2 thoughts on “The importance of free trade – and how to derive its full benefits”

  1. Posted 01/08/2019 at 11:39 | Permalink

    The case for competitive markets, both inside national borders and across borders, expertly made.

    Competition is at the very heart of enterprise and free market capitalism. Unlike the market in consumer goods and services which is the subject of this blog, government markets are not only some the most closed in the world with significant barriers to entry, but they are also seriously uncompetitive with public procurement contracts often handed out on a preferential basis.

    Consider, for a moment, the market for defence equipment.

    The government’s default policy is to procure military equipment for the Armed Forces through fair and open competition – the only exceptions being off-the-shelf purchases and uncontested, single-source development contracts, the latter to be handed out on a preferential basis (to the Select Few).

    Indeed, in its most recent policy statement on defence procurement expressed in the Defence Industrial Policy published in December 2017, the government says (on page 23):

    “We strive to provide our Armed Forces with the capabilities they need at the best value for money, obtaining this through open competition in the global market, wherever possible. Competitive tension is the greatest driver for innovation, productivity and earning power in any economy.”

    Yet, in the very next sentence, the government goes on to make this frank admission:

    “In 2016/17, 58% of new MoD contracts by value were placed on a non-competitive basis. This has grown from 36% in 2010/11 ……”

    So, it seems that less and less use is being made of the market-based instrument of fair and open competition – which happens to be the government’s preferred policy on defence procurement. There is a suspicion that senior executives seconded from the defence industry and embedded within MoD, who remain in the pay of their employers, may have exercised their maligned influence to interfere with implementation of policy to serve their narrow business interests. Or is this a clear-cut case of the senior civil servants subverting the will of the party of government, and policy set by Ministers? What Trump calls the “deep state” which is out to frustrate his administration. One thing is for certain – there is reluctance on the part of some people in the pay of the State to use the instrument of competition as a tool, because it creates winners and losers – reflecting their deep-seated socialist tendencies.

    It is entirely understandable why the government would want to hand out uncontested, single-source development contracts to selected defence contractors on a preferential basis, but the downside is that there is a price to be paid for this government largesse – and it is not only in pounds sterling!

    Over the last 45 years or so, the UK’s top defence contractors who have monopolised the market in military equipment, have become seriously uncompetitive – largely because they have enjoyed unbridled protection from government on national security grounds. Which means that they are ill-equipped to contribute towards the government’s vision of a thriving and globally competitive defence sector trading freely with countries beyond the EU, post-Brexit.

    Indeed, since joining what was then the European Economic Community, successive governments including that of Margaret Thatcher – the original champion of free markets – have gone out of their way to shield domestic equipment manufacturers from the full rigours of the free market, that is to say, “feeling the heat” of competitive market forces, by denying continental rivals the opportunity to bid for UK defence equipment acquisition programmes, which is allowed under Article 346 of EU procurement regulations on war-like goods.

    The results are entirely predictable. The defence industry has become grotesquely inefficient on the back of endless subsidies from government, which it expects to receive in perpetuity – cultivating an entitlements culture. As a consequence, it has failed time and again to deliver equipment to the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life.

    Additionally, it has got away with not investing in innovation, product research and development, creating intellectual property or upskilling employees – despite quietly hoarding mountains of cash and putting it to no particular use.

    These are the same producer interests that are secretly lobbying the governing elite right now to remain in the Single Market and the Customs Union, so that they can continue to be protected from being exposed to the full rigours of the free market.
    @JagPatel3

  2. Posted 02/08/2019 at 18:48 | Permalink

    To fully understand the advantages and limitations of free trade you must not only study the works of the great economists that have written on it, but also pay attention to the circumstance around them, and their country, when the pen their thoughts. you will also need to understand their audience and what they were trying to achieve by their writing.
    After all these, you will agree with me that: free trade within a borderless geographical space would uplift that geographical space more than otherwise;, while for free trade amongst nations with different custom borders, the nation that would benefit most is the one that exports more.
    Free trade , on a long term basis , never benefits a net importer. Adam Smith, Ricardo and others that promoted free trade had the growth of the wealth of their nation on their mind, at a time when UK/England was the major producer for all nations in the world, a Net exporter.

    For the progress of your nation in the current state of affairs: free trade need not be your preoccupation, but rather the growth of your home production and the reduction of the negative impact of government authority and policies on enterprise,; the true understanding that almost all government controls cause more havoc to economies; That you all should understand that the laws of enterprise must be so simple that owners of institutions must be made to pay for the loss that they cause other people; this would remove the need for most regulatory authorities that are the cause of bloated government and undynamic business environment. If you are able to make this adjustments your country would become the new destination for all great minds and potentially great enterprises. I stop here till I hear from you.

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