Before you shoot me, hear me out. This is a long post, and – unusually for me – in English, but hear me out.
In the aftermath of the decision of the citizens of the United Kingdom on 23 June 2016, that their country should no longer be a member of the European Union, many people on the Right of the political spectrum (to which I belong) argue, that the European Union (EU) had been able to avert what is thought to be a damning verdict, if it had confined itself to being a free trade area. The problem is, so the critics argue, the element of supranationality in the EU, the fact that rules can be made on the supranational level: if the European Union merely guaranteed free trade and otherwise kept out of the Member States’ domestic hair, it wouldn’t have such a problem.
Well, I do think the critics have a valid point about the EU having over-reached itself, but what those critics don’t see, is that less supranationality actually may mean less free trade, at least on some definitions of what free trade is. Over the days since the referendum, it has become increasingly clear to me that all too many people who complain about “Eurocrats”, but claim to love free trade, don’t even realise that they, to some extent, are self-contradictory. This post is an attempt to explain this self-contradiction without taking a stance in the political debate as to whether we ought to have the EU, or not.
First I believe I need to do away with a misconception: nowadays, free trade is not about tariffs anymore. It was when the EU was started back in the 1950s, but tariffs are, in most sectors that matter to European economies (it’s a different matter when it comes to the economies of developing countries), not a problem anymore, as they are negligible as a part of a product’s cost to the consumer. Tariffs are regulated, not only by the EU (which, as a free trading area, by definition has not tariffs between its members), but, crucially, also by the WTO, and they are very often nil already. If free trade were about lowering tariffs, we could basically do away with all free trade agreements but the WTO agreement.
But the bigger problem for modern economies in the Western World are regulations, and, in this area, the WTO is nowhere close to what the EU has achieved. The EU is, today, about removing internal barriers to trade, and, in this aspect, there is no organisation as successful as the EU – which basically is the EU’s political tragedy. Here is how that goes.
If I make, say, bicycles to sell for a living, those bicycles, obviously, must be safe for my being allowed to sell them, and what is deemed safe will be defined in some regulation or another. So, if I’m a Swedish bicycle manufacturer, – we take the EU out of the equation for a while – I will manufacture my bicycles according to some Swedish regulation as to the minimum safety requirements for bicycles on the Swedish market. Suppose now I think my bicycles are good and cheap enough to be interesting also to Polish consumers: in other words, I’d like to export my bicycles to Poland. Without the EU, and with only WTO rules applying, there may be some slight tariff, but I produce bicycles of such quality that there still may be a market for them in Poland, even given that my bicycles will have to bear a cost (the tariff) that Polish bicycles will not. No problem: I export to Poland, and I export even more if there is no tariff (the traditional definition of a free trade area).
But suppose, too, that Poland has its own regulation as to what bicycles are deemed safe, and that those regulations are incompatible with those of Sweden. That means that my bicycles will not be deemed safe in Poland, which means that I cannot sell them there, even though there is a negligible or no tariff, and even though there may be a market for my bicycles. Then I have a choice: either I need two different production lines (one for Sweden, one for Poland), or I won’t sell in Poland. Free trade in theory, in practice, two separated markets: either I bear a considerable cost for making two sorts of bicycles (which will put me at a disadvantage in Poland and Sweden), or I confine myself to the Swedish market.
Now, an alternative solution would be if there were some entity to which both Sweden and Poland delegate the power to make bicycle safety regulations. That entity would promulgate but one set of regulations, and I would be able to sell my bicycles, without any alterations, in both Sweden and Poland (and so would Polish manufacturers of bicycles). That would, however, also mean that neither Swedish, nor Polish, ideas about what is required of safe bicycles could be implemented without compromise: either one of the countries would think that the bicycles now on the market aren’t safe, or they would both think that bicycles are over-regulated. If both Sweden and Poland can veto the supranational entity’s regulations, and thus impose their views on the joint regulation, then the supranational entity would have no choice but to over-regulate bicycles in order to make the core of the regulation acceptable to both countries. The perverse consequence of free trade in the sense that neither tariffs, nor internal regulation are obstacles to trading over borders, would be a heavy regulatory burden on producers everywhere.
If you think that this sounds like the EU, then, of course, you’re right. The length and detail of EU regulations about which in particular the Right tends to laugh so loudly are the effect of efforts to promote free trade.
The regulatory show in the EU is run by the Member States: they decide, not some fictional “Eurocrats”. As, in most cases, new regulation needs to be accepted by a majority of Member States, and sometimes even by a unanimous decision of the Member States, the EU cannot regulate lightly: the regulation will always have to be the lowest common denominator of all the divergent ideas about the proper level of regulation, which always will make it complex and over-detailed from some point of view. It is the very fact that the EU is a Member State-driven organisation that tries to promote free trade in a democratic environment that makes its law so alienating, if one thinks (as I do) that regulation ought to be light and abstract, instead of heavy and detailed.
And, from a Leftish point of view, the problem is that free trade in the sense of removing internal barriers to trade, rather than merely tariffs, doesn’t just mean safety regulations. If a normal working day in my country means that my employees work six hours a day, whereas they work nine hours a day in another Member State, I’m at a competitive disadvantage, even if the salaries are the same in both countries. If there is a supranational regulator that says itself to promote free trade, I will have every incentive to lobby that regulator to either impose longer working hours on my employees, or shorter working hours on the employers of that other country. Either way, somebody will be unhappy – either my employees, or the employers of that other country.
And the list goes on: taxes are, of course, an obstacle to free trade in the sense here discussed, as are rules for environmental protection, and several other areas of regulation, including who may obtain licenses to provide services (on which the United Kingdom heavily relies). Every change in any regulation will either be deplored somewhere as a betrayal of workers’, the environments’, or some other worthy cause’s interests, or somewhere else as a setting of a burdensome standard that will make it more difficult for domestic industry to compete. The more free trade (in the sense of removing internal barriers to trade) a supranational regulator tries to achieve, the more everybody will be unhappy about the supranational regulator in some question.
But that doesn’t alter the fact that the supranational regulator promotes free trade, and that the promotion of free trade creates a lot of winners, too. Many on the Left now fear for the EU Working Hours Directive’s fate in the United Kingdom after Brexit, and many on the Right appear to hope this Directive finally may be repealed. Both should note that this regulation is the result of free trade efforts, the Left because it would serve to remove their misconception that free trade regulation is for the benefit of “capitalists” only, the Right because they should note that removing the Working Hours Directive effectively means making the playing field between European producers more uneven. The basic problem is the same in the EU as it is in domestic politics: all regulations, or their absence, make someone unhappy.
The EU’s specific problem is that national governments blame “Brussels” when they have failed to secure a regulation that makes a majority of domestic opinion happy, and praise their own efforts when they have got what they wanted, and that this works – the governments are believed. As the EU still is no State, but a framework for co-operation between democratic and sovereign Member States, negotiations between governments are diplomatic events in the international sphere, and that traditionally means secrecy and backroom dealing, simply so as not to embarrass foreign powers. No-one knows how deals are hammered out behind closed doors. So the EU is opaque to the citizens of the Member States, which makes possible the various governments’ stunt of blaming everything domestic opinion thinks is bad on the non-existing powers of the EU’s officials, and taking the praise for all that went their particular way.
And note that those domestic opinions, of course, are not all the same: in some question, Swedes will love the EU, because it makes their industry freer without imposing any considerable price on the enlargement of freedom, or, in the name of free trade, promotes some other cause Swedes tend to find worthy, while Bulgarians will hate the EU for the very same regulation; in other questions, it will be the other way round. But Swedes will be proud, in the first case, not of the EU, but of their government’s dexterity in safeguarding Swedish interests, and, in the second case, be angry at the “Eurocrats” of Brussels; and Bulgarians will feel the other way round as regards the second question. The EU will end up always being hated, in all of its Member States.
In short, the EU is, and remains, an international organisation in which its Member States have pooled parts of their sovereignty in order to promote free trade between them. Everything else, all the dreams about a United States of Europe and all that, are, as yet, a sideshow, to a very large extent mere rhetoric. What people hate about the EU is the consequence of efforts to promote free trade (that goes, by the way, also for the Euro, as it was conceived, too, as a means to take out currency fluctuations out of the competitive equation). It is precisely the attempt to achieve a maximum of free trade that leads to all the perceived failures of the EU. Free trade, on the definition here discussed, does mean one-size-fits-all.
Both sides of the post-Brexit debate, therefore, need to reconsider their stance. The Left ought to think very deeply about why it, after Brexit, in its majority appears to defend the EU, and to ascribe the result of the Brexit referendum to short-sighted nationalistic tendencies, and at the same time claims proposed USA-EU trade agreement TTIP is the spawn of the devil: they both are the same thing, you just happen to think the EU defends Leftist projects, whereas TTIP doesn’t.
And the Right, including Libertarian circles, should think very hard whether a demise of the EU really is compatible with the cause of free trade. The result of such demise may very well be to reduce freedom of trade in Europe, and we may end up in a situation in which we realise that we will have to replace the EU with something basically similar – minus possibly the federalist rhetoric that, in actual fact, has yielded very few results indeed.
None of this means that Brexit shouldn’t take place (although I deplore it, I think the referendum was clear enough to have to be respected), nor that the EU is the answer to all free-trade prayers (it obviously isn’t). It merely means, that, if you happen to think free trade is important, you also need to know how you want to define free trade, and that all definitions of free trade will entail consequences that maybe are not very desirable. The EU has many flaws and failings, and maybe the price in democratic accountability we pay for this amount of free trade is not worth paying, but the EU is a free trade project, and, in this aspect, it has succeeded remarkably well.
Now you may shoot me.