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Tuesday, June 14, 2005
A Little Critique of Geldof's Comments on Trade

Okay, since I've transcribed Bob Geldof's comments in reply to Todd Zwicki's question, I thought I'd take a little look at his answer.

First, obviously Geldof's a very intelligent man. He has facts and figures and anecdotes at his fingertips and he uses them quite deftly and with a strong vocabulary. I have to admit, now I see quite a bit better why everybody was so impressed with his presentation. If you read the British papers he comes off as a bit of the classic aging, eccentric British rocker. Comparing that to his performance in this conference call indicates to me that he knows very well how to play to different audiences to get what he wants out of them. And that's not a negative criticism by the way; we all do that to a certain extent in our lives. You might want to be the capable businessman in the office, the savvy trader at the store and the stern, suspicious detective with your daughter's new boyfriend.

His presentation seems very much geared for the right-wing bloggers as compared to the left. When you're quoting Adam Smith and advocating what sound pretty much like pure market fair trade policies, it's not hard to see that the left doesn't have much to grab onto other than the bleeding heart aspect of the foreign aid.

That said, some of his economic stuff may not be as solid as it seems. Obviously if the US government pays farmers here not to grow something, or they burn it, it's beneficial to the Malian farmers, who arguably have less competition. It's only when it's dumped on their markets that becomes a problem. I certainly agree with getting rid of export subsidies, for example. Those are distortions of the free market that we don't need. But if we get rid of the export subsidies and we can still deliver cotton to Malian markets cheaper than the Malian farmer, then it's time for him to find another crop.

And while the tax on value-added goods sounds incomprehensible to our ears, it is a commonplace on European products. Unlike America where there is no tax on business-business transactions, many European countries charge the VAT at each step of the process. So if a company were to grow pineapples in Europe (impossible in practice of course) and sell them to a cannery, who slices and cans them, the cannery would have to pay VAT on the increased value. The VAT ranges from as low as 5% to as high as 25%. So charging a 23% higher tariff for the sliced pineapples may make sense, given that you have this VAT. Otherwise it would be quite likely that you'd have the ridiculous situation of people shipping pineapples from Europe to Mali to get them sliced.

Now I don't like the VAT, and am very pleased it did not arrive here. It's what I call a hidden tax because it's buried in the pricetag. Here in the USA we know that what we bought had a $1.99 sticker on it but we have to pay another 16 cents in tax. Over there, they just pay the equivalent of $2.15 or more, but there's nothing (apparently) added onto the price. But if you're going to have the VAT, you're going to get the distortions that Sir Robert is talking about. And I doubt very much he's going to convince Tony Blair to get rid of the VAT.

As for the comparison of aid levels and cattle subsidies, it's apples and oranges. I suspect that the Europeans give a lot less aid to the Japanese; does that indicate that they value the Japanese less? Get rid of the subsidies on cattle altogether and at that point we see that the real question is what is the proper level of aid, not what is the proper level of aid as a percentage of cattle subsidies.

There may be a little blarney in his responses, but overall I thought he was solid on the trade issue. I have to admit, that before transcribing the conversation carefully I was much more suspicious of him.


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