There is tremendous uncertainty across the world. Electorates in the EU are increasingly tempted by radical populists from the left and right. President-elect Donald Trump has pledged to scrap or renegotiate the US’s largest trade deals, which have been in the preparation for years. Institutions that are the product of the postwar political centre ground are now discredited.
The world is in the grip of an epochal crisis of political economy. The European Central Bank is spending a freshly conjured €60bn a month on quantitative easing (a reduction from €80bn) starting in April 2017. And yet eurozone unemployment remains excruciatingly high. Adult unemployment in Greece is 23 per cent, it is 19.5 per cent in Spain and more than 10 per cent in Italy and France. Youth unemployment figures are far worse. We ought not to be surprised when those without hope turn to jingoism, nationalism and political radicals.
Those of us concerned with all-round prosperity have fundamental thinking to do about the nature of these problems and the institutions that will solve them. At the very top of the economics profession policy prescriptions vary, forecasts are proved wrong and the Treasury’s assumptions and methods have been debunked. Who believes that Theresa May, the UK prime minister, will not negotiate free-trade agreements with non-EU countries or will not seek a comprehensive agreement with the EU? The Treasury still seems to think so.
There are three areas where the political orthodoxy has failed. First, unaffordable welfare states too often egregiously fail those most in need. Second, as William Hague, former UK Conservative party leader, has argued, there is an increasing consensus among the political elite that it is not just the financial system but monetary policy itself which is manufacturing injustice. Third, developed country trade policies have too often failed to defend against anti-competitive, even predatory practices in other countries, which have ruinously affected some major UK industries such as steel.
It is the last category that Britain’s EU exit and the election of Mr Trump offers the possibility of change, renewed prosperity and a solution to the problem of restoring global faith in market economies. Failure to deal with distortions in other markets simply means those distortions are imported. The net effect is then felt by local producers: the people of Port Talbot or Redcar testify to the consequences of not defending against crony capitalism in China.
The scale of both the challenge and the prize are enormous. We have had no meaningful trade agreements to reduce barriers and behind-the-border distortions since the Uruguay round of multilateral talks in 1994. From a trade perspective, as noted by the Legatum Institute’s Special Trade Commission, the global economy had stalled by 2006, well before the financial crisis.
We are told endlessly of the economic risks of losing tariff-free access to the EU’s internal market. Of course I want tariff and barrier-free access to the EU and the world but we must be objective. Excluding agriculture, which suffers from the EU’s mad common agriculture policy, the total value of all EU tariffs on our produce would be £2.3bn according to Economists for Brexit — just 0.3 per cent of government spending in 2016.
Moreover, continuing trade primarily on the present terms is in our mutual interests. The political obstacles to a bilateral deal will be under fierce pressure from the EU’s corporate interests and there also exist specific mechanisms, such as inward processing and duty drawback, which will lower the tariff burdens faced by manufacturers with complex supply chains if commonsense does not triumph.
The Brexit vote has created an “unfrozen moment”, where the UK can catalyse a new period of global growth. The Legatum Institute’s Special Trade Commission shows us how: the negotiation of a broad, deep permanent free-trade agreement with the EU; the initiation of a “prosperity zone” with a group of like-minded countries that believe in open trade, competition on merit and property rights protection; and new economic partnership agreements with Commonwealth, African, Caribbean and Pacific countries to open channels to their agricultural exports.
The UK can be a beacon of free trade in goods and services at the centre of a new engine of global growth that should inject 1.5 per cent a year into global world production according the Legatum Institute, which would mean a global economy 50 per cent bigger in fifteen years than it would be otherwise. That could mean no more budget deficits, billions lifted out of poverty and unemployment of less than 2 per cent in developed countries such as the UK. As the heart of this global economic engine, our economy will be catapulted upwards.
Given parliament’s overwhelming vote this week to trigger Article 50 on schedule, that is the prize after which we must all now strive.
The writer is the Conservative MP for Wycombe and chair of the European Research Group