The short answer to the question posed by the title of this debate is: YES
In the next few minutes, I shall support this view by focussing on four aspects:
1. The freedom for commerce provided by the Single Market (or in Treaty-speak the Internal Market)
2. Inter-national trade: `free trade’ versus the `single market’
3. Fair competition versus `state aid’
4. Consumer protection
1. The Freedoms of the Single Market
What are the goals?? I would highlight three in particular:
Treaty on Functioning of the European Union (TFEU) Article 4:
2. Shared competence between the Union and the Member States applies in the following principal areas:
(a) Internal market
(f) Consumer protection…(I will deal with that at the end)
TFEU Article 26
1. The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market...
2. The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured …(the famous `four freedoms’)
RIGHT OF ESTABLISHMENT Article 49
…Restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.
Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms under the conditions laid down for its own nationals…“
My conclusion: The Single Market is entirely based on the concepts of `free markets’.
2. Inter-national trade: `free trade’ versus the `single market’
“The natural advantages that one country has over another in producing particular commodities are sometimes so great that it is acknowledged by all the world to be in vain to struggle against them.” Adam Smith; Wealth of Nations, 1776
The EU response is in the TFEU preamble: “DESIRING to contribute, by means of a common commercial policy, to the progressive abolition of restrictions on international trade,”
As a bit of background: In 1955, six states met in a conference in Messina and set the goals of “a European Common Market free of internal duties and all quantitative restrictions…” This is a classic definition of “free trade” - -- no tariff barriers (Smith would have approved!). Two years later, they signed the Treaty of Rome and in 1965 declared `victory’ with the lifting of all customs duties. But still trade did not flow freely. “Tariff-free” trade was NOT enough!
Steadily, the hard truth dawned that the non-tariff barriers were the real obstacles: the technical standards that protect `public health’ etc... Changes could only be agreed unanimously… so there were no changes – just paralysis! Who wanted to give up their protection from wretched foreign competitors??
Two decades later in 1985, a great British Prime Minister stepped into the fray: Mrs Thatcher pushed through the Single European Act that introduced “qualified majority voting” for trade matters – requiring about 2/3 majorities, rather than a simple majority. This Treaty laid down very explicitly the four freedoms that I highlighted earlier. Not only was this a bold vision but it set deadlines and created the “Single Market” in 1992.
But this Single Market was designed to be a two way street: I recognise your standards for say cheese so you can import your cheese into my country BUT you must recognise my standards so my firms can import their product into your state. It did not take long to realise there had to be a “minimum harmonisation” of standards to make this process work. Hence the famous 300 pieces of legislation! If a country has different standards to those of the Single Market, you are not entitled to send in your goods and services. Full Stop!! This is the essence of the doctrine of `equivalence’ – so crucial today for financial services and thus the City
Have these laudable goals been fully achieved in practice yet? NO
Much achieved in last three decades. But the beneficiaries of protectionism are tenacious in defending their vested interests – as you would expect!
In a world of realpolitik, the Singe Market will not be complete in the next decade or probably the one after... It is only the collective political will to create a truly competitive, single market that will make it happen. If that political will is lost, so is the Single Market. That is why we must `Remain In’ to re-inforce that drive to complete the single market - with its commitment to free markets (with caveats … in a moment!)
3. Fair Competition versus `state aid’
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith; Wealth of Nations; 1776
How does the TFEU seek to deal with Smith’s observations on basic human nature? TFEU Preamble “RECOGNISING that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition,”
TFEU Article 101
“The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market…”
One of the biggest distortions to fair competition is aid to an economic enterprise that the markets have decided is, in fact, un-economic. There is no time to talk about tax privileges so I shall focus only on State aid.
TFEU Article 107
1.” … any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”
TFEU Article 108
1.” The Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the internal market.
2. If.... the Commission finds that aid granted by a State or through State resources is not compatible with the internal market having regard to Article 107, or that such aid is being misused, it shall decide that the State concerned shall abolish or alter such aid...”
240 years on from the Wealth of Nations,the UK continues to battle these same problems identified by Smith - day in and day out. So there is no reason to think that the EU will – mysteriously - suddenly be comprehensively successful in fighting the vested interests… The price to be paid is eternal vigilance --- and leaving the EU will not alter that one iota!
4. Consumer Protection
In the `90s and early `00s, “the market rules” was the accepted wisdom throughout the EU. The capitalist impulse swept away the old statist ideas of national champions – to the enormous benefit of Europe. But it turned out that too many leading players had a moral compass that pointed solely to the lining of their own pockets – at the expense of customers, taxpayers and society. But the ethical failure was not just in the private sector and not just in Europe. So the response had to be on a global scale --- to match globalised markets… and it happened on an unprecedented scale.
The cost to Europe of this ethical failure was massive – the European Commission has calculated formal “state aid” to banks at €1.5 TRILLION –with total funding at the peak of €4.5 Trillion –about 50% of GDP. For the euro area, GDP fell by 6% from peak to trough and unemployment rose from 7% to 12%. So 8 million people lost their jobs. Public debt ratios went into the crisis at a bit over 60% of GDP and hopefully have now peaked at 94% of GDP for the euro area --- leaving a legacy of very fragile public finances for decades to come. World trade fell an unprecedented 20% and broke the old relationship between world trade and growth: world trade in goods since say 2012 rising at 1.5 % pa versus global GDP at say 3%. In the old days, world trade used to grow at 1.5 times GDP… so a big -“unseen” - price largely paid by the Third World.
So unfettered `free markets’ produced a very bad outcome for society.
The 2013 “Parliamentary Commission on Banking Standards - Changing Banking for Good” flayed the bankers in terms that should make everyone here very uncomfortable about standards in the UK just a few years ago. There was good reason for Parliament’s ire:
A few years ago we had the governance failure of Equitable Life. Founded in 1762, it had 800,000 customers in 2000 and they lost £1.5 bn collectively – costing many of them their pension.
Subsequent governance reforms did not stop the CEO of RBS running circles round his Board: capital injection around £40bn and nearly half the employees lost their jobs.
Then there were the LIBOR and FX rigging scandals in the capital markets,
Pensions mis-selling – 2m people lost money and £8 bn to put it right.
Let’s finish the list with the big one: 20 million PPI policies and the compensation total may yet hit £40 bn – more than 2% of GDP.
We talk of banking union and now capital markets union – a huge business opportunity for the City of London. But standing over all this is what I am going to call the Consumers Union. If citizens do not feel `safe’ and `comfortable’ in purchasing securities, they won’t! Citizens have to feel that they are protected against the theft of their assets and excessive/opaque charges by asset managers and securities dealers.
It is quite unrealistic to think that individual consumers can look after themselves when fighting the proven mendacity and/or incompetence of giant financial institutions – or car manufacturers who deceive governments on their exhaust emissions etc….. So the operation of free markets must be constrained by the minimum necessary of rules to protect consumers.
There’s the rub!! How to strike that balance. On the left, people will argue for more rules and on the political right, they will demand fewer. But in the end, the market will decide: if citizens do not trust the supplier, they will not buy the goods/services and we will all suffer from the resultant lower economic activity.
Remaining in the EU maximises our chances of arguing for the optimum balance of rules that will encourage maximum economic growth in a neighbouring market of 500 million people which is completely open to our enterprises.
I urge you to vote YES to the question!
© Graham Bishop
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