Only a Brexiter deals in absolutes: Brexit and the illusion of absolute sovereignty

A common line of defence for the Leave campaign is the one about self-determination – that our country, unshackled from the grip of shadowy figures concealed in Brussels’ institutions, can chart its own course to the lands of a prosperous future. That without the regulatory constraints, ‘red tape’ and bureaucracy, Britain will be able to reclaim its own parliamentary sovereignty, and will be able to determine the rules by itself. That parliamentary sovereignty is supreme, with economic costs being a price worth paying for.

We will show, in this short op-ed, that the prospect of reclaiming sovereignty, conjured up in the Leave campaign’s image, is an illusion. By ‘taking back control’, we are not only infuriating our European brethren who will decide our fate in the event of a Brexit, but also locking ourselves out of the negotiating rooms where the rules, regulations and treaties that will still impact us post-Brexit, are forged.  And so by leaving the EU, we will be ceding power and sovereignty to other nation states, contrary to the very point of Brexit itself.

We have more control than you might think

First, let’s quickly agree on what sovereignty really means. Sovereignty refers to being a supreme authority within a geographical territory[1]. Such authority, on a particular scope or matter (i.e. monetary policy), is supreme if it cannot be superseded by any other authority.

Now Brexiters love to shout about how much control the EU has over UK affairs. They love to shout about the chains of regulation that choke our industries and enterprise. They bemoan the illusion that Britain’s interests do not coincide with those of our Continental neighbours. The facts speak a different story.

As it currently stands, the UK has pooled (some of) its sovereignty with other European nations. We share (limited) rule-making through the Council of Ministers and the European Parliament, which act as legislative chambers. We share international trade policy through the customs union, and have shared market regulation through the free movement of capital and labour, and common standards on product regulations to name a few. UK parliamentary sovereignty is not absolute – there are areas of legislation on which the UK works with or defers decision-making to the EU.

To be even more precise, the areas of law that the UK has deferred to the EU is limited to trade policies, rules and standards for the EU Single Market; competition rules and state-aid; intra-EU migration, and fisheries. The UK shares decision-making with the EU (i.e. it retains some decision-making power) in the following areas: ratifying trade agreements, energy/climate policies, environmental standards; agricultural, employment, consumer protection, VAT, asylum and cooperation on foreign policies[3]. All other areas of policy – ranging from education to health to monetary policy – are the exclusive preserve of the UK parliament.

We agree with the EU the vast majority of the time

The EU actually dictates little policy without negotiations and shared decision-making with the UK. And that’s the entire point. For policies such as free movement of goods, it makes sense to have a common policy for member states, to create standardised rules for all for simplicity, outside of politicians’ controls to twist and mutilate as they see fit to further their own goals. And for those Brexiters who believe that our interests are not aligned with our European siblings, here’s a fact that will surprise you – we have voted 2,474 times with the Council of the European Union out of 2,601 decisions [4]. Yes, that’s over 95%.

Negotiations will be difficult if we Brexit

Imagine now that we invoke Article 50 of the Lisbon Treaty – the signal to the world that Brexit is to occur two years from now. From that point onwards, the UK government would have two years to finalise negotiations for a new EU-UK relationship for all the policy areas above which the UK either shares or defer decision-making power to Brussels.

This is where the Leave campaign’s doctrine of ‘take control’ comes into its own. By leaving the EU, they argue that we can reclaim decision making powers in all of the policy areas listed above. We can get control of our borders whilst still retaining access to the Single Market. We can avoid paying into the EU budget, and maintain the elements of the status quo that works in our favour. We can initiate trade deals with non-EU nations without any repercussions from our European neighbours.

The Leave campaign blissfully assumes that by reclaiming complete control over our own laws and regulations, that we will regain absolute sovereignty. There is no acknowledgement towards the potential retaliation of neighbouring states. They assume that we can cherry pick the best of our current EU arrangements, and in a post-Brexit future, can carry those forward in any new relationship that our government seeks to pursue. This is the exact definition of absolute sovereignty – Brexiters believe that retaliation from other nations will be negligible and that parliamentary sovereignty will rule supreme in all matters.

Unfortunately, the reality is that politics is messy. It is full of compromise, half-baked promises, and imperfect agreements. Cameron’s pre-referendum negotiations is testament to that. As is the ongoing Canadian-EU trade deal that will ultimately exclude services. A country may claim sovereignty in its own parliament, but that sovereignty means nothing if other countries are unwilling to cooperate. To take an extreme example, consider North Korea. No one can deny that its government has free reign to rule as it sees fit. But it is subject to crippling economic sanctions, and international diplomatic efforts are hostile and cold if not anything else.

So how does that relate to the EU? In the event of a Brexit vote, will our European neighbours give us warm, welcome and favourable terms? Very likely not. To see why, let’s start with their incentives. The European project is to create ‘an ever closer union’, but that is not relevant to the UK as we have now an opt-out from that particular goal. Instead, Brussels will see a Brexit as a threat to the ongoing European project – their (current) objective is to not undo the integration that has occurred over the last 40 years; and the UK leaving the EU could certainly provide the impetus for repeat referendums in other member states.

They have an incentive to be demanding in the negotiations – to make Britain an example of what happens when a country leaves the bloc – for the very reason that credible punishments will keep member states in check and preserve the integration that has occurred since the EU’s inception. This does not have to be explicit punishments – the EU could offer favourable trade terms for goods (not services), while restricting Euro-related transactions to be conducted within the Eurozone, directly damaging the City of London’s passporting rights. The latter is bound to be more damaging to the UK than the status quo guaranteed by the former. This veiled ‘carrot-and-stick’ approach will send enough of a strong signal to member state’s governments to not entertain the thought of future referendums in their own territories.

Moreover, the negotiations over a British exit are likely to be protracted and painful for two reasons. Firstly, the UK will not be present in the talks, and will have little input in framing the draft resolutions while the other 27 nation states have a say. Regulation without representation is certainly not want the British people want. Secondly, the UK government is woefully unprepared to deal with the legislative effort in combing through all EU directives, and also in being able to strike trade deals with other countries since it does not have the staff nor the experience in the civil service to be able to do so effectively. The last time Britain tried to negotiate a free-trade area (known as EFTA) with European nations was in 1958 as a challenge to the Common Market proposed by France and Germany. It failed dramatically and was ultimately superseded by the Single Market.

Britain never had absolute sovereignty, and it never will, Brexit or no Brexit. It is an illusion, and a lie. If ‘taking back control’ creates tension and a gradual ceding of powers to Brussels in return for aspects of the Single Market that we have just left and need, what good is our beloved sovereignty then?

 

[1] Philpott, Daniel, “Sovereignty”, The Stanford Encyclopedia of Philosophy (Summer 2016 Edition), Edward N. Zalta (ed.), forthcoming URL = <http://plato.stanford.edu/archives/sum2016/entries/sovereignty/&gt;.

[2] Wolff, R. P., 1990. The Conflict Between Authority and Autonomy

[3] Chatham House, 2016, https://www.chathamhouse.org/sites/files/chathamhouse/publications/research/2016-05-09-britain-eu-sovereignty-myth-niblett-final.pdf

[4] Lustig, http://www.huffingtonpost.co.uk/robin-lustig/eu-referendum-brussels-bureaucrats_b_10391770.html

Fresh blood: A positive case for immigration

BREXIT: VOTE REMAIN

 

Immigration is the hot-button issue in this referendum; Leave has increasingly focussed on the topic in recent weeks (largely because they haven’t been able to make arguments about sovereignty or the economy stick). Why?

It’s an emotive issue, one where it’s easy (and tempting) to substitute personal experience for wider fact, succumbing to confirmation bias and misrepresentative extrapolation of local patterns to global truths. Likewise, the issue of immigration is treated very differently depending on location and the local economic situation.

The arguments raised by Leave look a lot like those cited on the economy: raw numbers, devoid of context, are placed before us, hoping to overwhelm. Some examples:

  • 1.5 Million EU migrants moved to the UK between 2004 and 2010. Most of them were low-skilled. Low-skilled EU migrants can often deprive British citizens of jobs in the low-skilled end of the labour market.
  • Migration accounts for one third of the deficit in social housing and undoubtedly puts pressure on public services as a whole.
  • A quarter of a million EU migrants come here every year — a city the size of Newcastle

They hope to create a sense that these figures, when combined with isolated experiences that leave us with a bad opinion of immigrants, adds up to a full-blown crisis that is robbing Britain of its economic vitality and social cohesion. That’s simply not true.

Immigrants are employed in greater proportion than native Brits (even according to the Daily Mail), and contribute more in taxes than they take out in services. They integrate well into the local population, especially after a generation or two (“Britons loathe immigration in principle, but quite like immigrants in practice”). In Brexit-specific terms, issues attributed to migration would not be solved by leaving the EU.

At a basic level, the fact that areas with more immigrants are more accepting of them demonstrates that immigration is not a devastating wave, but rather an influx of fresh perspectives, talent and enthusiasm. Those opposed to immigration cannot rely on economic reality to justify their discontent; their opposition arises from an emotional distaste for the ‘other’ — xenophobia in its purest form.

Don’t let those feelings overwhelm you. Here are the facts.

Concern over immigration is not new, and yet the doomsday hasn’t materialised.

A quick-and-dirty method is to see what Google claims for interest in a search term over time. Interest in this topic has actually been pretty stable over time, suggesting that a ‘breaking point’ is not, in fact, nigh.

search trends.png

Indeed,

Anti-immigration sentiment has been widespread at least since the 1950s, when post-war immigration from former British colonies began changing the racial makeup of the country…they simply give people the sense that their island nation is becoming less “British.” Muslim extremism and refugees may have little to do with workers coming in from Poland, but the refugee crisis has caused them to bleed together in people’s minds. — Time

Nor does public opinion on the issue track reality.

20141025_brc092

How, then, to explain Britons’ xenoscepticism?

For most of the past three decades the economy, unemployment or the health service has been a priority for the British; now such concerns have dropped away, leaving room for immigration to rise up the agenda [although there may be a natural tendency to partially blame immigrants for that small minority still to recover from the recession].

20141025_brc105

(all via The Economist)

Migrants are net contributors to British society.

Despite misrepresentative claims to the contrary, migrants (and free movement of labour) are good for the British economy.

There are good reasons to think that free movement is good for productivity, allowing firms to recruit widely for skills. It’s also good for public finances, bringing in young migrants keen to work whose contributions in taxes outweigh any costs imposed on the public exchequer. And it’s good for economic dynamism, allowing fresh ideas to spread and be adopted.— Centre for Research and Analysis of Migration

 

EU nationals of working age are more likely to be in work than UK nationals and non-EU citizens. About 78% of working age EU citizens in the UK are in work, compared to around 74% of UK nationals and 62% of people from outside the EU. — Full Fact

 

Migrants from both within and outside the EU are less likely to claim benefits than UK nationals. DWP statistics show that as of February 2015, just over 5 million people were claiming welfare benefits; of those, about 370,000 (7.2 per cent) were non-UK nationals at the time that they registered for a National Insurance number; and of those, only 114,000 (2.2 percent of the total) were EU nationals. Since those born abroad make up 16 percent of the working age population, and those born in the EU make up about 6 percent, it can be seen that migrants of both types are considerably less likely to claim out-of-work benefits. — New Statesman

 

Yet the public is systematically misinformed when it comes to the motivations behind immigration. The vast majority of them are here to work hard, make a better life for themselves and their families, and contribute to the British economy and society. 

Untitled

Any failure in NHS/Housing policy is due to government underfunding, not immigration.

It’s true to say that immigrants use these services, but contrary to popular opinion, they place far less pressure on them than do Brits. They come to work, and skew younger and healthier than the general population. Our post on the economy clarifies that Brexit would not help the NHS by redirecting contribution funding; rather, it would hurt the service:

  1. Immigrants subsidise care for the older, sicker population, being both younger and healthier than the average Brit
  2. Brexit would threaten older Britons’ access to sunny Spain and its free healthcare, shifting the costs back onto the NHS
  3. An economic slowdown would further constrain funding

As this Guardian article explains, the NHS crisis has been in the news for years, and is due primarily to consistent underfunding — a political decision independent of the immigration situation.

On housing policy, the Migration Observatory demonstrates that immigrants are far more likely to rent on the private market, and don’t use social housing in greater proportion than do British citizens.

chart.png

A common rebuttal to this data is the claim that although the overall proportion of immigrants using social housing may be in line with native Brits, they are often classified as higher priority, and therefore get preferential access. This claim was debunked by a LSE paper, which concludes by stating:

Although most immigrants are likely to be eligible to apply for social housing, there is no evidence (once demographic, regional and economic circumstances are controlled for) that they have preferential access to social housing – if anything the reverse seems to be the case.

Let’s put the numbers into perspective.

There’s also a sense among Leavers that immigrants are leading to unsustainable population growth. Britain’s population is growing at around .7% a year, ranking 155th in the world according to the UN. While higher than some other countries in Europe, it is not dramatically outside the norm, and can actually be seen as a good thing:

Britain’s growth spurt, which began at the end of the 1990s, is a sign of success…Some of our European neighbours struggling with declining populations, such as Germany, can only look on in envy.— BBC

The UK is a desirable destination for EU migrants because of its success; there are jobs to be found, the economy is doing well, and there is generally more tolerance for immigrants than other countries.

This is generally a self-regulating issue; witness the dramatic drop in migration to the US during the recession in 2009 since jobs weren’t available. The current government has revised access to out-of-work benefits for recent UK immigrants, meaning that individuals can’t simply show up in the UK without a job and leech of the state (‘benefits tourism’). If the UK runs out of ways to productively employ migrants (the illusion of ‘filling up’), then the numbers will drop.

The ‘British’ issue: concerns over identity don’t play out in practice.

Why is this so important? Surveys show that both cultural and economic issues drive opposition to immigration. From the authoritative British Social Attitudes survey:
immigration_t_51_509x531

Yet it turns out that once again, it’s the abstraction to general misrepresentative truths is what’s behind much of the opposition to immigration.

People actually tend to like the immigrants they know. More settled populations like the Poles are generally favourably viewed now, despite widespread concern back in the early 2000s:

But what, really, is the Polish situation? It is much more encouraging than politicians imply. Poles and migrants from other new EU member states have been readily absorbed into Britain’s labour market. They are tolerated, even welcomed, locally. The huge imbalance between local experience and national conviction has implications for next year’s migrants.

The proof is in the pudding:

The British Social Attitudes (BSA) survey…reveals that proximity to immigrants breeds tolerance of them. Residents of multicultural London have the most liberal views. Conversely, some of the least diverse bits of Britain are the most sceptical about immigration.— The Economist

I compiled data into the interactive graph below, which demonstrates that smaller bubbles (cities with a smaller immigrant population) tend to be more eurosceptic. Those populations living in diverse areas demonstrate that concerns over a mass appropriation of ‘British’ identity are unfounded.

https://public.tableau.com/views/UKEuroscepticism/Sheet1?:embed=y&:display_count=yes&:showTabs=y

tableau_grab.png

Last words

Keep these facts in mind as you head to the polls June 23rd. Immigration has always been a controversial topic, but the wider reality looks a lot different than any individual experience. Brexit would not solve any problems with the NHS or other social services, nor would Britain benefit from disavowing the free movement of labour.

Remain or Recession: The only choice on June 23rd

Here are four of the Leave Campaign’s favourite one-liners about the economy. They’re all wrong.

  1. On trade: “If we leave we’ll still have access to the single market. Leaving will free ourselves and allow us to forge better trade links with non-EU countries.”

It’s highly complacent to assume we’d retain complete access to the single market on exit. In a worst case scenario, we’d be subject to the EU’s Common External Tariff, which would have damaging consequences for key British export sectors. The prospect of tariffs on our exports is a very real one if the EU’s politicians wish to set an example and deter other nations from following suit; indeed Wolfgang Schäuble said on Friday that the UK would not be able to access the single market on exit.

If we were to retain access to the single market through a Norway style relationship with the EU, we’d still have to abide by EU regulation and contribute towards the EU budget (the counterproductive ‘regulation without representation’ outcome). Even then, we’d still be subject to the EUs anti-dumping laws. What’s clear is that any trade agreement with the EU post Brexit is going to be inferior to the status quo.

When we overlay the fact that the EU is still on the path of further liberalising services trade (which has historically lagged liberalisation in goods trade), then by leaving now we might be missing out on our biggest opportunity to date. Services liberalisation, centred around the ongoing implementation of the EU Services Directive from 2009, offers significant trade upside, especially given that c. 80% of our economy is based around services.  

Leave think that by severing links with the EU, it allows us to forge better deals with non-EU countries. There’s absolutely no guarantee of that. The EU currently has trade agreements in place or in the process of being ratified/negotiated with 85% of the world. To think that UK, which has not negotiated a trade agreement in more than 40 years, could  get better deals is fallacious. Re-negotiating over 30 deals would be highly complex, and create a plethora of uncertainty in the interim as UK companies are left in limbo regarding their trading positions. What’s more, given lower bargaining power, many of those deals – once they’re finally agreed – may well be worse than the ones already in place. Nothing is stopping trading partners from lobbying for free trade deals that exclude UK industries that they view as competitive threats.

  1. On investment: “The UK is investable with or without the EU.”

Investment comprises c.15% of UK GDP and the decision to invest is in part driven by a forward looking assessment of business prospects. On Brexit, those prospects would become more uncertain; uncertainty surrounding trade, talent, legal/regulatory structures and political stability would become all-encompassing. As a result, many UK firms would delay or cancel altogether those investment decisions until the uncertainty had cleared, which would pose a major short term drag on the economy. The effects of uncertainty on investment would be amplified by the response of financial markets, and UK financial assets would see capital outflows that  would increase the cost of borrowing for government, firms and households.

Yet, one would be mistaken to think this is a short term phenomenon. Britain has the second highest stock of foreign direct investment (FDI) in the world and Britain’s attractiveness is partly due to its access to the EU (as testified recently by both Obama and Modi). Lower access will force international companies and investors to rethink their UK investments; with Hitachi, the Japanese conglomerate, being the latest to voice such concerns.

  1. Employment: “300,000 new jobs will be created on Brexit”

This one’s a good one. It’s premised on that misguided belief that we can somehow secure better trade deals with non-EU countries (see point 1). Yet, it fails to accept that there will be a negative impact on the 3 million jobs already linked to the EU. It fails to acknowledge the growing number of companies suggesting job cuts as a result of Brexit; for example JPMorgan recently announced that 4,000 jobs would be at risk and BMW recently wrote to its 8,000 staff saying they may be forced to reconsider the size of their employment base on Brexit.  

Moreover, in recent months, UK economic data points have started to weaken. Manufacturing PMIs have ticked downwards and over a third of businesses surveyed by Markit said that uncertainty over Brexit was already having a “detrimental” effect on their business. A slowdown in investment due to uncertainty and constrained capital, a decline in household spending from higher borrowing costs and uncertainty over where individuals domicile, a drag on the current account from imports ballooning in value due to sterling depreciation, and prolonged austerity due to deteriorating public finances; all these forces suggest that there is a very strong possibility of recession in the short term. And wait, those concerns are voiced by the Bank of England, Treasury, OECD, IMF, World Bank and almost every credible economic institution out there. It’s difficult to see how Boris Johnson can uphold his claim that 300,000 new jobs will be created.

  1. Cost-benefit analysis: “We waste £350m per week on the EU which could otherwise be spent on things like the NHS”

It’s difficult to comprehend how they’ve had both the balls and the dishonesty to put up the £350m number on their campaign bus. Firstly, that ignores the sizeable rebate we get. Secondly, and more importantly, simply looking at the direct financial costs and benefits is a terrible way of assessing the benefits of the EU. When you bake in the benefits to trade and investment, the positive economic contribution of EU migrants (we will touch on this topic in a separate post), then categorically the economic benefits of EU membership have outweighed the costs. It’s telling about the sorry state of economics in the Leave Camp that they’ve reverted to notorious ‘slippery-slope’ arguments – e.g. “we will be forced to bail out the eurozone in the future”, “our rebate will be reduced” and “Turkey will join and 85m Turks will ‘flood’ into the UK!”. All three of those things are, quite frankly, lies.

Final thoughts

The authors can remember very few instances when experts have been so consensual about the economic effects of one individual event. Leave have rebutted this time and time again by suggesting; “well forecasts have been wrong before, so why should we take them seriously this time”. To reject the economic rationale for Remain premised on uncertainty surrounding the precise economic effects of Brexit, despite the direction of travel being consensual, is like the apple cart down the hill from our opening post; debating the air resistance or ground friction ain’t gonna stop it crashing.  

N.B. This post has not set out to conclusively tackle every economic issue Brexit presents, only the ones seen as most important and that have been given the most air time in the campaign to date. Any follow-up questions and comments are very welcome; we will set out to answer them and prove that the economic case for Remain is robust, contrary to the economic case for Brexit.