A field full of potholes is good for customers

A field full of potholes is good for customers

by Eben Wilson
article from Wednesday 25, April, 2018

ONE OF THE SHAM arguments of bad economics and the Brexit debate is the call for “a level playing field”.  Too often this mischievous notion acts against the consumer interest. Those who call for level playing fields often want freedom for themselves while denying freedom for others.  They do this by confusing two sets of rules in markets. 

The CBI is a case in point. Carolyn Fairbairn, their Director-General, has said:

“It’s clear that many firms recognise the benefits that have come from having full access to the EU Single Market, to be able to trade tariff free and on a level playing field with other member states.”

Note the “and” in that sentence. One rule here is free trade without taxes on imports (tariffs), the other is, well what? It can’t be a call for the same tariffs for other traders – that’s what the single market means.  It is of course that old chestnut – regulatory equivalence. 

The equivalence trick is based on a sham. It’s based on the idea that regulation is inevitable, necessary and needs to be made common across markets that trade with each other.  Why do businesses want this? Because it means that they do not face “unfair” competition; by which they mean competition from other businesses able to serve consumers more efficiently than them because they do not have to follow centrally imposed bureaucratic rules.  

Now that would be fine if the bureaucratic rules were always and everywhere helpful to consumers, efficient in their impositions, and self-regulating in the sense that they would disappear when no longer needed.  

Observational evidence tells us that regulatory eco-systems do not offer any of these things.  Rather, they trigger a self-serving alliance of special business interests who act to preserve their freedoms and advantages; and when allied to political interests the outcome is usually state corporatist interference that acts against the consumer interest; most often by controlling prices and re-defining product design choices (ever wondered why so many cars look alike, why no pop-up headlights anymore?). Reams of paper define how business is to be done. 

The central outcome of this is that innovation slows and product costs rise.  

The term “free market” is often disparaged, but few understand why the term “free” is important. Economically, market freedoms release innovation through competition, driving down costs and thinning margins through time.  That places risks where they should be – on the innovating businesses

Think where the incentives lie in a free market; businesses need to be more efficient and more customer-focussed; all consumers benefit through keener pricing, while all businesses have to self-regulate so that they do not lose or not capture enough customers by making mistakes.  

Crucially, this is not a level playing field. Innovatory change is handled well by some and badly by others precisely because the playing field has ups and downs that some find more difficult than others to travel across.  The rules that are needed are not those governing the smoothness of the business terrain; but those that demand that the players on the field have the freedom to act as they wish while taking whatever knocks arise as they do, including making costly mistakes

The EU as a constituted institution does not operate this way. Its entire being is embedded in the mindset of Napoleonic codes where centralised fiat prescribes what can be done and how it is done.  If we buy into the notion of “regulatory equivalence” we are buying into sham economics that reduces prosperity by eliminating competition.  

More than that, the economic freedoms that a market rules-based society offers are inextricably linked to the maintenance of our political and social freedoms through time.  It is simply not enough for Remainers to say that by staying joined to the rules of the single market and its customs union we will be better off.  We clearly will not, instead we will be purchasing freedoms for the producers’ interests – as expressed through the CBI – at the expense of the liberty of consumers like ourselves to drive change for the better, based on our individual preferences expressed through freer global markets. 

Many have criticised Brexiteers for having no plan, but as I explained in a previous piece that’s because Tony Blair and othersthink we need one while free traders do notAs Jaguar and Waymo show us, markets work differently

With regulatory equivalence rearing its ugly head over Ireland, we should be turning this argument on its head. What precisely is the EU or Remain camp’s plan for Ireland?  The UK has offered highly practical technical methods of reducing the risk of intra-Irish strife over border controls to near zero. Monsieur Barnier appears to be pushing these aside in a Cavalier fashion.  He needs to be made to face up to the risks to the EU of that. 

Is the EU really planning to reduce the affluence of all to stay hooked into a bad and politicised agricultural policy?  It’s that policy that would make trade across the UK Irish border lopsided if the UK decides not to pay the extortionate taxes the EU impose on trade in food; taxes that already impoverish North Africa and the Middle East where they have a lot more guns than in Ireland. 

It’s time for us to stand up to our understanding of consumer sovereignty and be ready to walk away if the EU does not reflect on the dangers of its stance.  It is not a good choice for the UK to put expediency before principle; the principles of free trade are honest, sustainable and moral. The expediency of regulatory equivalence builds distortion into society that in the long run will lead to inequality and embedded privilege. 

Sovereignty for consumers is important for long term peace.

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