by Robert Henderson
Civitas meeting 2 10 2014 – Should we seek to remain in the EU for trade only?
Note by Sean Gabb: Robert Henderson is a good writer and generally a penetrating critic of the current order of things. His weakness is Economics. First of all, he denies that Economics is a science of human nature that provides real knowledge about the world. His attack on advocates of laissez-faire includes the following charges: That we are inconsistent in our anti-statism; That our belief amounts to a religion that is immune to falsification; That our belief relies on false assumptions of perfect competition and perfect information and perfect rationality; That free markets lead to monopoly and great and increasing inequalities of wealth and income; Thatour belief is incompatible with the existence of nation states, and requires open immigration. He then derives a set of rather statist policies from alleged historical data. His main practical errors are protectionism, soft money and Keynesian deficit financing.
If I were less idle, or had more time, I’d engage him in argument on these points. For example, I’d point out his assumption that the whole of Economics is contained in the average A Level text, and that he doesn’t seem to have read one of these with much attention. I’d then introduce him to the Austrian analysis of dynamic efficiency, as opposed to productive and allocative efficiency. I’d say something about the various fallacies underlying the case for protectionism and for deficit financing.
Sadly, I am already busy and am about to become even busier. So I will leave Robert’s enlightenment to others on the LA Blog. Please note, however, that I ask for enlightenment rather than point scoring. SIG
Sole speaker Ronald Stewart-Brown (Trade Policy and Research Centre)
I knew what a malformed disaster Stewart –Brown’s plan for Britain to have nothing more than a trade relationship the EU was going to be when he started his talk by warning against the Great Satan of Protectionism by citing the example of the protectionist measures taking during the Depression of the 1930s. In fact, it was the protectionist measures taken by Britain, together with Britain moving from the Gold Billion Standard and the Keynsian public spending on things such as council housing which allowed Britain to recover more quickly than other large industrialised nations. (I go into this in more detail in my email to Stewart-Brown which I reproduce at the bottom of this post).
When I challenged him on this, instead of admitting that he had misrepresented the protectionist effects in the Depression, he simply blithely ignored what he had said and feebly added that unemployment had not been cured before WW2. In fact, the level of unemployment in 1939 was around 10 per cent, the type of level it had been at during most of the 1920s when the Free Trade mania was still dominating British politics.
This type of historical ignorance or the wilful denial of historical reality is part of the stock-in-trade of the laissez faire worshippers and makes most of what they say on economics a literal nonsense because the doctrine itself denies reality. Human beings are not the base advantage seeking automata beloved of classical economists; individuals will not normally have anything approaching perfect knowledge of a market. Instead, they will be doing what humans have evolved to do, being social animals who care most about relationships with other humans, raising their children and so on.
Stewart-Brown’s plan was to have Britain effectively leave the EU but remain in a customs union with it. This he advocated because he thought this would (appeal to the British electorate; (2) would avoid the major manufacturers such as those making cars in Britain panicking at the prospect of EU trade barriers being raised against them and (3)reassure the rest of the world that world trade would not be disturbed. ( Strange how we are so often told that Britain is hugely insignificant in the world economy these days by the class of people Stewart-Brown comes from, but when it suits their purposes Britain is suddenly a massive influence on that economy. They make it up as they go along).
The idea that the other 27 members of the EU would fall down at Britain’s feet and agree to such an arrangement is risible, as several of the audience pointed out. But even if it did take place, Britain would not be simply in a trading block because (1) the other EU members would keep introducing new rules and regulations, for example, health and safety legislation, into the remit of the Customs Union administration even though they would have nothing to do with trade and (2) most British politicians would be only too happy to go along with this re-establishment of ever tighter EU tentacles around Britain because they do not want Britain to be detached from the EU. The head of Civitas, David Green also pointed out the incongruity between Stewart-Brown’s plans for a custom’s union and his plea for free trade. This disconcerted Stewart-Brown, and all he could find to say was that he was proposing what he thought was possible.
The nadir of the Stewart-Brown’s address came when he rather curiously claimed that Britain would get what he was proposing because a custom’s union which allowed the EU members’ goods and services to come to freely into Britain would give Britain —wait for it … “the moral high ground”. What does he expect if the other EU members do not fall into line below this, in internationalist eyes, crushing fact? That such malefactors will be, as Michael Wharton delighted in saying, “brought before the bar of world opinion”? It was sublimely naïve. I managed to have a second go at him and pointed out that the whole movement of global politics was away from the unnatural internationalist ideas which had held sway in varying degrees since 1945 towards the natural state of humanity, which is tribal and catered for by the nation state. In particular I cited China as being a and economic and political Goliath which had shown repeatedly in recent times that it would not play the internationalist game, vide its persistent refusal to let the Renmimbi rise in value, despite being pressed strongly by the USA to do so.
Judged by their questions to him the audience was widely unsatisfied with Stewart-Brown’s ideas , which were strong on wishful thinking and very short on realism. Stewart-Brown was also very keen on saying a consultation most be started on this and an investigation begun on that. He struck me as the type who would never come to the point where the end-game would actually begin.
There was one audience contribution which may have more than ordinary significance. The erstwhile Tory MP David Heathcoat-Amory was scathing in his condemnation of Cameron’s negotiating position on the EU, saying it was essential Britain went into the negotiations with the clear intention of asking for a vote to leave if nothing substantial was conceded. He also supported Stewart-Brown’s idea of just being in a customs Union, but only if those negotiating made it made clear Britain would simply walk away from the EU if no agreement was reached. Heathcoat-Amory may represent a strong band of thinking amongst current Tory MPs.
It was all too familiarly depressing, Stewart-Brown is yet another person with some public influence who really is not fit to have any hand in deciding what Britain’s relationship with the EU should be simply because he has been captured by the laissez faire ideology and is, I suspect, an internationalist at heart.
Email sent to after Civitas meeting – I will post any reply here
Mr Ronald Stewart-Brown
Trade Policy and Research Centre
29 Great Smith Street, London SW1P 3BL
2 10 2014
Dear Mr Stewart-Brown,
A few thoughts on your Civitas talk today. Your commitment to free trade and doubtless free markets generally is a gigantic stumbling block to producing a realistic plan for Britain to remove herself from the EU.
How far you are entrapped within the free trade ideology was shown by your claim that the great mistake in the Depression was to engage in protectionism. In fact, that was what protected Britain from the worst of the Depression years, along with coming off the Gold Bullion Standard, large scale state action which included building 500,000 council houses in the period and the fact that British banks had already undergone considerable consolidation and thereby avoided the horrors that the USA experienced with their huge number of small banks, thousands of which went to the wall. The fact that Britain also had a national welfare system can also be thrown into the mix for it both gave the unemployed an income and making those who feared being unemployed less uncertain. These things probably kept consumption levels significantly higher than they would otherwise have been.
In 1933 the unemployment rate was around 23% of the workforce; by 1939 it was around 10 per cent, the sort of figure incidentally that it had been throughout the 1920s when the free trade mania was still dominating British politics. It is also true that Britain between 1950 and the early 1970s enjoyed a period of considerable growth and very low unemployment behind protectionist barriers and great state involvement in the economy.
The reality of laissez faire economics is it is an intellectually incoherent doctrine – see my “Free markets and “free trade” = elite propaganda” essay below – which does not do what its proponents claim. In fact it leads countries which practice it into dangerously distorting their economies which greatly undermines their self-sufficiency and leave any country unwise enough to go down this path open to manipulation by foreign powers and potentially to shortages of vital goods and services.
To imagine as you do that countries will abide by treaties is dangerously naive. At the present time we are seeing throughout the world a strong movement towards protectionism, whether that be overtly or by covert means such as hideously complex and time consuming bureaucratic procedures or the use of justice systems to intimidate foreign companies – China is a past master at this, but the USA is no slouch either with its laws against trading with certain countries in certain goods and the absurd fines US regulators and courts hand out to foreign companies. In the case of the EU, to believe that your plan would succeed because quote “We shall have the moral high ground” is wishful thinking on stilts. As several people pointed out it only takes one member state to veto a proposal. To expect 27 EU states to all refrain from doing so is wildly improbable.
But there is an even bigger issue. As I pointed out at the talk, there is strong reasons to believe the EU will not remain intact as a group of supposedly democratic states. To begin most of the EU states do not have any great democratic history. The largest apart from Britain – Germany, France, Spain, Italy – all date their present constitutional arrangements in decades not centuries. They and most of the smaller states are naturally democratically fragile. Also, since the current recession stated, it is debatable whether Italy, Greece, Spain and Portugal have been democracies so controlled have they been by ECB diktats. There is also the madness of the EU’s attempt to lure the Ukraine into the Brussels net and the ongoing mess with is the Euro – see my separate email on the Euro. Any of these circumstances could lead to anything from individual members casting aside any pretence at democracy to the entire EU blowing apart. Consequently the path you advocate with the UK still tied into the EU economic process in the shape of membership of a customs union is fraught with danger. Much better that Britain leaves the coils of the EU entirely and makes its way in the world as the vast majority of countries do. That way if the EU blows up we will not have any legal ties and obligations to it.
Finally, there is the question of winning an in/out referendum. The British may not like the EU, but neither do they like globalism. It will be impossible to win a referendum on Britain’s membership of the EU if the electorate know that all they are being asked to do is to swap the overlordship of Brussels for the ideological despotism of free trade and mass immigration. (The laissez faire approach involved in globalisation is those with power enforcing an ideology by refusing to act to protect what the vast majority of human beings regard and have always regarded as the interests of their country and themselves. It is a tyranny caused by the neglect of the rightful use of state power for the common good.) If a referendum is to be won it will have to be on the basis of Britain being master in its own house to stop further mass immigration and to protect strategically important industries.