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Tuesday, December 24, 2013

Quit the EU Recession Zone

    This is my entry for the Brexit Prize on how we should quit the EU. Since it didn't get in the top 20 shortlist it is free to be used and as it is fairly long today is an appropriate time since I will be off till the weekend.

Merry Christmas, Ghod bless us every one.


     If Britain votes to quit the EU it will very probably mean that there is a somewhat eurosceptic government in place. The BBC, state owned broadcaster,  fits the legal definition of a broadcast news monopoly (70% of the market or above). Despite a nominal legal requirement to balance it is clearly supportive of membership and though legally committed to "balance" does not regard that as requiring them to do so when they are not proportionately represented in Parliament.

    Thus to get the issue properly debated would require that UKIP, or a coalition including UKIP hold power. Though polls regularly show a majority for leaving the EU (recently as high as 71%), to translate that into a majority at the moment of polling would likely require that supporters of leaving not be excluded from the broadcast media. At least this is the experience shown in the 1974 referendum.

      Assuming UKIP in government we should expect the process of leaving to fit their policies.  Those tend towards a fast break followed by low regulation and free market policies, particularly in the energy field with a repudiation of the catastrophic global warming theory and its attendant massive costs.

Sovereignty Means

     If Britain considers itself sovereign all that is technically required is the repeal of the Accession Act. There are some who say that it would be better for us to negotiate an exit on the terms of  Brussels and at their pace. This is wrong in principle, since it starts by conceding that Britain is not, despite membership of the UN & a host of bodies open only to such, a sovereign power. It is also wrong tactically because once you accept in principle the bureaucracy's jurisdiction, for what looks like simplicity, they can delay you have accepted their right to delay. 

        Repealing our Act would immediately cancel a vast amount of regulation. Regulation which, according to EU Enterprise commissioner Gunter Verheuggen in 2006 then cost the community 5.5% of gdp. It would be possible for Westminster to simply legislate many of these regulations to continue, albeit settled by British courts without EU ones having the final say on interpretation. A  UKIP influenced government would, rightly, choose to err on the side of freedom in deciding what rules to retain. Almost all government regulation works as a restraint on the market - even in those cases where it can be justified as ameliorating the most "red in tooth and claw" aspects of free markets. The cure is often worse than the disease. This does not mean that British industry would be unrestrained as exporters have to ensure their products fit local rules (including EU rules when appropriate) as they do now.   

      The European Economic Area Treaty is independent of EU membership. Under it Norway, Iceland and Lichtenstein have free trade with us in the EU and under its terms they and we cannot be expelled. Thus all claims that the EU would or even could cut off trade with us are false. Whether even the very limited power the EU has over Norway would be too much and we should choose to leave even the EEA is a matter for another time.

Leaving only 1 factor in growth
      As the paper Habits of Highly Effective Countries (1) proves, economic freedom is a "necessary and perhaps sufficient condition" for economic success so we can state, with as much certainty as is available in economics, that a Britain run by a UKIP influenced government would be more successful than the current incarnation.

   Professor Congdon's assessment of the cost of membership is £150 bn annually (2). In fact, if anything it underestimates - for example he assumes the regulatory costs reported by Verheugen was 5% whereas the Commissioner actually said 5.5% and he assumes £150 bn to be 10% of gdp whereas UK gdp is now around £1.7 trillion. Had Professor Congdon not been cautious, presumably to prevent any europhiles being able to dispute it, a £200 bn estimate would not have been unreasonable. This has not been seriously questioned, on a  factual basis, by EU supporters. £150 billion a year is obviously a strong argument for making leaving a swift process.

     Indeed there is another, earlier EU publication which puts regulatory costs at a fearsome 12% of gdp (3). In which case the annual combined cost to the EU would be as high as 19.5% of gdp or £339 billion. I have not used this in this paper - Professor Congdon's figure is more than adequate to show that the economically sensible choice is to leave and as quickly as possible. But this is as valid as Verheugen's.

    Probably even more important than the direct benefits of leaving would be the adoption of UKIP's economic policies. Statistics clearly show a virtually 1:1 correlation between growth in energy usage and in gdp almost everywhere. For example China's 10% annual growth rate his been paralleled over 30 years by virtually the same growth in energy use. For several decades growth in energy usage in Britain has been severely restrained by government policy culminating in recent years in an actual decline and a price rise far beyond inflation.
      It is likely, considering all the options, that at least 90% of electricity cost in Britain is currently mandated by government not engineering. Over 95% can be argued (4). Nuclear costs about 40% of the cost of the average our generating capacity (5). In the period from the early 1970s to 80s alone nuclear reactor prices went up by 4.5 times beyond inflation (6) but if mass production of reactors was politically feasible it is likely that costs would fall very substantially
     Ukip's policy of encouraging a free market in energy, removing unnecessary governmental barriers in the exploitation of shale gas as well as nuclear, would massively reduce costs. If electricity prices were to drop to 10% over time, which is perfectly feasible, we price elasticity suggests usage would go up at least 10 fold, with enormous effects on gdp. Unfortunately any attempt at reform now would be prevented by the EU commitment to the most expensive and unreliable power sources, renewables, but as soon as we quit that would be changed.

   Britain already has the 8th best market in the world for doing business (7) and per capita has the best ratio of scientific citations to population of any sizable country (only Switzerland is significantly superior) (8). Thus were it to be allowed freedom in energy policies as well as removing EU regulations and tariffs we should be expected to match not only the average growth rate of the non-EU countries (6% annually) but of the very best (Guandong province in China managed 18% annually for some years). This would be not only because of the new market conditions but also because of the pent up innovatory capacity over  decades. With growth of that order the deficit would be ended in under 2 years.

Effects of economic effectiveness for an independent UK

     That level of growth would increase British gdp by 2.28 times over 5 years (1 Parliament) which, assuming, perhaps optimistically in present circumstances, that the EU economy neither recedes nor grows, would bring Britain to almost half the gdp of the remaining EU total. Retroactively justifying the decision.

     Note that while this is an unprecedented growth rate for Britain it is not unprecedented elsewhere and, by definition, if something has been done it is possible to do it. With Moore's law growth in computer capacity now doubling every 18 months and improvement in basics like strength of materials, internet education, nanotechnology and GM improving at slower but still enormous rates it is obvious that growth rates everywhere could be literally unprecedented. The slowing of growth in the developed world since 1958 (9) has been caused not by technology but by the growth in government regulatory parasitism, something the EU has been leader in. Robert Solow said  "You can see the computer age everywhere but in the productivity statistics" and while this is often described as a paradox, and there is a desperate search for the reason it is clear that the growth in state regulation and restriction of new technology parallels the growth in computers and must explain at least part of the "paradox". This in turn suggests that the potential for a developed country that reduces state regulatory restraints and embraces new technology will be remarkably good

 History also shows that it is easier for the most advanced countries to grow - explained by the fact that the most advanced industries like computers have far greater potential for fast growth than older ones like agriculture. This is also reflected in the Chinese experience where the fastest growing provinces were initially the richest, most economically free, with port facilities to the rest of the world. Which augurs well for an independent more market orientated Britain.        
       For example if Britain were to cut electricity costs by 90% as explained and if that were, over time, to lead to usage growing 10 fold along with gdp, we could achieve 18% annual growth for 14 years from that cause alone. There would obviously be many other causes of growth available.
     It has never been disputed that, particularly with Britain having the advantages of the world's highest ratio of scientific citations to population of any sizable country and the benefits of speaking English, the language of business and technology worldwide, a serious growth programme would get us a growth rate exceeding any other in the world (10).

     Many British politicians have excused our economic performance since the 1870s by saying that it was easier for less advanced countries to grow. This is not the historical experience. It is only recently, with the adoption of the Washington Consensus of free marketism, that the undeveloped parts of the world generally started faster growth. Rather than it being some reversal of the established principles of economics this is more likely to be an example of them being employed by the growing countries, and ignored by the stagnating ones.

The historic strength of Europe was disunity and the free competition this creates

      Unfortunately the EU has proven to be the economic "sick man" of the world - the only zone in recession as the world grows at an average rate exceeding that seen at any time in history.

     Theoreticians of history have long noted that eras of progress (Ancient Greece, Renaissance Italy, post-Westphalia Europe) tend to be periods when political units are smaller than the cultural unit. People can move and the competition exposes particularly incompetent governments. When Columbus got a refusal from the kings of Portugal, France and England he could approach the king of Spain. Whereas 60 years previously the voyages of Cheng Ho were stopped when the Chinese bureaucracy's line changed. In due course they criminalised even ownership of ocean going vessels by Chinese citizens. The comparison with EU regulations and the suppression of market growth in energy use through their commitment to the catastrophic warming scare is obvious. Britain leaving the EU and establishing an area where research & debate is not suppressed in the name of "scientific consensus" would be the best thing Britain could do for the entire continent. Britain, having saved herself by restoring independence, could go on to save Europe by her example.
EU supported precedent proves independence easy

      There has been considerable talk about our relationship to the EU being so complex that it would take many years to dissociate. While it is likely that, long after the legal dissociation had taken place there would be some tidying up to be done the basic disunion can be speedy. Such tidying up would be done better under the rules of international law which have centuries of legal precedents for sovereign states.

       After all our relationship with the EU is far less close than those within sovereign states which divided. Czechoslovakia & the USSR separated quickly. Croatia took 4 months while Bosnia became independent on 3rd March 1992, 2 days after it's referendum. In both cases the speedy separation was supported, indeed enthusiastically assisted, by the EU so there can be no disputing the relevance of the precedent. Yugoslavia was a sovereign state so exit from the EU can, if desired, be faster.
Long Term

   Britain's role afterwards as an increasingly wealthy nation would be increasingly influential.

    It could also be a magnet for immigration, but as a sovereign nation that is not an insoluble or even difficult problem. If Japan and South Korea can maintain net immigration rates of 0.00%, in a region where there is more incentive for economic migration than Europe, it is clearly possible to do so.

    The Commonwealth shares a common language and currency and being more economically diverse, is actually more suited to free trade agreements than the EU. By dropping EU food tariffs Britain would, as well as lowering our own food prices, do more to promote 3rd world development than its Aid programme currently does. If Singapore is big enough to negotiate free trade agreements with 50 of the world's major states, including NAFTA & the EU, so can we. Finally if UKIP maintains its desire to put the funds currently given to ESA, into a commercial X-Prize Foundation we will have a, possibly the, major role in space industrialisation, the fastest growing industry in the world, (or off it). While, on current trends, the entire EU is likely to end up with a smaller orbital footprint than Dubai.

     Thus, in conclusion, it should be clear that it is in the interests of humanity, the developing world, the other EU peoples and of course Britain that we repeal the European Accession Act and resume our position as a fully sovereign state. In that condition, we are best able to clear up any outstanding issues. We would leave the zone of relative fast decline and under a progressive (in the sense of supporting progress) government be able to achieve our potential with the other independent countries in the world committed to economic freedom.

1 - Habits of Highly Effective Countries
2 - Congdon's assesment of the cost of EU membership
3 - EU says not having US more limited regulation costs 12% of gdp
4 - What it could cost to build nuclear plant
5 - RAE electricity costs
6 - Professor Cohen, Chapter 9 costs of nuclear plants - what went wrong
7 - 8th best market for doing business
8 - World scientific citations
9 - Slowing of growth since 1958 - graph
10 - 24 point growth plan

   With EU membership having a direct cost of at least £150 bn a year we should take the most immediate route to exit  and as a sovereign state the most immediate route is through Parliament.
  Great as the immediate savings in direct cost are the bigger gain from departure is that we leave the only zone of the world economy which is in recession, because of the regulatory morass of the EU mandarins, and get into the mainstream of humanity which is achieving 6% annual growth.
Neil Craig

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Typically irrational Kipperloon todgernomics.
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