by Alasdair Macleod, GoldMoney:

Last thing I remember, I was

Running for the door

I had to find the passage back to the place where I was before

“Relax” said the night man,

“We are programmed to receive.

You can check out any time you like,

But you can never leave!”^[i]

The Eagles lyric from the 1970s is nearly as old as the United Kingdom’s membership of the EU, but it is an apt description for her predicament. There are so many twists and turns in the EU’s corridors, that it is proving difficult for Britain to “find the passage back to where it was before”. Britain has checked out but cannot seem to leave.

The EU has firmly rejected Mrs May’s Chequers customs proposals, which is not surprising to those paying attention. Their chief negotiator, Michel Barnier, had already made his position clear. Last week, Mrs May sought to take her case to his superiors, effectively asking them to overrule him. It was a tactical error that backfired badly.

Fortunately for her PR machine, the blunt rejection by the EU, particularly the comments of President Macron, deflected the immediate blame of Mrs May’s failure to the EU leaders’ intransigence. Consequently, early signs of electoral opinion have firmed in favour of a no-deal Brexit. Merci, President Macron, for clarifying that point for the British electorate.

It is now just six months before Britain formally leaves the EU. This article details the economic and political issues, followed by a commentary on the tactics being deployed by all sides.

The economic case for Brexit

The economic case for Brexit centres on the law of comparative advantage. This law explains that rather than waste your time making or doing something someone else does better, you should buy it from him instead than wasting time trying to compete. It also explains that even though you might be very skilled at something but can add greater value to society by doing something else, you and the community as a whole are better off if you do that something else.

For example, Winston Churchill built a garden wall at his country home. He turned out to be an excellent brick layer, as visitors to Chartwell can confirm. But there were other competent bricklayers on the Chartwell Estate. Besides building walls as a hobby, it will be clear to everyone that Churchill added considerably greater value to society as a politician and an author and was paid more than he ever would be as a bricklayer.^[ii]

What was true for the great man is also true for all of us. It allows us to maximise the potential for a community of producers by buying each other’s output in accordance with the law of comparative advantage. And what holds for a community scales up to nation states. If China can supply us with goods cheaper and better than we can ourselves, we should buy them from China, and not waste our time and resources doing it less effectively. Scarce capital resources, including labour, must be released for more profitable activities.

If China offers steel at a lower price than it can be made in Britain, British manufacturers who incorporate steel in their products would be stupid not to benefit. Meanwhile, British steel manufacturers should get out of the mild steel business, and perhaps produce high quality speciality steels to regain their commercial edge. This is what British Steel has done. The common European response is to protect their industries with import tariffs, and by the end of 2016 there were 12,651 known EU tariffs in force.^[iii]

Only free markets, more specifically the consumer and also buyers of intermediate production, can decide where the comparative advantage lies. In free markets, the consumer is king, and the businessman who fails to respond to his customers’ demands should amend his offering.

Businesses try to avoid this truth by lobbying politicians to yield a monopolistic advantage. Business leaders present themselves to the political class as expert representatives for their industries, and they warn politicians of the supposed horrors of free competition. An established business would rather be regulated than face competition, because the regulator will help guarantee profit margins, and licence monopolistic behaviour.

This is crony capitalism, which is not free markets. It is everywhere, but more in some places than others. It is particularly virulent in Brussels, where big business effectively sets product standards to disadvantage smaller competitors. The law of comparative advantage is trampled underfoot.

Lobbying by special interests is not confined to Brussels, being a feature of Westminster life as well. The Cronies target Brussels where the Europe-wide power resides, as well as national governments in coordinated campaigns. The result is an institutionalised crony-based system bound together by a political class that has been bought by special interests.

To a businessman, a good politician is one who once bought, stays bought. On the one side of the Brexit tussle you have protectionism, which has become thoroughly institutionalised, and on the other you have free marketeers. Interestingly, the UK’s Conservatives are meant to be the party of free markets and individualism, yet even their ranks include ardent statists, their true colours exposed by the Brexit debate.

The political case for Brexit

The political case is simply one of democratic accountability. In the UK, parliament has always been sovereign, that is to say the elected members of the lower house form governments and make the laws. There has to be a general election at least every five years, to give the electorate a vote on the government’s competence. Furthermore, if during a government’s term it loses the confidence of a simple majority of MPs, it must call a general election. By these means, the British public exercises its democratic rights.

There is no such accountability in Brussels. Only the unelected executive can propose directives and regulations, and the parliament has an equal say in passing them. In practice, the EU parliament is packed with establishment MEPs and nothing initiated by the executive is rejected. Democratic accountability is a fig-leaf and never gets in the way of the unelected executive.

Very rarely, the electorate is asked for its view on a simple matter of principle by referendum. Referendums are technically advisory, but in practice a parliament that goes against the public’s wishes expressed in a referendum is denying the electorate its democratic mandate. Having called a referendum, if a government then fails to respect the result, what was the point in calling it in the first place?

The first referendum in Britain was held on 5^th June 1975, where the question asked was, “Do you think that the United Kingdom should stay in the European Community (the Common Market)?” It was held two years after Britain had actually joined, but it was clearly on a simple matter of principle. There was another nationwide referendum on proportional voting, which was rejected. The 2016 Brexit national referendum was only the third ever held. They are not frequent events, though the device has been used regionally as well (i.e. the Scottish referendum).

At the time of the 1975 referendum, the EC was little more than a trading bloc, whose members traded freely with each other without tariffs, while significant tariffs were imposed on imported goods from non-member states. Communications were such that proximate markets were easier to service than distant ones. These were the important economic arguments for Britain joining at that time.

But since then, the EU has taken democratic accountability away from national parliaments principally through the Maastricht and Lisbon treaties and is on its way to becoming a fully-fledged super-state. Meanwhile, WTO tariffs have gradually declined to single figures, and the internet has made distances between suppliers and consumers far less of a hurdle to trade. With the importance of being in a trading bloc now a growing obstacle to global free trade, there is no valid reason to justify the loss of democracy.

This is the crux of the Brexit debate: the economic benefits have gone along with democracy. The Remainers deliberately avoid the democratic issue and instead deflect the debate into economic unknowns. The statist establishment both outside and inside the UK persists in threatening that Brexit will lead to a large fall in GDP, rise in unemployment, disrupt trade with the EU, threaten medicinal supplies, prevent planes landing, and so on. The list of these supposed negatives is extensive, but it is increasingly clear Remainers are only making up scare stories to avoid debating the democracy issue.

The EU’s position

The establishment in Brussels is rock-solid in its determination to continue on its course of devolving power from national governments to itself. Furthermore, the EU parliament has imposed its red lines as inviolable, the principal ones being:

• Any transitional deal will be enforced and overseen by the EU’s Court of Justice (ECJ).


• UK Citizens in the EU and EU citizens in Britain should be guaranteed reciprocal treatment.


• The UK must adhere to EU environment and anti-tax evasion rules.


• The UK should pay the EU costs that “arise directly from its withdrawal”.^[iv]

As well as these red lines, there are the “four freedoms”, that are also sacrosanct: the free movement of goods, services, capital and persons. In order to satisfy these freedoms, the UK would have to remain in the customs union, or be out of the EU completely. It is that simple.

To ensure that Britain complies with the four freedoms in any half-way house, it would have to accept the jurisdiction of the ECJ, instead of the British courts. The European parliament’s position is less important than the four freedoms, because the parliament is little more than a rubber-stamp applied to pre-agreed policy.

Since the EU parliament’s resolution was passed, there appears to be behind the scenes attempts to persuade the British electorate to reconsider. The first strategy was to simply block all British attempts at achieving a negotiated settlement. This led to the British government offering an alternative compromise, the Chequers plan, which resulted in the resignations of the Brexit ministers, David Davis and Steve Baker, as well as the Foreign Secretary, Boris Johnson. The second strategy has been running concurrently with the first, and that is to undermine the Brexit case, in the hope a second referendum would reverse, or at least neutralise the Brexit referendum.

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