How the EU smothers innovation, creativity and productivity – making us all the poorer

How the EU smothers innovation, creativity and productivity – making us all the poorer

by Eben Wilson
article from Tuesday 20, October, 2020

NOT MANY PEOPLE will have read the detail of the EU rejection of a specific free trade deal for electric cars. It’s a draft response to a proposal by the UK to allow “product specific rules of origin” to be loosened in this area of automotive manufacturing, hoping to speed up innovation. 

That’s a pity, because the devil lies in the detail here; and has direct bearing on the EU insistence on both a level playing field and state aid rules.  

What this refusal reinforces is the dedication of the EU to control and manage trade in globally trading markets. The economic effects of this are not good for developed nation consumers and developing world workers.  

To exemplify this assertion, let’s look at something called CANBUS. When you drive a modern car, it knows lots of things; oil temperature, engine revs, fuel use of course, but many other things like what direction it is going in, how near it is to other cars, what lights are working and even the tyre pressures.  The sensors and the data as to their status are activated and report to your dashboard through special modules using a protocol called CANBUS.  It was designed by Bosch in Germany, but variants have spread worldwide. You can have 100 modules in one car. 

Now, sensors tend to be made in Asia, often to EU or US designs, using machine tools both locally made and imported. Specific housings for them in a car are made both locally to EU and British car plants or imported too. The cabling for electronic harnesses often comes from other non-EU nations, using source processed polymers and elastomer seals from the EU from non-EU source materials.  There are thousands or parts from multiple origins, with multiple processes designed multiply by multiply-based designers. Those designers in turn work with other designers that develop firmware, software and display instrumentation, very often in a feedback loop to the parts designers and manufacturers suggesting they change a moulding, a circlip, a type of plastic, a cable and its connector and so on.  

The EU demands that this is all tracked; so thank goodness for IT in procurement. Unfortunately, IT systems need good inputs to do the tracking, and the moving waterfall of new and changing parts above is hugely difficult to keep track of.  Even the designers and manufacturers are shooting from the hip at times; designs change and a lot of time goes into making sure they are safety compliant and robust rather than working out which supply chain nested into tens of other supply chains actually provided the elements of the design. Data collected is inevitably arbitrarily suspect in many cases.  

So, now let’s think of a group of bureaucratic negotiators in some meeting room in Brussels trying to tightly establish their level playing field and state aid rules.  Is there any connection between their thinking and the activity above?  I have written on this site before that there really is no such thing as “level” or a “playing field” in competitive manufactures. The EU is trying to paint a canvas of a scene like a child finger-painting a Tonka toy; naïve, empty of detail and useless to consumers who want the benefits of the trade regulated item.  

Not only is the EU by definition behind the curve on new innovations, it is actively getting in the way of what consumers might want. In the process it is slowing down development which brings work to millions both outside and within the EU.  For me, that’s immoral. It divides the West and Asia, which is a strategic mistake, and it separates the mercantilist state from its consuming populace which is undemocratic.  

There is also a lie here within the refusal of the EU to countenance less restriction on the development of non-fossil fuel vehicles. The development of these involves a vast panoply of state aid (justified by policies on carbon reduction invented by the climate lobby).  Most of this aid is hidden through the development of collaborations between universities and industry; revolving doors apply with graduates flitting through supply chains and sponsored technical specialists seconded into university industrially-focussed departments. All of this is funded by the same taxpayers who pay more for their cars due to rules of origin and other regulations.  As always, it is society’s poor who lose out, through high taxation reducing jobs and making consumption more expensive.  The state creates a self-funding loop to manage its own control system – for its own benefit.  Freedom to choose the “stuff” that makes life better for the struggling is removed because daily overheads are more expensive and choice restricted.  

Those of us who see Brexit as a chance to extract Britain from this state sponsored chicanery have a difficulty.  We are asked, ‘if we don’t control how trade is done, and how products are made we risk losing everything to Asia and other places, and having to buy unsafe products’.   

The response to that is, first, that the very fact that we know that products made elsewhere might be cheaper and that they could be unsafe is something we can handle individually as consumers; that is, we make our mind up ourselves about, say, chlorinated chicken, or if we are unsure we contract with someone we trust to advise us.  And, I add, the last person I would trust is one of the blind childlike trade regulators above. It’s not rocket science to evaluate a product, and there is a busy segment in the private sector doing it now that can expand if we demand this.  

Additionally, I want poorer people to make my products; it releases me to make other things with British workers, and it lets them earn the income that they can use to pay for them. If I am buying their stuff using pounds, those pounds are available to them to buy British stuff and floating exchange rates will resolve any mismatch between those two flows, rebalancing who wants what from where.  

We need the courage in the UK to ride these changes in supply patterns; garnering the knowledge to build a better future. The EU approach in managing all change through layers of nonsense tabulation of supply chain activities is really about controlling competition – making their playing field inaccessible to non-EU players. Competition creates innovation; innovation creates productivity; productivity reduces poverty.  The EU faces a future of low innovation, low productivity and higher poverty. We are better off out, deal or no deal. 

Eben Wilson is an Honours Graduate in Economics from St Andrews University, has had three careers – in journalism and broadcasting, economics and now business.

Photo of prototype electric Royal Mail van by UK manufacturers Arrival 

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