Smuggling incentives

A colleague of mine pointed out that free traders might think that smuggling is a good thing, in that you remove the deadweight costs to the economy of tariffs and increase consumer welfare as a result.

Roberto Saviano in "Gamorra" describes the huge economic incentive to smuggle.

" Fearing a customs inspection, Xian preferred unloading them on the open sea. That way the merchandise could be put on the market without the burden of taxes, and the wholesalers wouldn't have to pay import fees. You beat the competition on price. Same merchandise quality, but at a 4, 6,10 percent discount. Percentages no sales rep could offer, and percentages are what make or break a store, give birth to new shopping centres, bring in guaranteed earnings and, with them, secure bank loans. Prices have to be lower. Everything has to move quickly and secretly, be squeezed into buying and selling. Unexpected oxygen for Italian and European merchants. Oxygen that enters through the port of Naples"

Saviano talks earlier in the book about his appreciation of his classes on Keynes and marginal values of products (ice creams worth more next to the desert than in Greenland). Here is someone who studied economics and took his field work/writing to the extreme by immersing himself in the black economy. He is now paying the price by living in hiding from the Napoli mafia.

Photo by Mary Sesami, Flickr

Smuggling

Roberto Saviano writes famously in Gomorrah about the Camorra mafia but also gives insights on smuggling of goods into Europe:

"The port of Naples is an open wound. The end point for the interminable voyage that merchanise makes. Ships enter the gulf and come to the dock like babies to the breast, except they are here to be milked, not fed...

These days the merchandise unloaded in Naples is almost exclusively Chinese - 1.6 million tons annually. Registered merchandise that is. At least another million tons pass through without leaving a trace. According to the Italian Customs Agency, 60% of the goods arriving in Naples escape customs inspection, 20% of the bills of entry go unchecked, and fifty thousand shipments are contraband, 99% of them from China - all for an estimated 200 million euros in evaded taxes each semester. The containers that need to disappear before being inspected are in the first row. Every container is duly numbered, but on many the numbers are identical. So one inspected container baptizes all the illegal ones with the same number".

The book Economic Gangsters give further insight in how smugglers paid less duty on chicken exports to China from Hong Kong...by declaring the chickens as turkeys which qualify for lower tariffs and banking on the inspectors not noticing the difference.

Empty commitments on emissions

According to the Guardian, a new report highlights how the EU and US are effectively exporting their emissions commitments to China. The UK claims an 18% reduction in emissions since signing Kyoto. However, imports to the UK have produced substantial emissions in China. 9% of total Chinese emissions are the result of manufacturing goods for the US, and 6% are from producing goods for Europe.

Academics and campaigners argue that the responsibility for these emissions lies with the consuming countries

Dieter Helm, professor of economics at Oxford University, said "focusing on consumption rather than production of emissions is the only intellectually and ethically sound solution". "We've simply outsourced our production," he added."

However, a country's emissions and commitments are calculated on the basis of their production. To include levels of carbon "embedded" in imports would mean imposing a border tax on carbon products. This however is expensive and difficult to calculate and open to mis-use as a protectionist measure.

A more elegant solution would be a global carbon tax...

Internet and farming in Africa

Africa has an online community of 50 million people and growing, most of these in urban Egypt and Nigeria. Internet access in the countryside is still barely accessible. Most Africans still live in rural areas and derive their income from farming. Two projects from Uganda and West Africa attempt to bridge the digital divide.

via Global Advances

The internet and transaction costs

Technology like the internet and before it the telephone reduces transaction costs, but Seth Gitter decides walking to buy concert tickets are a lower transaction cost (plus the greatest treadmill pop video ever too)

However the internet has also left us prone to short attention spans. Attention is thus the scarce commodity in the internet age..."So being able to capture someone’s attention at the right time is a very valuable asset".

Emissions from India and China

1. Greenhouse gas emissions have grown very fast in last 7 years due to growth in India and China

2. Recession is appears to be slowing emissions growth in China

Links I like

1. The greenest way to be buried

2. Thomas Keneally on bush fires and climate change

Organic farming and climate change

1. The International Trade Centre and Swiss Research Institute for Organic Agriculture have published a study looking at the carbon sequestration benefits and lower emissions of organic agriculture.

2. Adrian Williams of Cranfield University finds:
Nitrous oxide is the single largest contributor to global warming potential (GWP) for most commodities, exceeding 80% in some cases.

Organic field crops and animal products generally consume less primary energy than non-organic counterparts owing to the use of legumes to fix N rather than fossil energy to make synthetic fertilisers. Poultry meat and eggs are exceptions, resulting from the very high efficiency of feed conversion in the non-organic sector.

Yields (t/ha) are lower for organic than for conventional production such that for a given amount of output more land is always required for organic production (65% to 200% extra).

Declining levels of nutrients in food

Research from the Biochemical Institute at the University of Texas, cites three kinds of evidence that points towards the decline in the nutrient value of fruits and vegetables in the US and UK over the last 50 to 100 years.

1. fertilized plants contained larger absolute amounts of minerals than the unfertilized plants, but these amounts were sufficiently diluted by the increased dry matter that all mineral concentrations declined, except for phosphorus, which is the common fertilizer.

2. apparent median declines of 5% to 40% or more in some minerals in groups of vegetables and perhaps fruits

3. plantings of low- and high-yield cultivars of broccoli and grains found consistently negative correlations between yield and concentrations of minerals and protein, a newly recognized genetic dilution effect.

In conclusion,
"Over three billion of the world’s population is malnourished in nutrient elements and vitamin,including in developed countries. Vegetables and fruits are among the richest sources of many nutrients. Thus, declining nutrient concentrations in horticultural products are most unwelcome. Past and ongoing efforts to increase yields, combined with apparent broad tradeoffs between yield and the concentrations of perhaps half of all essential nutrients, work against recent efforts to increase one or a few micronutrients in individual foods."

via US Food Policy

Organic farming and food security in Africa

The UN Conference on Trade and Development issued a statement last week saying the organic agriculture is a promising food security option for Africa.

Organic agriculture which uses local resources, improves soil fertility and is environmentally friendly - is "equal or better than most conventional systems and more likely to be sustainable in the longer term". Demand for organic produce is also increasing worldwide, holding out "significant income possibilities for African organic farmers" and helping to speed progress towards the Millennium Development Goals. But the continent will have to overcome formidable challenges if it is to seize these opportunities, UNCTAD warns, including limited productive capacity, market access, government support, and certification.

Are carbon labels useful?

Last week I was in Singapore at a seminar organized for trade ministries from Asian countries. The programme included presentations on trade and environment issues.

Prior to my presentation on carbon labelling, I asked the 25 participants:

- if they knew what the carbon label on the Sapporo beer above meant,
- if they were more likely to buy the product because of the label and
- if they thought the label would help stop climate change. The results lead me to question the point of carbon labelling.
Just for good measure I asked if people knew what their countries average personal carbon footprint was.

Findings
Half the respondants were correct in knowing what the label meant. Half were incorrect.

Both those who were correct and those who were incorrect in knowing what the label meant felt that they would be more likely to buy this product than an equally priced and quality beer due to the label.

Most respondants felt that the label would help slow down climate change.

Noone knew how much CO2 was emitted per capita in their respective countries.

My observations are the following:

- There is limited understanding amongst consumers as to what carbon labels mean.
- Irrespective of whether a consumer understands its meaning or not, the label increases the product's marketability.
- Despite thinking that carbon labels will slow down climate change, consumers do not know what their carbon footprints are. How are they in a position to begin calculating what is the best strategy for reducing their footprint?

Full fare according to size of child

One of Milton Friedman's most enduring successes in economic policy has been the idea of pricing cars to enter cities.

Singapore favours the pedestrian more than in most European or US cities.

To buy a car will cost you 9,000 euros just in tax. To drive into town you must pay a congestion charge. The rate of the charge is set depending on the time of the day, so it goes up during the rush hour, as it the picture. (Just after I took the picture someone ran a red light. This must be risky given the authorities heavy fines for social trangressions and use of modern technology).

Getting the driver to pay for the social costs of congestion and pollution makes economic sense. However, drivers everywhere are fairly insensitive to price rises and need cheap public transport to get off the road. The metro in Singapore provides that in spades. It is fast, clean, safe and CHEAP.

There are strict rules on the metro governing both the size of a bicycle you can take on or the maximum size of a child - no longer can you fool the ticket office with baby face looks to get a half fare.

Links

1. How the US forces are losing ground against the Taliban

2. How Obama could lose the presidency

New predictions on climate change

A new report from Chris Field director of global ecology at the Carnegie Institute says that the Earth's temperature is likely to rise between 1.1C and 6.4C by 2100, depending on future global carbon emissions. "We now have data showing that from 2000 to 2007, greenhouse gas emissions increased far more rapidly than we expected, primarily because developing countries, like China and India, saw a huge upsurge in electric power generation, almost all of it based on coal.

via the Guardian

US Energy Secretary Chu on climate change

This week to the LA Times:

"I don't think the American public has gripped in its gut what could happen,"

"We're looking at a scenario where there's no more agriculture in California. I don't actually see how they can keep their cities going."

Chu said, up to 90% of the Sierra snowpack could disappear, all but eliminating a natural storage system for water vital to agriculture.

"I'm hoping that the American people will wake up."