Regulation

The libertarian case for Brexit – restated


Back in January the IEA published a blog post by Emmanuel Comte with the title “Why Brexit was a mistake, from a libertarian perspective”. I believe this judgement is wrong – or at best, premature – but the libertarian case for Brexit does often need restating.

Dr Comte, a Senior Research Fellow at the Hellenic Foundation for European and Foreign Policy (ELIAMEP), argued that the UK’s departure from the EU had actually increased government control of the economy, rather than reduced it, and therefore that it had failed a crucial ‘libertarian’ test.

The blog prompted a lot of tedious claims on social media that the IEA had ‘changed their minds on Brexit’. This daft take has already been comprehensively debunked by Kristian Niemietz, here and here, so I am not going to waste any more time on it. Suffice to say that the IEA has never had a single corporate view on Brexit and has always presented all sides of the debate.

Instead, Iet us focus on two specific points raised by Dr Comte, which have been recurring themes in recent months. Firstly, he rejected the idea that the EU is an ‘overreaching superstate’, arguing instead that its ‘real function is to diffuse and limit state power’.

As examples he cited how the EU has curtailed intervention by national governments in regional trade, in the movement of capital, and in the flow of people, and how the creation of the euro has prevented countries that have adopted it from engaging in competitive devaluations. In principle at least, membership of the EU therefore involves states mutually restricting their powers – for mutual benefit.

There is clearly something in this. Many libertarians would have a favourable view of key aspects of how the EU works, including the free movement of goods and people within the bloc, the restrictions on state aid, and interventions to limit anti-competitive practices by multinational firms.

Other advantages of this ‘pooling’ of sovereignty might include the efficiency gains from coordinating rules and regulations, and an increase in bargaining power when negotiating free trade deals with the rest of the world.

Consistent with this, a recent report by UK in a Changing Europe (summarised here) identified several ways in which the repatriation of powers from the EU has led to an increase in the size of the UK state. In some cases, these additional resources are needed to exploit the opportunities created by Brexit, notably the negotiation of new trade deals. But in others, this is simply deadweight, such as the extra resources devoted to run functions previously undertaken by EU institutions.

Viewed in isolation, the increase in trade frictions with the EU and the extra headwinds to business investment have surely been negative for the UK economy. If this were all that ever changed as a result of Brexit, the libertarian case would indeed fall away.

Nonetheless, it is far too soon to draw that conclusion.

In reality, the EU does behave like an ‘overreaching superstate’ in some areas and would like to be one in many others (including foreign and defence policy). Examples include an excessively cautious approach to regulation, notably in biosciences and AI, the follies of the Common Agricultural Policy, and the bias towards tax harmonisation.

Or as Ryan Bourne put it back in 2016, “the EU is a one-way ratchet for more centralised power. It has as its driving ideology, not a vision which embraces diversity and competition between member states and real subsidiarity, but rather a top-down centralising agenda towards conformity.”

This still requires a judgement call about the trade-offs involved. Membership of the euro is a good example. On the plus side, sharing a single currency reduces transactions costs and allows some countries to borrow at lower interest rates than they would otherwise have done.

But the UK has decided (rightly, in my view) that it is worth retaining independence on monetary policy and a fully flexible exchange rate, which is a more obviously libertarian position. As it is, few would argue that the countries which have adopted the euro make up an ‘optimal currency area’. Instead, the euro is as much a political as an economic project.

In short, EU membership adds yet another layer of government, with a unitary approach to both tax and regulation hampering constructive competition between nations.

Secondly, Dr Comte argued that the UK had failed to take advantage of its new freedoms. Rather than moving in a more liberal direction after Brexit, the UK government has either taken on more powers for itself, or continued to tie itself closely to EU institutions.

This argument is also unconvincing. The UK government may have moved slowly but the direction of travel is clearly a more liberal one (at least in areas where policy was previously determined by the EU). Examples include the new system of agricultural subsidies (still too statist, but better than before), and the improvements to the regulation of the financial sector (including the ‘Edinburgh reforms’). The UK has also begun to sign new trade deals with third countries.

The ending of free movement from the EU is the most obvious exception. However, the post-Brexit migration regime is arguably a success story. The UK is now less dependent on low-cost labour from the EU, but overall levels of migration remain high, and there is some evidence of a positive association between non-EU migrants and productivity. Post-Brexit, the UK government has taken a very liberal approach to migration from Ukraine and Hong Kong.

Less positively, the UK has continued to tie itself closely to EU institutions in other areas. For example, Dr Comte criticised the UK for continuing to participate in European research funding, where decision-making is centralised in the hands of a select group of EU bureaucrats. Well, yes, but wasn’t the EU supposed to be a benign organisation that diffuses state power?

The upshot is that Brexit remains a work in progress. I disagree that it has shifted the UK even further away from the libertarian ideal of minimal state intervention. Instead, it is the EU that appears set on further centralisation of powers. But the jury is still out on the determination of this government – or a future one – to take full advantage of the opportunities that Brexit has created.

 

Julian Jessop is an independent economist with over thirty years of experience gained in the public sector, City and consultancy, including senior positions at HM Treasury, HSBC, Standard Chartered Bank and Capital Economics. He was Chief Economist and Head of the Brexit Unit at the IEA until December 2018 and continues to support our work, especially schools outreach, on a pro bono basis.


1 thought on “The libertarian case for Brexit – restated”

  1. Posted 28/03/2024 at 13:32 | Permalink

    Dear Mr. Jessop,

    I very much enjoyed your piece on the status of Brexit.

    If you will forgive my presumption, below are the links of two earlier articles of mine (from a free market, classical liberal perspective) that I wrote a while back on the Brexit vote and the choice facing the U.K. I thought you might find them of interest.

    “Self-Determination and Individual Choice in a Post-Brexit World”
    https://www.fff.org/explore-freedom/article/self-determination-individual-choice-post-brexit-world/

    and,
    “The Brexit Dilemma: Markets or Politics?”
    https://www.aier.org/article/the-brexit-dilemma-markets-or-politics/

    Most cordially,
    Dr. Richard Ebeling
    BB&T Professor of
    Ethics and Free Enterprise Leadership
    Baker School of Business
    The Citadel
    Charleston, South Carolina 29409
    [email protected]
    1-914-564-7030

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