The Brexit Dilemma: Laissez-Faire Capitalism or Regulatory Statism?

by | Mar 23, 2019 | Europe

The best solution would be if the British authorities followed a policy of laissez-faire.

For more than two years now, the United Kingdom and the European Union have been in a crisis mode over how and under what terms the U.K. will leave the EU, following the June 2016 referendum on Britain’s formal departure from the Europe-wide organization. The end of March 2019 marks the deadline for the U.K.’s withdrawal from the European Union, but tensions and differences between London and Brussels and within Britain itself are creating a high degree of uncertainty about the general political and economic future of the entire region.

The great shock from which there has not yet been a full recovery was the actual outcome of the referendum. While commentators and political bet makers all thought the vote would be close, virtually all of them expected the ballot result to be for remaining within the EU. That 52 percent of the total U.K. vote was for withdrawal from the European Union was an earthquake-like surprise.

Brexit Vote Created a Divided U.K.

Not that the vote was the same throughout the U.K. The regional voting disparities could not have been more stark. In England and Wales, the “leave” vote was 53 percent in each. But in Scotland, a 60 percent majority vote was for staying in the EU, and in Northern Ireland the vote for remaining within the European Union was 56 percent. While most of England voted to go, London and the immediately surrounding areas voted 60 percent to stay in the EU. (See my articles The Future of the UK After Leaving The EU: Capitalism or Socialism? and A Post-Brexit World.)

Following the vote, U.K. Prime Minister David Cameron stepped down and was replaced with Theresa May in July 2016. A year later, in June 2017, she called a snap election, thinking that it would add to her Conservative party’s majority in Parliament and therefore strengthen her hand in the Brexit negotiations with EU authorities in Brussels. Instead, the Conservatives experienced a fall in the number of their seats in Parliament, weakening May’s government at home and its ability to negotiate its withdrawal from the EU.

Finally, in the middle of November 2018, a more than 500-page draft agreement on the post-Brexit relationship between the U.K. and the EU was released to the public. It has satisfied very few. Indeed, in mid-December it resulted in a vote of no confidence against Theresa May among her own Conservative party members in Parliament. The vote narrowly failed based on her promise not to run again as leader of the party in the 2020 general election.

A planned vote in Parliament in December 2018 on the Brexit agreement had to be taken off the table because of the likelihood of its defeat, and has now been rescheduled by Prime Minister May for the week of January 14, 2019.

Brexit Battle Lines in Britain and Brussels

From the start, both France and Germany were clearly determined to make the negotiations as difficult and uncompromising as possible, for fear that a British withdrawal from the EU with few negative consequences for the seceding nation would set a bad precedent for any other countries thinking of leaving the European Union. The British, on the other hand, seemed to want to have their cake and eat it too. That is, they wanted all the discretionary benefits of decision-making independent of the central planners and regulators in Brussels while having the same fairly unlimited relationship with the other EU members as well as avoiding the tax and interventionist responsibilities of membership.

It was not going to go well, and it has not. The draft agreement has upset those most adamant on the desirability of the U.K.’s departure from the EU. Many of them consider continuing participation in the EU as the persistence of a feudal arrangement in which the political lords of the manor in Brussels dictate social, economic, and cultural policy to the people of the United Kingdom; staying in the EU would only mean continuing a diminished right of self-rule and self-determination.

Many of the advocates of remaining in the EU view the Brexiteers as nationalists determined to turn back the clock and make the U.K. an isolated and culturally and economically backward country off the coast of Europe. As they see it, only retaining full membership in the European Union can ensure the U.K.’s enlightened interaction with and participation in the world through the institutions of the EU.

When Saying Goodbye Leaves You Still Staying

The draft agreement, therefore, made the advocates on both sides very unhappy. The key to the conflicts and contradictions in the draft agreement is the border between the Republic of Ireland and Northern Ireland. A full break with the European Union would place the U.K. outside of the EU customs union, which would result in the reinstatement of a “hard border” between the two parts of Ireland. Neither Dublin nor Belfast (as reflected in the 53 percent vote in the North to remain in the EU) wants a return to border controls and restrictions.

But if there is to remain a fairly free flow of people, money, and goods between the Irish Republic and the North, the Brussels bureaucrats and political planners demand, the entire U.K. must keep the trade and investment rules and regulations of the EU. Otherwise, the British government could introduce third-party trade agreements with countries outside of the EU or legislate cost-competitive regulations and taxes that would undermine the tightly woven tapestry of EU-wide oversight of the production, pricing, and exchanging of goods and services that serve as trade protections against competition from beyond the borders of the EU as well as among the member states.

Thus, the U.K. would remain, for all intents and purposes, under the tutelage of the political and bureaucratic EU governmental structure of command and control. The United Kingdom would have, de jure, withdrawn from the European Union, but, de facto, would remain a vassal of the feudal rulers in Brussels. The British parliament would not have the power or authority to freely enter into trading relationships with other nations outside of the EU or change its own regulatory rules and taxing policies (which could be less or more restraining than those emanating from Brussels) independent of EU approval.

The clock officially runs out on March 29, 2019, when the United Kingdom formally leaves the European Union. There is supposed to be a transition period running into 2020 as the terms of the Brexit agreement are fully implemented. But right now no one knows for sure what those terms of agreement will be or the nature, therefore, of the transitional adjustments that may have to be made.

The reason for this uncertainty concerns whether there is any significant wiggle room between London and Brussels for tweaking the draft agreement in such a way that it will win the unanimous agreement of the remaining 27 members of the European Union and get the necessary votes in Parliament to be passed into law. And this needs to be worked out, if it is possible, before the mid-January 2019 vote that Theresa May has now set on the draft agreement in Parliament.

From Free Trade Dream to Regulatory Reality

It is easy to get lost in the weeds and lose sight of the wider picture in all this, which concerns the nature of government and the economy. In the 1950s, some of those who worked for a European Common Market did so because they saw it as a means to two desirable ends: First, they wanted an intensified interdependency between the economies of Europe, especially those of Germany and France, through a system of free trade that would help diminish the likelihood of another catastrophic war like World Wars I and II among the nations of Europe.

Second, they considered a Europe-wide free trade zone as the entrée to a better world of freedom and free enterprise with the free movement of people, goods, and money. Gone would be the customs barriers, the passport controls, and the restrictions on cross-border investments. Higher standards of living would be experienced over time by all, with market competition and profit opportunities directing the flow of investment, production, and employment across Europe, from which all would benefit compared to beggar-thy-neighbor policies and attempts at economic self-sufficiency in the years between the two world wars.

Unfortunately, even before the ink was dry on the 1957 agreement that formally created the Common Market (which the U.K. joined in 1973), the direction of Europe-wide policy by the soon-growing number of member countries was increasingly interventionist.

Agricultural Subsidies and Industrial Policy

For instance, the common agricultural policy has been a money pit at taxpayers’ expense to support inefficient and out-of-date farmers. In 2018, the Brussels bureaucrats will have paid  the farmers 160 billion euros ($66. 47 billion) out of an overall EU budget of 160. 11 billion euros ($181 billion), or nearly 37 percent of all the money the European Union authorities will have spent this year.

According to the EU, there are about 11 million farm households among the member states. While farm-household income varies widely among the member countries, from a high of 50,000 euros in the Netherlands to less than 10,000 euros in at least 10 Eastern European members, the average across the EU was about 15,000 euros in 2017. The European Union spent in subsidies over 6,000 euros per farm household in 2018. In the Netherlands, that represents about 12 percent of farm-household income. For those farmers earning 10,000 euros or less, that represents 60 percent or more of household income.

At the same time, the EU has budgeted over 110 billion euros ($125 billion) for subsidizing “innovation,” small- and medium-size business enterprises, “competitiveness,” and a “low-carbon” future economy. In this manner, the Brussels bureaucracy “guides” the current and future direction of a good part of the European economy’s production, products, and market share.

The U.K., as a member nation, receives some of those farm and industrial and enterprise subsidies from the common EU fiscal pot. But in 2017, the British government paid a total of 13 billion pounds ($16.4 billion) to the EU and received transfers equal to 4 billion pounds ($5.04 billion), making the United Kingdom a net taxpayer of some 9 billion pounds ($11.35 billion) to subsidize others in the European Union, including the Brussels bureaucracy itself.

The Spider’s Web of Regulations and Controls

Less visible than the actual eurocosts of taxes and expenditures by the EU bureaucracy are the layers of meticulous regulations, restrictions, controls, and prohibitions on virtually every aspect of European producer and consumer life. There are over 40,000 legal acts that impose Brussels’ commands on business, industry, retail, and consumer choices; in addition, the EU bureaucracy has implemented more than 62,000 production and manufacturing and retailing standards on private and public enterprises within its jurisdiction.

Through this method — in the name of safety, health, the environment, and fair competition — the Brussels bureaucracy serves as a 21st-century form of the medieval guild system in which work and reward are strictly constrained into those forms and patterns that serve the ideological and material interests of the EU paternalistic planners and the existing producers wishing to limit innovations by newcomers or existing competitors wanting to get ahead of their rivals.

Once decided upon in Brussels, the details and enforcement of these rules and regulations cannot be easily changed by any of the member countries. This regime of virtual regulatory dictatorship is what has irked many in the member countries, with the U.K.’s vote to leave merely the most extreme instance of this anger about and resentment against the political haughtiness of those who reign in the EU halls of power. (See my article The European Union and the Interventionist State.)

Many Critics of the EU Merely Want National Regulations Instead

Many of the critics of European Union rules and regulations make a point of challenging them on the ground that they are anti-democratic impositions by a self-appointed political and bureaucratic elite who are sitting in faraway Brussels insensitive to the actual demands and desires of the citizens of the member nations. Their coercing commands and paternalist prohibitions disregard the cultures, customs, and local wishes of the people living in their own corners of the EU.

In fact, in many instances, these critics in a number of, especially, Eastern European countries resent Brussels not because the EU insists upon imposing interventionist and redistributive schemes on national citizens per se; it is that ideological and vested interest groups in these member nations want to utilize the same type of interventionist policy tools in the boundaries of their own lands, but in ways that further different ideological goals and alternative economic ends than the ones that the Brussels bureaucrats are advancing.

Thus, the battle between Brussels and national groups resentful of EU centralization of decision-making is, in reality, merely a fight over at what level the power of the government will be given the authority to utilize the policy tool kit of the interventionist welfare state: the central authorities in each nation’s capital, or the centralized authority in EU-wide Brussels?

The idea that the politicians in a national capital or a political and bureaucratic elite in the European Union’s headquarters should not intervene in the marketplace affairs of the citizens, should not restrict or command the forms and patterns of peaceful and voluntary cultural choices of various peoples, and should not attempt to remake society and undermine the emergent institutions of civil society rarely enters into anyone’s head.

This is no less the case in the United Kingdom. There are some participating in the debates over Brexit who clearly want to free the U.K. from the regulatory restraints imposed by Brussels so freer trade agreements may be entered into with countries outside of the European Union’s protectionist trading belt. They also wish to see the U.K. free to lower taxes and reduce or even repeal a variety of anti-competitive regulations and restraints to make the country economically freer and more prosperous.

However, neither the majority of the Conservative party, let alone the Labor party, sees the freeing of the U.K. from European Union control as the gateway to the reestablishment of a laissez-faire U.K. Instead, the political control over regulation and redistribution would be returned to the hands of those elected to Parliament and those who are given oversight powers and responsibilities in the permanent British bureaucracy.

Peace, Retrenchment, and Reform, a True Brexit Policy

The best solution would be if the British authorities followed a policy of laissez-faire. What would this mean? On the day that Brexit takes effect at the end of March 2019, the British government should implement a unilateral policy of free trade between the United Kingdom and both the European Union and the rest of the world. It should announce a public policy agenda of peace, retrenchment, and reform — a harking back to the more classical-liberal days of 19th-century U.K.

The external policy of the United Kingdom would be one of non-intervention in the affairs of other nations, and a respect for and protection of all forms of mutually beneficial trades and transactions that the citizens of the British Isles found it advantageous to enter into with any and all other individuals around the world.

Retrenchment would indicate an intention to reduce and even repeal all forms of government intervention and regulation in the personal, social, and market interactions of the U.K.’s citizens that do not involve private violations of the life, liberty, or honestly acquired property of others in society. This would clearly involve a radical reduction in government spending and taxing.

Retrenchment would also mean a series of reforms to eliminate all government restrictions on and interferences with people’s personal and civil liberties. This would include the repeal of the welfare state and the opening of the for-profit and voluntary associative activities of civil society to transition to fulfilling the retirement, health care, and other goals of the human community. (See my article The Benevolence of Capitalism vs The Paternalism of the Welfare State.)

Unfortunately, it is highly unlikely that either Parliament or the European Union decision-makers will opt for or allow the emergence of such a far more reasonable and rational classical-liberal solution to Brexit and the future of Europe. But it nonetheless represents the alternative that would do the most to foster freedom, prosperity, and peace among the countries involved and the other nations of the world.

This article was originally published at The American Institute for Economic Research.

Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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