For Biggie

A slightly puzzling thought here:

Of course a privateer statelet like Singapore or Hong Kong can get rich that way. The upper bound seems to be approximately Switzerland, and plenty of smaller states ain’t no Switzerlands. Britain is well above that upper bound.

So, small states and small states only can prosper by having low barriers to trade with hte rest of the world. Large states cannot.

Hmm.

But large states have no internal barriers to lots and lots of trade among their large population. Something which makes those places richer. The internal economy is always much larger than any international trade.

So we seem to be saying that tariff free no barrier trade is just super except when it crosses national borders. Which doesn’t seem to work either as a piece of logic nor empirically.

38 comments on “For Biggie

  1. I’d postulate that the size limit is not baked in by economical factors but by human nature, that is bloody politicians can’t see a pile of money without wanting to spend it. Thus it gets used to create a welfare state, or colonize an empire, or enrich individual pockets, or ‘punch above our weight’ internationally or whatever stupid thing someone does who has access to a pile of money he did not work for.

  2. Let’s clear one other thing up: I also dream of a world with no trade barriers whatsoever. Zero tariffs, Consumer protection- still probably stuff to talk about, but tariffs certainly are bad shit, I totally agree.

    I disagree with our host, and a few others, on the speed and best means of achieving that. On the route, not the desirability of getting there. You want to get there yesterday by jet, I’m happy to take the scenic route and do as much good and as little damage in the doing. We’ve spent a couple of million years on this planet as a species, and taking another thoughtful 20 years over this (all it will take at the current rate) will do no harm.

    You will also note, I compete in a totally globalized marketplace. There are people doing my job in the US for far more money, and people doing it in India for far less. I provide a service only, which is subject to no tariff, no professional regulation, no guilds, qualifications, or barriers to entry anywhere in the world. So I have no skin in this game and am not attempting to protect myself. I spend time willingly teaching my competitors to do my job (for money, of course), I am that confident that I am that much more competitive than they are.

    I also wonder if this is a specialization thing. We know specialization makes small units richer _and_ the sum of the parts richer. But on what scale can you specialize at doing one or some very few things? On the scale of me doing my job, absolutely. At seven million, roughly. At seventy million? No, you’re going to have various competing domestic interests.

    Also, no one hates or ever will hate Hong Kong. Except Xi Jinping, of course. A country the size of the UK is going to make enemies at times. Which means we want domestic food production, even though it’s not efficient. Yes, I know that’s not the whole reason for CAP, but you can’t strategically stick an island nation, or even the continent of Europe, at the mercy of Mugabe, Gadaffi, and their successors. Remember, Egypt banned rice exports during the run-up to the GFC – an export tariff, if you like.

  3. A country the size of the UK is going to make enemies at times. Which means we want domestic food production, even though it’s not efficient.
    Unless we manage to piss off 75% of the world simultaneously, there’ll always be somewhere we can buy food. If we actually get into a war (presumably somewhere decades down the line), it’s not going to be U-boats in the North Atlantic cutting off our food supplies. The Europeans don’t have them and the Chinese, Russians and US would use ICBMs. And after that, domestic food production wouldn’t be much help.

  4. It’s something I puzzled over when I lived in Hong Kong. I thought maybe it could be that smaller entities have fewer “hangers-on” to pay for, but that would only work if the number of hangers-on was not linearly proportional to population, which seems counter-intuitive. I can’t see how an entity twice as big would have more than twice as many hangers-on.

    And it doesn’t seem to be: smaller entities screw the workers with starvation wages, as that doesn’t explain Singapore, or Switzterland, or post-1960s Hong Kong.

  5. @Bloke in Germany February 8, 2019 at 7:08 pm
    “We’ve spent a couple of million years on this planet as a species, and taking another thoughtful 20 years over this (all it will take at the current rate) will do no harm. “

    million – no ~165,000

    Once in a generation “all change” opportunity we must grab.

  6. Ooo, doing a bit of research, Hong Kong’s GDP was actually consistantly higher than Singapore’s until 2010.

  7. 0.5% of GDP, give or take, seems a reasonable insurance premium to me. Many here certainly disagree and prefer to take that as illiquid value on their home-counties property (value protected by oodles of planning legislation that destroys hundreds of thousands of other peoples’ lives).

    Europe is rich, no one has starved here in 50 or more years. Africans are fighting each other to get in. It’s not perfect, but we are obviously doing something right that much of the rest of the world is doing wrong.

  8. Pcar, the date is a matter of debate. Even an order of magnitude in age counts for little when talking about a slowly-reproducing species. It’s not relevant.

    It’s also why I don’t buy your innate white superiority crap. “We” invented the wheel a blink of an eye before even the places that haven’t yet invented the wheel did. Maybe you have to be a biologist to grok the timescale thing.

  9. Europe is certainly doing some, even a lot of, stuff right by global standards, but that doesn’t automatically mean all in the garden is rosy. Brexit concerns are of a different order. They relate fundamentally to future direction rather than the basics of putting food on the table, which is essentially a solved problem for pretty much all of Europe.

    For myself, I think that the European project – ‘Ever Closer Union’ – as it is currently conceived will eventually fail. It may not be in my lifetime but fail it surely will, and it might turn out to be very unpleasant for the participants when that happens. I want the UK out of it well before that happens so we have built our own position & direction in the world and are less likely to suffer the fallout.

  10. @ jgh
    Hangers-on may well be proportional to the square of the population.
    If you think about a pyramid with the actual workers (be they peasant farmers or factory workers or clerks) at the bottom and line managers above them and departmental managers above them…. In micro-kingdoms the king knew everyone personally so he had guys doing jobs for him but no managers – in mega-states you havwe umpteen layers of management between the President and the workers/soldiers (in micro-states the soldiers all have day-jobs and rush off to grab a sword/gun when needed, like Lifeboatmen but the USA hasn’t just got an Army but also a Pentagon with hundreds of thousands of bureaucrats and a “Veterans administration” comprised solely of bureaucrats and .. and …).
    One of my friends worked for BT staff departrment and told me that after privatisation they took out *five* layers of management.

  11. John has got to my point. Is there a tipping point when the bureaucracy takes over or at least gets to the point where it can start feeding itself at everyone elses expense?

    I suspect there is and its linked to the Dunbar Number.

  12. Going back to the OP, I think the key to free trade isn’t tariffs but other barriers. When it comes to free trade deals journalists and politicians concentrate on tariffs, but from what I’ve learned listening to the Trade Talks podcast and other sources they are more about the details of regulations.

    For example, the biggest barrier to a free trade in cars isn’t tariffs, its safety regulations. The EU and USA can’t agree on safety standards and how to test them. One wants them to concentrate on head to head collisions the other when the collision is offset. That means manufacturers have the R&D costs of two models which costs consumers more than any tariffs politicians can dream up. Of course if the EU and USA agreed it would mean consolidation and job losses, so they are incentivised not to agree.

    And then there’s the dreaded health, safety and animal welfare. If some people in one block don’t want to accept, say, chlorine washed chicken, then nobody in that block gets to eat chlorine washed chicken whether they want to eat it or not. Ditto GM foods.

    There’s also political risk and a FTA allows for settlement of disputes and, more importantly, ensuring that capricious politicians can’t arbitrarily change the rules. ISTR a case in the ’70s when everyone was up in arms about Japan in the same way they are about China now*. After lots of complaints one of the US car manufacturers was allowed to sell in Japan and duly dispatched a ship full of cars. When it got there they found out that Japan had changed some regulations, something to do with brake light separation IIRC (not likely), and they had to turn the ship round and send them all back to the USA.

    *If we’d had electronic publishing and the Internet then I reckon most articles now would be cut “Japan” replace “China”

  13. @Pcar: I have no idea how Australian farm subsidies work, but I’m pretty sure they get very little, in comparison to the ones in the EU, and elsewhere.

  14. “Free” trade with places that can undercut your manufacturing base enriches the people with money who can afford the new consumer items by impoverishing the lower class who used to make them and are now unemployed. Is there a modern nation where this isn’t true?

  15. BiND: American s selling to Japanese also hits the cultural barrier of Japanese looking down on the quality of American goods. It doesn’t matter how open your import regulations if consumers just plain don’t want to consume your goods.
    The real import barriers Japan put up were on luxuries where the fact the good was foreign made it desirable, overwhelmingly spirits, slightly surprisingly ketchup and ice cream. In HK you could make money hand over fist selling to Japanese wanting to fill their personal allowances to take home.

  16. “Is there a modern nation where this isn’t true?”
    Pretty well all of them. It’s called comparative advantage. If they’re undercutting your manufacturing base on a particular item then they must be able to produce it more cheaply than you do. There’ll be other items or services you can provide them* more cheaply than they can for themselves. That’s the reason you trade.
    Trade must balance or what are you paying for your imports with?

    *Or maybe a third country. Or fourth…

  17. This is rather like Galileo’s argument to disprove the belief that things fell at different speeds according to their weights. All right, he said, suppose a big cannonball falls quickly and a small one falls relatively slowly. What happens when you chain them together? Does the big one drag the small one down? Does the small one delay the big one? Or does the combined weight of the two plus the chain make them fall faster still?

    If any two countries can improve their returns on trade by combining into a single country, then presumably they can do it in just the same way by establishing free trade between them: and this should apply to any pair of countries.

  18. “If any two countries can improve their returns on trade by combining into a single country, then presumably they can do it in just the same way by establishing free trade between them: and this should apply to any pair of countries.”

    If people always choose which trades to engage in to maximise their own expected utility, then dropping barriers to trade, if it has any effect at all, can only make society on average richer, because if the alternative arrangements forbidden by the barrier are less beneficial than the status quo, people still won’t engage in them even after the barriers drop, but arrangements that are more beneficial will now be enabled.

    It’s like water always finding it’s own level; the state with minimum energy. If transferring water from one place to another releases energy, it will happen spontaneously when the barriers are removed. If moving water from one place to another requires extra energy, it won’t happen, even if there is no barrier in the way. Remove all barriers to release the maximum energy.

    Free trade is best – economically, at least. Trouble is, the same reasoning applies to the labour market, too.

  19. “Free” trade with places that can undercut your manufacturing base enriches the people with money who can afford the new consumer items by impoverishing the lower class who used to make them and are now unemployed. Is there a modern nation where this isn’t true?

    New Zealand.

    We have close to free trade. We also have very high employment. So your link between free trade and unemployment has hit a snag. (But I’m sure you can “No true Scotsman” it.)

    We used to have heavy subsidies for farmers and protective tariffs. That just made things more expensive and we had high unemployment. We have removed both barriers and are doing better — for a while we had one of the best economies in the Western world from a country with few natural resources.

    Yes, there still are issues. But it’s not like there was any time when there weren’t issues.

  20. @jgh,

    When I was serving in Germany in the early ’80s I got friendly with some German from a nearby barracks. They reckoned Germans would pay quite a subsidy to buy German white goods rather than foreign for the same reason, they believed their goods were superior.

    @BiS

    “*Or maybe a third country. Or fourth…”

    Which is bilateral tariffs and other protection don’t work. USA tried to limit goods from South Korea, by agreement, so they moved production elsewhere.

  21. Chester reminds of a holiday we had in the USA visiting most of the canyons and other famous geological sites*. We stayed in a B&B in a small town call Hicksville CA (with a name like that why wouldn’t you?) and at the communal breakfast table one of the guests bragged that the USA was the world’s freest market. He was having none of it when I said it was NZ and that the USA was a Licence Raj.

    *Little known Point Reyes on the San Andreas fault is worth a visit.

  22. Maybe you have to be a biologist to grok the timescale thing.

    You’re a biologist, I take it, Großer?

  23. The real import barriers Japan put up were on luxuries where the fact the good was foreign made it desirable, overwhelmingly spirits,

    That must have changed; imported spirits are much cheaper in Japan than Hong Kong today.

  24. Might the high employment in New Zealand be related to the fact that cheap workers can’t paddle across the sea from a neighbouring cheap country to flood the market? It’s a £76 MegaBus from Warsaw to London.

  25. Singapore and Hong Kong are successful in part because they are populated by Asians. Culture matter, even though it’s racist to point that out these days.

  26. Umm, why is “privateer” used here? If Switz is an upper bound, what actually defines the boundary? Are the Swiss doing anything different from the HK/Singaporeans?

    I would have thought they are; their business is flogging trust and security. Switz. being basically surrounded by mountains, it’s difficult for someone to get in and nick all the glod. You don’t want the Swiss nicking your glod either; so they have to consistently and repeatedly demonstrate a high level of trust to outsiders.

    HK/Sing might be slightly different; demonstrating trust as brokers, mediating between different (Asian – and non-Asian) cultures. I don’t know.

    One alternative is that they developed (maybe the Swiss did as well) particularly effective methods of detecting, punishing/excluding bad faith actors.

    Thing is, it strikes me that you can copy or embed these behaviours by codifying them under law, probably with the benefit of reducing capriciousness and promoting consistency.

    Did all three do this?

    If they did, then if the behaviours are now embedded in law, why would dunbar numbers or allen curves actually matter?

  27. Hang on there is something much more fundamental here.

    The project fear reasoning is completely goosed. They appear to saying:
    – Zero tariffs work for small countries but not for big ones
    – but we MUST – to avoid a Zombie apocalyse – have zero tariffs to a HUGE, vastly bigger zero tariff area.
    – Therefore we can’t have zero tariffs to anyone else when we leave the EU.

    ? wut ?

  28. “Asians” is a broad church, which, on the Malaysian peninsula, encompasses the Chinese people in Singapore and Malaysia who do the financial services, the Tamils who do the metal bashing and the Malays who fly kites and watch durians grow. Perhaps a tighter cultural definition is required, TN

  29. @Bloke in Germany February 8, 2019 at 7:59 pm

    It’s also why I don’t buy your innate white superiority crap

    You what? Where did I claim that?

  30. @Russtovich

    Canada is actually mental. The tariffs and barriers between provinces in Canada are so crazy that, if you live in somewhere central like Saskatchewan, it’s much, much cheaper to land stuff at a port in the US, then truck it across US and only cross the border into Saskatchewan directly, than to try and get it through BC and Alberta.

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