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Thursday, July 14, 2016

How to Save Brexit from the Brexiteers

Britain should join the European market, even if nobody really wants to.

If the so-called “European Free Trade Association/European Economic Area 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.

The single market is the Pinot Grigio of post-Brexit policies. “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.

What Liberals Wanted from Brexit – and the EU

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.

For Liberals, Brexit was about playing the odds.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.

Britons Are Not Yearning to Be Singapore 

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.

British bureaucracy far exceeds EU mandates.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 marketsfinancial marketsenergy 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.

“Control” Is Not the Rally Cry of Freedom

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.”

The deregulation that is possible is available inside the single market.You have noticed the pattern. Those liberal reforms which can be considered realistic – agriculture reform, fisheries reform, freer trade, tax cuts – are also the ones that 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 that are incompatible with single market membership are also the ones that 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 of the 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.

A verison of this article first appeared at the Institute for Economic Affairs (UK).

  • Dr. Kristian Niemietz is the Institute for Economic Affairs' Head of Health and Welfare.