Economic Theory

Making the case for free markets is too important to be derailed by Brexit

The old joke “Why did the chicken cross the road?” (“To get to the other side”) might have come out of some readers’ Christmas crackers. In fact, there is a serious point to that joke. The chicken can know of no higher purpose. There was no ultimate end: it just crossed the road to get to the other side. If the chicken were a person, getting to the other side would not have been a good enough reason for crossing the road in and of itself: there would have been some further, higher, end.

For those of us who have spent their lives not being very interested in the EU, these are not especially exciting times. We should remember that the Brexit debate is not an end in itself. The different protagonists in the debate within the Conservative Party have generally not taken that position. If you believe in limited government and free trade, perfectly rational positions can be and have been created to support an EEA position, free-trade deals, No Deal or Remain. I struggle to understand the rationale of the deal that the Prime Minister has brought back to us, but won’t get into that debate today.

Of course, the EU is not just about economics. But, when it comes to economics, those who believe in a free economy and free trade cannot allow the Brexit debate to act as an alternative for making the wider case for capitalism. We cannot put the making of the wider case for limited government on hold. Those who believe in a bigger state have certainly not stopped making their arguments.

On the whole, socialists like to try to take the moral high ground. They are effective in building narratives around people’s own problems or aspirations: Conservatives are not always good at this and the Brexit debate has certainly not helped. The recent visit to the UK by the UN’s Special Rapporteur on Extreme Poverty and Human Rights Philip Alston illustrates these points very well.

Those who believe in a free economy need to argue their case as if they really believe that free markets and sound institutions are matters of life and death for the poorest people in the world.

An excellent book by Rainer Zitelmann, The Power of Capitalism, makes some of these arguments forcefully. The opening chapter on China is shocking in its portrayal of the poverty of the Mao regime – 33 million people died in just four years to 1962. However imperfect and incomplete the move towards markets, the Chinese transition has ensured that most of the country’s people are now no longer one bad harvest away from starvation. The relationship between the institutions of capitalism and the poor being in a position where they can escape a life of drudgery or disease and famine is indisputable. It can be seen across countries and through time.

And yet the basic facts about the benefits of markets and the abject failure of socialism are more or less unknown here at home. Students, potential voters and those who frame the policy debates seem to have no clue about how globalisation has improved the lot of the poor. Indeed, they do not even understand that the lot of the poor has improved. In a recent Ipsos-Mori poll, 91 per cent of British respondents believed that the proportion of people living in absolute poverty had increased or remained about the same in recent decades. The reality is that the proportion has fallen more in the last three decades than in the whole of previous economic history put together.

Reports from Oxfam and many other organisations suggest that inequality is on the increase and this is the prevailing narrative (bizarrely echoed by people such as Mark Carney). I suspect that, if a poll were taken on whether people believed that global inequality was increasing or decreasing, the proportion believing it was decreasing would not get out of single figures – or perhaps it would be zero after rounding. Yet the last 20 years mark the first sustained period in over two centuries during which global inequality is falling.

Unless economic globalisation reverses or the institutional situation in poorer countries deteriorates, this trend will continue. The West has an awful demographic outlook which will lead to lower disposable incomes as a result of higher taxes, as well as other problems. Meanwhile, the possibility for catch-up growth fuelled by young populations with growing human capital should allow poorer countries to continue to grow rapidly.

We should take none of this for granted. It is essential that the public does not come to believe that those politicians who broadly support a free economy have become obsessed by Brexit. If you were to put the faces of publicly-known politicians before people in an opinion poll and ask the question: “which of these people support policies that will raise incomes for the very poorest and reduce global inequality?”, I suspect that not many would nominate those politicians whom we know support free markets. That needs to change. It is not as if the statistics or the messages are especially complicated. Brexit should not be like the chicken crossing the road. The broader purpose of government should never be forgotten. We cannot have a moratorium on making the case for limited government and free markets or a couple of years whilst we deal with Brexit.

This article first appeared on Conservative Home. 

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

3 thoughts on “Making the case for free markets is too important to be derailed by Brexit”

  1. Posted 03/01/2019 at 23:49 | Permalink

    Good point, though it might be argued that making the case for markets is hard enough in one country without trying to persuade the other 27 to go along with, for instance, scrapping the CAP or unnecessary product or employment regulation.

  2. Posted 08/01/2019 at 17:10 | Permalink

    Len, you might equally argue that making the case for a new measure interfering in markets should be quicker and easier within a single country.

  3. Posted 07/07/2019 at 14:41 | Permalink

    You might indeed Jon. But wouldn’t Len have a good reply, that the 1 rather than the 27 would be able far more quickly to learn from a bad policy course and change to something better.

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