Brexit and Market Regulation

The UK's drive for 'free' market trade is a direct challenge to social and environmental regulation

Nat O'Connor05/09/2017

Following the latest round of Brexit talks, spokespersons have taken to the airwaves to blame each other for the impasse. Despite this, both sides are amassing various position papers on both the separation agreement and the future EU-UK relationship (EU papers and UK papers). One of the endless arguments rehearsed in the media is that the UK is seeking to 'have its cake and eat it' by proposing a future relationship based on tariff-free trade with the EU and acceptance of UK standards into the future, even as norms in the EU and UK drift apart.

But another way to interpret the current disagreement is that Davis and Barnier are operating under very different philosophical assumptions about what is meant by 'free trade', and more is at stake than just future EU-UK relations.

The EU's economic policy has evolved into a form of regulated market activity balanced by rules to regulate state interference in private market competition. On the one hand, the EU lowers barriers for firms from one member state to do business in the others. The EU also seeks a 'level playing field' by requiring public bodies to follow tendering rules and by disallowing governments from most forms of direct action in the economy. On the other hand, the type of market that the EU is promoting is clearly a socially regulated market, as the EU's social and environmental protections are generally stronger than elsewhere.

In terms of 'red tape', the EU has actually done an impressive job in removing barriers to trade by adopting EU-wide standards, removing currency fluctations as an issue within the Euro zone, establishing a string of trading relationships around the world, and dismantling national rules that are thinly disguised forms of protectionism. But the EU's social and environmental rules do put limits on what businesses can do, and ultimately limit their ability to generate profit through 'externalities' that others end up paying for; like pollution, long working hours or gender inequality in wages.

Not only does Brexit potentially 'free' the UK from social and environmental rules, which will diminish quality of life for people there, but it potentially seeks to subvert the EU's socially regulated market.

Davis (and the Conservative government he represents) are proposing a libertarian economy, where British businesses would somehow avoid the bureaucratic mess that being outside of the EU entails—such as the increased bureaucracy and barriers to trade that will replace membership of the single market and customs union. In addition, they want free access to the EU market without having to obey the social and environmental rules that the EU currently imposes on its member states. For example, their proposal for an 'invisible' Irish border is simply to allow 80 per cent of businesses to trade freely, without regulation.

This is not a simple case of negotiating to get the best of both worlds, but it is deep ideological challenge to the type of managed capitalism that the EU represents. And it would be foolish to imagine that this represents a solo run by the UK. There are many liberal and libertarian political movements and business associations across Europe who would also like to sweep aside the complex and sometimes rigid set of compromises that the EU has built up, not least when the European Parliament has been involved in establishing rules. The same liberals and libertarians would like higher returns on their investments such as from exploiting (opportunities in) developing countries without having to wait for the EU to strike a trade deal, and would welcome a Brexit compromise that created loopholes within the EU's social and environmental protections.

Technology also favours the libertarians. As more and more services—from banking to entertainment—are transacted online, the permiability of markets is growing, and the ability of a national or even super-national authority to impose regulations is weakened. The UK's main export is services, especially financial services, which are easily traded online.

Even if the UK economy is not so big once purchasing power parity measurements are used, it is still essential for the EU to trade openly and on a large scale with the UK post-Brexit. It is likely that there will eventually be compromises on both sides, but there has been a lack of analysis to date on what implications the future UK-EU deal may have for the EU's uniquely regulated form of market competition.

Posted in: BrexitEconomics

Dr Nat O'Connor     @natpolicy

Nat O'Connor

Nat O’Connor is a member of the Institute for Research in Social Sciences (IRiSS) and a Lecturer of Public Policy and Public Management in the School of Criminology, Politics and Social Policy at Ulster University.

Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.

Nat holds a PhD in Political Science from Trinity College Dublin (2008) and an MA in Political Science and Social Policy form the University of Dundee (1998). Nat’s primary research interest is in how research-informed public policy can achieve social justice and human wellbeing. Nat’s work has focused on economic inequality, housing and homelessness, democratic accountability and public policy analysis. His PhD focused on public access to information as part of democratic policy making.


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