sábado, 4 de agosto de 2018

Will the UK become an international powerhouse after Brexit?

This article is inspired (understanding inspiration not as the elicitation of higher artistic endeavours, but rather as a call to action) by reports in The Express that Harvard economist and entrepreneur Michael Burrage claims exactly the above. You can read the article here

This is an interesting example of how you can get statistics and numbers to say pretty much anything that you want, and to reflect any kind of truth you are interested in peddling.

The so called ‘research’ (this is a word that unfortunately is used more and more loosely in our modern World) states that WTO rules would be the best solution for the UK. The arguments to justify this statement are, as is often the case, sensible at first sight and fatuous and disingenuous as soon as a bit of thought is put into it.

The ‘eminent’ Mr. Burrage points out that:

  • ·        Trade between the UK and EU countries has grown by an average of 0.9% per year between 1993-2015.
  • ·        Trade between UK and third countries which have trade deals with the EU has grown by 1.9% per year in the same period.
  • ·        Trade between UK and third countries with no trade deal with the EU (trading under WTO) has grown by 2.9% per year in the same period.


This appears to indicate that most growth comes from countries with which there is no trade deal. 

There is nothing wrong with this data, what is surprising, is Mr. Burrage’s conclusion: it is better to be under WTO rules than under a trade deal, because trade grows quicker under WTO rules. This seems counterintuitive. Can it really be true? Let’s look at it in a bit more detail.

The first thing that is wrong with Mr. Burrage’s argument is really an oxymoron (and the second part of this word may provide clues as to who Mr. Burrage really is). Mr. Burrage tells us that trade growth with third countries is growing at 2.9% per year while the UK is within the EU, and seems to conclude that exiting the EU and trading with it under WTO rules is the best way forward for UK trade. The data seem to show that ability to trade with third countries is not impaired by being in the EU, in fact, trade seems to be developing nicely. The argument seems to be that the growth is specifically justified by the fact that these countries are traded with under WTO. This combines two well known psychology biases, such as attribution bias, the attribution of a cause to an effect, even though they may not have a causality relationship, and illusory correlation bias, attributing correlations to non-correlated events which happen to occur simultaneously. We will look at this a bit more later.

Lying with numbers

But firstly, let’s look at Mr. Burrage’s disingenuous use of numbers. I call it disingenuous as I have to believe it is intentional and not just an error. I refuse to believe that one can graduate Harvard and teach at LSE without developing a basic understanding of simple arithmetic. The problem is in the use of percentages. Percentages are only informative when the base is known. Let us use a simple example to explain this. Imagine I have a company that sells, for example, software. My company does 100000 units of trade with the EU, and 1000 units of trade outside the EU. I analyse the growth in my trade, and I observe that, in the last year:

  • ·        Trade with the EU grew by 900 units (0.9% growth rate)
  • ·        Trade outside the EU grew by 29 units (2.9% growth rate)


If I look only at the growth rate in percentage terms, then I would conclude that my future is outside the EU, despite the fact that the EU has contributed 900 units to my growth and third countries have contributed 29. The percentages, without the base, tell the opposite story.

Therefore, Mr. Burrage, we need the whole story. Not only the percentages, but the starting points.

Ignoring critical information relevant to explaining an observation

This is what in psychology is known as congruence bias, testing specific hypothesis and ignoring others. Let me explain what I mean by this:

The World’s faster growing economies in the last few years have been, in absolute terms (this is what matters here, not percentages, but which economies have grown most in absolute currency terms, as they are the ones with which trade is expected to grow more in absolute terms – and, since UK trade is relatively constant as a base, in percentage terms), China, US, India, Indonesia, Japan and Brasil (they are responsible in absolute terms for a huge amount of the World’s economic growth – see this for example).

This is important because, right now, most of these countries are in the third category. Mr Burrage infers that growth is larger in the third category because we trade with them under WTO rules rather than trade agreements. I think that the fact that these countries are growing fast is a more likely explanation for the speed of trade growth. This relationship is obvious, the faster the country’s economy is growing, and the bigger it is, the faster our trade with it would grow. Whether under WTO or trade agreement, the growth will occur, and there is no information or argument to justify that the growth is faster under WTO. The fact that some of the countries in the fast growth category trade under WTO rules with us is a circumstance, not a cause. In fact, if you were to move China and India to the second category (as they are about to do, with trade agreements about to be signed) this would immediately change the percentages to higher growth in category 2, and lower in category 3. The reason why trade agreements are in advanced negotiation is, of course, that they will make trade grow even faster.

I therefore make a case here for changing Mr. Burrage’s arguments from:

Trade growth for the UK is greatest in percentage terms with countries outside the EU with which there is no trade agreement, and therefore, this proves that UK should exit the EU and not have any trade agreements.

To:

Trade growth for the EU and the UK is greatest in absolute terms with the EU and the US, and behind them, with large global economies growing fast. Therefore, we must trade as much as we can with the EU, the US and large, fast growing economies. We already are part of the EU, which takes care of the first, and as part of the EU trade agreements exist with the US, which takes care of the second, and are in late stage negotiation with China and India, which takes care of the third.

It would now seem, by using Mr. Burrage’s information correctly, that the UK should stay in the EU and stop vetoing the Indian trade deal.

BTW, the latter is an interesting point. The EU has no trade deal with India yet. This is a trade deal Brexiteers are claiming will be struck quickly by the UK once UK exits the EU, due to the special relationship and common history between UK and India. If you study the EU-India trade deal, you will find it is ready to go, but being vetoed by the UK for 2 reasons:

  • India’s insistence in keeping tariffs on scotch whisky
  • India’s demands for easier circulation of people to Europe


I am very interested to see how the UK is going to do a quick deal with India without accepting those 2 demands, which are non-negotiable for the Indians. It may well be that the demands are finally accepted to get the trade deal under pressure but, if they are, why not accept them within the EU, stop vetoing, and start trading?

As for Mr. Burrage, he exhibits such an interesting collection of cognitive and psychological biases in his reasoning that I would suggest he enrols as a study case with a Psychology Institute. This I think is where his true value would be, since his analysis is not really needed in economics or geopolitics, at least not until the biases are studied and removed.

sábado, 31 de marzo de 2018

Is prison for Catalan independentist leaders good for Spain?


The last few days have seen the arrest of Carles Puigdemont and Clara Ponsati, after judge Llarena reactivated their international arrest warrants. Carmen Rovira has absconded, and will most likely be subject to a further international arrest warrant.

The arrests have been greeted with joy and celebration by a section of the Spanish population, the Spanish nationalists, whose position in this issue is to diametrically oppose any initiatives by Catalan separatists. These Spanish nationalists see the arrests as satisfaction for their thirst for revenge against those who dared challenge Spain. The Catalans will not get away with it. It is important for moderate Catalans (I have given up on the others) to understand that those feeling so vindicated are a section of the Spanish population, by no means all.

When analysed objectively, it is difficult to see how the arrests can be good for either Spain or Catalonia. They will undoubtedly result in the further radicalisation of the more extreme sections of both sides of the Catalan independence debate and, therefore, foster further division, making the political situation more difficult. Further erroneous claims of political imprisonment will be issued by separatist leaders (I blogged on the issue of political imprisonment in Spain in a previous post). The Spanish nationalists on the other side of the debate will talk of just deserts.

The fact that this step is negative for stability in Catalonia, unfortunately, cannot be a consideration which helps prevent it. This is democracy, which is based, above all else, on the separation of powers. This means that the judicial cannot decide politically what it tries or does not try, it must proceed on evidence. It also means that the executive cannot decide what it takes and does not take to court, it must challenge in court any perceived breaking of the current law of the land which falls within its remit.

In this democracy, therefore, Judge Llarena cannot act politically. He must follow the legal process. His duty, as a judge, is to, once presented with an accusation of rebellion which has enough supporting evidence, try it in court, to establish whether it has taken place. In this case it would appear that there is indeed sufficient evidence that this may have been the case, although it is not clear cut when one reads the relevant article of the constitution and the jurisprudence. But, whether rebellion has or has not existed can only be decided in court, and therefore it must be tried.

As for the Spanish government, many in Catalonia speak of the lack of zeal shown by the Spanish government when pursuing corruption as a justification for the claim that the same lack of zeal should be shown in the Catalan case. However, this is not an argument. Two wrongs don’t make a right. On its merit, alleged rebellion must be tried. The fact that corruption has not been pursued with the same enthusiasm has certainly done significant political damage to Spain and represents, in my opinion, clear grounds for the current Spanish government to resign, and for some of its leaders to potentially see their day in court in due course. But it is irrelevant to the course of action that should be followed in Catalonia. Catalans making this argument should also remember that a very significant section of the Spanish population feels equally aggrieved by the dereliction of duty shown by the Spanish government in corruption cases.

So, if we accept that a trial is necessary, then we move to the question of imprisonment pre-trial. Judge Llarena has the duty to decide whether the accused should be detained prior to the trial on the basis of the Spanish legislation. To be clear, and I have blogged on this previously too, the Catalan leadership is rightly detained, on the basis of current legislation, because of what they are accused to have done in October 2017, and because there is risk of flight and/or of re-offending (this is obvious in the latter arrests, as the subjects have fled already). It is very sad, however, to see politicians that represent a significant percentage of the Catalan population in jail. It may be morally wrong, maybe even unjust, this is of course a matter of personal opinion in this specific case, but in practical terms, it is unavoidable. It would be very dangerous to change the legal system to allow rebellion just because in this specific case it has significant support. Such a change would allow, for example, military coup d’etats, like Tejero’s in 1981.

Legal process must therefore take its course, whether it is positive or negative for the current political situation. The best would be for it to be as swift as possible. Personally, I hope that the result is absolution on the basis that not sufficient proof exists that there was inciting to violence. This will be a matter of interpretation for the judge, and my information, like everyone else’s, is based only on anecdotal evidence. That is the reason why some time must be given for both sides to build their case and present clear evidence of such inciting to violence, and for the security forces to investigate it. If doubt exists, then principles of presumption of innocence prevail.

I am under no illusion that, should the result be absolution, the tried would seize the opportunity to present it as reivindication of the justice of their cause, rather than proof that the Spanish democratic system is alive and well, therefore driving an even bigger wedge through Catalan society. They will speak of unjust imprisonment and prosecution, further radicalising their supporters. The Catalan leadership has long ago chosen to, like any populism, reduce democracy to the decision of the majority at a specific moment in time. Democracy is much more than this. It is separation of power. It is rule of law. Otherwise, we would have to call the Holocaust, ethnic cleansing in the old Yugoslavia, the execution of homosexuals in Muslim countries and the massacres in Rwanda democratic. Anyone who feels tempted by the siren calls of populists to reduce democracy to a simple vote, should remember those and the many other examples when the majority has been wrong and democratic institutions have not been in place to protect the minorities. The Catalan leadership should retake the path of change within the law. They claim it to be impossible because they failed once, and they justify their acting outside the law on this basis. This, of course, is intellectually corrupt. The fact that you don’t get your way at the first attempt does not justify breaking the law after that. This should be obvious to many who have supported the illegal actions of the Catalan leadership. I have also blogged on what path I believe they should follow.

Whatever the outcome of the trial, our current politicians, both in Catalonia and Spain, have failed us completely. They have missed every chance to build bridges, to reach out to the other side. They have played by the modern politics playbook. Speak only to and for your side. Drive radicalisation and reinforce the difference, not the common. Destroy, instead of build. They have behaved with irresponsible victimism and dishonesty on the one side, and with intolerant bullying on the other. It is time for new leadership on both sides of the divide, and for a clear, mature and responsible approach to the process. It is, however, difficult to see how this may ensue given the drift away from rationality observed in significant sections of the population, prepared to accept any argument just because of which side makes it, instead of exercising critical review.

martes, 27 de marzo de 2018

The Catalan solution


I have blogged quite a lot on Catalonia, mostly on very specific issues, rather than on the overarching situation. This may have led many to misconstrue my actual position on Catalonian independence. I feel, therefore, that I should write one post on this subject, my first and probably last one, to state my position and to explain what I would regard as a viable solution.

So, let’s start with my position. I don’t have one. To me, it is fairly irrelevant whether Catalonia stays in Spain or leaves Spain. This is not because I don’t care, but rather because I find the concept of nationality anachronistic and outdated. This applies to both Catalan and Spanish nationality. The challenges that face humanity nowadays, and which concern me, cannot be solved or even addressed from the frame of specific nations. Rising global inequality, climate change, the excessive power and impunity of global corporations, religiously motivated violence, political extremism, diseases, populism and the erosion of democratic values. That is a non comprehensive section of my shopping list. Not a single one of those problems can be solved, or even influenced, by Spain in isolation, let alone by Catalonia. Nationalism, to me, is a distraction, which prevents the population from focusing time and energy on real problems, worth solving. Every day, I interact and collaborate with people all over the World, regardless of location or nationality, on the basis of knowledge and potential contribution. My relationship with Catalonia will therefore not change, whatever the outcome of what has been called its independence process.

One thing I care profoundly about, however, is the strength of democratic institutions and the respect for the rule of law. These are necessary conditions to solving all the problems I refer to above, and therefore critical to humanity’s progress. I would therefore wish for the solution to the Catalan problem to be found within that framework. It could work, as follows:

A vote should be held in Spain to decide whether to allow Catalonia to hold a referendum on its independence. This could happen in one of two ways, for it to have political legitimacy:
  • ·            A general election in which parties included in their program and manifest their position on allowing such a vote, since support of 60% of Parliament is sufficient to change the Spanish Constitution. Parties should, in my view, either support a Catalan referendum or come up with a really good reason against it, based on political and ethical considerations, not economic ones (the economy, in the long term, would be impervious to the outcome of the process, so long as, in the case of independence, the right treaties are put in place to create a reasonable relationship between Catalonia and Europe). Parties campaigning for No should also offer a solution to the section of the Catalan population that are unhappy with the status quo, a solution which may well mean more devolution of powers.
  • ·        A Spanish referendum. In the case of a referendum in Spain, parties should campaign for a Yes or a No vote. But the referendum in Spain should not be held on whether Catalonia should be independent or not. The question should be strictly whether Catalonia should be allowed to vote on its independence, and under what terms. That is the only decision Spain is entitled to make in light of the current legislation. This distinction should be clear, and Catalan politicians (from both sides) should get as much representation in the public debate as Spanish politicians. All voices should be equally heard.


Should either of these two processes prosper, a referendum should then be held in Catalonia. A legal one, the first ever referendum on Catalan independence. Prior to it, guidelines should have been developed, by both sides, on the future relationship between Spain and Catalonia. The Catalan people should not be presented with a jump into the unknown, á la Brexit, but rather with a clear outline of what would be possible and with procedural clarity, should Yes win. Also, with clarity on what changes to the status quo would be possible should No win.

This is a difficult process. Many reading this may be disheartened by it. They may think it impossible. But there is no reason why it is impossible. Current entrenchment of positions is a result of bad, confrontational politics, in both cases intolerant of the views and concerns of the other side. The Spanish people (and at this point I include Catalans here) should demand the opposite. Nation building, no fostering of division. If both sides believe and accept the process, there is no reason why it cannot work. And, more importantly, it is the only way to proceed without prostituting democracy, corrupting the rule of law and creating long term, dangerous scars in both our societies.