Archive for the ‘property rights’ Category

English history offers a parallel for Egyptian political reform (2)

July 6, 2013

In 1689, an unconstitutional English Parliament (unconstitutional because it was not called by the King) met and wrote a new constitution (the original constitution was unwritten). The Bill of Rights narrowed the discretionary power of the monarch, increased the independence of the judiciary, in all but name eliminated any notion of the divine right of kings, and significantly increased the powers of parliament. Most importantly, the suffrage was strictly limited to some 5 per cent of the male population (women had no suffrage until the early 20th century). A high property requirement was set in place for any person to vote. Members of Parliament served without pay, unless appointed as members of the Cabinet. King William III and Queen Mary II were required to sign this Bill of Rights before they could jointly access the throne.

This new constitution significantly reduced the arbitrary discretion of the monarch. Equally important, it set in place a parliament that would firmly establish and enforce property rights, thus paving the way for the Industrial Revolution. Britain became the richest and most powerful nation on the planet, building an Empire on which the sun would never set. Slowly, over time, the suffrage was allowed to expand, until in 1884, individuals without property were allowed to vote. This opened the gates to socialism and to the decline and fall of the British Empire.

Egypt is not yet ready for such a transition. Poorly educated as much of its population is, and subject to Islamic religious fanaticism as one-third of its population, surely is, there is no immediate prospect of establishing and maintaining an effective secular parliamentary system.

So the military, for the time being will have to govern. Since senior members of the military are at this time the primary holders of property in Egypt, this should ensure that an effective system of property rights will be established. If the military is far-sighted, I recommend that tit follows the example set by General Augusto Pinochet in Chile when he seized power from an incompetent and socialist President Allende. The General called in free-market Chilean economists trained at the University of Chicago by Milton Friedman, George Stigler, Gary Becker and Arnold Harberger to reform the economic institutions of Chile. Remarkable success followed. When the General voluntarily stepped down from power and returned Chile to democracy, the country was the richest in Latin America, and remains so to this day. This time around, it may not be so exclusively the Chicago-boys that are called to service – Chicago unfortunately is no longer an uncontaminated citadel of free-market economics. Other universities – such as UCLA, George Mason University, New York University, and Clemson University – may have to supplement Chicago supply.

While so ruling, the Egyptian military should ensure that all young Egyptians, females as well as males, receive a secular education. They should ensure that the job market is open equally to females as well as to males. They should offer stability of rule for a time-period sufficient for wealth-enhancing institutions to emerge. This may take five to ten years of transition governance.

The military should then write a new constitution for Egypt, modeled closely on the United States Constitution. A strict separation between Mosque, Church and Temple on the one side and the State on the other side, should be imposed. As in 1787, the suffrage should be strictly limited by a property requirement, albeit allowing females equal access with males to the ballot box. The secret ballot should be required. The initial suffrage should be restricted to no more than ten per cent of the adult population. Voters should satisfy both the requisite property requirement and (possibly) should be limited to individuals with university degrees and equivalent professional qualifications.The judiciary should be completely independent from the executive and legislative branches of government.

Then the world would truly marvel at the high rate of economic growth and economic freedom achieved by an Egypt unfettered from the bonds of autocracy and backward-Muslim religious fanaticism.

Britain leads the world in bank reform

June 26, 2013

During the 2008 financial crisis, the governments of Britain and the United States failed the test that confronted them. Many of their largest banks had leveraged themselves excessively in mortgage securities and confronted bankruptcy as the U.S. housing market bubble finally burst.

The rational solution to such mis-behavior was to allow the die to fall where it may, specifically to allow insolvent banks to go under and thereby to cleanse an unhealthy financial sector of its least worthy members. The governments led by Prime Minister Gordon Brown (the Scottish cyclops), and President George W Bush (the compassionate conservative) lacked the moral courage to allow free markets to do their work, and introduced the concept of ‘too big to fail’ into the English language.

Since that policy nadir, Britain has forged ahead of the United States with respect to bank reform, as U.S. politicians, from president down to most lowly congressman, have become corporatists, equating the success of an industry with the interests of large companies.

The British government of Prime Minister David Cameron has not succumbed to this fundamental national socialist error, recognizing that the crucial issues lie in the structure of the banks themselves. The government has led the way by concluding that it is not so much that British banks are too big, but that they are too complex.

“Their combination of activities creates conflicts of values, of interests and of objectives. A culture of investment banking that is dominated by trading is incompatible with the requirements of reliable retail banking Central banks have flooded banks with funds to support domestic lending, but the balance sheets of these bans remain dominated by transactions with other financial institutions.” John Kay, Britain is leading the world when it comes to bank reform’, Financial Times, June 26, 2013

The British government gradually has recognized the need for structural change. The Vickers Commission, which reported in 2011, put forward the crucial reform: the separation of retail and investment banking. The Parliamentary Commission on Banking Standards, which reported in June 2013, has proposed criminal sanctions, including jail-time, for bankers who recklessly pursue their own interests ahead of those of the banks they control. Both bodies demand more competition in banking and the government is moving towards the parking of legacy assets in a bad bank. The Bank of England, under the able leadership of Governor Mervyn King, has been the leading source of skeptical thinking on the future of the British financial sector.

In the meantime, under the left-liberal influence of President Barack Obama and the hydraulic Keynesian influence of Ben Bernanke at the Federal Reserve, the American financial sector is returning to its old bad, bonus-boosting habit of excessive leverage, now secure in the knowledge that ‘too big to fail’ is the post-2008 nirvana.

Rupert Murdoch has an unusual belief in family values

June 15, 2013

This week Rupert Murdoch filed divorce papers on his third wife, Wendi Deng. At the same time, the newspaper mogul showed the exit door to David Devoe, News Corporation’s chief financial officer for the past 23 years. These two family dismissals are all the more surprising because at the same time, Rupert Murdoch reminded Australian investors of the constant factor in his personal and corporate life: ‘News Corp retains the Aussie spirit of a family company.’

Wendi Deng is Rupert’s third wife. She married him in 1999 and is the mother of two of his children. At 44 years of age, Wendi is in perfect shape and stunningly beautiful. He is a decrepit-looking 38 years her senior. Rupert was in such poor physical condition some two years ago when he was physically attacked during a Parliamentary Committee hearing, that he failed to defend himself. Valiantly, Wendi floored his attacker with a perfectly-timed left hook, earning the name ‘Tigress Wife’ for her intervention. The divorce papers are Rupert’s kind of recognition for protecting her husband from humiliation and potential charges of cowardice under fire.

David Devoe has stood courageously by Rupert’s side as the press mogul has reeled before charges of impropriety. Defoe has played the pivotal role in restructuring News Corporation into separate entertainment and publishing businesses on June 28, 2013. ‘Bye-bye David’, is Rupert’s supremely generous response.

Rupert’s loyalty has been more than a little fragile both before and after the News of the World scandal erupted in 2011. Two central figures had already been shown the exit door prior to the scandal. Peter Chernin was ousted as chief operating officer in 2009 after 13 years of loyal service. Gary Ginsberg, who ran marketing and corporate affairs was forced out in 2010 after a decade of licking Rupert’s boots.

When the crisis came to a head in July 2011, Rebekah Brook, the chief executive of the News International UK newspaper arm – described by some former colleagues as a fifth Murdoch daughter, fell on her sword for Daddy.The same day, Les Hinton, who had worked for Rupert for 52 years, since he fetched him sandwiches as a 15-year-old copy boy at Rupert’s first newspaper, was removed from his new position in charge of the recently acquired Dow Jones.

There may be some lessons to be learned from all this family upheaval. Most especially, one should understand that when Rupert talks about his ‘family’, he really means himself. Rather like Charles de Gaulle whose frequent references to La France were truly references only to himself: L’etat, c’est moi.

The Unites States should not meddle in Syria

June 14, 2013

In a world grounded on the concept of sovereign nation states – and that is essentially the world since the Treaty of Westphalia in 1648 – nation states should consider circumspectly before deciding to intervene in the affairs of another nation. Specifically, they should consider only the interests of their own citizens. And by interest, I mean narrow interest, revolving around the lives, liberties and properties of their people. They should also reflect carefully as to whether any form of intervention feasibly can affect those interests in a favorable direction, with the benefits outweighing the costs of such intervention.

From this perspective, a case can be made ex ante that military intervention by the United States in Iraq was justified. There was a reasonable expectation that Saddam Hussein had stockpiled weapons of mass destruction and that he was prepared to use such weapons against direct United States interests. There was the certainty that Iraq sat on large reserves of oil and that Saddam Hussein may have been willing to manipulate such reserves against United States interests, or simply shut them down. So a short-term strike, designed to eliminate Saddam Hussein and his regime, and then to withdraw surely should have been on the U.S. policy-table. Under no circumstances,should a long-term attempt at nation-building have followed. That was a major error on the part of the Bush Junior administration – an error that his father had not made.

No such case for intervention exists as a consequence of the so-called Arab Spring. Libya is blessed, or cursed, with oil reserves, but there was no clear threat to the U.S. from the Gadaffi dictatorship. Surely the Gadaffi regime could be and was taken down by U.S. intervention. But U.S. interests are worsened by that outcome. A reluctant ally has been replaced by a Muslim fundamentalist government that is ill-disposed to the West.

Egypt, again offered no U.S. interest that justified toppling the Mubarak dictatorship. Egypt has no worthwhile natural resources that could have been directed against the U.S. Mubarak was a long-term loyal supporter of U.S. policy including the protection of Israel. The outcome of meddling is that a hostile Muslim fundamentalist majority now poses a significant threat to Israel, a threat that would force the U.S. into a major war, should it be implemented.

The U.S. has no national interest in meddling in Syria. Syria has no natural resources and a sequence of drone strikes could put their nuclear program back into the stone age. Bashar al-Assad is a repellent chinless-wonder dictator, willing to turn weapons of mass destruction onto hos own people. But there is no indication that the rebels would not follow suit if such weapons fell into their hands. The country is a shambles and from the perspective of the U.S that may be the safest condition, given the malevolence to the West displayed by almost all segments of the population, not least the Muslim majority. If the U.S. desired to help itself, it could open its own borders to the best trained scientists and scholars from Syria, further depleting the country’s chances of ever pulling out of abject poverty.

Real-politik strongly indicates that the Obama administration should stand on the sidelines and let Syria sort out its own internal divisions. Only if a direct threat to the U.S should arise once the desert dust has settled, should the U.S. make strategic strikes to eliminate the facilities and the individuals that constitute the threat.

Turkey: one Sharia step away from a secular military coup

June 4, 2013

I met the Turkish Prime Minister, Recep Erdogan in January 2004 in Istanbul. He and his entire cabinet attended a conference on Conservatism and Democracy largely funded by the Islamist Justice and Development Party (AKP) which he had led to a minority electoral victory in 2002.

Aware that earlier Islamist governments had been overturned by a military dedicated to Ataturk’s vision of a secular polity, Prime Minister Erdogan committed his government to conservative principles. I was invited as one of three plenary speakers to address these issues before a major conference. Although I lean more to classical liberalism than to conservatism, the latter is a broad tent. So I read up on Edmund Burke, Milton Friedman and Friedrich von Hayek and laid out a program compatible with the Muslim leanings of 98 per cent of the population. As the world knows, Islam is also a broad tent, so I focused attention on the philosophy of one of the greatest Islamic philosophers,Ibn Khaldoun, a thinker whose ideas on conservatism and democracy, even though enunciated many centuries ago, were close enough to my own. Recep Erdogan publicly expressed his support for my recommendations*, and to his credit, he pursued the key reforms assiduously until fairly recently, securing increasing electoral support, while winning three elections since 2002.

So it is with great sadness today that I must acknowledge once again the truth in Lord Acton’s statement that ‘all power corrupts and that absolute power corrupts absolutely’. The Recep Erdogan that I met in 2004 no longer exists. A decade of increasing power has corrupted the man and has turned him away from common-sense towards extreme Islamic religious fervor. The man has become a monster, imposing Sharia law on an increasingly rebellious public, enriching himself and his cronies through corruption, introducing near-Prohibition in a country that is accustomed to alcohol consumption, and turning tear gas and water cannon onto unarmed gatherings in Istanbul, Ankara and other Turkish cities.

The road that Recep Erdogan now follows is the road to a military coup d’etat. Undoubtedly, the Prime Minister has tamed, even humiliated, the military as power has gone to his head. But the military has the weapons. And the military, for almost a century has the proud heritage of preserving Mehmet Ataturk’s secular governance for Turkey. Step back, Recep Erdogan, before it is too late to do so! You have achieved a great deal of good for your Islamic country. Do not throw everything away on a dictator’s whim to move from moderate to fanatical Islamic philosophy.

* Rowley, C.K. ‘Conservatism and economics: a sweet Turkish delight’, Public Choice, Volume 119, Nos. 1-2, April 2004, 1-12.

The West should allow Syria to self-destruct

May 28, 2013

Syria has long been an irritant to the West. It has worked hard, but ineffectively to destroy Israel and to ferment trouble elsewhere throughout the Middle East. It helped to destabilize Iraq following the removal of saddam Hussein and contributed to many deaths within the coalition of the willing. It has forged a close relationship with Iran, one of the two dangerous enemies of the West (North Korea is the other). It is a significant supporter of al Qaeda.

Syria has no natural resources relevant to the well-being of the West. So the West will lose little or nothing should this artifact of French colonial aspirations self-destruct through an evenly-balanced civil war. If Bashar al-Assad eventually wins, he will rule over a country reduced to desert poverty. If the rebels win and the jihadists seize control, then the West could move to snuff out those who threaten their mainland interests.

Meanwhile, it is immensely in the interest of the West to abstain from all intervention in Syria. Western military concern lies with Iran and North Korea. If the West is to let slip any dogs of war, those are the countries that must be targeted. For those countries – unlike Syria – pose an existential threat to the West.

Hat Tip: Gideon Rachman, ‘Watch what the west does on Syria, not what it says’, Financial Times, May 28, 2013

President Ronald Reagan’s 1981 Memorial Day Proclamation

May 27, 2013

“Over one hundred years ago, Memorial Day was established to commemorate those who died in the defense of our national ideals. Our ideals of freedom, justice, and equal rights for all have been challenged many times since then, and thousands of Americans have given their lives in many parts of the world to secure those same ideals and insure their children a lasting peace. Their sacrifice demands that we, the living, continue to promote the cause of peace and the ideals for which they so valiantly gave of themselves.

Today, the United States stands as a beacon of liberty and democratic strength before the community of nations. We are resolved to stand firm against those who would destroy the freedoms we cherish. We are determined to achieve an enduring peace = a peace with liberty and with honor. This determination, this resolve, is the highest tribute we can pay to the many who have fallen in the service of our Nation.

God bless our veterans and their families.

Peace Through Strength forever.”

Hat Tip: Lou Cordia

Britain should exit the European Union

May 13, 2013

Fortunately for Britain, the European Union does not prohibit member countries from seceding. No Abraham Lincoln sits in Brussels, willing or able to wage a war of continental aggression, should Britain decide to leave an organization that imposes net economic costs upon it.

The economic case for exit is now dominating debate across the Pelagic Isle. The large single market of the EU has brought benefits to Europe’s many small economies,especially those with a relatively large industrial base. It is bringing transfer benefits to the profligate PIIGS who are exploiting the charity of German savers. The UK, however, is a large economy with a small industrial base. It is fully capable of correcting its own fiscal excesses, especially under Conservative Party governance. For the United Kingdom, the regulatory burden of the single market massively outweighs the benefits.

The key assumption that underpins this judgment is that Britain – in the absence of becoming a member of the European Economic Area – Norway, Iceland and Liechtenstein – would still enjoy access to free trade with the European Union. This assumption is highly probable, since Germany and the Netherlands – the two best functioning EU economies – would welcome open access to the large British market. A negative trade shock imposed on the UK is in the economic interest of no EU economy, however perfidious, Albion may be regarded by some of its former allies and enemies.

Article 50 of the Treaty on European Union, one of the two treaties known together as the Lisbon Treaty, provides the option for an exit. Negotiations would be required between the British government and the various European institutions. Most likely, Britain would secure an exit placing it into a comparable situation with Switzerland i.e. a bilateral free trade deal. This would be a sweet deal for a country that desires to retain the City of London as Europe’s major financial center, and to evade the strangulation of the financial transactions tax and European-style banking regulations that the EU bureaucracy is panting to impose.

So, contrary to the advice given today by President Obama to Prime Minister David Cameron in the Oval Office, my advice is that Britain should exit now, without attempting to reform the EU from within. A country operating outside the euro-zone has precious little leverage to secure a deal that will weaken the social market philosophy that now dominates euro-land. Remember that Britons are still predominantly Anglo-Saxons, Prime Minster Cameron, and that their ties remain closer to North America and other former colonies than to Old Europe.

Hat Tip: Wolfgang Munchau, ‘Lawson is right – Britain does not need Europe’, Financial Times, May 13, 2013

Sir Alex Ferguson: the bagpipes honor a remarkable career

May 12, 2013

As an Englishman residing in the United States, I have retained an abiding love for the beautiful game – soccer – a game that has yet to reach its true status in the United States. Soccer is a game for extremely fit men (and women) who can stay on the field for a full 90 minutes of fast, highly-skilled movement. Soccer players do not retire to an oxygen tent after 5 minutes on the field as do so many American footballers. I doubt if anyone carrying in excess of 200 pounds has ever played for a premier soccer team. No 450 pound body-armor-protected fatties for the beautiful game. Soccer players do not require continuous radio contact so that the manager can tell them which is left and which is right, and where to move on every play. For the most part, they have sufficiently high IQs that they can think for themselves within a general strategy defined by the team manager.

Throughout my time in Virginia the team that I have supported is Manchester United, the Red Devils, a team that has dominated the English soccer scene for the past 26 years. Throughout that time period, Man U has been managed by Alex Ferguson, now Sir Alex Ferguson, who announced his imminent retirement last week at the age of 71 years, after 1,500 games in charge of what has become one of the world’s richest and most popular sports clubs. Few Britons have been more successful, in any sphere, in recent times.

His longevity as manager is a mark of this success. There are twenty clubs in the Barclay’s Premier League. Over the past year alone, 8 of these clubs have sacked their managers. Many others have faced speculation about their imminent demise. Only Sir Alex, a Glaswegian Scot from the blue-collar shipyards of that famous city, has been entirely secure, so secure indeed that he has been privileged to choose his own successor, and has been elevated to the Man U board of directors following his retirement. Sir Alex has earned job security and widespread respect because he is a winner. Under his leadership, the Red Devils have lifted 38 trophies – Premier League, F.A. Cup and European Championship – a record that no future manager is ever likely to match.

How has he achieved such success? Hard bloody work is one answer. Sir Alex is not some Spanish, Portuguese or Italian playboy management consultant, like Jose Mourinho. He is a rough-hewed, gritty, foul-mouthed Scot, prepared to apply the dreaded ‘hairdryer’ to under-performing stars during the half-time interval, even to kick a soccer boot at the head of one of his most famous stars, David Beckham, when the occasion so deserved. Sir Alex controls everything in his club, from brand-management, to talent-spotting, to the players’ tea. When Wayne Rooney experiences the ‘red mist of rage’ on the soccer pitch, he knows that he will be benched by his manager and that he will experience a much more dreadful red-rage from that fearsome Scot, once he returns to the dressing room.

Economy is another answer. Soccer management is about squeezing out more performance per salary pound than one’s highly competitive rivals. This Sir Alex has done, season after season, spending a lower proportion of the club’s revenues on wages than any other Premier League club. This achievement has attracted the attention of businessmen and political leaders, especially from those within his beloved Labour Party.In particular, Sir Alex and Tony Blair bonded deeply, each recognizing the leadership qualities of the other. Although Gordon Brown is a fellow-Scot, Sir Alex despised his shambolic leadership, though he was never tempted to cross party lines.

Sir Alex may be a committed Labour Party supporter, but that does not mean that he is anti-capitalist. Far from it. He embraced New Labour long before Tony Blair invented the name. English soccer would become the best, during his 26 year reign at Old Trafford, because it pays the most. The average weekly wage in the Premier League rose by 1,500 per cent between 1992 and 2010. Sir Alex accepted his fair share of the rewards. He named his mansion Fairfields, after the dockyard where his father once labored.

Most of all, Sir Alex’s success was based on an enthusiastic embrace of globalization. He inherited a squad that contained two Danes, four Irishmen, and 18 Britons. He leaves a squad with players from a dozen countries, including Serbia, Ecuador, and Japan. In this respect, the politician whom Sir Alex most resembles is not Tony Blair, but rather his Tory nemesis, Margaret Thatcher. Of course, Sir Alex claims to detest the Iron Lady, for her blue rather than his red color. Yet, in truth they are very similar. Both won global success through a combination of simple truths and relentless drive. Both revered aspiration and opportunity. Both made Britain great.

The man that I honor today is no Red Alex but rather he is the Iron Man.

Hat Tip: Bagehot, ‘The socialist international’, The Economist, May 11, 2013

Affirmative action should be terminated

May 4, 2013

Above the entrance to the U.S. Supreme Court four words are carved: Equal justice under law. The message is perfect for a people that pursues inalienable rights to life and liberty and an imprescriptible right to property – even a society that once pursued such objectives very unevenly across the races.

It is tempting for some to request unequal treatment under law designed to benefit those treated badly in the past. Such indeed is a current occurrence in the United States with respect to certain ‘minority groups’. But what may be popular and widespread is fundamentally wrong.

Once equal justice under law has been established, it should never be violated again. For to violate the rule is to suggest that there is a better rule, which is untrue. No society can pursue the goals of life, liberty and property effectively in the absence of the rule of law. And those four words carved above the entrance to the U.S Supreme Court perfectly express the essence of the rule of law.

Hat Tip: Time to scrap affirmative action’, The Economist, May 4, 2013