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If the so-called ‘EFTA/EEA option’ – leaving the EU, but staying in the single market, or in close vicinity to it – had been on the ballot paper, it would probably have crashed and burned. “It’s not the worst thing that could happen”, Remainers would have said, “but much better to stay in the EU, and have a say over the rules of the single market.” “It’s not the worst thing that could happen”, a lot of liberal Leavers would have said, “but much better to get out of the single market, and ditch all the bureaucracy that comes with it.” “It’s not the worst thing that could happen”, anti-liberal Leavers would have said, “but ending freedom of movement must be the absolute No 1 priority, and if that means losing access to the single market, so be it.” EFTA/EEA is the option that almost nobody really wants, even if almost nobody is fiercely opposed. EFTA/EEA is the Pinot Grigio of post-referendum scenarios.

And yet I think it is the option that free-market liberals should now bang the drum for, at least as a short-to-medium-term solution.

Let’s take a few steps back. During the referendum debate, you could find free-market liberals on both sides of the divide. Liberal Leavers and liberal Remainers were not divided in their assessment of any particular policy; they did not have fundamentally different visions about what kind of country they wanted the UK to be. But the EU has both liberal and anti-liberal tendencies, and so has Westminster, so there was plenty of scope for disagreement about whether a post-Brexit Britain would, on balance, be a freer or a less free country. So the difference between liberal Leavers and liberal Remainers was a difference in the assignment of probabilities.

Liberal leavers believed that outside of the EU, the UK would trade more freely with the rest of the world, abolish the Common Agricultural Policy, replace the Common Fisheries Policy with a more sensible alternative, and slash EU red tape. Liberal Remainers believed that outside of the EU, the British political class would revert to their worst dirigiste impulses. There would be a return of protectionism, not least in labour markets, and a revival of the industrial policies of the 1970s. Liberal leavers did not dispute that the EU had its achievements, but they believed that a post-Brexit Britain would retain these, whilst getting rid of the irritating features. Liberal Remainers did not dispute that the EU had plenty of irritating features, but they believed that a post-Brexit Britain would retain these, whilst getting rid of the attractive ones.

Personally, I came down narrowly on the pro-Brexit side, but without much enthusiasm. The main obstacle to a free market reform agenda was never the EU; it is the mindset of our own political class, and, yes, public opinion. Look at any opinion survey on economic policy matters, and you will find (as I said before) that the median voter stands somewhere between Owen Jones and Fidel Castro.

There was always a perfectly coherent liberal case for Brexit. But as Alex Massie explains in the Spectator:

“the happy, optimistic, internationalist case for Brexit was not the case that won the referendum for Leave. If you think the pubs of Sunderland and Basildon were stuffed with people thirsting for the opportunity to live in the Singapore of the West you are, I am afraid, deluding yourself. Your idea of Brexit was not the dominant view of Brexit. And if you’re interested in being honest with yourselves, you know this is true.”

Quite. Unlike Massie, though, I still believe that Leave was the right choice, even if too many chose it for the wrong reasons. I still believe that Brexit can lead to a change for the better. I could imagine an independent UK being more proactive in promoting free trade. I could imagine the domestic replacement of the Common Agricultural Policy to be slimmer, and less damaging, than the EU version. Opting out of the Common Fisheries Policy can only make things better. There will be a reduced net contribution to the EU budget, which could be used for tax cuts.

But what I cannot imagine is a post-Brexit UK government embarking on a radical deregulation agenda. Take any important area of regulation – labour markets, financial markets, energy and climate change – check what the EU requires us to do, and compare that to what our own government actually does. You will find that we usually go far beyond anything that the EU ever asked us to do.

Show me a country where the government only implements the bare minimum of EU-induced regulation, errs on the side of less regulation whenever there is ambiguity in the EU’s stipulations, and frequently uses loopholes in order to reduce the regulatory burden. Tell me that that country would be a freer economy outside of the single market, and I will believe you. But the UK is not that country.

There might be some deregulation if the UK left the single market. But these benefits are extremely speculative, while the cost associated with losing unimpeded access to the single market would be dead certain. Besides, ending the free movement of people would inevitably create more bureaucracy and new regulatory hurdles of its own. “Take back control” is not a battle cry for deregulation, to put it mildly. In practice, it will probably amount to a make-work scheme for the bureaucrats who do the controlling.

As Jonathan Portes explains, extending immigration controls to Europeans “would require significant extra resources […] and […] would result – if the current system for non-EEA nationals is anything to go by – in large costs to business and a significant reduction in labour market flexibility. It is reasonably safe to assume that the consequent extra regulation would, in itself, more than outweigh any remotely plausible gains from reducing ‘EU red tape’ post-Brexit.”

You have noticed the pattern. Those liberal reforms which can be considered realistic – CAP reform, CFP reform, freer trade, tax cuts – are also the ones which can be achieved under the EFTA/EEA option. They do not require the UK to leave the single market. At the same time, those liberal reforms which are incompatible with single market membership are also the ones which are least likely to happen anyway. Meanwhile, virtually all the risks and downsides associated with Brexit are really risks and downsides of leaving the single market.

As long as the choice was between ‘some kind of Brexit’ and Remain, I thought the riskier option was worth the extra risk. But now that the choice is between different kinds of Brexit (Brexit with, and Brexit without single market exit), I no longer do. Yes, there is a remote possibility that after leaving the single market, the UK would evolve into something like a socially liberal version of Singapore. But there is a much bigger chance that while most single market bureaucracy would remain in place anyway, the UK would become the only part of Europe that cannot trade freely with the rest; the only part of Europe which does not allow people from neighbour countries to study or work without asking bureaucrats for permission first. Some free market revolution!

We would have gotten rid of those parts of EU membership that are worth preserving, whilst retaining those that are not worth it. To avoid this outcome, free-market liberals should now get behind the EFTA/EEA option. Brexit can become a success story. But we must now save Brexit from the Brexiteers.

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Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He 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). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

7 thoughts on “Saving Brexit from the Brexiteers: why free-market liberals should support the EFTA/EEA option”

  1. Posted 14/07/2016 at 19:15 | Permalink

    “. . . those liberal reforms which are incompatible with single market membership are also the ones which are least likely to happen anyway . . .”
    Oooh, you are a tease Dr Niemietz.

    I like the idea of farmland owner subsidies being reduced to the correct level ( 0 ), and fisheries policy being devolved to local governments that have coastline. These are possible in the EEA, but impossible in the EU.

    I voted Leave in the hope of getting the EEA Option, and am curious to know what’s the worst, most illiberal thing about this preference.

  2. Posted 18/07/2016 at 17:56 | Permalink

    Funny you should mention agricultural subsidies as something that will be slimmed down after Brexit when Norway, Iceland and Switzerland all pay their farmers considerably more subsidies per capita than the EU under the CAP. As for the EU’s fisheries policy, the UK’s fishermen association recently told its memebers not to expect an increase in quotas post-Brexit, since the UK is still bound by international agreement on quotas, fish stocks have declined too much to expect higher catches and the UK’s stocks (unlike most of Iceland’s) migrate between the territorial waters of multiple nations. In any event, after CETA comes into force, Canadian salmon will be much cheaper than the Norweigian or Icelandic varieties, so both those countries better question the wisdom of being outside the EU’s common fisheries policy, which is one of the few “perks” of EEA/EFTA membership. As for a reduction in bureacracy EEA/EFTA states are bound by approxinately 80% of EU legislation, so no real respite on bureaucracy ther, but with no say on how those rules are made a real loss of sovereignty. With the EFTA Court slavishly following ECJ case-law, the EEA/ EFTA alternative is really awful, but it’s the best Britain can possibly hope for post-Brexit.

  3. Posted 20/07/2016 at 08:27 | Permalink

    Interesting that the IEA rejected every submission in the Brexit Prize Competition which proposed continued EEA membership, and now we have you telling us that we should be “saving Brexit from the Brexiteers” by supporting the Efta/EEA option, “at least as a short-to-medium-term solution”.

  4. Posted 20/07/2016 at 09:58 | Permalink

    ‘Trade Deal’ is NewSpeak fro ‘prtectionist regulation designed to harm consumers’
    The simple fact is that NO trade deal is required to have access to the EU’s Common Market: individual companies can comply with EU regulations should they wish to sell there.

    or not.

    A simple 100%-Brexit, with WTO-only rules whilst we declare FREE trade with the whole rest of the world means we can unite the globe against the EU and so force them to comply with a GLOBAL, FREE trade arrangement whereby every company can buy and sell in every market, without tariffs, quotas – or subsidies.

    the truth is – governments harm consumer and consumer interests and the quicker they STFU and simply leave trade to the companies and individuals concerned, the better for everyone.

  5. Posted 20/07/2016 at 10:20 | Permalink

    @Chris Palmer: The IEA has no corporate view, and on anything EU-related, you’ll find an especially broad range of positions among staff (see e.g. http://www.iea.org.uk/about/iea-stance-on-the-european-union). It’s not that ‘the IEA’ now endorses EFTA/EEA. I, personally, endorse it, and write about it wearing my IEA hat. But I know that some of my colleagues disagree. Which is fine.

  6. Posted 20/07/2016 at 17:29 | Permalink

    Yes agreed, let’s hope David Davis comes round to the same conclusion too.

  7. Posted 25/07/2016 at 10:43 | Permalink

    For the sake of balance please see http://eureferendum.com/blogview.aspx?blogno=86156

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