Tuesday, November 28, 2006

A European President Speaks Mostly Good Sense (with caveats)

José Manuel Barroso, President of the European Commission, speaks on the theme of "The Scottish enlightenment and the challenges for Europe in the 21st century; climate change and energy”, in the ‘Enlightenment Lecture Series’, at Edinburgh University, 28 November.

“It is no accident that I have so far omitted that famous son of Kirkcaldy: Adam Smith.

Smith was not just a man of his time. In his broad fields of expertise, and eclectic range of interests – moral philosophy, sociology, logic, economics, ethics, jurisprudence – he also resembles Renaissance man. In his continuing relevance today, and his belief that international trade can reduce frictions and promote peace, he is very much a modern European man as well.

This is someone who put consumers above special interests. Someone who saw open and fair competition as a good thing. Someone who recognised that in an open market, it isn't just the person who sells a good who benefits; the person who buys it benefits as well.

He also reserved some acid words for university professors, which in present company are probably best left unsaid. But his most significant observation, for me at least, is that open markets can be vehicles for social good.
In Book IV of The Wealth of Nations, he observed that by removing artificial barriers, and allowing the emergence of a 'simple system of natural liberty': 'the sovereign is completely discharged from a duty...for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards employments most suitable to the interest of society.'

Today, Europe must use the power of market forces for the interests of society to tackle one of the biggest issues facing all Europeans, indeed all the world - climate change.

Adam Smith is much misunderstood both by what I would call ‘state fundamentalists’ and by ‘market fundamentalists’. Yes, he said: ‘There is no art which one government sooner learns of another than that of draining money from the pockets of the people’. But he also said: ‘The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities’.

The fact is, Smith recognised that administrations are necessary - to administer justice, to make sure sensible rules are followed, and to create and maintain public works and institutions of great value to society.

In much the same way, Europe today needs strong institutions like the European Commission and the European Court of Justice in order to maintain the Single Market; to administer the Emissions Trading Scheme; to secure affordable and sustainable energy for future generations; and much more.”

Well, at least President José Manuel Barroso, from Portugal, got Smith almost completely right.

I am less sure that he was right about associating the European Union with Smith’s sentiments about markets and the maintenance of the European Commission. The latter’s record in trade is not good, especially agricultural protectionism that is directed at the poorer countries of the world. Worse, it is either glossed over, as President Barroso does in his ‘Enlightenment Lecture’, or smugly justified by omission, as he also manages.

Trade protectionism is more important, in my view than what Barrosa claims is the biggest issue ‘facing all Europeans, indeed all the world’, which he announces is ‘climate change.’ There is some (much?) doubt about the proposed remedies for what is believed to be human generated ‘climate change’, but there is absolutely no doubt about the role of human generated international protectionism, in both the EU and the US, and the local nationalist protectionism among those worst affected.

However, I give Jose Manuel Barroso full marks, and heartfelt thanks, for not linking ‘an invisible hand’ to his comments from Book IV of Wealth of Nations and for his qualified observation that Smith’s ‘most significant observation’ for him was ‘that open markets can be vehicles for social good.’ What a change! If only others would qualify Smith's assertions likewise, as Smith intended, namely that self-interest may or may not lead to social benefits instead of tending, as they invariably do, assert self-interest to be almost compulsively benign, when his Book IV is a long critique of self-interested monopolists and protectionists, to which we can add polluters, making society worse off than it needed to be from their nefarious activities.


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