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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 7, Issue 27: July 5, 2005

  1. G8 Should Promote Freedom and Trade, Not Foreign Aid
  2. Unocal Sale to China Unlikely to Affect Energy Security
  3. More on the Supreme Court's Kelo Ruling
  4. Liberty Seminar for Students -- August Session Still Open

1) G8 Should Promote Freedom and Trade, Not Foreign Aid

If this week's Group of Eight summit meeting is to result in policies that promote economic progress in poor countries, its leaders should recognize the limitations of foreign aid and debt forgiveness and the benefits of economic freedom, according to Benjamin Powell, director of the Independent Institute's Center on Entrepreneurial Innovation.

In an op-ed published last week in INVESTOR'S BUINESS DAILY, Powell noted that much of the $400 billion in development aid that went to Africa between 1970 and 2000 was stolen by corrupt officials or wasted on unsound projects whose managers had weak incentives to ensure their projects' success. Also, Powell reports that a study he undertook with Matt Ryan found that government-to-government aid tended to reduce economic freedom, which in turn discouraged private investment and economic growth in the recipient country.

Debt forgiveness has also failed to break the cycle of poverty. "From 1989 to 1997, Western creditors forgave $33 billion of debt held by 41 poor countries, but during those same years, these countries borrowed an additional $41 billion," writes Powell. "Debt was forgiven, new debt was accumulated, little growth occurred."

The best bet for fostering prosperity is to scrap Western policies that make it hard for poor countries to develop a thriving entrepreneurial sector, Powell concludes: "Opening our borders to third world farm products would give an immediate boost to the standard of living in many poor countries. Blair and the G8 could do more to help the impoverished people of the world by freely trading with them instead of repeating failed policies of aid and debt forgiveness."

"Africa Needs Investment, Not Insanity," by Benjamin Powell (INVESTOR'S BUSINESS DAILY, 6/29/05)
http://www.independent.org/newsroom/article.asp?id=1529
SPANISH TRANSLATION:
"Africa Necesita Inversiones, No Insensatez"
http://www.elindependent.org/articulos/article.asp?id=1529

Also see:

"Development Aid and Economic Freedom: Are They Related?" by Benjamin Powell and Matt Ryan (Independent Institute Working Paper #60)
http://www.independent.org/publications/working_papers/article.asp?id=1507

For a comprehensive summary of the literature on economic freedom, see "The Benefits of Economic Freedom: A Survey," by Niclas Berggren (THE INDEPENDENT REVIEW, Fall 2003)
http://www.independent.org/publications/tir/article.asp?issueID=5&articleID=48

Center on Entrepreneurial Innovation
http://www.independent.org/research/coei/

Center on Global Prosperity
http://www.independent.org/research/cogp/

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2) Unocal Sale to China Unlikely to Affect Energy Security

China's recent $18.5 billion bid to buy Unocal, the California-based natural gas and oil company, is the subject of a serious misunderstanding -- one held both by China's leaders and by many U.S. officials who would like to see China's offer (which exceeds Chevron's bid by $2 billion) rejected, according to Ivan Eland, director of the Independent Institute's Center on Peace & Liberty.

China's leaders believe that buying Unocal, through the primarily state-owned China National Offshore Oil Corporation (CNOOC), would promote "energy security" for their country, i.e., help China secure access to energy that might otherwise be hard for it to obtain, especially in the event of hostilities with Western oil producers. Many in the U.S. Congress harbor a reciprocal fear that Chinese ownership of Unocal would endanger U.S. energy security by making American purchases vulnerable to the veto power of China's rulers. Yet both concerns underestimate the size and flexibility of world oil markets, Eland argues.

"The global oil market makes the Chinese governmental pursuit of energy security unnecessary, and the United States shouldn’t fall into the same quixotic quest," Eland writes in his latest op-ed. "Even if China decided that all of Unocal’s production would be exported back to China, this decision would reduce Chinese purchases from other world producers and thus free up oil to sell to Unocal’s former buyers. Thus, the world oil market would again reorder with no effect on price."

"If the Chinese takeover of Unocal is blocked with a bogus 'national security' justification, the world will merely see an attempt by the U.S. government to unfairly help Chevron, a U.S. company that was outbid by CNOOC in the Unocal takeover attempt. Such government meddling in a U.S. market traditionally seen as free by world standards could result in a chilling of foreign investment, which is important for U.S. economic prosperity. As indicated by CNOOC’s share price on the Hong Kong stock exchange, the market is already predicting that the U.S. government will stop the company’s acquisition of Unocal. Let’s hope the market’s prognostication is wrong," Eland concludes.

"The U.S. Government Should Stop Meddling in the Oil Market," by Ivan Eland (7/1/05)
http://www.independent.org/newsroom/article.asp?id=1532
SPANISH TRANSLATION:
"El Gobierno de los Estados Unidos Debería Dejar de Entrometerse en el Mercado del Petróleo"
http://www.elindependent.org/articulos/article.asp?id=1532

To purchase THE EMPIRE HAS NO CLOTHES: U.S. Foreign Policy Exposed, by Ivan Eland, see
http://www.independent.org/store/book_detail.asp?bookID=54

To purchase PUTTING "DEFENSE" BACK IN U.S. DEFENSE POLICY, by Ivan Eland, see
http://www.independent.org/store/book_detail.asp?bookID=19

"The Way Out of Iraq: Decentralizing the Iraqi Government," by Ivan Eland
http://www.independent.org/publications/policy_reports/detail.asp?type=full&id=16

Center on Peace & Liberty
http://www.independent.org/research/copal/

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3) More on the Supreme Court's Kelo Ruling

Two more Independent Institute research fellows comment on the Supreme Court's ruling in Kelo v. City of New London. In his op-ed "Private Property in Peril," Research Fellow William J. Watkins Jr., author RECLAIMING THE AMERICAN REVOLUTION, illustrates the property-rights orientation of the Supreme Court in the years after the ratification of the Bill of Rights:

"Justice William Paterson in Vanhorne’s Lessee v. Dorrance (1795) averred, 'the right of acquiring and possessing private property, and having it protected, is one of the natural, inherent and inalienable rights of man,'" writes Watkins. "Justice Samuel Chase declared in Calder v. Bull (1798) that an act taking property from A and giving it to B 'is against all reason and justice' and is thus prohibited by the Constitution. State judges agreed with their federal colleagues. For example, in Bowman v. Middleton (1792), the South Carolina Supreme Court held that legislative acts transferring property from one person to another are 'void' because they violate common right and Magna Charta."

In "Supreme Court Ruling Opens the Door to Abuse," Michael Reksulak and Research Fellow William F. Shughart II, editor of TAXING CHOICE, describe how the Kelo ruling has "opened the door wider to rent-seeking by powerful local interests":

"Real estate developers often wield considerable political influence at the local level," Reksulak and Shughart write. "Their personal financial stakes in zoning laws and other policy issues affecting property values provide strong incentives to involve themselves actively in civic affairs and to seek appointment to planning boards and economic development agencies, where they can work to sway land-use decisions....

"The Kelo decision supplies convenient camouflage for eminent domain actions that are little more than corporate welfare in disguise. The only pretext now needed is to claim, as New London did, that transferring property from one private party to another will serve the 'public purpose' of stimulating the local economy, 'creating' jobs and new sources of tax revenue.

"The goals of re-election or reappointment to public office heighten local government officials’ responsiveness to lobbying by politically well-organized groups seeking to exploit eminent domain processes for their own gain. Lowball offers of 'just compensation' are a predictable consequence of that influence."

"Private Property in Peril," by William J. Watkins (6/27/2005)
http://www.independent.org/newsroom/article.asp?id=1528
SPANISH TRANSLATION:
"La Propiedad Privada en Peligro"
http://www.elindependent.org/articulos/article.asp?id=1528

"Supreme Court Ruling Opens the Door to Abuse," by Michael Reksulak and William F. Shughart II (COMMERICIAL APPEAL, 6/28/05)
http://www.independent.org/newsroom/article.asp?id=1531
SPANISH TRANSLATION:
"El Fallo de la Corte Suprema le Abre la Puerta al Abuso"
http://www.elindependent.org/articulos/article.asp?id=1531

To purchase RECLAIMING THE AMERICAN REVOLUTION: The Kentucky and Virginia Resolutions and Their Legacy, by William J. Watkins, see
http://www.independent.org/store/book_detail.asp?bookID=18

To purchase TAXING CHOICE: The Predatory Politics of Fiscal Discrimination, ed. by William F. Shughart II, see
http://www.independent.org/store/book_detail.asp?bookID=48

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4) Liberty Seminar for Students -- August Session Still Open

Space is still available for students wishing to enroll in the 2005 "Liberty, Economy, and Society" Summer Seminars, to be held August 8th to 12th, 8:30 a.m. to noon, at the Independent Institute in Oakland, California.

Led by economist Brian Gothberg, each session includes a stimulating and fun lecture on economic principles, their applications in history and current affairs, and plenty of classroom discussion to help you become more confident in communicating your social ideas and values.

In this informal but information-packed seminar, students will learn:

* How the price system creates order out of "chaos"

* About the causes and effects of the ongoing battle between competition and monopoly

* The root causes of unemployment, inflation, homelessness, environmental decline, crime, failed schools, and much more

* Solutions for making the world a better place in which to live!

For more information, see
http://www.independent.org/students/seminars/

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