Economists for Free Trade is the post-referendum incarnation of Economists for Brexit, one of the lobbying groups that reinforced the idea that economic risks from Brexit were part of ‘project fear’ rather than the looming reality we now recognise them to be. As they make clear they ‘believe the UK’s optimal Brexit path is outside the single market and customs union, moving towards an ultimate position of global free trade as a full member of the World Trade Organisation’ and strongly proselytise a WTO future for Britain’s exporters.
The organisation’s strapline – from Project Fear to Project Prosperity – tells you everything you need to know. It is an organisation pushing for the strongest type of Brexit with the merest veneer of academic credibility.
Because of the policy by broadcasters, especially the BBC, of equating ‘balance’ with always giving 50% of airtime to both sides of a debate – even when the vast majority of scientists and evidence are on one side of the debate – the public has formed the impression that there are two sides to the economic argument about Brexit. The reality is quite different, with an overwhelming number of economists being clear during the referendum that Brexit would cause unprecedented economic damage and persist in that view. But this policy of artificial balance has created an enormous amount of space for the small number of pro-Brexit economists.
And ready to provide an economist to fill any media space is the organisation called Economists for Free Trade (EFT). In February 2018, EFT launched their so-called ‘Alternative Brexit Analysis’, implicitly calling into question the independence of the civil service by claiming to ‘flatly rejects Whitehall’s pessimism’. In contrast to the government’s economic analysis, based on the best data, their publication predicted ‘that leaving the EU will boost the country’s economy by 2-4 per cent, in contrast with the Whitehall forecasts of up to an 8 per cent hit to gross domestic product.’ This is a disturbing document that casts Brexit in anti-democratic terms as the project of the ‘Establishment’ that is characterised as a long-term opponent of free trade. The work is also entirely self-referential ignoring peer-review literature and only referencing previous publications by their leading theoretical economist Patrick Minford or EFT itself.
Economists from the Centre for European Reform in London have produced an excoriating report into the work of the Economists for Brexit and specifically the modelling of an ultra-hard Brexit by Minford. His modelling showed that a hard Brexit would increase UK welfare by 4% because freer trade would mean lower prices for consumers. By contrast, the CER found that it would result in a decline in welfare of 2.3%.
The model he refers to as ‘Britain Alone’ is based on the entirely unrealistic assumption that imports will always come from the lowest-cost supplier. This ignores the fact that consumers have preferences based on the different quality of different products, that governments might introduce minimum standards (think hormone beef), and that the distance between markets – known as ‘gravity’ in the trade – also has a major impact on trade preferences.
Minford admitted that his proposal for totally free trade after Brexit would mean the elimination of most of what remains of UK manufacturing and a large increase in wage inequality, but there are the ‘bumps in the road’ that Brexiteers like Michael Gove are happy to dismiss with a wave of the hand. Minford also ignores the loss that will be faced by our services exporters by leaving the single market, particularly the impact of the loss of passporting rights by financial companies in The City.
Independent analysts at CER conclude that:
‘Unfortunately, Minford’s model is inconsistent with two basic facts about international trade; first that trade satisfies the gravity equation; and second, that the EU has been trade-creating, not simply a tool for trade diversion.’
In other words, the model does not reflect the reality of modern trading relationships, where the EU has increased mutual trade through the efficiencies of the single market – which a hard Brexit would deprive us of – and ignores the fact that it is more efficient to trade with countries close to you.
This piece of work is the worst sort of economic modelling based on unrealistic assumptions as the garbage that goes in to produce the garbage at the other end. The problem is that this garbage is sufficient to enable Minford and his colleagues to fill that media space and imply that there is a serious debate about the damage Brexit will do to our economy.
The Economists for Brexit, working in close alliance with the Institute of Economic Affairs, are strong proponents of the idea that there is no need for trade deals or a deal with the EU and that walking away and trading according to WTO rules would offer the best future for Britain. They seem not to have noticed that the WTO is facing severe challenges of its own, with a stand-off between India and the US so severe that its last meeting failed to issue the customary final communique. Add to this the deliberate attack on the multilateral trade system by Donald Trump – with his steel and other tariffs and his refusal to appoint members of the WTO dispute resolution body – and it becomes clear that this is the very worst time to leave the secure trade arrangements of the EU to seek a WTO alternative.
Key players in EFT include:
- Patrick Minford, chair of Applied Economics at Cardiff University and previously a key architect of Thatcherite economics in the 1980s. As the Economist noted in summer 2017, it is rare to find economists as united as they are about the fact that Brexit will damage the UK economy. They identified Patrick Minford as the one who disagreed.
- Roger Bootle, founder and chairman of Capital Economics, a regular columnist for The Daily Telegraph and formerly one of Ken Clarke’s so-called ‘Wise Men’ advising on economic affairs.
- Gerard Lyons, Chief Economic Strategist at Netwealth Investments and formerly Chief Economic Advisor to Boris Johnson in his second term as Mayor of London. He has compared fears of a cliff-edge Brexit to the millennium bug.
- Liam Halligan, a journalist and columnist at the Daily Telegraph and the Spectator where his columns include ‘The man who triumphed over Project Fear’ (‘How Patrick Minford debunked the Treasury’s Brexit doom-mongering’), ‘No Deal with the EU? Sounds like a good deal to me’, and ‘Europe will reconcile with Russia, and soon. It can’t afford not to’.
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