Free-marketeers should support Britain’s membership of the EU
9 March 2016
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On 8 March 2016, the IEA hosted the event ‘Should supporters of free markets support Britain’s continuing membership of the EU?’. The article below is based on Diego Zuluaga’s presentation.
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.
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.
12 thoughts on “Free-marketeers should support Britain’s membership of the EU”
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Fist of all, I hate the use of the term ‘Free Trade’ cause none of these treaties are actually free trade agreements but are in reality Managed Trade agreements.
Second, I don’t see why the UK can’t renegotiate these trade treaties with other countries. Maybe we may not get as good a deal with the EU as we might have had otherwise but who’s to say we might not be able to get a better deal with countries like China and India. Who knows…. we might actually get a deal that works just for the UK and not some compromised deal that requires the consent of 20+ nations.
Most importantly, why do we need to be part of a political union to trade with each other. The logical conclusion to the author’s argument is one-world government because as more and more countries form large trading blocks that then start to trade with each other, it seems inevitable, that these trading blocks should merge into one political union as well? Once again, why is a political union a pre-requisite for trade???
The IEA is one of the very few libertarian leaning websites in the UK and it’s incredibly sad to see articles like these where you have someone promoting a political union in the name of ‘Free Trade’.
Given the goals of the Paragon Initiative, I don’t understand why the IEA won’t come out and overtly support Brexit? How is being part of the EU helping us reduce the scope of the state?
This article feels like something written by Nick Clegg (if he knew who Hayek was). It’s basically the same talking points.
How is being part of the EU helping us reduce the scope of the state?
It does not, but the EU also acts as a bulwark to future attempts to strengthen state intervention in the economy in Britain and abroad. In today’s climate of rising economic nationalism, chances are that national governments unbridled by international commitments will more likely tend to raise protectionist barriers rather than moving to a laissez-faire direction. UK will not necessarily become a Singapore of 65 million people on the Atlantic outside the EU. Even if the majority of the UK politicians and public choose to go in that direction (which I doubt given that Brexit is mostly fuelled by anti-immigration rhetoric and an erroneous plea to ‘protect our jobs’ and by calls for ‘sovereignty’ that essentially believe that ‘the state is us’), China or India most probablly won’t concede to giving the UK this standing, when the UK tries to strike a deal with them from a weakened bargaining position. Yes, the EU entrenches a status quo. But currently, there are many veto points that have to be surpassed for a move towards more statism and nationalism in Europe and this is a good thing. One of these veto players is the European Court of Justice which has been the single most liberalizing legal entity in the history of the Continent.
Mr Zuluaga has managed to write an article about the EU without mentioning democracy and accountability. Because, who cares about powerful people being unaccountable when they give you nice things? Shameful myopia.
I don’t think so as more entrepreneurs want out according to a recent survey and where the bureaucratic FT 100 bosses, who have never started a grass-roots business want to stay in. Therefore who do you go with, the business innovators who create wealth or the pure managers who just run FT 100 companies after the founding entrepreneur has created it and let the manage it? I know who are the real wealth creators and who I would vote with to make money.
One thing is for sure though in this EU debate, Cameron would not have signed up his Hero Churchill to keep in the EU or its forerunners !
Therefore one home truth that Cameron does not appear to comprehend is that Churchill, voted the UK’s greatest Britain ever, would not have joined the EU or those before it and would have voted ‘OUT’ . Therefore for those in the ‘stay-in’ camp of the EU debate who cite Churchill as a mover for the EU, this is what Churchill actually said about the EU from his own lips.
He said that GB “must be the friends and sponsors of the new Europe” but did not envisage the UK being part of the EU.
Indeed in the House of Commons on 11th May 1953, he said:
“We have our own dream and our own task. We are with Europe but not of it.
We are linked but not combined. We are interested and associated but not absorbed.
If Britain must choose between Europe and the open sea, she must always chose the open sea.”
There you have it, Churchill would have wanted ‘OUT’ and Cameron’s hero would NOT have been in the Cameron camp. But hypocrites never want to listen to their heroes now do they in reality, only themselves.
Also there are a great number of EU myths out there and these should be fully investigated independently and privately by people before they make their minds up, as the government will not tell them what is really best for the UK and that’s for sure.
Brexit – THREE’ of the Great Myths (and more) of staying ‘IN’ the EU Destroyed if the People of the United Kingdom Would simply Use Their Common-Sense and Read into the TRUTH – http://worldinnovationfoundation.blogspot.co.uk/2016/02/brexit-three-of-great-myths-of-staying.html
Brexit – The Truth Behind the EU’s Accounts and the Endemic Corruption that Supports a Non-Changing System of Economic Waste and Jobs for the ‘Boys’ – http://worldinnovationfoundation.blogspot.co.uk/2016/03/brexit-truth-behind-eus-accounts-and.html
Happy Reading for those who wish to be enlightened and not be blockheads accepting what is fed to them !
Diego Zuluaga: “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.” This is a pretty daft argument. For a start, if we weren’t paying net contributions to the EU, the money saved could be spent on a number of government programmes or to reduce the deficit, or simply to lower taxes – the point is that we would get to choose. Even were it spent on a government bureaucracy like the NHS, it would be spent on OUR government bureaucracy, not someone else’s.
What about democracy? Proponents of Brexit have a romantic and unrealistic view of democracy. Replacing one bunch of decision-making elites with another at national level DOES NOT give ‘people’ control over their own affairs. Your input as a voter into politics is minimal. You have one vote amongst 50 million voters, you exercise it once every five years under a limited choice bounded by the first-past-the-post system, without any say in the bureucratic processes that set the agenda beforehand, and with limited information regarding a huge array of issues which a government handles on an every day basis.
The mirage of national sovereignty and democracy is one of the weakest and more fallacious arguments invoked by the Brexit campaign – essentially a campaign run by national elites for exclusive control with less checks from supranational rules. Not only is this perception of politics wrong, but it is essentially anti-liberal, suggesting that ‘we the people’ have control over our affairs through democracy while it is individual rights, a space protected from politics, and various checks and balances that secure that our life is obstructed as less as possible by top-down authoritative political decisions.
In my opinion, free markets isn’t just about free and fair competition between business based in different states but also free and fair competition between between large and small enterprises. So much EU legislation seems to have been design by corporate lobbyists for no other reason than to protect the interests powerful market incumbents and other vested interests at the expense of competing small businesses and innovators.
Article 20 of the TPD relating to electronic cigarettes being the most recent example I can point to. This will destroy 100’s of small businesses and hand the market over to be controlled by a handful of major pharmaceuticals & tobacco giants. EU corporatism sucks.
@Anonymous: “Not only is this perception of politics wrong, but it is essentially anti-liberal, suggesting that ‘we the people’ have control over our affairs through democracy while it is individual rights, a space protected from politics, and various checks and balances that secure that our life is obstructed as less as possible by top-down authoritative political decisions.” I think that you will find that, when it comes to individual rights, the UK has a superior record to almost every country in Europe. This is partly due to our common law system, derived as it is from the concept of fundamental individual rights, as opposed to continental systems with civil law systems where legal rights are decided by governments.
@Adrien: What makes you think that UK legislation will be less captured by special interests. With many veto players on the legislation pipeline it is actually more costly for big business or unions to lobby at EU level. In the UK, the cost of lobbying under a majoritarian system will be smaller and corporate or union power to extract rents may be stronger.
@HJ. Nothing precludes the UK from keeping the common law tradition just as it did for over fourty years as an EC/EU member state. Note that the Nordic countries, which belong to the continental tradition of law, claim or boast to have a much better record in individual rights. Depending on your stance on taxation, this may be largely true. Second, the European Court of Human Rights – not directly attached to the EU but associated with Union membership via the EU Treaty – has a solid record of protecting human rights, which was particularly useful for UK citizens who did not have a national constitutional court to resort to up until ten years ago. Additional checks on parliamentary and executive power are always a bonus, not a minus.
If you have in mind am idealised version of the UK after Brexit that will go down your desired path, you should think again. Brexit may equally bring adverse developments in British policies, unleashing protectionism, unionism, factionalism and nationalism. At least, these ideologies will feel vindicated, as it is their arguments that power the Brexit camp. The EU is not perfect but it has embedded a set of rules that protect free trade, human rights and free movement of people despite its many flaws.
@anonymous: “Nothing precludes the UK from keeping the common law tradition just as it did for over fourty years as an EC/EU member state. Note that the Nordic countries, which belong to the continental tradition of law, claim or boast to have a much better record in individual rights.” I did not say that anything precludes the UK from keeping its common law system. I merely said that our common law system has been a factor in protecting our rights and it is not clear that we need any help from the EU. If you think the Nordic countries have an equal or better record over a long period of time, then I suggest that you research their histories in more detail. Lastly, you have no idea what my “desired path” is as I have not stated an opinion on Brexit or the path the UK could or should go down should Brexit occur.
@ Anonymous – One other thing. The EU is not really a free trade zone – it is a customs union, which isn’t the same thing. Member countries have no choice but to implement trade barriers for imports from outside the EU, so in this respect it deliberately inhibits free trade. It is thus perfectly possible for reasonable people to disagree about whether the net effect of EU membership facilitates or inhibits free trade.
I think we should hear more from Diego Zuluaga. I’m getting a bit bored with the unremitting anti-EU stance of most free-market blogs. To me there’s a lot of neoliberal ideology embodied in the EU, alongside a certain amount of socialist nonsense. I certainly think we’re better off in, on balance.