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ADAM SMITH INSTITUTE

AUTUMN 2011

Look on the bright side Western economies are in serious trouble. But there are still good reasons for libertarians to be optimistic…

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t is easy to be pessimistic at the moment. Indeed, the developed economies of the world are in a pretty dire state. For the most part, they are afflicted with growth-sapping, confidencedestroying levels of debt and broken financial and monetary systems, and face a looming demographic crisis that can only serve to make matters much, much worse. Britain is as badly hit as anyone: household, corporate and government debt have all reached damaging levels and an ageing population makes current social policies unsustainable. What’s more, our beleaguered banks are not just worryingly vulnerable to future crises; they are also failing to function effectively as

financial intermediaries. Our capital stock has been eroded by a series of bubbles, our savings rate is too low to replenish it, and government has grown so large that onerous tax and regulation is strangling private enterprise. All in all, it is not a happy picture. But we shouldn’t be too apocalyptic. It is not the case that everything is going horribly wrong. In fact, there are a number of positive trends and developments out there that should give libertarians good cause to maintain a sliver of optimism about the future of freedom. The first of these is education. This September, England’s first ‘free schools’ opened their doors. Finally, after years of false starts and missteps, >>

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Adam Smith Institute

Events

>> we have the beginnings of a genuine school choice programme. The idea is a simple one: increase the supply of good school places by letting independent providers set up schools and receive state funding on a per pupil basis. More choice and accountability for parents, and more competition between schools, drives up standards. Of course, we need to go much further: allowing free schools to make a profit would speed up the growth of the sector enormously; radical liberalization would let schools teach the child in front of them, rather than forever jumping through bureaucratic hoops dreamt up in the Department for Education. But this is a start.

one thing that gives me the “The greatest sense of optimism about our future, is the rapid growth of the libertarian student movement

The second positive trend is the growing consensus in favour of drug reform. People finally seem to be realizing that the disastrous war on drugs cannot be won and brings with it horrifying collateral damage – in producer and consumer countries alike. Like the failed American experiment with alcohol prohibition, the war on drugs has served only to create violence and corruption, hand bumper profits to gangsters, and make the end product far more dangerous than it would otherwise have been. Let’s hope that the new Global Commission on Drug Policy – which includes four former presidents and a sitting prime minister, alongside the likes of Kofi Annan, Paul Volker and Richard Branson ­– can succeed in its efforts to promote a more humane and effective approach to reducing the harm drugs cause to societies and individuals.

Another very encouraging development is the ongoing revival of the Austrian school of economics. With its emphasis on entrepreneurship and spontaneous order, its unparalleled understanding of recessions, and its recognition of the central importance of money and credit, the Austrian school has an extraordinary amount to offer – not least because of the problems we currently face. Of course, the Austrian approach remains outside the mainstream, but its influence is growing steadily. We may look back one day and see this summer’s Hayek v Keynes debate at the London School of Economics – which was broadcast several times on Radio 4 – as a watershed moment in the Austrian revival. Finally, the biggest change I’ve observed while I’ve been at the Adam Smith Institute, and the one thing that gives me the greatest sense of optimism about our future, is the rapid growth of the libertarian student movement. This year’s Freedom Week (our Cambridge-based seminar) was a huge success. The UK Liberty League is going from strength to strength, and is holding its second major conference in London on October 22. European Students for Liberty, meanwhile, is having its inaugural conference in Leuven on November 18-20, with the Adam Smith Institute as a major partner.  Whatever our current economic woes, all of this is hugely encouraging. Ultimately, my point is this: we mustn’t be like politicians and think only of the short term. There may well be troubles ahead, but in the long run, freedom has a bright future.

Tom Clougherty Executive Director

LEFT: Dr Razeen Sally BELOW LEFT: Dr Eamonn Butler and David Smith at the launch of The Condensed Wealth of Nations

ASI Events The Adam Smith Institute has hosted a number of excellent lectures over the last few months. Objectivist philosophy professor Tara Smith spoke about ‘The Pursuit of Happiness – and the tools essential to attaining it’. Leading freetrader Dr Razeen Sally talked about ‘Liberty outside the West – the shift of the world economy to emerging markets and what it means for freedom’. In September, economist Kevin Dowd delivered a tour de force on ‘The Decapitalization of the West’, while Cato Institute VP Christopher Preble enlightened a Westminster crowd on the libertarian approach to foreign policy. As usual, our annual boat party took place in July. Despite a smattering of rain, the party was a great success. Much bubbly was consumed as the Institute’s young (and not so young) supporters cruised down the Thames. In August, we launched Eamonn Butler’s new book, The Condensed Wealth of Nations at the St Stephen’s Club. Our guest speaker, Sunday Times economics editor David Smith, called it an essential read. The Next Generation group continued to meet over the summer.

Peter Stringfellow told a packed room all about personal freedom, and Spiked editor Brendan O’Neill explained why the riots were the product of the welfare state. Our annual ‘Liberty Lectures’ student conference saw Tim Evans, Jamie Whyte, Eamonn Butler and Andrew Lilico exploring topics like the financial crisis and the morality of capitalism. Meanwhile Freedom Week – a five-day seminar we ran in partnership with the Institute of Economic Affairs – saw 40 bright young students descend on Cambridge to learn more about free markets and the free society. We also held a joint event with The Free Society, as part of their ‘Voices of Freedom’ series. Claire Fox, David Davis MP, Toby Young, Terence Kealey, Matt Grist, and our very own Tom Clougherty debated ‘Education, Freedom and the State – is excellence for some preferable to mediocrity for all?’ But perhaps the highlight of the summer was Radio 4’s Hayek v Keynes debate, held at the LSE in late July. The Adam Smith Institute brought along a couple of hundred Hayekians to support George Selgin and Jamie Whyte as they debated Lord Skidelsky and Duncan Weldon, before hosting a bustling after party at the Old Bank of England pub. As the saying goes, a good time was had by all. You can now watch videos of our most recent events online via our YouTube channel. Just go to www.youtube.com/ adamsmithinstitute.

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Publications

Adam Smith Institute in the news

Publications In May, we released Reflections on Regulation: Experience and the Future. In the report five ex-regulators discussed their experiences and reflected on the successes and failures of the regulatory framework that followed the privatizations of the 1980s and 1990s. Regulation expert Tim Ambler concluded by discussing the future of regulation, and outlining the different paths that may be taken to reform the sector. Dalibor Rohac authored a report asking Does inequality matter? He argued that inequality measures don’t tell us much about poverty and can actually mask declines in the living standards of the poor. In July, Tim Ambler wrote How Basel III threatens small businesses. Ambler argues that Basel III will encourage fewer loans and higher interest rates. However, while big businesses will be able to shop around on the international market, small and medium-sized enterprises (SMEs) will be stuck with the uncompetitive offerings of the five big banks which dominate the UK market. Since SMEs drive the UK

important books ever written. Smith recognised that economic specialization and cooperation was the key to improving living standards. He shattered old ways of thinking about trade, commerce and public policy, and led to the foundation of a new field of study: economics. And yet, his book is rarely read today. It is written in a dense and archaic style that is inaccessible to many modern readers. The Condensed Wealth of Nations condenses Smith’s work and explains the key concepts in The Wealth of Nations clearly. It is accessible and readable to any intelligent layman. This book also contains a primer on The Theory of Moral Sentiments, Adam Smith’s other great work that explores the nature of ethics.

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The Condensed Wealth of Nations | Eamonn Butler

Adam Smith’s The Wealth of Nations is one of the most

The Condensed Wealth of Nations and The Incredibly Condensed Theory of Moral Sentiments

Experience and the future Stephen Littlechild, Ian Byatt, Chris Bolt, John Swift, Graham Corbett, Tim Ambler With a summary by Eamonn Butler

Eamonn Butler

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23 Great Smith Street London SW1P 3BL www.adamsmith.org

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Reflections on Regulation

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economy, Basel III may have negative consequences for the UK. Dr Eamonn Butler launched his Condensed Wealth of Nations in August. His book condenses and explains the key concepts in Adam Smith’s Wealth of Nations into 72 pages. The book also includes a primer on Smith’s oftenoverlooked Theory of Moral Sentiments, which explores the nature of ethics. August also saw the release of Adam Baldwin’s report, The Tobin tax: reason or treason? There have been growing calls for the introduction of a Tobin tax – a proportional tax on all spot conversions from one currency to another. Looking at the underlying economics and the international evidence on Tobin taxes, Baldwin argues that such a policy would at best be ineffective, and at worst hugely counterproductive and harmful to the UK’s financial sector and wider economy. We also released a number of think pieces during the summer months. PJ Byrne wrote a think piece on LulzSec and the open society, and another article examining the motivation behind the summer strikes. Anna Moore wrote a think piece examining how better regulation can make Private Military Contractors work and Henry Oliver penned a piece examining whether libertarians should support assisted suicide. James Croft argued that the public benefit test is a misguided attempt to force consolidation in the independent education market in his think piece ‘The folly of the public benefit test’. Tom Clougherty’s ‘Are we doomed?’ identified the financial problems we face, explored their policy implications, and examined the bigger economic picture. Finally, Sam Bowman’s ‘Do libertarians apologise for autocracy?’ tore apart an article claiming that libertarians support autocracy and revealed how its author both misunderstood and misrepresented the topic.

LEFT: Tom Clougherty on CNBC BELOW: Tobin Tax coverage in City AM

ASI in the news Freedom Day The Institute calculated that Tax Freedom Day fell on 30th May in 2011 – meaning that for the first 149 days of the year every penny earned by UK residents was taken to pay for government spending. Tax Freedom Day received widespread national coverage, with articles in the Financial Times, The Sun, Daily Telegraph, Daily Express and City AM, and broadcast coverage on the Today Programme, Radio 5 Live, LBC and Sky News Radio.

School Programme will work, while Tom penned a piece in defence of tax havens. Sam Bowman wrote an article for ConservativeHome arguing that media plurality depends on the reform of the BBC. In July, Eamonn also had a couple of articles in The Sunday Post on the importance of the spending cuts and the need to boost businesses to rescue the UK economy. He wrote in The Guardian advising Nick Clegg that his idea of bank shares for all would be a very bad idea.

Tobin Tax The release of our Tobin Tax report tied in neatly with Sarkozy and Merkel’s call to introduce a European-wide financial transaction tax. Our report received front page coverage in City AM and was also covered extensively on Reuters, and in The Guardian, Daily Mail, The Sun and Daily Telegraph. We also had op-eds on the Tobin Tax on ConservativeHome and the Spectator Coffee House blog.

Broadcast Eamonn appeared on BBC Radio 4’s You & Yours to discuss the influence the Institute had on rail privatisation under John Major. He also discussed the public sector strikes on BBC Radio Five Live and argued against proposals to give free bank shares >>

Op-eds Tom Clougherty wrote on an article for the Sunday Times calling for the government to reduce the control of the regulators. Dalibor Rohac’s op-ed on his report on income inequality ran in the Washington Times to tie in with its launch. We also wrote a few articles for ConservativeHome over the summer. Dr Eamonn Butler argued that the Free

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Coming soon

>> to the public on BBC News Channel. Tom discussed Ed Balls’ proposed VAT cut on the BBC News Channel and went on CNBC to give his views on the phone hacking scandal. While Tom appeared on CNBC, Eamonn went on Radio Five Live and BBC World Service to give his analysis of Rupert Murdoch’s appearance before a parliamentary select committee. Radio 2’s Jeremy Vine Show asked Tom to discuss the UK’s poor growth figures, while Eamonn explained the current market turmoil on Sky News and Radio 4. Most recently, Tom appeared on the BBC News Channel defending the free schools programme, as the first free schools were opened in September. Madsen was also busy with media requests this summer. He took part in a debate on Radio 4’s Iconoclasts, arguing that inherited wealth is a good thing and discussed the Eurozone crisis on BBC World Service. He appeared in a debate on Sky News,

where he gave a convincing argument for scrapping the 50p tax rate. He made the same case in a podcast for The Guardian website. Letters and mentions Eamonn wrote a letter to the Daily Telegraph, signed by leading economists and academics, arguing that high taxes hinder economic recovery. Daniel Hannan MEP mentioned our work on wealth taxes and the economic outlook on his Telegraph blog. In August, Eamonn’s Condensed Wealth of Nations was given a favourable book review by City AM. It was also reviewed online by Adam Smith’s Lost Legacy, the Cobden Centre and Blog Critics. Wealthbriefing interviewed Eamonn on his other 2011 book, Milton Friedman – A concise guide to the ideas and influence of the free-market economist, and discussed what Milton Friedman would have said about the credit crunch.

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Coming soon • Publications: This autumn, we will be releasing a report looking at the need for radical, patient-centric NHS reform. We will also be publishing a report arguing against subsidizing renewable energy and will also be releasing a short paper on long term care provision. Gordon Kerr will also be releasing his report on financial derivatives and accounting rules.

• Events: We will be holding three events at the Conservative Party Conference, looking at the planning system, wealth creation, and lifestyle freedom. Our ISOS conference for sixth-form students will take place be on 1st November, and our next generation meetings will continue throughout the autumn. Niall Ferguson will be delivering our annual Adam Smith lecture on 29th November.

For more information on our events please contact JP Floru on events@adamsmith.org or check our website for further details www.adamsmith.org

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Autumn 2011 Newsletter