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It started with Brexit

25 Oct
Peter Brookes in Saturday’s Times

One can only hope that, with the election of Sunak, a shameful period in British public life has come to an end.

My firm view is that it started with Brexit, and with the distortions from the Leave campaign. Now I accept there was an argument for Brexit – a democratic deficit in EU institutions, a desire to make our own laws – but it was always clear there would be an economic cost, and perhaps a high one, to leaving the EU. Most economists reckoned it would cost between 3 and 9% of UK GDP, and current estimates are that GDP is currently 4-5% lower as a result.

So when Liz Truss was bemoaning (correctly)low economic growth, she conveniently failed to mention a key reason for it.Half a percent or more is simply due to Brexit. As is now clear, you cannot offset the damage of one policy mistake – Brexit – by another – unfunded tax cuts.

The Partygate saga has caused its own blot on truthfulness in public life, but there are other examples. The trumpeting of trade deals is one. The OBR says these ‘will not have a material impact’ – as most of them simple rollover deals we already had as part of the EU but ceased when we left – but that has not stopped grand announcements about them.

And then we have the whole shameful saga of the Northern Ireland accord, and a government trying to wriggle out of an international agreement it voluntarily signed. Had Theresa May’s deal gone through – voted against by the Democratic Unionists – we would have had no border in the Irish Sea and none of the current issues.

Now the Unionists in Northern Ireland were clearly nuts to vote Leave – but we know they’re all fruitcakes. What has been so shameful is to see so many Conservative politicians from the party of Churchill, MacMillan and Thatcher telling porky pies to the British public to justify their actions and policies.

These politicians should have read C.S. Lewis:

If you look for truth, you may find comfort in the end; if you look for comfort you will not get either comfort or truth only soft soap and wishful thinking to begin, and in the end, despair.

Bean counters and the living wage

30 May

Colleagues at Business Fights Poverty have recently published a new report – The Case for Living Wages (https://businessfightspoverty.org/register-the-case-for-living-wages/ ). It shows that, for many companies, it makes sound business sense to pay a living wage rather than either a (lower) statutory minimum or whatever market conditions will let companies get away with. Offsetting a higher wage bill are benefits of higher productivity, lower turnover, greater loyalty and a potential sales uplift from socially aware consumers. It’s a good report.

But if it’s ‘good for business’, why don’t companies do it? For example, think of the UK Post Office, where paying low wages seems to trigger very high turnover (see https://morningstaronline.co.uk/article/b/royal-mail-plagued-by-disease-of-high-worker-turnover). Even worse, why do some companies do a “P & O” and end up with ferries they can’t operate and a hostile government and press?

So somehow companies seem to be paying sub-optimal wages – which benefit neither the business nor the employees. Searching for reasons, the drive to cut costs without thinking through the consequences looks likely to be high on the list. The dreaded bean counter with his red pencil may not be optimising his companies profitability at all.

There are a couple of points worth emphasising here. The first one is highlighted in the report – it is easier if there is a collective push towards a living wage rather than piecemeal implementation – as Julie Vallat from L’Oreal says, ‘I always convey the message internally and externally that we should not be competitive on this issue. We will not achieve anything alone, if we are working in isolation on a systemic endemic issue’.

The second issue isn’t touched on in the report, but is important – the interaction of living wages with the tax and benefits system. A key reason businesses can get away with not paying living wages is that they look to the state to bail them out via the social security system. But this creates a massive hit to public expenditure and creates all sorts of bad incentives. Time for businesses – and the consumers they serve – to pay the living wage.

Online platforms – EU legislation to curtail future abuse of dominance?

4 Dec

On Monday, the FT carried an interesting piece (see https://on.ft.com/2Vw65HB ) quoting Margrethe Vestager, the bloc’s Competition Commissioner, on this subject. She referred to proposals (presumably the Digital Markets Act) which would be published ‘next week’ ‘to allow regulators to go after fast-growing companies before they are able to achieve the kind of market dominance enjoyed by Google and Facebook.’

There was also reference to a ‘pre-recorded interview to be aired on Tuesday’, but I can find no trace of it. However, the FT article, and an earlier speech by the EC President, Ursula Von der Leyen, give a good indication of what is envisaged.

Effectively, the Commission thinks a ‘backward looking’ competition policy regime – where a new digital platform has established ‘dominance’ in a market and ‘abused’ it in some way – is too slow. ‘The law’s delay’ may mean that (actual or potential) competitors have been excluded from the market by the time remedies can be set. So when digital platforms reach a certain size they will have new obligations – the examples given are data sharing with competitors and (from the Von der Leyen speech) ‘boundaries to the powers of gatekeeper platforms’.

Well, possibly, but it all sounds a bit odd. For a start, why should this new approach only apply to digital platforms? The backward-looking ex post nature of competition policy applies on a cross-sector basis. Perhaps the Commission thinks that the rapid pace of innovation causes particular problems in online services? But even so, why limit it just to online platforms? How are these to be defined? And how is the threshold size at which they might become a problem to be set? Then again, the examples given pose issues of their own – data sharing? – with whose consent? – can a ‘cost-related’ charge be levied?

But there is a more fundamental problem with the focus on online digital platforms. At least in their early stages, may of them are innovative and pro-competitive, shaking up existing industry structures which themselves are often none too competitive. Streaming services such as Netflix, for example, are challenging broadcasters who often have national monopoly or oligopoly positions to defend. And online platform business models require scale to work. How do you judge at what point the pro-competitive innovations offered by a new entrant change in some Jekell and Hyde way into anti-competitive abuses of a dominant position? Difficult enough on a case by case basis – but virtually impossible to put into a guidance framework that is much practical use.

To add to these difficulties, there is a potential protectionist slant as well, as most large online platforms are operated by US companies. So we may see the likes of Amazon & Google heading off to the WTO to share their tales of woe.

Sowe await the Digital Markets Act with interest. Commentators expect it may be published on 9th or 10th of December, along with the Digital Services Act. An early Christmas present for your favourite online platforms. Several of which you can of course search for latest developments.

(For more detail on this, see a an excellent piece by Meredith Broadbent in the Center for International and Strategic Studies – https://www.csis.org/analysis/digital-services-act-digital-markets-act-and-new-competition-tool)

Brexit – trying for an Elizabethan Settlement

16 Jul

There must be times when Theresa May wonders if it’s all worth it. Sure, the Brexit Referendum created the opportunity to be Prime Minister, and Chequers is a jolly nice country pad. But if it’s at the cost of dealing with her ‘Mad Hatter’ Brexiteers, is it really worth it?

Let’s think for a moment about my historic parallel. The Elizabethan Settlement  was designed to put an end to the religious discord between Catholic and Protestant views which had raged for twenty odd years in England. May’s Brexit White Paper seems to be aiming for something similar – trying to reconcile our current position in Europe (on trade and security) with the Referendum cry of ‘taking back control’, particularly on immigration.

Having read (most of) it, it is clear that the aim is the softest possible Brexit, with attempts to replicate much of the current EU structures with a series of complex ‘co-operation agreements’ and a new ‘overarching governance structure’ – see below:

Screen Shot 2018-07-16 at 12.14.31

Much has been written about the complexities of the proposed Facilitated Customs Arrangement, but at least that could in theory be implemented (although it must need a 3-5 year implementation period). The proposed governance structure, by contrast, looks horrendous. EU officials must be tempted to say ‘well, if you want all this co-operation, why don’t you simply stay?’

So leaving aside the UK political arithmetic, the question must be: will the EU political leaders be willing to fudge up something along the lines the UK is now requesting to keep ‘Europe’ functioning? Well, I think they might – the Swiss precedent is encouraging, and the EU 27 would be hit hard economically by a no deal scenario.

So perhaps Theresa May may actually be able to deliver?

Brexit and Windrush – national identity cards needed

25 Apr

If you google ‘national identity cards Theresa May’ you will be led to an interesting piece from the Guardian from 2010: Theresa May announcing that the coalition government’s first legislative act would be to abolish Labour’s plans for National Identity Cards.

Did she perhaps shed tears of remorse this week over this? Had the scheme rolled out, the issues of the rights of abode of the Windrush generation – and others – could have been established without the mess recently revealed.

There will be similar issues on any new immigration policy developed post Brexit. Given that we have about 100 million entries into the U.K. each year, how will officials determine if EU nationals have a right to remain without the U.K. having a national ID card scheme?

The inaction on ID cards is part of a wider malaise in government, where the IT implications of Brexit don’t appear to have been addressed at all. It recalls another Conservative government in the late 1950s, which dispatched a minister to open a brand new, sparkling telephone exchange. He made his speech, pressed the button, and – nothing happened! Brexit risks he same fate.

Brexit and The Ashes

20 Dec

There is a certain awful similarity between the latest cabinet discussions on a trade deal with the UK and our performance in the Ashes down under.

The ‘official readout’ from this week’s Cabinet discussion says: ‘the UK would also be seeking a significantly more ambitious deal than the EU’s agreement with Canada’ – so endorsing David Davis’ ‘Canada +++’ approach, and fulfilling Theresa May’s wish to ‘aim high’

The EU side don’t seem so sure – Michael Barnier has said that a trade deal cannot include financial services, and there have been many warnings from EU leaders that ‘the four freedoms’ – free movement of people, goods, services and capital – are indivisible. So if we want to control EU immigration we can’t expect free trade in goods and services.

Which side will win? The stage 1 negotiations on Brexit don’t offer much hope – instead of ‘whistling’ for their money, we’re offering €40bn. But it’s the cricket analogy that’s really interesting. Here’s what Freddie Flintoff was saying before the Ashes started:

‘I think England will win 3-2…I don’t think we’ll start well [but] we’ll win at the Adelaide and then we will get beat in Perth and then we will win in Melbourne and Sydney – 3-2’

Unfortunately Freddie’s predictive ability isn’t as good as his bowling – we have now played three and lost three, and the Ashes.

Might a similar outcome await Mrs May and the Cabinet?

And guess who published Freddie Flintoff’s confident prediction? Yes, you’ve got it – the Daily Express!

Can Scotland remain in the EU?

14 Mar

‘Up to a point, Lord Copper’, as Evelyn Waugh’s famous journalist might have said.

But let’s start at the beginning. As Parliament clears the way for Article 50 to be triggered, Nicola Sturgeon is requesting a second referendum on Scottish independence – with a promise that, if she wins, she will keep Scotland in the EU.

Is that possible? Wouldn’t an ‘independent Scotland’ have to join the queue of countries lining up to join the EU? Well, the Scottish Government has an alternative solution – just don’t leave the European Economic Area (EEA) in the first place.

Doh…now you’ve pulled a fast one. You’ve switched from talking about the EU to the EEA – what’s the difference? Well, the EEA Treaty signatories are the members of the EU and the members of EFTA, and leaving the EEA is a separate legal process to leaving the EU. It is open to debate whether this would be an option for the UK – see some of my earlier posts – but it could make sense for Scotland, particularly since the EEA Treaty has some provisions for differential treatment of regions within signatory countries. So Nicola Sturgeon and the Scottish Government, if they won a referendum, could say ‘when you give notice of your intention to leave the EEA, please exclude Scotland’.

Now it has to be said the legal eagles think this is impractical – see the LSE blog at http://bit.ly/2no1wwX for example. But it does raise some interesting points. If Scotland can do it, what about other areas that were strongly ‘Remain’ – London, for example, and Northern Ireland?

And for the Scottish Government, it’s beautiful politics and possibly good economics. A Scotland inside the EEA when the rest of the UK is outside could be quite attractive to some businesses south of the border. Financial services, in particular, might well find a base (or an expanded base) in Edinburgh quite appealing.

Triggering Article 50 is beginning to look like opening Pandora’s Box.

 

 

 

Hope for a post-Brexit world?

18 Jul

Oxford Spires

‘Remainers’ have been somewhat short of hope post the 23rd June referendum – chortling at the collapse of the leadership ambitions ‘the Oxford set’ (Johnson, Gove) not withstanding. But now an Oxford man has come forward with an intelligent way out of our self-induced morass . George Yarrow (Hertford College and the Regulatory Policy Institute) has called attention to the potential to use the European Economic Area as a way of retaining the benefits of the single market while using its safeguarding provisions to deal with immigration pressures (see http://bit.ly/2a3FQ43).

There are strong similarities between his approach and elements of ‘Flexcit’, which Richard North et al have been advocating (see http://bit.ly/2a6bPA7, or the Youtube movies – http://bit.ly/29P3Ftj, but skip the first 8 minutes).

Whilst tempted to write a longer post on the technicalities, I will forebear. It’s the sunniest day of the year so far, and I didn’t create this mess (stand forward D Cameron plus the Eurocrats pushing for ‘A Country called Europe’). So read the pieces, see the movie, and pray that the new occupant of 10 Downing Street is doing the same!

Brexit – are there any economists left in favour?

27 May

OECD Brexit Cover

I have just finished reading the OECD’s report on the the economic consequences of Brexit (see http://goo.gl/mezune). It’s a damning piece of work for anyone who believes Brexit won’t damage the economy or who follows the line ‘well, we can just negotiate our own trade deals can’t we?’ Not surprisingly, it chimes in closely with what the head of the World Trade Organisation (WTO) has said about the difficulties of the UK trying to ‘go it alone’ in seeking new trade agreements (see https://goo.gl/YfW21F).

The OCED report also provides a useful summary of other studies done (see Table 5, p36 of the OECD Report). All show big negative effects of Brexit – larger for the UK, but significant also for the remaining EU members.

A key Brexit argument against these studies seems to be that they are just produced by an ‘elite’ group of economists who failed to forecast our last recession. In fact, the main institutions weighing in against Brexit – the IMF, the OECD, the WTO – are the bodies set up after 1945 to ensure we never had to endure again the ‘began my neighbour’ trade wars and competitive devaluations of the 1930s. They have played a major role, whatever their mistakes, in creating the postwar prosperity many of us enjoy.

A more reasoned challenge would be to say that aggregate figures can hide important distributional impacts. If we vote to remain, as I hope, we need to look more carefully at this, and the impact of net EU migration on specific communities. If there are gains from remaining in the EU, the gainers can afford to compensate the losers, and should so so.

So to return to the title – have we any economists left who favour Brexit?

EU Referendum – it’s all about trade

2 Apr

I recall an English teacher remarking that there were so many grammatical mistakes in his local newspaper – the Bucks Free Press as it happens -that ‘he needed a bowl to be sick in’ when he read it.

I have much the same reaction reading (or listening to) the Brexiteers’ views on leaving the EU – brought into sharp relief this week by an article in the FT by Peter Sutherland. He points out how difficult it will be for the UK to negotiate new trade agreements if it were to leave – and notes that when we leave the 22 EU trade agreements with the UK’s Commonwealth partners will cease to apply. The full article is worth a read – see https://goo.gl/7HheeZ

Now it is true that the EU institutions are overdue for reform, and that some of the Remain arguments are tenuous too (difficult to see what staying or leaving has to do with sharing intelligence on terrorism, for example). But effectively our decision in the 70s to join and remain was about trade. We had options then as to what we should do – much more difficult to see that we have a realistic leave option now.