Free-marketeers should support Britain’s membership of the EU
There is a rich tradition of free-market support for the European project. The IEA’s founding Editorial Director, Arthur Seldon, was pro-European. Our intellectual father Friedrich Hayek himself spoke in favour of interstate federalism, as a way to check the protectionist tendencies which he thought were characteristic of nation states.
I believe the European Union today – with all its faults – vindicates the arguments of its free-market supporters. The EU has played a critical role in promoting and entrenching economic freedom in its member countries, including the UK. At a time when the climate of opinion is shifting away from markets, a vote to leave the EU is likely to weaken rather than strengthen the prospects for a free-market Britain.
Those in favour of Brexit argue that we will have less regulation, more trade and lower spending if we vote to leave. Yet there is reason to be wary of the rosy picture they paint. The UK has led in the development of much recent financial regulation, and its green policies are, if anything, more onerous than the EU average.
Similarly, it is unclear how much of a barrier the EU is to trade with non-EU countries. Britain’s number-one trading partner is the United States, whilst exports to China have boomed in recent years. China’s biggest trading partner, by the way, is the EU.
How about the UK’s contribution to the EU budget? A national scheme to replace the Common Agricultural Policy is widely expected. And the Leave campaign insists that any remaining savings should be spent on other government programmes such as the NHS. In other words, they wish to transfer money from one centralised bureaucracy to another centralised bureaucracy. Hardly the free-market revolution that some Eurosceptics promise.
Staying in the EU, on the other hand, would guarantee a number of benefits that free-marketeers should cherish. We would retain tariff-free access to the EU market, which is still the world’s largest economy. The UK is especially well-positioned to benefit from this because its legal system, global trade links and favourable business environment make it an attractive location for firms to place their European headquarters. This international appeal would be weakened by a Brexit.
Another important boon of EU membership, though much-derided in the media, is the free movement of people. Again, the UK’s open economy and the dominance of the English language make Britain a disproportionate beneficiary. Immigrants fill positions for which there are no native candidates. They contribute to the Exchequer to the tune of £20bn. And, according to the Bank of England, EU migrants are more likely to be self-employed and entrepreneurial than native Britons.
There are those who say we would have an equally open immigration policy post-Brexit. But the dominance of anti-immigration arguments in large parts of the Eurosceptic camp lead me to think otherwise.
The above are two salient benefits of membership. However, as Hayek predicted, the EU’s most valuable contribution is as a strong barrier against bad economic policy by the member countries. For instance, state aid to support ailing businesses is very constrained by EU laws, meaning that taxpayers’ money cannot be used to bail out struggling industries such as steel. The EU is therefore a check on the short-run temptation to intervene in the economy, which would harm consumers and taxpayers over the long term.
Similarly, EU competition rules have virtually outlawed nationalisations, securing the benefits of private markets in key sectors and making a return to the old days of inefficient state-owned industries highly unlikely, despite the political winds of the day.
These beneficial policies, which have become a cornerstone of EU jurisprudence, are there thanks in large part to the UK. It was under Thatcherite Commissioner Leon Brittan that state aid was constrained. And it was the successful example of privatisation and competition regulation which led the European Commission to make these policies its own.
The EU has made European countries more free-market, often under the UK’s leadership. We must therefore ask ourselves: would the case for economic freedom in Europe be strengthened or weakened if the UK left? Would protectionist policies become more or less likely with a Brexit? The answer is unambiguous: the EU would be less inclined to foster economic freedom with the UK outside.
This point is not an altruistic one. It is squarely in the UK’s economic interest to have a free and prosperous Europe, given that half of its trade is still with EU countries. The UK’s prosperity depends on the continued expansion of markets and economic freedom elsewhere in Europe.
This issue gains special urgency when we consider that today, the UK itself is witnessing a move away from free markets that is unprecedented in recent memory. This applies to both Left and Right. Measures such as the National Living Wage, increased levies on industry, and an interventionist energy policy are symptoms that the Conservative Party is losing confidence in the power of markets to solve economic and social problems.
At the same time, a Labour Party which had once made its peace with a broadly free economy is again calling for its commanding heights to be brought under state control.
In these circumstances, leaving the EU amounts to removing an effective bulwark against protectionist and interventionist policies, and thus to undermine rather than reinvigorate free markets in the UK. By contrast, a vote to Remain will help to preserve the gains that both the UK and the rest of Europe have made over the last forty years.
Diego Zuluaga is the IEA’s Financial Services Research Fellow and Head of Resarch at EPICENTER.