Tuesday, 22 March 2016

Economical with the truth - Grocery Politics




I believe the EU Referendum is fundamentally about one primary question - who governs ? To my mind there cannot be a more profound democratic choice.  In practice much of the Referendum campaign has been reduced to debating if Brexit it will result in higher/lower prices, or make the country richer/poorer - reducing democracy to mere "grocery politics".

One of the main peddlers of this "grocery politics" approach have been the "Britain Stronger in Europe" organisation, headed up by someone who should know his groceries - the chairman of Ocado and former chairman of Marks & Spencers, Lord Stuart Rose.

The  "Britain Stronger in Europe" (BSE) organisation had an inauspicious launch last October, with their initials provoking much mirth with allusions to "mad cow disease".  During a Sky News interview Rose was unable to correctly recall their name:  “Stay in Britain, Better in Britain campaign” ? “The Better in Britain Campaign” ? “Better Stay in Britain campaign” ?  All of which sounded more like “Believe in Britain”, which is UKIP's slogan.  BSE now prefer the title "Stronger IN".

In a newspaper interview last October, Rose stated: "Nothing is going to happen if we come out of Europe in the first five years" and “I personally would be very disappointed if there was a fear campaign. I wouldn’t want to be associated with it and you won’t hear that from me." That now seems a very long time ago.

Claims for EU membership benefit: £3000 per annum

It didn't take long before Rose was peddling a CBI report that claimed to show an overall benefit to each UK household of  £3,000 due to EU membership (the clear implication being that leaving the EU would mean an equivalent loss).  This is based on an estimate that EU membership has provided an overall benefit to UK GDP of 4-5%.

The figure of £3,000 is arrived at by taking annual UK GDP (approx. £1.8 trillion), assume 5% has accrued from EU membership (i.e. £90 billion) and dividing by the number of UK households (approx. 30 million) = £3,000.  Its a bit of a con to suggest that each household has an extra £3,000 as a result of 40+ years membership of the EU. In 2015 the UK economy grew by 2.2% - did you notice the extra £1,320 per household ? In 2014 the UK economy grew by 2.9%, making growth of 5.1% over the last 2 years - did you notice the extra £3,000 per household over the last 2 years ? Me neither.

On inspection, the CBI's document proves very superficial. It is not an original analysis, but simply a selective review of other estimates (discounting many of the estimates which suggest a net gain from Brexit), from which they derive a range of 1% to 9.5% of GDP for overall benefits of EU membership.

Most of the benefits listed do not relate to EU membership, but rather to participation in the Single Market, i.e. elimination of tariff and non-tariff barriers, productivity gains from Single Market competition etc. This is part of an ongoing strategy to conflate EU membership with participation in the Single Market. As I have often noted, the sensible approach to Brexit is to Leave the EU, keep the Single Market.

Another major benefit listed is Foreign Direct Investment, which is again linked to the Single Market rather than EU membership. Investment into the UK is also a function of many other non-EU factors - the UK's pre-eminence in services industry, its strong legal & commercial history, the English language advantage and an open approach to business.

Immigration is also listed as a significant benefit to the UK economy. There is general consensus that immigration to fill skill shortages is an economic positive.  Even those advocating leaving the EU to control immigration are only talking about limiting the numbers of unskilled low-wage immigrants, not stopping all immigration. Whether large-scale immigration of low-wage unskilled workers is an overall economic benefit or cost remains a contentious point. As Martin Wolf argues in the Financial Times, "one's assessment of the desirability of sizeable immigration is a matter more of values than of economics."

Even supposing the claims regarding economic benefit from mass immigration are true, continued membership of the EU is not the only way to achieve this immigration ! (as figures for UK non-EU immigration show). It can be argued that adopting a level playing field for immigration, rather than the current system which favours EU immigration over the rest of the world (including commonwealth allies), is more likely to achieve the best UK economic outcome. In short, Vote Leave for a global immigration policy.

The CBI report suggests that approx. 1/3 of their estimated 4-5% overall net gain arises from the Single Market, which is roughly in line with the EU commission's own estimate of ~2% overall gains from the Single Market.  Interestingly, the CBI report has approx. 2/3 of their estimated 4-5% net gain arising from other factors, e.g. migration and participation in global value chains, neither of which would seem predicated on  EU membership.

Lord Rose and BSE were accused of a "scandalous misuse of data" over the CBI report when appearing before the Treasury Select Committee. It was at the same appearance that Rose infamously agreed that controlling low-wage unskilled immigration could see increases in wages for low-skilled workers in the UK, before adding "but that is not necessarily a good thing".

BSE & CBI - economical with the truth

Many of the same economic arguments were advanced by the CBI in 2002/3, with prophecies of economic disaster should the UK not adopt the Euro.  In the 1980's, the CBI enthusiastically campaigned for UK membership of the Exchange Rate Mechanism (ERM). The resultant deep recession was only escaped when Britain was ejected from the ERM in 1992. In fact, the CBI have a long record of supporting the wrong economic decisions, stretching back to their support for the Gold standard in the Great Depression.

BSE/Stronger IN and CBI are blindly repeating many of the old pro-Euro arguments - the UK would be isolated and face huge economic impact if it does not follow the path of EU integration. As the common riposte goes "wrong then, wrong now".

BSE/Stronger IN regularly quote the CBI as the "voice of business".  The reality seems to be somewhat different:

  • The CBI does not declare how many ‘direct’ or ‘indirect’ members it has.  In 1999, the CBI was forced to admit it had just 2,037 direct members (CBI, July 1999).  
  • The CBI have form on this behaviour. During the euro debate, the CBI claimed three-quarters of CBI members supported scrapping the pound (Observer, 18 July 1999).  ICM polling found that British businesses were opposed to euro entry by 63% to 32% and that 64% of the CBI’s own members were opposed to the single currency (BBC News, 31 March 1999). 
  • It has been reported that between 2009 and 2015, the CBI received £955,484 from the European Commission, about 12% of the CBI’s retained income.

When it comes to economics, BSE/Stronger IN are being economical with the truth.  Their case for Remain seems to rest entirely on exaggerated financial claims - much like the failed Euro campaign 15 years ago.  Their claims pre-suppose that Brexit results in 
- (i) the erection of trade barriers (which would damage the global economy) and
- (ii) an economic loss from a future UK immigration policy (whereas adopting a non-discriminatory balanced global immigration policy could actually provide increased benefit).


Conclusion

The continued use of "Grocery politics" by the Remain side is becoming counter-productive, with the public becoming increasingly immune to the wild scare stories.

The Leave side are also guilty of "grocery politics" in claims of savings to be made from our EU contributions.  In practice, much of the money will still need to be spent to continue farming, fishing and regional subsidies as well as participation in programs (Single Sky, Horizon 2020, Erasmus+ etc.). A reasonable analogy is Norways payments  (about half the UK level, and NOT to Brussels).

It really is time we dismissed this "grocery politics" so that we can address the primary question: who governs ?

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