BREXIT: The Cost of Regulation/Red Tape and The Tradeoffs

When you start listening to a conversation about regulation & red tape within the context of the EU Brexit proposition, you should begin to roll your eyes and make sure that the person doing the taking can feel your “excitement”. The reason is simple; it is a talking point mostly driven by assumptions and ideology rather than facts-which seems kind of odd when it is the one area you would expect to rely heavily on accurate details/statistics. It was also one of those topics debated during the Brexit referendum though I would suggest not entirely scrutinized with it came to making the arguments-which was a pattern repeated on multiple related issues.

So based on some content out there on this specific topic here are some key points to consider (and you’re free to role your eyes as much as you want because I can’t see you);

  1. Why Regulation in the first Place:

a) There seems to a level of confusion about EU regulation and their purpose. So why not just have free trade arrangement; Well, it’s a tad complicated when trying to work within a single market rather than a strictly free-trade agreement. In a single market environment the target is to do your best to remove any barriers to trade especially ones arising from the confusing web of national regulations (tariffs have been abolished long ago). So as an example when it comes to a common set of standards it essentially means that a manufacturing firm in Britain can sell its products Germany without falling foul of the German authorities. So in simple terms if we decide to rip up EU rules, exporters to the continent will very likely face higher (not lower) costs; having to develop products that meet two sets of standards for the UK and EU.

b) EU rules in and of themselves do not stop British markets from being among the freest in the developed world: the OECD rates the UK as second after the Netherlands. Greece is at the other end of the scale: It is thus assumed that EU rules do not impose rigid harmonization on the union as a whole. Under the EU “directives”, member-states retain the ability tighten/loosen regulation on their own businesses if they so wish, but they must not discriminate against imports from more lightly regulated members of the club-which makes a lot of sense to a layman like me.

  • The above element also holds true for Britain’s flexible labor market. The costs of “social Europe” are small; only 1.5 per cent of the British labor force work 48 hours a week, and thus can be said to be constrained by the EU’s working time directive. Far more people work longer hours than the 48-hour limit, because of opt-outs that the UK has negotiated. On the other hand, the EU’s agency workers regulations – which provide agency temps with the same pay and working rights as regular employees – have not stopped the number of temps from growing quickly since the rules came into force.

c) Many in business complain that Brussels does not do enough to test whether its regulations impose unnecessary costs. But the OECD tested the European Commission’s rule-making process alongside other countries, and found that it is of better quality than the OECD average – and similar to that of UK and Australia, which the OECD ranks highest. There is no doubt that some proposals are forced through the EU’s legislative machine without proper scrutiny, but it is far from clear, on the basis of the OECD’s index at least, that the EU does this more than the UK itself.

3. According to a recent report on Brexit by the Organization for Economic Cooperation and Development “the UK labour and product markets are among the most flexible” within the OECD’s ranks, which suggests that EU regulations are not an important barrier”. The OECD added: “It would be possible to pursue further regulatory liberalization, although this would be challenging since regulations are comparatively low and the gains would be limited.”

4. Another concern is how far the UK could liberate itself from Brussels regulations even if it left the EU. EU regulation has generally been incorporated into national legislation, meaning that unpicking it would be difficult.

5. Once the UK leaves the EU, UK firms will only be able to continue their activities over the Channel if Britain’s rules are deemed to be equivalent to the EU’s – something that this promise of sustained regulation may help to tricky.

6. There are figures floating around in terms of cost to UK economy from exiting the EU vs. remaining in the EU-here is a preview;

a) British government impact assessments held that the 100 most expensive EU regulations also provided benefits of £58.6bn a year.

b) Data shows that last year the UK made 70.5m import declarations and 6.5m export declarations over trade in non-EU goods. The flip side of that when it comes to EU regulation post exit, is that there is potential businesses would need to complete more than 45m import declarations and 15m export declarations every year-this at a time of increased competition particularly in accessing our biggest export market.

I think the way forward if we want to be prudent about objectively exploring our options is to have a candid discussion within parliament-as part of its oversight on any potential Brexit deal-about the level of red tape/regulations that would benefit the UK on exiting the EU-this supported with a full/details cost/benefit analysis including the consequences of the UK leaving the Customs Union.

But beyond all the above,  I recently came across something pretty intriguing in a book I am currently reading on cyber warfare. Something quite relevant not only in relation to the Brexit debate, but pretty much in all political debates we have faced in our more recent past. The concept is this;

We so often now witness a kind of incipient hysteria when debating important issues, even when viewing/interpreting facts related to these issues. This widespread ambiguity, uncertainty and sharp disagreement is a phenomenon indicative of what a Scottish moral philosopher Alasdair MacIntyre termed “Epistemological Crisis”-not entirely unlike the “Paradigm Collapse” that another philosopher Thomas Kuhn outlined.

This phenomenon stems from the complete lack of comprehensive conceptual foundation or adequate interpretive framework from which we are able to achieve the following tasks;

a) Gather data
b) Determine which data counts as relevant evidence
c) Assemble data into a coherent narrative in making a case objectively away from disruptive politics

In other words its about applying Evidence-based Critical Thinking particularly when debating matters of strategic national interests so that we arrive to best levels of consensus to achieve the best possible outcome for our country and our region as a whole. Unlike the concept of Artificial Intelligence-there is No Intelligence in Being Artificial on these matters.

I believe, and time will tell, that failures in managing the Brexit process by the British government and the prolonged uncertainty about the actual exit and/or terms involved can only harm our standing/reputation in the world whether we end up In or Out of the EU.

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