Let’s use Brexit to make everyone better off
Open markets are regarded with suspicion, but are the key to British and global prosperity
‘Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular.” So wrote Thomas Babington Macaulay, the great historian, poet and politician, in 1824.
It was true then, and it is truer today. Which is bizarre when we consider that, in the intervening two centuries, the free exchange of products and ideas has lifted our species to a level of wealth, health and happiness that our ancestors could barely have imagined.
Macaulay was writing at the beginning of what the economic historian Deirdre McCloskey calls the Great Enrichment. Until 200 years ago, almost all human beings subsisted on the equivalent of £2 a day or less, and most people lived lives of relentless, backbreaking toil in the fields. Since then, there has been, at a conservative estimate, a 3,000 per cent increase in average income.
The main component of the Great Enrichment was that we stopped trying to be self-sufficient, whether at a family, tribal or national level. We learnt to buy what we needed from others, and to specialise in what we did best. As networks of exchange grew, we specialised further, leading to even higher living standards.
These days, if you want to find people living on £2 a day, you generally have to look in countries that have been excluded from global markets, either by war or through choice. North Korea, for example, pursues economic independence (“juche”) as the supreme goal of national policy.
Britain invented free trade, both in theory (through the writings of Adam Smith and David Ricardo) and in practice, unilaterally removing its tariffs from the 1840s onwards and, in consequence, becoming the wealthiest nation on earth.
On Wednesday, in the Map Room of the Foreign Office, flanked by Boris Johnson and Liam Fox, I’ll be launching the Institute for Free Trade (IFT). We want to use Brexit to boost global commerce. We have an International Advisory Panel made up of statesmen who successfully pursued liberalisation in their own countries, from Spain’s José María Aznar to Australia’s Tony Abbott. Brexit, after all, shouldn’t just be about having an engaged and global Britain; it should be about reviving a stalled world trading system.
Why does such an institute need to exist? Largely because, however successful free trade has been in practice, it remains counterintuitive.
In rich countries, people fear being undercut by lower wages. In poor countries, conversely, they fear being overwhelmed by superior technology. Logically, these worries cannot both be justified; and, in truth, neither of them is. Free trade between a rich and a poor country, as between any two countries, benefits both.
Britain has been trading with poorer countries for centuries. We last ran a surplus in physical goods in 1821, but went on to become the greatest and richest country on earth, moving up the production chain as we bought cheaper stuff from overseas.
At the other end of the scale, the recent extension of global markets to much of Asia and Africa has seen extreme poverty tumble from 38 per cent of all human beings in 1990 to 8 per cent today.
Why, when the evidence is so clear, do so many people insist on seeing free trade as exploitative? There are, I think, three reasons, one rooted in evolutionary psychology, one in aesthetics and one in raw politics.
Our palaeolithic brains were not designed for a modern economy with plentiful food. We are programmed to provide against shortages, to hoard. We instinctively dislike the reliance on strangers that is the basis of the market system.
More than this, we dislike the look of industrialisation, the dark satanic mills. Our children’s geography homework is filled with drivel about nasty Western companies running sweatshops in, say, Vietnam. The textbooks tend not to ask why workers in these factories had chosen to leave villages without electricity, schools or clinics. Rarely do they point out that employees of foreign companies in Vietnam earn more than twice the average wage. Never do they suggest that the best way to improve the lives of Vietnamese workers is to buy more of their stuff, so putting upward pressure on wages and standards.
More intractable than the psychological and aesthetic objections, though, is the political one, which can be summarised in four words: dispersed gains, concentrated losses. Suppose that Britain bought cheap Chinese steel without restrictions. Almost everyone would be slightly better off: car-makers and manufacturers would get an instant productivity boost, there would be more jobs and lower prices, giving people more to spend on other things – and none of those moderately wealthier people would thank the government. The newly unemployed steel workers in South Wales, by contrast, would know exactly whom to blame and would vote accordingly.
If we want to privilege certain jobs, it would be far cheaper to give them a direct subsidy than to inflict a higher overall price on the economy through tariffs or quotas. That, though, is a difficult and unpopular case to make. Vested interests have vocal defenders; but no one speaks for the consumer or for the economy overall.
Until now. The IFT will defend not only the interests of British consumers, who will be considerably better off once we are free to buy at world, rather than EU, prices, but also those of poor people in poor countries. Free trade, in the long run, makes everyone better off. It once raised Britain above the run of nations. It will do so again.
Brexit shouldn’t just be about a global Britain; it should be about reviving a stalled world trading system