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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.

Confessions of a forecaster

7 Sep

An interesting piece in this weekend’s FT magazine on forecasting by the undercover economist (and FT contributor) Tim Harford (see http://goo.gl/wazg8F if you have an FT subscription; it’s in the magazine in hard copy).

My interest comes from the odd desire I had when in my twenties to do econometrics, which led, given I was an economist in government at the time, to spending five years in HM Treasury as a macro economist and member of their forecasting team.
It was an interesting time to be there (from 1980 to 1985) as it was just after the arrival of the first Thatcher government. And I arrived as GDP was falling through the floor – 1979-83 was the worst post war recession until the 2008 crisis, with a peak to trough drop in GDP of 6%.
So did the forecasters foresee this? Not really, although there was a significant “change of view” at some point in 1980 when realisation dawned that it was going to be pretty awful. And the forecasters stuck to their guns in saying that any recovery would be slow – and were quite right in doing so.
The worst of the forecasting exercises was the “Medium Term Assessment” (MTA), which in practice was simply a Panglossian exercise in saying that we would get back to trend growth in the medium term. Adequate commentary on this was given by my undersecretary saying at some point in 1981 (the depths of the recession) “but when we did the MTA in 1975, this was the year it was all going to come right”.

So what do my ramblings have to do with Tim Harford’s piece? Well, it focuses on the work of the Good Judgement Project (https://www.goodjudgmentproject.com) which has uncovered some interesting insights into why forecasting does or does not work and how it can be improved. Key to it is that many forecasters are not, surprisingly enough, interested in being accurate – they are instead more focused in advancing a political cause (shades of the MTA again). If you want to be a good forecaster, forget that (an obvious source of bias). Instead, the Good Judgement Project recommends teamwork, keeping score (so error correction) and open – mindedness.

So on this basis setting up the (newish) Office of Budget Responsibility was a good move, and its forecasts should be better than the old, politically influenced, HMT ones. Well, there’s a Popperian falsifiable proposition for you!

The non-entrpreneurial state: HBR on China

3 May

I’ve blogged before on the role of the state in economic development  – see my posts of 3rd and 9th of October last year. Specifically, I’ve referred to Mariano Mazzucato’s book on The Entrepreneurial State. It has some good stuff, but I’ve always had this nagging doubt that the case studies it uses are too US-centric – too US military spend-centric in particular. It certainly doesn’t seem to work so well in the UK – across the pond, they get (and the world gets) the iPhone; we get Concorde and British Leyland.

My unease is beefed up by an article in the March HBR (“Why China can’t innovate” – see http://hbr.org/2014/03/why-china-cant-innovate/ar/1). The authors point out that the role of the state in enterprises (“scour the company’s board for the real boss”) is a real brake on innovation. Their last sentence is worth quoting in full: “The problem, we think, is not the innovative or intellectual capacity of the Chinese people, which is boundless, but the political world, in which their schools, universities, and businesses need to operate, which is very much bounded”.

I hear that Mariano Mazzucato is adviser here to both government and opposition. I hope, as they look at her ideas, they consider why The Entrepreneurial State works better in some institutional contexts than in others.

 

Sen on Poverty – the tolerance of the intolerable

23 Jan

Amartya Sen

 

Amartya Sen was lecturing last night at the LSE on this topic – sold out, as you might expect (2,000 enquiries in the first hour, apparently). But you could also watch a live webcast which worked well – check the LSE video site – http://goo.gl/Kqs6w7 – for the replay

He looked at possible reasons for why we tolerate poverty – ignorance, a belief it is impossible to remove it, and self-centredness (“no obligation”) and found all of them lacking. Of most interest to me were his illustrations from India, and the contrasts between India and China.

I had three key takeaways. First, on ignorance: Sen described how the Indian media ignored extreme poverty because they were “controlled” by the middle classes, in the sense that they pandered to the interests and obsessions of the middle class to ensure their advertising income. Hence little reporting of extreme poverty in India. So my thoughts turned to William Wilberforce, the crusader against the slave trade. I realised, perhaps for the first time, that part of his greatness was to rub the noses of the society of his day into what slavery really meant so that the elite that made the laws could not simply ignore it. I suppose the modern equivalent is “Benefit Street” and forcing politicians to live rough for a bit.

Second, the need for “balanced growth” – not in the sense necessarily of balance between sectors, but in the sense of balance between public and private provision. You need to grow healthcare and education as much as business if your economy is to thrive. A malnourished workforce is not that productive.

Third – think quantitatively about poverty and policy. In the Q&A session, Sen dealt with an argument that “India’s greatest problem was employment subsidies” – and simply showed that this was unlikely given their small cost, and that the much greater cost of utility subsidies to the middle classes were much larger. Avoid dogma and stick to facts and reason was a good message to put across.