Daily Archives: September 7, 2022

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

The British economy is struggling. As in the case of China and Russia, the situation is slowly unfolding, but compared to almost every OECD economy, and certainly compared to the others of the big seven (G7), Britain is doing dreadfully.

Its current consumer prices increased 9.1 percent over the last year with the expectation they will continue to rise (possibly doubling the current rate in 2023). The official figures for GDP, for to show that all sectors of the economy declined over the last year. The economy is only 0.9% bigger than it was in November 2019, while its population has grown about 1.5%. Unemployment has fallen to low levels but is beginning to rise. Wage increases are a long way behind inflation.

Russias troubles are easily explained. Despite strong hydrocarbon exports, the economy is being slowly strangled of component imports by the sanctions imposed because of the invasion of Ukraine. Chinas are because its giant property sector is switching from a Minsky boom to a Minsky bust.

Most economies in the world have been badly hit responding to the Covid pandemic (that includes China).The Ukraine war has raised prices of commodities like grain and hydrocarbons, although the worst increases are retreating. Wars disrupt economies even if the country does not deploy fighting men.

The Covid pandemic has disrupted international supply chains, a timely reminder of how interdependent the world is. It is not just that components are produced in different countries from the users. They have to be shipped. Shanghai, the biggest port in the world, is in a lockdown. So there are ships anchored offshore, waiting to enter. That means there are fewer ships for the rest of the world and so, for instance, trans-Tasman shipping capacity is limited; evident by the gaps on your supermarkets shelves. (Shipping prices are more three times than their pre-pandemic level.)

But these effects are not peculiar to Britain, so they do not explain why it is doing exceptionally badly. Nor can it be explained by Britains economic cycle being out of phase from everyone elses, a common source of confusion, especially by those who are after dramatic headlines. The relative deterioration has been going longer than a business cycle.

One sort of explanation is that once Britain was the workshop of the world, but other economies caught up. However, the catchup countries are now doing better. Only slightly better in any average year but the deficit accumulates.

I am not sure that the data is that reliable. International comparisons are difficult, especially for non-traded goods and for services. But suppose Britain is growing more slowly. One argument is that the economy is over-regulated. But is it more over-regulated than comparable economies? While I think good quality regulation is preferable, I am not convinced that it affects economic growth as much as the promoters of this view argue. Our strongest recorded economic growth boom was under the First Labour Government after the Great Depression recovery, when there were increasing interventions. The market liberalisations from the 1980s often cost a fortune, as in the case of leaky buildings. On average, they probably improved the quality of output, which GDP does not measure well, but there is no evidence of their improving the material growth rate. Similarly the strongest period of recent British growth was under Tony Blair; NewLabour is not remembered for liberalising economic regulation.

Another explanation for the long-term decline is that Britain has specialised in exporting services (particularly financial services) but at the cost of its manufacturing sector. Allow me to skip the longer analysis and note that the dominance of City of London has been at the expense of the rest of Britain (those promoting levelling-up take notice) but that the share of manufacturing would have declined anyway for the same reasons it has done in other affluent economies.

However, any such weakness does not explain the recent relative deterioration. Surely it is Brexit and the economic consequences. It is not hard to compile a long list of anecdotes which describe the difficulties the British export sector is currently facing.

Let me begin in good Popperian fashion, by setting out the strongest argument for the economic benefits of Brexit. They are not the slogans which people voted on, and I acknowledge that those who value constitutional independence might be willing to pay a premium for it in lower material output. I focus on the economic argument that the British economy outside the EU will be better off in the long run.

Note that this version of the argument accepts that any shock as large as the Brexit will cause damage in the short-to-medium run as industries adjust to the new situation. Could there be gains in the longer run?

The Brexiteers case seems to be that EU regulations were clumsy and holding back the potential of British industry. A less interventionist regime will liberate that potential and eventually lead to faster economic growth.

A New Zealander is allowed to be sceptical. That was the argument for Rogernomics and, as I said, there is no evidence, other than anecdotes and statistical distortions, to indicate that our market liberalisation speeded up economic growth (or even that the economy recovered the loss from the Rogernomics stagnation). The economy continues to trundle along at much the same growth rate as it did before Rogernomics despite, according to the World Bank, being at the top of the list of countries with which to do business. Of course, the Brits may have more sophisticated regulators than ours, thereby getting more of the upsides of the liberalisation and less of the downsides. We shall see.

There is also a sense that regulation as increased has a result of Brexit. While the Brits can liberalise their internal domestic market, they face increased red tape at the border. An exporter to the EU still has to meet EU standards; because the EU market is over six times the size of Britains, the EU determines the standards. Additionally, the additional documentation now required for exporting to the EU is a form of regulatory overload.

It is true there has been some liberalisation at the borders for other markets but the British trade deals have been mainly the ones that the EU did anyway. The good news is that both Australia and New Zealand got better access for their agricultural exports from Britain than the EU gave us.

Perhaps the Brits are hoping to do a better deal with the US than they would have got had they remained in the EU. We shall see, but I am sceptical. The US are tough, inward protecting bargainers as we saw with the TPP. Britain hopes to join the CPTPP; it would be a good win for them (and us) but will not offset the loss of the EU market.

Withdrawing from a trade agreement is akin to a breakdown of the supply chain. This time though, it is not so much being able to get the shipping as that the ships one does get are expensive rust buckets.

Even so, in a declining economy there will be some who do well. In Britains case, it is the retired, who are not threatened by unemployment, living on affluent investment incomes which benefit from higher profits and interest rates and who are nostalgic about the England they grew up in when it was still possible to pretend Britain was a world power. All they want is income tax cuts. They sound very much like the members of the Tory party who are voting for Liz Truss.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was theListenereconomic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

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Paying the cost of Brexit | interest.co.nz - Interest.co.nz

There is a widespread assumption that freedom of movement with the EU is highly unpopular among people who identify as Leavers.Paul Willner, Todd Hartman, andRichard Bentallpresent data from a large (>2K) sample showing that this assumption is mistaken: freedom of movement is almost as acceptable to Leavers as it is to Remainers. This finding has implications for the positioning of political parties on freedom of movement and membership of the EU Single Market.

Six years after the EU Referendum, the Brexit project is in disarray. A series of authoritative reports have confirmed predictions that Brexit would inflict serious damage on the UK economy. In June 2022, a report from the Centre for European Reform estimated that UK GDP is 5.2% smaller than it would otherwise have been, investment is 13.7% lower, and goods trade 13.6% lower; a report from the Resolution Foundation estimated that Brexit will cost each UK worker 470 every year over the coming decade; and the Office for National Statistics reported the worst balance of trade figures since records began. An earlier report from the LSEs Centre for Economic Performance estimated that the cost of Brexit to the UK economy is likely to be more than double that of the COVID-19 pandemic, a view shared by the Chair of the Office for Budgetary Responsibility. And this is without full implementation of the Trade and Cooperation Agreement, which the Minister for Brexit Opportunities has said would be an act of national self-harm.

Meanwhile, the problems over the Northern Ireland protocol appear irreconcilable, and the governments solution (to unilaterally cancel swathes of this international treaty that they signed amid great jubilation and claimed as a diplomatic triumph only two years ago) threatens to shred the reputation of the UK as a trustworthy partner in international affairs. This state of affairs is widely recognised: opinion polls on the question of whether Brexit is going well or badly have shown a steady deterioration in public support, with well over three times as many now thinking that Brexit is going badly than think it is going well (54% to 16%).

An obvious remedy for this malaise is readily available. Rejoining the Single Market would at a stroke overcome the barriers to trade with our European neighbours and solve the problem of Northern Ireland, as well as restore lost rights to UK citizens. But Single Market membership would mean the return of freedom of movement, which, it is believed, would so anger leave voters that they would withdraw support from a party advocating it. (We argue that this assumption drives Labour Party policy on Europe.)

Here we present evidence that the received wisdom is incorrect: freedom of movement is NOT toxic to leavers. Our data are from the eighth wave of an ESRC-funded nationally representative survey (grant no. ES/V004379/1), stratified by age, sex, and household income, conducted online on the Qualtrics platform in June 2022. Participants were identified as Leavers, Remainers, or neither from their responses to a questionnaire with three leave-supporting and three remain-supporting items (e.g. I identify strongly with people who voted to leave/remain in the European Union). We then presented participants with a range of different scenarios for the future of the Brexit process. Rather than asking them to identify their ideal or preferred outcome, we aimed to identify outcomes that could be acceptable to both Remainers and Leavers if they were achieved as the endpoint of a process of negotiation between the UK and the EU.

In an earlier survey, conducted with a representative sample of 1,408 adult UK citizens in 2021, we found that, unsurprisingly, a scenario labelled An Independent, Sovereign UK (essentially a hard Brexit) was acceptable to 41% of Leave voters, but unacceptable to 64% of Remain voters; conversely, a scenario labelled Rethink Brexit (calling a second referendum) was acceptable to 65% of Remain voters but unacceptable to 56% of Leave voters. However, a scenario labelled A New Deal with Europe was acceptable to a majority of both Leavers and Remainers, while unacceptable to less than 20% in either group.

In our new survey, alongside the hard Brexit and second referendum options, we offered three alternative visions of what a new deal with Europe might mean, involving either free trade, freedom of movement, or both. Each scenario was presented with an explanation of what it would mean, and a rationale (see Table 1).

A total of 2,166 participants responded to the survey: 587 participants (28%) self-identified as Leavers, 902 (42%) identified as Remainers, and 677 (31%) did not express a Brexit identity. We found that the hard Brexit option was unacceptable to almost 50% of the participants, and acceptable to less than 25%. The second referendum option was somewhat more acceptable (46%), which is unsurprising as significantly more of the sample self-identified as Remainers, but still unacceptable to almost 30% of participants. However, all three new deal options were acceptable to well over 50% of participants, and unacceptable to only around 15%.

In Figure 1, these data are broken down according to participants Brexit identities. For the hard Brexit and second referendum options, the results from participants identifying as Leavers or Remainers were very similar to those obtained from Leave and Remain voters a year earlier: unsurprisingly, the hard Brexit option was highly unacceptable to Remainers (A), while the idea of a second referendum was highly unacceptable to Leavers (B). However, the three new deal options were all similarly attractive to Leavers as to Remainers (C,D,E): each of free trade, freedom of movement, and the combination of both elements, was acceptable to a majority of both Leavers and Remainers, and unacceptable to less than 20% in either group. Participants who did not express a Brexit identity also reported very low (10%) levels of unacceptability for all of the new deal options. We considered whether, within the Leave-identifying group a stronger Leave identity might be associated with grater antipathy to freedom of movement: it was not (correlation = 0.044).

These data suggest strongly that the conventional wisdom is mistaken: when the meaning is spelled out, freedom of movement is not toxic to leavers, who are almost as positive about it as Remainers. Moreover, almost identical levels of support were found for the third new deal option which envisages both free trade and freedom of movement a close approximation to Single Market membership. It appears that, contrary to received wisdom, the return of freedom of movement with Europe and rejoining the EU Single Market are policies that could command wide support across the Brexit divide.

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About the Authors

Paul Willneris Emeritus Professor of Psychology at Swansea University.

Todd Hartmanis Professor of Quantitative Social Science at the University of Manchester.

Richard Bentallis Professorof Clinical Psychology at the University of Sheffield.

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New research shows freedom of movement is not toxic to Leavers, who are almost as positive about it as Remainers - British Politics and Policy at LSE