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An Immense Subsidy Paid by Brussels to Rich Landowners

Kitty Miv, Editor
17 April, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

In a masterpiece of diplomacy, China's premier said last week that it was "open-minded" about the TPP (Trans-Pacific Partnership), which when you deconstruct it probably means that he is happy for Japan to wreck the chances of a successful TPP by refusing to negotiate on its rice tariffs (778 percent, as I recall). There is a double irony in this, given that Shinzo Abe is in reality quite willing to reduce the tariffs, but doesn't need to play such a valuable card given that the US Congress has already ensured that there can be no further US trade treaties by refusing to allow the Trade Promotion Authority to be reconstituted, and that China on the other hand has been a willing player in the World Trade Organization. What actually puzzles me most is the question of why Japan was ever allowed into the WTO in the first place with such outrageous agricultural tariffs. I know the answer that the high-ups in the WTO will give: the Uruguay Round was never intended to cover agriculture, and it was better to secure free trade in manufactured goods as a starting point, before moving on to agriculture. Well, we haven't moved on, twenty years later, have we? Doing a bit more deconstructing, the real reason that agriculture was excluded is the EU's Common Agricultural Policy. Another irony there is that the CAP was designed in 1955 when agricultural employment in France amounted to 27 percent of the workforce; the figure in 2013 had dropped to 2.8 percent, a reduction of 90 percent. Figures in other EU countries are comparable: yet the beast staggers on. Why? No longer, presumably, because it represents an electoral 3rd rail for French politicians; no, nowadays it is because it amounts to an immense subsidy paid by Brussels to rich landowners, and it is not in the interest of the rulers of France, Communist or Capitalist, to annoy them. In Japan, I suppose, there is still an electoral calculation, while in Washington there is pork, nowadays lightly disguised as party political advantage. More irony: US agricultural employment is below 2 percent of the population (it was 80 percent in 1870 - today's useless but charming piece of information). So now you understand why neither side of the aisle wants trade treaties: the left because protection of (now disappeared) agricultural workers is an article of faith, worth millions of votes in any election (of course they won't be protecting the immigrant Mexicans who actually do need protection); and the right, because the owners of agriculture fear competition from poorer countries and their campaign contributions would wither away in the face of a TPA. The final irony after so many others: halfway through his second term, the President, like most of his predecessors, has come to understand that free trade is a Good Thing; but after spending six years making sure that it can't happen, he is now tied down by his own policies.

Well I'm not quite sure if that ended up being a bouquet for China, which was the intention. Certainly Japan, the USA and France didn't come up smelling of roses. So let's try harder to find a piece of praiseworthy national behaviour, if that isn't a contradiction in terms. "EU Tackles Single Market Obstacles." Hmmm. That sounds encouraging as long as it doesn't mean that the single market is an obstacle (what Francois Hollande thinks, at any rate). It's not too clear what is intended, and we will have to wait for a year while an Expert Group swans around Europe, business class and 5-star hotels no doubt (believe me, I have been there, done that), before delivering its obiter dicta in 2015, if we are lucky. Or unlucky, because it turns out that they are going to study inefficiences in the taxation structure for people who work across borders. More deconstruction will allow us to interpret "possibility of double taxation" which makes it sound nice and friendly, as "It is essential that everyone is tax compliant" which were the actual words of Tax Commissar Algirdas Šemeta. We have not given him an easy time in this column, even though we have studiously ensured that his name is always correctly accented (it makes him seem more deadly), and as he now approaches the end of his term we can afford to ease up a bit, even if it remains clear that he and his Commission are the obstacle, rather than national borders or the Single Market. He belongs in the OECD, perhaps, if not in the IMF, but the OECD is over-stuffed already and I think he is a bit too dry-as-dust for Christiane Lagarde. A very sincere and honorable man, I foresee a United Nations role for him, where he can preach to his heart's content without affecting anything in the real world. His monument in our world will be the tombstone of the Tobin tax: "here lies an old stallion whose time never came."

Well that wasn't too successful, was it? All that glitters is not gold. Especially in tax. I am torn between "Italy Confirms Tax Cuts," which sounds clear enough, and "India Will Enhance Tax Administration," which is indeed much needed. But this is just another Committee: it is a rule of politics that when you can't work out what to do about a given situation, or if what you would like to do will upset too many of your supporters, then you appoint a Committee of the great and good to think about it for two years before telling you that they can't think of what to do about it either. So that leaves us with Italy. Mr Renzi looks nice, doesn't he? I would happily have dinner with him, and I might even agree with some of his ideas, especially if he feeds me enough Tuscan Red. The trouble is, he doesn't have any money. I don't mean that he couldn't afford to buy me a glass of wine, fussy as I might be. I was reading an article today in a well-known daily newspaper which used to be produced in Paris (and now you know which one) dealing with the disaster of Italian railways as an example of the long-term failure of the Italian state to improve the efficiency of public services and stimulate regional enterprise. They said that EUR550bn had been spent on trying to lift up the Mezzogiorno (south of Italy), and it now lagged even further behind the North than when they started. Don't tell me; that's where I have a cottage, and I love the fact that it's like living in the 19th century. But we know who got the money, don't we? The Sopranos. The railways are important as a particularly glaring example of how money has been spent heedlessly without the smallest attempt to improve efficiency, but with a careful focus on maintaining or even increasing employment. Last week I took a taxi from Bari to my local town, and the taxi-driver sat in wonder as a man (of course a man) emerged from his cottage to crank up the barriers on his level-crossing and allow us to pass. On average, it's about 13 minutes to wait at that level-crossing, on the main road to Taranto, from beginning to end. You learn to carry a newspaper with you. "I've never seen that before!" he said in amazement. What with the Sopranos and the Unions, Mr Renzi is between a rock and a hard place. I don't know what will cure Italy, but it's not Matteo Renzi, for all his good intentions.

 

Kitty's Encomiums and Execrations

Methodology: each week (this is the 100th) two or three countries are given encomiums and two or three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at neutral, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc and now it's on plus 1 again.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

China raises the free-trade banner

And Kitty's Execrations:

European Union true to form

India to get more complicated

Italy dreams on

 

Ciao

Kitty



About the Author


Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net

 

 

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