In City AM today I have a piece on the refugee crisis, arguing that the costs that many are (understandably) worried about may not actually be a problem:

A recent study looked at the impact of Yugoslav refugees on Danish workers in the 1990s and 2000s. Because Denmark’s resettlement policy distributed these refugees across the country without respect to local labour market conditions, this is a case study in how “exogenous” immigration affects natives. . .

Instead of starting a race to the bottom, as some feared, this influx of workers allowed the Danish economy to become more complex. Adam Smith’s “division of labour” increased, as jobs became more specialised and hence more productive. . .

Crime is on people’s minds too. And it’s true that asylum seekers do seem to increase property crime rates in the places in Britain they go to, though interestingly they seem to reduce violent crime rates.

But this seems to be a consequence of the tight restrictions that effectively prohibit asylum seekers from working for at least the first 12 months that they spend in Britain. If we liberalised those rules, we could solve that problem.

It’s important to get the numbers right. The UK has accepted around 5,000 asylum applications from Syrians, not 216 as many people are claiming – that 216 is the number of Syrians we’ve actually evacuated from Syria directly. But I think there’s a strong case for letting in many more than that.

I’m often asked by people who are just getting interested in economics what they should read. There is no shortage of good ‘pop economics’ books to recommend to them: Freakonomics is the most famous and The Armchair Economist is enjoyably contrarian, but for my money The Undercover Economist is the most interesting.

But none of these teach you the sort of economics you’d learn if you studied economics at a university. And that’s where Anthony J Evans’s Markets for Managers comes in. It’s aimed at ‘managers’, by which Evans means people who make strategic decisions for their firm, and makes the case that managers who understand the principles of economics will have an advantage over their rivals. But in explaining those principles Evans inadvertently gives an introduction to anyone who wants to learn about them.

The ‘applied economics’ method that Evans uses is extremely readable. If, like me, you prefer to learn by applying abstract ideas to reality, Evans’s approach is ideal. And for British audiences there is something quite nice about reading examples applied to Fernando Torres rather than basketball players I’ve never heard of. What’s most impressive about the book is that Evans even covers the drier parts of economics, like international trade and macroeconomic policy, that the ‘pop economics’ books don’t bother with.

Evans is a Senior Fellow of the ASI and can claim to be one of the UK’s only “Austrian school” economists, and these perspectives do shine through, though not to the detriment of the economics being discussed. What he’s done with Markets for Managers is to give a clear, interesting and comprehensive primer in economics as it’s taught in the classroom. No doubt many managers would benefit from reading it but even more so I find myself recommending it to university students who are not studying economics. For historians and political science students especially, the boot-camp in economics it gives might well give a surprising new way of understanding their own fields.

Markets for Managers at Amazon.co.uk

Markets for Managers at Amazon.com

Ever since the idea was first put forward we, along with others, have been saying that minimum pricing for booze would fall afoul of the law. And we were right:

Nicola Sturgeon’s plans to fix a minimum price for alcohol has suffered a huge blow after the European court’s top lawyer ruled it would infringe EU law on free trade.

In a formal opinion on Sturgeon’s flagship policy, the advocate general to the European court of justice, Yves Bot, has said fixing a legal price for all alcoholic drinks could only be justified to protect public health if no other mechanism, such as tax increases, could be found.

Bot’s opinion is expected to mean a final defeat for the Scottish government’s efforts to be the first in Europe to introduce minimum pricing – supported by leading figures in the medical profession and the police, after several years of legal battles.

Over and above the obvious illegality of the proposal the thing we couldn’t get our heads around was the mind gargling stupidity of the idea. We don’t accept the idea that boozers don’t cover their costs currently but imagine, for a moment, that we do. Why, as a solution, would you boost the profit margins of producers with a minimum price rather than raise the prices with more taxation? We have not been able to find anyone who can explain this to us.

All we’re left with is the rather uncharitable opinion that some people wanted nice jobs as campaigners but wanted to make sure that they campaigned for something silly that quite obviously would never happen. Nothing, other than sheer raging stupidity, makes sense as an explanation to us.

An interesting little piece of research showing just quite how old some of the roots of economic prosperity can be. And shown using the most modern technology as well.

For some years now economists have been measuring economic development by the amount of light that can be seen in satellite photographs of an area. For one of the very first things people seem to do, as soon as they can, is to light up that bulb rather than curse against the darkness. The technique has been used to estimate African GDP growth for example, coming to much more cheering results than the official figures would have us believe. And here it’s used to measure quite how old some of the roots of successful development might be:

In ancient times, the area of contemporary
Germany was divided into a Roman and non-Roman part. The study uses this
division to test whether the formerly Roman part of Germany show a higher nightlight
luminosity than the non-Roman part. This is done by using the Limes wall
as geographical discontinuity in a regression discontinuity design framework. The
results indicate that economic development—as measured by luminosity—is indeed
significantly and robustly larger in the formerly Roman parts of Germany.
The study identifies the persistence of the Roman road network until the present
as an important factor causing this development advantage of the formerly Roman
part of Germany both by fostering city growth and by allowing for a denser road
network.

It’s a very interesting little piece of work.

In a 1970 piece in the New York Times magazine Milton Friedman argued that ‘the social responsibility of business is to increase its profits’. They should make as much cash as possible for their shareholders, and shareholders should give directly to charity. It is hard enough to be an efficient firm, without needing to be an effective charity at the same time.

But it is popularly believed that corporations’ role in society does include various other responsibilities rather than simply maximising long term shareholder value. And in real life we note that firms often run charity events, match their employees’ charitable donations and so on. Why would firms spend money on charity when they don’t have to?

At first you might expect that managers are exploiting the firm to selfishly gain themselves prestige. There is some evidence, for example, that more narcissistic chief executives do more corporate social responsibility.

But the bulk of evidence suggests that firms do better financially when their ‘corporate social performance’ is higher. A 2003 meta-analysis of 52 papers and  33,878 firms found a positive association—though this was stronger when you measured financial performance by accounting measures rather than investor measures. A 2007 meta-analysis looked at 167 studies and found a similar result: corporate social responsibility is associated with higher financial performance, though quite weakly.

Various different types of study confirm this point from different angles. For example, a 1997 paper looked only at 27 event studies of share prices when firms revealed socially irresponsible behaviour and found the converse of the other results: bad behaviour cut firm value. Event studies on financial markets are quite a good way of isolating causality; with a short enough timescale the change in question is very likely to be the one driving price changes.

But why exactly does CSR help firm performance? Recent work provides some clues. For one, it seems to cut a firm’s financial risk. It seems to raise a firm’s access to capital. This might be why market analysts tend to recommend firms more in their notes after they engage in CSR. And it explains why firms with more shareholder-driven corporate governance give more incentives to CEOs to engage in CSR—not what you’d predict if it was an agency cost.

This probably comes from reputational improvements, and reputational insurance. Customers prefer to buy from firms who do more and better social programmes, and engaging in CSR seems to cushion stock declines after ethics in business become popularly salient (e.g. after the 1999 Seattle protests against the WTO).

Intriguingly, the reputational advantages may also extend to the government. Davis et al. (2015) discovers that firms who do more nice stuff also lobby more and pay less tax; i.e. that corporate social responsibility and tax are substitutes. This suggests that CSR overall is not driven simply by some measure of manager altruism or empathy or quality—the sort of thing we might usually wonder about. (Though some evidence disagrees.)

None of this really answers whether CSR is good for society at large. If it does enhance reputation, leading consumers to like it more, then this is basically a transfer from consumers to charities. Either way we probably shouldn’t lionise firms when they do it—they’re just trying to maximise profits, as usual.