The free market degrades human dignity  The free market views the human body and the human mind as a mere instrument: the only value an individual being has is the value it can sell its labour (whether it be manual or mental work) for on the market. Workers don’t work because they want to produce something they themselves find inherently valuable; they work to earn a living. And given that most people are not entrepreneurs or business owners, this means that most people will spend the most of their waking day labouring for goals set to them by others, in partial processes subdivided and defined for them by others, all to create products and services which are only valuable to others, not to themselves (Alienation, 1977).  This commodification of the human body and mind can go so far that humans actually start selling themselves: free market proponents propose to legalize the selling of one’s own organs. When humans start selling themselves, they perceive no value in themselves anymore – all they see in themselves is an instrument to satisfy other people’s desires, a product to be packaged and sold.  This becomes even more pronounced when we take into account that the free market exacerbates inequality: if someone is born into a poor family and can’t get out of it, it might seem the only way to get out of it, is to sell oneself. Thus, the proposal to legalize the selling of one’s own organs amounts to an ‘unconscionable choice’: a choice which is, given the circumstances, unreasonable to ask of someone.


The free market naturally leads to concentration of power in the hands of corporations  Many global markets are dominated by a few big firms: look, for example, to the markets in fast food, dominated by McDonald’s, or the market for drilling and selling oil, dominated by Exxon, Shell and BP. This concentration of market power is natural outcome of free markets, this is because of economies of scale – a production line can produce each individual unit faster and more cheaply than if products were made individually. Also partly because the transaction costs of markets are too high (i.e. the costs of negotiating, monitoring and managing all the exchange relations necessary for production and distribution of the good or service involved), corporations have an incentive to structurally organize themselves into large firms (The Nature of the Firm, 1937). This also creates barriers to entry; while an individual may be able to manufacture an individual unit it is much more difficult to set up a whole factory from scratch in order to compete, there is then little possibility of competitors entering the market as a result of price rises.  Being so large gives them an unfair advantage towards both their suppliers and their consumers. Large firms can collude to form oligopolies. This generates more profit for the firms involved, but raises prices above the market clearing price for consumers as the firms agree not to undercut each other, this may also be informal simply raising prices by reducing the amount of choice or supply.  Vis-à-vis their suppliers, these firms gain an equally unfair bargaining advantage. A prime example is the market for (low skilled) labour: with a surplus of (low skilled) labour, each individual worker either has to accept a very low wage or be replaced by someone who does want to work for that low wage. This unequal bargaining power keeps the price for labour very low, so low that workers have no surplus budget to invest in themselves to be able gain skills, negotiate better jobs and thereby lift themselves out of poverty.


A free market can only operate when some basic conditions have been met. One of these is the condition that exchange of private property is possible. It’s important to realize that private property is both a normative concept but also a legal reality: in everyday life, private property exists because there are contracts and title deeds that prove that something is my private property.  This legal dimension of private property is key to realizing how the government can make free markets work even for common and public goods. The key is to create private property rights that are rivalrous and excludable, and enforce them accordingly. It is these private property rights that are traded, not necessarily the good itself (The Private Production of Public Goods, 1970).  For the public good of roads, the private property right the government can create is the right to operate a toll booth on that road. For the common good of fisheries, the government can create conditional exploitation rights to private actors, and for carbon dioxide emitting industries, the government can create limited, tradable emissions rights. The most well-known example of government created private property rights is intellectual property: even though listening to music is non-rivalrous and with the internet, relatively non-excludable, the government’s enforcement of intellectual property allows a business like iTunes to survive and thrive.


Fears about national security are greatly overblown, and are often simply an attempt to justify protectionist measures. Very few companies pose a national security risk, and those that do are covered by existing regulations – so that, for example, the USA could veto Dubai Port World’s bid to take over American ports. Most SWFs do not seek full control of companies they invest in, so they are not in a position to manipulate their assets for political gain, even if they wished to. [1] In reality, countries set up SWFs for economic reasons and they represent a major national investment, the value of which would be expensively destroyed if they once tried to abuse their position. Nor are there any actual examples of a country trying to exert political influence through its sovereign wealth fund. Overall, tying a wide variety of states into the international economic and financial system is beneficial, as it gives them a stake in the peace which the global economy needs for prosperity and so makes them less likely to pursue aggressive foreign policies. Conversely, alienating the governments of other states by designating them as dangerous predators who cannot be allowed to invest in our companies is a sure way to create enemies.  [1] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008.


SWFs can harm national security  Sovereign wealth funds raise worrying issues about national security. Unlike mutual funds or private equity groups, which seek only to maximise their investors’ returns, SWFs must be regarded as political entities. Rather than passively holding their assets, they may seek to use their purchases to gain access to natural resources, advanced technologies, including those crucial to our defence, or other strategic sectors. [1] For example Gulf states are using their SWFs to invest in food and natural resources from Latin America. [2] They may engage in economic nationalism, shutting factories in western countries to give an unfair advantage to their own industries [3] . While it has not yet happened they may even attempt economic blackmail, threatening to turn off the lights through their control of energy companies and utilities if governments do not fall in with their foreign policy aims. Allowing countries such as China, Russia and various Gulf states to buy up western companies at will is potentially very dangerous. Even if we regard these states as friendly at the moment, there is no guarantee that they will stay that way, especially as none of them share our political values.  [1] Lyons, Gerard, ‘State Capitalism: The rise of sovereign wealth funds’, 2007, p.14   [2] Pearson, Samantha, ‘Sovereign wealth funds: Foreign cash has its drawbacks’, 2011,   [3] Balin, Bryan J., ‘Sovereign Wealth Funds: A Critical Analysis’, 2008, p.4,


Transparency is a good thing, but it would be unfair to single out sovereign wealth funds for special punishment over this issue. Hedge funds and private equity groups are even less transparent than SWFs, and their influence in the global economy is much greater. [1] Some countries (e.g. Norway) already operate very transparent investment strategies. Many have agreed to the Santiago Principles which encourage transparency and disclosure of financial information. [2] It is likely that other countries will come over time to follow their lead voluntarily, as it is in the interest of their own citizens to see that the state is managing their money in an efficiently and honestly.  [1] Avendaño, Rolando, and Santiso, Javier, ‘Are Sovereign Wealth Funds’ Investments Politically Biased? A Comparison with Mutual Funds’, 2009, p.9.   [2] Ibid


Sovereign wealth funds must be regulated  A number of possible models of regulation have been suggested for sovereign wealth funds. Some, such as Gilson and Milhaupt, have argued that state-owned investment vehicles that buy shares abroad should not be allowed voting rights in that stock. [1] Others would put a cap on SWF investments, so that they cannot take a stake of more than, say 20% in any business without government approval within the country the SWF is investing in [2] – meaning that they can only be passive investors. Both these proposals would ensure that they are unable to abuse a dominant position while still allowing countries to benefit from cross-border investment in a globalised economy. At the same time such rules would prevent any broader protectionist backlash so the Sovereign Wealth Funds themselves could welcome the regulation.  [1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009.   [2] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007,


Sovereign wealth funds can undermine economic independence  Sovereign wealth funds (SWFs) have become very important players in the global economy. The already exceed the assets controlled by hedge funds and will surpass the stock of global foreign exchange reserves. [1] They are now so big that their activities can shift markets, such as Norway’s Government Pension Fund did when short selling Iceland’s banks, leading to panic and instability when they sell assets suddenly. [2] Their purchases can mean that companies owned by other states can end up dominating the economies of smaller countries, undermining their own sovereignty and economic independence. It is also worrying that many SWFs are controlled by undemocratic states which have a questionable commitment to capitalism; should we allow such states to exercise so much power over our economies?  [1] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008,   [2] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008,


Sovereign wealth funds are not new and they are still only a tiny part of the global financial system. They represent only about 2% of global traded securities, and are dwarfed by other financial actors such as mutual funds, or private equity groups and hedge funds. [1] What is more, in comparison with these other players in the global financial system, SWFs are long-term investors looking many years, even decades into the future. This means that they are likely to bring calm, rather than irrational volatility to markets, as they will not be rushed into dumping assets based on a few months of bad data.  [1] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008,


Regulations already exist to prevent foreign investments that might compromise national security. [1] Other than this it would be unfair to discriminate against certain classes of investors. Wealth-creating capitalism relies upon investors seeking to maximise the value of their investments. Without voting rights or the possibility of exercising majority control of a company, SWFs would be unable to ensure that managers were working hard on their behalf, allocating resources efficiently and being held accountable for their decisions.  [1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009.


While it may be true that the state is often a bad manager of assets and businesses in this case the state is not usually involved in the management of the assets. This is being done through the wealth fund which is often in large part run by people whose background is in finance rather than in government. This use of external independent asset managers in itself should be enough to ease worries over state control. [1] Because SWFs don’t seek to have control over the majority of the businesses they invest in discredited government economic planning is not an issue. [2] Indeed SWFs are operating much more like private companies than state owned enterprises.  [1] Mezzacapo, Simone, ‘The so-called “Sovereign Wealth Funds”: regulatory issues, financial stability and prudential supervision’, 2009, p.46.   [2] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008.


Sovereign Wealth funds are not transparent  Sovereign wealth funds suffer from an almost total lack of transparency. Most countries maintain secrecy about the size of their funds and the extent of their holdings, their accountability to government, their investment strategies and their approach to risk management. Without knowing these things, it is impossible to gauge whether political or economic objectives will dominate the SWFs’ behaviour, or indeed whether they will make safe and responsible shareholders in any business – secrecy breeds corruption. For these reasons, Jeffrey Garten of Yale has argued that SWFs should be obliged to publish independently audited accounts twice a year. He has also pointed out that many countries operating SWFs protect their domestic economy from foreign competition and investment. We should demand reciprocity, so that countries seeking investments abroad must open up their own economies fully before they are allowed to hold significant assets elsewhere. [1]  [1] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007.


State ownership is not a good way of controlling funds  The ownership of important businesses by sovereign wealth funds runs counter to the economic policy pursued by almost every government over the past 25 years. In the 1970s many states owned nationalised industries as part of an attempt at socialist economic planning that has now been discredited. State ownership distorted incentives, interfered with management and produced decades of underinvestment, poor service to consumers, and national economic failure with the most extreme example being the Soviet Union itself. Since the 1980s countries everywhere have followed the example of Thatcher’s Britain and privatised their industries, freeing them to compete efficiently and to generate more wealth and jobs than they had ever done in state hands. Going back to state ownership of business is a dangerous backward step, especially as it is now foreign governments that are doing the nationalising.


Fears about the unrestrained influence of sovereign wealth funds will likely stimulate wider protectionism anyway if effective regulation is not introduced. Protectionist politicians may exploit fears of foreigners to restrict any kind of foreign investment, and seek to build up national champions as a defensive measure. This risks losing all the economic benefits of globalisation, such as opportunities to unwind financial imbalances and to spread expertise, while directing capital to areas where it can have the greatest impact. Better to regulate SWFs now for fear of a greater backlash later.


In many cases sovereign wealth funds are not even good for the states that own them. Almost all are emerging economies with limited financial expertise available to them, and they are not equipped to invest the money wisely. This has led to SWFs paying inflated prices for dodgy western companies, whose share price has subsequently collapsed, resulting in the loss of billions of dollars of national wealth for example China Investment Corporation lost $500million on Blackstone, Qatar Investment Authority may have lost as much as $2billion in its attempt to buy Sainsburys. [1] Surely it would be better to invest the money at home, or even return it to their people in the form of lower taxes.  [1] The Economist, ‘The rise of state capitalism’, 2008.


SWFs can help the financial system in times of trouble  Sovereign wealth funds should be credited with coming to the rescue of the global financial system during the turmoil of 2008. With their long-term horizons for a return on their investments they have been willing to provide billions of dollars in new capital to distressed companies, at a time when other sources of funding have headed for the door. [1] Their money has allowed firms to continue trading and so safeguarded jobs at a time of great uncertainty. It has also helped prevent complete collapse of global equities prices, on which many people, through their pension funds, depend for a secure future. Moreover unlike some other types of funds such as hedge funds SWFs have an interest in keeping the global economy stable and reducing the impact of any downturns as their own country is bound to be affected by global economic conditions so responsible investment practices are encouraged. SWFs therefore “can play a shock-absorbing role in global financial markets”. [2]  [1] Beck, Roland, and Fidora, Michael, ‘Sovereign Wealth Funds – Before and Since the Crisis’, 2009, p.363.   [2] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008.


SWFs should be welcomed for the benefits they bring rather than ostracized for doing what others do.  Developed countries are guilty of a great deal of hypocrisy in their attitude to the sovereign wealth funds of emerging economies. In the past their own companies were used as instruments of state power, for example BP’s origins lie in Britain’s attempt to dominate Iran’s (at the time known as Persia) oil wealth. [1] The developed world is always willing to buy assets on the cheap, as shown by American banks buying up Asian banks during the Asian Financial crisis at the end of the 1990s. [2] Recently SWFs have proved willing to channel a great deal of investment into poorer states, particularly in Africa, their investments have already surpassed the IMF and World bank’s, [3] boosting their economies and assisting their long-term development through the provision of infrastructure such as roads and ports. This is a much more equal relationship than that promoted by the west, with its manipulation of aid and loans to maintain political influence in former colonies.  [1] BP, ‘Our history’.   [2] The Economist, ‘The rise of state capitalism’, 2008.   [3] Cilliers, Jakkie, ‘Africa and the future’.


Restricting SWFs is protectionism  Restricting the activities of sovereign wealth funds is a form of protectionism, which is itself likely to stimulate further demands for barriers against globalisation. Western countries oppose protectionism when it is from other countries preventing western companies investing so it would be hypocritical to want protectionism against those same countries buying the firms that want so much to invest in emerging markets. [1] It should be remembered that almost 40% of SWF assets are controlled by SWFs from advanced industrialised states. [2] As a result SWF investments abroad contribute to greater economic openness around the world. By exposing emerging economies and authoritarian states to developed world standards of transparency, meritocracy and corporate social responsibility, they will help to spread liberal values and raise standards. They will also give many more nations a stake in international prosperity through trade, encouraging cooperation rather than confrontation in foreign policy, and giving a boost to liberalising trade deals at the WTO. Finally as with all protectionism there is the risk that the SWFs will pull out their wealth and not invest as a result of protectionism resulting in lost jobs or jobs that would otherwise be created going somewhere more hospitable to SWFs. [3]  [1] The Economist, ‘The rise of state capitalism’, 2008.   [2] Drezner, Daniel W., ‘BRIC by BRIC: The emergent regime for sovereign wealth funds’, 2008, p.5.   [3] Ibid, p10


SWFs represent good economic management by countries with surpluses  Sovereign wealth funds are highly beneficial for states with large financial surpluses. Traditionally they have been run by resource-rich countries which wish to diversify their assets to smooth out the impact of fluctuations in commodity prices on their economies and revenues. The fund can then be drawn down then prices are low. [1] Indeed 30 of 38 SWFs in 2008 were established for such a stabilization role. [2] By holding investments abroad, oil-rich countries such as Qatar and Norway have also built up valuable national reserves against the day when their fossil fuels eventually run out. Kiribati, a pacific island country, put aside wealth from mining guano from fertilizer. Now the guano is all mined but the $400million fund boosts the island’s GDP by a sixth. [3] In any case, allowing all the income from natural resources into your domestic economy is well known to lead to wasteful investments and higher inflation – better to manage the revenues responsibly by using them to create wealth for the future. More recently many Asian countries with big current account surpluses and massive government reserves have sought higher returns than they could get through more traditional investment in US Treasury bonds. Again, this is a responsible strategy pursued by states seeking to do their best for their citizens.  [1] Ziemba, Rachel, ‘Where are the sovereign wealth funds?’, 2008,   [2] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008.   [3] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008.


The amounts sovereign wealth funds invest in the poorest countries is tiny compared to their overall portfolio. In 2008 the head of the World Bank Robert Zollick was attempting to persuade sovereign wealth funds to invest just 1% of their assets in Africa. [1] Investment by SWFs in Africa is not all good. Sovereign wealth funds are guilty of bad behaviour in the developing world. Some government-backed firms from China and the Arab world (not all of the SWFs) have provided capital to maintain some of Africa’s worst rulers in power, in exchange for the opportunity to gain access to the natural resources of their misruled states. Sudan for example has sold 400,000 hectares to the United Arab Emirates. [2] This has allowed dictators to ignore the conditions (e.g. for political freedoms and economic reforms) attached to funding offered by western aid donors and international institutions such as the World Bank. It also contrasts sharply with the behaviour of western companies, who are led to act more responsibly by pressures from their own governments, investors and media.  [1] Stilwell Amy, and Chopra, Geetanjali S., ‘Sovereign Wealth Funds Should Invest in Africa, Zoellick Says’, 2008.   [2] The Economist, ‘Buying farmland abroad, Outsourcing’s third wave’, 2009.


Sovereign Wealth Funds could potentially help the financial system but they will only do so if it is in the national interest of their country to do so. It is this political dimension that is the reason for more regulation. Moreover regulation of SWFs will not prevent these funds from helping the global financial system. They will still be free to invest. Moreover it does not reduce the incentives for them to do so either, regulation will make no difference to a state’s motivations in a time of crisis – the national interest will remain key.


This price-lowering effect is most likely to be felt in those industries where the majority of the costs are in wages; these industries are likely to be service based industries. Individuals, especially poorer individuals, rarely buy services, so the effect on the poorest is likely to be limited.


This will distribute wealth more evenly  As a result of having to pay important directors and employees a lower wage, businesses will be able to produce their goods and services for a lower cost, and sell therefore sell them for a lower price. This will lead to a more equitable distribution of wealth, as the poorest will become relatively richer, as prices will fall. This will also be true for small businesses, which will be able to obtain cheaper legal and financial advice and business consultancy, and are therefore more likely to succeed. Sports provide a good example of this. In major league baseball salaries for the players more than doubled in real terms between 1992 and 2002 while ticket prices rose 50%. As players wages take more than 50% of teams revenues a cap would mean a significant cut in costs that could be passed on to the consumer.1  1 Michael J. Haupert, "The Economic History of Major League Baseball", EH.net Encyclopedia, December 3rd 2007


It is equally likely that money is a significant motivator in productivity, and that limiting wages will therefore harm productivity.


Equality is in and of itself a good thing  Firstly, it limits social tension that may arise due to public dissatisfaction with high wages; see the attacks on the famous banker Sir Fred Goodwin in the UK1. Secondly, people may feel that society recognizes them as being more equal, increasing the perceived self-worth of many, avoiding feelings of inferiority and worry about their social worth, and making them feel closer to other people. See, for example, Sweden, which has the lowest Gini Coefficient (indicating low levels of inequality) in the world, and also some of the highest levels of GDP per capita, life expectancy and literacy rates, and low levels of crime and obesity2. Furthermore, a Forbes report suggests Sweden is one of the happiest countries in the world (along with Denmark, Finland and Norway, 3 other countries with a low Gini Coefficient)3.  1 BBC News Website, 25th March 2009 2 CIA World Factbook, 20th July 2011 3 Forbes , "The World's Happiest Countries", July 14th 2010


Systems for implementation  This system would be best implemented by imposing a mandatory 100% tax on all personal income over $150,000, and all bonuses over $30,000. This means that some revenue could still be raised from this if people did continue to pay large salaries and bonuses, although they are unlikely to do so. Furthermore, it would be best implemented through international cooperation, to limit the opportunity of one country to be able to offer higher salaries and poach talented individuals. Countries may agree to this as it prevents a 'race to the top' in salaries, where companies have to offer more and more money to attract the best people.


Some evasion of this is inevitable; figures show $2 trillion of unreported income in the US in 20081. Furthermore, international cooperation is unlikely, as each country has a strong incentive to renege on agreements to attract more talented people to their country.  1 E . Feige, "America's Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S", January 2011


Social tensions are greatly exaggerated, and only actually felt when a specific crisis and against a very specific figurehead (in the case of Fred Goodwin, an entirely isolated example, the large amounts of media coverage he received for his role in the banking crisis). Furthermore, feelings of inferiority are typically reasoned away by people, who explain other's greater income in terms of their willingness to work hard, or being lucky. The feeling of superiority over others can be considered a motivator that encourages some people to work (See Opposition Argument One below). Finally, Sweden may be disanalogous as an example as they (and other Scandinavian countries) have a strong collectivist spirit that may be lacking in other countries.


It is likely that foreign demand will displace national demand for properties, especially in key city areas (such as New York or London). Furthermore, having a nice house is one of the strongest incentives to have a job and be a productive tax-paying member of society; loss of this incentive may decrease a society's output level and tax revenue.


This will enable people to better choose their jobs  When wages are better standardized across professions, people are less likely to feel socially pressured into seeking out a higher paid job. As such, they are more likely to choose their job on the basis of other factors, such as how much they enjoy the job, or how ethical the working practices of a company are. This will lead to happier, and hence more productive, employees.


This will limit the control of the rich over key scarce resources  Some resources –most notably housing – are very important to large numbers of people, and owning them gives people a great deal of happiness. This policy will limit richer people owning several properties while others live in rented accommodation or smaller houses, as price competition for such properties will be less intense, and poorer people will be better able to compete through savings. Estimates in 2005 suggested there were 6.8million second homes in the USA1.This is a good thing, as it is likely that a person (or family) values their first property more than another person values their second property, known as the law of diminishing marginal returns. This is perhaps the best example of the ways in which inequality leads to worse outcomes for society.  1 E . Belsky, “Multiple-Home Ownership and the Income Elasticity of Housing Demand”, October 2006


There is still significant social prestige to being a doctor that will motivate people to take up the role; the same will be true for other high-paid jobs where there is a lot of training, such as lawyers. This prestige is often a key part of the reason people do the job in the first place; many doctors are paid far less than people working in business or financial services at similar levels of seniority. Finally, the unpleasant jobs mentioned typically are done for a salary well below the cap proposed, and they still have adequate people.


The effect of high salaries on levels of labor supply is likely to be marginal. People work in part due to the significant social pressure of having a job and advancing themselves comparatively against others. This motivation will still exist, as there will still be rewards to advancing your career; a salary closer to the salary cap, and the added responsibility and social (or business) standing such advancement provides. While there may be fewer people willing to work 18 hour days, 6 days a week, this work is being done because it is valuable – so the firm will need to employ more people to do it, and the work is spread over a larger number of people, possibly even increasing employment


This motion will lead to people leaving the country, and will limit the intake of skilled workers  Many industries, especially at the highest paying end, rely on people of various nationalities. This is especially true in places seen to be financial centers of the world, such as New York, London and Tokyo – for example, 175,000 professional or managerial roles were given to immigrants in the UK in 20041. When a policy such as this is instigated, many people will leave to other countries that do not have such a limit, especially if they are initially from another country. Furthermore, it will be difficult for a country to attract talent while this policy is in effect, as the significant difficulty moving country involves, such as leaving friends and family behind, cannot be compensated for by a higher income.  1 John Salt and Jane Millar, Office of National Statistics “Foreign Labour in the United Kingdom: current patterns and trends”, October 2006


High salaries incentivize people to take risks and undertake research  Many entrepreneurs are driven by profit. This is the reason that people take out large loans from banks, often with their home as security, and use it to set up a business; the hope of profit and a better life. Without that incentive, the risk has a far lower reward, and therefore will appear to be not worth it. Entrepreneurs not only give others jobs, but stimulate the economy with new ideas and business practices that can spill over into other areas of the economy. Even within businesses that are already established, this policy will be problematic. For example, why would researchers at a pharmaceutical company try to develop a new drug if they realize they can't financially benefit from it? GlaxoSmithKline spent over $6bn dollars on research in 2010 alone1. This policy could limit such research into the type of technology (or medicine) that advances society.  1 FierceBiotech , "GlaxoSmithKline: The World's Biggest R+D Spenders", March 2011


High salaries incentivize people to do difficult or unpleasant jobs  Some jobs are extremely difficult or unpleasant. Consider a doctor, who trains for many years, often unpaid, in order to do their job – and the average doctor’s salary in the USA is close to the proposed cap, and surpasses it with merely 5 years experience1. Or consider a sewage worker or firefighter, whose job is one that many people would not want to do. High salaries are a good way of encouraging people to do these jobs; limiting the ability to pay high salaries will mean that some vital roles may be less appealing, and the job will not be done.  1 Payscale , “Salary for People with Jobs as Physicians/Doctors”, July 2011


High salaries incentivize people to work hard  People respond to incentives, and one of the most direct incentives is a financial one. Higher salaries encourage people to deploy their labor. This benefits society by increasing tax revenues that can be spent on redistributive policies; for example, consider the much maligned investment banking profession. It is not uncommon for investment bankers to work 14 to 18 hour days, and to work at weekends; it is unlikely they would do this without the incentive of high salaries and bonuses, at least in the long run. The taxation on financial service providers (that rely on such hard work) and the workers themselves is significant; in 2010 in the UK, it was 11.2% of total tax receipts1. Furthermore, the deployment of labor may lead to more supporting workers being needed and therefore job creation.  1 PWC , "The Total Tax Contribution of UK Financial Services", December 2010


Under this policy, companies will not be able to spend their profits on inflating their salaries, and so are more likely to have a long-term outlook to the company. The best way to advance long-term interests is through research; it is possible that all their excess profit will be spent on this. While entrepreneurs may be driven by profit, the salary proposed is sufficiently high that it can be aspired to; most entrepreneurs will still be motivated by it, as they seldom already have a job that already pays so much.


The significant difficulty of moving country, such as leaving behind friends and family, and leaving behind an area (or even language) you know well, are likely to limit emigration. As for immigration, the skill set is typically already within the country; if not, this policy may encourage a focus on an educational system to ensure it is. Finally, if the argumentation about equality leading to a better and happier society is correct, this in itself will attract immigrants to high-paying jobs.


The single biggest impact the US government, or any government, can have on the economy is what it does with its own money. By creating jobs through public expenditure it stimulates local economies and creates growth.  Proponents of the baby boomer crisis theory also ignore one very significant fact – these people did not cause a financial crisis before they started working in the late sixties. It also seems unlikely that all of them will stop work as life expectancies are now much longer than in the middle of the last century and a majority can be expected to remain economically active.


Paying off national debt via austerity measures would free-up money used for interest payments  The first of the baby boomers start retiring in 2011 and, as a result, qualify for Medicare. There are 78 million people in this generation and all of the statistics suggest that they are likely to live significantly longer than previous retiring generations [i] . As a result the US has some very big bills coming in the next few years and a decreasing base of those working and paying tax revenue to pay them.  This is really not the time to be wasting money on interest for deficits built up to support programmes that are unnecessary. Paying down the debt frees up tax revenue for much needed support, both financial and medical, for seniors as they retire.  [i] Laurence J. Kotlikoff and Scott Burns. “The Coming Generational Storm.” MIT Press 2004.


The only ways to control the deficit, other than stimulating growth and the tax revenues it produces, would be either to cut services or to increase taxes. Both actions would harm the longer term objective of stimulating growth as they both take cash out of the real economy.  By contrast, focusing on domestic spending to restart the economy will produce long term stability; whether through stimulus packages or other methods.  The idea that there is no need to run at a deficit during a time of recession is absurd. In the light of the financial challenges currently faced by the US, but also in the longer term, it is vital that the government has the ability to run its expenses at a deficit to act as a stimulus.  The reality is that it is in the interests of everyone, not just Americans, for the US government to be able to spend relatively freely. Surpluses are nice but they are a luxury the world’s financial engine can rarely afford.


Governments need to live within their means  Ultimately the US Government has to pay its bill just like everyone else. Ultimately maintaining a permanent deficit harms the economy creating both inflationary pressures and effecting interest rates.  However, these pressures are not the main source of concern. Although deficits in times of plenty are a grave concern, during a recession most economist agree that deficits may be necessary. However, the US is no longer ‘mostly in debt to itself’ as has been the case in the past. [i]  Increasingly, its debt is owned by the major Asian economies; especially China. The implications should conflict arise between the two are severe as China, effectively has the capacity to bankrupt the US and the dollar at a time of its own choosing.  [i] John W. Schoen. “Just who Owns the US National Debt?” MSNBC 3 April 2007


It is incredibly unlikely that China would ever call in its debts as any damage done to the dollar would be fairly insignificant compared to the impact on China’s own economy and currency.  America can afford to service its debts and doing so is a major stimulus to the global economy. Nobody has an interest in breaking the dollar, as doing so would cause a run on every bank in the world – including the Bank of China. China holds reserves roughly equivalent to M1 – cash in circulation in the US (although it’s worth nothing this represents about four percent of the actual dollars in the world) and so a massive release of dollar-denominated assets would hurt the dollar greatly. The results would see the price of oil, and most other commodities, skyrocket as they are priced in dollars and would bring the entire global financial system to a halt. China has no interest in either of these things happening.


Many of the reasons for operating a debt have now been eliminated  At the end of the Clinton presidency the government was running at a healthy surplus following the longest sustained period of growth in US history. Bush Chose to spend that on tax cuts and two extremely expensive wars (the War in Iraq was the mostly costly war, in relative terms, in US history except for WWII). Obama was landed with the problems that Bush created, but has chosen to extend spending rather than control the deficit.As The country is no longer at war, there is no real reason to be running at a deficit.  Alan Greenspan, and many others, have pointed out that the impact of continued deficits is likely to be higher interest rates – at a time when the country can ill afford them – which will hurt the economy. [i]  [i] Mark Gongloff. “Greenspan Warns Against Deficits”. CNN. 26 February 2004.


If China moves to recall the trillion dollars or so that they are owed because they no longer trust US debt, or even just to offload it, the effect on the average American would be devastating. The benefits in increased exports would be more than compromised by increased costs for basic goods and services. Inflationary pressures would become severe and interest rates – one of the Fed’s primary tools in fighting the recession – would be forced to rise to combat it.  It simply makes no sense to run the risk of the sort of collapse that would ensue if the government loses the ability to borrow because of a lack of confidence.


This may well have been the case when a AAA credit rating could simply be taken for granted but it is no longer the case. Standard and Poor has down-graded America’s credit rating [i] and China looks set to follow suit [ii] .  A lower rating means paying higher interest on government borrowing. This is new territory for the US; an economy that has no experience of anything other than top ratings. Suddenly all that money from China doesn’t look so cheap and the engine of the world economy is running in to trouble. It’s time to stop being reliant on other people’s money.  [i] Robert Peston. “US Loses AAA Credit Rating After S&P Downgrade”. BBC. 6 August 2011.  [ii] Peter Beaumont. “Chinese Ratings Agency Threatens US With New Debt Downgrade.” The Guardian. 12 November 2011.


A recession is not the point at whcih debts should be paid back. The state should focus on job creation strategies  It would be the height of irresponsibility for the US government to even think about giving anything a higher economic priority than the creation of jobs at a time when unemployment is running at 9.1%.  It is essential that the federal government uses its economic muscle to get Americans working again rather than settling fairly obscure points of economic theory.  Taking money out of the system will cost jobs and hurt business, it will also lead to redundancies in the public sector. Ultimately it would be self-defeating. Admittedly, the Bush regime should have been running the economy at a surplus but it didn’t and that is the reality that the current government needs to deal with.


The US should focus on divising ways in which to pay the medicare and medicaid bills faced by its population  The realities facing the US government are that it has two separate sets of bills to pay. On one hand there are those to central banks and overseas investors. The others are to its own citizens who have been giving the government their tax dollars over the course of a working lifetime on the understanding that they would recoup that money in healthcare and other benefits at a later stage.  The priority has to be domestic expenditure.


Nobody is going to risk financial instability in the US by calling in the principle sum on the loans that it has taken out  There really is no problem with the Federal Government running at a deficit virtually permanently – as it has for most of its history. There is no threat of a default as this would require any lender to commit financial suicide as a result.  The deficit allows the most powerful economic actor on earth to act as a stimulus to those in smaller roles. Paying down the debt reduces money supply and, ultimately, contracts the economy. By relying on the savings of nations like China, through bonds and other instruments, the US is furthering its traditional role of being the primary engine of global economic growth. [i]  [i] Rich Millar. “Democrats Rubin, Schwarz Clash on Spending Versus Deficit Cuts”. Bloomberg. 11 June 2007.


At some point the US needs to come to terms with its debts and a gradual collapse of confidence in the US’s ability to pay its debts will not help the American economy or anyone else’s. With a declining tax base – both as a result of unemployment and an increasing burden of economic inactivity through retirement, the government will increasingly have to demonstrate that it is ‘good for the money’ rather than just assuming that something will turn up.  Despite hundreds of billions poured into the economy since the start of Obama’s time in office, the economy remains stagnant. As a result it’s time for the government to demonstrate that it can use austerity as well as largesse to solve the problem.


The social problems that have taken root in America result from a number of converging causes. While many individuals may desperately want to contribute to the debate surrounding these problems, attributing the declining performance of the American economy highly visible social divisions is misleading and unproductive.  The division between rich and poor as well as the low taxes on the rich exist because a lower tax burden on the rich promotes innovation within economies. Specifically, it is often the rich that engage in enterprise, be it through their own businesses or as part of large corporations. The lower tax burden on the rich makes taking risks in order to develop new technology more profitable for the people making those risks.  Promotion of enterprise and risk during recessions should be a priority for American policy makers, because it is often new products that drive economic growth by creating new markets which drive demand and also by increasing productivity. As such, an increase on the tax burden for the rich in the American economy is problematic because it hurts this method of recovery. It should also be mentioned that simply lowering the tax burden on the poor is likely to be impossible at this time without significantly increasing a U.S. deficit that has already been downgraded by credit rating agencies. In allowing the deficit to increase further the U.S. would have to pay back significantly more in the future owing to higher interest. This approach to fiscal policy has been heavily criticised by the chairman of Forbes Inc. Steve Forbes.4  As such, it is opposition’s opinion that whilst such a change might address issues of social cohesion in the U.S, the cost to the economy from doing so is too great. Further, social cohesion could easily be encouraged through other, less economically harmful measures such as tightening up regulation on banking. Doing so helps the economy and plays against the “Greedy bankers” rhetoric that proposition mentions.


The Jobs Act Redresses the Balance Between the Wealthy and the Middle Class  One of the more divisive problems in America is the increasing inequality between the wealthy and members of other classes. The harms that could, and have resulted from this extend to the Occupy Protests in the tail end of 2011, as well as riots With the rich consistently seeming to get richer despite the poor economic climate, many of the less rich within the American economy feel that the state is playing against them, conferring advantages on those best able to lobby politicians and make large election campaign donations. This is problematic when it is state mechanisms that will enable American’s who lack access to costly universities to better educate and train themselves, thus making them more employable thus allowing them to help push the American economy out of recession.  A popular consensus has emerged amongst America’s middle class, which portrays the recession as an event triggered by the rich, with rhetoric regarding “Greedy Bankers” playing into the public discourse on the ineffectiveness of state regulation of large financial institutions.  The American Jobs Act redresses the balance between the wealthy top tier of American society and its middle and working classes. In doing so, it helps to alter the perception of the rich and their contributions to society.  The burdens currently confronted by America’s middle class are addressed in a number of ways. Firstly, payroll tax, a pay-as-you-earn tax that is withheld from employee’s wages, will be significantly reduced. As such, any families with a large number of working members will be subjected to a much lower tax burden. This would provide a tax cut of around $1,500 to a typical American family.2  Given also the higher tax burden placed on the rich with this tax, and the system that results is likely to be skewed more strongly in favour of working Americans. Further, changes in the taxation system will also be able to sure up any loopholes that have been exploited by the rich to avoid taxes.  Finally, the jobs act redresses problems where the largest subsidies go to things such as charitable giving and mortgage interest – presumably things which are paid by people who need subsidies the least. Caps will be placed on such tax breaks under the act and as such, money will be more likely to go to people who need it more – the poor or unemployed.  In bringing about these changes, better economic circumstances are created for the poor and the balance between rich and poor is likely to become smaller.3


The American Jobs Act may be projected to create a lot of jobs. However, this comes following tax cuts and a fiscal stimulus package in 2009. In the past these measures to help the economy failed, with unemployment remaining stagnant at around 25 million despite the efforts by the government in 2009.  The reason this occurred in 2009 is that despite the stimulus package there was a strong degree of uncertainty within the economy. As such, even though consumers and producers were facing a lower tax burden it became apparent that neither group was willing to take big risks in a highly uncertain economic environment. The possibility of recession was all too apparent, and this affected both business and consumer confidence.  Given the Eurozone crisis at the moment, the situation in 2011 is very similar, with much of the world economy waiting on the outcome in Europe to see whether recession or recovery awaits. Such a climate is not conducive to risk taking on the part of firms. Hiring extra workers, for example, might be a profitable activity, however, it also entails significant risk as the firm has to be able to guarantee that it will get more out of the worker than it ends up paying.  The current state of world markets is not conducive to a stimulus package and it would simply be better to wait out the Eurozone crisis and then deal with the coming problems in an environment that is more confident and that is populated by actors equipped with greater understanding of the direction of the world and American economies.6


The American Jobs Act Will Help the Long Term Unemployed  The long term unemployed in America are important to the economic recovery. Whilst those who are temporarily unemployed will eventually come back into employment and start contributing to the economy, they will often be offset by those losing work. For the U.S. economy to gain headway, spare capacity must be created in the economy for those who have not been employed for a long period of time. Should the U.S. be able to harness these workers and create extra employment capacity to keep them in employment, then the U.S. economy will see a boost as the number of people gaining work will outnumber those losing work to a more significant level than seen ordinarily in an economic recovery.  The American Jobs Act helps in this area by creating what is known as a “Bridge to Work” program which capitalises on initiatives that many states have put into place in order to deal with long term unemployment. Specifically these programmes help those without jobs take temporary or voluntary work whilst they also pursue on the job training in order to make them more employable in the long run. There is also a $4000 tax credit for employers that hire long-term unemployed workers. Further, prohibitions on discrimination based on length of unemployment will also come into place. As such the American Jobs Act is likely to stimulate the economy through the creation of a bigger and better trained work force.1


Whilst long term unemployment is an issue within America, it is not an issue to be focused on during a time of economic recovery and potential recession again. In a recession there are significantly more people who suffer from temporary unemployment because businesses that are unable to survive the hardships of the recession often shut down.  This means following a recession there are a large number of skilled workers in the work force who lack jobs. As recovery gains pace, these workers are re-employed at a greater rate than other workers are made redundant. Given that these people are already skilled and can already make a very significant contribution to the economy, it seems illogical that a bill intended to promote economic recovery should focus on the long-term unemployed at all. Presumably, most people who suffer from long term unemployment will take a few years to acquire the skills needed to meaningfully contribute to the economy. At this point, the economy will likely already be out of recession. This is indicated by the fact that in the latest recovery period, long term unemployment rose presumably because the extra employment capacity in the economy was just being retaken by those who were temporarily unemployed.2  It is more beneficial that the state concentrates entirely on bringing the country out of recession and recovery and into a period of sustainable growth more quickly. Under these circumstances, the state will have more resources to divert to the long term unemployed, as fewer people will require help due to temporary unemployment. The state can then focus on assisting these individuals, so that when the next recession comes state services will be ready to ease the damage.


The American Jobs Act Helps Small Business and Creates Jobs  The American Jobs Act helps small businesses and is also set to significantly increase the number of jobs available to people. Small enterprise is particularly important in the creation of jobs because these businesses tend to be start-up businesses. Many start-ups are entrepreneurial in character, and succeed or fail on their ability to identify and exploit new markets. Increasing investment in new and emergency markets spurs the creation of additional jobs within those markets. Thanks to the cuts in payroll tax contained in the Jobs Act, many small businesses will stand to benefit by gaining some of the money paid to the government back. The President’s plan will also eliminate payroll taxes entirely if firms add new workers or increase the wages of their current workers. As such, there will be significant incentives for small businesses to hire more workers.1  Cuts to payroll taxes, combined with the other changes planned by the bill, are estimated to create 100,000 jobs a month for the next year, accompanied by a projected 1.25% increase in GDP. Moody’s Analytics is even more optimistic about the likely benefits to the American economy should the act pass, predicting growth rates at 2% and claiming that 1.9 million jobs will be created as a result.5


Whilst successful individuals may be confronted with an increased tax bill, the American Jobs Act also significantly reduces taxes on businesses. This is especially important with respect to innovative risk as it is businesses, not individuals, which bear the main brunt of risk following innovation.  As such, it is reasonable to assume that the effect of higher tax on the rich will often be negated, with respect to innovation by the lower tax on businesses.1


Even if the American jobs act is not deficit neutral, it will have a significant effect in the future, through spending more in the present to speed the American recovery period and prevent a double dip recession. During the boom period it will be significantly easier to pay any increased deficit back. Further, even if the American credit rating is to be downgraded further, changes in the credit rating are played to be more significant than they actually are. The Japanese for example have had their credit rating downgraded by Moody’s to Aa3, however, bond interest in Japan is 2% at its highest levels on long term Japanese bonds whereas it is 3% in the U.S.7  The change in the credit rating of Japan did very little to increase interest on its bonds. The reason is that investors still believe that Japan is a stable market despite its deficit which amounts to 233% of annual economic output. As such, even if the credit rating of the U.S. does get downgraded it is likely to do little in terms of increasing U.S. bond repayments over time. Further, financing the American Jobs Act through a greater deficit could be seen by many rating agencies as a fiscally responsible move and as such would not lead to them downgrading the rating at all.8


The American Jobs Act Encourages Risk Without Infrastructure or Results in Inaction By  The American Jobs Act is problematic because one of the main causes of the recession was excessive risk taking in certain businesses. This reckless behaviour was the result of poor regulatory infrastructure – the state and independent agencies were doing too little to monitor banks’ conduct. Whilst some spending from the act is going on the improvement of infrastructure in the form of better checks and balances on businesses such as banks which are critical to the economy, the majority of the spending is instead going on tax breaks. Whilst taking risk and encouraging risk is generally a good thing in recessions, the way in which money is put at risk must be controlled. If it is not controlled well enough then there is a significant chance that such spending could simply lead to another recession because of another crisis in another financial sector.9  Alternatively, businesses may opt to place a greater focus on debt repayments. This is what occurred during the Japanese crisis of the 90s. Companies might act in this way because they fear taking risks in such an unpredictable climate. If this is the case then the economic stimulus that the Act is meant to provide simply will not occur in the way that is intended, and much money that could have been spent on infrastructure will be wasted elsewhere.9


The American Jobs Act Will Not Help Successful Businesses  While the American Jobs Act gives help to small businesses it does nothing to help proven companies that already have a record of success as is shown by their size. Indeed these companies may even be hit by the revenue raising side of the act. It is often the wealthy- both businesses and individuals- that engage in enterprise and risky expansions into new markets. A lower tax burden on the rich makes taking risks in order to develop new technology more profitable and more appealing.  Promoting private enterprise and risk taking is a key strategy in resolving recessions. It is often new products that drive economic growth by creating new markets, which drive demand. An increase in the tax burden of America’s wealthiest citizens and corporations is problematic. It impedes this growth and innovation-led recovery strategies.  It is important to note that the risk the American economy needs to promote is risk that is well regulated and, further, is risk in non-critical and emerging industries. As such this point is distinct from the second point of opposition and must be presented as so, otherwise, it risks a misunderstanding with judges.10


The American Jobs Act is Not Deficit Neutral  One of the issues with the American Jobs Act is that while it is claimed that it will be deficit neutral this may not actually be the case as the costs are front loaded whereas the revenue is not. The Congressional Budget Office estimates it will be neutral by 2021 but will increase the deficit by $288 billion in 2012,11 meaning there is a lot of scope for mistakes in the revenue increases or even higher interest rates than expected meaning it contributes to the deficit. If it contributes significantly to the deficit then the economic benefit that the jobs act might create could simply be subsumed in greater repayments on bonds in the future by the U.S.  As such, any spending under the jobs act will have to be recouped elsewhere in the American system under taxation. Logically speaking, whilst extra government spending could potentially be more efficient, such sweeping changes that are claimed to cause such a significant amount of benefit to the American economy are almost certain to require extra governmental spending.  This case is enhanced by the fact that, when addressing the affordability of the act, Obama and his administration’s officials are vague about how the act will be financed. The act states “To ensure that the American Jobs Act is fully paid for, the President will call on the Joint Committee to come up with additional deficit reductions necessary to pay for the Act and still meet its deficit target. The President will, in the coming days, release a detailed plan that will show how we can do that while achieving the additional deficit reduction necessary to meet the President’s broader goal of stabilizing our debt as a share of the economy.”  If this is true, the financing of the act is dependent on a super committee finding the funding available somewhere in the American budget. If they are to significantly increase taxes they will likely find it difficult to pass such action, given how likely Republicans are to resist such an action. As such, implementing this Act is likely to end up cutting into the deficit significantly more.9


Whilst the jobs act does not fully cover infrastructure, more acts can be drafted in order to deal with this problem. Further, the financial sector is likely to now be significantly more wary of the problems that initially caused the recession. This is because the collapse of Lehman and the Sub Prime crisis as well as the following recession significantly hurt their businesses. As such, especially so soon after the global banking crisis, such companies are going to be more careful about taking unnecessary risks. Whilst this attitude might decay over time, by the time it has decayed enough that action must be taken, it is likely that America will be out of recession.  Further, it is believed that right now, the general health of the corporate sector is sound. This means that whilst there is the possibility that businesses will opt not to use tax breaks to increase wages and pay debt, it is fairly unlikely. Even if another recession hits, the current strength of the corporate sector is such that it is likely to be able to weather the storm and as such, CEOs are likely to wish to spend windfall that they do get in order to get ahead of the competition for the next boom phase.9


For countries that are dependent on their resources and lack developed industries, free trade does not promote efficiency. Free trade makes them overly dependent on their resources, which other countries are coming in and buying. This is because their domestic industries cannot compete with those of the developed world, so they have difficulty fostering sectors besides raw goods. They are forced to rely on supplying materials, rather than being able to build innovative industries. That does not offer efficiency, it just suppresses economies. For example Nigeria is dependent on oil for 95% of foreign exchange earnings and 80% of their budget money1. Trading oil is not making it a more diversified, sophisticated economy. 1 CIA World Fact Book, "Nigeria", CIA,


Free trade promotes global efficiency through specialization.  Operating at maximum productivity is one of the most important aspects of an efficient economy. The right resources and technology must be combined to produce the right amount of goods to be sold for the right price. Therefore all markets should strive for highest efficiency. In order to maximize efficiency in the international economy, countries need to utilize their comparative advantage. This means producing what you are best at making, compared to other countries. If Mary is the best carpenter and lawyer in the US, but makes more money being a lawyer, she should devote more of her time to law and pay someone for her carpentry needs. Mary has an absolute advantage in law and carpentry, but someone else has a comparative advantage in carpentry1. Comparatively it makes more sense for someone else to do the carpentry, and for Mary to be the lawyer. It is the same in the international economy. Countries can be more efficient and productive if they produce what they are best at based on their domestic resources and populations, and trade for other goods. This promotes efficiency and lower prices. Free trade enhances this. The Doha round that is currently being debated in the World Trade Organization would reduce trade barriers and promote free trade, economies of scale, and efficient production of goods. It is estimated that the Doha round would increase the global GDP by $150 billion alone just by promoting free trade2. Free trade leads to specialization and efficient production, which ultimately would increase the size of the global economy and the individual economies in it. 1 Library of Economics and Liberty, "Comparative Advantage",  2 Meltzer, Joshua (2011), "The Future of Trade", Foreign Policy Magazine,


Therefore, there is no empirical evidence that proves that poverty is reduced. If countries removed all agricultural subsidies domestic production would decrease and world food prices would increase. Poor countries that import food will suffer from increased food prices due to trade liberalization. 45 of the least-developed countries on earth imported more food than they exported in 1999, so there are many countries that could be severely harmed by increasing food prices1.  1 Panagariya, Arvind (2003), "Think Again: International Trade", Foreign Policy Magazine,


Free trade creates substantial cooperative relationships between trading partners.  There has long been a debate as to whether aid or trade is more effective in promoting development and cooperative relationships. Being interlocked through trading relationships decreases the likelihood of war. If you are engaged in a mutually beneficial relationship with other countries, then there is no incentive to jeopardize this relationship through aggression. It leads to more cooperative relationships because trading partners have incentives to consider the concerns of their trade partners since their economic health is at stake. This promotes peace, which is universal good. In 1996, Thomas Friedman famously pointed out that no two countries with a McDonalds—a sign of western liberal economic policies—have ever gone to war together.1 Academic studies have shown that this is specifically a result of free trade. In 2006 Solomon Polachek of SUNY Binghamton and Carlos Seiglie of Rutgers found that the last 30 years have shown that economic freedom is 50 times more likely to reduce violence between countries than democracy2. Erik Gartzke of Columbia University rated countries’ economic freedom on a scale of 1 (least free) to 10 (most free). He analyzed military conflicts between 1816 and 2000 and found that countries with a 2 or less on the economic freedom scale were 14 times more likely to be involved in armed conflicts than those with an 8 or higher2. Aside from war, free trade also solidifies countries’ alliances. For example, the US wants to begin a free trade relationship with South Korea to create a concrete partnership that will ultimately lead to greater cooperation3. Free trade promotes global connections and peace and therefore is a beneficial force.  1 Thomas Friedman, “Foreign Affairs Big Mac,” New York Times, December 8, 1996  2  (page)/2  3


Free trade is the economic policy that many liberal countries—who are less likely to go to war with each other—have chosen. It’s not the policy that makes them liberal. These studies show such a strong correlation, because the countries that have chosen free trade are largely a huge block of countries that already get along, particularly the EU countries and the US. These countries already have the productive relationships necessary for peace. And history has shown that those relationships can be fostered without resorting to free trade. For example, for many years after World War II, Japan protected many national industries, but it was a peaceful country with a productive relationship with the West. Therefore, the costs of free trade are not necessary to achieve that benefit since it can be fostered under different conditions.  1 Paul W. Kuznets, “An East Asian Model of Economic Development: Japan, Taiwan, and South Korea,” Economic Development and Cultural Change, vol. 35, no. 3 (April 1988)


Although free trade may promote innovation and growth, because of issues like dumping (where rich countries sell their products very cheaply in poorer countries and make it impossible for local industry to compete), or jobs being exported to places where labor is cheaper, free trade has significant costs and does not necessarily foster benefits for all. It is necessary to grow infant industries and create jobs, and free trade hurts both.


Free trade reduces poverty.  Free trade reduces poverty for two reasons. First, it creates direct "pull up" as Columbia economist, Jagdish Bhagwati calls it because it creates demand for a country's good and industry and thus employs the poor and expands jobs1. Additionally it creates more revenue for government that can be directly targeted towards anti-poverty programs. Independent research Xavier Sala-i-Martin at Columbia University estimates that poverty has been reduced by 50 million people in the developing world during the era of free trade, since 19871. Hong Kong, Singapore, South Korea, and Taiwan have been liberalizing trade for the past 40 years and have not suffered from one-dollar-per-day poverty in the last 20 years1. If agricultural subsidies were removed from developed countries, food would become more expensive as there would be fewer producers, and poor farmers would have a better shot at competing and making a living. Free trade promotes the necessary monetary flow and demand for goods to increase jobs and sustainably grow an economy to reduce poverty. Prices are lower, more products are available, and the poor are able to achieve a higher standard of living.  1 Panagariya, Arvind (2003), "Think Again: International Trade", Foreign Policy Magazine,


Free trade promotes growth in all countries.  Through global competition, specialization, and access to technology, free trade and openness allow countries to grow faster—India and China started in the 1980s with restrictive trade policies, but as they have liberalized they have also improved their growth enormously1. The International Trade Commission estimates that a free trade agreement between just Colombia and the US would increase the US GDP by $2.5 billion2. When industries have to compete with competition around the world, they are pushed towards innovation and efficiency. Entrepreneurs are more productive if they have to compete. Free trade increases access to technology which also increases overall development. Because of free trade, prices are lower for everyone. Trade offers benefits to both developed and developing nations by encouraging competition, efficiency, lower prices, and opening up new markets to tap into.  1 Panagariya , Arvind (2003), “Think Again: International Trade”, Foreign Policy Magazine  2 White House (2010), “Benefits of US-Colombia Trade Promotion Agreement”


Even with tariffs the steel industry in losing jobs. Nothing can save steel. It simply does not operate as effectively as other global steel industries. Further, protectionism helps a small group of workers, the rest of American industry that is dependent on steel for their operation is hurt by high prices and inefficient production1. Protectionism puts the good of the few above the rest. Additionally, the WTO was created to ensure that dumping does not happen. The problem with infant industry is it's hard to determine when to start the transition away from protectionism, and often it never develops fully. For example, Brazil protected its computer industry and it never was able to compete even past the infant industry stage2.  1 Lindsey, Brink and Griswold, Daniel T. (1999), "Steel Quotas Will Harm US", CATO Institute,  2 Luzio, Eduardo and Greenstein, Shane (1995), "Measuring the Performance of a Protected Infant Industry: The Case of Brazilian Microcomputers", Review of Economics and Statistics,


Marian Tupy of the Center for Global Liberty and Propensity states, "In the history of the world, no country has ever suffered military defeat, or capitulated to sanctions, due to the inability to produce a domestically producible product"1. Globalization also means there are many partners to trade with, so even if a country is at war there are plenty of options of other countries from which to buy necessary products. 1 The Industrial College of the Armed Forces (2008), "Industry Study", National Defense University,


Free trade hurts the world's poor  Free trade creates demand for extremely cheap products produced by poor people in terrible conditions in third world countries. In Indonesia, there are people working in sweatshops for 60 cents an hour1. It is estimated that there are 158 million child workers around the world2. Free trade creates demand for the products produced by this modern day form of child and adult slavery. The governments of the countries where this takes place do nothing to improve the working conditions. Sweatshops are produced by free trade and demand for cheap goods, and the way that workers are treated is inherently wrong. Therefore free trade is not a force for global betterment, but instead hurts the cause of the poor and their standard of living.  1 Krugman, Paul (1997), "In Praise of Cheap Labor", Slate.com,  2 UNICEF, "Child Labor",


Implementing true free trade is unfeasible because it is unreasonable  An increasing number of countries are looking to bilateral Free Trade Agreements that will help them specifically. They are not directly open to free trade with all countries. These FTAs are undermining the position of the World Trade Organization which is meant to push countries towards economic liberalization1. Countries have no reason to start trading freely with everyone, if they already have FTAs with the most beneficial trading partners. The Doha round seeks to reduce trade barriers in industry and agriculture has been going on for ten years, but there is still no agreement. Disputes are becoming more common when it comes to trade. In 2009, there was a dispute over the US putting tariffs on Chinese tires that has created tension in the trade relationship between those two countries2. Considering that the WTO countries have been debating the Doha round for ten years, it is unreasonable to think that countries are going to adopt free trade policies with the whole world. It is much more likely they will concede to bilateral free trade agreements that specifically help themselves. Since it is unlikely for free trade to become a universal policy it is not beneficial for all countries.  1 Meltzer, Joshua (2011), "The Future of Trade", Foreign Policy Magazine,  2 Bradsher, Keith (2009), "China-US Trade Dispute Has Broad Implications", .


It is just to protect industry and jobs.  When countries dump their products in other markets without barriers, they undercut the ability for local industries to compete. If those local industries try to compete, large foreign or multinational companies can use extremely low predatory pricing to make it impossible for the smaller industries to break into the market. The fully developed industries in rich countries are almost impossible for poorer, still developing economies to compete with. If they are not given the chance and have to compete with large international industries from the beginning, domestic industry in poor countries will have a hard time. The overall economic development of the country will thus be inhibited1. Additionally, competition can cost jobs, as industries become less profitable and labor is outsourced, so there is reason to retain protectionism as countries put their economic health first. For example, America has long protected its steel industry, as in 2002 when it adopted a controversial 40% tariff, because it was thought that competition put 600,000 jobs at risk2. Since 1977, 350,000 steel jobs have been shed, so these tariffs are justified3. Countries should put their economies and jobs first and therefore protectionism is warranted.  1 Suranovic, Steven, "The Infant Industry Argument and Dynamic Comparative Advantage", International Economics,  2  "> Flanders, Lauren (2002), "Unfair Trade", CommonDreams.org,  3 Wypijewski, JoAnn (2002), "Whose Steel?", The Nation,


Free trade jeopardizes countries' security.  If a country goes to war with one of its trading partners, it needs to have the capacity to produce all of the necessary tools for war domestically, and not depend on other countries for supplies and parts. Additionally there is fear that disease-causing agents and bioterrorism can enter countries through the trade of poorly inspected food1. For reasons of national security it makes sense to retain the capacity to produce what is necessary to win a war and to protect the domestic population. This is one of the reasons why countries—such as the US1—like to protect their agricultural industry. Free trade is a threat to global security. For countries to stay safe, they need to retain some protectionism in their international trade policy.  1 George W. Bush, “Homeland Security Presidential Directive 9: Defense of United States Agriculture and Food,” U.S. Department of Homeland Security, accessed July 15, 2011


Opening up in FTAs is the first step towards liberalization in the larger sense and opening up to all free trade, so it should not be considered a failure. Additionally, free trade needs to balance international and domestic goals so coming to an agreement is difficult, but the WTO has been successful in the past. The current problems with the Doha round do not spell the end to the WTO or free trade1. 1 Meltzer, Joshua (2011), "The Future of Trade", Foreign Policy Magazine,


Sweatshops are unfortunate, but free trade can benefit from cheap labor without relying on exploiting workers. Economically, cheap labor is a step in the right direction for poor countries and their people. Making 60 cents an hour in a factory that exports goods is better than 30 cents an hour working in the field, trying to feed a family in Indonesia1. Paul Krugman explains that sweatshops allow the poor to get jobs, and manufacturing development has a ripple effect on the rest of the economy and its development. Taiwan and South Korea, and even the US, went through this type of industrial development and it is better than the alternative, which is failed farming or dependence on aid1. If workers are being exploited—which is different from being paid low wages that are actually good by the standards of the country—then that should be regulated by governments, but that in no way infringes upon free trade.  1 Krugman , Paul (1997), “In Praise of Cheap Labor”, Slate.com


Guaranteeing a temporary job for young people is a temporary solution. Having a job for a short period of time will not guarantee more permanent employment. Britain’s Mandatory Work Activity scheme does some of this proposal by having very short term unpaid job placements however a study has shown that having this placement had zero benefit when it comes to getting a job. [1] Even if it did impact on those who took part in the scheme it is no help if it does not increase the number of permanent jobs as there will be the same number of young people in the same small pool. A more long term solution is necessary. This would require more jobs, and more training to ensure that skills fit the jobs that are available.  [1] Malik, Shiv, ‘Mandatory work scheme does not improve job chances, research finds’, 13 June 2012,


This policy is necessary to avoid a lost generation  Rising youth unemployment can be considered an international timebomb. Young people are the next generation of workers and consumers in the economy. When they are unemployed, the situation can be alarming. This is because of the importance of getting a job early on so as to avoid becoming long term unemployed. The UN Secretary general, Ban Ki-Moon, has called for stronger policies involving young people [1] . The ILO has warned that youth unemployment can lead to apathy towards government and political instability [2] . The lack of experience in work may cause a lost generation.  This must be averted, and the EU is one of the best placed to do this. The temporary work scheme would encourage business to change their attitude and hire more young workers. Having to hire young people, even for a short time, would help break negative stereotypes and often the employers would then offer longer term work. This would help to fill the 2million unfilled vacancies that exist in the EU with young people. [3]  [1] Youth Business International, ‘Global Youth Unemployment: a ticking timebomb’, The Guardian, 27 March 2013,   [2] Youth Business International, ‘Global Youth Unemployment: a ticking timebomb’, The Guardian, 27 March 2013,   [3] European Commission, ‘Youth Unemployment’, ec.europa.eu, 2013,


While there is a benefit to diversity it does not have to be obtained by employing younger people but instead by having racial and gender diversity.  Companies have the right to choose their own recruitment practices. It is up to them, and them alone, who they choose to recruit. If they believe in such benefits and that they outweigh any other priorities then they will already be recruiting young people. That they are not doing so shows that businesses do not believe the benefits are as high as they are made out to be. Government should not be compelling business to employ people government should only be interfering with business in order to create a level playing field between companies.


The EU should guarantee youth a job in order to equal their chances.  The EU member states should rely more on public employment services, which should be focused on finding jobs for young people. With government funding, they can work with the private sector to offer decent temporary jobs to young people. This model is common in the Nordic states [1] and other countries, such as Austria, Germany and Switzerland also have similar programs.  Youth unemployment is already far higher than for older people. Less than a third of under 25s who were looking for a job in 2010 found one in 2011 [2] – this may be due to ageist discrimination against young people, and employers seeking people with experience.  People over 25 are also considered as a high risk group. They have little experience so the employer is taking a risk in employing them. There is also a desire for stability; those who already have a family are unlikely to want large changes so employers feel they can bet on them for the long term.  If the problem is a lack of experience then this proposal solves the problem. Giving younger people a temporary job and the experience that goes with it will help give everyone an equal chance at getting a job, irrespective of age. Therefore, the EU should step in and help provide jobs for younger people.  [1] International Labour Office, ‘Youth guarantees: a response to the youth unemployment crisis?’, International Labour Organization, 2012   [2] European Commission, ‘Youth employment’, ec.europa.eu, 2013,


Age ‘discrimination’ runs both ways. Many companies operate policies of age discrimination against older workers. Older employees are often likely to have more out of date skills. According to a survey of businesses, the reasons for not hiring older workers are their lack of flexibility and unwillingness to learn new techniques, lack of foreign languages, little knowledge of technology and a dislike of change [1] . Those who are nearing the end of their career and are just as likely to be unable to find a news job because of these problems and are therefore likely to find themselves forced into early retirement.  When this happens these people will no longer be counted among the statistics for unemployment so much older unemployment is hidden. If a ‘lack’ of experience is a good reason for the government to provide a job then having the ‘wrong’ experience should be just as good a reason. Focusing just on youth would be wrong.  [1] Daskalova, Nadezhda, ‘Company attitudes towards employing older workers’, EWCO, 10 July 2009,


These placements will only be for six months. This combined with the intent not to make the program too expensive means that the benefit will be limited in terms of the fiscal boost provided. Those who are getting a salary only for six months are not likely to feel rich from getting that money so will probably try to save any they can.  Also, these roles would be most likely to be unskilled. The benefit in terms of investment would therefore not be particularly great. Yes the young people involved are getting experience but this is different from providing them with technical skills that make them competitive in a global marketplace.


Increased workforce diversity  While we often think of workplace diversity as being about having people from all over the world and both men and women a good age balance is necessary too. By bringing in this policy, younger workers will be in the same workplaces as older employees, and vice versa, making for more workplace diverse. Employees will learn from those with more experience, in addition to the other advantages of a more diverse workforce. [1] One of these is more engagement and engaged workers perform 20% better and are less likely to leave. [2] Another is that young people will contribute new and innovative ways of thinking, with different viewpoints pushing the business forward. [3] Finally a company needs to have all ages in the business to ensure that there are people with experience when older workers retire.  Diversity is also crucial for the appearance of a business. The kind of company that attracts a broader pool of individuals means a greater range of talented candidates to choose from. Businesses who create more diverse workplaces perform better.  [1] Dutta, Pallab, ‘Importance of Workplace Diversity’, the Houston Chronicle, accessed 30/09/13,   [2] Anand, Dr. Rohini, ‘How Diversity and Inclusion Drive Employee Engagement’, DiversityInc, accessed 30/09/13,   [3] Ingram, David, ‘Advantages and Disadvantages of Diversity in Workplace, The Houston Chronicle, accessed 30/09/13,


This policy is good for EU economies.  If the government is employing people then it is going to be boosting the economy. Providing a fiscal boost by spending money is one of the most accepted ways of boosting the economy. In this case spending money on temporary workers is good in several ways.  First it is a fiscal boost to the economy. The government will be paying the temporary workers. These workers will have more money to spend and will probably mostly spend it rather than saving. This in turn boosts demand for other goods and services so meaning there needs to be more output with the result that some jobs will be made permanent. There is therefore a positive feedback loop.  The second way in which this helps the economy is that it is investment. It is investment because the government is paying for young people to gain experience and for companies to be training these temporary workers. The result of this is a more skilled workforce who in the long term will be more productive.  There is a final possible benefit. With government paying for workers they are effectively subsidizing firms. Even if they are new trainees the young temporary workers will be providing output for companies at next to no cost. This then makes that firm more competitive against its global competitors.


Training is indeed the answer but it makes sense for this to be done on the job rather than simply in lecture theatres. Where there are skills gaps these gaps should be filled by encouraging and paying for temporary jobs to help fill those roles. In this way the young people involved will gain the skills for an area of the economy where there are vacancies.


Businesses are already regulated in who they can hire and on what terms– for that reason there are child labour, minimum wage and anti-discrimination laws. These kind of regulations come both from national governments and the European Union. Governments have always had this right.  This policy is therefore not damaging freedom of choice any more than many other regulations. It will most likely not be necessary to make taking on the temporary jobs compulsory because the government is paying for it and how many companies will turn down something that is essentially a subsidy?


This policy would only serve to discriminate against unemployed people older than 25  Even though there are large numbers of young people unemployed, they only make up around a fifth of the total unemployed population. 26.654 million men and women were unemployed in July 2013 in European Union. Only 5.560 million of them are young people. [1]  The result then is clearly going to be discriminatory against those who are not among the young. This would simply mean that more qualified, equally unemployed people would be passed over due to their age.  It should be remembered that the youth will be more capable of bouncing back when the recession finally ends and there are jobs available. They are more flexible, they have more of the skills necessary for modern work such as knowledge of computers, and they are more willing to retrain to get a job. The result is that when the jobs are available they will be the ones who are able to find work. Older people on the other hand will find it much harder to find another job without government help even when the economy picks up.  Young people can wait to get their careers off to a start. Older workers can’t.  [1] Eurostat, ‘Unemployment statistics’, epp.eurostat.ec.europa.eu, modified 30 August 2013,


The policy is not a long term solution.  Job guarantees for young people may place them in employment for some time at a low cost, but does not offer a permanent solution. The Swedish job guarantee scheme has been criticised for this reason [1] . They will not create a solution based on skills, qualifications and economic growth because employers have little incentive to train up workers who are only temporary. If the company is not looking to expand there will be little point in wasting resources on someone they are not going to take on over the long term.  Training has to be the solution to youth unemployment. The government should be training young people to fill the gaps that do exist in the market place such as care workers. When young people have skills that are in demand then they will be able to get full time employment without having to rely on temporary employment schemes to ‘make work’ for them to do.  [1] Eurofound, ‘ Youth Guarantee: Experiences from Finland and Sweden’, Eurofound.europa.eu, EF/12/42/EN, 2012,


Temporary employment for youth acts against freedom of choice for businesses  In a free market the core concept is freedom of choice. The consumer chooses what they want to buy. And by the same measure there needs to be freedom of choice for employers. They need to be able to decide what products to make, how to market them, and who to employ. Companies should be looking for those who are best qualified for the job rather than satisfying a government quota to provide temporary contracts to young people.  Even if the government is paying for this employee they are still utilising the resources of businesses. Businesses will often have limited space so having some of that space taken up by mandated temporary workers is not the most productive use that the company could be making of that space.  It is clear that this would be a ‘make work’ scheme because there are already only around two million vacancies, compared to five and a half million unemployed under 25s, in the entire European Union [1] . Moreover that these vacancies exist shows that the real problem is with matching jobs and workers with the right skills. This is best done by training not temporary, probably unskilled, employment.  [1] European Commission, ‘Youth Unemployment’, ec.europa.eu, 2013,   Eurostat, ‘Unemployment statistics’, epp.eurostat.ec.europa.eu, modified 30 August 2013,


It should not be assumed that today’s unemployed youth will be the target for recruiters in the future. In four or five years’ time there will be more graduates from high schools and universities looking for work and those companies that want to employ young people will look to them rather than people who have been out of work for several years. The result then will be a generation who have never worked and never picked up the skills for a job and may never get the opportunity to do so without government help. Older people who are unemployed at least have the skills they have learned in the workplace and a past record to fall back on.


If those who are unemployed were the right people to be doing those jobs, they already would be. Employers want to maximise their bottom line and will hire the best workers they can find. Forcing them to take on lower skilled and less able employees reduces competitiveness and causes inefficiencies.  "The bell curve for worker productivity can be divided into roughly four groups. People in the top 16% who produce the most (superior), people between 84% and 51% who produce more than average, people between 50% and 17% who produce less than average, and people in the bottom 16%."1 Having to hire people from the lower 16% will cost businesses a fortune in lost productivity.  1 Dr. Wendell Williams, "The Incredible Cost of Bad Hire" October 11th, 2001


There should be a legally mandated ceiling on weekly working hours, because it creates employment.  According to the CIA World Factbook, non-industrialised countries have an average of 30% unemployment and industrialised nations have somewhere between 4-12% unemployment1. Underemployment is considered to be even higher, though precise figures are by their very nature impossible to acquire. By capping the working hours of those in employment, the unemployed stand an increased chance of entering the workforce.  With no option but to hire more staff, businesses will have no choice but to hire the currently out of work to fulfil their labour requirements. This is economically beneficial, as the costs of long term unemployment to an economy are enormous. In industrialised countries the unemployed are already being paid via taxes, with this change there can be at least some productivity from them.  1 "World unemployment figures by country" The Cia World Factbook, July 12th, 2011


Business will replace workers not with other workers, but with machines, especially in the age of robotics and other automated mass production methodologies. Businesses will replace the lost manpower not with more manpower, but with machines wherever possible. "Automation has eliminated some 10 million jobs, mostly in manufacturing" (between 1994 and 2004)1  The actual effect will be to boost productivity AND increase unemployment for the economy that implements it.  The other alternative business can choose is to outsource labour to a country which doesn't have the same stringent standards, which also increases unemployment in the economy with a cap on worker hours. In such a case, the employment, production and business all leave the capped area.  1 Gregory M. Lamb "Automation streamlines services and high-tech, but at what cost?" USA Today 30th August 2004


There must be a maximum amount of performance that people are capable of, given rest and reward. To work people too long is to waste their potential.  Human beings require downtime in the form of sleep and rest in order to maintain their peak functioning. Long working hours cut into this rest and sleep time and therefore reduce their effectiveness as workers. A cap on the amount of work that people do per week allows for proper rest periods. Tired workers are prone to making mistakes, one of the mistakes they can make is to think they can skip necessary sleep with no ill effects. "While some people may like to believe that they can train their bodies to not require as much sleep as they once did this belief is false"1  A mandatory cap on the hours they work removes the decision from them and avoids this problem.  1 Sarah Ledoux – “The effects of sleep deprivation on brain and behaviour” Biology 202 Bryn Mawr College 01/03/2008


While people do indeed need proper rest and downtime in order to perform to their maximum potential, exactly how much rest they need changes from individual to individual. A "one size fits all" approach through legislation will necessarily mean that some people who could work quite comfortably with no ill effects will be prevented from doing so.  The choice to work or not rightly belongs to them, as does even their decision to risk their health. It might be worth it to someone to take a chance on sleep deprivation in order to earn more pay.


Workers already have protection from over work. They have the ability to say "no" and they also have the ability to find themselves other, less lengthy employment.  The fact that jobs with long hours exist is proof that people are happy with the situation. A survey of people opting out of the European working time directive shows that 1 in 4 workers opt out of a limit to their working hours.  "The survey also demonstrates that working hours have not substantially changed since the introduction of the new rules because of the large-scale use of the opt-out clause."  Not only that but workers can already claim for work related injuries, stress and maltreatment via the tribunals and courts, so a deterrent already exists for businesses to overwork their employees.  1 Liza Morgan "Little option But To Opt Out under Working hour Rules"


Introducing a cap on working hours would reduce unemployment.  One of the most fundamental principles of economics is that of supply and demand. By artificially reducing the supply (of hours) then demand must increase for other labour, ceteris paribus.  The only question once that is realised is what limit should there be on working hours to ensure full employment. (Or employment at maximum practical capacity.) The purpose of the economy is to serve people, and having a large percentage of people excluded when there is an easy and obvious fix is to fail in the economies mission.