The author of this article is Robert Lee.
The article was first published in Briefings for Brexit, and we re-publish with their kind permission
We must look at long-term, not only short-term consequences, and at effects for everyone, not only for a few privileged groups.
The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence:
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups
Henry Hazlitt, “Economics in One Lesson”.
Henry Hazlitt was a philosopher and economist, widely regarded as one of the world’s great writers on economics. He argued that the two central fallacies in economics – responsible for much economic harm – arise from ignoring this lesson. The first fallacy is that of looking only at the immediate consequences of an act or proposal, and the second is that of looking at the consequences only for a particular group to the neglect of other groups. Those who argue against a WTO Brexit on economic grounds commonly commit one or both of these fallacies in spades. Greg Clark, current Business Secretary, is a notable and particularly unfortunate exponent of these fallacies, but the political class as a whole is largely in thrall to them.
Hazlitt would be appalled, but not surprised, by much of the content of Parliamentary debates on Brexit. MP after MP will mention a particular company in his constituency – usually from the motor industry or agriculture – that might lose jobs in a WTO Brexit. That possibility alone is presented as an irrefutable reason for opposing such a Brexit. The MP’s seem not to question the credibility of warnings of a large negative impact on the industry, nor whether the long run impact might be different to the short term, or consider that other groups and sectors might massively benefit from a WTO Brexit.
It is natural for an MP to stand up for his constituency, and nobody wishes people to lose their jobs. However, rational policy cannot be conducted on the basis that no job can ever be lost. In a market economy jobs are lost and created all the time for all kinds of reasons – technological innovation, changes in consumer demand, new regulations, population shifts, and many other factors. The degree of change in the UK labour market is staggering. According to the Office of National Statistics (ONS), in the three months to September 2018, 830 000 people changed jobs! This is evidence of a dynamic and flexible economy highly responsive to change. Job losses in any one sector or company of a few hundred or even a few thousand – no matter how distressing for the individuals concerned – must be put in this wider perspective.
Following Hazlitt’s lesson, we need to assess not only the immediate consequences of an act but also the longer term consequences. We also need to consider the effect on all sectors of the economy and not just one. Take the motor industry, the sector most often cited by MP’s in their economic arguments against a WTO Brexit. The industry is said to be particularly vulnerable because of a reliance on just in time supply chains from the EU, and because under WTO rules, the EU could impose tariffs of around 10% on UK car exports. However, any new tariffs would only partly offset the boost to UK competitiveness from the 15% post-referendum depreciation of Sterling. Furthermore, the industry may be exaggerating the possible impact on supply chains of leaving the EU. The UK motor industry already receives 21% of its’ bought- in supplies from outside the EU without any problems. Just in time supply chains operate the world over between countries that are not in a customs union. Can the UK motor industry really not adjust its supply arrangements from the EU post-Brexit without incurring unsustainable new costs?
In my experience (I used to assist the Chairman of a large insurance company in his lobbying efforts) politicians and civil servants, in general, are naïve in dealing with big business lobbyists. Are CEOs of big companies likely to use Brexit as a cover for their own poor decisions, or exaggerate likely problems in order to obtain favourable treatment? You bet they will. Will politicians fall for it? Very likely. Will the motor industry adjust rapidly and efficiently to new circumstances and arrangements post-Brexit? Of course, it will.
More importantly, given there will still be some short costs, could a WTO Brexit be beneficial to the motor industry in the long term? There are a number of ways in which it could be. The UK government could reduce or eliminate all tariffs on imported motor components, as a WTO Brexit would allow us to set our own tariff schedule. This would reduce industry costs. In a WTO Brexit we would be able to agree on our own FTA’s (Free Trade Agreements), thus potentially boosting UK car exports to non-EU markets. The UK could use some of the £39bn that would otherwise be paid to the EU under Mrs May’s deal to cut corporation tax or boost consumer spending by cutting personal taxes.
Finally, and most crucially, under a WTO Brexit the UK’s long term economic growth rate should increase as, inter alia, we would be free to:
*Set regulations better suited to our own needs, and eliminate large annual payments to the EU
*Secure our own FTA’s, and reduce or eliminate the nearly 2,000 tariffs that we are obliged to impose by virtue of customs union membership
*Boost the fishing and agricultural industries free of the highly restrictive common Agricultural and Common Fisheries Policies, and introduce Free Ports
*Raise productivity and wages by reducing the flow of cheap immigrant labour, increasing investment and boosting labour force training
A Briefings For Brexit team estimate that on the basis of these and other measures a WTO Brexit could boost UK GDP by up to 4% (see “A WTO Brexit could yield the UK 80 billion pounds per year”).
This brings us to Hazlitt’s second fallacy. Even if the motor industry takes a short term hit – and even if it does not receive a longer-term boost – there are manifestly other sectors that will be boosted by a WTO Brexit outcome. Those fearful of a WTO Brexit focus too much on big companies, which can generally look after themselves and in any case tend no longer to be job creators. They need to think more about existing SME’s, particularly in the growth industries – biotech, fin-tech, aerospace, renewable energy, AI, and others – in which the UK is already a world leader and from which the large companies of the future will spring. They need to think more about new companies which don’t exist yet, but which could spring up like mushrooms in a more liberated environment.
They need to think more about the benefits of tariff reduction or elimination to consumers, particularly those on lower incomes, and to the many thousands of businesses that don’t benefit from tariff protection. They are after all far more numerous than those in protected industries but are not organised to lobby politicians and civil servants. Hazlitt does not argue, and neither do I, that industries undergoing painful change should not be given relief or time to adjust, but permanent protection should only be considered in exceptional circumstances.
I have concentrated on the economics of a WTO Brexit because this is where its’ opponents concentrate their fire, but profound issues of sovereignty and democracy are also involved. Much will depend on policymakers taking the right decisions with our new-won freedom. But in the words of young Tory MP Julia Lopez, who clearly does understand the basic lesson of economics,
“There is no land of milk and honey awaiting us post-Brexit, only the opportunities we make for ourselves as a people from our own talents, efforts, and energy. Whether we succeed or fail is up to us – and that surely is the point.”
Government and remainers are not interested in such logical arguments. They simply support their evil intent without applying any rational thought, even if they were capable of it.
A good article and required reading. I would add the elephants in the room. And they’re huge.
Unions can and will come back to destroy us if not reformed. Look at our railways.
Intellectual property and the law. The activities of generic patenteers etc Stops innovation dead.
Tax is 75 % of everything. The political imperative needs a solution.
Education needs taking out of the political mix.
Sucking at the teats of the state ( eg Carillion ) ( Lobbying ) has to stop.
I forgot to mention Banking and Accountancy. Predatory on all stages of a business. ( But not as big as the other elephants )( Nor it’s droppings )
We could do with someone with brains looking at JIT and debunking it. It is foolishness perpetuated by Using computers instead of brains. Also another idiotic idea of supply chains. Sub contracting makes sense but not this.
Indeed TG; JIT can so easily become JTL, so who in their right mind would not hold some stock for that situation?
Jack, I like JTL , i assume it means Just Too Late. I bet it was suggested to those who had to wait.And therefore not noticed.
Most of the supermarkets, much of industry (what’s left of it in any scale ) and any company or organisation with ‘logistics’ or ‘logistical solutions’ in it’s name, that’s who.
Works by building formidable late delivery penalties into the supply or courier contract. Just wait and see what happens if the transport network or fuel/power supply were to be disrupted. I’d give any government a week before they fell.
All these arguments in the piece are no doubt true, but even if the Brexit chicken comes home to roost we will still have the addled egg of unrepresentative parliamentary rule to deal with. To take advantage of Brexit we need a parliament that vigorously pursues the interests and welfare of the British people and we now know for sure we don’t have that.
Very short term inconvenience has to be matched against very long term benefit. Even short term problems could have been minimised if our dithering housewife who is in charge, had done her job in the first place.- Two years of will we ?- won’t we ? has claimed some businesses to make a move and take decisions for the good of their continued trade, and this silly woman might well agree to an extended time, for more damned talks ! Government might enjoy this continual uncertainty, but some businesses have to make their move upon certainty, which they alone have had to make in the absence of Government leadership. This is a very sad situation for this Nation, when leadership is utterly absent ! The unnecessary time taken, and the sheer delay in doing what the people have told Government to do, has moved from dither and incompetence, to something akin an Art Form !
Good comment Mike and the descriptions of the PM, ‘dithering housewife and silly woman are very apt. She is totally unfit to hold the top job in government.
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” – Friedrich August von Hayek, ‘The Fatal Conceit’
I studied under Professor Alan S Milward who argued In his book ‘The European Rescue of the Nation State (1992)’ that – paradoxically – ever-closer union could somehow strengthen nationstate identity within the colossus that was being designed by the unelected elites, as a Socialist-learning free marketeer (another paradox) he influenced policy in the Cabinet Office by challenging the eurosceptics who believed that European Union integration of nation-states would undermine sovereignty and lead to a federalist superstate. He was wrong, and it’s this romantic Utopianism that (knowingly or unknowingly) closes its eyes to the 3rd-Way Continental Fascism that is behind the EU and its purpose, and that allows Remainers to claim they are in favour or defending freedoms, while progressively taking them away.
It’s the Romantic utopian fallacy expressed by Mussolini, “The people do not know what they want; they do not know what is the best for them…..Fascism is definitely and absolutely opposed to the doctrines of liberalism, both in the political and economic sphere…. in the world’s social revolution will be followed by a more equitable distribution of the earth’s riches.” That is essentially what it is all about, and why Vladimir Bukovsky said “…socialist is the project of the European Union, which was born in Maastricht in 1992. The intent was to save socialism in Europe after the fall of the Berlin Wall”; and Van Hayek (in ‘Individualism and the Economic Order’) “If socialists understood economics they wouldn’t be socialists…. There is all the difference in the world between treating people equally and attempting to make them equal. While the first is the condition of a free society, the second means as DeTocqueville describes it, a new form of servitude”.
Being in the EU is servitude, and the Remainers want that servitude as a means to their idea of ‘equality’. Tory Remainers do not understand economics, are socialists, and essentially on the wrong side of the House of Commons.
Good article but there is another point which the remainers like to ignore. That is the fact that we traded with the world before Traitor Heath sold us out in 1972. So the so-called “no deal” is an opportunity to return to such trade free from the shackles of the EU.
Of course much has changed in the years since we were free but it is in our nature to look to the world outside the EU once again, whilst also trading with the countries of the EU once they come to their senses.
As you suggest the regaining of our sovereignty and democracy is also important; so much so in fact that it trumps everything else. Thankfully seems that we do have one MP with some common sense on our side; maybe she can instil some in the rest of the Westminster reprobates.