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Friday, March 30, 2018

Why the UK Chooses Free Trade

Freeing trade is one of the confident choices we must now make.

In a few short weeks, Britain will begin negotiations with the EU on how we will trade in the years ahead; in the next three years, the return of Britain’s capacity for self-government will give us the chance to trade freely with the rest of the world once more. To grasp these opportunities will require confident choices.

Sir Kenneth Clarke wrote that it is a lack of confidence, more than anything else, that kills a civilization. It would be hard to say Greece within the Eurozone, for example, is not a case in point. Countries often forget the attitudes that made them flourish: bad choices may follow leadership, and too many bad choices means demise. Freeing trade is one of the confident choices we must now make.

Free Trade Generates Wealth

In The Wealth of Nations of 1776, Adam Smith first uncovered why freeing trade can generate wealth for all parties involved, because countries could export what they make efficiently and import what they cannot:

The tailor does not attempt to make his own shoes, but buys them off the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor… What is prudence in the conduct of every private family can scarcely be folly in that of a great kingdom.

To trade freely, then, is to choose real social justice.

In our day, this means that by allowing farmers in the developing world, for example, to import without tariffs results in higher incomes for them and cheaper food for Britain’s poor. To trade freely, then, is to choose real social justice. Smith also showed how it is still worth choosing free trade even if we don’t expect reciprocation: a country gains just by importing things made more cheaply by others.

Today, what a country like Britain does most efficiently is neither shoemaking nor tailoring, but the production of knowledge-intensive services. Yet these are increasingly at risk. The arrival of the “MiFID II” regulations in the City shows how EU rules are now so burdensome that, just weeks after the imposition of this 7,000-page set of regulations, firms are already moving business elsewhere (witness the InterContinental Exchange moving trades to the US). To apply Smith’s insight today must mean not only removing tariffs but being able to make our own, pro-competitive, regulation. Our inability to do so is already destroying prosperity.

Adam Smith also knew that economies thrived on their values. And free trade is part of the greatest of these, democracy. It was no coincidence that Britain’s Corn Laws, the tariffs on imported grain which the landowning aristocracy generally supported, could only be repealed in 1846, after the Great Reform Act gave the vote to so many who had been made hungry by them.

Limited Freedom

But in the EU today, the man on the street finds his Parliament no longer has the authority—the sovereignty—to repeal the modern equivalents, like the Common Agricultural Policy. The free trade cause, whose defense a century ago drew tens of thousands to the streets, has been taken from the people’s hands and given to technocrats. Because free trade depended on popular representation in Parliament is why technocrats in undemocratic systems, from Brussels to Beijing, have tended to choose protectionism instead. In these systems, leaders keep subsidies and favors flowing to client groups who are protected by tariffs and regulation designed to favor incumbents—and from incumbents, these elites expect support. So it is free trade that reminds us that the building block of true internationalism is the democratic nation-state itself.

The free trade cause has been taken from the people’s hands and given to technocrats.

Because the mercantilist alternative keeps incumbents at the top and tends to prevent the emergence of innovative challenger firms, growth is reduced, which in a developed country is largely the fruit of innovation. In Britain, regional inequality also follows, as big corporates, disproportionately in the southeast of England, outflank smaller firms elsewhere. This limited freedom and stalled prosperity has become the status quo.

So Brexit has arrived at a critical time. Global economic output has slowed and trade as a share of GDP has fallen. It is not inevitable that the world’s wealth will keep growing: we forget at our peril that poverty typifies the human experience. Through the span of human history, very few states have achieved any economic growth. Prosperity is only achieved following specific choices, which need urgently to be re-made. This means choosing a self-governing, free, and free-trading state, setting rules and regulations ourselves. If Britain, and other Western countries, do not find the confidence to do this, they will lapse back into the normal state of mankind: prosperity only for elites, who maintain their grip by curtailing freedoms.

We choose free trade, then, because that cannot be our future. In his great poem Ulysses, Tennyson imagined the Greek hero of the Odyssey, old in years but vowing once more to look out across the sea:

There lies the port; the vessel puffs her sail… Come, my friends, ‘T is not too late to seek a newer world.

Free exchange between free people is not just a good in itself, but makes people everywhere more prosperous. That is why, in 2018, Britain must choose free trade.

Reprinted from CAPX.

  • Dr. Radomir Tylecote is Senior Research Analyst of the Legatum Institute's Special Trade Commission.