One Cure for All?

Why leaving the EU is not as black and white as the naysayers claim it to be. 

by Eva K. Vister, a Norwegian King’s student reading International Relations in the department of War Studies.

Following previous blog contributions, this post will have another look at the UK and the proposed 2017 EU referendum – when Britons will decide whether or not to stay in the union. Now, although I support the referendum as a democratic tool, and do not aim to argue against it, nor tell anyone what to vote, I do believe this issue is immensely more than a simple yes or no, and hopefully this post will shed light on a bit of this complexity.

I will start slightly east of Britain and quite some time before 2017, in 1959, when large gas reserves were found under Dutch soil. One would expect this to be like finding the pot of gold at the end of the rainbow, a constant stream of revenue, and an extermination of all fiscal problems. However, the opposite happened: the development of the gas sector came at the expense of other sectors, raising the value of their currency and, being capital intensive, it didn’t create jobs; in fact, unemployment rose from 1.1% to 5.1% during the ’70s. The troubling effect that a resource discovery can have on an economy is known as the Dutch disease, an expression coined by The Economist in 1977.

This phenomenon is far from being restricted solely to the Netherlands. In countries like Angola and Nigeria, the strength of the agricultural and manufacturing sectors declined drastically after oil was discovered. Neither is the “disease” restricted to natural resources, as seen through the Icelandic example, where the booming financial sector hit a wall in 2008 and dragged the whole country’s economy down with it. For the UK, finance is not as crucial as it was for Iceland, but crucial enough for them to keep their monetary policy as independent from the ECB as possible. After all, if UK interest rates were managed from Frankfurt, the City of London would lose much of its hold over other European financial centres; this was one of the reasons why the euro was rejected in favour of the pound in the first place.

A “no” in the referendum would give the UK more autonomy and thus even more freedom to promote its financial sector. However, this is worrying on two fronts. Firstly, keeping the concept of the Dutch disease in mind, even with a flourishing finance industry, it can come at the expense of other sectors. Secondly, if finances were to tremble, there would be an absolute decline and the British citzens would have bet on the wrong horse. Besides, even if autonomy is enhanced, the industry might not be. There is a risk that financial institutions will move their headquarters away from the City post-Brexit (Deutsche Bank has already warned that it will). This would certainly hurt the sector significantly. In any scenario, smooth trade ties with EU members would come in handy, but after having left the union that is far from certain, which will be discussed below.

Still, not all economists agree that Dutch disease has to be something bad. If revenue from the abundant resources is used to diversify the economy and pull the real exchange rate down, it can be far from an illness. My own country, Norway, is frequently used as an example of this. Making the government a big player in the petroleum game from the very beginning, building a large petroleum fund and only spending a certain amount every year, it has managed to turn the resource curse into a blessing – not just for the CEOs of oil companies, but also for the common man. Hence, is this a counter-argument to the idea of Dutch disease, or is it simply the exception that confirms the rule? With our oil reserves slowly running out, we are bound to find out, and that sooner rather than later – if the current low oil prices continue.

However, no matter what the future brings, our resourceful waters coupled with sensible policies have so far brought a prosperity duly noted by others. When Scotland contemplated independence last year, Norway was used as an example in many pro-independence speeches, with reference as to how a small country can manage on its own. Similarly, anti-EU forces use it as an example as to how the UK can do just as well outside the union. The problem is that the campaigners are drawing lines where there are none, or fragile ones at the most. For Scotland, it might have 95% of the UK’s oil and gas reserves, but the amount of this is far from what lies in Norwegian waters. When compared to the UK it is evident that Norway scores highly on wealth per capita, but this is not too difficult when a country has 5 million inhabitants. Not to say that its policies can never inspire similarities elsewhere, but that it should not uncritically be used as a lodestar for other countries – different countries – when making such important decisions. Most importantly in this regard, our position outside the EU is far from being as rosy red as campaigners like to portray it.

The EU question is a lot more complex than just inside versus outside. Being on the outside has its advantages, but one would only be completely independent and flexible in decision-making if one was to cut oneself entirely off from the rest of Europe. Yes, Norway manages on its own. But no, this is not an ideal position. As a member of the EEA, we get access to the European free market, but in return, we have to follow rules that we have no formal say on. Naysaying Britons may argue that its current position as one of 28 opinion holders within the EU is not much more powerful than standing alone outside of it. However, having 1/28 is still more than 0, and as one of the most powerful countries within the union, most would agree that its current position in real terms is higher than simply 1/28.

Of course, being the relative power bloc that it is, it might be stronger on the outside than Norway currently is. A frequent argument against the union is that the beneficial trade arrangements it provides can be upheld just as well as with a EU-UK trade agreement. Norway, along with Iceland and Lichtenstein, gets access to the internal market as members of the EEA, which is an unlikely position for the UK. For instance, Switzerland gets access through bilateral agreements, and South Korea’s Free Trade Agreement with the EU is very comprehensive indeed. However, the biggest hindrance to trade is not tariffs and subsidies and so on, but the bureaucratic maze of rules, customs, laws and regulations that tend to face potential trade partners from different countries. This shows how the EU promotes trade by standardising legislation. Hence, although having a say about the rules is important, being a part of the game is more so.

The UK may be upset with some of the rules of the game, but at least it is a player. If total independence is the ultimate goal, why would Norway agree to follow the greater part of EU legislation without being a part of the decision-making process? Because it gives us access to EU markets, and this is more valuable than isolation. Britons may argue that they are less dependent on the EU than Norwegians and that Switzerland and South Korea enjoy good trade relations with the union without being part of the EEA. However, neither Switzerland nor South Korea started their respective relationships by turning their back on the union. Neither did the relations flourish over night. Switzerland initially had 15 areas in which they wanted to co-operate with the EU. 23 years later, they have managed to set up agreements on about half of them, and also had to agree on co-operation in areas they preferred not to. British co-operation with the EU is not about picking and choosing, but instead about giving and taking; you cannot have full autonomy and full access at the same time. So, perhaps trading a trade union for a trade agreement is not so easy after all.

Listing all Europhile and Eurosceptic arguments goes far beyond the reach of this article, but the point here is that an argument is seldom as clear-cut as either side tends to present it. What might seem like a yes or no question commonly has other aspects – other problems – but also other possibilities. In other words, what is wrong with the EU might not be because of the EU as a concept, but how it is executed and exercised – just like discovering a resources is not necessarily harmful in itself, but handling these wrongly is. Thus, instead of asking whether to extract the oil or not, or asking whether to be a EU member or not, one should ask how to approach it, how to handle it – shifting the discussion from politics to policy.

As a Norwegian, I am in no position to tell the people of the UK what is the right move for them. However, as a person, belonging to something above and beyond national borders, I can try to give it another perspective. I am not trying to be some delusional cosmopolitan, envisioning a completely peaceful and borderless world – this will never happen, at least in my lifetime. If the UK wants to cut itself off from the rest of the world, then of course, go ahead. If keeping Britain British is more important than anything else, go ahead. If increased transcendence of borders is more frightening than the return to nationalism and hence antagonizing foreign relations, go ahead. But at least think properly through the consequences first.

There are benefits when looking at the bigger picture. Together, if done right, one can achieve a lot more than alone. For instance, in military matters, in economic matters, in humanitarian matters. It is not all about competition. Economic growth is not about being better than other countries, but having a decent standard of living within your own borders. Cross-border co-operation does not have to be about zero-sum benefits, it can be a win-win. All foreigners do not long for a ticket to the precious UK – if they could have opportunities in their own countries, if they could experience economic growth at home, of course they would rather stay. In addition, with increased economic growth in the less developed countries of the EU, the UK would have another trade partner – increased efficiency, increased specialisation, increased economies of scale – everyone benefits.

Besides, please, let’s kill the illusion that all immigration is hurtful. After all, the US is not the most powerful country in the world because it cut itself off from the rest of the world. Its high immigration rates are vital in avoiding an aging population, where those in retirement surpass those working to finance it, as is the case in Japan. Blaming unemployment on immigrants is an easy solution, and if the majority keeps clinging to it, then of course the politicians will agree – that is how democracy works. However, an easy solution is not necessarily the right solution. At times it looks like the naysayers regard leaving the EU as a solution to all their problems. The saddest scenario I can think of here is that the UK does leave, but the problems linger, or even get worse.

So, what’s my final say? By all means, take a vote, and although my stand might be clearer than intended, vote whatever you believe is right – but at least make sure you know what your vote implies. Leaving the EU does not necessarily mean leaving all problems behind. Getting full political and economic autonomy does not necessarily cancel out any problematic consequences. An unknown future is not necessarily better than a discontent present. Turning one’s back is not necessarily better than trying to change from within. Quitting might be easier than staying on and fighting, but unless the UK wants to cut all ties, then there is bound to be another fight around the corner; and then they might experience that arguing with a friend is a lot more desirable than fighting with an enemy.

Sources:

http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-2

http://www.economist.com/blogs/buttonwood/2015/05/finance-and-economics?fsrc=scn/tw_ec/whats_wrong_with_finance

http://www.tnp.no/norway/economy/4310-can-norway-escape-from-dutch-diseaseij

http://www.ft.com/cms/s/0/abe0f6f6-8f0c-11e3-9cb0-00144feab7de.html#axzz3dnniIkRj

http://www.hoyre.no/www/aktuelt/nyheter_fra_hoyre/Alternativer+til+dagens+E%C3%98S-avtale.d25-UgdfQZd.ips

http://blogs.ft.com/maverecon/2009/01/can-the-uk-government-stop-the-uk-banking-system-going-down-the-snyrting-without-risking-a-sovereign-debt-crisis/#axzz3fJL3pB9m

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