Escape Brussels, save 4% of GDP
Democratic process, economic progress
by Patrick Minford in Cardiff
Thu 5 May 2016
Many British citizens want self-government again, as they had for hundreds of years before the ‘common market’ they joined became a European super-state on the way to ‘ever closer union’.
This seems reasonable. Under the rules of British democracy, citizens are always able to eject the government through a general election. However, whatever they do about the elite that governs the European Union, they can never get rid of it or change its decisions.
This is seen as the political case for Brexit. But in truth it is as much the economic case. Not being able to learn from economic mistakes or compel rulers to revise their policies is a serious problem of political economy. For all its faults, the UK democratic process is a better mechanism for economic policy progress, as reform programmes since 1979 have shown.
My research on the European economy points to major costs associated with staying in the EU*.
The EU is a customs union that erects a tariff and non-tariff wall around EU member states. This customs union is highly protectionist and raises the prices of protected goods, including agriculture and manufactured goods. Far from being a free market ‘paradise’, the EU market has prices well above world prices, and twists the shape of our economy towards these protected goods.
Consumers pay excessive prices for much of their shopping basket. Because we buy more from the rest of the EU than we sell back at these inflated prices, some of this price excess goes straight into the pockets of industry in the rest of the EU. This loss of free trade overall costs us around 4% of GDP.
Trade costs are just the start. EU regulations are the result of lobbying by major industries and trade unions in Brussels, and of the ‘qualified majority’ views of other EU governments, which usually oppose UK thinking. Whether one looks at climate change and energy, finance, labour market rules, or any of the myriad details of industrial standards, one finds numerous ways in which these deviate from what the UK would put in place.
It is said that we would have to keep these regulations if we were to continue to export to the EU, but this is manifestly false. Our goods exporters, which account for 10% of UK GDP, would have to adhere to EU rules for imported goods. But the other 90% of the economy would not. EU regulation, if pushed hard to suit the qualified majorities of EU members, could cause massive damage to our economy – and it has already had a serious net cost. To these estimated costs we need to add the ‘dynamic’ costs of these regulations in discouraging growth. EU growth has slowed in recent decades and our growth could go the same way.
Last but not least there is the political problem of migration. It makes both political and economic sense to have an overall limit and make it non-discriminatory across all immigrants.
I will be voting to leave on 23 June – for Britain to once again become a self-governing country trading globally with home-produced regulations and full control of its borders and economy.
*Should Britain Leave the EU?: An Economic Analysis of a Troubled Relationship, by Patrick Minford and co-authors Sakshi Gupta, Mai Le, Vidya Mahambare and Yongdeng Xu, second edition, 2015.
Patrick Minford is Professor of Applied Economics at Cardiff Business School. This is No.49 in the series.
OMFIF’s series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.
Tell a friend