Image from www.rand.org
As you are all hopefully well aware, there’ll be a referendum on the UK’s membership of the European Union either this year or the next.
Both sides of the debate are throwing around numbers, not least about science. This means it’s more important than ever to understand the economics surrounding such a huge decision for the UK economy, because often those most involved in political campaigns tend to be more casual with their facts, and their reasoning.
The impetus for this post is this Tweet from Douglas Carswell: “Innovation and science need Brexit”, with a link to his own blog article on the matter.
I tried to get Carswell to talk to last year’s EC114 group as part of a series of election-related talks, but unfortunately after accepting my invitation, he subsequently pulled out. I had thought from much of what I’d heard him say, that he was more reasonable and reasoned than most in his new party, Ukip. However, his blog causes me to question that analysis; if you follow the link to this article, the title is “Small business is not for staying”, and is based on one opinion poll in which, remarkably, 40% of small businesses think we should leave (higher than usually found in polls), but 47% think we should stay. That is, small businesses are 47 to 40 in favour of staying, yet the title of the article says small business are “not for staying”.
Regardless, let’s think a little more about science and innovation and how they would function inside and outside of the EU. What would the differences be? Currently, small businesses can export into a common market covering 500m+ customers without tariffs or (much) hindrance. They can employ whoever they wish from a labour market of 300m+ keen workers without (much) hindrance. Universities, and private sector research labs can do the same – they can discuss their research more easily with researchers at hundreds of universities across the continent as opposed to just our own universities here in the UK, and universities can employ productive staff from all over the continent rather than being confined to just applicants with particular passports.
If it happened to be that the most productive people in Europe, and the most innovative, were all located in the UK, and this was likely to always be the case, then clearly there would be no loss from Brexit. Brexit would increase the barriers to employing staff from all over Europe (indeed, the main cause of increased bureaucratic burden on our universities is not the EU, but is increased British government regulations on employing staff and recruiting students from outside our borders) – what reason is there to believe this would not be the case? Brexit would make it harder for universities to collaborate with other universities around Europe since much funding is based on cross-border collaborations, and there is no reason to believe this funding would be unaffected by Brexit.
Small businesses would face impediments to trading with our closest geographic neighbours, and the ones in which they likely already have close links due to that geographic proximity – again, why should we believe otherwise? Even if, after various trade negotiations to set up free trade agreements were concluded miraculously quickly, it is hard to imagine there would not be other impediments put in place that would restrict such trade both here and in Europe (exhortations to “trade locally” to “keep the money in our economy”, for example). Small businesses would also face yet more restrictions on who they can employ. Rather than the most suited worker, it would be the most suited worker provided they had a British passport (or were willing to go through the increasingly highly costly, lengthy and discriminatory process of getting a visa). It might be that this would not affect hiring patterns, but this seems highly unlikely.
The retort to this entire analysis would be it’s one sided in that it’s not including the effect of red tape. It’s argued that the EU imposes a huge amount of restrictions which stifle innovation and creativity. This blog post isn’t the place to expand this particularly much, other than to say that regulations, by their nature, regulate activity and hence based on some analysis will restrict particular economic activity deemed to be socially undesirable. There’s little doubt some regulations will thus make some producers (and free market believers) less happy than others, but the important question really is: would UK regulation be any different to EU regulation? As mentioned above, UK regulation is getting tighter and tighter for employment and student recruitment, both of which must stifle innovation and creativity – would the UK actually be any better?
Wouldn’t these effects all be very short term? Indeed, but what about the longer term effect? If in the longer term small businesses were somehow still able to trade without impediments to a market of 500m+ customers, and recruit without restriction from a labour market of 300m+ people, then clearly they would not be negatively affected, longer term. It’s very unclear though how this would be the case if Britain exits the EU. Equally, universities may flourish outside the EU, but it would need restrictions on their activity, and funding arrangements to be such that big international collaborations can still take place and thrive – the kinds of absence of restriction, and funding opportunities that currently exist in the EU.
Indeed, to increase productivity further, it would be better still if that labour market was larger, if those funding opportunities were wider to include the most innovative people from around the world – the EU is only so large, and must exclude a great many productive and innovative people. But it’s very hard to see how exiting the EU can bring about a UK system that is less restrictive in terms of international movements of people, capital, and ideas.
Finally, hasn’t my analysis been a little business/university focussed, at the expense of workers themselves? Indeed, workers are not just factors of production, are not just units in an analysis, but instead human beings whose productivity and innovativeness depends on a huge range of complex factors. We are risk averse people who instinctively dislike uncertainty. We like to think about our identity, and how that fits in with a particular group of similar people (fellow nations, often). All this is true, and forms the basis for anti-EU sentiment – we want to be protected from immigrants taking our jobs, and threatening our “way of life”. However, it’s a very narrow way of thinking about it. Anyone who has travelled, or been exposed to people from different cultures around the world, will have realised that this does not diminish their own identity – if anything, it makes it clearer and more distinct. It also fosters the ability to think more critically about aspects of one’s own identity and culture that perhaps need challenging. It’s a hugely positive and enriching experience, leading to much more developed people much more ready to operate both within our national environment, but internationally, too.
Would exiting the EU really ensure we keep experiencing the best from around the world, as we are currently able to? How would we ensure that keeps happening?