Sunday, April 24, 2016

An Alternative American View: Obama is Wrong and Britain Should Vote For Brexit

President Obama eloquently expressed American interests on his recent visit to Britain. It’s in America’s interest that Britain stays within the European Union. But is it in Britain’s? I don’t think so. I have a different view from our president. I think Britons should vote for Brexit in June.

Here’s a thought experiment: imagine we in the US said to the Canadian government, we’ll invite you to join the US and become our 51st state. We’ve run the numbers and we believe that if you joined us, your exports to the US would go up by 10%, and your GDP might go up by around 4% per person, so it would be worth some $2000 to every man, woman, and child in Canada. What do you say?  My guess is that the Canadians would probably say thanks for the offer, but no thanks. They’d probably say: we’ve thought it over and we prefer our Canadian way of life, with our health care system, our mounted police, our politeness, our cute little capital in Ottawa and all the rest.  In other words, the Canadians might vote to keep their sovereignty and their culture.  And Canada’s only got 150 years of culture and history. Let’s be honest, the culture up there is a bit thin. Why then is Britain so eager to trade 1,000 years of rich culture for an institution like the European Union?

Britons should vote Leave on June 23rd for the good of Britain and for the good of Europe. Although I have always been highly focused on economics in public policy, in the end, sovereignty is more important. It’s a precondition for good economic management. You can’t manage an economy if you don’t know what you are managing. And the Eurocrats in Brussels have no idea what they are managing, because they have no authority over national economies. As the saying goes, to the man with a hammer, every problem looks like a nail. So, to take the latest of  hundreds of examples, the European Commission has declared war on Google for being too powerful in the European search market. Not because it’s the best answer to Europe’s woeful lack of large successful tech companies, but because the EC has antimonopoly powers. Also, the Commission is catering to a constituency in some member states that derives either economic benefit, or political capital, from making Google’s life difficult.

Instead, why don’t they acknowledge that there are some much more effective things EU governments could do to further their own tech industries and lead to the growth of the large tech companies so sadly lacking in Europe. Welsh-American VC Michael Moritz advocated more focus on science education in Europe in a recent article in the FT. I would advocate something much more aggressive such as beefing up defense research budgets and developing some audacious defense-inspired big tech projects, since the Pentagon’s extravagant spending in the 1960s and 1970s did so much to bring about the current Internet boom and the large US tech companies profiting from it. But whatever policy you prefer, the point is that by splitting responsibility between Brussels and national governments, the EU pretty much guarantees there will be a lot of talking and theatrics and not much in the way of effective policies.

Britain needs to focus on solving Britain’s problems. We may disagree on the priorities, but most agree those problems include low productivity growth, a moribund economy in the north of England, assimilation of a large number of immigrants, achieving a stable long-term solution for Scotland, improving the public services, and so on. Does anybody really think that sharing responsibility with a pseudo-government in Brussels that represents 28 nations will really help solve those problems? Each nation has its own problems and they are vastly different. In Poland, they are trying to figure out what role Catholic beliefs should play in government—a problem Henry VIII solved for Britain 480 years ago.  After nearly half a millennium as a Protestant nation, Britain has little relevant advice for the Poles on its challenges, and vice versa.

I agree with former foreign secretary Lord Owen who said leaving the EU could re-energize Britain. The British government and the British people need to take a more aggressive approach to addressing their nation’s problems. Of course, this is not easy (and one could argue we are doing an even worse job of it over here in the US, but it still has to be done—that’s what we pay our politicians to do.) I read recently in an economic history book the following sentence: “For a period of two hundred years [1600-1800], the English nation knew very clearly what it wanted.” What it wanted then was to enlarge its empire, its national wealth, and the military force to defend that empire. Today the nation doesn’t know what it wants. It is divided between factions and interests. It needs leadership to help it unite and meet that challenge. The European Union, by dividing sovereignty and by distracting politicians to attend incessant meetings in Brussels, makes this harder, not easier. In fact, the EU and the EC provide an excuse to national politicians for their failures, by enabling each national government to point the finger to Brussels and say it’s their responsibility, not ours.

One of the things that drives me nuts about the structure of the EU (and President Obama, who was a constitutional scholar when he was at Harvard Law, must also be aware of this but was surely too polite to say so) is that it consciously imitates the structure of the US government, but has carried over some of our worst features instead of our best. When our founders wrote our Constitution, they were highly focused on the issue of sovereignty and the fact that it could not and should not be divided. In this, they were following the teachings of three earlier scholars: Montesquieu, Locke, and Rousseau. The ultimate decision was that sovereignty (ultimate authority) would reside with the federal government—although it took 70 years of bitter infighting and one bloody civil war to establish that reality once and for all. The EU has ignored the teachings of our founding fathers and these great French and English thinkers and established an organization where sovereignty is divided, unclear, and sometimes seems to move around.

Too Much Juncker in the Trunk
Another lesson they have not learned from the US is that if you have an organization open to lobbying, lobbying will happen, and powerful monied interests will twist democracy to suit their ends. In the US, we have a Congress that a large number of voters believe is dysfunctional and dominated by lobbyists. So what did the creators of the EU do? They turned Brussels into the world’s number two capital of lobbying, right behind Washington. In the US, we have Delaware, a state which earns money by providing incorporation laws that are weaker and more criminal-friendly than any other state. In the EU, you have Luxemburg, which has created tax laws that allow multinationals to avoid billions of dollars of taxes. This is a form of legalized theft from every European taxpayer. The politicians who attack Google or Microsoft or Starbucks over this are being disingenuous—they surely know that the real enabler of this theft is none other than the president of the Commission himself, Jean-Claude Juncker, who engineered these tax laws to help out his countrymen in that little pimple of a country that would surely be ejected from the EU if there was any retribution for tax theft.  And behind the crazy tax rulings of the Commission lies the lobbying system, which makes Commission decisions subject to giant corporations and their lobbyists, in a way that does not happen in Whitehall or the Rue de Bercy or the German Finance Ministry.  Our President Truman was famous for having a sign on his desk “The Buck Stops Here.” Every educated American knows what he meant, and understands the distinction he was drawing between the talking shop on Capitol Hill and his own role as a man who had to answer to voters for his actions.

In plain language, the EU is a failed experiment, and it is time to retire it. It was created for two reasons. The more obvious one was to ensure the peace of Europe, and we can give it credit for some success there. Equally important though was the belief, held primarily in France, that by uniting, Europe could become an economic superpower on a par with the US, Russia (and now, China). This is why the French have been the prime driver of European unification. I should say French governments, because the French people voted decisively to reject European unity in a 2005 referendum. Such is the French government’s influence in Europe, that many smaller nations have put their faith in this vision of an economic superpower, despite all the evidence that the EU has wrought economic chaos, particularly in southern Europe. Under the reign of the euro, Greece has seen poverty and destitution in a way that has not been seen in half a century. Italy has managed to deliver negative economic growth over the last 15 years! See Figures 1 and 2 to see the gory facts of unemployment in southern Europe. If this is not failure, what is?

Figure 1: Unemployment Rates in Five Mediterranean EU Member States 1990-2015. (Source: OECD)

Figure 2: Youth Unemployment Rates in Five EU Member States. Youth is defined as ages 15-24. (Source: OECD)

The solution to the economic crisis must be found in national capitals. And the best ideas are coming out of the anti-European parties. Luigi di Maio, the deputy leader of Italy’s 5-Star Movement recently wrote in Facebook: “It is no longer a question of left and right, but only of honesty and dishonesty.” For Italy to solve its problems, it needs to abandon the obsolete political obsessions with left and right, because Italy’s economic problems affect both capital and labor. In Britain, Jeremy Corbyn’s view that he supports staying in the EU because “workers” in Europe can unite to defend workers’ rights is about as obsolete as the outfits in an Abba video. Today, economic problems are shared by all classes—they are national problems, not sectional problems (although of course some sections of society suffer more than others) and they will certainly not be solved by hodgepodge supranational associations. Europe needs a new generation of national political leaders to recognize and address those problems.

I sympathize with my British friends who look at Boris Johnson, Nigel Farage, and their ilk and say these are not the people to whom one should hand over leadership. But the problem must needs be addressed. And European nations should start now. Every moment spent discussing EU “policies” is a moment wasted.  President Obama was expressing a short-term view when he told the British people to stay in the EU. In the long term, the US interest is in having strong western democracies in Europe. We will only have that if they regain their economic strength. And that will only come if they make a bonfire of the EU and all its interminable ministerial meetings, bureaucracy and flimflammery.

One final word of advice from an American: I know some are worried that if you leave the EU you might not get a trade deal with the US “for ten years.” That threat is a clever way for President Obama to back up his pro-EU position. Here’s my suggestion of how the next, post-Brexit, British government can deal with this threat. Invite the next US president to Number 10, serve her some very nice tea in a Wedgwood tea service, and say the following:

“Madame President, we’ve had a look at the sorry state of our economy, and our growing reliance on tourism, and we’ve decided that we need to take back RAF Upper Heyford and turn it into a theme park called Cotswolds-Land. So please can you take all your US Air Force fighter jets and your tactical weapons and get them out by Monday morning?

“Unless of course, Madame President, you could fast-track a UK-US trade deal. Why then, we would see such an upsurge in US exports, that we wouldn’t need another theme park.

“More tea, Madame President?”


  1. The invitation you hypothesize for Canada was made to Texas in 1845. It was accepted enthusiastically, even though, as you point out, an arguably greater sacrifice of sovereignty was involved than that required of EU members. The culture of Texas seems to me to have survived annexation pretty well, but doubtless membership of the Union distracts Texans from focusing on Texan problems. Texans suffer at the hands of Washington lobbyists at least as pernicious as those of Brussels, and experience other disadvantages of US statehood comparable to those experienced by their EU counterparts. So would you like to see a Texit as well as Brexit?

    1. No, entry into the US has been highly beneficial for Texas. But Texas was entering a country with two major differences from the EU: first, the US already had a firmly unified government, due to our Constitution; and second, all the state governments shared the same political/economic philosophy, which laid the groundwork for the enormous economic growth of the 19th century.

      The EU has neither: it has disunity, with 28 governments, each with its own interest and priorities, and it has vastly differing philosophies, from the laissez-faire philosophy of the UK to the dirigiste philosophy of France to the clientelism of Greece and Italy. And instead of showing a will to move towards a common philosophy (which might arguably enable economic growth), the 28 nations talk as if more "unity" ie transfers of sovereignty to Brussels, and free trade--the hackneyed idea of a common market--will solve problems, when the economic record shows it has not. I support a certain amount of free trade, but as the hedge fund managers quoted in today's Daily Express say (link below, and the guy on CNBC is absolutely right), that can be achieved by a proactive government outside the EU.

      The real tragedy is that the Leave campaign has so few ideas and proposals about what they would do once outside the EU. I have looked and can find nobody talking about what they will do with the 8 billion pounds a year Britain will save by leaving. Why not start a venture fund to fund growth industries in Britain? Why not talk about how much agricultural prices will fall outside the EU, and food will become cheaper, and policies to keep food prices down?

      Recalling the literature of the 1920s, Lloyd George, John Maynard Keynes, and others had more good ideas in a few days' newspaper clippings than any of the parties have now in a year. Perhaps reforming the two-party system is even more important than leaving or remaining in the world's leading organization of economic dunces. For you. For poor Greece, leaving is the number one priority. Every year they stay, their productivity falls further behind Germany, deflation continues and unemployment rises. It is Chinese water torture and I cannot understand why they don't see it, and why Tsipras doesn't see it. The public is just ignorant, but Tsipras has no excuse.

      Apologies for such a long reply. Best, Jeff