Britain and its free trade economics

Updated: Aug 9, 2018


Yesterday I posted an answer to a question that was posted on Quora, about what the EU did to piss off Britain. As of this moment I have already received 13 responses, the second of which was a link to a pro-Brexit, pro-free trade YouTube video.


Firstly let's take Britain and the EU. The Financial Times (FT) did a story last year asking the question about whether Britain benefit from being in it for 44 years. It concluded that while there are those that would debate the size of the financial benefit (no one seriously challenges the fact that they did benefit), few would disagree that the greatest benefit was forcing British companies to become more competitive or die. Contrary to the video, the EU boosted British competitiveness and did not prevent it as was implied. That said, last year Britain still had the lowest growth and the lowest investment of any other the top 7 EU countries. Also, the productivity remained low, mainly because of the reluctance of companies, (which had their tax rates cut just for this purpose), to invest.


I find it both ironic and disturbing that there are people that take the most obvious of examples which would in fact contradict their own argument and turn it around. People like Rees-Mogg promising consumers cheaper shoes and food. This may be so, but what happens to British manufacturers and farmers who cannot compete with the lower cost of labour? Isn't this what Britain promised itself it would not let happen again after the World War when they needed America to feed them? Isn't this the reason they wanted to subsidize agriculture?


When David Davis and others talk about making all these fantastic deals with others that Britain will do if they are not restricted by the EU they are just kidding themselves (but more importantly you). Even if they did manage to secure some deals, the chances of signing them during the transition period are next to zero, if for no other reason than nobody will want to tie themselves into a long-term deal without knowing what kind of arrangement Britain will have post-Brexit.


Over and above that, trade deals take years to negotiate and sign and Britain isn't just throwing away the free EU market, they are throwing away the dozen or so existing deals that the EU already has. All these arguments that they claim; are so full of holes it actually makes me angry just to have to respond to them The only reason I am doing it, is to help the non-fanatical idealistic, imperialists to recognize the truth. Good luck with free-trade with Trump, who just today slapped tariffs on Chinese steel, possibly sparking off a trade skirmish.


If this pro-Brexiteer argument held any water, how do you explain China importing cars from Germany? Why is Germany doing much better trade with them than Britain? This effectively proves that the blaming of the EU for the economic woes to be wrong!


Then there is the question of immigration. Italy is at its limit of tolerance, but to compare the British problem with Italy's is to compare a paper cut to a bayonet wound to the chest. They are not in the same category. Firstly, Britain is not in the Schengen zone, but more importantly, if immigration is such a problem, why are there as many immigrants from outside the EU as from within? This is further borne out by the newer statistic that show that EU numbers have dropped significantly this year, but not those from Asia.


Then there is the fallacy of why some companies are competitive that are outside the EU, countries like Switzerland and Norway. Switzerland has been thought of as being far more democratic than the EU, but let's not forget that they didn't even give women the vote until 1971. Their success is a combination of factors. Firstly their constitution of neutrality has enabled them to stay out of NATO. Their military spending for 2015 was a mere 0.72% of GDP. That said, they also have the highest gun ownership outside the US because of their militia, preferring to store their weapons at home. That of course did not stop them from exporting their goods to countries like apartheid South Africa to Saudi Arabia, countries that were being sanctioned by the rest of the world. Their Banking laws and secrecy may give them the edge attracting money from abroad, but it also attracts drug money and terrorist funds by the billions. When America leaned on them for a while post 9/11 to open up their files, even they had to give a little way.


I could go on forever but I will leave it at this. The economic problems faced by Britain has nothing to do with immigration or the EU. It has to do with competitiveness of which productivity has a lot to do with it. But before Labour wade in and start accusing me, I will say it is not their fault. This is the Britain that the Conservatives wants. A low (labour) cost workforce they can use to play off against each other and weaken the trade unions. They could and can invest in machines and technology that would raise productivity in an instance. Instead, the tax breaks they received to encourage investment they squirrel away in tax havens and off-shore accounts. This has a 'self-fulfilling downward spiral effect.' Lower tax means less revenue for the government. Social funds like education are starved, giving rise to poorer education and even lower quality workforce, that in turn lowers productivity.


A bigger unprotected market at this stage is in fact suicide. There is nothing that Britain is offering that isn't available elsewhere and cheaper. The sort of things that China wants are not a sustainable market. What they want is technology and once they have it, it will eventually become theirs. Even then it is a joke to think that forcing more and more of the cost burden of universities onto them is not a cost-saving but a false economy. As prices rise, it will not be the foreigners that pay the price, but local students. BMW's. Mercedes, and Audi's are luxury items. If the price rises by another 5-10 or even 20% the rich Brits will still buy them. Can the same be said for British goods in Europe? Rolls Royce for sure!


Investment, in machines, investment in people is what is needed, and the government MUST take a lead. They can kick start the process through borrowing for infrastructure projects, and start treating universities for what they are, an investment not a cost. Punish companies sitting on reserves, as indeed they say they are planning to do to developers that are sitting on land waiting for the price to go up.

Close tax loopholes, and join in with the rest of Europe who are trying to bring big business to heel by homogenizing the origins of profit. Get a grip Britain, before its too late.

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