(Mildly) against Brexit

Like most economists, I’m minded to oppose Brexit. This isn’t because I’m an admirer of the EU: it is an unlovely institution. I’m as unmoved by appeals to European ideals as I am by talk of sovereignty or British national identity. Instead, for me, this is merely a pocket-book issue – are we better off in or out? – and I’m unconvinced by the outers’ case.

If it could be shown convincingly that leaving the EU would lead to us being an open, free-trading country I’d be tempted. But I doubt this is the case. I doubt we’d get good free trade treaties, especially as these will be negotiated by men lacking competence or goodwill. More likely, as Paul says, such treaties will be distorted by lobbyists and special interests, so we’d end up with something worse than TTIP. Granted, free trade with the EU would be in everyone’s interests: but a glance at the euro zone’s macroeconomic policy suffices to show that the EU cannot be relied upon to act in its citizens’ interests.

But even if I’m wrong, the journey to being a liberal free-trading nation will be a choppy one. As Michael Emerson says, Brexit is “a very messy prospect, with years and years of negotiation lying ahead in a climate of uncertainty over the outcome”. Such uncertainty could dampen capital spending and investment in exporting activity sufficiently to offset for a very long time the benefits of freer trade – especially as those benefits will themselves take years to be reaped.

I agree with the outers that being in the EU ties us to a sclerotic and dysfunctional economy. Carl is right to deplore the EU’s fetish with austerity, and Andrew is right to say that there are risks to staying in. But I interpret these arguments differently. We are tied to the European economy not by mutable political agreements but by brute geography; all countries trade a lot with their near-neighbours. Even outside the EU, we would be vulnerable to its economic mismanagement. (I’m tempted to add that, in the EU, we have a chance of mitigating that mismanagement, but I fear this would be too optimistic.)

So far, I’ve assumed that the case for leaving is that it would be a step towards an open forward-looking economy. But I fear that this is not what many outers want. Let’s face it: at least some of them are reactionary bigots who see withdrawal from the EU as a means of imposing tougher immigration controls. Even leaving aside their illiberalism, these would probably be bad for the economy.

Similarly, Michael Gove’s hope that any government money saved by Brexit could be invested in science and technology seems to me naïve. For one thing, insofar as Brexit depresses GDP it would reduce tax revenue, which folk like him would regard as a reason to cut spending. And for another, I fear it’s more likely that, if there is a windfall, it would be used for tax cuts for the better off. Net, science funding might be jeopardized by Brexit.

I know I should dissociate the case for Brexit from some of the deeply unattractive personalities who support it – but I’m struggling to do so.

In saying this, I don’t mean to say that Brexit would be disastrous. It wouldn’t be. Even on the harshest calculations, it would probably cost less than austerity has cost us, and the immediate costs of heightened uncertainty could be offset by looser fiscal policy. On the spectrum from Neil Woodford’s view that the economic argument about Brexit is “completely bogus” to Cameron’s claim that Brexit would be the “gamble of the century”, I’m closer to Woodford.  Our relationship with the EU is a big issue in the media because of the psychiatry of the Tory party, not because the economic stakes are large.

This raises the question: what might change my mind?

 If it could be shown that EU membership were a binding constraint against liberal socialistic wealth-enhancing  policies such as a citizens income, worker democracy or non-cretinous macroeconomic policy, I’d favour Brexit. For now, however, the obstacles to these policies are to be found nearer home.

Comments

[Henry Dashwood]

I suppose one could make the case that EU centralization slows policy experimentation and disocovery, reducing the chance of the policies you mentioned in your last paragraph being implemented. I think it's also important to look at the trajectory that the EU is on and judge the case for brexit against what the EU will be in the future, not what it is now. I fear more centralization is yet to come...

[John Traynor]

This blog is merely a discussion of some nuances of capitalism affected by exiting the EU. As such, it may be a fair assessment, but shows how unimportant the referendum is.

[Matt Moore]

+1 to Henry.

It is a rigid structure in a world that increasingly favours fleixble networks.

Also, are you not concerned with the democratic deficit?

[George Carty]

Why is it that a lot of the Outers are selling Brexit primarily as a means to cut net immigration (and note that a lot of the anti-immigrationists are motivated less by racism or xenophobia as by a belief that the UK is overpopulated), but very few of them are taking the next step and arguing that Britain should become a mercantilist nation on the East Asian model?

[Matt Moore]

@George 'mercantilist'? I can only assume you don't really know what this means. Otherwise, I refer you to Smith (1776)

[George Carty]

By "mercantilist" I mean "export as much as possible, import as little as possible". Why shouldn't we adopt such a policy when we are currently drowning in foreign debt?

Germany and most East Asian countries currently follow such a policy -- in contemporary times it often involves government intervention to push the currency artificially low in order to gain competitiveness. Other more direct methods are also used -- for example the South Korean tax authorities aggressively audit any citizen with the temerity to buy an imported car.

I view international trade as being like an iterated prisoners' dilemma with free-trade nations as co-operators and mercantilist nations as defectors. Since the East Asian nations have demonstrated themselves to be defectors, why co-operate with them?

[Richard]

"Also, are you not concerned with the democratic deficit?"

I think Chris implicitly answered that - a country whose government is partially unelected, uses an election system explicitly designed to lock challengers out, whose government has very high amounts of executive power combined with weak traditions of judicial constraint on government actions and highly politicised media really has not got all that much to worry about from the lack of democracy in the EU. Example: the fuss the UK kicked up about greater democracy in the appointment of the Head of the Commission, with Cameron much preferring the good old days of it being stitched up regardless of the EU Parliament election results.

[Steve]

Also, Brexit comes with a chance for a truly progressive independant Scotland, does it not?

[Mike Tarrantes]

what is or ever was ``european`` about the U.K ?
Good riddance !

[Keith]

The right wing outers are an awful bunch. They are not only xenophobes and Racists but power mad. It is indeed hard to be attracted by people who think they or their paymasters will have more power in a Brexit.

I think your summary is very fair. I think their is very little economic case for Brexit, if any.

Henry Dashwood should note that at the moment we are exempt from the most centralising aspect of the EU, the EURO. It is certainly true that this allows more flexibility for fiscal and monetary policy than being in the EURO. But we are unwilling to use it. The missing element from the discussion about the Brexit issue is the similarity of economic policy both in and out there is likely to be. If there was a large Stalinist left party willing to re nationalise the commanding heights of the economy and hang the city bankers on departure from the EU while limiting imports via economic planning it would be different. Leaving to be much more left wing was the left wing case in 1973-5. Leaving for more of the same is not a case at all.

I was under the impression that in practice there are no real barriers to doing world trade to be removed. Treaties have removed all direct discrimination already. Many opponents of the EU on the right seem to confuse regulation with trade restrictions. All countries subject business to legal controls and most EU legislation is of this variety. Leaving the EU would relocate the venue for such legislation to some degree, but not completely as to export to other EU countries would require many similar rules.The size of the EU would force the UK to copy the rules and procedures of the EU regardless of the legal ability of the UK to do otherwise.

The limits to independent action the UK is subject to would remain mostly on departure. The case for leaving has a sort of day dream quality to it.

[gastro george]

TBH the major part of the "negotiation" and postures on both sides are frankly risible. The arguments about sovereignty are debatable, as in either circumstance it's pretty contingent.

For it comes down to two things: Firstly what is desirable for the future economy. This has to be more based around manufacturing and scientific development. And to move away from the domination of the City and finance. Is that really likely with Brexit?

Secondly, what are the motivations for the obsession of the outers with sovereignty? Essentially the denial of human rights, racism, and turning the screw on the workplace and benefits even harder. Nuff said.

[gastro george]

For me it ...

[Bob]

"Let’s face it: at least some of them are reactionary bigots who see withdrawal from the EU as a means of imposing tougher immigration controls"

Count me in as one of those reactionary bigots. The UK's immigration system should operate like the other 150 nations on the planet outside of the EU.

Every immigration study sets the null hypothesis wrong. The null hypothesis is what would be the case if EU citizens were subject to the host country’s visa restrictions. In other words the only individuals that would differ are those that would fail the country’s visa requirement. Refugees and individuals with higher level skills applying to higher level jobs would always get in anyway – and therefore they should be excluded from analysis.

So the issue at hand is whether *unskilled and semi-skilled people in the EU who wouldn't otherwise get a visa or asylum* in the UK should be permitted to come into the UK to work.

If you *separate out that set of people*, then you find that *at best* they don't reduce the wage at that level of work but very likely they do reduce the wage at that level of work.

But far more important than that they don't *increase* the wage a resident is going to get for a job, nor do they *increase* the chance of a resident getting a job.

Given that we are not creating sufficient housing, nor improving our schools and hospitals to cope with the influx (e.g the level of language support and functional skills required in my local primary school is not something that is attracting additional central government funding), then the actual real costs of immigration are simply not in the figures.

And then there is the impact on existing immigrant communities. There was a big spread on the front of the local Asian newspaper about how local curry houses may all have to close down because they can't get the immigrants from the sub-continent they need with the required skills. Unfortunately there aren't many skilled curry chefs in Romania.

The *excessive* visa restrictions we have on the rest of the world - which are required to *balance* the lax ones in place to the EU - are stopping existing ethnic minority communities dealing fairly with parts of the world they originate from.

So the figures relied upon by the left are skewed by aggregation, and skewed by omission. They ignore the requirements of existing communities.

It would really help if the left addresses the *actual issue* at hand, rather than the one from their internationalist beliefs that they prefer to talk about.

[Bob]

"For now, however, the obstacles to these policies are to be found nearer home."

Sure but that's the point. If you want a left wing government you have to convince people to vote for a left wing government.

Now you have to get round obstacles at home *and* obstacles the EU provide.

"If it could be shown that EU membership were a binding constraint against liberal socialistic wealth-enhancing policies"

The EU makes it much more difficult to introduce left wing policies.

Once we leave the EU the restrictions on State Aid and access to the Bank of England are lifted. Along with the requirement to compensate capitalists if we nationalise industries.

So once we leave the EU we can nationalise the railways for a £1, nationalise the banks and cancel all the PFI contracts. And we can stop paying money to China on Gilts by using the 'Ways and Means' overdraft facility at the Bank of England instead.

The question for those wishing to remain in the EU is why they think we should have to pay millions to capitalists to recover assets that were stolen from us. Why we should have to maintain PFI contracts that are closing A&E departments and why we have to continue to pay millions in interest to rich foreigners when we don't need to.

[Churm Rincewind]

@ Steve - Indeed. I'm currently much amused by claims that Brexit is fundamentally an issue of national sovereignty coming from those who opposed the same argument in support of Scottish independence.

[Keith]

No one considers today the fact that Referenda are a management device for the political parties. To avoid splits. The public are never offered a plebiscite on any other issue. Why? Because the EU controversy is mostly irrational and so causes pointless internal divisions which having referenda side steps. Voting on contrived questions to paper over internal party divisions is not democracy but the Party leadership and followers abdicating the responsibility of decision making. What ever the result the EU will probably continue to be a source of division so having the referendum will probably fail to resolve anything for long. This is like a dog chasing its own tail!

[Kristjan]

I don't fully understand this. exit from EU means UK will remain in EEA, so you will remain in free trade zone but you can negotiate https://www.gov.uk/eu-eea

"The European Economic Area (EEA)
The EEA includes EU countries and also Iceland, Liechtenstein and Norway. It allows them to be part of the EU’s single market.

Switzerland is neither an EU nor EEA member but is part of the single market - this means Swiss nationals have the same rights to live and work in the UK as other EEA nationals."

[Another Richard]

Personally, I favour staying in because in the event of an exit the first things to go would probably be the social charter and the working time directive, plus any money from the regional fund would be gone meaning yet more cash funnelled into London and the South East.

And while the EU favours austerity, the current Tory party favour it far more.

For all its flaws, the EU currently represents a check on the worst excesses of the Tories. If the country moved significantly to the left I might be in favour of exit, but not now.

[B]

Everything's a "pocket book" issue to you Chris, everything else has no value for you whatsoever. In that sense you're even worse than the Tories.

[Christiaan Hofman]

Europe's stupid austerity politics has nothing to say about Brexit. remember that the UK is not held by that, because it does not take part in the Euro. The UK does it's stupid austerity politics all on its own. So it would have done it just the same were it outside the EU. In fact, outside the EU I would gather that the conservatives would be more powerful, and austerity would be harsher.

[Adrian D.]

So we leave the EU and are then left at the mercy of the Tories to enforce their more extreme neoliberal fantasies (remove the working-time directive, abolish the right to paid holidays etc).

How is this likely to make them more electable?

Have we now reached the point that our democracy is so broken that we are assuming that they can, and will, get away with anything?

[Another Richard]

Adrian D, I think the last election taught us that a good percentage of the electorate will vote for whichever party is the most "credible" which appears to mean "does things that make most people's live worse, but which they claim will help the economy". It helps if the people they are hitting hardest can be portrayed as "scroungers".

Most people won't bother to investigate whether these plans will actually work.

[Metatone]

Perhaps in line with what you are saying, there's a crucial issue of age here. 10 years of economic heartache to make a better future is probably 10 of my most important economic years, given my age.

It's thus surely rational for me to require a serious (i.e. not pie in the sky like Minford) assessment of the better future before I vote for it?

[Dr David Hll]

Brexit - THREE' of the Great Myths of staying 'IN' the EU Destroyed if the People of the United Kingdom Would simply Use Their Common-Sense and Read into the TRUTH - http://worldinnovationfoundation.blogspot.co.uk/2016/02/brexit-three-of-great-myths-of-staying.html