20 June 2016

A Brexiteer reluctantly for Remain


I have great sympathy for the BREXIT camp. Like many Brexiteers, I believe that Britain has not been successful in ensuring that the EU continue to be a vehicle to carry forward the ideals of classic liberalism. In the economic sphere, those ideals are based on openness to trade, competition on the merits, and property rights protection. The original four freedoms of the European Union were surely vectors of classical liberalism – free movement of goods, services, capital and people. The EU’s laws against illegal state aids were intended to prevent its member states from distorting the market in order to favour particular undertakings. Nowhere in the world has such an effective discipline on crony capitalism been conceived. EU state aids law still remains a model for ensuring limited state interference in the economy. The EU was conceived to restrain the impulses, most of them mercantilist in nature, that led to global conflict on a massive scale. The reasons that led to two world wars, both begun on the European continent could not be allowed to lead to a third.

But Europe has fallen far from this great ideal. Europe now regulates in a statist, dirigiste way. It has adopted the precautionary principle – regulations must be applied if there is any possibility of risk. A fine-sounding principle, but one, that would have stopped the industrial revolution in its tracks if it had been applied then. Europe’s approach to standard setting illustrates the difference between the EU approach in 2016 and a classical liberal one. Whereas in the US, standards are generally set by private sector companies in voluntary exchange, in Europe standards are set from the top down with little reference to private sector interests.

Similarly, European competition law has become more about attacking big companies (especially if they are American) simply because they are big and not about protecting the process of competition itself.

Nowadays, businesses are hemmed about with all manner of regulation, and the barriers to voluntary exchange are on the rise. With respect to these areas, the UK has not been able to prevent the spread of regulatory burdens, and statism emanating from Brussels.

All that said, voting leave is not an option for this instinctive Brexiteer. The world has become a dangerous place, and it is no coincidence that the illiberal Putin and Trump support BREXIT for their own nationalist, populist reasons. Why we do things is just as important as what we eventually do. And it is becoming increasingly obvious that it is immigration and not an economic vision that is animating pro-BREXIT voters.

The 6 billion or so inhabitants of the world who live in developing countries or emerging markets are counting on the successful application of classical liberalism in their markets and around the world. We are all interconnected now, and if one idea should animate us all, it is the idea of classical liberalism that has given the world so much and lifted so many out of poverty. Losing Europe as a carrier of classical liberalism as would surely happen without the UK’s voice, would be a disaster for Europe and for the world.

I have attacked poverty and the weapons it uses, such as crony capitalism, and economic distortions all of my adult life. It is particularly galling that it seems clear that if Britons vote to leave it will be to curtail immigration – and those that will deliver this victory no more believe in classical liberalism than does Donald Trump. I cannot in good conscience make my bed with those who oppose immigration for the same reasons that they are protectionist and populist. Theirs is a world where Britain lives much as they think it did in the 1950s. But, in Britain, this was a world of nationalization, and socialism. Britain in the 1950s and 1960s was the antithesis of a world of open trade, competition and property rights protection. Its result was the collapse of the British economy to the extent that it had to go cap in hand to the IMF for a loan, like a developing country. That the application of nationalization and socialism was able to wipe out one of the greatest powers the world has ever known in a couple of decades (with a little help from World War II) is testament to the corrosive effect of the very doctrines on which many Brexiteers now seem to rely in order to win the election.

There are many instinctively pro-BREXIT people like me, and many in the Leave Campaign with whom I have enormous sympathy, frankly greater sympathy than some in Remain who seem to believe in nothing. But given the precarious state of the world, the diminishing numbers of people who espouse classical liberalism and the need to do no harm to a very fragile global economy which has no engines of growth, even if that harm is short term, then a Brexiteer like me has to vote for Remain.

But to the institutions of Europe, I would also say that Britain must not abandon its role in the world, even in the event of a Remain vote. There are many powers that have been passed to Brussels recently (such as authority for investment negotiations in 2012) that could and should be clawed back in order to allow Britain to negotiate investment and regulatory agreements with countries who are much more aligned with it on these issues. There are many agreements which are held back by the baggage that the European Union brings to the table such as agricultural protectionism, regulatory barriers and burdens and the manner of its application of competition law. Britain’s obvious services’ focus which is very much different from Germany and France, as noted in a previous CapX article by me, means that it will have different objectives to promote its own industries. All of these things can be done by clawing back a limited range of powers that were relatively recently conceded. Such a situation would be better for Britain, and better for Europe in the long run. It would also be better for the world. We have argued in another CapX article that a Prosperity Zone encompassing like-minded nations that actually believe that open trade, competition and property rights is the way to create wealth would generate $8 trillion into the global economy if all of its members reduced their distortions to zero, and that a discussion of how to reduce our internal distortions is not possible in the WTO, or probably in the EU as it currently is constituted.

The Referendum on June 23rd is the beginning, not the end, of a journey where Britain must find its highest and best purpose. Whatever the vote, creating a situation where Britain is able to carve its own path with respect to certain agreements that relate to investment and regulatory issues while remaining in the single European market must be the next step in Britain’s European journey.

The views are solely those of the author and do not reflect the views of the Legatum Institute.

Shanker Singham, Director of Economic Policy and Prosperity Studies, Legatum Institute.