George Magnus is for the former Chief Economist of UBS and Associate at Oxford University’s China Centre.
Economists for Free Trade (EfFT), a small pro-Brexit group, claimed earlier this year and again this month to the Pavlovian joy of the Brexit-leaning media, that leaving the single market and the customs union would deliver a boost to the UK economy of around 7% of GDP, worth about £135 billion per annum. Here is why the claim is misleading, and why those propagating it are the carpetbaggers of Brexit.
The term “carpetbagger”, originally used by Southerners in the US against Northerners in the aftermath of the Civil War, was used pejoratively to denote the latter’s opportunism and manipulation. The idea that leaving the EU will be a magic bullet for the UK fits this kind of narrative well.
How do they get to 7% of GDP? About 0.4% comes equally from an alleged subsidy to EU unskilled migrants and “other” factors, and 0.6% from not paying any more contributions to the EU. Curiously, these benefits enter into Professor Patrick Minford’s economic model as an income tax cut. A bonfire of regulations, worth 2%, is modelled as a fall in employers’ National Insurance Contributions. Free trade, or cutting tariffs once we leave the EU, generates the lion’s share of the boost, or, 4% of GDP.
It is no surprise that these modelling techniques generate a big rise in GDP, but you might think, correctly, that they are extremely spurious and unrealistic. It is also risible to think that the UK will be able to commercialise a bonfire of EU regulations, when we will have no choice but to introduce our own new laws and regulations, not least as we subscribe to those of others in new trading arrangements.
The most egregious misrepresentation, though, concerns the purported gains from free trade. EfFT refuse to admit that there is no such thing as free trade. There is only negotiation to minimise the barriers to trade. As an EU member, the UK is already in the largest free trade area in the world, where the elimination of regulatory barriers, spur to competition, and assurances about the quality of goods and services, for example affecting food, chemicals, airline and transportation services, are about as advanced as anywhere in the world.
Just looking at the world of trade through the lens of tariffs is like driving a car with only one eye open and blacked out side and rear windows. And if we did unilaterally eliminate tariffs outside the EU, imports would flood in, our manufacturing would be mothballed, and sterling would plunge. We would be poorer, and no country would follow us. The whole idea is an ideological fantasy.
EfFT also commit schoolboy errors by assuming that the only factor that determines trade is price. It showcases huge gains in trade, therefore, from relatively small changes in trade prices. But this is fantasy too. We might prefer to buy Italian, rather than Indian lighting products, German rather than Chinese machine tools, and Dutch/EU poultry rather than the American chlorine-washed variety. We have supply chains in our geography because they work commercially and technically. Non-tariff barriers, which are increasingly important in trade, managing currency risk, and dispute settlement procedures and legal infrastructure, all figure in the way we do trade. Prices are just one factor among many, and not even the most important.
We should not be fooled by the carpetbaggers’ flawed economic model, nor their claims. Leaving the single market and the customs union is an unequivocally damaging act economically, and it will make us poorer, unless otherwise mitigated.
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Edited by Hugo Dixon
Far the biggest negative, not noticed by Minford, is the continued exit of economic actors and potential investors. Why would they stay? And a minor factor will be the disdain of previous EU business partners for trade with us on any terms at all. And I would like to see listed the EU regulations that Brexiteers are keenest to escape.
Minford is a typical academic with no experience in a real world pushing his pet thesis. Just lately even he is covering his backside with qualified commentary to justify his entirely weak Smithsonisn fascist hypotheses that a totally deregulated anarchistic market will lead to a fair society when in reality, as Thacher proved, a new model economy leads to mass unemployment, a divided society and boom/bust economy based on greed. Minford s a fake. A white supremacist and cruel selfish individual
Can INFACTS please run an article critiquing the work on Minford? At the moment he seems to be the held in awe by Brexiteer politicians and other advocates alike. Due to the fact that he says things that look like will personally be to their advantage, the downside of his theories are never explored. I think an expose of his theories to real scrutiny in layman’s language, might wake some people up. Waiting for a really penetrating interview of one of his Brexit babes by the media, seems to be a long time coming.
How about these quotes from Minford prior to the referendum? This is an honest appraisal of what world free trade would bring giving, as it would, full reign to the lowest price provider anywhere in the world – whatever the wages or conditions of workers.
“Over time, if we left the EU, it seems likely that we would mostly eliminate manufacturing, leaving mainly industries such as design, marketing and hi-tech. But this shouldn’t scare us.
“Around half of young adults now go to university, ending up in professions such as finance or law, while the making of things such as car parts or carpentry has hugely shrunk — but there will always be jobs for people without sophisticated skills.
“Of course leaving the EU will be difficult, and something that needs careful negotiation, but we must completely withdraw to gain these benefits.”
“It is perfectly true that if you remove protection of the sort that has been given particularly to the car industry and other manufacturing industries inside the protective wall, you will have a change in the situation facing that industry, and you are going to have to run it down. It will be in your interests to do it, just as in the same way we ran down the coal and steel industries. These things happen as evolution takes place in your economy.”
A “bonfire of regulations” that’s a laugh, the government’s own regulations hit the roof with one of the first forms that EU. Citizens have to complete if they want to stay in the UK. is 95pages long ! He’s living in cloud cuckoo land!
You raise very valid points and questions and this is the crux of our dilemma. Forgive my rather long answer below but please bear with me…..
Having just investigated some widespread media criticisms of Sir Patrick Minford it seems the media have been misrepresenting his/ERG strategy and misleading the public.
For example… Minford was stating – with poor or misrepresented phrasing – that just like UK steel and coal industries were being undercut by suppliers in other countries (which we know to be true) so traditional UK manufacturing making widgets etc would experience undercutting by manufacturing in other countries, and we should therefore protect our country by focusing on what we do really well and uniquely instead of competing in a race to the bottom on such manufacturing which does nobody any good,
He also correctly predicted that manufacturing would NOT follow the gravity model, and that relying on manufacturing staying close to the customer (EU) is a mistaken belief. Honda and Toyota have just proved him absolutely right by moving their future manufacturing to Japan – half a world away from their EU customers.
So Minford’s recommendation to focus on the USP of the UK and deliver services (insurance, banking, advertising, PR, design recruitment, IT, etc) and products (e.g. Video games, computer software, phone apps, music/bands, films) to customers worldwide is “spot on”.
Media reporters also forgot to mention that Minford recommended careful negotiation with the EU and a 10-year transition period. Neither of which this Government have delivered on.
So to answer your question – my feeling is that the Brexiters that follow the doctrine I have described above are the best ones to take control of the economy, and over 10 years adjust it to position our services and products (as mentioned) to be the key features.
But if I’ve misunderstood please feel free to point out where my error lies….