IEA - Leave or remain: the two best paths to economic freedom

23 Jun 2016 09:59 AM

IEA releases report on reforming Britain's relationship with the EU

The European Union is a far cry from the liberal European economic inter-governmental organisation it should ideally be. It is too centralised, too focused on harmonisation, primarily serves vested interests and those working within EU institutions are subject to little democratic scrutiny. 

While the EU has largely delivered the free movement of goods, services, capital and labour, it has moved beyond its role to protect economic freedom by centralising and increasing regulation and in some instances ambitions for political union have actually driven economic policies. 

With the results of the forthcoming EU referendum seemingly on a knife-edge, the Institute of Economic Affairs today publishes a report outlining the best way to maximise economic freedom whatever the outcome. If we leave, the promotion of international free trade must be paramount. If we remain, the focus should be on proposing a radical reform plan for the EU. 

Two possible paths to 'liberal internationalism'

In the event of a leave vote: 

• Trade policy: The UK needs to move towards a position of free trade on a global basis rather than trying to ensure a series of bilateral arrangements. Unilateral free trade will reduce consumer prices and prompt recalibration of the economy towards an international free trading area enhancing productivity
• Regulation: On leaving the EU the UK should revise its regulatory approach, particularly in financial services, employment and energy and pursue unified regulation that comes through evolution and organic agreement rather than through institutions.
• Migration: The UK should adopt a liberal migration policy outside the EU by securing a bilateral free movement arrangement with the rest of the EU and then liberalising domestic migration policy with the rest of the world​

Leaving will certainly not automatically lead to greater economic liberalism in all areas. The UK government has shown itself to be much more illiberal than is required by EU law, but Brexit does increase the range of political possibilities and the government should grasp those to ensure that the UK does become more – and not less – liberal post Brexit.

In the event of a remain vote:

• Mutual recognition with the single market: the development of the single market has gone hand-in-hand with the centralisation of regulation which consequently impacts on the costs of trade. However, in an environment wheremember states accept each other’s regulation under the principle of ‘mutual recognition’, regulation should not inhibit trade.
• Competitive federalism: this should be the approach to EU governance. It would lead to decentralisation and a reduction in the vested interests and power of the Union. Member states should develop their own regulatory structures which would be subject to competition, helping to reduce regulatory burdens and aiding the discovery process.
• Constitutional reform: to tame the power of the EU. This could include a second chamber of the European Parliament with members from national parliaments that could veto centralising regulation and a second court with a duty to apply subsidiarity and proportionality

​Commenting on the report, Philip Booth, co-author and Academic and Research Director at the Institute of Economic Affairs said: 

“In its current form, the European Union goes way beyond the proper role desirable for a supranational body designed to promote economic freedom. The EU has a centralising agenda that makes it easier to lobby for different sectional interests. Furthermore, high levels of external protection raise prices for UK consumers. 

“In the event of a vote to leave, the UK should pursue broadly liberal policies in order to achieve international free trade. In the event of a vote to remain, the UK should bring forward a radical vision of reform for the EU, both constitutionally and ideologically. This may not be welcomed within the EU, but the EU needs reform and there are no prizes for not trying.”

Notes to editors:

For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk or 020 7799 8920 or 07791 390 268

The full report by Philip Booth and Ryan Bourne can be downloaded here. 

This report is part of the Paragon Initiative - the IEA's biggest-ever research programme. Across the next five years, we'll:

• ​Analyse the failure of current policies through a far-reaching series of nearly 50 books and papers scrutinising every area of government activity. 
• Later in 2016, we'll investigate child care, the state of social housing, government funding of the arts and more.
• All backed by a co-ordinated and comprehensive programme of stimulating events, compelling ieaTV films and targeted communications reaching policymakers, practitioners and opinion-formers.​

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.