic money machine. If it had, really, you\’d be screaming to spend £100 billion on such to dig us out of this fiscal hole, would you not? You\’re not so of course not even you believe the figure.

* Maybe not exactly the right quote, from memory.

One comment on “Lord Davies and Adam Smith

  1. Great spot, Tim. But it’s not clear Smith’s point is wholly amenable to your own view. He says the tradesman’s preference for the home trade would “give revenue and employment to the greatest number of people of his own country.” But you yourself have had many times that jobs are a cost, not a benefit.
    If I were you, I’d have cited the paragraph that follows quickly:
    “The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”
    (WoN, Book IV, ch 2)

    Tim adds: Yes, but: “But you yourself have had many times that jobs are a cost, not a benefit.” That is always in the context of how we should be accounting for the costs and benefits of a scheme. Those jobs may well be a cost we’re happy to bear for the benefits of the scheme: but we can only work that out if we have the costs and the benefits on the right sides of the P&L.

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