NEWSLINK
AT SUFFOLK UNIVERSITY
Vol. 4, No. 4
Why lowering the Mass. income tax rate to 5% would help
The case of the missing workers
or years, economists have
F
known that jobs and taxes
are related. Lower taxes
help create new jobs. In
Massachusetts, cutting the income tax rate
from the current 5.85% to 5% by 2003, as
proposed in the November 2000 ballot ini-
tiative, would put 93,000 workers into jobs,
according to the Beacon Hill Institute.
Good news? You’d think so.
There is the prospect of bringing about an
expansion in the economy through an emi-
nently affordable tax cut. But the skeptics
among us will raise doubts, not only about
the feasibility of this expansion, but also
about its desirability.
Skepticism springs from the fact
that the Massachusetts economy, like the
n a t i o n a l
economy, is al-
ready undergo-
ing an unprec-
edented expan-
sion. In May, the
Bay State’s un-
employment
rate was 2.5%, an
all-time low.
Since the last re-
cession in 1991,
the state has
added 506,000 new jobs, with 67,900 of
those coming since May 1999.
Help-wanted ads everywhere
In 1999, job vacancy rates were
8.6% for skilled production workers, 8.4%
for managers, 7.6% for technicians, 5.4% for
scientists and engineers and 4.8% for other
employees. About 6.2% or 24,000 jobs at
high-tech companies went unfilled.
With so few unemployed work-
ers and so many unfilled jobs, someone
THE BEACON HILL INSTITUTE
IDEAS AND UPDATES ON PUBLIC POLICY Summer 2000
Taking
on the
might ask, “Why should we want to create even
more jobs for Massachusetts?” The answer is that
it’s not just job openings at issue here. It’s filled jobs,
which is to say worker placements, that the pro- EPA
posed tax cut will make possible.
This is important because of the nature of
the current economic expansion, which has brought
about a restructuring of the state economy, from
manufacturing to knowledge-based. Technical
progress, originating largely in the information
revolution, has increased personal wealth, labor
productivity and the demand for skilled workers.
This works to the advantage of states like
Massachusetts, which have excellent educational
institutions and a skilled, educated workforce.
However, it works to the disadvantage of states –
like Massachusetts – whose competitiveness is at JAMES M. KNOTT
risk because of high living costs and taxes.
t first, he thought it was
A
The advent
of the footloose part of the movie, “A Civil
and fickle techies Action.” Just weeks earlier,
and dot-com busi- James Knott, owner of
nesses should Riverdale Mills Corpora-
serve as a wakeup tion, had agreed to allow producers of the
call. A worker or Hollywood film starring John Travolta to
business investor shoot scenes for the movie at his
with a choice be- Northbridge, MA company. But what
tween Massachu- took place on November 7, 1997 was not
setts, with its high fiction. It was real life.
cost of living and “I was sitting at my desk when I
high tax rate and, say, Texas, with its lower cost of saw a man wearing a black jacket with PO-
living and no state income tax, won’t give Massa- LICE written across the back,” recalls
chusetts an automatic “Yes.” Knott. Minutes later, 21 U.S. Environmen-
Yes, Massachusetts’ advantage as an tal Protection Agency law enforcement
education center strengthens its role in the new officers were swarming over the firm’s
economy. Occupations requiring a bachelor ’s office suites.
degree or more will soon account for 47% of “I went into the lobby and met
all new jobs. Another 10% will require an another man who said, ‘I’m looking for
associate’s degree or a certificate. But Massa- James M. Knott, Sr.’”
chusetts has, ironically, the most to lose if work- Knott demanded to see a search
ers and firms start moving their very mobile warrant. The agent reportedly said, “I will
intellectual capital to states that offer a friend- leave you a copy when we are through.”
lier business and tax climate. But Knott was insistent. “You are not go
continued on page 5 continued on page 4

From the Executive Director
T
he MBTA has finally decided
upon a modest fare increase.
Its critics – notably the
Conservation Law Foundation,
a public interest group, along with various
special pleaders – raise a host of objections.
Essentially, critics argue that the T shouldn’t
raise fares because it is not doing enough now
to serve its passengers. Buses are late and
crowded. Facilities are poor. And transfers are
expensive. Moreover, they say, the T’s method
of raising fares is unfair, putting too high a
burden on commuter rail users, on the one
hand, and low-income users, on the other.
What the critics are really saying
amounts to the following: “We are entitled to
inexpensive and high quality public transpor-
tation, and we expect state taxpayers to
provide it for us.”
State taxpayers are already doing
their share, to say the least. Taxpayers are
footing 80% of the bill for the MBTA. Riders
pay for only 17% of the cost of their ride. It is
absolutely reasonable to shift more of the
burden from taxpayers to users.
The Beacon Hill Institute has long
supported a fare increase. The current
increase won’t solve the MBTA’s financial
F O R M O R E I N F O R M AT I O N
CALL 617-573-830 2
BEACON HILL INSTITUTE
problems, but it’s a reasonable start and
long overdue.
Baby UI: The benefit that rocks the cradle
The great economist Adam Smith
once wrote, “There is no art which one
government sooner learns of another than
that of draining money from the pockets of
the people.” We’ve long maintained that
government surpluses, whether at the federal
or state level, are not a sign of fiscal strength.
They are the result of forecasting errors that
government turns to its advantage by
drumming up new ways to spend. Wherever
the money goes – into the rainy day fund, the
unemployment trust fund or the welfare
reserve fund – elected officials always seem
to come up with a plan to spend the money
rather than return it to the taxpayers.
Over the years, we’ve heard the
argument that we can’t cut the unemploy-
ment tax levied upon employers because it
would drain reserves needed for an economic
downturn. Last June, with unemployment
funds brimming with surplus money,
President Clinton revised regulations that
permit states to use their UI funds for
parental leave. Oddly, no one thought to call
the baby UI a risky scheme.
PAGE 2 / SUMMER 2000
But most states, including
Massachusetts, are rejecting the idea.
Recently Governor Cellucci vetoed a
plan that would have tapped the state’s
unemployment fund to create new
baby unemployment benefits for
parents. To blunt criticism, he offered a
tax credit to companies that offer baby
UI plans.
The only sure way to fend off
schemes like baby UI is to cut tax rates,
in this instance, the unemployment
insurance tax rate, to a level that
prevents surpluses from accumulating
in the first place. Only then will
government go on to learn arts more
becoming of statesmen than draining
the pockets of other people.
David G. Tuerck
NewsLink is published quarterly
by the Beacon Hill Institute for Pub-
lic Policy Research at Suffolk Uni-
versity. The Beacon Hill Institute fo-
cuses on federal, state and local eco-
nomic policies as they affect citizens
and businesses, particularly in Mas-
sachusetts. The institute uses state-
of-the-art statistical, mathematical
and econometric methods to pro-
vide timely and readable analyses
that help voters, policy makers and
opinion leaders understand today’s
leading public policy issues.
PUBLISHER
DAVID G. TUERCK
EXECUTIVE DIRECTOR
PRODUCTION
ELLEN F. FOLEY
DIRECTOR OF COMMUNICATIONS
EDITOR
FRANK CONTE
PUBLICATIONS EDITOR
(ISSN 1094-0707)
©2000 Beacon Hill Institute for
Public Policy Research, Suffolk
University, 8 Ashburton Place,
Boston, MA 02108-2770. Voice,
(617) 573-8750; fax, (617) 720-4272;
e-mail, bhi@beaconhill.org; web
site, http://www.beaconhill.org.
 NEWSLINK

Tuerck: Universal health care Media Mentions

would make Massachusetts less healthy
David Tuerck’s editorial, “Taxpayers can
n July, BHI Executive Direc- there would be 172,000 fewer jobs and $11

I
be counted on to use their savings
tor David Tuerck addressed billion in reduced payrolls. wisely,” appeared in the Boston Herald on
100 members of the Ameri- The least burdensome system for September 5.
can Legislative Exchange Massachusetts would be high-risk pooled
Council’s Task Force on Health and Hu- health insurance, requiring the state to The August 14 edition of the Boston Globe
man Services during ALEC's 2000 Annual raise $285 million in new revenue, with a cited BHI: “Community leaders sound off
Meeting in San Diego. His presentation, consequent loss of 25,500 jobs and $1.62 on whether MBTA hikes are fair.” David
Universal Health Care: Bad Medicine for Mas- billion in payrolls. Tuerck appeared on WBZ radio on August
sachusetts, described four Massachusetts A forthcoming Beacon Hill Institute 10 discussing MBTA funding. The Boston
universal health care scenarios and their study will detail these estimates. T h i s Herald covered BHI on June 22, “Critics hit
costs to the Com- summer, the Massa- MBTA’s fare pitch.”
monwealth. chusetts legislature
The four
A single-payer system passed and Governor David Tuerck appeared on New England
Cellucci signed a Pa-
schemes are: would compel the state tients Bill of Rights
Cable News, July 7, 2000, to discuss the 5%
tax cut proposal.
• A single-payer to raise the personal that guarantees that
system, similar to all HMOs provide David Tuerck’s opinion editorial, “Lobby-
that in place in income tax by 173%. the same protections ists don’t need legal assistance funding,”
Canada and Eu- to all members. A appeared in the July 3–9 edition of Mass
rope, under which November 2000 bal- High Tech. “Lawyers or lobbyists for the
the state would provide health insurance lot initiative would go further, establishing poor?” appeared in MetroWest Daily News
for all residents. “a state Health Care Council to review and on June 28. Massachusetts Lawyers Weekly
• Mandated health care, under recommend legislation for a health care sys- published John Tuerck’s article, “Legal
which (a) employers would be required to tem that insures comprehensive, high qual- Assistance Funding: Really an ‘Unmet’
provide health insurance to all employees ity health care coverage for all Massachu- Need?” on June 26.
through the current private insurance sys- setts residents.” If passed, the ballot initia-
tem and (b) the state would cover unem- tive could lead to the adoption of some form Massachusetts News, July 2000 edition, cited
ployed uninsured residents through Medicaid. of universal health insurance. BHI in the article, “Poverty Lawyers Get
• Pooled health insurance, under
v Money by Misleading: Trying to Triple
which the state would provide health in- Their Budget.”
surance for all uninsured residents.
• High-risk pooled health insur- Jeff Jacoby mention BHI in his June 29 Bos-
ance, under which the state would provide ton Globe column, “Our sour milk policy.”
health insurance only for the uninsured
and uninsurable.
Of these, the most costly and eco- Make them listen!
nomically damaging is the single-payer
system. According to BHI’s analysis, a Contributions of all sizes from individuals, foundations and
single-payer system would compel the corporations support the Beacon Hill Institute.
state to raise the personal income tax by
173%. The result would be the loss of Yes, I want to support the Beacon Hill Institute. I enclose
917,000 jobs – one-fifth the state labor force my check for $_________
– and $45 billion in payrolls.
Name (please print) ______________________________________________________
Mandated health care would add
almost a billion dollars to employer health Address _________________________________________________________________
care costs and require the state to raise an
additional $223 million in tax revenue. The City, State, Zip ___________________________________________________________
result: a loss of 45,000 jobs and a $4.3-billion
reduction in payrolls. Phone _____________________ Fax ______________________________________
The cost to Massachusetts of in- Please make checks payable to Beacon Hill Institute at Suffolk University.
suring all uninsured residents would be All contributions are tax deductible under section 501(c)(3) of the IRS code,
about $1.6 billion. Because of the rise in as gifts to Suffolk University. Beacon Hill Institute, Suffolk University,
8 Ashburton Place, Boston, MA 02108-2770.
the income tax necessitated by this change,

PAGE 3 / SUMMER 2000

 BEACON HILL INSTITUTE
Nevertheless, on August 28, 1998, a
Riverdale-EPA
continued from page 1 grand jury indicted Knott and RMC, charging
the defendants with two counts of violating
ing to do anything until you show me the the Clean Water Act. Knott faced a six-year
warrant. The agent produced the warrant prison sentence and a $1.5 million fine if con-
which asserted “probable cause” that RMC victed. In announcing the indictment, U.S. At-
was dumping acidic water into the public torney Donald Stern strongly implied that
sewer system. The warrant was based on a RMC “chose to violate our environmental
sampling of wastewater from a nearby laws” by releasing acidic water into the adja-
manhole taken on October 21. cent Blackstone River.
Knott was perplexed. He consid- Knott’s reputation was tarnished: his
ered himself a good corporate neighbor. credit now suffered because of concerns re-
RMC employs environmentally safe, cut- lated to potential fines. He was forced to spend
ting edge technology in the
manufacture of wire mesh and
employs 150 people. The mesh
is used for lobster traps, prison
gates and as flooring for chicken
coops. His products are also
used in horticulture and to con-
trol erosion.
After reading the war-
rant, Knott concluded that some-
one had committed perjury in ob-
taining it. He told the official,
“You may proceed with your in-
spection.” But Knott would not
Riverdale Mills Corporation in Northbridge,
permit the charges to go unan-
swered.
The EPA team then went about in- large sums of money mounting a legal defense.
terrogating and videotaping RMC’s employ- And he was forced to devote long hours de-
ees. When they were finished, they took fending himself against evidence that he knew
away thousands of documents, some con- was fabricated.
taining trade secrets. "More than 95% of the As part of his defense, Knott’s law-
paperwork hauled away had nothing to do yers demanded that the original paperwork
with wastewater treatment," says Knott. for the first test (on which the warrant had
The wastewater RMC released been based) be examined by professional
had to pass through a treatment system that handwriting experts. The conclusion: the
ensured that acidity remained within legal original numbers had been altered.
levels. Knott was being charged with dis- “Someone had changed one of the log-
mantling the filtering systems, allowing book entries from a seven to a four and changed
acid levels to exceed legal limits. a series of sevens to twos,” says Knott. A read-
Knott’s water had been tested ing of seven indicates acidic neutrality.
twice. The October 21 test, taken without During a five-hour pre-trial hear-
his representative present, had showed that ing, Knott and his lawyers highlighted the
the acidity levels were illegally high. A sec- discrepancies in the sampling results filed
ond test had showed acidity levels to be by the EPA.
within allowable limits. The warrant had
been issues based solely on the Octo- The tide turns
ber 21 results. After this, the tide began to turn. On
In the months that followed, Knott February 16, 1999, a federal judge suppressed
tried to convince federal agents that the the sampling results, finding that the EPA had
samplings were wrong. Finally, on July 17, violated Knott’s Fourth Amendment rights by
1998, a third inspection was carried out. sampling wastewater without a representative
This showed the amount of acidity mov- of the company present. On April 23, 1999,
ing into the sewer system to be within ac- the U.S. Attorney dropped the case, citing a
lack of evidence. One month later, a federal
ceptable limits.
PAGE 4 / SUMMER 2000
judge dismissed the indictment.
An internal review by the Depart-
ment of Justice found that a warrant for
the July 1998 search had omitted certain
facts about the samplings at manholes near
the plant.
End of the story? For the govern-
ment, yes. Not so for Knott. He never found
out how and why the case came about in
the first place, but he believed that the gov-
ernment should be held accountable for the
damage it had inflicted on him and on his
company. He therefore filed a countersuit
to recover the legal expenses that
RMC had incurred.
This July, a federal judge
ruled that the U.S. government
must reimburse Knott for nearly
$69,000 in legal fees incurred in a
case that turned out to be both
flimsy and capricious. He also
ruled that the EPA had harassed
Knott and failed to reveal evidence
that would have cleared him.
The ruling was a victory
for the rule of law, civil liberty and
property rights. It was also a rare
MA victory for the so-called Hyde
Amendment, which allows an ex-
onerated defendant to recover legal fees if
the case brought against him is “vexatious,
frivolous and in bad faith.”
The dismissal of the case in 1999
and July’s rulings aren’t enough for Knott,
an Army veteran who takes his constitutional
rights seriously. On August 8, in an effort to
reign in the EPA, Knott filed a $13 million
suit under the Federal Tort Claims Act.
“The EPA has never filed felony
criminal charges for such trivial infractions,”
comments Paul Kamenar, Washington Legal
Foundation’s Senior Executive Counsel.
“Even cases of serious pollution are handled
in administrative and civil proceedings.”
Knott, however, isn’t surprised by
the EPAs overreaction. “This runs through-
out the bureaucracy,” he says. “I think a lot
of people would just be willing to reach a fi-
nancial settlement with them, but not me.”
James Knott refuses to let the gov-
ernment off the hook. Striking a blow
against unreasonable searches and seizures,
he is now seeking to tame a leviathan that
he sees as out of control, out of touch and a
threat to liberty.
v
 NEWSLINK

Boston’s heavy tax burden weighs City Total Tax Rank

Burden
down economic growth New York City, NY $21,900 1
Boston, MA 11,967 2
In the New Economy, metropolitan areas around major American cities are competing to attract the
Washington, DC 11,525 3
highly-skilled workers who drive economic growth. One measure of Boston’s attractiveness as a place
to live and work is the total tax burden its residents face. The Beacon Hill Institute asked Suffolk Philadelphia, PA 11,493 4

University chair and associate professor of accounting and taxation, James Angelini, to compare the Detroit, MI 10,632 5
total state and local tax burden per taxpayer for the 50 largest metropolitan areas. Computations were Chicago, IL 10,105 6
made using state income and sales taxes, local taxes and property taxes for a typical family with two Baltimore, MD 9,575 7
children, filing jointly. The family was assumed to have a household earned income of $75,000 and San Francisco, CA 9,401 8
own a 2,000 square foot house with a 30-year mortgage. Milwaukee, WI 8,909 9
Portland, OR 8,720 10
The findings: Boston residents have a total tax burden of $11,967, the second highest tax burden in the
Pittsburgh, PA 8,719 11
country.
Atlanta, GA 8,555 12
Cleveland, OH 8,457 13
Professor Angelini used ReloSmart software, which he developed (see www.monstermoving.com).
Columbus, OH 8,128 14
Omaha, NE 7,715 15
As a result, Massachusetts’ access to
Missing workers human capital is increasingly at risk. The num-
Honolulu, HI 7,294 16
continued from page 1 Minneapolis, MN 7,195 17
ber of engineering degrees awarded by Mas-
Massachusetts’ Human Capital Dilemma San Jose, CA 6,956 18
sachusetts schools has declined by 20%, from
The very shift from physical to human a high of 5,708 in 1987 to 4,578 in 1998. And Oakland, CA 6,736 19
capital that characterizes the new economy is we have trouble holding onto our engineer- San Diego, CA 6,468 20
good news for states that are good at producing ing graduates. Of those who graduated in Charlotte, NC 6,368 21
human capital but bad news for states that are 1992, only 50% were still in the state in 1999. Los Angeles, CA 6,296 22
not good at holding onto it. The 2000 Business Climate Index re- Denver, CO 6,192 23
This worry is all the greater because of ports a 5% drop in Massachusetts’ rating by Indianapolis, IN 6,018 24
the growing importance of services – which are CEOs as a place to create, operate and expand Austin, TX 5,844 25
particularly dependent on human capital – to the a high-tech business. This is the first drop in
Virginia Beach, VA 5,780 26
Massachusetts economy. By 2006, the rating in nine years.
more than three out of Houston, TX 5,664 27
Also, there has
every four new jobs Kansas City, MO 5,509 28
been a 4% drop in CEO
will be created in the sentiment regarding the St. Louis, MO 5,438 29
service sector in Massa- It's not just job open- overall future business Long Beach, CA 5,416 30
chusetts. The growth
rate of jobs will be the
ings at issue here. It's outlook for the Com-
monwealth. Respon-
Sacramento, CA
Tulsa, OK
5,228
5,194
31
32
highest (89%) in com-
puter software and re-
filled jobs that the dents cite a growing
anti-business sentiment
Oklahoma City, OK 5,141 33
New Orleans, LA 5,093 34
lated services.
There are in-
proposed tax cut will in the legislature and a Dallas, TX 5,004 35
tight labor market as
Tucson, AZ 4,973 36
dications aplenty of the make possible. causes of the decline.
Albuquerque, NM 4,823 37
problems business faces While the state’s
in attracting and retain- Miami, FL 4,774 38
CEO rating falls, its rat-
ing workers. Consider Fresno, CA 4,610 39
ing as Taxachusetts remains intact. Massachu-
housing costs. The Massachusetts Association of setts continues to rank first in personal income San Antonio, TX 4,606 40
Realtors reports that the cost of an average single- taxes per capita. Ft. Worth, TX 4,584 41
family home in Massachusetts rose 20.7%, from Without doubt, high taxes threaten the El Paso, TX 4,554 42
$227,000 to $274,000, between May 1999 and state’s ability to attract qualified workers, and Phoenix, AZ 4,501 43
May 2000. thus remain competitive. But the economic Colorado Springs, CO 4,395 44
Ironically, for all its educational re- news needn’t be bad. A modest tax cut would Mesa, AZ 4,112 45
sources and the importance of education to the put some 93,000 workers in Massachusetts jobs Memphis, TN 4,036 46
state workforce, college costs in Massachusetts and help stem the tide. That’s good news for
Seattle, WA 3,959 47
are among the highest in the nation. In 1996-1997, workers, employers and, for sure, the state’s
Massachusetts had the 5th highest in-state tuition Nashville, TN 3,958 48
economic future.
rate for four-year public colleges and the 4th high- v Jacksonville, FL 3,484 49

est for community colleges. Las Vegas, NV 2,687 50

PAGE 5 / SUMMER 2000

 BEACON HILL INSTITUTE
California among new models
BHI builds five STAMP models
uring the summer, the Bea- tion: Arizona, Michigan, New York and tistical and econometric methods.

D con Hill Institute completed

a n d d e l i v e re d f i v e n e w
State Tax Analysis Modeling
Program (STAMP) models.
C a l i f o r n i a -STAMP, constructed for the
Pennsylvania. The project is part of a STAMPs previously devel-
Beacon Hill Institute/Heritage Founda- o p e d a re : M a s s a c h u s e t t s - S TA M P,
tion strategic partnership to examine New Jersey-STAMP, Ohio-STAMP,
how national
economic con-
"We won't rest until we
O k l a h o m a - S TA M P ;
Te x a s - S TA M P a n d
Pacific Research Institute in San Francisco, ditions and Virginia-STAMP.
allows users there to measure the effects state and fed- Said BHI Executive
on employment, capital stock, wage rates,
are able to provide
eral policy Director David
and tax revenue of a variety of changes in changes affect STAMP analysis to the Tuerck, “There are
California’s state and local taxes. state economies. now 11 STAMP mod-
BHI performed initial simulations Heritage’s Cen- rest of the country." els. We won’t rest
to determine the effects of lowering the ter for Data until we are able to
state income tax, reducing the sales tax Analysis con- provide tax analysis
and abolishing the motor fuels tax. Elimi- ducts research on the effects of public policy for every state in the country.”
nating the state’s motor fuels tax, for ex- changes in the 50 states.
ample, would, in the first year, increase STAMP is a computer represen-
employment by about 311,000 and payroll tation of a state’s economy. Designed for v
payments by more than $11 billion, while re- policy makers and analysts, STAMP can
linquishing almost $2.3 billion in tax revenue. be used to simulate the effects of changes
This would make California a less in state tax policy on jobs, wages, capi-
expensive, and thus a more attractive tal spending, tax revenue and other eco-
place in which to live. nomic indicators. STAMP is dynamic, is
In August, BHI delivered four founded on archetypical economic prin-
STAMP models to the Heritage Founda- ciples and employs state-of-the-art sta-

Just how important are exports to a state’s

High-tech states: Still trading with ourselves economy? Judging from the mainstream press,
one would think that globalization and interna-
Ratio of Exports to GSP tional trade are the most dominant elements
accounting for growth in a state’s economy. But
1993- 1997
Massachusetts & High Tech States even with the passage of NAFTA and other free
25 trade agreements, the overwhelming portion of a
1993 state’s economy depends on sales within the U.S.
1997 20.1 This should come as no surprise. According to
20 18.4 John Micklethwait and Adrian Wooldridge, authors
of A Future Perfect, (see review page 7), people
15 are more likely to trade with their fellow nationals
than with foreign countries. In Europe, they note,
10.0 people are six times more likely to trade within
10 9.4
8.0 their own borders than with other nations that
7.9 7.9
6.6 make up the European Union. The most recently
6.0
4.7 available Gross State Product statistics bear this
5
2.2 2.5
out for the U.S. Massachusetts, which has
emphasized its high tech sector and foreign
0 trade, increased its ratio of exports to GSP by
MD NC MA TX CA WA only 1.3 percentage points between 1993 and
Source: Department of Commerce and the Bureau of Economic Analysis
1997.

PAGE 6 / SUMMER 2000


Where is Robert Peel when you need him?
A Future Perfect: The Challenge and Hidden Promise of Globalization
& John Micklethwait and Adrian Woolridge, Times Business -Random House, 2000, 368 pages.
s an article of faith, most
A economists believe that glo-
balization, free trade and in-
tegrated markets create far
more benefits than costs for consumers and
producers. For example, a Berliner can
choose to eat Moroccan food, read the New
York Times on the Internet and visit Paris
without much fuss about currency exchange
rates or passports. The British can prevail
in Hollywood as actors, screenwriters and
costume designers, creating a community
of exiles that can support several cricket
teams. And the cocoa and coffee farmers of
the Ivory Coast, once captives of middle-
men, can now use cell phones to check prices
on London’s commodity markets to get a
better deal.
Over the course of the last quarter
century, the much-maligned phenomenon
known as globalization has removed barri-
ers, enabled easier access to credit, dis-
ciplined governments, increased con-
sumer choice and vastly improved
the standard of living for people
around the world. It also has –
not so incidentally – increased
personal freedom for mil-
lions. What globalization
has not had is an enthu-
siastic cadre of defend-
ers willing to jump
into the fray
whether in Seattle
or elsewhere. To
wit, supporters
– intellectual
and other-
wise – have
ceded the debate to a
backlashing Seattle slew of
left and right. This class of inter-
national cosmocrats is too busy creating
wealth to enter the gritty battle of politics
and policy. This poses a major problem.
In this threatening specter of glo-
bal change, Ross Perot, Pat Buchanan and
Ralph Nader have all fanned sentiment over
homespun goods, lost jobs, environmental
doom and vast multinational conspiracies.
And the public is sympathetic. In a Busi-
ness Week poll, 52% of those surveyed ex-
press sympathy for anti-World Trade Orga-
NEWSLINK
nization protesters. Slightly more believe that free
trade is bad for the American worker.
The economic and political conse-
quences of silence are far reaching. Global capi-
talism hands great power to the individual and
in turn strikes a telling blow for the principles of
classical liberalism: free
trade, limited government
and free movement.
Nations still matter.
Globalization is giving
In A Future Per- birth to an economy
fect, John Micklethwait
and Adrian Wooldridge,
that is closer to the
of Britain’s The Economist, classical theoretical
have chosen not to remain
silent: “Globalization is model of capitalism.
helping to give birth to an
economy that is closer to
the classical theoretical model of capitalism, un-
der which rational individuals pursue their in-
terests in the light of perfect information, rela-
tively free from government and geographical ob-
stacles. It is also helping to create a society
that is closer to the model … in which
power lies increasingly in the
hands of individuals
rather than govern-
ment and [in] which
people are free to pursue
the good life wherever
they find it.”
The authors suggest
that the so-called losers in this
economic upheaval “should usu-
ally blame things other than glo-
balization for their plight.” Most
likely it’s outdated governments or
closed societies. For example, Third
World nations would gain substantial ac-
cess to new markets if First World nations
removed restrictions and tariffs.
Ironically, the authors base their case on
deflating some of the exaggerated claims made
by supporters and opponents alike: that global-
ization leads to bigness; that it ushers in global
brand names like Coke and Mercedes at the ex-
pense of diversity; that it has repealed the busi-
ness cycle; that free trade is a zero-sum game and
that distance and geography have been van-
quished by the Internet.
In this gilded age, nations still matter.
Canadian provinces exchange 12 times as many
goods and services with each other as they trade
PAGE 7 / SUMMER 2000
Reviewed by Frank Conte
with U.S. states. Countries in the European
Union may talk of a unified market but
people are still six times more likely to trade
with fellow countrymen. If the Japanese
gave up buying everything American, the
U.S. would only lose 1% of its GDP.
An easy myth
to debunk is the no-
tion that globaliza-
tion is a zero sum
game. Simply put,
globalization makes
the American pie
bigger. Now in effect
for six years,
NAFTA has not
taken a toll on
American jobs.
American workers aren’t in direct competi-
tion with Mexican workers. Because of
product sharing between the two nations,
the U.S. stands to benefit as Mexico expands
trade with other nations.
In the final analysis Micklethwait
and Wooldridge ratify both Adam Smith’s
principle of the division of labor and David
Ricardo’s principle of comparative advan-
tage. Trade continues to best allocate
the resources to the nation that can best
employ them.
For most of the 20th century, the
ideals of free trade have rarely been articu-
lated. John Maynard Keynes turned out to
be a lukewarm supporter, reserving a soft
spot for homespun goods. President
Clinton, according to the authors, cowed by
political concerns about “fair trade,” speaks
not only half-heartedly but “has failed to
come up with one memorable phrase on the
subject.” The authors’ role model for pros-
elytizing the free trade gospel lived in the
19th century. In 1846, Sir Robert Peel and
his Conservative government repealed the
notorious Corn Laws, tariffs that protected
wealthy farmers at the expense of consum-
ers. Peel’s support cost him his party, but
thousands of people contributed their pen-
nies to build memorials to him.
A Future Perfect is a tribute to Peel
and a clarion call to free traders everywhere.
v
 health, education, and social programs, which ops software that can calculate e-commerce
In Point of Fact now are heavily dependent on gas taxes. Ac- taxes. Merchants log on, send basic informa-
cording to the government’s recent Family Ex- tion and Taxware matches zip codes against a

N
ot keeping up with the Joneses; penditure Survey of 18,000 households, the cost database of local tax figures, working out the
Charitable giving lags behind of running a car is now the most expensive numbers and reporting the transaction to the
growth in wealth item in the domestic budget for the average appropriate authorities … “We can calculate
Charitable giving grew faster than British family. any tax, anywhere in the United States,”
the economy last year, although it did not quite Alexander MacLeod, Christian Science Moni- Sullivan says.
keep pace with the tremendous accumulation in tor, August 7, 2000. Evan Ratliff, Wired, July 2000.
wealth. The ebullient stock market and the pros-
perous economy helped drive donations to char- Juicing up cranberry prices Tennessee turns back income tax proposal
ity up nearly $16 billion, to $190.2 billion, 9.1% Federal limits on this fall’s cranberry crop will Tennesseeans may want to be number one
higher than in 1998 and well ahead of the 5.7% help reduce a berry surplus and over time when it comes to sending a football team to
growth in GDP. Despite last year’s gains, the could increase the price local growers get for the Super Bowl or a man to the White House,
growth in giving appears not to have kept up with their fruit. With the country awash in cranber- but there’s one area where they don’t mind
the growth in wealth. ries, the government has decided to force farm- being in last place. Paying taxes. Tennessee
Karen W. Arenson, New York Times, May 25, 2000. ers to cut production or dump about 15% of has one of the lowest tax burdens in the na-
their crops this fall to winnow the surplus. tion. Only New Hampshire ranks lower, but
Cool Britannia gets hot under the collar That’s enough to make 40 million gallons of not for long. Revenues are expected to in-
over gas taxes cranberry juice cocktail. crease when New Hampshire resolves a
On Aug. 1, across Britain, an estimated [6.75 mil- Greg Gatlin, Boston Herald, July 7, 2000. school funding issue with a new tax and Ten-
lion] car drivers, fed up with paying around £4 nessee will drop to 50th in the percentage of
($6) a gallon for gas, heeded [an] unprecedented Made in Massachusetts: Web Tax Collecting personal income to taxes. Despite efforts by
boycott call. A British Treasury spokesman con- Internet taxes are unfair, argue e-commerce the Governor and lawmakers who want to in-
firmed that 75 to 80% of the price of a British gal- companies. With 7,500 state and local tax ju- troduce an income tax, the state budget was
lon of petrol is tax. Through most of the 1990s, risdictions nationwide, just determining the ap- passed this year without new taxes.
Conservative and Labour governments alike have plicable online sales tax would be far too bur- Flo Conner, Boston Globe, June 25, 2000.
added roughly 5% each year to the price of gas, densome. Better find a new argument, says
citing environmental reasons. The boost in rev- Daniel Sullivan, CEO of the Salem, MA com-
enue has increased funding for government pany, Taxware International. His firm devel- v

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