Brexit and free trade: between the devil and the deep blue sea

The EU has forgotten its mission, and we haven't worked out ours.

The European Union began as a common market, gradually abolishing tariffs internally while agreeing on external tariffs, so economically it was about the Four Freedoms (goods and services, capital and labour) among its members and protectionism in their collective relations with the rest of the world.

This would work so long as the members were largely similar. When the European Economic Community was first formed in 1957, its members were the Benelux countries plus France, Germany and Italy: a contiguous grouping of modern industrial nations. They could realistically aim for freedom of movement without risking potentially destabilising levels of migration. Having said that, Southern Italy lagged behind in its economic development and there was a long history of migration from there to northern Italian cities and abroad to the USA; yet otherwise, there were not such stark inequalities as to threaten chaotic mass population flows.

But the EU and its antecedents were not merely or even principally about establishing a trading bloc, and as its membership grew so did the tensions between its disparate objectives. For example, the founders of the EU aimed to prevent another war in continental Europe, yet the EU has interfered in the now-divided Ukraine in a way that threatens a direct confrontation between major global military powers. Also, the ambition to steer the EU into becoming a single nation via (among other things) fiscal union led the EU to welcome Greece into the Eurozone despite disqualifications that Goldman Sachs helped the Greeks to disguise and the EU's leadership pretended not to see; with distressing consequences for the Greek nation. Again, though the underlying philosophy of the EU is socialist, the admission of countries with far lower systems of wages and prices opened the way for economic competition that depressed the wages and conditions of the working classes of the more advanced EU members - a process both warned about by the late Sir James Goldsmith in 1994 at the time of the GATT talks and also now admitted  in a recent publication widely misreported as contradicting such claims:“Some evidence that migration reduces employment and raises unemployment of some groups (e.g. the young and less well-educated)… Some evidence that migration has reduced earnings growth for the lower-paid… Evidence that migration, especially lower-skilled, has reduced the prices of [i.e.wages earned in] personal services… Evidence that migration has raised house prices, more in areas where housebuilding is more restricted.”

Enlargement was not the initiative of the EU only; other nations had to decide whether it was in their interest to apply for membership. In this context it is worth noting that the British Prime Minister who decided that this was the future for the UK was not Harold Wilson or Ted Heath but Heath's former boss, Harold Macmillan, who had set Heath on to explore the constitutional implications of membership. Lord Kilmuir replied to Heath in  December 1960 (see end of linked document) warning of the many difficulties involved.

By the way, it has been said that the British electorate were not told, later, in 1975, of the concomitant loss of sovereignty. Not so; but there was an orchestrated campaign to bury the bad news in verbiage and drown it in talk of "FOOD and MONEY and JOBS."

Yet the then PM decided to go ahead: "On 26 July 1961, Harold Macmillan, the UK prime minister, informally told the Taoiseach, Seán Lemass, that his government had finally come to a decision to join the EEC as a full member. With respect to this hotly-debated issue, Macmillan wrote that: 'after weighing all the considerations we have reached the conclusion that the right course for us is to seek to enter into negotiations with the Six'." 

In turn this threatened Ireland's existing economic arrangements with the UK: "In brief, Ireland exported agricultural products to the UK without restrictions and exported industrial products under a preferential arrangement; in turn, the UK had recourse to cheap agricultural goods and a market for its industrial goods. Of course, if such an agreement was to continue indefinitely, Ireland would have been economically protected, though at the same time, it would also still be in a position of acute, even reinforced, dependence. However, the prospect of losing these arrangements, first to EFTA and now to the EEC, had a remarkably sobering effect upon Irish policy-makers." In the event, Ireland and the UK joined at the same time in 1973, thus getting round the hard-border problem of its day.

But Ireland's difficulties did not end there. She joined the Eurozone in 1999, prompting an influx of money that not only filled the pubs for Sunday lunches but also inflated the housing market; and the fallout from the property-related Global Financial Crisis less than a decade later broke her two biggest banks, despite the Irish Government's underwriting their losses. In the interests of monetary conservatism the European Central bank then required Eire to repay the €31 billion of failed emergency support, financing the operation with a huge loan from the ECB. The still-ongoing process of withdrawing such a large amount of money from circulation (over €10,000 per registered voter, ignoring the "money multiplier" effect) plus paying the interest, has crippled Ireland's economy with deflation.

In short, the inconsistent aims of the EU have led to difficulties that no-one would have wished; difficulties compounded by an organisational structure designed to foster "ever-closer union" at the cost of suppressing democratic feedback; a structure reminiscent of the 1871 Wilhelmine Constitution of Germany, as I said some time ago, and which similarly has the potential to provoke social unrest, and the defiance and possibly even secession of some member states.

Resistance to Britain's membership of the EU came from the patriots of the British Left as well as from those of the Right. Coldly glared at by Ted Heath, Peter Shore delivered a stirring pre-Referendum speech to the Oxford Union in 1975, speaking not only of the deliberate and unwarranted undermining of national confidence but also of our deteriorating trade and financial balance as a consequence of having joined. Whether or not the imbalance (e.g. in the coal and steel markets) was deliberately planned by the EU, as some allege, the accumulated losses plus the financial support we contributed to the Union have cost us dearly, not merely in money but in domestically-owned productive capacity.

Over 40 years ago, Peter Shore referred ironically to misconceptions of our "tottering about" the world stage, but it is now a moot point whether we can indeed stand on our own two feet any more. Much of our manufacturing, even of our infrastructure, is multinational- or foreign-owned, as Alex Brummer detailed five years ago in his book "Britain For Sale." We have lost so many levers of our economic power and it will be a major battle to recover them, to rebuild. Do we have the stomach for the fight?

Some in the pro-Brexit camp offer as an alternative to EU serfdom, the freedom to trade globally. Now if this means without any carefully-considered system of tariffs and mutually beneficial trade agreements, it could be jumping from the frying pan into the fire. We could, for example, import cheaper food from the Third World; but what would that mean for what is left of our farming and fishing industries?

When De Gaulle was President of France, he opposed Britain's entry into the EU partly because he saw us as a Trojan horse for American exports to Europe. This was the protectionist face of the EU and up to a point that is justifiable.

If tariffs are merely a wall, then they risk a trade war - and if President Trump overplays that hand that is what he may get from China. But what if agreements on tariffs and trade were not the free-for-all sought by GATT, but designed as a kind of braking and steering system? In a globalised economy there is so much risk of lurching about and crashing that something has to be done to slow the rate of change. If import duties are calibrated to give the domestic labour force a fighting chance, then there is the possibility of all of us raising our game; otherwise, all we face here is abject defeat.

We have an over-large population in the UK, one that we cannot adequately feed from our own land and shores, and one whose prospects of gainful employment is undermined by the Internet and robotics as much as by faraway foreign labour that is paid a tenth of our hourly rate. We need a national plan for increasing our ability to survive in a world that is becoming more chaotic and in which energy is becoming more expensive.

Getting free from the gear-grinding, self-wrecking machine of the EU is not the end of the story, but the very beginning.
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