13 FEBRUARY 1971, Page 10

COMMON MARKET

The case against

HARRY G. JOHNSON

\The generation of a widespread belief that Britain must get into the Common Market to win economic and political salvation is the greatest feat of self-delusion that the British governing classes have put across themselves and the general public since the time of Munich. The belief itself embodies three elements, all mythological in the ex- treme. The first is that the British economy can stand any amount of economic loss imposed on it by ,its political masters who of course suffer little themselves, but are fond of dilating on the benefits of austerity to the British character. The second is that joining the Common Market will work a miracle of economic transformation on the British economy, of a kind hitherto beyond the capacity of the world's best-educated civil service to produce. The third is that joining Europe will work a parallel miracle of political transformation of a senescent erstwhile world and now second-string power into the acknowledged leader of an interna- tional federation capable of dealing on equal terms with the Americans and the Russians (and this without any loss of British sovereignty).

The obvious economic benefits to Britain of joining the EEC are negligible, and the obvious economic costs large. The obvious economic benefits are the gains from having free access to the European market for British exports, ending discrimination against British goods in favour of continental goods and giving Britain an advantage over Ameri- can goods; against these, however, must be weighed the loss of preferences over Euro- pean goods in the EFTA markets, and the more important loss of preferences in the markets of the Commonwealth. Most cal- culations of the net result make it of neg- ligible economic significance.

The costs are of three major kinds. The first is the obligation to accept the common agricultural policy, as it will affect British agriculture. This country already has a highly protected agricultural sector, main- tained at the expense of the general taxpayer. The common agricultural policy will both increase the cost to Britain of this futile exercise in buying insurance against a rep- itition of the German blockade in the last two world wars, and transfer the cost from the general taxpayer to the consumer — that is, in broad terms, from the rich to the poor. Along with this should be reckoned the cost i of buying imported foodstuffs from Com- mon Market sources. By some strange quirk of illogicality, supporters of British entry maintain that Britain will benefit by pro- ducing high-cost food at home to substitute for high-cost food from the Common Mar- ket, instead of losing by buying high-cost food from anywhere inside the Common Market instead of buying low-cost food from the world market.

The second major element of cost is the contribution Britain will have to make to the central funds of the Community — most of the proceeds of the common tariff on Britain's manufactured imports and of the levies imposed on foodstuffs imported from outsidethe Common Market to equalise their domestic prices with common agricultural policy prices. The fact that Britain will get

some of this contribution back reduces but does not eliminate the cost to the British economy. Estimates of this cost range around 2 per cent of Gm, per annum — nearly a

year's loss of growth for a slowly growing economy. Such a loss would be hard to earn back in a reasonable time by an acceleration of economic growth on any credible scale.

The third majo element of cost is the commitment Britain will have to undertake to join the establishment of a common European currency. The idea of a common currency quite rightly makes the City's col- lective mouth water, because London would be the financial centre of the enlarged Com- munity. But the commitment involves sac rificing the interests of the country to the interests of the City — a sacrifice which this country has made too frequently

throughout the postwar period. With an irre- vocable commitment to a fixed exchange rate against the European currencies, Britain would have to subordinate her domestic employment policies to the obligation to maintain balance-of-payments equilibrium at that rate. If, as a result of chronic infla, tionary pressure in this country, the pound became overvalued in relation to the Euro- pean currencies, this country would have to suffer large-scale unemployment—no specific for accelerated economic growth—and the result might well be a gradual drift of pops ulation and enterprise to the Continent.

The long-run consequence might be that Britain would become another Switzerland, a specialist in financial services for the European industrial heartland and in a few technologically-advanced industrial activities, but without a major economic and political role in Europe. What a contrast that would be to the idea that entry will give Britain the political leadership in Europe.

It is of course, quite understandable that the proponents of entry should dismiss commonsense economics as beneath con- tempt; having chosen to liye by a myth, they must assert the reality of their myth and the irrelevance of reality. But let us look at their myths.

The first myth is that, despite the obvious lessons of economics, entry will produce marvels for the British efficiency and the British growth rate. The arguments are revealing by their reliance on analogy especially the 'cold shower' analogy, a fav- ourite nostrum of sadistic schoolmasters who wish to prevent their young charges from dreaming of sex, but which is capable of killing cardiac patients. There is no evidence of any kind that joining a fast-growing mar- ket is a specific for fast growth; on the contrary, there is much evidence that a per- ipheral position in a fast-growing market may produce ,relative economic stagnation. Furthermore, since the Government of this country has spent twenty-five years now trying out one after another nostrum for the production of painless acceleration of growth, with no visible signs of success, what reason is there to believe that this time at last they have found the right answer? The evidence of experience is that anything they can bring themselves to believe in must be destined to failure.

The other myth is that the economics of the matter is irrelevant and that the real argument for entry is political. This is arrant nonsense on the face of it. The Americans and the Russians have not be- come world powers in succession to the traditional European states because of their political skills and influence, but because their resources are so vast by comparison with those of Europe that Europe's diplo-

mats have had to become deferential to' heir rather crude concepts of diplomacy, in a test between economic strength and political skill, economic strength usually wins: box ing or wrestling, not ju-jitsu, is the analogue to the game of international politics.

But if there is a political gain to be weighed against the economic losses, what is it? It is assumed by the proponents of entry that Britain will simply step in and assume the leadership by some sort of divine right or effortless superiority. This is the assump- tion of an over-educated head, deprived of its former imperial body, that an apparently lame-brained (by its standards) but healthy body is aching for a new head. But bodies by themselves have no volition about the heads they would prefer; and heads, how- ever stupid, have no desire to abnegate their bodies to better heads, no matter howc1,-vPr. Instead, the stupider they are, the more in- clined they are to assess other heads by tne bodies they command. To drop the analogy, and pose the question again, what reason is there to think that' the assumption of the proponents of entry that Britain will lead is matched by an assumption on the Continent that it is the natural role of Germany, France, and Italy to follow? History pro- vides a ready answer to that question. In Eliza Doolittle's words, 'not bloody likely!'

Harry Johnson is Professor of Economics at the LSE and University of Chicago