Nightcap

  1. The American Founders’ priceless legacy Myron Magnet, New Criterion
  2. The gonzo constitutionalism of the American Right Corey Robin, NYRB
  3. Britain at the end of history Robert Saunders, New Statesman
  4. Law’s disorder in Nigeria Marc-Antoine Pérouse de Montclos, LMD

Nightcap

  1. Pirates, liberty, and imperialism Regina Much, Commonweal
  2. Can hierarchies be rescued? Chang Che, Los Angeles Review of Books
  3. How to restrain judicial review Ryan Doerfler (interview), Vox
  4. Twilight of the union Colin Kidd, New Statesman

Post-pandemic trends in post-Brexit British foreign policy: Asia or the Atlantic?

Introduction

In January 2020, the UK had given a go-ahead to Chinese telecom giant Huawei to participate in its 5G network – with restrictions and conditions. The Trump administration conveyed its displeasure to the Boris Johnson administration. Not just the US President, but senior officials of the US administration are supposed to have said that this decision would impact economic and security relations between the UK and the US.

In the aftermath of the Covid-19 pandemic, ties between the UK and China have steadily deteriorated. As a result of increasing strains with Beijing, and the imposition of strong US sanctions against Huawei, London began to rethink its approach towards Huawei’s role in its 5G network.

First, it was decided that Huawei’s participation would be reduced to zero by 2023. In May, Britain had also proposed a multilateral grouping of 10 countries, D10 (G7+ India, South Korea and Australia), which could work collectively for reducing dependence upon Chinese technologies.

UK-China ties after the imposition of the National Security Law in Hong Kong

London further hardened its stance vis-à-vis China after the imposition of the National Security Law in Hong Kong, which, according to the UK, is a violation of the ‘one country two systems’ arrangement safeguarded by the ‘Basic law’ of Hong Kong and the Sino-British joint declaration signed in 1985. According to the Boris Johnson administration, the National Security Law will impinge upon not just the autonomy of Hong Kong but freedoms and rights of the residents of the former British colony, guaranteed by the 1985 declaration (these rights were to remain in place for a period of fifty years from 1997 – the year in which British left Hong Kong and handed over sovereignty to China).

Decision regarding Huawei

On July 14, 2020, on the recommendation of National Cyber Security Centre (NCSC), the Boris Johnson administration decided that Huawei will be removed from the 5G network by 2027. It was also decided that the purchase of 5G kits from Huawei will not be allowed after the end of December 2020.

China reacted strongly to the UK’s recent announcement, while it was welcomed by US President Donald Trump. China stated that the UK’s decision will exacerbate tensions, while the US President stated that the Johnson administration took this decision as a result of pressure from Washington. A top official in Boris Johnson’s administration stated that this decision was not driven by US pressure. Said the British Foreign Secretary Dominic Raab:

But I think that decision was made not because the US said it was a good decision but because the leadership in the UK concluded the right thing to do was to make that decision for the people of the UK.

Interestingly, some media reports suggest that British officials have stated that the recent ban on Huawei was imposed with a view to placate Trump, and the UK could revise its decision, if the mercurial US President is voted out in November 2020.

UK-Japan relations

Britain has already begun to look for alternatives to Huawei for developing its 5G network. On July 16, 2020, just two days after the decision was taken to remove the Chinese telecom giant altogether by 2027, British officials are supposed to have met with their Japanese counterparts and sought assistance for developing Britain’s 5G network. Two companies which were discussed as possible alternatives to Huawei were NEC Corp and Fujitsu Limited.

It would be pertinent to point out that in recent months Britain has been aiming to strengthen trade ties with Japan, and is also looking to secure a Free Trade Agreement (FTA) with Japan. Both countries have also been at the forefront of pitching for diversifying global supply chains.

Conclusion

While it remains to be seen whether Britain and Japan can work together for developing the former’s 5G network, the London-Tokyo relationship has witnessed an upswing in the aftermath of Covid-19. Both countries have already begun to take steps for reducing economic reliance on China. It would be interesting to see if Britain sticks to its announcement of removing Huawei from its 5G network by 2027, in case Donald Trump loses in 2020. While Britain is seeking to strengthen ties with countries wary of China’s increasing economic dominance, the former would not likely to be perceived as a mere appendage of Washington.

New ‘summer eating allowance’ hard to stomach for low earning taxpayers

Rishi Sunak on the economy and lessons learnt from the Covid-19 ...

[This is a guest post by Dr Wesley Key, Senior Lecturer in Social Policy at the University of Lincoln.]

The announcement on 8th July 2020 by Chancellor Rishi Sunak that the government will refund 50% of the cost of meals out during Mondays-Wednesdays in August 2020, at an estimated cost to the taxpayer of £500m, will, for many reasons, be hard to stomach for low paid working age taxpayers who cannot afford to eat out themselves. For such people, paying the rent, heating their homes and feeding their children will often leave little or nothing left over for dining out.

This new ‘summer eating allowance’ is likely to disproportionately benefit affluent older people with high levels of disposable income, whose custom typically helps to sustain many eating outlets during the mid-day/afternoon periods of the working week. The very same affluent older people who have qualified, with no means test, for free prescriptions aged 60-plus, for a free TV licence if a household member is aged 75-plus (up to August 2020), for a Winter Fuel Payment if a household member has reached state pension age, and for free local bus travel if they have reached women’s state pension age, regardless of their gender. The very same older people to benefit from the seven-fold rise in UK private pension income during 1977-2016.

Low paid and benefit dependent parents may also wonder why Chancellor Sunak is splashing out such a large sum of taxpayers’ cash, given that it took the efforts of Manchester United footballer Marcus Rashford to change government policy on 16th June 2020 to ensure that children eligible for Free School Meals continued to receive the relevant food vouchers during the elongated summer vacation period. This ‘COVID Summer Food Fund‘ was eventually set up at an estimated cost of £120m, less than a quarter of the cost of Sunak’s ‘Eat out to help out’ scheme, a.k.a. the ‘summer eating allowance.’

In the longer term, when the reality of tax rises and/or spending cuts to pay for the COIVD-19 bailout begins to bite, the government needs to focus on intergenerational fairness and ensure that well off pensioners pay their share of the nation’s debt. It is time that a government made non-poor over-60s purchase their medication via a Prescription Prepayment Certificate (PPC), which in 2020-21 costs younger adults £29.65 for 3 months or £105.90 for 12 months, sums well within the reach of people in receipt of private and state pension payments. It is also time to make employees aged 65-plus pay a tax of the same rate as the employee National Insurance Contributions paid by younger workers, in order for older workers to fully contribute to the funding of the public services that they use more extensively than their younger colleagues. Such moves to cut the benefits received by, and increase the tax taken from, healthy, active people in their 60s and 70s would help to increase the funding of the social care services that are largely used by people aged 80-plus who are no longer able to undertake paid work and are entitled to face lower user charges for the social care that they require to ensure a degree of dignity and independence in old age.

What will a post-pandemic British foreign policy look like?

Introduction

The United Kingdom’s post-corona foreign policy is likely to be driven by some crucial economic factors. On the one hand, it will continue to work closely with countries like the United States, Japan, Australia, and India to reduce its dependence upon China. On the other hand, the UK cannot totally bank on the US for achieving its economic goals, given the unpredictability of US President Donald Trump.

The UK needs to look at new Free Trade Agreements (FTA’s) and also be part of multilateral arrangements, such as the Trans Pacific Partnership, which will enable it to diversify its supply chains.

Important upcoming economic decisions

Given the changing environment of the post-corona world, London now has an eye on enhancing self-sufficiency and reducing reliance on China.

The Boris Johnson government has set up a committee — ‘Project Defend’ — which seeks to study the UK’s economic dependence with hostile countries (with a specific thrust on China), especially for sensitive imports. Based on the findings of Project Defend’s report, for example, the UK will work towards the relocation of pharmaceutical companies. While changing supply chains overnight may not be an easy task, the Boris Johnson Administration has made an important decision.

The UK’s recent decision on Huawei

The Boris Johnson Administration has also recently decided to reduce Huawei’s participation in the 5G network to zero by 2023. In January 2020, Boris Johnson had given a go ahead to Huawei’s participation in the ‘non-core’ element of the 5G network, with important restrictions, as well as a 35% market share cap. This decision drew flak from a section of Conservative Party politicians, who for long have been arguing that the UK needs to be cautious with regard to close economic ties with China, since this has serious security implications. The Trump administration had also expressed its displeasure with the Boris Johnson administration. The US President and senior officials in his administration have publicly expressed their unhappiness, saying that this decision could have an impact on security cooperation between both countries.

In the aftermath of the coronavirus pandemic, ties between the UK and China have gone downhill (senior officials of the Johnson administration have criticized China for suppressing information with regard to the outbreak of the pandemic), and Johnson’s decision was driven by two factors: 1) increasing pressure from Conservative MP’s who had threatened to vote against the government’s decision, and 2) the fact, that the UK is keen to go ahead with an FTA with the US (there have been differences between the US and UK, however, on the issue of the FTA, with the US urging the UK to make a choice between China and the US).

Apart from this, the recent US sanctions imposed on Huawei have also played a role in Johnson’s decision of reducing Huawei’s participation by 2023 (the Trump administration has made it compulsory for foreign manufacturers using U.S. chipmaking equipment to obtain a license before being able to sell chips to Huawei).

D10 network

Interestingly, the UK has also proposed that a group of 10 countries, dubbed as D10, joins hands to provide an alternative to Huawei’s 5G network and other technologies with the aim of reducing dependence upon China. The proposed grouping would consist of the US, Italy, Japan, the UK, South Korea, India, Germany, France, Canada, and Australia.

The UK has thus taken the lead in providing an alternative to the now bipolar status quo. Significantly, Trump has also stated that he is keen to expand the G7 and include not only India and South Korea but Russia as well.

UK also keen to play an important role in the TPP

While on the one hand the UK is trying to reduce its dependence upon China by joining hands with the US and like-minded countries, on the other the UK is also seeking membership within the Comprehensive and Progressive Agreement for Trans Pacific Partnership (TPP), which consists of 11 members (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam).

While the idea of the TPP was proposed by former US President Barack Obama, the first decision taken by Trump after his electoral triumph in 2016 was to withdraw from the agreement. Japan has been playing an important role in the TPP, and efforts are being made to expand its membership so that democratic dependence on China is still further reduced.

The UK faces numerous challenges and while it does need to reshape its economic relationship with China, London recognizes that this cannot be done overnight, so enhancing FTAs and joining the TPP are important steps in geopolitical context.

From a purely strategic perspective, the UK-US relationship has been important and with Johnson and Trump at the helm, and increasing convergence on attitudes vis-à-vis China, this is likely to get further strengthened (though of course there will be differences on both economic and geopolitical issues). The idea of the D10 grouping mooted by the UK has also sent a clear message that in spite of numerous economic challenges, the UK is keen to emerge as an important player, in its own right, in the post-corona world order.

Is Dominic Cummings a hypocrite, or does the EU’s Common Agricultural Policy just suck?

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On Saturday, The Observer revealed that Prime Minister Boris Johnson’s recently appointed chief of staff received around £235,000 of EU farm subsidies over the course of two decades in relation that his family owns. Dominic Cummings is often portrayed as the mastermind behind the successful referendum campaign to Leave the European Union. So he is currently enemy no.1 among remain-supporters.

I am unconvinced this latest line of attack plays in Remainers’ favor (I was a marginal Remain voter in the referendum and still hold out some hope for an eventual EEA/EFTA arrangement). Instead, this story serves as a reminder of probably the worst feature of the current EU: the Common Agricultural Policy.

The CAP spends more than a third of the total EU budget (for a population of half a billion people) on agricultural policies that support around 22 million people, most of them neither poor nor disadvantaged as Cummings himself illustrates. Food is chiefly a private good and both the interests of consumers, producers and the environment (at least in the long-term, as suggested by the example of New Zealand) are best served through an unsubsidized market. But the CAP, developed on faulty dirigiste economic doctrines, has artificially raised food prices throughout the European Union, led to massive over-production of some food commodities, and denied farmers in the developing world access to European markets (the US, of course, has its equivalent system of agricultural protectionism).

These economic distortions make an appearance in my new paper with Charles Delmotte, ‘Cost and Choice in the Commons: Ostrom and the Case of British Flood Management’. In the final section, we discuss the role that farming subsidies have historically played in encouraging inappropriately aggressive floodplain drainage strategies and uneconomic use of marginal farming land that might well be better left to nature:

British farmers currently receive substantial subsidies through the European Union’s Common Agricultural Policy. This means that both land-use decisions and farm incomes are de-coupled from underlying farm productivity. Without the ordinarily presumed interest in maintaining intrinsic profitability, farmers may fail to contribute effectively to flood prevention or other environmental goals that impacts their output unless specifically incentivized by subsidy rules. If the farms were operating unsubsidized, the costs of flooding would figure more plainly in economic calculations when deciding where it is efficient to farm in a floodplain and what contributions to make to common flood defense. Indeed, European governments are currently in the perverse position of subsidizing relatively unproductive agriculture with one policy, while attempting to curb the resulting harm to the natural environment with another. These various schemes of regulation and subsidy plausibly combine to attenuate the capacity of the market process to furnish both private individuals and local communities with the appropriate knowledge and incentives to engage in common flood prevention without state support.

Our overall argument is that it is not just the direct costs of subsidies we should worry about, but the dynamics of intervention. In this case, they have led not only farmers but homeowners and entire towns to become reliant on public flood defenses with significant costs to the natural environment. There is limited scope for the government to withdraw provision (at least in a politically palatable way).

Turning back to The Observer’s gotcha story, it isn’t clear to me that Cummings is a hypocrite. I think the best theoretical work on hypocrisy in one’s personal politics comes from Adam Swift’s How Not To be Hypocrite: School Choice for the Morally Perplexed. In it Swift argues that the scope to complain about supposed hypocritical behavior, especially taking advantage of policies that you personally disagree with, can be narrower than intuitively imagined, mainly because of the nature of collective action problems. Swift’s conclusion is that, in some circumstances, leftwing critics of private schools are entitled to send their own children to private schools so long as others continue to do so and burden of doing otherwise is too strong. Presumably, this also means that strident libertarians are not hypocritical to use public roads so long as a reasonable private alternative is unavailable.

In an environment where every farmer receives an EU subsidy, it might be asking too much of EU-skeptic farmers to deny it to themselves. Instead, it seems legitimate and plausible to take the subsidy while campaigning sincerely to abolish it.

Britain’s Pornographer and Puritan Coalition

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Brexit isn’t the only ridiculous thing happening in the United Kingdom. In April, the British government is rolling out statutory adult verification for pornography websites and content platforms. This requires all adult content providers to have proof of age or identity for all their users, whether a passport or a credit card (or more ludicrously a ‘porn pass’ that Brits wishing to browse anonymously will have to buy from local newsagents). The government plans to require internet service providers to block pornography websites that are not in compliance with adult verification once the system is in place. For those with university institutional access, Pandora Blake has written a timely explanation and critique published in Porn Studies: ‘Age verification for online porn: more harm than good?’.

Technical challenges with rolling out the system have led the dominant pornography search platform owner, MindGeek, to develop proprietary solution, AgeID, in cooperation with regulators. This cooperation between the dominant commercial pornography platform supplier and a Conservative government publicly intent on restricting access to pornography might appear surprising. However, it can be explained by a particular pattern of regulatory capture identified in public choice theory as a Bootlegger and Baptist coalition. Bruce Yandle observed that throughout the 20th century, evangelical Christians in the United States agitated for local restrictions on the sale of alcohol with the avowed aim of reducing consumption but with the secondary effect of increasing demand for alcohol for illegal bootleggers. Hence both interest groups, apparently opposed in moral principle came to benefit in practice. We now have a classic British case study. In this case, MindGeek is not acting as a literal bootlegger. It intends to be fully legally compliant with the filtering regime. However, the law will block all non-compliant competitors without a comparable verification system. They can gain a competitive advantage with a proprietary technical solution to the barrier introduced by the government.

Introducing identity verification systems has high fixed costs and low marginal costs. It is costly to develop or implement but easy to scale once integrated. The larger the pornography enterprise, the more easily these costs can be absorbed without the risk that it will not be worthwhile to serve the British market. For many smaller international pornography websites, without in-house legal advice or technical expertise, it might prove uneconomical to serve British users directly. So MindGeek’s platforms could become the least-cost legal gatekeeper between small enterprises producing pornographic content and the British public. The government is raising transaction costs to accessing pornography in a way that impacts larger and smaller platforms asymmetrically and favors one dominant platform in particular.

Both the premise of this policy and its likely impact on the market for pornography is unpromising. At its most benign, this could be a characterized as a ‘nudge’ against the consumption of pornography and reducing access of inappropriate content to minors. But these limited benefits have costs for both producers and consumers. On the consumption side, it increases risks to data security and privacy because it will plausibly tie records of pornographic access to verified identities, with a clear likelihood of being to infer an individual’s sexuality from private browsing. This could represent a particular vulnerability for LGBTQ identifying individuals who live in communities where there is still stigma attached to minority sexual orientations.

On the supplier side, it takes what already appears to be a market with strong tendencies towards a winner-takes-all model, and then augments it so that a dominant platform has a legally enforceable competitive advantage over potential rivals in the market. Ultimately, it threatens to further strengthen the bargaining position of a single corporate pornography platform against the sex workers who supply their content.

Nightcap

  1. Don’t believe the myth that this is a nation of Little Englanders Alex Massie, CapX
  2. The American Greatness narrative: a look under the hood Samuel Goldman, Law & Liberty
  3. In South Africa, minorities are at risk (even though it’s Not Yet Genocide) Mpiyakhe Dhlamini, Rational Standard
  4. Military dictatorship in Brazil: was it worth it? Bruno Gonçalves Rosi, NOL

RCH: Playing catch-up (Churchill, Rosa Parks, and Christmas in the New World)

I hope y’all have been enjoying my “nightcaps.” I have a wife, a toddler, and another little one due next month so life is too hectic to write much, but I have been plugging away at RealClearHistory and here are a few of the ones I’ve done over the past 14 days or so:

We’re still here. We still love blogging. Thanks for stickin’ around. The year ain’t over yet, and 2019 at NOL figures to be the best one ever. I’ll be back soon with my end of the year posts, one for most popular notes and one highlighting my personal favorites.


*for copyright reasons RCH had to use a different photo for the piece, but I submitted this one. It’s waaaaay cooler.

Populism versus Constitutional Democracy

What is the difference between a conservative and a reactionary? A conservative knows when she has lost.

A conservative respects the status quo for the sake of stability. The reactionary rebels against it. Unfortunately, it is the reactionary impulse within Brexit that now threatens to hem in the liberties of British citizens, and threaten the rights of foreign residents, for a long time to come. A looser but productive relationship that Britain could have had with the European Union was lost, first at Maastricht in 1992, then again at Lisbon in 2007. A conservative recognizes this loss and adapts her politics to the new landscape. The reactionary tries to reconstruct those lost pasts in vain as the chaotic debates in Britain and the increasingly disappointing outcome illustrates.

Does this mean that referendums are bad? Do they only embolden radicals and reactionaries? It depends. If referendums are used to rubberstamp the decisions of a party in power, or as a way of deferring political judgement, then they are useless at best, dangerous at worst. By contrast, if they are part of the fabric of a democracy, and act as a real veto on constitutional change, rather than a populist rallying point, then they can be enormously valuable. They act as an additional check on the political establishment that might be irrationally fixated on some new governance structure. It ensures that every major change carries with it some level of majority support.

Ten years ago, I wrote a monograph Total Recall: How direct democracy can improve Britain. I advocated supplementing representative democracy with a norm or statutory requirement for referendums on constitutional issues and new local initiative powers. I focused on direct democracy in US states that mean that US state elections often involve both voting for representatives and on propositions. Referendums are required for state constitutional changes. In some states, citizens can initiate new legislation through propositions.

There are parallel constitutional requirements in force in parts of Europe, particularly in Switzerland, Norway and Ireland. It is hardly a coincidence that direct democratic mechanisms have slowed down European integration wherever they have had statutory rather than merely advisory force. Ireland had to go to the polls several times to get the ‘right’ answer but at least this meant that a majority of Irish eventually accepted the new EU arrangements. By contrast, Switzerland and Norway, against the wishes of their political establishments, took European integration only so far before settling with generous trade relations and much more limited political integration. The cost-benefit calculus of their arrangements are up for debate, but few would deny their legitimacy. Britain’s future position, by contrast, may turn out to look much worse and all because its people never had the chance to say ‘no’ until long after the facts on the ground changed.

It’s the ability to say ‘no’ that’s important, with the implication that the status quo must still be a viable option. A people cannot be legislators. Mass votes can’t add up to complex judgements to inform actionable law. Hence the Brexit referendum for leaving the EU for an unknown alternative was bound to lead to chaos which, in the long run, may undermine the legitimacy of representative government, let alone popular democracy, rather than strengthen it. There is no status quo ante to return to.

At the time I was writing Total Recall, the spirits of referendums never voted on haunted British politics. Referendums were promised on adopting the Euro and the European Constitution. Both were abandoned when the Government realized they would almost certainly lose. So we stayed out of the Euro but signed what became the Lisbon Treaty. This turned out to be a deadly combination that eventually led to Brexit. The Euro is quite badly managed as an economic scheme. As a political mechanism, however, it binds members of the Euro much closer together. Leaving the European Union, as Britain is doing, is perilous and costly. Leaving the Eurozone would be even more difficult as it would involve establishing a new currency from scratch. If New Labour had been serious about putting Britain in a federal united states of Europe, it should have gone all in with the Euro from the beginning.

So Brexit could have been avoided but not by ignoring majority sentiments. If British referendums were constitutionally mandated rather than the random outcome of internal (in this case, Conservative) party politics; if referendums were required to change the status quo rather than a mechanism for a belligerent minority to relitigate past losses, then, like Switzerland and Norway, we would be in a much better position now.

Will our political leaders learn this lesson for the future? That I doubt.

Nightcap

  1. What counterfactuals (don’t) tell us Chris Dillow, Stumbling & Mumbling
  2. The counterfactual and the factual Mark Koyama, NOL
  3. Anti-clerical movements in Mexico Madeleine Olson, Not Even Past
  4. A World Cup for the world’s stateless Pete Kiehart, ESPN

Brexit Breakdown and Confusion

I posted earlier this month on Brexit Breakdown suggesting that the aims of enthusiasts for the United Kingdom of Great Britain and Northern Ireland, leaving the European Union, have been eroded as the UK government’s positions drifts towards ‘soft Brexit’ accepting alignment with EU regulations on industrial goods and food, at the very least. This is still the case, but the situation has become increasingly complex, driven in an unpredictable way by contradictory forces, as I will attempt to explain below.

Full ‘soft Brexit’ would mean membership of the European Free Trade Association (EFTA), with almost complete adherence to European regulation. ‘Hard Brexit’ means eliminating any adherence to EU regulations, which in its most rock hard form means a willingness, even a preference, for crashing out of the EU with no agreement, resorting to World Trade Organisation rules to govern trade. On the other side are ‘Remainers’, including myself, who ideally would like to stay in the European Union after a referendum reversing the decision of two years ago; and who if this is not possible will work for the return of the UK to the EU at a future date.

It is still the case that over time the government has drifted towards soft Brexit, though not EFTA, and seems likely to end up agreeing to an even softer Brexit after EU negotiations are complete. The most notable area of likely compromise with the EU is to preserve an almost completely open border between Northern Ireland and the Republic of Ireland by allowing de facto membership of the EU Customs Union of Northern Ireland through a de facto border in the Irish Sea between Great Britain and Northern Ireland, largely in the form of EU customs inspections on ships between Northern Ireland and Great Britain.

The House of Commons anyway came very close recently to voting for the UK as a whole to form a customs union between the UK and the EU, so a proposal backed by the government for a form of customs union between the UK and the EU allowing an open border between Northern Ireland and the Republic without a customs border in the Irish Sea would certainly pass the House of Commons. It is one of the oddities of Brexit that a free vote of the House of Commons would result in the UK joining EFTA and this is resisted by the leadership of the two largest parties.

The Labour Party leadership resists EFTA (or any other way in which the UK stays in the Customs Union or the Single Market) though most Labour Party Members of Parliament, party members, and voters support remaining in the EU. The Labour leader Jeremy Corbyn supported Remain in the referendum though he has always looked like a socialist critic of the EU as a capitalist club. The Conservative Party leadership resists EFTA, though most Conservative MPs supported Remain in the referendum and would vote for EFTA now, and the leader (who is also Prime Minister), Theresa May, supported Remain during the referendum. In the case of the Conservatives though, party members and voters are mostly Leave and hard Brexit.

Theresa May gathered her Cabinet at the Prime Minister’s country residence, Chequers, recently to force through a soft Brexit package, in the hope of ending increasingly public conflict on the issue. Two members of the Cabinet have since resigned and Brexiteers in the House of Commons have forced some concessions, though of a rather secondary kind, which might disappear in further negotiations with the EU and the final parliamentary vote on the exit deal.

The consequences of recent political manoeuvres are as follows:

  1. The government has moved towards a softer Brexit,
  2. Hardcore Brexiteers have pushed back with some success,
  3. A second referendum seems more likely though not the most likely scenario,
  4. A no deal hard Brexit seems more likely though not the most likely scenario.

These four things do not seem to go together and what has happened is a drift from what seemed like the overwhelming probability of a hard Brexit with an agreement, to a relatively chaotic situation in which it is becoming harder and harder to decide on the most likely of the possible outcomes.

Hard Brexit without a deal has come to seem more likely because hard Brexiteers in the Conservative Party may undermine any agreement the Prime Minister (who has recently started to exercise direct control over negotiations) may reach with the EU and there are signs that the United Kingdom Independence Party (UKIP) will take voters from the Conservatives in the case of a soft Brexit. Theresa May is trying to achieve a position which can get most MPs behind her, and most Conservative MPs will probably support any deal she proposes. However, the hard Brexit people are willing to do anything to undermine a deal they consider inadequate and may vote with Labour in voting down a deal, though for very different reasons.

May’s hold on the Conservative Party is weak after her very poor performance in last year’s general election and no one expects her to be the leader at the next election (though given that the impossible seems to be becoming possible maybe we should not accept this as a given). Any election for the leader requires a contest in the parliamentary party to determine two candidates, with the Conservative Party membership as a whole deciding between them. The membership will undoubtedly vote for the more hard Brexit candidate, which at the moment seems likely to be Boris Johnson or Jacob Rees-Mogg. Rees-Mogg has absolutely no governmental experience at all, which would create an unprecedented situation if he does become Conservative leader and Prime Minister.

Neither Rees-Mogg nor Johnson is popular with the parliamentary party, so there must be a real possibility that neither makes it the final list of two candidates, presuming the parliamentary party does not persuade the candidates behind the leader of the first round to abandon the contest, which is what happened in May’s case. This could set off a major crisis in the Conservative Party.

The possibility of a second referendum (labelled a People’s Vote by its main advocates) is increasing because it seems likely that hard Conservative Brexiteers allied with the Labour Party will vote down any soft Brexit, and it also seems likely (but less likely as hard Brexiteers are more willing to vote against their own government) that an alliance of soft Conservative Brexiteers and the Labour Party will vote down any hard Brexit. It also seems very possible that the EU will reject any UK offer, as the arguments within Parliament and the Cabinet on the terms of Brexit refer to what can be agreed within British politics, not what the EU might find acceptable. At the very least it seems increasingly likely that substantive Brexit will be postponed, apart from withdrawal of UK representatives from EU institutions, for at least a couple of years after next year’s formal withdrawal.

The various forms of deadlock described above have not yet made a second referendum likely, but are increasing the likelihood of a second resort to the People to find a solution, though the question that would be asked, the form of any such referendum, its timing and so on remain unclear. Opinion polls show increasing support for a second vote and for then remaining in the EU, while the media is giving more coverage to the possibility. I would be happy to see such a result myself. The increasing uncertainty about what Brexit means itself undermined Leave claims that it would be an easy exit. Nevertheless, I have to say that the UK is probably leaving and that a no-deal Brexit is also increasing in probability.

On Robert Allen’s defense of the High-Wage Economy hypothesis

The high-wage economy thesis is a topic I have blogged about many times before as I think it is an important debate among economists and economic historians (see notably here and here, see also this contribution of mine to the Journal of Interdisciplinary History). For those unfamiliar with this thesis, here is a simple summary of the idea advanced by Robert Allen: high wages relative to capital units was a key force in the industrialization of Britain and thus it explains why the Industrial Revolution was British before if was anything else.

As I have explained in the aforementioned blog posts, I am unsure of where I stand regarding this idea. I tend to be skeptical, but I have stated the evidence needed to convince me of the opposite. In the past year or so, there has been an avalanche of articles on the topic including this article by Humphries and Weisdorf, a follow-up working paper by the same authors, another paper by Judy Stephenson and a working paper by Stephenson (bis). Today, Robert Allen replies to his critics in this working paper.

I find that some of the points are convincing, however I must take issue with a particular point that falls into my ballpark as Allen mentions my work on wages in France (the aforementioned article in Journal of Interdisciplinary History). In my research, I pointed out that Allen’s computations underestimated wages outside Paris. With the correct computations, the rest of France does not appear as poor relative to England as Allen suggests. Allen concedes this point but then goes to state the following:

Geloso (2018) has pointed out that the Strasbourg unskilled wage series for 1702-64 is low in comparison to that of comparable towns, and workers may have received food, which has not been taken into account.  This is a perceptive point, but its implications are limited. The most important use I make of the Strasbourg evidence is in calculating the ratio of the wage to the user cost of capital. If the Strasbourg wage in this calculation is raised to that of neighbouring towns, the wage-capital cost ratio does rise but only by a small degree. The reason for this somewhat surprising result is that the wage is also an argument in the formula for the user cost of capital–building workers have to build the machines and the mills that house them–so the denominator of the ratio increases as well as the numerator, although to a lesser extend.

This is a incorrect characterization of my argument. First, I did not state that wages in Strasbourg did not account for in-kind payment. I stated that in-kind payment was evidence that the wages did not pertain to Strasbourg! The wages from the primary sources were for a city some 70 km away from Strasbourg, they did not concern unskilled workers and they included large in-kind compensation. To correct for this problem, I compared agricultural wages in England with those around Strasbourg that had been collected by Auguste Hanauer. What I found was the the lowest wages in farming were equal to 74% of farm wages in Southern England (as opposed to 64% with Allen’s stated wages). While I did not report this in the article because I had doubts, it is worth pointing out that the high bound of farm wages in Strasbourg is above the level reported for Southern England (which acts a proxy for England – see table 2 in my paper). As Strasbourg is a proxy for living standards outside Paris, my finding suggests a much smaller gap in living standards. It also entails a much more important change in the cost of capital to labor (wages are in the range of 50% above those suggested by Allen and sometimes they are higher by more than 100% which would mean a halving of the relative cost of capital! These are not peanuts to be thrown on the sidewalk!

Second, I ought to point out the nature of my argument. I was not trying to prove/disprove the high-wage hypothesis. My point was much more modest. The mirror of the question as to why the industrial revolution was British is why it was not French. France had a large population offering large returns to scale (in both economic and political organizations) and an array of navigable rivers that facilitated internal trade. It also key pockets of Lancashire-like industrialization such as Normandy (for textile) and Mulhouse (the French Manchester). As such, it is an entirely reasonable endeavor to try to situate living standards in France relative to Britain. If France was massively poorer than England, then Allen has a greater likelihood of being correct. If it was closer to an equal footing (I do not believe that anyone places France above England in circa 1750), then Allen’s critics have a greater likelihood of being correct.* However, regardless of the answer, the data does not infirm/confirm the high-wage hypothesis. It merely situates relative likelihood. As I point out that wages were quite above those postulated by Allen, I am merely stating the extent of the reasonableness of being skeptical of the high-wage hypothesis.

Finally, it is worth pointing out that the work of Leonardo Ridolfi is absent from Allen’s reply. The latter’s work is very important as it echoes (in a much richer manner) my point that wages outside Paris were not as low as cited by Allen.**

*As I assume a greater equality of capital returns across both countries, the smaller the wage gap, the smaller the relative differences in capital/labor costs ratios.
** Ridolfi shows France had incomes equal to 64% of English incomes circa 1700. However, I am skeptical of this figure. This is because, while I trust the index produced by Ridolfi, I am unconvinced about the benchmark year to convert the index into international dollars.

Battling Time and Ignorance: Mario Rizzo at 70

Last week my friend and colleague Mario Rizzo, a scholar central to the revival of  contemporary Austrian economics, turned 70. This occasion prompted a spontaneous outpouring of praise for his work, as well as messages of gratitude for his support of students and fellow academics over his decades as an intrepid professor with his home firmly at NYU. They are collected over at ThinkMarkets. Jeffrey Tucker has written an excellent summary of Mario’s intellectual contributions at the American Institute for Economic Research. Below is a segment of my birthday message:

In my home, the United Kingdom, classical liberal thought has until recently been virtually unheard within much of academia. As a student and think-tank researcher ravenous for liberal approaches to public policy, I gorged on Mario’s blog posts from ThinkMarkets. Together with Marginal Revolution and Cafe Hayek, ThinkMarkets was a critical lifeline for me facing an intellectual world dominated by various visions of authoritarianism and only slightly more benign variants of paternalism.

Thanks to Mario’s selfless contributions to the revival of Austrian economics, that intellectual world is changing, even in the UK. His co-founding of the Society for the Development of Austrian Economics and hosting the Program on the Foundations of the Market Economy at NYU has provided support and inspiration for countless young scholars.

I am very fortunate to be among that multitude.

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Brexit Breakdown

Ir has been obvious for at least a month now that soft Brexit has won out in the UK, though the Prime Minister Theresa May would never admit such a thing directly. Government discussion of access to the EU internal market at its existing level, or very close, and keeping the border open between the Republic of Ireland and Northern Ireland (a fundamental of the peace settlement in the north) would at the very least require continuing regulatory alignment in goods (that is, following the rules made by the European Union).

It seems very likely that negotiations of the terms of exit with the EU itself would make even this partial alignment with the internal market inadequate in order to get the desired level of access. At the very least EU negotiators would demand some inclusion of services (financial services are the big issue here) and something at least resembling free movement of labour.

That inclusion would be full UK access to the internal market after exiting and would require at least a Swiss style relationship with the EU, in which there is full market access in exchange for accepting EU rules and something close to free movement of labour. Such a relationship would mean accepting judgments of the European Court of Justice even if they are not incorporated into UK law. The UK might not follow Switzerland into EFTA (European Free Trade Association, see paragraph below).

It has even been suggested that the UK might find it necessary to adopt a ‘Norway’ solution, in which the UK is directly a member of the European Economic Area. Norway has free movement but opts out of common agricultural and fisheries agreements. It is not part of the EU customs agreement. Like Iceland, Lichtenstein, and Switzerland, it is a member of the European Free Trade Area, which essentially harmonises regulations between these countries and the EU; that is, EU regulations are enforced by EFTA institutions.

It is clear that most Conservative MPs and businesses (though more large business than small business) regard something like the arrangements above, soft Brexit, as preferable to hard Brexit (trade agreement with the EU as a completely external country, possibility of no deal). These MPs and business people, along with most Treasury economists and economists in general, believe that keeping complete access to EU markets is more valuable than vague claims of a trade boom through deals with non-EU states across the world.

Hard Brexiteers believe that economic growth of other parts of the world requires breaking free of EU shackles on global free trade. The soft Brexit, as well as Remain, argument is that membership of the EU does not prevent trade with the rest of the world and that some EU countries are already doing that very well compared with the UK. On this argument, geographical proximity will always make EU trade disproportionately important so that limiting access to EU markets in the hope that non-EU countries will want free trade agreements is unnecessary and probably very damaging.

May’s drift towards soft Brexit after presenting herself as the guardian of hard Brexit has the support of most of the Cabinet, and Conservative MPs, but has been disappointing hard Brexiteers for some time. An agreement of the full cabinet at the Prime Minister’s country residence for soft Brexit has led to the resignation of the two most hard Brexit-oriented ministers.

It seems unlikely this this will deter May from a soft Brexit policy, which everyone agrees can only become more soft in negotiations with the EU to achieve an agreed exit. It also seems unlikely that most Conservative MPs will resist this policy. The biggest problem for May could be that the opposition parties want to vote against the government in call circumstances, so could vote with hard Brexit Conservative MPs to bring down any Brexit agreement.

At this point Brexit might completely break down, with the UK becoming a full member of EFTA, so in practice a member of the EU which exchanges some opt-outs for absence from the decision making processes and institutions. It might even lead to a suspension of Brexit, or a second referendum in which the electorate chooses between the exit package and staying in the EU.

At present, the most likely options in descending order are: 1. soft Brexit, outside formal association with the EU, but like that in practice, 2. formal association with the EU, maybe meaning membership of EFTA, 3. the complete breakdown of Brexit. This could change and so far change has been to move further and further away from hard Brexit.

Personally I support continuing membership of the EU. It is inevitable that large parts of the UK economy will ‘align’ with EU regulations, so it is best to be part of the institutions and processes which decide on these regulations. That is the most pragmatic version of my argument.

I am also a strong European integrationist, even a federalist romantic. The qualification of this idealism is that integration should not go further than public opinion or institutional capacity can accept at any one moment and that economic realities should guide the relationship with Europe for and against the kind of integration I favour at heart.

My own ideal is a kind of revival of the medieval dreams of ‘universal’ (i.e. European) Empire. The poet Dante was a great exponent of such a vision in his classic of political thought On Monarchy, which does not exclude city republics, even favours them under a high European sovereign. We can join it with Marsiglio of Padua’s slightly later call for an empire with elections to have something like democratic federation for Europe.

Leaving my European romanticism aside for the moment, the current realities are that the UK’s exit from the EU has become more and more complicated by the disadvantages of disentangling complex and far reaching institutional and economic links, particularly when most people involved want to keep an open border with the Republic of Ireland and keep 100% of the current level of access to the internal market.