Much has been made of the Prime Minister’s speech at the Conservative Party Conference last week in which she proposed a more interventionist industrial strategy, as well as the announcement by the new Home Secretary Amber Rudd of curbs on immigration from EU and non-EU countries alike. For many, Theresa May’s closing speech stood in marked contrast to her Brexit speech a few days before and represented a dangerous illiberal reversal that would turn Britain into a closed, underperforming economy such as we saw in the 1970s.
There is a straw man argument that those who support free trade and free markets think of all government intervention as wrong, and that those who oppose free trade and free markets believe in intervention.
But the test of whether intervention is good or bad depends on what the government is intervening in. Where the government intervenes to remove a distortion that has been placed into law or regulation as a result of some vested interest or crony group that is seeking to prevent competition, this is an entirely appropriate use of government power. Where the intervention is intended to “nudge” a market in a government-favoured direction, or to support a particular company, industry or technology, it distorts the market and is bad. The distortion squeezes wealth out of the economy and pushes the poor deeper into poverty. The test of intervention is therefore its impact on the ordinary process of competition and voluntary exchange. It is only those interventions that have a negative impact on competition with which we should be particularly concerned.
It is perfectly permissible to have an industrial strategy that is based on competition as a normative organizing economic principle. Given that all markets are distorted in some way, there is plenty of space for the May government to systematically remove the distortions that impede the British economy and harm the poor. The distortions in agriculture and energy would be a good place to start, and we can accomplish these by ensuring that the UK is out of the Common Agricultural Policy and Common Fisheries Policy as we exit the EU, and by having a more pro-competitive approach to energy regulation internally.
There are many things we can do as we exit the EU to ensure that we have a less distorted regulatory system in place at home. Through the negotiation of trade agreements that deal with distortions and barriers in other countries, there is much we can do to ensure that the distortions in other countries do not unduly affect our own producers’ and lead to unemployment at home. Brexit affords us the opportunity to move forward on both agendas.
But to take advantage of this moment will require all sectors of the country to come together in a Manhattan project of sorts. Just as the Manhattan project focussed the minds of the best and the brightest in the US on the development of the atom bomb, so the government, private sector, civil society and media can play their parts in catalysing a revitalized global trading system for Britain and the world. The emergence of a free and competitive market in Britain will lift the poor out of poverty and create wealth for all.
For its part, the private sector needs to find better ways of presenting its views to the government. Too often firms think that the UK government is on the other side of the negotiating table, but in the context of trade negotiations, businesses are negotiating with other countries through the UK government. Government should be more like your lawyer or your negotiator, and the trust relationship between both parties is critical. Useful business input consists of telling the government what you do, where you do it, where barriers are faced and what mechanisms can help remove them. An educated media plays an important role in holding negotiators and others to account, but to play this role, greater sophistication in the understanding of the mechanism of trade negotiations is crucial. For example, many have written that the freedom of movement issue means we should be out of the single market. That may be true politically, but from a trade standpoint, we cannot negotiate a services agreement with services disciplines if we do not control our regulatory system, because we are takers of the European acquis.
Civil society plays an important role too. Development NGOs who care deeply for the world’s poor have a once-in-a-generation opportunity to see a major nation unburden itself from the distortive Common Agricultural Policy and Common Fisheries Policy which has done so much harm to the rural poor in the world, and also to the poor at home whose food prices are higher as a result. Their voice, missing so far, needs to be heard.
As we engage in this task, we also have an opportunity to have a sensible immigration policy. Most of the Brexit-related concerns about immigration were really related to the concept of EU citizenship as laid out in the Lisbon treaty. Citizenship and political union are intrinsically linked. However, simply because the UK has left behind the concept of European citizenship does not mean that we cannot have an immigration policy that brings in people that the economy needs. There are many examples around the world of industries built almost exclusively by immigrants (Silicon Valley comes to mind). Immigration has built countries, communities and industries – the nation that turns its back on immigrants as a resource is a nation that will be doomed to inwardness and a sclerotic future.
The opportunities for Britain and the world are immense. The potential for catastrophic failure is also real. Those who are not at once excited and terrified do not fully understand the stakes. As the rocket stands on the launch pad, the engine we are fashioning now will determine the path it will take when launched. We must bring all our talents to bear on this vital piece of engineering. In 1962, former American Secretary of State Dean Acheson said Britain was a country that had lost its empire and not yet found a role. As the global economy stalls, as trade negotiations tread water with no result, this Brexit moment has given Britain the opportunity to find its role, to be a vital catalyst for re-energizing the global economy, and to alleviate global poverty by promoting open and undistorted markets around the world. If any country is up for the challenge, surely it is this one.
Shanker A. Singham is Director of Economic Policy and Prosperity Studies at the Legatum Institute, and Chairman of Legatum Institute’s Special Trade Commission.