Sunday, 17 July 2016

Norway, Switzerland or Albania?

By Tom O'Leary

The Brexit referendum campaign was dominated by assertions that the UK economy could benefit from access to or participation in the EU single market while opting out of the conditions on Freedom of Movement for workers. These assertions are false. This was continued during the strange Tory leadership contest, which had more casualties than debates, and has been repeated by the new Prime Minister and some of her key allies. This is a reactionary myth, with the potential to do great harm to the economy.
The former Justice Secretary and chair of the official Leave campaign Michael Gove dropped a bombshell in the Brexit campaign that not only would the UK be leaving the EU, which was on the ballot, but that a Leave vote meant we would be departing the single market too, which was not on the ballot. Gove made this highly damaging pledge because he followed the logic of the two official campaigns, which had been fought primarily on the terrain of anti-immigration. He understood that there was no realistic possibility of restricting Freedom of Movement (FoM) for workers while remaining inside the single market. 
Like Farage, Gove was effectively choosing impoverishment and lower immigration over prosperity and higher immigration. It was largely dismissed with derision, as Gove said the model would not be Norway’s or Switzerland’s relations with the EU, but those of Albania. All three countries are outside the EU. But Switzerland and Norway are part of the single market whereas Albania is not. Switzerland and Norway both have to accept all the conditions of access to the single market including Freedom of Movement (and pay far higher per capital contributions to the EU Budget than the UK does).
Elsewhere, confusion on the relationship between the single market and Freedom of Movement continues to dominate public discussion on this topic post-referendum. It is also in danger of infecting the debate inside the labour movement. For both reasons, it is necessary to set out the correct position:
  •  Under current circumstances and for the foreseeable future membership of the EU single market is crucial to the prosperity of the UK economy; living standards will fall outside it
  • The Freedom of Movement is a fundamental pillar of the single market, not an add-on or trade-off with it
  • In both cases, the single market and its Freedom of Movement component raise living standards in this country greater than they would otherwise be
  • The notion that it is possible to negotiate with the EU to access the single market while restricting Freedom of Movement (FoM) is false. It is unacceptable to the EU as a whole.

The nature of a market
A market allows the exchange of commodities. Any capitalist economy is a market on a grander scale, a series of interlocking markets. This exchange allows for what Adam Smith called the division of labour. Marx’s more precise term was the socialisation of production. This is the most powerful force in economic development. Adam Smith’s ‘Wealth of Nations’ was devoted to the outworkings of the division of labour. For Marx, the socialisation of production is the economic base of socialism.
To illustrate this point, no-one reading this piece on a laptop or a phone built that laptop or phone themselves. In a modern economy even the technology we have come to take for granted relies on a vast array of inputs of basic goods, different stages in the production process and an army of hundreds of thousands of workers to produce those goods, to develop, refine, market, transport, sell and service them and their various components. This army and this production process takes place across continents. Adam Smith argued it would take an enormous time for a single labourer to create just one pin from scratch. It would take an eternity to create a laptop from one individual’s labour.
Of course, the exchange of commodities in the market is unequal. The owners of the means of production can claim for themselves a huge proportion of the value created by the labour of others (which is one of the arguments for the common ownership of the means of production). But the benefits of the division of labour/socialisation of production cannot take place at all without the exchange that a market allows.
So too is the exchange between countries unequal. Many economies, most of them former colonies were unable to develop domestic industry before the whole world was already dominated by huge multinational enterprises. They often need to restrict access to their markets in order to develop domestic industry. This is a trade-off as costs are higher and technology necessarily poorer. But it is entirely legitimate for an oppressed country to take this detour so that is can later enter the world market. Britain is not an oppressed country.
In both cases, the optimal rate of development is ultimately produced by fully participating in the division of labour/socialisation of production. But because markets allocate resources on the basis of profit, not human needs, the optimal rate of development of the economy is when the market is allowed to fly freely within the iron cage of the state.
Continental-sized economies
The superiority of the capitalist system over its predecessors lay largely in its ability to harness the productive capacity of the whole economy and raise it up to a higher level. This was initiated on the basis of the nation-state, which necessitated in most countries sweeping away feudal domains, princes and kings, as well as their laws and restrictions on all the factors of production to create a single market. Those factors of production are goods, capital and labour. But as soon as feudalism was overthrown and supplanted by capitalism, most classically in the case of the Britain, production began to penetrate overseas markets. Capitalism necessarily created modern nations and immediately began to operate internationally.
In the modern era, entire economies are being organised on a continental basis and integrating into the world economy through that medium. The growth rate of trade within those continents is growing far faster than their external trade. North America, China and the EU are continental-sized economies. India may soon join them and it is to be hoped that so too will Latin America and Africa.
Irrespective of it size, to develop the potential of any market there must be free movement, distribution and exchange of commodities within that market. One of those commodities is labour. It would be impossible to imagine, say, a properly functioning market to build houses where bricks, wood, slates and so on could be freely exchanged, and builders were free to borrow to pay for them, but labour was excluded. The whole economy includes all sectors and construction serves here as just one illustrative sector. Freedom of movement of labour is integral to the optimal function of any market.
The EU Single Market
It is widely understood that the EU single market is vital to the maintenance of living standards in the UK. Even most of the Leave campaign leaders still want access to the single market. The greatest vulnerability in the current crisis is unlikely to be trade, even though new tariffs are likely to raise prices and cut exports to a certain degree. The bigger negative response is likely to be felt in terms of investment.
All large-scale firms operating internationally, wherever they are located, achieve market position and dominance by directing their activities towards the largest possible market, the UK’s vote to retreat from the EU will deter some proportion of large-scale investment, either by firms based in Britain or firms who might otherwise have invested here. Unless there were radically different economic policies where the state directs the bulk of investment, which is not on off in a country like Britain, then any economy dependent mainly on private investment will suffer outside the single market.
The EU and all its major component economies and political parties are committed to the operation of the single market including the Freedom of Movement. However they rationalise this, it derives from an understanding that they too would suffer economically if the single market were broken up. They are committed to FoM as an integral part of the single market for the same reason. Quite literally, it is only Little Englandism which opposes free movement.
Therefore the notion that effective membership of the single market can be achieved while restricting free movement of workers is a fantasy. It is a reactionary fantasy because it implies that FoM is a negative factor, unlike the movement of goods, capital and firms. Michael Gove recognised the unreality of being in the single market and promising to cut immigration, and so opted for the Albanian model. The EU cannot adopt that model, or allow others to while accessing the single market. Every train, lorry, car and van crossing borders would need to be opened to check whether the driver and passengers had the right to reside in the country.
Now that the Tory party has done its blood-letting, at least for now, its Brexit negotiations will be obliged to return to the real world.
It is imperative that the Labour Party stands for policies that will raise the living standards of the population. In that context, this means committing to membership of the single market and of course the free movement of movement of workers that makes it possible.  

1 comment:

Mellie said...

This is a superb post, thanks so much.