2 March 2015

Thatcher understood the pro-market case for Britain staying in the EU


My response to Daniel Hannan’s article “Pro-EU propaganda film is a disaster for the BBC” about the film by Annalisa Piras, “The Great European Disaster Movie”, will avoid addressing his ad hominem remarks or questioning his merits as a film critic. Rather, I will respond to his assertions about the nature of the European Union and about the case for British withdrawal from it. Those, after all, are what matters: they are strategic issues that will affect Britain for many generations to come.

I will separate my argument into two parts, though of course the parts are related. The first part concerns the case for a strong British influence in what happens on the continent of Europe. The second concerns the pro-market case for the European Union.

On British influence in Europe, I believe that patriotism, history and geography combine to make it imperative that those who govern the United Kingdom and purport to act in the country’s long-term interests should always act to ensure that Britain has at least a powerful say, at best a chance to lead, in matters of international politics, security and economic stability in the countries that are our nearest neighbours, across the North Sea, the English Channel and the Irish Sea.

This has been recognised by British statesmen for centuries. They may not like it. They might prefer to avert their gaze from what is going on and to avoid getting involved. But from the days of Castlereagh and Palmerston to those of Churchill, Thatcher and Blair, such statesmen have known that British interests are always at stake in the continent of Europe. Geography alone would dictate that, just as it is a main reason why more than half our trade is with the other countries of the EU today, and why we trade more with Ireland alone than with China and India combined.

Small countries such as Norway and Switzerland know that their interests are also at stake in Europe, but they also know that they will always remain largely passive victims or beneficiaries, retaining even some ability to duck and weave. That is not true of a country with the size, wealth and reputation of Britain. We can influence what happens in the rest of Europe. So patriotism and self-interest dictate, in my view, that we should.

This is what Margaret Thatcher, in her notorious to some, noble to others, Bruges speech of 1988 recognised above all. She was no lover of the European Union. But she had a powerful instinct for where Britain’s interests lay:

Britain does not dream of some cosy, isolated existence on the fringes of the European Community. Our destiny is in Europe, as part of the Community. That is not to say that our future lies only in Europe, but nor does that of France or Spain or, indeed, of any other member. The Community is not an end in itself. Nor is it an institutional device to be constantly modified according to the dictates of some abstract intellectual concept. Nor must it be ossified by endless regulation. The European Community is a practical means by which Europe can ensure the future prosperity and security of its people in a world in which there are many other powerful nations and groups of nations.

Let her inspiring words lead to the second part of my argument, the pro-market case for the European Union, something to which British influence should be, and has been, directed.

A failing European economy will always be bad for Britain. A prospering, dynamic one will always be good for Britain. This, incidentally, explains why in all polls, a clear majority of British businesses come out in favour of continued British membership of the EU, and why the City of London is also overwhelmingly in favour. They are not being selfless. They know they stand to benefit from European markets and European capital.

Many of them also probably know, at least in their sectors, that the notion that the EU is throttling them with regulations is about as false a myth as can be found. If it were, they might indeed want to leave. But it isn’t. What holds business back, in the countries of the EU, are national regulations.

The World Bank every year does a survey of “Doing Business In” different countries around the globe, in which it assesses the regulatory climate and how it facilitates and holds back business. What is remarkable about this survey, as also about a more detailed assessment by the OECD of its 34 member countries, is how different are the rankings given to members of the EU. The UK scores well, ranked 8; Finland is 9 and Sweden is 11. But France comes 31st, Spain 33rd and Italy an unsplendid 56th.

So is “the EU” the chief throttle of business? It can’t be: the explanation lies at national level. And, in fact, in the failure of the EU to fulfil the aspirations laid down in the 1957 Treaty of Rome and in the Single Market programme launched in the mid-1980s. The EU has done too little to unravel national red tape, not too much.

Yet the EU is easy to blame. In Annalisa Piras’s film, Jane, a hotel-owner in Margate, provides a perfect illustration. She complains that a local inspector has told her to stop serving fresh “butter curls” because “of some EU directive or other”. I checked. There is no EU directive or regulation barring her from serving butter curls. In fact, such fresh, unwrapped butter is served freely in restaurants all over Europe. But no doubt a meddling local inspector chose to use Brussels as his excuse for interfering.

I bow to no one in my scepticism about government. Ronald Reagan was correct when he said “the nine most terrifying words in the English language are ‘I’m from the government and I’m here to help’.” But this is true of all levels of government: local, national, European. And although “Brussels” is certainly more than capable of interfering and making things worse, most of what it does is what economists call “rules rather than discretion”. In other words, by agreement a common rule is set for everyone. Then, no bureaucrat or politician can meddle and decide he favours this industry or that firm.

The pro-market case for the EU is that to work well, markets need rules and they benefit from scale. Adam Smith recognised the former. Scale has become available thanks to the EU now being the largest combined economy in the world. So the more the EU can stop national meddling and self-harm – subsidies, cartels, local regulations, crony capitalism – and replace them with clear, common rules, the better the market will work.

That is what makes the EU frustrating too: it should do this, but hasn’t, in the crucial areas of services (which account for 70-75% of GDP), digital commerce and indeed energy. National interests have blocked the spread of the single market in these areas.

So should we just give up and withdraw? I say not. We should stay, should promote fixes to the calamity of euro-zone sovereign debts, and should vigorously promote the building of a true, full single market.

I believe that that is what Margaret Thatcher would want, too, critical though she would be of all the follies made by the constructors of the euro. Her Bruges speech can have the final words:

If Europe is to flourish and create the jobs of the future, enterprise is the key. The basic framework is there: the Treaty of Rome itself was intended as a Charter for Economic Liberty. But that it is not how it has always been read, still less applied. The lesson of the economic history of Europe in the 70’s and 80’s is that central planning and detailed control do not work and that personal endeavour and initiative do. That a State-controlled economy is a recipe for low growth and that free enterprise within a framework of law brings better results. The aim of a Europe open to enterprise is the moving force behind the creation of the Single European Market in 1992. By getting rid of barriers, by making it possible for companies to operate on a European scale, we can best compete with the United States, Japan and other new economic powers emerging in Asia and elsewhere. And that means action to free markets, action to widen choice, action to reduce government intervention. Our aim should not be more and more detailed regulation from the centre: it should be to deregulate and to remove the constraints on trade.

So let’s make it happen.

Bill Emmott is a former editor of The Economist, and was executive producer for The Great European Disaster Movie.