Last thing I remember, I was

Running for the door

I had to find the passage back to the place where I was before

“Relax” said the night man,

“We are programmed to receive.

You can check out any time you like,

But you can never leave!”^[i]

The Eagles lyric from the 1970s is nearly as old as the United Kingdom’s membership of the EU, but it is an apt description for her predicament. There are so many twists and turns in the EU’s corridors, that it is proving difficult for Britain to “find the passage back to where it was before”. Britain has checked out but cannot seem to leave.

The EU has firmly rejected Mrs. May’s Chequers customs proposals, which is not surprising to those paying attention. Their chief negotiator, Michel Barnier, had already made his position clear. Last week, Mrs. May sought to take her case to his superiors, effectively asking them to overrule him. It was a tactical error that backfired badly.

Fortunately for her PR machine, the blunt rejection by the EU, particularly the comments of President Macron, deflected the immediate blame of Mrs. May’s failure to the EU leaders’ intransigence. Consequently, early signs of electoral opinion have firmed in favor of a no-deal Brexit. Merci, President Macron, for clarifying that point for the British electorate.

It is now just six months before Britain formally leaves the EU. This article details the economic and political issues, followed by a commentary on the tactics being deployed by all sides.

The economic case for Brexit

The economic case for Brexit centers on the law of comparative advantage. This law explains that rather than waste your time making or doing something someone else does better, you should buy it from him instead than wasting time trying to compete. It also explains that even though you might be very skilled at something but can add greater value to society by doing something else, you and the community as a whole are better off if you do that something else.

For example, Winston Churchill built a garden wall at his country home. He turned out to be an excellent bricklayer, as visitors to Chartwell can confirm. But there were other competent bricklayers on the Chartwell Estate. Besides building walls as a hobby, it will be clear to everyone that Churchill added considerably greater value to society as a politician and an author and was paid more than he ever would be as a bricklayer.^[ii]

What was true for the great man is also true for all of us. It allows us to maximize the potential for a community of producers by buying each other’s output in accordance with the law of comparative advantage. And what holds for a community scales up to nation states. If China can supply us with goods cheaper and better than we can ourselves, we should buy them from China, and not waste our time and resources doing it less effectively. Scarce capital resources, including labor, must be released for more profitable activities.

If China offers steel at a lower price than it can be made in Britain, British manufacturers who incorporate steel in their products would be stupid not to benefit. Meanwhile, British steel manufacturers should get out of the mild steel business, and perhaps produce high-quality specialty steels to regain their commercial edge. This is what British Steel has done. The common European response is to protect their industries with import tariffs, and by the end of 2016, there were 12,651 known EU tariffs in force.^[iii]

Only free markets, more specifically the consumer and also buyers of intermediate production, can decide where the comparative advantage lies. In free markets, the consumer is king, and the businessman who fails to respond to his customers’ demands should amend his offering. 

Businesses try to avoid this truth by lobbying politicians to yield a monopolistic advantage. Business leaders present themselves to the political class as expert representatives for their industries, and they warn politicians of the supposed horrors of free competition. An established business would rather be regulated than face competition because the regulator will help guarantee profit margins, and license monopolistic behavior.

This is crony capitalism, which is not free markets. It is everywhere, but more in some places than others. It is particularly virulent in Brussels, where big business effectively sets product standards to disadvantage smaller competitors. The law of comparative advantage is trampled underfoot.

Lobbying by special interests is not confined to Brussels, being a feature of Westminster life as well. The Cronies target Brussels where the Europe-wide power resides, as well as national governments in coordinated campaigns. The result is an institutionalized crony-based system bound together by a political class that has been bought by special interests. 

To a businessman, a good politician is one who once bought, stays bought. On the one side of the Brexit tussle you have protectionism, which has become thoroughly institutionalized, and on the other, you have free marketeers. Interestingly, the UK’s Conservatives are meant to be the party of free markets and individualism, yet even their ranks include ardent statists, their true colors exposed by the Brexit debate.