2006-8 Blog Archive for Gabriel Calzada

	The interventionist crisis: we also need competition in money and banking	10 APR 2008
	Beautiful Aid	07 MAR 2008
	We need Cobden back!	03 JAN 2008
	Free-trade EU Ministries?	13 DEC 2007
	Fire and competition	14 SEP 2007
	Brussels against low cost	25 JUL 2007
	Competition, private property and regulatory bodies	26 JUN 2007
	Cordless market	25 MAY 2007
	Legal theft in the name of free enterprise	10 MAY 2007
	The greatest soap opera	27 APR 2007
	Anti-globalization Holy Week	09 APR 2007
	Roaming Cap	21 MAR 2007
	Leave us (invest) alone	06 MAR 2007
	The "50 Years' Crisis"	16 JAN 2007
	EU´s aid to State aid	21 DEC 2006
	Cartel Myths Live On	04 DEC 2006
	Competition which will not take place	21 NOV 2006

The interventionist crisis: we also need competition in money and banking
10 APR 2008 – There seems to be something odd in the fact that so many people are now blaming free markets and free competition in financial markets for the coming global crisis.

In fact, there are very few markets as strongly regulated as banking. During the last century, political interventionism has been supplanting the free market in banking and finance. First, the states abolished free banking and established public monopolies of currency issuers followed by the expropriation of metals backing the monetary units. Later we had to suffer the legal tender laws, the ascription of lender of last resort attributions to each national central bank and the power of determining interest rates as well as the whole monetary policy to the same monopolies. Finally, the European experiment concentrated these regional monopolies plus the financial supervision of all European commercial, industrial and investment banks in one huge central bank called the European Central Bank instead of forcing them to compete and thus deliver better monetary policies in favor of their consumers, which are all the Eurozone citizens.

All of these policies and rules have shaped a sector that looks pretty close to what Karl Marx dreamed of in the The Communist Manifesto:

"The Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly."

Beautiful Aid
07 MAR 2008 – The summit in Lisbon between the European Union and Africa resulted in uncertainty and disappointment. For the European leaders, the relative failure of their proposal offering "100 percent access to the EU" was rooted in the Africans’ unwillingness to accept a free market. Those on the other side, however, see things differently. Everyone knows free trade will help promote growth in the area. The agreement, however, includes the obligation to begin negotiations for the gradual liberalization of services. This section did not win them over. The competitive weakness of the service sector in many African countries is obvious. Foreign aid has been feeding many of these same business activities for decades and the transition could cause a temporary increase in unemployment for a significant segment of the working population. This fear lies behind the Africans rejecting the proposal.

If the EU now truly believes in the free market as the solution to poverty it should have no trouble unilaterally removing its trade barriers. Moreover, such a move would benefit European citizens, regardless of what African countries do. The refusal to take this step is due to China's fast-growing investment in Africa, which makes the EU-Africa relationship based on “aid” pale in comparison. European politicians know that compared to the Chinese, their nations' companies are falling out of favour with African shoppers in the consumer goods sector. But instead of working hard to improve competitiveness and outsourcing, our leaders demand the service sector, in which they believe Europe has an advantage over China, receive restriction-free access to Africa. Most African countries have not submitted and now they are paying with rising tariff barriers. Beautiful Aid.
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We need Cobden back!
03 JAN 2008 – On 20 December, the EU officially approved a temporary suspension of EU cereal tariffs until the 30th of June. Were it not for the temporary nature of the measure, the decision recalls Richard Cobden's glorious triumph in mid-nineteenth century England. Cobden put together a parliamentary majority to abolish the Corn Laws, a protectionist policy which artificially raised the price for wheat and other grains. Perhaps better than protectionist, such interventionist laws should be called "aggressionist" since they favour a privileged few and injure the rest of the population. Cobden led the Anti-Corn Law League in masterful fashion. He not only explained the perverse economic effects, but he tirelessly exposed the sinister moral implications of these tariff policies. Those politicians voting to retain the Corn Laws could count on one thing: Richard Cobden would make sure they were known as defenders of the idea that British citizens did not deserve to be treated as well as citizens in other free countries where there were no trade barriers and prices for basic foods were cheaper.

However, the difference between both episodes is huge. Our representatives and the promoters of this tariff suspension do not mind sending European consumers back into the captivity of quotas and tariffs (and they plan to do it in half a year). Much less, if possible, do they care that grain producers in poor countries cannot prosper because we block their ability to engage us in free trade.

We need to bring back the League to demonstrate how total free trade implies, as Cobden said, "the highest moral revolution ever achieved in the world."
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Free-trade EU Ministries?
13 DEC 2007 – All of a sudden, every Fish and Agriculture ministry in the European Union has gone libertarian. At least that is the impression they gave with their unanimous decision to suspend tariffs on imported cereal. However, by taking a quick look at the European Union's initiative, we realize the ministries aren't acting out of libertarian sympathies or a desire to eradicate the harmful effects of agricultural mercantilism that dominate the Union. The suspension is only temporary, and the French government has already pushed to set the expiration date for July 2008. The real motive is the high, unstoppable and unpopular price for wheat. It seems there is an underlying fear that current inflation could get out of control. The price of wheat, like other raw materials, has skyrocketed since August, the same month central banks on both sides of the Atlantic inundated markets with new money and credit fresh off the printing presses. I suspect, however, the ministers will not demand that the central bank stop debasing our currency.
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Fire and competition
14 SEP 2007 – In August, Gran Canaria and Tenerife, the two main Canary islands, suffered the worst forest fire in 50 years. The pictures of the flames and the 14000 people evacuated have warmed up TV news around the globe. Fortunately, nobody died. However, despite having one of the best qualified firefighting crews in the world, the fire devastated 35,000 hectares and many families lost their homes and belongings during 6 days of chaotic fighting against the flames . The big question in the air is: Who should be considered responsible for these destructive fires that the environmentalists declared "among the worst ever experienced in Spain"?

The simplest answer is a 37-year-old forest ranger and an electric short circuit. However, while this could explain the reason for the first flames, it does not elucidate the chaos and the magnitude of the disaster. A more realistic reply is that politicians and environmentalists should be held at least partially responsible for the catastrophe.

Both environmentalists and politicians have been working toward the abolition of competition and entrepreneurship in all economic fields that affects the forest. Environmentalists have transformed woodlands – with the help of politicians – into untouchable areas where farmers are no longer allowed to engage in forest exploitation nor to clean their environment; thus giving the flames free way to jump from one pine wood to the next. Meanwhile, politicians have destroyed the competitive insurance business that generates incentives to establish mechanisms and attitudes in order to lessen the number, size and damages of fires. Even before the fire was under control, they made a new step in this direction by announcing "unlimited and equal funds to pay each owner for the damages their properties might have suffered regardless of the fact of being in possession of an insurance policy".

As long as competition and free entrepreneurship is not allowed to reenter the forest, the prevention and reduction of future fire risks will not be possible. The rain of public money will, like gasoline, exacerbate it.
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Brussels against low cost
25 JUL 2007 – Ryanair, now one of the largest airlines in the world, has tried to grow through a takeover bid on Aer Lingus. However, what is perfectly valid when done by old and inefficient state companies seems to be unacceptable when the carried on by competitive companies that satisfy consumers by offering airfares at a very low cost. This is the first time in history that the European Commission has vetoed the union of two airlines.

According to the monopolistic agency in charge of preventing monopolies in Europe, Ryanair's take over bid on Aer Lingus would have resulted in serious harm to consumers. Paradoxically enough, Neelie Kroes, the EU Competition Commisioner, has declared that the union of the two Irish companies would have a probable result in higher prices for more than 14 million passengers. However, just in case this does not happen, the EC has also tried to justify its veto by stating that the new company would have more margin in which to apply new selective airfare discounts. Thus, this means that no matter what Ryanair would do (increase or decrease the asked prices for their airfares), their new market share will not be accepted by politicians even with the support of the public.

It looks like the eurocrats do not like Europeans to get low fares.
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Competition, private property and regulatory bodies
26 JUN 2007 – Two of the most important Spanish regulatory bodies, the National Energy Commission (CNE) - whose mission is to watch out for effective competition, objectivity and transparency in the functioning of energy markets - and the National Securities Market Commission (CNMV) - the agency in charge of supervising and inspecting the Spanish Stock Markets and the activities of all their participants - have been damaged while trying to give support to the neo-mercantilist policy of the Spanish government.

Both institutions have been recently discredited for lack of independence. The president of the CNMV has resigned after being pressured by the government to benefit some business men while hampering others. On the other hand, the CNE has being supporting the changing position of the government concerning the take-over bid on Endesa.

Is it not possible to have independent regulatory bodies? Should the parliament choose these bodies' members instead of the government? These are the kind of questions the whole country is discussing at the moment. However, nobody is pointing out that the problem might rest in the mere concept of state-run regulatory bodies. Why would a public entity be more independent than a private one? In fact, the absence of a direct link between ownership of the companies, the image and activity of the regulatory bodies and the value of the securities makes it hard to believe that a publicly-run regulatory institution could ever be more independent and transparent than a private one. If a privately owned regulatory commission fails to be neutral, companies will change their regulator and the regulatory company will turn their benefits into losses. On the contrary, public servants do not suffer the effects of their own mismanagement. Under public regulators, private companies always suffer the effects of public servants' lack of incentives to be independent. Thus, as long as we do not speak about incentives related to private property, the independence of these regulatory bodies will be nothing more than formal jargon.
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Cordless market
25 MAY 2007 – The Spanish government has recently constructed a bizarre market for umbilical cords thanks to new legislation on the donation and use of human cells and tissues. Spain's Vice-president, María Teresa Fernández de la Vega, claims that it is the most advanced regulation of its kind in the world and the example to be followed by other countries.

According to the new law, private umbilical cord banks are permitted, and customers can pay the banks to preserve their cords. So far, so good. However, the price will not be freely negotiated, but limited to the cost of preservation of the cells; profit is not allowed. Moreover, the customer has no guarantee the cord will be in its place the day he needs it because the Spanish government has given itself the right to seize an umbilical cord in order to treat a person other than the owner who might require it to improve his health.

For this reason, Spain is, according to De la Vega, supposed to be one of the "most solidary countries in the world" and a "worldwide ethical reference". The reality is that the market they have created is not only an obvious ethical perversion, in which the government becomes the owner of your umbilical cord, but also so uncompetitive that the Prince of Spain, like many Spaniards, has sent the umbilical cord blood of both his daughters to foreign countries (one in Europe and the other in Arizona, USA). A market without private property can only be ethical and competitive in the minds of blatant socialists and neoclassical economists.
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Legal theft in the name of free enterprise
10 MAY 2007 – In Spain many politicians have become so convinced of the importance of free enterprise and free trade that are ready to bring them to very interesting levels. In the field of urban planning they have gone so far in their defense of these freedoms that they are ready to defend them in quite bizarre circumstances. For example, the new National Law on Land that is about to be passed by the parliament (as well as several state "Land Laws" that have been already passed) approves the "free" development and trade of land (and houses) even if the developer does not own the land. Even more: Trading in this non-owned land (or even houses) is being legalised, even with third parties. The only restriction to this bloody daylight robbery is to pay the owner, at the end of the deal, the "market price" of a non-developed piece of land. This means that politicians can make themselves rich trading someone else's property without the owner's permission as long as they pay him - later - an artificially low price (determined, of course, by other politicians). The separation of freedom from ownership is what has brought the schizophrenic idea of defending these seizures in the name of free enterprise.
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The greatest soap opera
27 APR 2007 – The almost two-year-long soap opera of takeover bids for Endesa by Gas Natural, EOn and Enel-Acciona represents a catalogue of anticompetitive maneuvers. From the Order in Council of the Spanish government to arbitrarily stop EOn's takeover bid, to Barroso's night flight on a Spanish military aircraft to secretly meet Zapatero in order to find a political solution, the case stinks. The last scandal in this story has been the resignation of Manuel Conthe, the Spanish stock market regulator. According to his speech at the Spanish parliament, the reason for his resignation was the impossibility of keeping the theoretical neutrality and independence of the National Stock Market Commission due to governmental interferences. Everybody knew these sorts of things were taking place but Conthe's statement has laid bare the extent of official meddling in the financial markets. Once again free competition has been thwarted by pressure groups and political interventionism.
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Anti-globalization Holy Week
09 APR 2007 – An idiocy pronounced by an anti-globalization activist is no longer worthy of headlines, probably because this kind of good is no longer scarce; on the contrary, it has become over-abundant. However, if the nonsense is stated by a Hollywood actor like Antonio Banderas, everything changes. The Spanish Zorro said last Sunday that it was a pleasure to participate in a procession because the Holy Week is an anti-globalization festivity.

Funny as it may sound, Jesus Christ forgot to comment to the apostles that he was planning to die to redeem a particular group of human beings in order to privilege them when it comes to enter a heavenly marketplace - which is exactly what the anti-globalization activists demand. In addition, the Spanish discovery of America, one of the greater globalizing events prior to the industrial revolution, counted on the active participation of the Catholic Church. In the following decades of the Spanish arrival to the new continent, an interesting debate arose about the rights of the Indians and, as could not be otherwise, the scholastic thinkers defended the respect towards the life and the private property as well as the economic freedom of the inhabitants of the new world. It looks like there is not much anti-globalization to be found in the processions beyond Banderas' socialist mind.
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Roaming Cap
21 MAR 2007 – A new EU populist and interventionist ruling was announced in Germany last week. 27 EU ministers decided to undertake the largest intervention committed on a market price in recent decades. The idea is to establish a maximum price for mobile phone calls made from a foreign country. Politicians and Brusselcrats wish to set a maximum price of this service (known as roaming) to be placed at 0.50 euro per minute. The European commissioner for information, society and media, Viviane Reding, declared that competition has not brought down roaming prices and will not in the future. Thus, they have decided to adjust the real market to their whimsical world by establishing a cap. Once agreed, the ministers have graciously stated that they are providing better summer holidays to European citizens since they hope to launch it next before June.

The decision will cost mobile phone companies 2,9 billion euros and will obviously have a great impact both on their balance sheets and on the money they can dedicate to R&D. Roaming prices currently vary from the 1,87 euros that Vodafone charges to just 22,2 cents per minute asked KPN Mobile. In every European country the consumer can find several companies offering different roaming tariffs. In fact, most companies have different prices and try to differentiate their services. In this market full of diversity, a cap can only damage the business strategy of some companies while benefiting others. Thus, this new interventionist policy will hamper the dynamic process of competition and in the long run even the consumers.
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Leave us (invest) alone
06 MAR 2007 – Spain is the only European country where productivity decreased in 2006, according to Conference Board. With price inflation running rampant, family savings in the dumps, private credit expansion sky-high and worker productivity in the red, the Spanish economy's competitiveness is collapsing. The government doesn't seem to know how to stop inflation, but for the past three years Moncloa has been advertising a state run plan to encourage R&D that will save our competitiveness. Can Moncloa really believe this?

According to the 2005 World Investment Report from the United Nations Committee on Trade and Development (UNCTAD), in 2004 13.2 percent of the 500 largest transnational companies made R&D investments in Spain. It isn't great, but still nothing to sneeze at. And what about the future? How do those 500 companies, the largest on the planet and responsible for two-thirds of world business spending on research and development, view Moncloa's plans? Well, not too enthusiastically. Only 1.5 percent consider Spain an attractive place to establish R&D activities between now and 2009.

Spain, following the European playbook on how to consolidate a un-welfare state, is trying to hide part of the growing productivity gap with the United States and other freer countries by spending taxpayer money on R&D. This administration is, once again, falling for the constructivist socio-economic myth. It doesn't seem to understand the research and development that really contribute to improving productivity cannot be achieved through state-injected funds, but only by cutting red-tape, taxes and, of course, public spending. Absolute investment numbers in R&D don't matter. The people's needs are what matter. And those are best met if the investors find a free market and develop a project with their own resources. The government should stick to trying to end the monetary inflation it fosters and ensuring politicians leave us alone. Let the rest of us worry about innovative investment.
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The "50 Years' Crisis"
16 JAN 2007 – Today the socialist president of the European Parliament, the Spaniard Josep Borrell, finally says good-bye after two and a half years of promoting all sorts of social and economic interventions. In his view, the European Union of 27 countries "is having the 50 years old crisis". According to this famous advocate of European Minimum Wage Laws and foe of globalization the source of the crisis is the large number of member countries compared to the 6 founders, together with the fact that Europe has done everything it had to do and now lacks a project. Thus, the solution would be "to pass the European Constitution" as soon as possible.

Borrell's shortsightedness is evident. The European Union is in a crisis but the cause lies somewhere else. The Union started as a free market project where goods, services, capitals and people could move without any restrictions other than the ones related to the respect of private property. This was a dynamic project that could last forever. However, the original idea has been substituted by an interventionist experiment. The dynamics of interventions are such that every step of social engineering produces imbalances that require further interventions. This is why socialists like Borrell think that there is no project anymore and the European Constitution has to be approved in order to continue the inflation of interventionism. Likewise, the number of members becomes a problem in the "redistributive paradise" Europe has become. In a free market, the more countries, the better for all. Let's hope the next president has a clearer idea of the cause of the 50 years' crisis.
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From EU aid to State aid
21 DEC 2006 – When Neelie Kroes became Competition Commissioner in 2004, she declared she would focus her work on the fight against State aid since it represents a distortion of free competition. Neelie was right. If there is something a governmental department can do in favor of free competition, it is to stop governments from helping companies consumers do not want to support.

Two year later Kroes has declared the she feels "disappointed that the overall level of aid has hardly changed". No wonder: the total amount of State aid granted in 2005 by the twenty-five Member States had only diminished to 64 billion euros from the previous 65 billon in 2004. The champions of this anti-competition race have been Germany, France, Italy, the UK and Spain. These governments have been responsible for 95% of the total aid granted in the EU.

Despite her disappointment, the Competition Commissioner does not seem to take the issue very seriously. In fact, two days after her statement the Commission adopted a new regulation doubling the level of government subsidies that small businesses may receive without breaking EU rules on state aid, and permits State loan guarantees of up to 1.7 million euros. Far from becoming upset, Kroes celebrated the new regulation since she thinks it will "prevent distortions of competition". The realm of the Commission seems to be not only anticompetitive but also tremendously contradictory.
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Cartel Myths Live On
04 DEC 2006 – Neelie Kroes, the European Competition Commisioner, has declared that "Cartels strike at the heart of healthy economic activity. They undermine competition, raise prices for consumers and reduce the diversity, quality and innovation of European companies". The occasion for this statement was the announcement last week of the second highest fine ever imposed by the Commission for competition-related reasons. The 519 million euros fine is part of the ruling against 5 producers and traders of synthetic rubber for fixing a cartel between 1996 and 2002, a practice that violates the EC Treaty´s ban on restrictive business practices (Art. 81).

A Kroes statement has resemblances with the origin of antitrust policies and laws. At the end of the XIX century an unspoken detractor of business unions and agreements led a campaign to pass a law that would regulate competition. This enemy of the trusts and cartels was Ohio's Senator John Sherman. His main argument in order to establish laws that would ban the free agreements between different producers in the market was the same as Neelie's: cartels and trusts seek to increase prices. However, reality did not agree with Sherman's main argument, as those markets where major cartels and trusts were involved saw a higher growth in production and a larger decreases in prices.

Regardless of how production and real prices moved in the case of rubber cartel, the big question for competition is: what in the name of free competition can justify the prohibition of voluntary agreements between producers? And the fact is that as long as there are no barriers to entry or exit the market, a free society that promotes real competition should allow this kind of agreement.
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Resisting globalization by means of political unification
21 NOV 2006 – How can the EU be transformed into the least free and dynamic economy in the world? This seems to be the main issue for the president of the European Parliament. As soon as he was appointed for his position two years ago he started striving for the establishment of a European Minimum Wage that would kick the less productive workers of the Union out of the labor market.

A year ago he showed again his aversion to the free market justifying all sorts of restrictions to the free movement of capital inside the EU. Finally, last week Josep Borrell declared (link in Spanish) that "Europe has to speed up political unification to resist globalization". The idea of resisting an environment full of new opportunities is a weird one for a sensible man. After all, who wants to damage his own growth potential?

However, beneath the surface of blatant demagoguery lies a plain truth: the real battle of our time is the one between political unification that ends in a world government, and a world society with competing governmental jurisdictions and economic freedom. If we want to live in the second one, we have to oppose every step in the process of political unification.
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