Politics and Economics of European Union

Regarding the accumulating European Union crisis around the Euro, banking debts, sovereign debts, treaty changes and the UK veto, there is a huge amount of invective around the supposed economic stupidity of whatever position on Europe that person rejects.  There is some justification for this, though less invective, more analysis would be welcome, where we are discussing economic issues, but not when discussing political .  There is no absolute distinction between these issues, but there is still a distinction and a very important one.  That a distinction cannot be made with complete certainty does no mean it does not exist and is not important.  Consider the difference between life and non-life when considering the ‘soup’ from which life life on Earth supposedly emerged, or the distinction between science and non-science debated intensely by philosophers since the early twentieth century.

Let us consider the economic merits of the UK and its membership of the European Union.  Could the UK thrive economically outside the European Union?  Very definitely yes.  Switzerland is doing fine on this basis.  Adopting a broader historical sweep, Singapore has done very well since leaving the Federation of Malaysia and Canada has been an economically successful nation though it declined to join the United States.  There are some economic benefits in large political units in promoting trade, as Adam Smith recognised, referring to the benefits of continental ‘Empire’.  However, that does not require every part of a continent to join the ‘Empire’, a country historically leaning towards free trade and with relatively open markets like the UK, can trade with a neighbouring ‘Empire’ and be part of the mutual benefits.  I will go so far as suggest that there are strong economic arguments for a political arrangement (so an argument about political economy) in which most states within a continental, or very large, land mass, achieving some measure of political union so that trade, with inevitable movements of jobs and investment, will have an institutional framework and will be politically acceptable to populations, who will see movement as often being within the same nation, or federation, or at the very least the same alliance of nations.

Does membership of the EU slow down the UK economically?  No.  The UK was in relative economic decline compared with other European market economies throughout the period it was not in what is now known as the European Union.  It’s position recovered during the eighties, after it had joined.  Utah was a self-governing Mormom community before becoming a state within the USA, and Texas was an independent republic after seceding from Mexico and before going the USA.  There is no obvious way in which Texas and Utah have suffered economic harm.  Some free market enthusiasts claim that ‘public choice theory’ (a branch of political economy) opposes large political units.  Though public choice theory is most popular with free market advocates, its analyses can be used across the political spectrum.  The issue is how far do political decisions support the common good, provide what are genuine public goods with universal benefits, rather than benefitting the most politically influential interest groups.  Public choice theory as we know it is largely associated with two  Virginia based economists, James Buchanan and Gordon Tullock.  What their work says is that there are different trade offs between section interest and common interests as the decision making unity varies in size.  A small unit may have relatively transparent decision making processes, but will be more vulnerable to capture by a coalition of  small number of interest groups, or at the extreme may one interest group.  A large political unity will have decision making that is less clear to everyone, but will require much broader coalitions to make decisions, broader so closer to a genuinely common point of view.  Anyway, free marketeers who invoke this argument, very rarely recommend the brea up of the USA, which they should if they are serious about this argument.  Their failure to do so suggest we should not take that argument seriously.

The UK is not at all doomed to becoming a country where the only sizeable economic activity is banking if it is not part of a European fiscal union.  If the UK has less political influence in the EU then its political weight in the world will decline.  I’d be delighted to see Eurosceptics with the honesty to admit this, instead of indulging in fantasies about the status of the ‘special’ relationship with the USA, or the supposed grandeur and influence of a country which is not influenced by neighbours because it does not influence them.  Anyway, the UK can have a thriving economy outside fiscal union, outside monetary union, and even outside the European Union.  Its attractions to investors will still be there even if the UK is not represented in Brussels.  Japanese car makes will not all relocate factories from the UK to the continental landmass because the UK s not represented in EU political discussions.  Absurd predictions of that kind were made when the UK first opted out of the Euro, they were wrong then and they are wrong now.   Membership of the European Union, equally, has not prevented investment into the UK, though to listen to British Conservative Eurosceptics you would think UK economic life was being strangled by German bureaucracy and regulation.  Given that Germany does very well, and certainly no worse than the UK, under these rules and bureaucracies, we can take it that being to some degree influenced by a German mentality in EU level relations, will not kill the UK economy.

Decisions in favour of economic, monetary and fiscal union, evidently have political implications.  The EU is currently suffering from trying to add the second to a largely successful attempt at the first, without also attempting the third.  That is the EU has been largely successful in promoting an internal market, therefore in promoting economic union.  However, currency union had been damaged by the lack of union on tax and budgetary matters, which is what matters with regard to market confidence in relation to a currency.  The failure to do much about the third, it was part of the Euro launch but with a very weak to irrelevant mechanism undermined by France and Germany, reflects lack of political will itself a consequence of the failure to create a genuine European public sphere where all Europeans connect with EU politicians as much as national politicians, and know as much about EU institutions and politics as they do about the national equivalents.  It’s possible that weakness in fiscal union and the consequent monetary crisis will enable political changes to be forced through, but there is absolutely no sign of a common European political consciousness emerging.

The probability is then that EU decisions requiring strong political will are going to be lacking.  This a matter of regret for me.  I am an emotionally committed European federalist, but increasingly disenchanted with the EU decision making processes and the mentality of the federalist community.  The leaders of federalist politics in the EU are deeply unable to engage with citizen alienation.  Their reaction is generally to dismiss opinions different from their own as ‘populist’ and irrational, despite the evident failures of federalist leaders in relation to monetary and fiscal union.  They have no plan to engage the public and reform the EU, beyond more demands for more federalism, when the lack of public interest in federalism is the root problem.  Their tone in debate is often insufferably smug, no worse than than the self-righteous anger of militant Eurosceptics, but that is no recommendation.  EU politics desperately needs genuine politicians with genuine ‘charisma’ (as explained by Max Weber) in which ‘populist’ sentiments are mobilised on behalf of constructive political projects.  It might just be the case that the current crisis promotes greater union, but this will have no more than resigned acquiescence from the European population, and it looks like the solutions will fall short of the sort of complete fiscal union, with Eurobonds and European Court of Justice  enforcement of agreements, necessary to provide a long term solution.

Having said all of that, Eurosceptic to Europhobic demands, in the UK and elsewhere, to withdraw from the EU would impose costs of readjustment, and unpredictable consequences on relations between nations, which while they could be overcome, would still leave the question of what will be gained that will compensate?  The EU should be improved and it is very hard to improve its decision making without making some steps in a ‘federalist’ direction.  The underlying reasons I have for favouring European Union will have to be addressed elsewhere.  The political economy of the EU does not avoid the need for thinking about underlying  political processes.  It does at least suggest that we need to have a European political structure of some kind, covering at least a large part of Europe, to guarantee trade relations and open markets, and that going backwards, or nations withdrawing, imposes costs, as well as going forwards and the enthusiastic participation of nations.

 

 

 

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