Public Domain, National Oceanic and Atmospheric Administration
An Octet of academic and professional economists calling themselves “Economists for Brexit” has published a booklet entitled "The Economy after Brexit”. Their purpose is twofold: first to provide “economic logic, clarity and an evidence base” for “the non-economist”; and second to get us to vote Leave. Whether these two aims are mutually compatible is an open question. Since both title and authorship evidence a single purpose, readers could hardly be blamed for suspecting that the clarity and evidence – indeed the logic – on display will point in a single direction. And so it proves. Like so much referendum material, the booklet gives the conclusion before offering the analysis, and thereby will likely discourage seekers of enlightenment from proceeding beyond the introductory paragraphs whose general message is that EU membership has innumerable disadvantages and no redeeming features. Yes, folks, the "E for B" document is pretty heavy on disaffection.
Regulations take the number one spot on the complaints list. For a start, we read that “European governments have been "more emphatic than the global average” about the dangers of global warming; and in consequence the EU has adopted the renewables agenda with “greater zeal” than most of the world’s nations. Proof comes in the form of a warning quoted from the Financial Times that the EU’s energy policies are to blame for the problems of Tata Steel. Professor Tim Congdon, progenitor of this exemplary wisdom, slides over the significance of his own statement that the EU’s renewables “zeal” comes from pressure by national governments; while Tata Steel’s problems are widely attributed to Chinese dumping, and as well as to the UK’s relatively high energy costs compared not with the rest of the world but with other EU countries.
Next complaint on the regulatory list is the infamous Working Time Directive (WTD) – infamous that is to a coterie of tub-thumping politicians and academics who still believe, contrary to a vast array of evidence gathered over many years across many countries, that left to themselves even the most ruthless employers would never dream of exploiting their employees. This iniquitous piece of EU legislation gives workers the right to a minimum number of holidays each year, to rest of at least 11 hours in any 24 hours, to a day off after a week's work, and to a working week of no more than 48 hours. Professor Congdon tells us that the WTD, together with the equally appalling Gender Equality Directive, amounts to shocking EU interference in the workings of the market and “adds to companies’ costs and reduces employment”. His colleague Ryan Bourne – Head of Public Policy at the Institute of Economic Affairs – concurs, noting that while three local economies with low rates of unemployment – Iceland (3.2%), Norway (4.5%) and Switzerland (3.7%) – are not in the EU, the average rate within the EU is 8.9%. He is honest enough to admit that the UK rate is only 5% – but insists that this low figure is “in spite of EU intervention”.
What neither of these experts bothers to explain is that the EU level is skewed by severe unemployment in some of the EU countries like Italy and Spain. Had they opted, instead, to compare UK unemployment with that of Germany (4.2%) or the Czech Republic (4.1%), a different picture would have emerged – one of great disparity of performance across the EU of a kind evident in other areas of the world. In Latin America, for example, Brazilian unemployment is running at over 10%, while the figure for Mexico is under 3.7%. In the US, a large first world country outside the EU, the unemployment rate is 5%, exactly the same as the UK’s – no doubt also owing to the onerous restrictions imposed by Brussels. Yes, I’m joking, and so should they be.
One of Professor Congdon’s most damning indictments of EU regulation appears in a table purporting to show the EU’s economic decline relative to other high-income societies. Leaving aside that the table contains an egregious error in that it misrepresents figures for 2016 – a year that, as most of us know, is yet to be completed, it gives cumulative 5-year GDP growth percentages for the EU and selective high-income countries as follows:
Hong Kong 13.1%
Euro Area 2.9%
This table certainly makes Europe look bad. Once again, however, the picture changes on further scrutiny. Here are the comparable figures for the UK, Germany, and our Octet’s three non-EU exemplars:
Source: World Bank and Economy Watch.
As we can see, the UK is not doing so badly, while two of the three Brexit favourites, Norway and Switzerland, have a decidedly inferior record. What other conclusions can we draw from these data? Well clearly some countries (particularly in the Far East) are doing better than others for reasons that may have much to do with the rise of China and are certainly worth exploring. But these are mere details in which our learned professors evince no special interest – their approach being to ignore data of no value to the task of belabouring the European Union.
Perhaps the most ill-judged and misleading section of the Brexit booklet is the one authored by Patrick Minford, Professor of Applied Economics at Cardiff University. Citing his own “detailed model calculations” (the Octet authors are fond of referencing themselves), Minford tells us that once outside the EU, we shouldn’t have any trade agreements at all and instead should trade with the world under the “rules” of the World Trade Organisation (WTO). This would produce – according to his model – “a welfare gain of 4% of GDP" (note the neat conflation of welfare and growth) and a fall in consumer prices of 8%. Manufacturing output would diminish (perhaps to nothing given its steady decline since the 1960s) but by way of compensation, “our competitive services sector” would expand. All our imports and exports, Minford assures us, would be traded at world prices. In his cozy Panglossian world, price differentials between countries are mere "idiosyncrasies of the local consumer market”. Otherwise, “trade commodities" such as cars, laptops, TVs, and fridges would be bought and sold at world prices unimpeded by tariff and non-tariff barriers.
As an exercise in the purveyance of gobbledygook this muddle-headed view of how commerce works could hardly be bettered. On reading it, I began to wonder if the Octet's booklet was not, in fact, a satire on the Vote Leave campaign and whether the professors responsible for it were not quietly working for the Remain side.
Where to start? Let’s being by dismissing the supposed welfare and consumer price gains, which have no more credibility than the Treasury’s claim that Brexit would cost us £4,300 each. All such figures involve unverifiable assumptions not only about national government policy but about the activities of other countries; and if we have learned anything from the crisis of 2008 it is that economists have a dismal record not simply of predicting economic events but of even understanding them.
In further evidence of Minford’s ivory-tower view of the world, we have his strange description of manufactured goods (laptops, TV’s etc.), as “commodities”. Early editions of first-year economics textbooks, like Samuelson, describe any trade good as a commodity, but that is probably because conventional economic theories like “comparative advantage” don’t otherwise work as they should. In the world beyond Cardiff University's Applied Economics Department, however, commodities are raw materials and primary products like wheat, sugar, and copper; and they are characterised by being largely indistinguishable regardless of their country or region of origin. Raw sugar from Brazil, for example, looks, tastes and resembles raw sugar from Cuba. Such products can be considered to have a world price and they tend to be traded in the form of futures at commodity exchanges. Bulk sugar doesn’t mean a five-kilo bag at a trade outlet, but hundreds or even thousands of tons. Cars, laptops and TVs are not sold in thousands of tons at commodities exchanges because….they aren’t commodities. Minford’s "manufactured" commodities resemble Plato’s idealised forms and have just about as much substance. He should know, but apparently doesn’t, that there is no world price for laptops, or cars or consulting services, or four-star hotels because of two very simple concepts that seem not to have found their way into his world view – although they are familiar to every business person – namely product/market differentiation and innovation.
Consumer products come in a huge variety of makes, kinds and specifications; and the propensity to buy them is based on a similarly huge variety of factors of which price is but one. Others include specification, design, availability, response to marketing and advertising, competition, manufacturer’s reputation, fashion, perceived quality, ease of use, associated services, and so on; and the way price relates to all these is not in the least straightforward as those, like myself, who have run businesses know only too well. Markets are segmented in different ways by different companies and products, and not even necessarily by country. In respect of exports, tariff and non-tariff barriers – the former overt the latter often hidden from view – play a role; but so do export and investment subsidies and marketing efforts conducted by governments to promote national industries.
On matters of competition, Professor Minford and colleagues would have us call on the WTO whenever we spot “irregularities”; but the WTO’s workings are ponderous and subject to appeal; and complainants are helpless against non-tariff barriers that are orchestrated not by the state, but by powerful operators such as Walmart’s Buy American campaign.
To describe the WTO as ponderous is perhaps too kind. Its “rules and regulations” are far from complete, and changes require the agreement of all WTO members who must reach consensus through rounds of negotiation. Eurosceptics complain that EU regulatory deliberations are slow and require the assent of all 28 members; but the WTO has 162 members each with a national agenda. The most recent WTO round of negotiations — the Doha Development Agenda — began in 2001 and no end is in sight. Our learned professors appear to be unaware that one of the main reasons why nations enter into regional and bilateral trade agreements is that, however long negotiations may take, they are unlikely to be as prolonged as those of the WTO. Yet this is the organisation under whose regulations and soporific response to change, the Brexiters would like exclusively to place the future of this country’s international business.
These are not the only problems with the WTO. Its reach goes far beyond simple trading arrangements and now includes food safety standards, environmental laws, social service policies, intellectual property standards, government procurement rules, and more. Moreover, its workings are often obscure, and its decision-making processes arcane – features that seem oddly similar to complaints made about the EU but which are much more difficult to penetrate. Many argue that the WTO's main influence has been to prise open “reluctant” markets and to prioritize the interests of multinational corporations over those of citizens.
Undoubtedly the most sensitive ground on which the "Economists for Brexit" Octet ventures is that of immigration. Since they rehearse precisely the UKIP position, I will not weary the reader with a rehash, except to reiterate that what they anticipate is a reintroduction of border controls and “taking back responsibility for setting UK immigration policy.” Like UKIP and Brexiters in general, they do not address the question of border controls between Northern Ireland and Ireland, nor between Scotland and England should Scotland vote to remain in the EU and proceed to rejoin following a second independence referendum. Can anyone look serenely on the prospect of having to pass through customs and passport control in order to cross the border between Scotland and England?
Omitted too is the well-known fact that immigration from outside the EU has consistently been higher than from within the EU – from which we may conclude that “control” of immigration levels is by no means an automatic consequence of EU withdrawal.
Plenty of other nonsense is to be found liberally spread over the pages of the Octet's booklet – from arcane references to something called “The Liverpool (economic) model”, to confident assertions of how “we” will allocate the resources saved from 'Leaving', and finally to defence of “The City” which is apparently doing very nicely despite EU regulation – though it will do even better when we leave. Protection of the City, we are told, is critical, not least in view of the “roughly ten-fold increase in the volume of EU law on financial services” – although none of these regulations seems to have shifted the Square Mile from its position as world capital of money laundering and champion of tax havens – a status the Octet is apparently anxious to maintain. One visible consequence of the City’s pre-eminence in these matters can be seen in London’s changing skyline – a forest of construction cranes and new apartment buildings designed for the very rich. We are repeatedly reminded that the financial services industry and the City in particular are vital to our prosperity. Doubtless the dependency of the UK economy on London as a financial haven is a source of satisfaction to billionaires, to their political buddies, and to economists more concerned with the neatness of their equations than the welfare of the people; but to the rest of us it symbolizes inequality, arrogance, greed, and a lack of common morality.
Worth stating, in the face of so much facile economic argument hurled across the referendum divide, is that immigration and estimates of profit and loss are not the only – perhaps not even the most important – issues raised by the referendum.
Lack of travel restrictions and the right to live anywhere within the EU are not simply benefits to vacationers, expatriates, students, and those seeking work elsewhere, they are also an important symbol and evidence of something more profound – a sense of solidarity among European peoples, a recognition of a shared history and culture.
Interchange among the nations and regions of Europe – including the UK – has always been deep and constant. English, our lingua franca, is of Germanic origin. Our great cathedrals and many of our churches were built under the religious auspices of Rome. Shakespeare set plays in Athens, Denmark, France, Navarra, Rome, Venice, Verona, Vienna. Byron famously went to Europe and beyond in his works and his life – and he remains a hero in Greece. Josef Conrad, one of our greatest novelists, was Polish. Our museums are full of Dutch, French, German and Italian masterpieces. Our concert halls echo to the music of Bach, Beethoven and Mozart. Our soldiers and poets lie in France, Belgium, Holland, Italy, Germany and Spain. Europe is the most popular holiday destination for Brits. Our footballers come from all over the continent as do many managers – including the one who has just presided over the astonishing triumph of Leicester in the Premiership.
It has taken centuries to drag politics and politicians to where our multiple cultures have long-since dwelled in harmony. Yet all this means nothing, the 'Leave' campaign will retort, because after we have shed the burdens of Europe we will still enjoy the benefits. But leaving the family does matter, and will matter when, on crossing the Channel, our passports are stamped with a date by which we must leave voluntarily or face deportation; and when we are pulled over and grilled before being allowed to drive into France from Andorra. What a pathetically miserable prospect.
Since joining the European community in 1973, British authorities (unlike the people) have generally been stand-offish towards Europe, which is doubtless why eurosceptic media are fond of telling us how we are “left out”, ignored, and even the focus of malicious plots to break up the UK. If we are paranoid about European intentions towards us, we have largely our politicians and a slavishly xenophobic media to blame. Europe needs leadership and the UK is one of the countries most able to provide it. Why? Because we have a visceral and well-founded distaste for unaccountable bureaucracies and we have a long history – as yet incomplete – of struggle for democracy and human rights. We have the size, the muscle and the experience to effect change.
What we want for ourselves, however, we should also want for our neighbours and allies; for we are bound together with them by geography, by a shared past, by a commitment to democracy, by the economic, environmental, and population challenges we face, and by the opportunities too, whatever they may be. The Maastrich Treaty acknowledges the principle of subsidiarity which means that the EU should only concern itself with issues requiring collective assent. Hitherto it has been honoured more in the breach than in the observance. This, too, is an issue critical to the EU’s success and on which the UK should be firing on all cylinders.
At the same time we should try never to forget what membership of the EU has given us for the first time in our modern history, namely citizenship. Leaving would reduce our status once more to that of mere subjects of the Crown, ill-served as we have long-since been by mainly upper-class politicians in a sclerotic political system. Europe has arguably given less to our political class than to the British people as a whole.
Carping from the sidelines of Europe is easy and may be superficially satisfying to those who would have us leave; but if the EU does not solve its problems of democratic accountability and of dealing adequately with economically troubled members like Greece, and with crises like that of the refugees from the Middle East, then the project may well fail. And if it fails, those who think such an outcome will not rebound on the UK are sadly mistaken. We cannot absent ourselves from our neighbours, pretend that they don’t exist. If the house next door house catches fire, the flames will lick at our own door and we will inhale the smoke.
Ultimately, our ambition should be not to drift off to some ersatz freedom in the mid-Atlantic – but to do something much more significant and potentially long-lasting: to help make Europe not only more democratic but also more just, so that no member country – no people – is marginalized or knocked down. We have a noble task before us if we will but take it on. These are the kind of considerations we might bear in mind as we cast our vote, rather than fantasy economics from professors bent on dulling our common sense with meretricious appeals to our financial self-interest.
 The figure given in the booklet for EU unemployment is 10.3%, but this is incorrect – probably owing to a misreading of the data. [Return]