TCS Daily


The Peter Principle Stalks Brussels

By Tim Worstall - September 1, 2005 12:00 AM

I wrote here recently that as politicians are incompetent we therefore shouldn't ask them to actually try and do very much. I'd just like to call for a big vote of thanks to a certain Peter Mandelson for making my point so well. He is, for those who do not know, the Trade Commissioner of the European Union and current poster child for my thesis, that politicians cannot do anything without making a complete pig's ear of the entire affair.

The background you probably know so just a little recap. We finally allowed the Multi-Fiber Agreements to lapse at the start of this year, leading to, at last, free trade in clothing and textiles. This led to a (well predicted) surge in imports from China, the result of which was political pressure to reimpose quotas on such products. After all, European industry had only had a decade to get used to the idea. As the fine upstanding man that he is, Mandelson caved into the pressure and did exactly that, reimposed quotas on certain imports from China. The free trade era managed to last a shade over 6 months, a fine display of political backbone one might think.

So what has been the effect of this decision? That one needs to protect the poor citizens of Europe from clothing too cheap for them to be allowed to purchase? Rather than my words, how about The Guardian's:

        British retailers and importers called last night for immediate action to 
        lift curbs on cheap Chinese clothes coming into the country as it emerged 
        that millions of pounds worth of garments are sitting in ships off the British 
        coast as a result of a new European-wide quota on Chinese textiles. 
        
[...]
        
"Retailers were told about the restrictions after the goods were shipped out 
        of China," said Alisdair Gray, of the British Retail Consortium. "China is 
        such a crucial market. Retailers have invested there for the long-term. You 
        can't get the levels of quality and customer service elsewhere like you can 
        in China."

        Retailers argue that the timing of the quotas was unrealistic. "We're 
        working six to 12 months in advance. We placed our orders before 
        Christmas in the expectation that there would not be a quota and now we 
        find that we can't get our goods," Mr Neale said.

Our delightful technocrats, those who get paid to make the decisions too tough for us to trouble our pretty little heads over, did not actually know how the industry they were trying to regulate worked. Lead times, pre-payment, shipping times, none of these meant anything to them; no, rather, they would issue an edict that this is the way it was gonna be and reality be damned. Are we not lucky little boys and girls to be looked after in this manner?

Libby Purves in The Times was similarly not enamored of the result:

        The EU Trade Commission is being hypocritical and stupid over Chinese 
        clothing imports, slapping on violently protectionist quotas and impounding 
        millions of innocent trousers. His indignation was expressed largely on 
        behalf of the developing world, a concern which I endorse; mine is also for 
        retailers across Europe - some small and vulnerable - who placed their orders 
        legally and paid for them in good faith, only to find they may have nothing 
        to put on the shelves because Mr Mandelson's boys have impounded 
        the order at the port. Alisdair Gray, of the British Retail Consortium, 
        spelt it out: using this sudden quota, the EU has grabbed or severely 
        delayed goods that were ordered at a time when there was no restriction. 
        The rag trade needs long lead times: the Commission, said Mr Grey sadly, 
        has not much idea how modern retailing works.

        Four trade ministers from Scandinavia and the Netherlands agree, saying 
        Brussels acted "without proper regard for the realities of modern commerce". 
        That rings true enough, and should make British heads droop a little in shame: 
        realistically, it was only a matter of time before Commissioner Peter Mandelson 
        fouled up in some arrogant and ignorant way. There goes another legacy 
        of our habit of giving big jobs in Europe to failed politicians who never ran 
        a whelk stall.

Just as a note to non-Brits, not having run a whelk stall means you have no experience of the real world whatsoever. Similar to the idea that you would be unable to organize a party in a brewery. Rather a kind description in this case.

The Financial Times points to how the helicopter rental business is booming:

        That is why the director went so far as to borrow a helicopter on Monday morning 
        to secure one of the last European Union import licenses for bras.

        "We had 45,000 panties in Christmas colours but their 45,000 matching bras 
        were trapped in a warehouse," said a relieved Mr Walther Jensen after his 
        helicopter dash.

Back to The Guardian to see quite how wonderfully the new system is working:

        Europe's new quota system means millions of clothes are stuck on boats 
        and in ports

        59 million jerseys and cardigans

        17 million men's and women's trousers

        1.4 million bras

        408,000 women's blouses

Quite marvelous, eh? What has me foaming at the mouth, checking the gun catalogs and measuring the mileage for the march on Brussels is this astonishing report from the New York Times:

        A few weeks ago, the European Union's trade envoy, Peter Mandelson, 
        actually complained to reporters that Europe had been making more than 
        its fair share of compromises in the W.T.O. talks. "This process of compromise 
        has been a one-way street for well over a year," he said.

The W.T.O. talks have been about freeing trade in agricultural products as part of the Doha Round. When Mandelson talks about "concessions" he means the shaving of a tariff here, the expansion of a quota there, for he labors under the misapprehension that it is those awful impoverishing imports that must be limited, while it is those wonderful exports that make us all rich. A slightly unfortunate misapprehension as it is completely wrong, exactly the opposite of what every sentient economist on the planet has been trying to tell politicians for decades. The agreement on free trade and its value is unprecedented in such a contentious discipline. Agreement from Milton Friedman to Paul Krugman (a rather wide intellectual spectrum there I think you'll agree) that yes, there can be problems with adjustments to changes in trade, yes, there might be adjustments to the distribution of the benefits of trade necessary, but the trade itself should go ahead. And for one simple reason. It is the imports that make us wealthier, not the exports.

When we buy something either better or cheaper than we can make it ourselves this makes us wealthier as we now have the thing plus some money left over. The logic of this does not change whether you are trading apples for your neighbors peaches, buying a hamburger round the corner or a matching bra and panties from China to adorn your girlfriend. I'll agree that certain things might be different after each of those transactions but that does not affect the point that it is the import which makes us wealthy. Exports are simply those tiresome things that we have to give up in order to get the imports we desire.

So our trade man in Brussels is being asked to open up the EU market a little to further imports. This makes all European citizens richer (assuming that we do indeed compensate those few who would lose from the changes). But there's more! The one single thing that contributes most to the poverty in the developing world is the Common Agricultural Policy, that insane system whereby we spend enough each year on subsidizing farming that we could actually provide each cow in Europe with a first class round the world air ticket. Actually, each cow in Europe has more spent on it than the annual incomes of 2 billion of our fellow humans.

What is being asked in the Doha Round is that this system be deconstructed, or at least changed so as to remove some of the more egregious absurdities. If this were done the results would be that:

        1) Farmers in poor countries could sell us their lovely cheap produce. This 
        would make them richer and reduce poverty in the world.

        2) Farmers in poor countries could sell us their lovely cheap produce. 
        This would make us richer and increase wealth in the world.

And the man in charge of the trade negotiations says that moving to this system, one which benefits everyone (and saves a continent's worth of tax money to boot) is a concession?

Some decades ago a certain Dr. Laurence Peters laid out a theory, that each of us is promoted to our own level of incompetence. He called it, appropriately I feel, The Peter Principle. How wonderful of the European Union to give us such an opportunity to appreciate the wisdom of that theory.

Tim Worstall is a TCS contributing writer living in Europe. Find more of his writing here.

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