In which we answer Richard Murphy\’s question

Ritchie asks us a question today. An important question too.

Why do we allow the free movement of capital?

We do not allow the free movement of people.

So why do we choose to let capital roam as it wishes? Why is it acceptable to let capital minimise its tax? Why can capital use artifice, from the limited liability entity to the tax haven, and yet we impose the cost of supporting its errors on people?

What is the reason for condemning 5 billion of the 6 billion or so people in the world to poverty to make sure capital can make money?

Why have we made this choice?

The answer is here:

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Because it works.

As the good little liberals that we all are we desire that the poorest and most destitute of our fellow human beings rise up out of the child killing poverty, the miserable hand to mouth existence, which is the Third World peasant lifestyle.

Depending upon where are roots are, our forefathers managed this some several centuries ago (for, say, England, other parts of the UK following hard behind), Sweden managed it starting at the turn of the last century, Hong Kong starting in the 1950s perhaps, and so on, to China and India in the late 70s, early 90s, and as you can see, Africa in the mid 90s. Do, just for a moment, note what rising \”Sen Welfare\” means. It means that both inequality is falling and that average incomes are rising.

We can all also note that, while we can happily argue about how much government was needed to prepare for these various lift offs, each and every one of those lift offs was correlated with a move to a more liberal economic policy. Freer trade, fewer restrictions upon what people could do with their lives, more capital movement.

And this more liberal set of policies is what is known today as \”neoliberalism\”. If you wish, the rediscovery of the classical liberals: Smith\’s leaving the money to fructify in the pockets of the populace.

All of which is why all us good little liberals might sign up for things like the Washington Consensus. Yes, including the free movement of capital.

Because these last 30, 40 years of the triumph of neoliberalism has led to the greatest reduction in poverty in the history of our whole species. The poor are getting richer, global inequality is falling.

Which means that we can answer Ritchie\’s question: why do we allow the free movement of capital?

Because it fucking works, dunderhead.

27 comments on “In which we answer Richard Murphy\’s question

  1. You evade the second half of the question: why don’t we allow the free movement of people?

    Tim adds: We do have the free movement of people. Noted the EU yet?

    As to free movement inter EU, as Uncle Milt pointed out, you can’t quite have a welfare state and the total free movement of people. One or t’other, your choice.

  2. “@ William M. Connolley // Feb 28, 2011 at 11:20 am

    You evade the second half of the question: why don’t we allow the free movement of people?

    Who is this we? If a country wants open immigration it can do so.
    Most countries think that immigration should only be allowed where it is benefits the host country or for humanitarian reason (we can argue about how to define what immigration is allowed).
    Why the UK does not allow free movement of people because we do not believe it would be beneficial for us.
    Does that answer your question?

    For those who think free movement of capital is a bad idea, North Korea is an excellent test case to see if it is a bad idea or not.

  3. Globalisation will lift the truly poor out of poverty. If we (the already stinking rich with more than $50/day income) get our acts together, this not being a finite world in economic terms, will probably get richer too.

    Then, those with a chip on shoulder can complain about inequality. But that says more about their problems than about reality.

    My concern as a human being (despite being a filthy capitalist scum-dog) is to erradicate true absolute poverty.

    One new system was tried a century ago and was found seriously wanting (or why aren’t you living in N. Korea, Cuba etc.?).

    Charity doesn’t do it either.

    People do it themselves. They might need a leg up but generally not screwing them and giving a level playing field is enough.

    Mobile capital will do the rest.

  4. Why do we allow the free movement of capital but not people? Simples:

    Free movement of capital makes everyone rich, but takes time and requires a fair amount of effort on the part of the recipients.

    Free movement of peoplemakes the people doing the moving slightly richer, but impoverishes the host nation. Sadly it requires much less effort hence its attractiveness to socialists and other people inclined to simplistic ideas.

  5. What is the reason for condemning 5 billion of the 6 billion or so people in the world to poverty to make sure capital can make money?

    Is this not the “begging the question” fallacy?

  6. “You evade the second half of the question: why don’t we allow the free movement of people?”

    Tim and David have answered this question, but it does bring into question WMC’s ability to read, given that Richie didn’t ask this question.

  7. Free movement of peoplemakes the people doing the moving slightly richer, but impoverishes the host nation.

    Thus explaining how the USA, with free movement of people within its borders, is such a poor country. And in particular its dire economic performance compared with the rest of the world when the USA had open borders, up until the 1920s.

    Another significant data point is the collapse of England after the Union with Scotland, if only the English had controlled the influx of Scots into their country (or prevented the Hugenots from fleeing France) they might have been wealthy enough to have an industrial revolution and we can imagine an alternative reality where they conquered so many other countries that “the sun never set on the British English Empire”.

  8. When was the last time Ritichie heard someone bitching about all that foreign capital, coming over here, taking jobs from good honest british capital?

    The lack of global open borders is — for better or worse — a product of the fact we have a democracy and in a democracy the voters interests are served before the non-voters, pace “electing a new people“. Those voters also happen to be xenophobic and economically illiterate, but hey! you wanted democracy!

    The third aspect is that even in a world of open borders, I’d have no compunctions about excluding violent criminals. Capital can’t (directly) commit crime.

  9. The problem with open borders rhetoric is that it tends to reduce people to a purely economic calculation, treating them as economic units. But people are not the same as goods and capital, which are just things without volition or sentiment. The problem is that culture is a group activity, and when there are very large population movements- as are now possible- that leads to changes of culture. Which is easy to admire when you’re a wealthy person in a nice white upper class enclave and the little brown people are your nannies and gardeners, harder to admire when the area you live in turns into a ghetto of alien culture which benefits the hirers of nannies and gardeners rather than yourself.

    In terms of people, economics is an important analytical method, but economics is not sufficient on its own. To use a current well known example, if current trends in Europe continue (and that is a huge “if”- extrapolating trends is inherently unreliable, but with that caveat, let’s do so anyway) then much or even all of Europe may become Islamic, and the traditional European “western” culture will disappear. That is something that many people would not like at all, and is not really a matter for economics.

    The geographic collective developed as a tribal defense mechanism. It has a long history. There’s a good argument that production should follow people, not people follow production. People themselves are not just a “good” or a “resource”.

  10. Ritchie crafts a straw man: “What is the reason for condemning 5 billion of the 6 billion or so people in the world to poverty to make sure capital can make money?”

    Free movement of money does not prevent free movement of people no more than free movement of people would prevent free movement of money.

    He is simply trying to distract from the case BP claims to have that they have overpaid tax and want it back.

  11. there are some sensible, mainstream reasons for placing some restrictions on the movement of certain varieties of capital; but that’s not what Richie is yammering about.

  12. @IanB:

    People themselves are not just a “good” or a “resource”.

    Quite. Labour is a good. People aren’t. Important distinction.

    Not sure I buy the whole “ohnoestehislams” Sailer-esque line of argument, but to treat people as economic resources, rather than economic actors, is intellectual laziness.

  13. Ian B, so let me see, you started off with a purely economic argument, and now you’re complaining that the debate has moved in an economic direction? Um, if you don’t want an economic debate, may I suggest not making economic statements in the first place?

    The rest of your comments seem to imply that you now believe that the arguments against free migration are all social, not economic, except for one statement towards the end where you said “There’s a good argument that production should follow people, not people follow production.”, but you never made this argument. I’m deeply curious about what this argument is, particularly as I’m a bit unclear on what the proposition is (for example, how could the production of say coal mines move to follow people?), can you please state this “good” argument?

  14. We have have free movement of capital because it is a big win for everybody involved.

    We do have freeish movement of people, since there is free movement within the EU, because free movement of people lead to a net win. However there are some reasons why the EU does not try to go for complete free movement of people.

    1. The welfare state. You can either have a welfare state or free movement of people. The presence of a welfare state produces a huge free rider problem and reduces the need for immigrants to integrate which can lead to them acting like colonists. The British model where services are generally not linked to any kind of insurance like payments is particually vulnerable to this. Personally I would vote for free movement of people, but I Known I would be out voted. Neatly leading onto:

    2. Democracy; the benefits of free movement of people are concentrated in the people that want to doing the moving, but they do not get a vote. There are some disadvantages to free movement of people, and they are concentrated amoungst people that do get to vote. Hence why in a democracy there will be a bias against free movement of people even though it is a net win considering everybody involved. The EU might be willing to ignore democracy when it comes to extending its powers, but extending free movement of people to beyond its borders would not do that so the people get to have a say.

  15. For the “production should follow people, not people follow production”, I’ll expand on my confusion a bit further.
    Take for example the development of Silicon Valley. As I understand it, it started off with a bunch of people really good at programming, and making money at it, so they were hiring other programmers, and also other people who wanted to be with good programmers came there to trade the good ideas, so if you wanted to start a software engineering firm it was a good place to go as there were plenty of people you could hire, and thus if you wanted a job at a software company you went to Silicon Valley as there were quite a few job opportunities, and it sort of snowballed. So in that case, did production follow people, or people follow production? I’d’ve thought that it was both.

  16. Remittance Man writes:

    “Free movement of peoplemakes the people doing the moving slightly richer, but impoverishes the host nation. Sadly it requires much less effort hence its attractiveness to socialists and other people inclined to simplistic ideas.”

    The first sentence is utter rubbish. Yes, large-scale immigration of low-skilled workers may impoverish indigenous, low-skilled workers by reducing wages, but in general, if lots of people looking to build a better life come to life in country X rather than Y, then it is generally good news for X. For the fairly obvious reason that a greater population can lead to a greater division of labour, more productivity, and hence more wealth.

    Sure, there are potential downsides. In a highly regulated property market, for instance, immigration can push up house prices, if supply is not allowed to meet rising demand.

    No doubt Remittance Man would argue that if a village of 100 soulds increases to 110 because of a few newbies coming into town, that this would “impoverish” the existing villagers.

    Like I said, utter nonsense.

  17. Tracy, Ritchie compared free movement of capital to free movement of people. My point was that the issue of free movement of people is not entirely an economic issue, whereas free movement of capital is basically just an economic issue. If I send you $1000 by BACS, I don’t also send you my culture and my own personal presence. Just the money. If sending you the $1000 involved me, my four wives and sixteen children also setting up home in your garden, you’d see it in more than economic terms and your primary concerns would probably be with me and my family as people rather than as economic units.

    The point about production following people is a general one. There are shitloads of people in Africa who could be doing productive things in Africa; from an economic and cultural perspective it might make more sense for them to stay at home and develop the African economy than for their best minds and workers to run away to Europe, leaving the African economy underdeveloped and thus permanently crippled.

    Many western employers demanding open borders are really just looking for cheap labour, in the sense of knowing there is a pool of desperately poor people in the underdeveloped world who will work for peanuts. What the world needs more than anything right now is global development, and if we can achieve that the peanut-workers pool will dry up anyway, and thus western employers will have to just get used to paying the local market wage, which will be much the same globally. There’s plenty of evidence that shifting low-paid migrants into a local economy does it no good- attempts in the 60s to save the textile industry with migrant workers in Britain is a fine example of that.

    Being dangerously Keynesian, a low paid worker is a low spending consumer. It’s effectively a zero sum strategy.

    If there aren’t people left in country X to produce good Y, production of good Y shifts to a country Z where there are some people who want to produce it. Country X must already be working at near full capacity, which is why it has no workers left to produce Y. It’s far less disruptive in human terms to move production to country Z than to move vast numbers of people from country Z. That is, to set up a call centre in India than move the Indians to Britain.

  18. Tim – I’m not sure I’d use a falling world poverty rate per se as evidence of the merits of capital mobility. A chunk of that fall has come because China has gotten richer. But the thing about China’s capital flows is that they are the “wrong” direction: rich countries should invest in poor ones, and yet China’s current account surplus means it is a net capital exporter. One might argue that, had Chinese capital been more immobile, its domestic investment would have been greater and so its fall in poverty would have been greater.
    None of this is to deny the fact that if they gave Oscars for stupidity, Mr Murphy would be the King’s Speech.

  19. “A chunk of that fall has come because China has gotten richer.”

    And when did China start getting richer? When it loosened the limits upon free flow of capital or when it tightened them?

  20. @Ian B My point was that the issue of free movement of people is not entirely an economic issue,

    Sorry, I got confused and attributed what Remmitance Man was saying to you. My mistake. But I’ll point out that, if you object to purely economic arguments for the free movement of people, you should be starting with the Remittance Man, who started off with a purely economic argument.

    There are shitloads of people in Africa who could be doing productive things in Africa; from an economic and cultural perspective it might make more sense for them to stay at home and develop the African economy than for their best minds and workers to run away to Europe, leaving the African economy underdeveloped and thus permanently crippled.

    I think that the question of what makes best economic and cultural sense for a person is best decided by the person themselves. I know very little about the politics of any African nation, I don’t know how easy it is for the locals to change their government’s attitudes. I do notice though that Botswana’s economic miracle provides ample proof that African economies are not incapable of development. The fear of losing taxpayers’ money, if your best minds and workers leave, is an incentive for governments to introduce better policies to keep them, thus encouraging the development of African economies.
    Also, of course, the ability to earn higher returns from investment in human capital encourages further investment in human capital. So the possibility of leaving for Europe might lead locals to invest more in their own economy, knowing that if the shit does hit the fan, at least they can use the soft skills they’ve been practising overseas.

    There’s plenty of evidence that shifting low-paid migrants into a local economy does it no good- attempts in the 60s to save the textile industry with migrant workers in Britain is a fine example of that.

    Singapore, Hong Kong stand out as evidence that shifting low-paid migrants into a local economy does it a lot of good.

    Being dangerously Keynesian, a low paid worker is a low spending consumer.

    This makes another argument for free economic movement – it’s generally agreed that moving from a developing nation to a developed one raises the wages of the low-skilled workers, so if the Keynesian argument is right then we see a rise in their spending, as they become less lowly paid, and thus a better macro-economic outlook. Please forgive me though if I don’t make use of this argument of yours much, I’m never really sure where I stand with the Keynesians.

    If there aren’t people left in country X to produce good Y, production of good Y shifts to a country Z where there are some people who want to produce it.

    Surely this depends on the marginal costs of production of each country. This is easy to see with agriculture, perhaps for example one could tehnically hothouse oranges in Siberia, but the energy costs of doing so might well outweigh the costs of physically moving people to warmer countries where oranges can be grown under the sun. Less obviously, there can be network effects, eg my Silicon Valley example.

    It’s far less disruptive in human terms to move production to country Z than to move vast numbers of people from country Z.

    If it’s far less disruptive, then that’s how it will be done, barring government intervention (as only humans and human-programmed computers buy and sell in markets, market prices only reflect human terms, unless The X Files was a documentary). If it’s far less disruptive to move vast numbers of people from country Z than to move production, then that’s how it will be done.

    And one thing that is highly disruptive is changing political cultures, particularly forcing them to change from the outside, as opposed to people internally recognising that they need to change.

  21. If it’s far less disruptive, then that’s how it will be done, barring government intervention

    The problem is, in the current economic reality the costs of human movement are being heavily state subsidised. So, an employer can hire cheap labour from abroad, knowing the State will pay their healthcare, benefits, costs of building infrastructure, policing etc. The employer just gets a “worker”, that is an economic unit. It’s the society as a whole that gets the “person”. That’s a big problem for Euro-welfarist regimes.

    I honestly know bugger all about Singapore, but as I understand it Hong Kong’s great success was due to its classical liberal approach rather than a Euro-welfarist approach. So presumably migrants moving into Hong Kong were under much more pressure to not be a social burden. Additonally, Hong Kong was moving from an underdeveloped to developed economy, as was the USA during its great immigration period.

    In a developed economy with high unemployment (unused labour) it’s hard to see why it would need more workers from outside.

  22. I agree with Johnathan Pearce, even if he can’t spell his own name. Remittance Man (an emigrant by definition?) is talking rubbish and nonsense – and that was just his first sentence. The second one, “Sadly it requires much less effort hence its attractiveness to socialists and other people inclined to simplistic ideas”, is rubbish and nonsense on stilts. If “it” is lots of freeish immigration, it’s bloody hard work, and should really only appeal to right-wingers who cherish people’s ability to create something out of nothing but hard work and daring.

    And Ian B, religion does not equal culture does not equal skin color, and “western culture” is plural, inclusive, diverse, wonderful precisely because it is open, evolving and changeable. A closed border makes a dead culture.

  23. And Ian B, religion does not equal culture does not equal skin color,

    Er, I never said that, so I have no idea what point you are making.

    and “western culture” is plural, inclusive, diverse, wonderful precisely because it is open, evolving and changeable.

    No, the basis of “western culture”, or the bit worth preserving amongst the dross anyway, is negative-rights-based liberalism, which is a very specific thing as opposed to a list of shiny happy feelgood adjectives.

    A closed border makes a dead culture.

    Even if it should turn out to be a necessary strategy for the survival of the culture? Using my earlier example, I have no idea whether or not the demographic Islamapocalypse will happen or not; but it is certainly something that reasonably could happen and thus worth contemplating in a precautionary principle manner. The one guarantee of that possible future is that nothing resembling western culture will survive it, let alone the list of adjectives you provided.

  24. feels inclined to ask Chris why, since china is still ostensibly socialist, the people do not invest in themselves?

  25. But companies are people and their life blood is capital. The company moves where it can find profits and it needs to provide that new limb with capital. The problem it moves to more favorable climates like people do as well. It may be a tax environment or a cost of labor environment.
    I believe if a company wants to move it can do so along with its capital and so should capital.
    However, the problem comes when people pretend to move to avoid tax and the same is with companies.
    We have companies claiming to have moved to tax havens when in fact all the business and assets and shareholders are somewhere else.
    My point is that people should be taxed where they make a profit, if they live there, otherwise they get taxed where they actually live and the profit is made.
    The problem then comes, what if there is a cross border transaction? Well if a company sells from one country to another it makes a profit at the point it was made. It is shipped to another country and the other country charges an import tax. All quite resonable.
    But when you put yet another company or person in the middle who is pretending to be in a tax haven, the whole system is avoided.

  26. Ian B – “…that leads to changes of culture. Which is easy to admire when you’re a wealthy person in a nice white upper class enclave and the little brown people are your nannies and gardeners… if current trends in Europe continue … then much or even all of Europe may become Islamic, and the traditional European “western” culture will disappear. ”

    So what point are you making (and there may not really be any, it may be more of a feeling) if not that your view of western culture equates to non-brown skin and non-islamic religion?

    Western culture is probably so loose an idea we can define it the way we want and then admire ourselves for proving our point. if western culture is christian, then growth of islam is a threat. but if western culture is among other things tolerance of religion, then it’s not, not necessarily. (we can probably take as noted the stuff about islam’s essential intolerance and awfulness, etc.)

    Must go tell the maid to fetch the gardener.

  27. Actually restrictions on the free movement of people is a relatively recent phenomenon. The British Empire allowed free movement of british citizens, although it was a long and slow journey from the farthest colonies (New Zealand/Australia) to Great Britain.

    Britian became the dominant global power because the empire allowed both the free movement of people and the free movement of capital with many of the colonies having a common currency and common legal systems. Of course it had no welfare state and while you were free to move to London you were also free to die in the street if you couldn’t support yourself.

    Even in 1948 the British Nationality Act gave all british subjects the right to live in the UK. At the time there were only about 800 million british subjects who were granted that right, and of course it didn’t last long.

    If we look at those countries which have become dominant global powers (Britian and latterly the US) they did so by permitting the free movement of people both within and without thier borders. After all the statut liberty has at its foot the poem “the new collussus” which contains the famous sentence “Give me your tired, your poor, Your huddled masses yearning to breathe free”

    By allowing free movement of people and capital it became the dominant global power. Only when it achieved that goal did it pull the draw bridge up.

    The free movement of people is also as beneficial as the free movement of capital. Of course that will get daily mail readers into a frenzy of indignant rage. But remember most people never bother to move countries. Those that do are usually the most dynamic and hard working and benefit the economy and society. It takes alot of get up and go to get up and go.

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