The EU and the border

Our text for today is Graham Gudgeon’s piece in the Irish Times, which makes a number of questionable claims.

First, he argues that

An accurate version of Ireland’s economic history is important. This is because, contrary to what we are continually told, EU membership does not seem to have had a noticeably beneficial impact on Ireland’s economic growth, even if this seemed to be the case during the great construction boom occasioned by overly low interest rates inside the euro zone.

I don’t think any economic historian or economist believes that the EU has not been massively good for Ireland’s economic growth: just compare our experiences pre- and post-1973.

Maddison’s numbers show per capita growth of 3% p.a. 1950-73, and 4.1% p.a. 1973-2008. 4.3% p.a. 1973-2000, in case you want to strip out the Celtic Bubble years and the first year of the crash. That’s before we even get into the important issue of what was happening to the number of capitas. GDP grew by 3.2% p.a. 1950-73, and by 5.1% p.a. 1973-2000. 5.0% 1973-2008. And there is an even more important point to be made. The period from 1950-73 saw extremely rapid growth throughout Western Europe: our growth rates then were disappointing in that context. Growth slowed everywhere after 1973: our growth rates since then have been very strong in that context.

Our whole development strategy has been to serve as an export platform for multinationals selling into the EU market. You might think that we should be diversifying, and I might agree, but everyone accepts that the strategy has worked, massively, to date.

From the text, it seems that Gudgin may be confusing EU and Eurozone membership. I’m one of those who thinks that the Euro has been a damaging failure, but let’s not confuse the EU, and the Single Market’s four freedoms that have worked so well for us, with a flawed monetary union.

Gudgeon then goes on to say that

Ireland should ally with Germany and the Netherlands in arguing for continued free trade between the UK and the EU. This will greatly ease any pressures for Border controls in Ireland.

In fact, as Ben Kelly has usefully reminded us, unless the British decide to stay in the EU customs union either permanently or as an interim measure (or, most implausibly, succeed in negotiating a free trade agreement with the EU within two years of Article 50 being triggered) there will have to be tariffs between Ireland and the UK. There will be no choice in the matter: for the EU not to impose tariffs on UK exports would leave it in breach of its WTO obligations. And unless the UK has zero tariffs on everything from everyone, WTO rules would similarly oblige it to impose tariffs on EU exports.

Unfortunately for us, it seems likely that the British are intent on leaving the customs union, as Robert Peston points out here. There is therefore a fairly strong possibility that we will see tariff barriers between the Republic and Northern Ireland in the not too distant future (unless the North can get a special dispensation to stay in the customs union, and the tariffs are imposed across the Irish Sea instead).

There are those who would like to see Ireland leave the EU. Expect them to argue in the years ahead that any border controls between the Republic and the North are arising because of “pressure” from the Continent. Expect them to further argue that this shows that our true friends are in London rather than the European mainland. On the contrary: any border controls that arise will be as a result of British decisions, and British decisions alone. And to date there is no indication whatsoever that those decisions are taking any heed of Irish interests.

This is no time to go wobbly, EEA edition

There is a depressing amount of wishful thinking going on in the UK right now: for a recent example see here. When Iceland’s banking system collapsed, that was a real emergency requiring capital controls: the sort of eventuality envisaged by the now-famous Article 112 of the Agreement on the European Economic Area. It isn’t at all clear to me that the rest of the EEA will view the argument that “there are too many of your lot in our country, so let us keep them out” in the same light. There is also a big difference between triggering an emergency clause in a contract, when an emergency arises which was unexpected when the agreement was signed, and saying from day one that you want to opt out of a key part of an agreement. And the have-your-cake-and-eat-it brigade also fail to mention that, in addition to Article 112, there is Article 114, which states that

If a safeguard measure taken by a Contracting Party creates an imbalance between the rights and obligations under this Agreement, any other Contracting Party may towards that Contracting Party take such proportionate rebalancing measures as are strictly necessary to remedy the imbalance. Priority shall be given to such measures as will least disturb the functioning of the EEA.

It seems to me that England cannot afford wishful thinking right now, and that those who wish her well need to be crystal clear about the choice it faces, so that there is no mis-understanding on the English side.

I recently published an article on the subject, aimed above all at former Remainers, here. That was a heavily-edited-for-newspapers version of something I originally wrote for this site. Since I use this blog in part as a reminder to myself of what I have written, I reproduce the original blog post below the fold, links and all.

An astonishing dereliction of responsibility

Continue reading “This is no time to go wobbly, EEA edition”

Danish lessons for the UK, and in particular Northern Ireland?

Reading this article by Fintan O’Toole got me thinking about my other country, Denmark. The Kingdom of Denmark isn’t just Denmark proper, it includes two other autonomous countries as well. Only Denmark is in the EU.

Just saying.

Update: a researcher in Aalborg who actually knows something about Greenland had much the same thought as I. And they are practical people up in northern Jutland.

Markets and states are complements

The main point of my 1999 book with Jeff Williamson was that globalisation produces both winners and losers, and that this can lead to an anti-globalisation backlash. We argued this based on late 19th century evidence, but opinion poll evidence (citations here) suggested that something similar was at work in the late 20th century as well, a hunch confirmed in the early 21st century by the 2005 and 2008 French and Irish referenda.

What was missing from all this was an analysis of what, if anything, governments can do about this. Which is where Dani Rodrik’s finding that more open states had bigger governments in the late 20th century comes in. Dani’s interpretation is that markets expose workers to risk, and that government expenditure of various sorts can help protect them from those risks. In a series of articles, and an important book, Michael Huberman showed that this correlation between states and markets was present before 1914 as well: countries with more liberal trade policies tended to have more advanced social protections of various sorts, and this helped maintain political support for openness.

Anti-immigration sentiment was clearly crucial in delivering an anti-EU vote in England. And if you talk to ordinary people, it seems clear that competition for scarce public housing and other public services was one important factor behind this. If the Tories had really wanted to maintain support for the EU, investment in public services and public housing would have been the way to do it: if these had been elastically supplied, that would have muted the impression that there was a zero-sum competition between natives and immigrants. It wouldn’t have satisfied the xenophobes, but not all anti-immigrant voters are xenophobes. But of course the Tories were never going to do that, at least not with Osborne at the helm.

If the English want continued Single Market access, they will have to swallow continued labor mobility. There are complementary domestic policies that could help in making that politically feasible. We will have to wait and see what the English decide. But there are also lessons for the 27 remaining EU states. Too much market and too little state invites a backlash. Take the politics into account, and it becomes clear (as Dani has often argued) that markets and states are complements, not substitutes.