If people vote without taking businesses into account, they can harm their own employment prospects and the health of the economy.
At every level of voting, people are choosing politicians who will ultimately take economic decisions – but businesses do not have a vote. This means that politicians are more likely to adopt policies that are popular and easy to understand, but less likely to give sufficient weight to economic considerations.
Companies don't have votes, so it is politically easier to tax them than to tax individual voters – but that can backfire if it results in businesses being less competitive, so that they either shrink or move elsewhere. Margaret Thatcher’s Speech to Conservative Local Government Conference on 3 March 1990 explained her approach to this problem: “The new Uniform Business Rate is designed to stop extravagant councils piling the burden onto business and driving out enterprise and jobs”.
Everyone would be wealthier with no trade barriers, because goods and services would be supplied by those with a comparative advantage as described in an earlier chapter (3.5.4.1). Every country in the world, though, has erected trade barriers for political reasons: to protect its own companies from competition, despite the economic cost to its population as a whole. National politicians were in charge of reaching trade agreements until the formation of the EU introduced a new layer of governance.
The EU’s Single Market has no barriers within it, but its trade with the rest of the world is either governed by trade agreements or by World Trade Organization (WTO) rules. The Single Market requires agreements which are contentious – as illustrated by the fierce debate when Britain was deciding whether to leave it or not:
· Those arguing for remaining in the EU’s Single Market point out that it enables businesses in member States to leverage the world’s biggest economy, having seamless access to the most capable suppliers and selling to customers across the whole of Europe, so that they can compete on equal terms with their American and Chinese counterparts – which have much bigger home markets than any individual European country. Every British company with a European supply-chain would be less competitive if it were outside the EU's Single Market after a Brexit. And, as Stephen Davies argued in his article Let's Think through This Trade Issue, Carefully, trade is between companies – not countries.
· Some of those wanting Britain to leave the EU talked about constitutional issues and overall economic numbers without taking businesses into account. Patrick Minford, in an Economists for Free Trade article that was published in August 2017, From Project Fear to Project Prosperity, argued that Britain's GDP would increase by 7% if it were outside the EU – but this view is rejected in an LSE article on 23 August 2018: The Economists for Brexit predictions are inconsistent with the basic facts of international trade. The LSE article argued that Minford’s model is theoretically dubious, and it noted some practical problems: “Minford admits his model predicts that the policy would cause the ‘elimination’ of UK manufacturing and a large increase in wage inequality. But although he is relaxed about these outcomes, we suspect that voters in Port Talbot and elsewhere in Britain wouldn’t be so impressed.”
There is clearly disagreement between economists, although most of them argued for remaining in the EU. The politicians simply chose which message best suited their political agendas – and, in a familiar pattern (3.3.9.2), some must have been hoping that the public wouldn’t understand the issues.
(This is an archive of a page intended to form part of Edition 4 of the Patterns of Power series of books. The latest versions are at book contents).