An unenthusiastic case for Brexit

I won’t crack open the champagne if the Brexit side wins the EU referendum on 23 June. On its own, Brexit will not solve a single one of the UK’s economic and social problems. Brexit will open up a range of interesting policy opportunities, but it is not guaranteed, or even particularly likely, that a post-Brexit British government will make any use of those opportunities. A fairly likely outcome of Brexit is that the UK government will retain, or actively replicate, everything that is irritating about the EU.

Not that this would be any worse than the status quo. Most Remain arguments could be countered by a bot that automatically responds to everything with ‘But what about Switzerland?’. The Remain side has the unhelpful habit of conflating the EU with the European Free Trade Area (EFTA), the European Economic Area (EEA), and, simply, ‘Europe’. It therefore frequently credits the EU with achievements that are not EU achievements at all, but just benefits of economic integration and international cooperation. Economic integration does not require political integration. Switzerland, with fewer inhabitants than Greater London, accounts for over 5% of the EU’s imports, making it the EU’s fourth largest trading partner. The Helvetic Confederation enjoys all the benefits of the European market, but it does not automatically have to apply EU regulation, and it can conclude its own free trade agreements, as it did with China in 2014.

Bremainers argue that an EFTA-only arrangement is not on offer. After Brexit, the EU would seek to punish the UK, not offer it attractive trade deals. This possibility can indeed not be entirely ruled out. But the UK would not be on its own, because a trade war would be painful for both sides. Take Anglo-German trade: The UK accounts for about 7% of German exports, and industries which have political clout in Germany – cars, industrial machinery, pharmaceuticals, medical technology, high-end electronic equipment, aircrafts etc – account for the lion’s share. Politicians may be willing to damage their economies in order to make a political point, but industry representatives and trade unions will be far more interested in their own profits and jobs than in political posturing. They would be natural allies for the UK in any trade negotiations.

So the risks of Brexit are vastly overstated. The benefits, unfortunately, are very hypothetical. Brexiteers point out that the EU’s Common Agricultural Policy drives up food prices for consumers, and they are right: food prices in the EU are on average 5% above world market levels, and the difference can only be due to the CAP. Post-Brexit, we could abolish CAP measures like tariffs, quotas and minimum price guarantees, and watch food prices fall. But this would inevitably mean falling farm incomes, and quite a few farmers would go out of business. The farm lobby would run amok, and at least in the short term, it would be hugely unpopular with the public. Would a British government do it anyway? It is possible, but not likely.

There might still be small savings, but they would only arise because UK taxpayers would no longer be forced to subsidise agricultural producers in countries with larger and/or less productive agricultural sectors. Every little helps, but big gains would require the UK itself to move towards a free market in agriculture.

Similarly, given the current popular backlash against Chinese steel imports and the Transatlantic Trade and Investment Partnership (TTIP), I cannot see much appetite for free trade. It is, again, possible that the government would pursue it anyway, but why would they, if there is no political capital to be gained, and much to be lost?

The EU is often blamed for imposing costly regulation on European businesses, particularly in labour markets, financial markets, and in the ambit of transport and environmental policy. And so it does. But imagine a government trying to trim regulation in those areas. It would immediately be accused of ‘slashing workers’ rights’, ‘unleashing casino capitalism’, and ‘trashing the environment’. Again, which politician would do that?

The common theme here is that while Brexit would create scope for sensible reforms, these reforms would be unlikely to happen in the current, anti-capitalist climate of opinion. There is zero political appetite for market-oriented reforms.

Brexit will probably do no harm, but it may not do much good either. When in doubt, I err on the side of the smaller political unit, which is why I back Brexit nonetheless. But I am probably the least enthusiastic Brexiteer you will ever come across.

Dr Kristian Niemietz is the IEA’s Head of Health and Welfare. An abridged version of this article was first published in Economia.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

3 thoughts on “An unenthusiastic case for Brexit”

  1. Posted 12/05/2016 at 16:57 | Permalink

    Kris – Even keeping solely to the economic/trade arguments, as you have, one argument on the Brexit side that you haven’t mentioned is the net cost to the UK (i.e. budget contributions minus what we get back). There is no absolute agreement on how to work this out accurately, but a figure of £6-10bn per annum is generally reckon to be the case, i.e. somewhere around £100-£150 per person. This would have to be balanced against some direct costs from leaving, of course, but arguably these would only be one-offs..

  2. Posted 12/05/2016 at 21:22 | Permalink

    “The common theme here is that while Brexit would create scope for sensible reforms, these reforms would be unlikely to happen in the current, anti-capitalist climate of opinion. There is zero political appetite for market-oriented reforms.”

    For sure, but at least there would then be some point in engaging in the debate with the people who have to live with or without these reforms.

    When confronted with the mistakes of others, a liberal is someone who can still celebrate at least their freedom to make their choices and so to live as moral adults.

    And of course they may yet be right, in the ways most important to them.

  3. Posted 16/05/2016 at 14:18 | Permalink

    HJ, yes, true, but then, that contribution would not be zero post-Brexit either. Switzerland and Norway also make some contribution.

    Christian, yes, that’s the democracy argument, and it’s fair enough, but I have to say, I care much more about freedom than democracy. If I was convinced that the EU will limit the power of government against a statist electorate, I would be an Inner.

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