Free Trade, Brexit and the European Union

Throughout the EU referendum and the subsequent wranglings over what form Brexit should take, one of the arguments put forward by opponents of the European Union has been the assertion that the EU is an enemy of free trade. Tariffs that the EU imposes on certain types of goods imported from non-EU countries, eg. agricultural produce from African countries or clothing from China, are cited as examples of a protectionist policy that both helps to perpetuate poverty in the developing world and to punish European consumers by denying them access to cheap goods. The need for Britain to strike free trade deals with growing economies across the world has been pushed as one of the main arguments for Brexit, with cheaper food, clothing and footwear being touted by the likes of Jacob Rees-Mogg as some of the tangible benefits that will accrue to the ordinary British shopper.
With the looming possibility of a ‘no deal’ Brexit, this depiction of the EU as an essentially protectionist institution seems to have grown in popularity, and I have heard it used frequently in recent weeks as a way of urging the complete disassociation of Britain from the EU’s single market and customs union. Outside of these institutions, it is claimed, Britain will be able to thrive by slashing or completely removing all tariff barriers with the rest of the world, to the benefit of consumers and, ultimately,the UK economy as a whole.
Just this morning I heard someone on the radio (I didn’t catch who he was, probably a spokesperson from some think-tank or other) putting the case for free-trade as a way of generating economic growth and national prosperity, and framing it as an argument for leaving the EU and not remaining a part of the EU customs union. In other words, an attempt is being made to use the powerful and persuasive economic arguments about why free trade is superior to protectionism, in the service of a hard-Brexit stance.
This approach is, in my opinion, either dishonest or mistaken. One of the reasons that I voted for Britain to remain in the EU, and that I would, even if Brexit happens, like us to remain in the customs union and, ideally, the European Economic Area as well,is the fact that I am a supporter of free trade. I’m sure this is true for many, if not most, of those who voted Remain in the referendum. And, of course, the party which is most strongly associated with the Remain position, the Liberal Democrats, is also the party which – both in its current form and as the Liberal Party - has historically been most strongly associated with advocacy of free trade and opposition to protectionism.
The European Union is the largest single market on the planet, and provides for completely tariff-free trade between all member countries. This freedom of trade is further assisted by a common regulatory regime which serves to minimise ‘non-tariff barriers’ such as differences in product standards, food safety regulations etc. It also provides a common minimum set of standards in workers' rights and environmental protections in order to prevent a 'race to the bottom' which could, otherwise, be a downside to the benefits of international free trade.
As well as freedom of movement for goods, services and capital, the EU guarantees the free movement of EU citizens across all internal European borders. This is crucial, because the same logic which demonstrates the harm caused by the erection of barriers to free trade in goods and services, and to the free movement of capital for investment, makes it inevitable that barriers to the free movement of that other factor of production, labour, will also be economically damaging. Yet many of those who ostensibly champion the benefits of free trade in order to bolster support for a hard Brexit are the same people who argue that Britain needs to 'take back control' of its borders.
As well as its internal free trade, the EU has free trade deals with many other countries, all of which will cease to apply to the UK after Brexit. And even if the UK were to unilaterally apply zero tariffs on imports after Brexit, this would not prevent other countries applying tariffs against Britain which would, of course, have a damaging effect on our exports and, therefore, on the British economy in general.
If Britain really is a champion of free trade then it would seem to be a very retrograde move to be about to leave such a gigantic and well established free trade block which also happens to be literally on our doorstep, while simultaneously opting out of all the existing free trade agreements hitherto negotiated on our behalf by that block, and having to begin again, from a much weaker starting point. To claim to be doing it in the name of free trade seems positively deluded.

Aside from all the xenophobia and misogyny...

...Trump's policies will be bad for the US (and consequently the world's) economy. Protectionism can create jobs in the protected sectors but because those goods will then be more expensive, consumers have less to spend on other items, which means job losses for those who produce those items, as well as poorer consumers. Protectionism is robbing Peter to pay Paul and then robbing Paul as well! The markets are already reacting badly.

Initial thoughts on the Brexit vote

I think there are potentially a lot of bad consequences of yesterday's vote. But hopefully President Obama meant it when he said we would be "at the back of the queue" for a trade deal with America. At least that way we might now have seen the back of TTIP as far as the UK (or whatever's left of it) is concerned.

Why progressive taxation is better than 'People's Quantitative Easing'

Jeremy Corbyn and John McDonnell and their economic guru Richard Murphy have spoken frequently of their plan to use quantitative easing (increasing the supply of money in the economy) to help fund projects such as housing construction, green energy production, digital infrastructure etc, as a way of creating jobs, getting the economy moving and solving some of the social and environmental problems that we currently face.
While I agree that these are laudible aims, I am not sure that quantitative easing (QE) is the best way for a future Labour government to go about raising revenue.  My reason for this is as follows:
Any increase in the supply of money inevitably decreases the value of money that people already hold, and this affects everyone in equal proportion, eg. a 2% increase in the supply of money means that, all things being equal, the value of all previously existing money decreases by exactly 2%.  In other words, QE operates as if it were a flat tax on everyone, including the low paid and those on benefits.  And since those with low incomes spend a higher proportion of their earnings on essential goods, they are more detrimentally affected by a decrease in the value of their money than those who have more of the stuff. QE, therefore, like VAT, is effectively a form of regressive taxation.
There is an argument, which may well be correct, that as long as there is excess capacity in the economy then increasing the money supply to fund investment should not cause inflation - the increase in available goods and services should counteract it (because the more products that are vying to be bought by those that have money, the greater the demand for money, thus increasing the value of money relative to those products).  However, even if this is the case, it means that, to the extent that the increase in goods and services were to be funded by some other method  - one which did not impact on the low paid - those at the lower end of the economic scale would benefit from an increase in purchasing power, which QE denies them.
For these reasons, I think that a better way to fund necessary and beneficial infrastructure projects would be to use some form of progressive taxation - rather than QE which, as explained above, is effectively a flat tax - so that the real cost of investment is distributed in a way that does not impact disproportionately on the low paid.

The Fiscal Charter: Damned if you support, damned if you oppose

I think John McDonnell and the Labour leadership were right to oppose George Osborne's Fiscal Charter yesterday. It is not the job of the current government to try to impose it's will on future governments. It is for future electorates to decide what kind of government they wish to install in 2020 and beyond, and to decide what type of economic policies to oppose or support.
The Fiscal Charter is clearly nothing more than a publicity stunt designed to either undermine Labour's credibility as an anti-austerity party (had they supported it) or to make them appear economically irresponsible in the eyes of the general public in the event that - as was the case - they opposed it.
Perhaps the best approach would have been a mass abstention on the part of the parliamentary Labour party. This would have avoided disunity in the party ranks while treating the Fiscal Charter with the contempt it deserves.

Conservative Socialism

Socialists usually see themselves as progressives, helping to drive society forward, away from the outmoded social forms of the past towards a more rational, scientifically based future.
A (small c) conservative socialism (as conceived by me!) would be about recognising that socialism can be a force for holding on to what is worth preserving in a world where rampant capitalism is rapidly destroying traditional values and social stuctures and riding roughshod over local economies as well as causing enormous environmental damage.

What makes conservative socialism conservative?
- In the field of economics, a conservative socialism would recognise that competition and market forces are very efficient tools for stimulating innovation and allocating productive resources. While the basic necessities for living would, under a conservative socialism, be provided through democratic planning, free enterprise would still have an important role to play in the economy.
- A conservative socialism would be opposed to 'social engineering'. Governments should not attempt to change human nature or to control the way people think.
- A conservative socialism would not share the thoroughly materialistic outlook of traditional Marxism but would be comfortable with the idea of a religious or spiritual dimension to life.
- While acknowledging the importance of solidarity between working class people (indeed, all people) internationally, a conservative socialism would recognise the importance of nations as the most appropriate basis for democratic governtment (based not on race or common place of origin but on shared residence in a particular country and shared loyalty to that country's civic institutions).
What makes conservative socialism socialist?
- One of the most important tenets of a conservative socialism would be that everyone has the right to access the means of making a decent living. This does not just mean that everyone has the right to a basic income, but also that everyone has the right to dignified work. The essentials of living (food, shelter, clothing, healthcare, education, security from crime or invasion) should, as far as possible, be produced at the most local level possible, under democratic control, and everyone should have the right not only to be provided with these essentials, but, if they so wish, to take part in the actual process of producing them. There would, in fact, be no unemployment under a conservative socialism.

I have transcribed the comments from my old blog, below:

3 comments:

MrKa22 April 2012 06:55
I really like this, we can say: "Socially conservative economicaly socialist"

Brice Baumgardner11 November 2012 04:12
I like this as well. Needs more of a following. I linked here from /r/socialdemocracy. Was not disappointed.

Abram200024 June 2013 at 15:46
I agree to some extend. My own personal ideology is part conservative, part liberal and part socialist. I am wondering why though you are opposed to 'social engineering' since in practice all laws and politics is about changing and directing collective human behaviour. You need to explain to me why you think previous attempts failed (I suspect you are thinking of Soviet Marxism-Leninism and the New Left of the post-60s Western world)and what exactly do you mean by human nature?

Money too tight to mention

I don't follow the news as closely as I perhaps should these days, much of my time being taken up with work and family commitments, so I'm probably displaying huge political ignorance here, but there are some things that have been puzzling me as I think about the issues involved in this election campaign.
As a country, we owe huge amounts of money; according to some of the panel on this week's question time the national debt amounts to the equivalent of £90,000 for each household in Britain, or £1.1 million for each day since the birth of Christ!
Whenever he's questioned about the financial mess we are in and the consequent need for public spending cuts and savings (the scale of which, many commentators say, are currently being hidden from the electorate by the three main parties) Gordon Brown rightly points out that we are in a global financial crisis which originated in America and affects the whole of the worldwide economy (as he did, for example, on tonight's interview with Jeremy Paxman).
But wasn't the global financial crisis originating in America originally referred to as a 'credit-crunch'? And didn't it largely consist of banks losing lots of money through dodgy investments (mainly in the sub-prime mortgage market) and in some cases going out of business, while those that remained batoned down the hatches and became extremely cagey about lending money to businesses? It wasn't about national debt.
So the huge debt we're saddled with is not directly connected to the global financial crisis - unless, of course, it was incurred as a result of the extremely costly bailouts that the government so generously undertook to prevent crucial businesses from going bust as a result of the worldwide crunch. But the recipients of those massive bailouts were, almost exclusively, the banks.
In which case, from whom did we borrow these vast sums needed to effect the bailout?
Presumably, from other banks! Ones that, clearly, weren't in such dire financial straits at the time. In which case, why couldn't the struggling banks have just borrowed the money directly from the financially healthy banks? Why did the government (and, ipso facto, the taxpayer) have to be involved at all? And anyway, if these apparently financially robust banks existed, why was it so crucial to the economy that the failing banks didn't go under? Okay, some bank customers might have lost their savings, but the government could far more easily have bailed those customers out rather than racking up huge debts getting the whole banking sector back up and running, fat salaries, hefty bonuses and all.
Anyway, like I said, these are probably stupid questions born of ignorance, but they've been puzzling me so I thought I might as well mention them.

It's the economy, stupid

I must be stupid because I just don't get it. Everyone from Chancellor Darling to Bank of England governor Mervyn King is saying that in order to 'kickstart' the economy and climb out of depression, we need to somehow get the banks to start lending more money.

Banks will always lend money when they think that by doing so they will make a profit (ie. that they will get their money back, with sufficient interest). The only time a bank is not willing to lend money is when it thinks that the loan will not be fully repaid and that the money will therefore have to be written off as 'bad debt'. So, if the government succeeds in pressuring banks into lending money when the banks are reluctant to do so, surely the result is likely to be an increase in bad debt. But isn't that exactly what got us into this mess in the first place - too much money being lent to people who proved unable to make the necessary repayments?

Clearly, I must be missing something.


1 comment:

Defend Council Tax Benefits said...

Its more simpler than that, Governments need to stop cutting back, employers need to employ people and cease increasing the price of their goods to allow people to buy goods that generates income for banks to lend money to people in employments and businesses and not suffer bad debt.

The government in not cutting back allows businesses that supply government and local authorities can continue to employ people that in turn become consumers, by keeping prices low and not making the mistake of putting up prices as well as manufacturing not putting up prices, the economy will recover.

The key here is manufacturing companies and retail need to stop putting up prices, this is what stifles recovery, greedy chains and retailers asking too much for products slows sales down.

iPhone is a good example, why pay £500 for something that is worth no where near that amount? If companies want more customers, they need to be asking realistic prices, sell more and they can make a profit and order more from the manufacturer. The manufacturers need to look at a longer term process of sales and R&D recovery, stop paying high dividends to share holders who should understand that just because they invest, they should not expect to get as high a return but expect a lesser more sustainable return on the investment.

Greed is one of the hidden factors, it is placed at the wrong end of the supply chain, if the consumers appetites are not wetter, then you have no consumption of goods, no sales means no production and no production is bad because investors and banks suffer, unemployment rises...

The full picture is a bit more complicated but the fact remains that the keys to regrowth lay with employers and manufacturing and government.

Posted by Defend Council Tax Benefits 3 July 2013 10:50