J.P.Floru contested Bermondsey and Old Southwark at the 2015 General Election He is a Westminster City councillor and author of The Sun Tyrant: A Nightmare called North Korea.
Let’s be Singapore. An economic opportunity like Brexit will not come again in our lifetimes. If we play our cards right, the UK could become prosperous beyond our wildest imagination. With the Industrial Revolution, Albion created the greatest economic advance the world has ever seen. We can do it again. And we know how to do it, since it has been tried in Hong Kong and Singapore, where it was phenomenally successful.
Emulating the ‘Singapore Model’ has come up in debates before. Astonishingly, some think this a bad idea. When British troops withdrew from Singapore in 1971, it looked as if the country would perish. But Lee Kuan Yew introduced free market reforms to produce the wealth to pay for an army to preserve its independence. Many policies were copied from our own Hong Kong. From poverty and predictions of imminent collapse, Singapore rose to gain the fourth highest GDP per capita in the world.
How to do it? It is pretty simple: we need to couple a hard Brexit with dramatic tax cuts. Suc a Brexit consists of leaving the customs Union and the Single Market, and trading under WTO Rules. Why is it essential we do this? If we do this, high economic growth and growing tax receipts will occur very fast indeed. Provided the Brexit dividend is not delayed by protracted negotiations, we could win the next general election by a landslide. Do you want to win, Theresa?
Free trade is the greatest tool to economic prosperity. For more than 60 years, the European Union has reduced free world trade by way of its Customs Union. The EU is a protectionist bloc, aimed at keeping out cheaper products from elsewhere, and creating a captive home market where we all pay too much to expensive producers. It is no coincidence that the EU’s share of world trade has steadily declined since its inception. The EU’s protectionism is also immoral, since it has prevented poor countries from exporting to our markets for more than 60 years.
Under the Customs Union, only the EU is allowed to negotiate trade with third countries. If we want to trade freely with the world, and make everybody better off in the process, then we need to pull out of the Customs Union. Some claim that our ‘uneven bargaining position’ would land us with poor trade deals with giants, such as China. Nothing could be further from the truth: even tiny Iceland negotiated a free trade deal with China.
If we leave the Customs Union we will operate under WTO Rules. WTO members grant each other ‘Most Favoured Nation’ market access. We would face the same sort of tariffs that the USA, for example, now faces when trying to sell to the EU. In most cases this amounts to no more than 1.5 per cent – though some sectors, such as cars, draw 10 per cent. These tariffs will go down in any event, as they are reciprocal. Angela Merkel will want to sell her Mercs.
But we can do even better. David Ricardo proved in the nineteenth century that even unilateral free trade is advantageous. Hong Kong and Singapore have had unilateral free trade for decades – and look at them now. In essence, we should declare the UK to be one gigantic free port. Unilteral free trade is allowed under WTO Rules.
Once we have declared to make the UK one such free port, how do we make sure that we do not only enjoy the world’s cheaper products, but also that the world buys ours?
Basically, we need to undercut the world. We can do this if we cut red tape and cut tax.
The regulatory burden can only be reduced if we leave the EU’s Single Market. The Single Market allows for free trade within an area in which all producers are subject to the same burden of regulation. Every day, thousands of lobbyists employed by rent-seeking EU producers negotiate more regulations with EU politicians in Brussels. This mass conspiracy against the population is sold to the population as ‘high standards to keep them safe’. The EU regulations keep cheaper non-EU imports off our shelves. Furthermore, the excessive levels of regulation the EU imposes has made us less inventive and less able to adapt to a fast changing world. There is a reason why most new cutting-edge technologies, such as artificial intelligence, take place in the US and Asia, not in the EU.
Philip Hammond’s assertion at Davos that after Brexit Britain would mainain “highly aligned regulatory systems” with the EU should set all alarm bells ringing. It is a slap in the face of our future prosperity. Hammond’s wish would make for poverty. It would also make Jeremty Corbyn in Number Ten a near certainty.
There is one serious danger to leaving the single market. The EU may ban our products because they do not satisfay the EU’s ‘product standards’. Perhaps we should aim for a Cassis de Dijon judgment-style arrangement in the Brexit negotiations (the reference is to a 1979 court case declared that a product could not be banned from one EU country if it had been legally produced in another).
Many UK manufacturers will freely continue to produce goods which satisfy the high standards of the EU. In March 2019, our products will not suddenly become EU-incompatible. It is likely that over time our producers will shift their export to less restrictive export markets. This is desirable, as it is in those markets that economic growth takes place.
Remember, we have to undercut the world. So, apart from regulation, we also need to cut tax. But how then will we pay for state services? Initially, tax receipts would reduce, and we may have to do some borrowing. There is an argument that if we announce the dramatic tax cuts well enough in advance, there could be an anticipatory boom.
Within a very short period there would be a pronounced Laffer Effect: higher tax revenues resulting from much higher economic growth. Countries with phenomenally low taxes, like Hong Kong, never ever manage to spend the massive amounts of tax revenue they engender. The Laffer Curve was first proven by the tax cuts under John F Kennedy; and later under Ronald Reagan. Donald Trump’s tax cuts will also increase US tax revenue. Indeed, the Trump Boom which America is experiencing at the moment could to some degree be an anticipatory Laffer effect.
So let’s be Singapore. Let’s not be afraid of the endless opportunities that a hard Brexit, coupled to unilateral free trade, dramatic tax cuts, and deregulation, can bring us. Let’s go our own prosperious way.
As Jacob Rees-Mogg puts it: “To paraphrase Pitt the Younger we will have saved ourselves by our exertion and we will have saved the world by our example. If, on the other hand, this possibility is taken off the table then Brexit becomes only a damage limitation exercise. The British people did not vote for that. They did not vote for the management of decline.”
If we play our cards wisely we can become prosperous beyond our wildest imagination.