• Tag Archives Brexit
  • The Unseen Economic Benefits of Brexit

    In a now-famous essay, “What is Seen and What Is Not Seen,” the great economist Frederic Bastiat warned against judging the value of any activity in a vacuum.

    Bastiat’s “broken window fallacy” brilliantly exposes a common tendency to focus on the visible, tangible benefits of an action—the “seen”—while neglecting the “unseen” penalties and long-term drawbacks associated with the same activity—the invisible cost of opportunities foregone.

    Though he wrote the essay in 19th-century France, Bastiat’s insights have a timeless wisdom. We live with the consequences of reductive “broken window” thinking every day, especially where public money is concerned. Politicians often praise the visible benefits of public spending, e.g. the number of jobs “created,” without considering whether the funds could have been spent more wisely elsewhere or even how the taxpayer might have spent the cash had it remained in his or her pocket.

    For my money, the fraught Brexit debate badly needs a dose of Bastiat.

    So far, discussions of the gains and losses of Brexit have understandably tended to focus on the most obvious costs, like the amount Britain may pay in any “Divorce Bill,” the potential “Brexit hit” to companies exporting to the EU, and so on. Of course, these concerns are vitally important, but our focus on the immediate costs of EU departure risks blinding us to the very real costs of maintaining the status quo.

    Membership in the European Union carries huge unseen penalties whose implications may not be immediately apparent. The EU’s Common External Tariff, for example, raises prices and so reduces the quantities of goods and services available to ordinary consumers. Since shoppers in the EU lack the counterfactual experience of trading at world prices, this penalty goes unnoticed, but it involves a misallocation of resources on a vast scale.

    In adopting the government’s proposed model for close customs cooperation and a common rulebook, we run the risk of finding ourselves with little scope to diverge from EU regulations on goods and unable in practice to strike new trade deals with the rest of the world.

    Negotiating the terms of our departure also comes with huge hidden dangers. In adopting the government’s proposed model for close customs cooperation and a common rulebook, we run the risk of finding ourselves with little scope to diverge from EU regulations on goods and unable in practice to strike new trade deals with the rest of the world. It is often pointed out that the UK’s interests in trade agreements are primarily in services, but this makes it even more vital to maintain flexibility over what we can concede in goods to incentivize potential trading partners to strike a deal. The status quo, or anything close to it, carries huge opportunity costs of its own.

    Due to a combination of the precautionary principle enshrined in the Lisbon Treaty and the difficulties of getting 28 countries to agree on anything, the EU, intentionally or not, often stands in the way of innovation.

    In particular, the precautionary principle, the preferred risk management strategy of EU regulators, places the onus on creators of new technologies to prove their invention is safe where some risk may exist—even if there’s no scientific consensus to suggest any actual harm will occur.

    The result? It’s often too much bother to innovate.

    During the 19th century, many viewed the emerging railways with a great deal of suspicion. As recorded by cultural anthropologist Genevieve Bell, critics of early locomotives believed “that women’s bodies were not designed to go at 50 miles an hour” and worried that their “uteruses would fly out of [their] bodies as they were accelerated to that speed.” Had Victorian Britain followed some version of the precautionary principle, it’s hard to imagine a single track of rail being laid given the levels of contemporary railway fear.

    Of course, moral panic over new technology is nothing new. Now, as in the 1850s, over-cautiousness risks hampering important drivers of future growth.

    So far, the European Union has taken only tentative steps towards regulating artificial intelligence and robotics, though they are currently consulting on the issue. Yet given the EU’s structure, history, and current trajectory, the balance of probability suggests AI will be the latest in a long line of missed technological opportunities.

    Take genetically modified crops. Since their commercialization in many parts of the world during the 1990s, GM crops have raised the quantity and quality of the global food supply while lowering fuel and energy usage, requiring fewer pesticides and reducing both soil erosion and carbon emissions—all with no scientifically-documented evidence of harm to human health. And yet, EU-wide precautionary thinking has meant a de facto ban on GM crops, only one variety of which has ever been approved and grown in Europe.

    While farmers outside the EU continue to develop newer, better technologies, hysteria over man-made pesticides has kept European farming methods behind the times. Ironically, foregoing the GM revolution in insect-resistant plant breeding has left European farmers more reliant on pesticides than ever (as has the ECJ’s foolhardy ruling on genome editing earlier this year).

    Just last week, the French Finance Minister claimed that EU member states are “very close” to agreeing on a counterproductive tax on the turnover of tech companies, a policy likely to discourage new entrants and inflate costs for consumers.

    Given all the above, are the EU’s hyper-cautious regulators likely to pursue a different path when it comes to AI and robotics? Or will it be “business as usual”—namely, when in doubt, tax and over-regulate? Certainly, initial signs, including misguided calls for a “robot tax” from the likes of Guy Verhovstadt, don’t inspire confidence.

    The EU’s new General Data Protection Regulation (GDPR), implemented earlier this year, will almost certainly hinder the development of artificial intelligence by raising costs and limiting access to data. In particular, Article 22 creates a new requirement for humans to review certain algorithmic decisions, a restriction that will significantly raise labor costs, thereby creating a strong disincentive from using AI. After all, the whole point of developing AI is to automate functions that would otherwise be slower, costlier, and more difficult to complete if performed by humans. If you have to get a human to explain the logic, why bother investing in an AI solution in the first place?

    These may seem like small concerns in the grand scheme of things, but taken as a whole—and the EU creates a whole lot of regulation—it adds up to an environment often hostile to innovation.

    It’s no coincidence that Europe has lagged behind the US for decades when it comes to new inventions, innovations, and entrepreneurship. There are of course important cultural differences between these continents, but much relates to the US government’s comparatively light-touch regulatory approach. Not for nothing are there no tech giants in Europe to rival Facebook, Google, Apple, or Amazon.

    Creating a competitive, innovation-friendly atmosphere is a huge potential hidden “win” of Brexit—with correspondingly huge opportunity costs from failing to do so. Indeed, with more leading universities than the rest of Europe put together and an already thriving tech sector, Britain has much to lose compared to many of its neighbors.

    One can only imagine what Frederic Bastiat would have made of things like robotics, AI, and machine learning. But I suspect the spirit of his advice would be the same: consider the unseen, and don’t destroy the jobs of the future in a misguided attempt to protect the jobs of today.

    Source: The Unseen Economic Benefits of Brexit – Foundation for Economic Education

  • Why the UK Chooses Free Trade

    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.

    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.

    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.

    Radomir Tylecote

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

    This article was originally published on FEE.org. Read the original article.

  • The Brexit Transition Period Would Literally Be EU-Colonialism

    As the Brexit negotiations between the United Kingdom and the European Union go into the next phase, the EU has suggested a transition period in which Britain essentially remains in the union for two more years. The government in London seems keen on the idea. The precedent, however, is incredible.

    A Really Bad Deal

    Prior to the phase 1 deal, the UK and the EU needed to reach an agreement on the following issues:

    1. Will there be a “hard border” (meaning: border checks and structural enforcement of customs rules) between the United Kingdom and the Republic of Ireland (which is a member of the EU)?
    2. Will EU citizens who reside in Britain keep the rights they had in the union? Essentially, it inquires if the ruling of the European Union Court of Justice will still apply on British soil.
    3. How much will the UK pay in outstanding payments to Brussels?

    On all three aspects, the government in Westminster has agreed to the requirements of the EU negotiating team. Theresa May’s government has agreed to payments up to £50 billion ($67.5 billion), diverting from the initial idea of only providing £20 billion (£27 billion). This has exposed May to considerable criticisms from both outside and inside of her own party, and rightfully so. With the UK having contributed to EU infrastructure for years, the EU’s demands can only be described as a rotten deal.

    Even more importantly, the EU has negotiated a transition period, which will apply from the moment when the Brits leave the European Union in March of 2019, for a duration of two years. During this period, the UK will be required to apply all old and new EU rules and regulations and pay membership contributions but without having any representation in committees, the European Parliament, the European Council, the European Commission, Citizens Dialogue, or Council of Ministers. Imagine this for a second.

    Imagine the United States was required to accept rules made in Ottawa, was obliged to pay for infrastructure and implementation costs of these rules, all while its people get no say in the drafting of these legislations. The British Conservative Member of Parliament Jacob Reese-Mogg referred to this situation as the transformation of his country into a vessel state of the EU, or even a “colony“. The irony of the former British Empire to become administrated by Brussels is truly fascinating.

    Why Is the British Government So Weak?

    Even after multiple questions, the British government refuses to answer whether or not it is prepared to accept the suggested transition period. However, its consent to the suggestion seems almost implied, as current discussions revolve around how long the period will be, not the specificity of the rules that will continue to apply.

    If the judgments of the European Union’s Court of Justice (ECJ) would apply in the UK, this would ask legitimate questions about the rule of law, as you’d effectively create different classes of citizens. If the US Supreme Court would enforce the second amendment in Britain, giving US citizens on British soil the right to bear arms, it’d be imaginable that London, which imposes very strict gun control, would have considerable objections. Why then is it odd to claim that ECJ rulings should not apply in the UK?

    Most importantly though: why is the British government so easy to convince of the ludicrous demands coming from Brussels? Prime Minister Theresa May has been leading a weak government which hasn’t negotiated the EU’s demands thoroughly but almost entirely accepted them as they came in. From the union’s point of view, this is an absolute success according to their goals: as rising Euroscepticism hits countries such as Poland, Hungary, and Italy, Brussels wants to make it absolutely clear that exiting the EU is a rotten deal.

    And yes, it happens to be true that if economies the likes of Poland would leave the EU, trade relations would be absolutely vital for their economy. For the UK however, which imports large quantities of German cars or French wine, there would indeed be the possibility of negotiating differently on Brexit.

    “No deal is better than a bad deal” should be the mantra of Theresa May. Not only is Britain in an economic situation in which it does not have to solely rely on the European continent, but it would defy the bullying tactics of Brussels.

    Voting for Brexit was not enough. Now Britain needs to double down.

    Bill Wirtz

    Bill Wirtz is a Young Voices Advocate. His work has been featured in several outlets, including Newsweek, Rare, RealClear, CityAM, Le Monde and Le Figaro. He also works as a Policy Analyst for the Consumer Choice Center.

    This article was originally published on FEE.org. Read the original article.