TCS Daily

'I Buy Goods From Poorer Countries'

By Jason Miks - September 7, 2006 12:00 AM

Editor's note: How long can Europe keep further globalization at bay? Jason Miks talks to Madsen Pirie, president of the Adam Smith Institute, about the EU's need to reconsider labor mobility, free markets, and immigration

TCS: The British trade secretary recently said there will not be an "open door" to migrants from new EU countries. What impact has the first wave of migrants had on the British economy?

Madsen Pirie: The British government was one of the few EU countries not to place restrictions on internal migration when the last batch of new countries joined. They expected, they said, 15,000 people to come and work. The total was actually 600,000. The government takes the view that the British economy has absorbed and coped with this pretty well. But the economy is in a somewhat different state now in the sense that unemployment is rising and the prospects for growth are less certain than they were, and the government is not quite sure whether the economy can cope with another large influx from the two new countries, Romania and Bulgaria.

I take the view that this immigration has been very beneficial to the British economy by giving us a supply of people willing to work. These people haven't come over here to visit our unemployment offices - they have come to work at building sites, to work as plumbers, waiters and waitresses, child minders, all sorts of things. They have filled a lot of jobs in Britain that needed to be done and it is regarded that they have put a downward pressure on wages, and as a result also inflation.

TCS: Should governments be in the business of limiting immigration, or do you believe in an open labor market in Europe?

Pirie: In economic terms I don't particularly like the idea of governments restricting immigration, but there are other issues besides the economic ones. For example, Britain has a welfare state and therefore it is entirely possible we could face instances of welfare tourism.

I also take the view that there are limits to what society can cope with in terms of pressures on housing and indeed on things like transport. The rapid increase in numbers has created some problems for infrastructure. These are not problems that can't be surmounted, but I do believe the government might have some responsibility, perhaps, to control the rate at which this happens.

TCS: In economic terms, what have been the greatest success and failure of greater EU integration?

Pirie: The greatest success has undoubtedly been the single market - the decreasing barriers between states in dealing with each other, the ability to do business across the frontiers of Europe and the acceptance of one country's standards as qualification for another. Its greatest failure has without doubt been the excess of regulation which has encouraged sclerosis in the European economies, preventing them from being as competitive and enterprising as for example the American economy.

TCS: Do you feel optimistic that this excess regulation will be addressed?

Pirie: I am optimistic because I think that, fundamentally, global pressures will force reforms upon European governments. If they lived in a world which ended with the frontiers of Europe I dread to think what they might try to do to us in the name of their social model. But they do not. They live in a world also inhabited by China, Brazil, India the United States and these countries don't feel they owe Europeans a living. So sheer international competitive pressure will force them to free up markets and encourage competitive conditions.

TCS: Welfare reform in the US has generally been considered a genuine success. What can Europe learn from this?

Pirie: We can learn from what the Americans have done on a state basis - the most successful changes have largely come at state level. I think the most important thing we can learn from them is that the most successful welfare system in the world is a paid job. If someone has a paid job they are in a better condition than anyone on welfare. This is of course a general and not universal truth. But it has been found to be hugely successful when people are off the welfare rolls and into a job because they then provide a role model for their children as someone who is self supporting. When people are engaged in work, particularly young people, they don't have the free time that people on welfare have and so they are likely to be less tempted by things like drugs and crime.

TCS: How serious a blow is the breakdown in the Doha round of trade talks?

Pirie: It is very serious. I was very much in favor of the Doha round and I do believe that the Europeans were more to blame [for the collapse of talks] than they are willing to admit. They were determined to protect their agriculture for example, and they were not prepared to make concessions to buy goods from poorer countries, which is fundamentally what is required. So we're now going to see further progress on bilateral deals. That is where the moves towards freer trade are now going to be made - movements between trading blocks. I am optimistic that a general agreement can emerge from some of these bilateral deals and ultimately we will be able to move towards freer trade.

TCS: Is the increasing move to bilateral deals a good thing?

Pirie: Bilateral trade deals are useful because they at least will lower trade barriers. There is also a case to be made for unilateral trade deals. There still exists a notion among some European countries that nations get rich by exports. In fact many economists would tell them that nations get rich by importing, by substituting cheaper goods for what they have previously been consuming. That leads to more surplus spending power, which most people would call richer. I do believe that globalization, the ease of the movement of capital, has as its logic universal free trade. This is not going to happen by accident or by chance because it goes against the grain of what governments have traditionally regarded as their job, which has been to protect their own workers from competition abroad and supporting particular sections of their society in turn for electoral support. This what governments have basically done. Universal free trade therefore has to be done almost despite governments.

TCS: What would you say to those who accuse free traders as being selfish and disinterested in tackling issues like poverty?

Pirie: We ourselves make the case that Adam Smith made - that trade is the best means of lifting countries out of poverty. The nations that have become rich, which have escaped from starvation and subsistence living, have done so through trade. No one has it done it without trade. That to us makes a reasonably convincing case that if we want to help lift countries out of poverty we need to be encouraging them to trade more. We produce wrist bands that say "I buy goods from poorer countries," and the demand for them has been enormous. We've been staggered by it from all over the world. That is how one can put across the argument. That might sounds simple, but I think the truth in this case is simple. Free trade provides the avenue for an escape from poverty.

Jason Miks is a Tokyo-based writer and Senior Editor at the Center for International Relations.


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