Philippe Legrain

Check it out here.

Daniel Ben-Ami, author of Ferraris for All, has reviewed Aftershock in the latest Spiked review of books. Among other things he says:

Few writers feel comfortable either with developing a broad view of the global economy or relaying their arguments in accessible terms. Philippe Legrain’s skill at both helps make Aftershock one of the best books of its type.

Legrain has several advantages as an economics writer that make him well suited to the task. In terms of his writing style, the influence of his early job as a writer on international economics for The Economist is clear. As in that newspaper (The Economist prefers not to call itself a magazine), the emphasis in Legrain’s writing is on expressing difficult ideas as simply as possible.

Even more importantly, Legrain recognises that his readership is likely to be anxious about the state of the world: ‘Aftershock is aimed at a global audience, but in particular at people in rich countries who are fearful about the future’, he writes. Much of the thrust of the text is therefore aimed at showing the existence of practical solutions to pressing problems.

The global character of Legrain’s outlook is another central part of his work. He resolutely refuses to take a narrow nationalistic perspective on any question. Instead, his concern is to show how a flourishing of the world economy can benefit humanity as a whole.

Protectionism and curbs on immigration are particularly abhorrent to him. Legrain, whose previous book was on migration, sees both measures, quite rightly, as standing in the way of generating a more prosperous economy for all.

There is always room for debate on exactly which topics a book on the current world economy should cover, but Aftershock tackles many of the key areas. These include the troubles of the financial system, the rise of emerging economies, green technology, and the backlash against Chinese investment. The book ends, unusually in these pessimistic times, with a chapter about embracing progress.

For its global perspective and embracing of progress alone, this book is highly recommended. It is a great starting point for anyone seeking to start grappling with the problems of the world economy.

Big Think is a great site full of interesting articles and ideas. This month they are featuring one radical (“dangerous”) idea a day. Today’s is allowing people to move freely.

The coalition government has taken leave of its senses.

Highly skilled foreign workers are small in number, but make a disproportionate contribution to the economy – and government coffers. Global businesses that invest in the UK economy, boost exports and create jobs for British people rely on them. They also provide irreplaceable skills, experience and contacts for small British businesses. Curbing their numbers is, as Jo Valentine of London First puts it, “economically insane”.

It makes no political sense either. Few people object to highly skilled migrants. Their taxes greatly outweigh their use of public services. Their small numbers scarcely adds to population growth, cultural change or whatever other objection people may have about immigration. And the curbs are already harming our trading relations with our economic partners – notably India, where David Cameron is currently trying to drum up trade.

At a time when the economy desperately needs to grow faster to reduce the debt burden, the government is shooting itself – and us – in the foot with this immigration cap. And it is threatening London’s and Britain’s longstanding reputation as a place that is open for business with the rest of the world.

The government urgently needs to think again.

House prices in Australia have soared over the past decade: they are now two-and-a-half times what they were in 2000.

While prices dipped a little at the height of the global financial crisis, they have since resumed their onward rise.

In fact, they rose a whopping 20% in the 12 months to the end of the first quarter.

And according to The Economist, “Australian property is the most overvalued” of any of the 20 countries they track, because the ratio of house prices to rents is well above its long-term average.

With the Reserve Bank of Australia raising interest rates to cool the market, might the bubble burst?

If so, the Lucky Country, which has so far sailed through the crisis virtually unscathed, may be in for tougher times ahead.

Fortunately, it exports a lot to China’s booming economy – and it may need to rely even more on that in future if domestic demand takes a knock.

As I explain in my new book, Aftershock: Reshaping the World Economy After the Crisis, which has just been published in Australia, perhaps Australians should be less hostile to Chinese investment in the country.

They may soon really need it.

Since the disaster in 1986, British charities have helped thousands of young people from affected areas in the Ukraine and Belarus to have holidays with British families. Now those charities say their work is becoming impossible as the UK Border Agency rejects so many visas at the last minute.

Last month only seven of 17 children due to holiday on the Isle of Wight actually made it on trips organised by Chernobyl Children’s Life Line (CCLL), a charity which has brought over 46,000 children from the radioactive zone since 1991. The other 10 were told the night before departure that their holiday was cancelled.

Brian Bennett, the former UK ambassador to Belarus, said “These charities are better at child protection than the UK Border Agency. I can’t think why [these visas are turned down]. Maybe it’s to do with the fact that the visas for Chernobyl children are supposed to be free – perhaps it irks them that children are not paying.”

The Home Office’s stupidity and inhumanity seemingly knows no bounds.

Read the full article by Emily Dugan in The Independent on Sunday.

I debated whether freedom of movement is a good thing on BBC1’s Sunday Morning Live with George Hargreaves of the Christian Party and Jon Gaunt, a right-wing shock jock.

Part 2

Twenty years ago, the main goal of many migrant workers in city factories was to send money home to struggling village families. Now they see the factory as part of a personal project, a first step towards an urban life. Internet access has made them more worldly and since a labour law passed in 2008 they have a stronger sense of their rights.

Writes Geoff Dyer in the FT.

Modernisation has unleashed powerful forces – pride and confidence in China’s achievements but also high expectations about the life that can be lived. The signs of restlessness among young Chinese make for a less predictable political future.

Read the full article here.

Great piece by Edward Luce in the FT on Obama’s efforts to revive immigration reform.

On grounds of enlightened self-interest, Mr Obama should therefore be commended. The opposite could be said of an increasingly nativist Republican party. Having applauded their colleagues in Arizona, who in April enacted the most draconian anti-immigrant state law in a generation, Republicans are working directly against their long-term self-interest as a party.

Unfashionable as it is to praise George W. Bush, America’s 43rd president understood viscerally that immigrants, legal, or otherwise, were a core part of the American tradition. As governor of Texas he won strong Hispanic support. “If they can make it round the Rio bend, hell we want ‘em,” he once said. In 2000 Mr Bush won more than 40 per cent of the Hispanic vote, a record unmatched by a Republican before or since.

He concludes:

Once seen as a principled maverick, Mr McCain is now hostage to the worst instincts of his party’s nativist wing. Many sign up to the myth that Mr Obama was born outside the US and is therefore a fraud. As the son of an immigrant, Mr Obama embodies the American dream. Isn’t it time he called out the Republicans as un-American?

Max Dunbar reviews Aftershock in 3:AM magazine

In his essential book Immigrants: Your Country Needs Them, the economist Philippe Legrain demolished the case against migration in both its economic and what he kindly terms its ‘cultural’ form. In that book he also made the argument for freedom of movement of labour to match the freedom of movement of capital. It’s an indispensable text, and Legrain’s is a voice of sanity that is badly needed. In Aftershock he returns to the theme. After the crash instincts tell us to pull up the drawbridge. Surely the devastated British economy can’t continue to absorb yet more foreigners?

Yet we are looking at an international issue through national blinkers. The word ‘immigration,’ Legrain points out, reflects the parochial nature of what passes for debate on this: we assume that everyone in the world wants to live in the UK. Remember the neuralgics over Eastern Europe’s entry into the EU. This was marked by apocalyptic warnings of Britain being stormed by battalions of Polish layabouts and Lithuanian cowboys. About seventy-five million Eastern Europeans became eligible to migrate into the UK. In the end we received about one million, many of whom have gone.

After all, how many people do you know who are willing to completely uproot their lives and settle in another country? Most people live and die within a few miles of the town they grew up in. Yet anti-migration demagogues would have us believe that people all over the developing world weigh up various nations’ welfare states the way British consumers compare prices when buying online.

Immigration, Legrain emphasises, is not a one-way street. There are more British people living abroad than there are foreigners in Britain. He travels to the buzzing British expat community in Shanghai and the buzzing Chinese migrant community in Canada. Often, migration is simply a temporary thing. People work in rich countries for a few years and return when they have saved enough money to start businesses in their homelands.

It will be said that the capitalist crisis makes Legrain’s argument irrelevant: in fact it is more pressing than ever. With a rising pension bill and an understimulated economy we are more in need of bright young workers and entrepreneurs than ever. The child refugee Sergey Brin co-invented Google: how many Brins are we turning away? It would be a mistake of cataclysmic proportions to slam the barriers down – and yet that is what we are doing.

Read the full review here.

I debated the issue with Douglas Murray on the Politics UK programme on the BBC World Service. The interviewer was Edward Stourton. Listen here.

Excellent piece by Peter Sutherland in today’s FT:

An honourable tradition of the European Union is that of turning a crisis into an opportunity…

The past three months have provided painful lessons to the leaders of the eurozone about the design flaws of the single European currency…

Without the single currency, Europe would be an economic wasteland. The cost of not having the euro would have been far greater over the past two years than the cost of having it has been over the past three months. Competitive devaluations of national currencies after the financial crisis of 2008 would have led to economic chaos incomparably worse than the turbulence we are now experiencing. The eurozone’s leaders recognise this. The task that confronts them is to ensure that the eurozone functions in such a way that the risk of disintegration is minimised and its potential advantages are exploited to the utmost…

The original system of governance for the European single currency was intellectually and politically schizophrenic. On the one hand, it represented the culmination of 40 years of integration, based on the obvious inadequacy of national procedures to confront continental and global challenges. On the other hand, it was concerned with preserving absolute national sovereignty in fiscal, budgetary and macroeconomic matters…

Their common membership of the single European currency entails a measure of economic sovereignty-sharing between, for example, Germany and Greece. This will not disappear because there are no political structures to manage and reflect their shared sovereignty…

Recent experience points to a more binding surveillance of national economic, not merely budgetary, policies. A natural counterpart would be enhanced macroeconomic co-ordination within the eurozone. Even within the single European market, national economic policies have substantial repercussions for that country’s neighbours. That the eurozone has been so reluctant to set up mechanisms for managing this interdependence is a tribute to the fetish of national sovereignty rather than a reflection of reality…

Germany has every interest in playing its traditional central role in that process, not merely as a good neighbour in Europe, but as a matter of pressing national interest.

A useful antidote to the euro panic and hostility.

This article first appeared on the Guardian’s Comment is Free.

To anyone concerned that immigration is out of control, a promise to capthe number of people entering Britain seems very appealing. That’s why the Conservatives made the pledge during the election campaign. Such is the anti-immigrant fervour among the Tory grassroots that David Cameron didn’t dare ditch the proposal when drafting the coalition deal with the Liberal Democrats.

But now that the government is actually beginning to implement the policy, the holes in it are becoming all too clear. It will damage the economy without addressing any of the political concerns about immigration.

Theresa May, the new home secretary, has imposed an initial cap of 24,100 on the number of non-EU migrants who can come work in Britain between now and April 2011. She has also announced a consultation with businesses and other interested parties before introducing a more permanent limit. The overarching aim is to reduce net immigration to Britain from “hundreds of thousands” – the actual figure was 176,000 in the 12 months to June 2009, according to the Office for National Statistics – to “tens of thousands”.

The new cap is absurd. Since less-skilled workers had already been denied legal entry by Labour’s points-based scheme, it will only keep out highly skilled workers from outside the EU – people with exceptional talents and those with skills that are in short supply in Britain. Tightening the screws on migrants who are already small in number but make an outsized contribution to the economy will damage the fragile recovery while scarcely denting overall migrant numbers.

Once the arbitrary annual limit is reached, foreign workers will be turned away irrespective of their merit and how much they are needed. Big businesses will not be able to recruit the talent that they need to compete in global markets. A small business that has just won a big export order but cannot find the highly trained engineers it needs in Britain will not be able to hire them overseas. A local school that needs a new science teacher will have to do without. The football club you support won’t be able to bring in a top-class African or Brazilian striker. So much for the government’s claim that Britain is “open for business” – it is actually putting the shutters up.

Only the most extreme opponents of immigration object to highly paid foreign workers with valuable expertise who pay lots of tax and make little use of public services, while many of the government’s supporters in business depend on such migrants. So where is the political gain in clamping down? Most of the new arrivals that people expressed concern about during the election campaign have come from eastern Europe. Short of leaving the European Union, their numbers cannot be curbed by government policy – although because of the recession, far fewer are coming while many more are choosing to go home.

In opposition, the Conservatives had an incentive to fan the flames of public discontent about immigration. But now that they are in government, they would do better to adopt more constructive policies. Since freedom of movement within the EU is here to stay, they should point out its benefits – not just to the British economy but also to the millions of Britons who live, work and retire on the continent.

Since so many of the tensions about immigration revolve around housing, they should ease planning restrictions and swallow their hang-ups about building more social housing. And since public services are another flashpoint, they should make sure that local services respond more quickly to changing needs – and have the cash they need to do so. These are all points the Labour leadership candidates could be making too.

The coalition government should get serious about its immigration policy. By capping foreign talent, it is tilting at windmills.

I gave a talk about Aftershock at the RSA on 17 June. A video of it is now on YouTube. Audio is here.

George Osborne described it as “unavoidable” and “progressive”, Vince Cable as “necessary” and “fair”. Don’t blame us, Tweedledee and Tweedledum suggest, Labour left the public finances in a mess – and unless we tighten our belts drastically now, the markets will force our hand. But in fact, the timing, extent and manner of this brutal surgery were a matter of choice. The Liberal Conservative coalition did not have to cut so far, so fast; nor did it have to raise VAT, which will hit the poor hardest.

Britain’s economy is on life support. Banks aren’t lending enough, companies are wary of investing, our biggest export market – the euro zone – is in crisis, and consumption is subdued. Faced with a collapse of private demand, public spending has propped the economy up. But now the coalition is planning to take away that government support much faster than Labour proposed to. Is the economy strong enough to stand on its own two feet? It’s a huge gamble.

The immediate danger is that a drop in demand will plunge the economy into a double-dip recession. That would cause a lot of pain without much budgetary gain: a smaller structural deficit would be offset by a larger cyclical one, leaving the country poorer but the government still borrowing almost as much. Far from shoring up confidence, as Cable suggests, the budget could shred it. Weighed down by huge debts, the economy might stagnate for years, as Japan did after its bubble burst twenty years ago.

Another big danger is that the economy will stagger back to its bad old ways instead of developing along new and healthier lines. Now, more than ever, Britain is relying on a prolonged period of near-zero interest rates to sustain the recovery. Fiscal austerity for monetary licence – that is the bargain that the Chancellor has struck with his chum Mervyn King, the not-so-independent governor of the Bank of England and newly promoted plenipotentiary for financial regulation (an assignment he does not merit, given his insouciance during the bubble years and his role in the Northern Rock fiasco). But with Britons still addicted to property speculation, big banks still unreformed and able to gamble with government guarantees, and the authorities depending on monetary policy to boost growth, we risk inflating a new financial bubble to rescue us from the bursting of the last one.

This emergency budget was a missed opportunity to tilt Britain towards more balanced and sustainable growth. Instead of increasing VAT next January – which will raise £13 billion a year – the government could have phased in a tax of £30 a tonne on carbon emissions. That would not only raise around £16 billion a year, it would curb carbon emissions while stimulating investment in clean-tech companies and the green jobs of the future.

An even better way to fill the budget gap and rebalance the economy would be to introduce a tax on land values. With all the land in Britain worth perhaps £5 trillion, a 0.5% levy could raise £25 billion a year. That could be used to cut the deficit, trim national insurance, and protect public spending on the most vulnerable.

Taxing wealthy landowners’ windfall gains would also limit property speculation and fund new social housing. And since growth-promoting infrastructure investment raises surrounding values, Crossrail and a high-speed rail network would pay for themselves and thus not fall victim to short-sighted budget cuts.

Over time, shifting the tax burden off labour and on to land would create jobs, reward hard work and promote more stable, sustainable and balanced growth. And since nearly all of us earn most of our lifetime income from work rather than from rent, taxing land instead of labour would make most people better off.

The Attlee government introduced a tax on land values in 1947, a measure the Conservatives unfortunately repealed in 1951. As Labour’s leadership candidates consider how best to respond to this unwise and unfair budget, they would do well to revive the idea.

This article appeared in The Times on 16 June 2010.

Filling the gaping hole in the Government’s finances is, in George Osborne’s words, the “great national challenge of our generation”. Unwise spending cuts and tax rises could sap economic growth; unfair ones provoke political unrest; inaction a market panic.

Faced with a national crisis, who better to turn to for advice than Winston Churchill? A century ago, the great man — who, like the present coalition, was both Liberal and Conservative — advocated introducing a land tax as part of a bold package of fiscal reforms. In his emergency Budget on June 22, the Chancellor should set up a commission to consider how best to implement that recommendation.

Taxing land values would be a fair way to help to plug the budget gap while stabilising — and even boosting — the economy. Land is routinely valued each year as property changes hands. With all the land in Britain worth perhaps £5 trillion, a 0.5 per cent levy could raise £25 billion a year — as much as a five-point rise in income tax.

Neither tenants nor leaseholders would pay a penny; only freeholders and landlords would, with the owner of a large estate paying a higher rate than someone who owns a small suburban semi. The proceeds could be used to cut the deficit and national insurance, creating jobs, boosting take-home pay and stimulating growth. Over time, the aim would be to shift the tax burden off hard-working families and on to idle landlords — as in Hong Kong, where revenues from land taxes keep income tax low, there is no VAT or capital gains tax, and enterprise flourishes.

When the Government taxes successful effort, people strive less — some work less, others don’t bother setting up a business, a few relocate overseas — and since hiring is more expensive, fewer jobs are created. But taxing land wouldn’t crimp economic activity, as Adam Smith explained in The Wealth of Nations. It wouldn’t reduce the supply of land, which can’t be spirited away to a tax haven. And it wouldn’t push up rents, which depend on what tenants are prepared to pay rather than landlords’ expenses.

A land tax would actually encourage development. Since it would be payable irrespective of how land is used, it would stimulate the regeneration of derelict sites — such as Battersea power station, where David Cameron launched his election campaign and which has lain idle since 1982. Infrastructure investment that raises surrounding land values, such as Crossrail or a high-speed rail network, would pay for itself and thus escape short-sighted budget cuts. And unlike property taxes, people who do up their homes would not be penalised.

Taxing land values could also limit property bubbles — and the inevitable busts — without discouraging mobility (unlike stamp duty) or business investment (unlike interest rate rises). Relaxing planning restrictions, as Policy Exchange, the Prime Minister’s favourite think-tank, has suggested, would help too. The notion that we can all get rich by swapping more or less the same stock of houses at ever more inflated prices is a dangerous delusion. Property speculation diverts funds from productive investment in promising companies — and when the bubble bursts, the economy plunges into recession, home-owners are stranded with huge debts and banks laid low by bad loans seek bailouts from taxpayers. Isn’t it time we learnt from our mistakes?

Above all, a land tax would be fair. Land in Britain is parcelled out more unequally than in Brazil: 0.3 per cent of the population owns 69 per cent of the land. The country’s biggest private landowner, the Duke of Buccleuch, owns 277,000 acres, not because of his talent or industry, but because his ancestors seized vast swaths of Scotland.

These “land monopolists” — as Churchill dubbed them — get richer not through their own efforts, but that of others. The Duke of Westminster owns 300 acres of what was once fields and is now London’s priciest real estate — Mayfair and Belgravia. And because so many people have established thriving businesses in the capital, that inheritance is now worth billions of pounds. Surely it would be better to tax that windfall gain, rather than the employees and entrepreneurs who generate it?

For sure, farmers and big landowners would kick up a mighty fuss. But since the typical family of four shells out £750 a year to farmers in higher taxes and food prices because of the Common Agricultural Policy, which also inflates land prices, it’s only fair to claw some of that back. And while landowners would point to the impact on a poor granny in a big house — a bogus argument that Churchill called the “poor widow bogey” — she wouldn’t be forced out of her home; her tax bill could be deferred, or she could even be exempted.

Since nearly all of us earn most of our lifetime income from work rather than from rent, taxing land instead of labour would make most people better off. So the question for the coalition Government boils down to this: do you want to help a big society of enterprising people working hard to get ahead — or a tiny hereditary elite creaming off the rewards of others’ efforts?

The case for open borders, the cover article in the new Forbes magazine.

As the world economy tiptoes back from the precipice, there is a growing appetite for books that try to read the future. Two thoughtful studies—one by a former Economist journalist and commentator on globalisation, Philippe Legrain, and the other by Raghuram Rajan, once the chief economist at the IMF and now at the University of Chicago—aim at giving readers a deeper understanding of the forces that brought about the worst financial and economic crisis in at least half a century and look at what can be done to prevent the next one.

Mr Legrain’s book is the zippier read. In just a few chapters, he outlines the forces that brought the world to the brink of a bust: a house-price bubble boosted by runaway mortgage lending in the rich world, particularly America, a lightly regulated global financial system that found ever-more creative ways to speculate on rising house prices, and macroeconomic policymaking that was far too laid back about the dangers posed by asset-price bubbles.

None of this is new. But Mr Legrain has a gift for combining big numbers that offer a sense of the scale of the global build-up in things like household debt while zeroing in on what all this means for people like Thorvaldur Thorvaldsson, a proudly left-wing Icelandic carpenter and unlikely sometime property speculator. This makes his book a particularly good survey of what made up the unpleasant cocktail which the world has yet to digest…

Both books say it would be folly to eliminate the benefits of a more open, globalised world—including vastly improved standards of living for millions in the emerging world—because of disgust with the depredations of the financial sector. Mr Legrain cites innovative, entrepreneurial and peripatetic Swedes and Indians to drive home his central thesis that both rich and emerging countries stand to gain from the latter’s increasing economic dynamism. In particular, he makes a strong pitch for the freer movement of people across borders. Both authors would also like institutions like the IMF to be reformed in such a way that would allow them to play a greater role in sorting out the macroeconomic imbalances that underlay the crisis.

Mr Rajan, however, was the fund’s chief economist when it tried, with little success, to get a serious conversation going on this matter. For that reason, perhaps, his book, excellent though it is, has less of a “can do” feeling about it than Mr Legrain’s. Despite that, both deserve to be widely read in a time when the tendency to blame everything on catch-all terms like “globalisation” is gaining ground.

Read the full review on The Economist’s website.

In his blog post, Dealing with Chermany, Paul Krugman advocates threatening China (and, indirectly, Germany) with an anti-dumping duty to get them to boost domestic demand.

China has done nothing to change its policy of massive currency manipulation...  Europe is going wild for fiscal austerity… everyone is counting on the US to become the consumer of last resort, sucking in imports thanks to a weak euro and a manipulated renminbi. Oh, and while they rely on US demand to make up for their own contractionary policies, they’ll lecture us on how irresponsible we’re being, running those budget and current account deficits.

This is not going to work — and the United States has to take steps to protect itself….

Nicely, nicely isn’t working. Time to get tough.

Yet his proposal would make matters far worse. This is my reply:

You are forever warning politicians to avoid the mistakes of the 1930s in macroeconomic policy and yet in the same breath you advocate that America should threaten Europe and China with protectionism. This risks far more than a “diplomatic tiff”: it could easily cause a tit-for-tat cycle of protectionism akin to that which caused global trade to collapse during the Depression years. Have you taken leave of your senses?

In the case of Europe, the notion that it is going “wild for fiscal austerity” because it is counting on American demand to save the day is blinkered and self-centred. Most European governments are being forced into austerity by the threat that markets will stop funding their deficits. The euro’s fall is hardly under their control either. America might be in a similar position were it not for the privileged – and deflationary – role of the US dollar in the international monetary system. Count your blessings that there isn’t a run on US Treasuries when America’s deficit and debt are higher than most EU countries’.

The main reason why the pattern of supply and demand in the global economy is so distorted is because of America’s unprecedented housing and financial bubble. You are right that now that the bubble has burst, surplus countries ought to do more to boost demand. But threatening protectionism is hardly the answer. And America should put its own house in order before lashing out at foreigners. The Fed’s monetary policy would be more effective if the banking system’s balance sheet had been cleaned up. Fiscal policy would be more effective if it was directed at investment in future growth – improving America’s crumbling infrastructure, for instance – and supporting the incomes of the poor, who by necessity are spenders rather than savers. It seems instead as if Ben Bernanke is intent on doing a Greenspan: inflating another bubble to rescue America from the previous bust. Don’t blame the rest of the world for that.