Economics: free market dominates EU decision

Powerhouses: The four highest-ranked EU cities in the Global Financial Centres Index.

Polls suggest economics will be the most significant issue in determining the outcome of the UK’s EU referendum. Will free markets, protectionism or a mix of the two make Europe prosperous?

Three million jobs will be at risk, or new employment opportunities will arise. Fewer people will come to Britain – making it poorer, or richer. Workers will become more valuable, or see their wages fall.

British voters will face contradictory arguments over the economic impact of the European Union — which aims to make it easier for people, goods and services to move freely — as their referendum approaches. And recent polling suggests these issues will be most significant in deciding the result.

‘Over 3 million jobs are linked to our trade with the EU,’ announced pro-EU group Britain Stronger in Europe in a leaflet last month. They say EU membership encourages businesses to invest in the UK, creating jobs.

But anti-EU group Business for Britain says Europe is in decline and ‘onerous’ EU regulations constrain businesses from trading. The pro-free market think-tank Open Europe says a British exit followed by ‘ambitious deregulation’ could add 1.6% to GDP by 2030.

Remain campaigners say Britain will have to accept tax avoidance, low wages and poor working conditions to win investment outside the EU. But some opponents of free market economics are anti-EU; socialist MP Tony Benn once said the EU was ‘building an empire’.

The free movement of people is also controversial. Remain campaigners say Britain needs immigration to create growth and fund public services, adding that Britons benefit from the chance to live abroad. Their opponents say migration lowers wages, creates extra competition for jobs and pressurises public services.

Yesterday Prime Minister David Cameron said the UK would get a worse deal with Europe if it left, arguing it would still have to abide by EU rules to trade with Europe. After leaving, the UK may still be in the European Economic Area, bound by some of the rules of the Schengen agreement or in a customs union with the EU, like Norway, Switzerland or Turkey respectively.

Leave campaigners say those countries are thriving and the UK, the fifth largest economy in the world, would get a more favourable deal.

The EU’s defenders argue it balances the need for freedom and regulation. Businesses can trade easily within Europe and workers enjoy new opportunities, while exploitation is limited by reasonable rules.

Please note: This article was updated on Monday 22 February.

What do EU want from me?

Libertarians oppose the EU because they believe freedom encourages wealth creation. EU regulations get in the way of businesses and workers. Countries and businesses should be free to make their own rules.

Some socialists oppose the EU because trade deals and economic union allow the vulnerable to be exploited. The Greek people, for example, have suffered from the austerity imposed by stronger countries.

You Decide

  1. Would you rather allow people unlimited freedom in trade and employment, or put rules in place to manage how they operate?
  2. Will the British people be more prosperous if the UK leaves the EU?

Activities

  1. Prepare and act out a one-minute campaign broadcast for either the Remain or Leave side in the referendum. Use only economic arguments to make your case.
  2. In pairs, research the work of one free market economist and one of their opponents (for example, you could choose those mentioned under Q & A). Prepare a two-minute sketch in which they debate policies towards trade and laws to protect workers.

Some People Say...

“Rules merely get in the way of making us all richer.”

What do you think?

Q & A

What does economic policy change?
It affects everything. When countries get richer, their people can spend more on goods and services — which increases people’s standard of living. Rich countries tend to have longer life expectancies and a better quality of life than poorer ones.
I want to know more about economics. Whose work should I read?
Adam Smith is generally considered the father of free market capitalism; his book The Wealth of Nations, published in 1776, is still revered by many. Karl Marx, on the other hand, analysed capitalism’s perceived failures and made the case for socialism. In the 20th century, the most significant economic debate was between Keynesians (followers of John Maynard Keynes) and neoliberal thinkers such as Milton Friedman and Friedrich Hayek.

Word Watch

Polling
A YouGov poll in January found that the economy divided Remain voters from Leave voters more decisively than any other issue. 73% of Remain voters say Britain would be worse off economically if it left the EU; 59% of Leave voters say it would be better off.
Decline
Greece’s three bailouts from other EU countries since 2010 — which resulted from its sizeable debts — have been cited as evidence of this.
Regulations
Business for Britain says more than 13 million words of EU regulations affecting British businesses were written between 2010 and 2014. Open Europe estimates that regulations originating in the EU cost the British economy £124 billion between 1998 and 2010 — though this is contested.
Abroad
Parliamentary figures show 2.2 million Britons lived elsewhere in the EU in 2010; 2.3 million people from other EU nations lived in the UK.
Trade deals
The Transatlantic Trade and Investment Partnership between the EU and the USA is currently being negotiated. Critics say it will allow British public services to be taken over by American firms — though this has been disputed.

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