THE EU

THE ECONOMY AFTER BREXIT – ECONOMISTS FOR BREXIT

 

In their recent report, 'The Economy after Brexit – Economists for Brexit', eight economists set out a number of arguments allegedly showing how well Britain would do after leaving the EU. Unlike the recent report from Osborne and the Treasury (to which the English Rights Campaign will be responding in the near future), the Brexit economists believe that the British economy will be larger due to Brexit.

 

Importantly, the Brexit economists base their case on a policy of unilateral free trade. In practice, this is a policy only of tariff free imports with other countries imposing whatever tariffs they like on British exports. Patrick Minford, one of the eight economists, told the BBC: 'Whereas what we are assuming is that we take advantage of leaving the EU to have free trade with the rest of the world unilaterally – we simply say to the rest of the world sell to us at your prices. That brings down the costs to the consumer and transforms the economy in our modelling because consumers have lower prices, wages fall for employers because they are still better off with lower wages because the prices are falling. So there's this dynamic unleashed into the economy, that's completely absent from these other analyses because they just assume we stay with the EU tariffs.'

 

The English Rights Campaign does not support a policy of unilateral free trade. This was the policy that allowed Britain to fall behind its competitors and rivals at the end of the 19^th century. Nor is this a policy that is likely to win voter support in the oncoming EU referendum. The assumption that there will be a fall in wages should be noted.

 

However, the Brexit report does make some useful points. It does not panic over the prospect of a fall in sterling: 'swings are routine in economies undergoing change and are self-stabilising. In a low inflation, low interest rate environment, where financial markets are potentially volatile, a fall in sterling will help stabilise the economy. Post Brexit, short-term growth will be little different from now and long-term growth better'. It acknowledges that certain firms will be strongly in favour of remaining in the EU: 'In any industry there may be firms that think they will benefit from Remain. But their interests, as with other vested interests, are theirs, not the UK’s. Therefore, the views of business are likely to vary by size of firm, by the sector they are in, and by their business model'.

 

This is a key point. There are a number of vested interests that need to be confronted. Simply because, for example, a multinational organization is benefiting from paying reduced wages to EU immigrants and has a cosy relationship with the EU, perhaps with a favourable export regime, does not constitute the same as the national interest. The Ponzi Class (see The Ponzi Class: Ponzi Economics, Globalization and Class Oppression in the 21^st Century) may benefit from the EU, but that is their benefit and not that of the ordinary people. The interests of the Ponzi Class and the national interest are not one and the same. The Ponzi Class are a greedy, self-serving vested interest and they need to be confronted.

 

The Brexit report highlights the failure of the EU's economic performance: 'Over the last two decades, the EU’s record has been poor against that of other developed countries, such as the US, Australia and Canada. Within Europe, it has done badly compared to Norway and the UK … it has performed even more poorly against the emerging markets'. The reasons for this are cited as being 'excessive regulatory zeal' ('the so-called acquis communautaire, a body of law or quasi-law ... is now 170,000 pages long'), 'misuse and misdirection of the EU’s funds' and, most importantly, 'the absorption of time and attention of politicians, officials and business leaders obsessed with barmy and unnecessary plans for the harmonisation, integration and Europeanisation of something or another', whereas other countries focused on economic growth. In addition, there is the calamity of the euro.

 

The report is dismissive of the fixation with the EU's Single Market:

 

People talk about Britain “having access” to the Single Market, as though it were some sort of a room, with a door through which you may or may not be admitted, depending upon your EU membership. But this is nonsense. All countries in the world have access to the EU Single Market. It is simply that, in order to sell goods into it, they have to agree to meet its standards.  But that is true wherever you try to sell goods. As it happens, plenty of countries around the world have had great success selling into the Single Market without themselves being members of it. The United States is the largest exporter to the EU (exporting more to the EU than does the UK), followed by China.  As for the importance of being able to influence EU rules, neither of these other countries has any influence on them. Nor do they have a single Member of the European Parliament (MEP) or a representative at any European meeting.

By contrast, the downside of belonging to the Single Market is you must apply all its rules and regulations throughout the whole economy. In the UK’s case, only 12% of our GDP is directly accounted for by exports to the EU. But this means that 88% is not. Yet that 88% also must obey all the EU’s rules.

 

The scale of the burden of regulation is demonstrated by an estimate from Open Europe which 'estimated in 2011 that EU social legislation by itself made the UK worse off by £15 billion, about 1 per cent of national output'. Leaving the EU means that only those companies which wish to export to the EU need to take account of EU legislation. Other organizations will be liberated from the EU's regulatory oppression. This is a major reason to leave that would bring a transformation of the economy.

 

Patrick Minford himself writes an item on the matter of trade. He sums up EU trade policy as being confined to establishing a customs union for agriculture and manufacturing. He alleges that the effect of tariff and non-tariff barriers are to increase prices for both sectors by around 20%. He then states that in the event that Britain simply leaves the EU, with no trade arrangement with it or anyone else, and does not erect any tariffs of its own, then there would be a fall in consumer prices of around 8% and 'a welfare gain of 4% of GDP'. He is adamant that Britain does not need anything more than WTO rules, which govern around 70% of exports already and that most of the 'EU’s much vaunted trade agreements' are with small countries and ex-colonies and therefore are of little importance. He believes that these preferential agreements should not be extended to either the USA or China and 'Why bother?' as they increase import prices: 'Thus, the best outcome for us as a nation is trading on the basis of WTO free market prices without so-called free trade agreements negotiated with any country'; and that 'One thing we do not have to do, and should not do, is enter into any other trade agreements. The WTO rules are there to police the world market in which the UK can best thrive'.

 

The report draws attention to the downward pressure exerted on wages by mass immigration, although it does not deal with all the other costs such as the pressure on public services, housing and the impact on social cohesion.

 

The report concludes: 'It is interesting to see, after Brexit, the UK becomes a more “normal” economy, with growth reviving, monetary policy “normalising” and inflation getting back on track. The fall in the exchange rate and the direct improvement in the current account largely correct the recently persistent current account deficit. The PSBR, as a share of GDP, continues to fall towards balance at the end of the decade, with faster growth of nominal GDP'. In fact the PSBR, according to the report, continues virtually unchanged from the Treasury forecast, and the balance of trade deficit continues at a very high level indefinitely into the future.

 

A flaw in the campaign to leave the EU is that many of those supportive of Brexit are Tories, and are therefore understandably reluctant to attack the Tory government economic policy. Osborne, the Chancellor of the Exchequer, is a Ponzi economist. His handling of the economy is a disaster. For all the chatter about austerity, he has doubled the national debt, the government continues to borrow large sums each year, manufacturing is in recession, and the balance of trade deficit is enormous. Osborne is keen for mass immigration to continue. He is happy to pocket whatever extra tax revenues are paid by immigrants, but makes little if any provision for the extra schools, hospitals, housing etc. needed for those immigrants. He could not care less about the lower wages forced on the English. He, along with the rest of the Tories, is content to continue to borrow and sell assets to fund the trade deficit.

 

The Brexit report ignores all this. It confines itself to offering a unilateral free trade theoretical alternative to EU free trade. It ignores entirely the adverse consequences of protectionist measures used by others, in particular China, and the consequences if the EU pulls the same tricks. It does not even see the trade deficit as a problem.

 

The English Rights Campaign has already responded to an earlier Remain effort (see the English Rights Campaign item dated the 19^th March 2016) in which the need and benefits of bringing the balance of trade back into balance were set out.

 

The Brexit report makes some useful points, and is correct to treat the WTO option as the default position. It is not an unattractive one. Where the English Rights Campaign would differ profoundly is that Britain should not allow foreign countries to use protectionist measures against Britain. Unilateral free trade is not the true alternative to membership of the EU. Britain should impose tariffs, if needs be, to bring the trade back into balance, which would transform our economy for the better just as it did in the 1930s (a detailed examination of which is contained in The Ponzi Class, including Joseph Chamberlain's case for Tariff Reform).