President Obama recently counseled Britain to remain in the European Union, which has developed into a stagnant, punitive trade bloc. But Britain should vote to leave the EU in the independence referendum, scheduled before the end of 2017. Britain’s future outside is bright, while the EU is anti-democratic, anti-growth, and holding Britain back.
The EU is a cartel, with a Common External Tariff that does not allow Britain to trade freely with the rest of the world, even though 55 percent of Britain’s trade is with non-EU countries. If the trends of the last fifteen years continue, then the proportion of Britain’s trade with the EU will be below 40 percent in 2020, and declining.
As well as restrictions on trade, Britain is also required to comply with EU internal trade regulations even when trading with non-EU states or within Britain. For instance, the additional costs of the EU Whole Vehicle Type Approval, which enforces EU production standards for motor vehicles, fall on British manufacturing despite the existence of Britain’s own Construction and Use Regulations, which are perfectly adequate for the use of British manufacturers. Drivers' Hours regulation prohibits commercial driving for more than nine hours a day, regardless of the driver's preferences or requirements. The Working Time Directive stops workers who want to earn every day of the week from working through the weekend and prevents night-workers doing more than eight hours work a day, irrespective of their preferences or economic needs, even if their jobs have nothing to do with the EU. This law costs the UK about $6.4 billion annually and has no proven benefits.
Perhaps all the obstructive red tape might not matter as much if the EU’s global market share were not shrinking. But in 2014 the EU’s GDP grew at only 1.3 percent – less than that of India (7.2), Africa (3.9), the United States (2.4), and Australia (2.5), to name just a few. The EU’s own growth figures are boosted by Britain’s presence: Britain’s growth rate was double the EU’s in 2014 – 2.6 percent.
In 2017 the EU will lag behind as a share of the global economy. The following graph, based on International Monetary Fund data, shows how the EU’s share of the economy will look by 2017:
Free trade with the burgeoning Commonwealth (an association of former British territories) and the United States, countries with greater cultural and linguistic ties to Britain, and with China, are tempting alternatives to remaining in a customs union whose share of global wealth is diminishing. Other areas of the world are growing faster and offer Britain new opportunities.
The arguments against the EU do not end with trade. EU regulation has depleted Britain's fishing rights in its own waters to a pitiful extent, driven up the prices of British food by 17 percent, and invaded every nook and cranny of life in Britain. The EU issued more than 3,500 new laws affecting British businesses between 2010 and 2014. Regulation of employment, manufacture, commerce, the power of British vacuum cleaners and lawnmowers, how old children must be to inflate party balloons, and all kinds of other rules have been imposed on Britain without the people ever having consented.
These regulations actively harm Britain's economy and interfere with British democracy, and none has been voted on by the British electorate. Most regulations do not even need the consent of British representatives in the EU Parliament, since they only have 9.5 percent of the total votes, and limited opt-outs. Now tax-harmonization and disappearing fiscal sovereignty hang over the European Project. While the EU officially denies any desire for full control of members’ tax systems, it simultaneously requests tax “coordination.”
In 2013 Prime Minister David Cameron noted that “the EU is seen as something that is done to people rather than acting on their behalf.” The whole dream of the European Project is a superstate with no internal barriers to trade, no capacity for conflict between its constituent parts because they have no sovereignty, and limited freedom for its members to resist the demands of the unelected European Commission and Civil Service. This is neither a democracy nor an organization that cares whether its policies benefit Britain.
There is no pro-market and pro-Britain argument for membership, and there is every reason to believe in Britain’s bright, independent future. Britain could easily have free trade with the EU (through membership of EFTA) without being shackled to an economy-shrinking trade bloc. Britain's trade deficit with the rest of the EU ($169.2 billion in 2014) makes it entirely in European interests to pursue this arrangement if Britain leaves. Even if the EU went against its own interests and did not agree to Britain’s EFTA membership, Britain could still orchestrate a clear route to free trade with the EU by abandoning its own tariffs.
Whatever shape Brexit takes, trade with the rest of the world would be opened up. Dictatorial directives from Brussels would cease. EU trade regulations would only need to be followed when trading with EU states, not with other countries or within Britain. And the scheme for an ever-increasingly centralized United States of Europe would no longer suffocate the British economy, with the average household $1,600 a year better off right away. I’m sure Mr. Obama means well by offering his advice, but at the referendum Britain will decide what is in its own best interests, and what he has to say cannot outweigh all the advantages of independence.
Nicholas Stone is a contributor to Economics21. You can follow him on Twitter here.
Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.
