|Businesses and business representative organizations are constantly complaining about the effects of European Union laws, policies, and regulations. In 1992, Britain benefited considerably by withdrawing from the European Union’s Exchange Rate Mechanism and programme of Economic and Monetary Union. This book provides a detailed guide to the economic and political case for British withdrawal from the EU bloc as a whole. Major general arguments for withdrawal are that:
1. the economic costs of EU membership substantially exceed the benefits; and
2. withdrawal is necessary to restore democracy, business and market freedom, the rule of law, and other basic features of a modern liberal social order.
“A thoroughly engrossing and compelling read … well-thought and well-argued case … One of the most convincing and consistent reads on the subject …” (Google Books Review)
“Clear and thorough … Examining many of the key aspects of EU membership… students of European business or politics will find this guide useful and interesting reading.” (European Access and European Access Plus online)
1. The Case for Britain’s Withdrawal from the European Union: an Overview
Introduction* Outline and summary of the main economic and political arguments*
2. The Main Non-EU Sources of British Wealth
Major factors contributing to economic growth and prosperity* The importance of the UK’s global trade and investments* Unfounded fears of EU trade retaliation and/or loss of foreign inward investment following EU withdrawal* The real main factors affecting direct foreign investment in Britain* EU threats to the favourableness of the political-legal environment for business and investment* The industrial-commercial irrelevance of EU subsidy programmes* The real main sources of job creation and employment*
3. The Economic Costs of EU Membership
Calculations of the economic costs/benefits of British EU membership and withdrawal* Trade costs of EU membership* EU regulatory costs* The costs of inappropriate monetary-economic policies* EU fiscal burdens* The costs of EU agricultural and fisheries policies*
4. The Political Constitutional Case for EU Withdrawal
Demands for the restoration of democracy and national political independence* Democratic criticisms of existing EU political institutions: the Commission, Ministerial Councils, Court of Justice, and Parliament etc.* Objections to proposals for further EU political centralization/federalization* The uniquely negative constitutional effects of EU political centralization on Britain* The failure of British attempts to reform the EU from the inside*
5. The Free Trade Case for EU Withdrawal
Criticisms of EU neo-mercantilism* European trade liberalization and its benefits* Diminishing free trade benefits to Britain from continuing EU membership with the completion of the Single Market programme, global trade liberalization and market-economic growth, and the proliferation of new EU internal bloc commercial regulations* The main EU fiscal and non-fiscal barriers to free trade* EU trade protectionism in particular industries and markets* The national, regional, and global costs of EU trade protectionism* NAFTA and other formal alternatives to EU membership*
6. The Removal of EU Regulatory Burdens
Aims and motives behind EU dirigiste regulation* The general business-economic costs* Liberal-democratic objections to EU regulatory activity* Criticisms of the nature and effects of specific industrial, commercial, and employment regulations*
7. The Benefits of Monetary and Economic Policy Independence
Aims and motives behind EU monetary union* The economic and political case for retaining the pound and monetary-economic policy independence* The costs of ERM membership* Britain prospers outside the euro-zone* British-Continental EU economic differences and their implications for monetary policy* The benefits of independent flexible interest and exchange rates* The negative implications of losing control over monetary affairs for national fiscal independence, general economic policy management, and democracy*
8. The Case for Fiscal Independence
The cost of Britain’s contributions to the EU budget* The economic case against EU agricultural and other subsidy programmes* EU overseas aid versus free trade* EU budgetary fraud and mismanagement* EU tax cartelisation and its negative effects* The case for the abolition of VAT* The avoidance of future EU tax burdens* Democratic objections to EU fiscal powers*
PRICE & SPECIFICATIONS
First published 2002. New impression 2011
151 two-column pages
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● EU membership directly costs Britain substantial amounts in tax contributions to the bloc’s budget each year. Some of this money returns to Britain in the form of agricultural subsidies, regional development aid, and grants for technological innovation (etc.). However, British tax contributions far exceed the subsidy returns. In any case, even if the whole of the money returned, participation in EU agricultural and other subsidy programmes would still have generally negative business-economic effects.
Concerning fiscal cartelization, high taxing and big spending EU national governments have sought to deflect domestic political-economic opposition to their policies by:
1. getting their expensive spending programmes made mandatory throughout the bloc;
2. obtaining EU-channelled subsidies from other states; and
3. reducing or eliminating cross-border tax competition by having lower-taxing governments raise their tax rates.
Agreements amongst national governments to impose legally binding standard/minimum taxes on their citizens are not just the political equivalent of price-fixing by business cartels. They are an also an attempt by the political rulers concerned to by-pass democratically elected legislatures and raise and maintain tax revenues without being subject to popular political consent and veto.
To date, EU tax rigging has been mainly limited to indirect or trade taxation. However, there are constant demands for its extension to business and personal direct taxation. For their part, the Brussels authorities have an interest in boosting bloc-level fiscal centralization across the board. Demands for the development of a common EU taxation and public spending system have also significantly intensified with the establishment of the eurozone.
By definition, EU tax and spending powers are a serious curtailment of national political independence and democracy… (page 14)
● There are currently tens of millions of registered and unregistered unemployed across the Continental EU countries.
Contrary to widespread opinion, the causes of this massive joblessness are not automation or imports from low wage countries. New technology nowadays (as throughout history) boosts rather than reduces productivity, living standards, and employment. As far as imports from low wage countries are concerned, these account for a mere 1.5% of total spending on goods and services in the average modern European country. Not only are these imports too small to cause major job losses, they are actually a source of net economic benefit in terms of enhancing economic growth and markets overseas, holding down household living costs, and fostering business competitiveness and innovation (etc.).
The real main causes of comparatively high and persistent unemployment in Continental EU countries are slow/negative rates of economic growth, business formation, and new job generation in modern service, high-tech, and other industries – coupled with labour market supply-side rigidities and obstacles to mobility.
On this last score, there are often significant:
- trade union and professional closed shops;
- official occupational licensing schemes;
- high levels of state unemployment/welfare benefit;
- statutory minimum wage barriers to initial labour market entry;
- high marginal rates of income tax; and
- disincentives to recruitment or payroll expansion on the part of firms in the form of high employment taxes, other state-imposed cost burdens on employers, and legal threats and restrictions on disemployment (etc.)… (page 28)
● Reductions in British interest, exchange, and wage rates or expansions of British exports into other world markets (etc.) could easily compensate for the costs of any new EU-imposed tariff barriers.
More generally, the fact that Britain tends to have a substantial trade deficit with the rest of the EU means that any overall commercial losses to the UK from withdrawal would be minimal – and that the erection of any new British-EU trade barriers would be more economically damaging to Continental countries than to Britain.
Intra-bloc trading relationships aside, it is also necessary to take into account the commercial and wider economic costs to Britain of EU restrictions on third country imports. The costs of EU external trade protectionism range from higher consumer prices, through negative effects on business efficiency and innovation, to the imposition of retaliatory trade sanctions by foreign governments. Significant reductions in UK household living costs – and thus in the rate of growth of labour costs and welfare benefits costs to government (etc.) – would be likely as a result of freer international trade following Britain’s withdrawal from the EU. In particular, once Britain had left the bloc it could lower or abolish tariffs on world food and other basic consumer goods imports.
The NIESR estimated that the price of imported food would fall by 20% as a result. In addition, consumers would benefit from increases in general industrial-commercial competition. In all, moving away from EU international trade protectionism could result in an overall reduction in consumer prices of 0.5% in Britain… pages 34-35)
● Political economic views and policies tend to relate to wider socio-cultural individual attitudinal, and historical factors.
The historian David Selbourne has argued that the ideological gulf between British libertarian free market democrats and Continental bureaucratic statists is so large as to be unbridgeable.
He sees British commitments to competitive, direct representative democracy and free market enterprise as rooted in such things as the Parliamentary Revolution of the 17th century and an absence of any modern experience of dictatorship or external conquest. Protestantism in Britain has made for individualism and strong traditions of voluntary association and civic participation. Meanwhile, English is the global language and the UK has worldwide commercial and other links. Finally, Britons take pride in victory in the Second World War and British history and Anglo-American achievements generally.
By contrast, Selbourne finds Continental propensities for political-bureaucratic centralization/statism-collectivism consistent with long histories and traditions of authoritarian, corrupt, external political rule in these countries. The Roman Catholic Church has historically been an anti-liberal influence in mainland Europe. Rather than having a global vision, many Continental political and business leaders are nationally and regionally somewhat insular. Latterly, they have also been anxious for reconciliation with former enemies and the burying of shameful national histories and inferiority complexes within the ‘European project’. Given these major political-cultural differences, Selbourne regards eventual British withdrawal from the bloc as inevitable… (pages 57-58)
● In a report, the Institute for International Economics put the internal cost to the EU of its various tariffs, anti-dumping duties, and other global trade protectionist measures at around 7% of total bloc GDP or $600 billion annually. It estimated that about two-thirds of the internal economic cost was ultimately borne by EU households – in the form of higher prices, increased taxes, and lower consumption and general living standards.
Some firms, industries, and employees have benefited significantly from EU trade protectionism and discriminatory production subsidies – at least in the short- or medium-term. However, their gains have been at the expense of others.
Apart from household consumers, other obvious immediate losers have been third country producers and domestic industrial buyers who have had to pay more for goods and services. However, EU trade protection has also tended to reduce longer-term performance on the part of the protected firms and industries themselves – for example, by reducing market-economic pressures from customers and competitors for increased efficiency and technological-product innovativeness.
Concerning employment effects, the Institute for International Economics estimated that EU import barriers were helping to safeguard about 200,000 jobs in the 22 most protected manufacturing industries across the bloc – but at a massive cost of over $200,000 per job.
External trade protectionism tends to be a requirement for maintaining high cost domestic regulatory and tax regimes. In the case of the EU, external protectionism has helped dirigiste national and bloc authorities resist internal liberalizing business-economic reforms – despite the fact that free trade and investment would eventually enhance growth and performance and enable firms to compete more effectively in world markets.
Externally discriminatory trade and investment protectionism tends to impoverish other countries, sour international relations, and provoke retaliation by overseas governments.
Inter alia, the EU has riled the US by blocking imports of American genetically modified crops and growth hormone-injected beef. In response, the American government has imposed selective restrictions on EU exports into the United States. In some areas, EU protectionism has threatened to halt or reverse decades of progress towards world free trade.
Britain’s membership of the EU has hobbled its traditional role of leading the drive towards world free trade. It no longer has a powerful independent voice in world trade negotiations, and must accept whatever protectionist trade restrictions the EU bloc decides to impose… (page 77)
● In the late 20th century, the UK labour market was the freest in Europe in various key respects. Concerning hiring, firing, and quitting Britain had far fewer state controls on:
- initial labour market entry and employment competition;
Individual employers and employees had more freedom in negotiating their own pay and other terms and conditions of employment. Trade unions, nationwide collective bargaining, formal-legal consultation or involvement of trade unions and employees in the running of companies, and official minimum or maximum wage fixing (“income policies”) were comparatively weak or absent. In addition, employment taxes and quasi-taxes were lower. There were fewer tariff barriers to employment in the form of high marginal rates of direct income tax, payroll taxes, or legal requirements for firms to provide employees with costly health, welfare, educational and training, paid leave, and other benefits.
Under the Major Conservative government, Britain had formally opted-out from much of the bloc’s labour market and employment regulatory programme. However, some EU employment regulation had already entered into Britain under the guise of Health and Safety at Work regulation. The Labour government that came into power in 1997 then permanently ended Britain’s exemption from the EU’s Social Chapter and opened the door to comprehensive bloc control in this area.
The position now is that so long as Britain is a member of the EU, the restoration of labour market and employment freedoms is legally impossible. Under the basic rules of the bloc, no future Thatcherite-type free market-capitalist Tory government could unilaterally secure a significant competitive advantage for Britain through labour market and employment deregulation. Placing UK employment under bloc regulatory control also undermined British arguments and substantive competitive pressures for liberalizing labour market reform in Continental Europe… (page 100)
● International monetary unions have a long and chequered history. All the world’s great empires (the ancient Greek and Roman, the Chinese, the British etc.) operated monetary or currency unions. As late as the 19th and 20th centuries, there was a large regional currency union in West Africa. France, Belgium, Italy, Switzerland, and Greece operated the Latin Monetary Union. Meanwhile, in North-west Europe there was a Scandinavian Currency Union.
In modern times, more cross-border monetary unions have failed than have succeeded. Around the world, the currency unions that have endured have been those created in the course of genuine nation building. In countries such as the United Kingdom and the United States, successful monetary unions have been:
· commercially functional;
· embedded in highly integrated economies and cultures; and
· administered by well-established, legitimate unitary polities.
A single currency is unlikely to survive if its purpose is largely to create an artificial political-economic union where none exists. Niall Ferguson and Laurence Kotlikoff have reviewed some of the basic problems that have caused past international monetary unions to fail. They conclude that the EU single currency project is likely to fail also. The most probable cause will be massive in-built asymmetric fiscal problems resulting from the bloated welfare state budgets and debts of countries such as Austria, Spain, Italy, Germany, and France. Their financial liabilities are on a par with those that major wars have generated and that have led to the collapse of previous monetary unions.
Before monetary economic union, EU governments confronted with large budget deficits might have resorted to printing money and inflating their way out of their financial problems. That option is no longer available to national governments in the eurozone. However, it is available to the European Central Bank. The ECB has the capacity to create money on a massive scale to allocate to financially straitened eurozone governments, banks, and companies. Too much money chasing too few goods causes inflation. If the ECB expands the euro supply by an amount substantially in excess of real economic output and growth in the bloc, it will stoke up inflation just as excessive money creation by national central banks will. An inflation-debauched euro would be another good reason for a responsible national government to quit the EU monetary union scheme.
As said, the rules of the project state that eurozone governments cannot run up large budget deficits even during economic recessions. However, governments often ignore or circumvent the rules. The non-inflationary alternative to excessive borrowing – public spending cuts and/or tax increases – may not be politically-economically feasible. In several eurozone countries, truly enormous spending cuts and/or increases in taxes would be required to eliminate excessive budget deficits and prevent severe financial economic imbalances across the bloc. National governments unable or unwilling to bring their debts under control would be inclined to demand financial help from the ECB and other member states. However, rather than give it, the latter might decide it would be better if these heavily indebted states quit the eurozone.
EU political centralization/federation probably would diminish the possibility of euro failure. Full political unification would make it easier to enforce the rules of monetary and economic union. It would also facilitate centralized revenue raising and spending on the scale required to perform US-type economic counter-cyclical and cross-border redistribution functions.
However, the fact that political union might make monetary economic union more effective does not mean that the EU nations would accept it. Full bloc political union would reduce the member states to the status of subordinate provinces… (pages 129-130)
● Apart from interfering in taxation, the EU also interferes in domestic government spending and borrowing.
Since Britain is outside the eurozone, it is not subject to bloc fiscal policy constraints under the Stability Pact. However, it is still required to make a contribution to the EU’s budget and to be involved in directly or indirectly funding various Brussels expenditure programmes. Inter alia, it has to match EU regional aid payments with infrastructural and other investments of its own. At the same time, EU competition and Single Market rules prohibit the British government from offering various grants or other financial aids to firms.
The blocking and forcing of expenditure on elected national governments by the EU is also fiscally undemocratic.
So is the transfer of responsibility for spending taxpayers’ money from directly elected and accountable local-national politicians to non-elected foreign bureaucrats.
The diversion of national taxpayers’ money to Brussels has not only reduced effective democratic scrutiny and control over public expenditure but also considerably increased levels of budgetary managerial inefficiency, waste, and fraud.
WTO rules would still prevent a fiscally independent Britain from using subsidies for mercantilist-type protectionist or beggar-my-neighbour purposes. However, there would be no outside political interference in (e.g.): the level of UK corporation tax; government fiscal backing for firms through the provision of official venture seed capital; tax credits for technological R&D and urban land reclamation; tax exemptions on property transactions in poorer areas; or official bank loan guarantee schemes.
Following withdrawal from the EU, Britain would no longer be a party to the Common Agricultural Policy and other wasteful and dysfunctional EU subsidy programmes. Things like the additionality rule would no longer press UK governments into unnecessary extra official spending on industrial-regional development.
The termination of EU bloc tax-fixing powers would be very good politically-constitutionally as well as economically. It would restore UK fiscal sovereignty and democratic choice, party competition, and Parliamentary scrutiny and control over government taxation and expenditure.
Finally, the restoration of inter-governmental tax competition and effective Parliamentary scrutiny and control over fiscal affairs would not only reduce overall tax burdens (and significantly improve the management and cost efficiency of public expenditure programmes) in Britain. Fiscal competition from Britain would also generate pressure for lower taxes and reforms of inefficient and wasteful official spending programmes in other European countries… (pages 146-147)