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PHILIP B . WHYM AN · ALINA I . PE TRESCU

THE
ECONOMICS
OF BREXIT
Revisited
The Economics of Brexit
Philip B. Whyman • Alina I. Petrescu

The Economics
of Brexit
Revisited
Philip B. Whyman Alina I. Petrescu
Lancashire Sch of Bus & Ent, LIEBR School of Business
University of Central Lancashire University of Central Lancashire
PRESTON, UK PRESTON, UK

ISBN 978-3-030-55947-2    ISBN 978-3-030-55948-9 (eBook)

https://doi.org/10.1007/978-3-030-55948-9

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Panel A
1950 1951 1957 1960 1962 1968 1973
Historical start Treaty of Paris: Six Treaty of Rome European Free The Common Customs Union EU membership
point of the EU: countries (Belgium, The six countries Trade Association Agricultural Free-cross border rises to 9
preventing repeat West Germany, expand co- (EFTA) formed Policy starts - trade for the first The 3 new
of WWII very large France, Italy, operation creating by: Austria, countries have time: no custom members are:
scale and severe, Luxembourg and the European Denmark, joint control over duties on goods Denmark,
cross-nation the Netherlands) Economic Norway, Portugal, food production imported from Ireland and the
destruction. sign the treaty to Community (EEC) Sweden, each other. Same UK.
In 1948: Global manage in common - aim: people, Switzerland and duties to imports Two UK attempts
Agreement on their coal and steel goods and services the UK. Launched from outside to join the EEC
Tariffs and Trade industries. to move freely in a as an alternative but failed in 1963
(GATT) Common Market to the EEC. and 1967 - vetoed
by France saying it
is due to the
British
government lack
of commitment to
European
integration

1974 1979 1979 1981 1984 1986 1986

European Regional European Monetary EU citizens directly EU membership The UK wins its EU membership The Single
Development Fund System (EMS) elect the members rises to 10 budget rebate rises to 12 European Act
(ERDF) Aims: introduces the of the European The new member under Prime The 2 new (SEA) commits
transfer money Exchange Rate Parliament for the is Greece Minister Margaret members are: countries to the
from rich to poor Mechanism (ERM): first time Thatcher Portugal and Single Market,
regions, improve EU members aim EU starts the Spain setting out a
roads and for monetary Esprit programme timetable for
communication, stability and allow as the first of completion of the
attract investment, their currencies to many research and Common Market
create jobs fluctuate against development by 1 Jan 1993
each other only programmes
within narrow funded. Aim: to
bands. Only the UK stay at the
does not join the forefront of
ERM. innovation

1987 1988 1990 1992 1993 1995 1995

ERASMUS Regional aid is 1990: UK in ERM Maastricht Treaty Maastricht Treaty EU membership The Schengen
Programme - doubled - market establishes the EU comes into effect. rises to 15: Agreementin 7
funding university liberalisation was name and the The European The new 3 countries:
students wishing to seen to favour more Single Market sets Single Market countries are: Belgium, France,
study for up to a the northern clear rules for (ESM) and four Austria, Finland Germany,
year in another European members, future single freedoms of and Sweden Luxembourg, the
European country. so there is currency, foreign movement (goods, Netherlands,
agreement to and security services, people Customs union Portugal and Spain
double allocations policy, closer co- and money) The between the EU -no passport
for structural funds operation in free movement of and Turkey comes controls for these
paid to poorer justice and home some services is into force nationalities if
members affairs. delayed.
travelling between
UK forced out of UK receives opt
ERM on Black out on monetary these countries
Wednesday union UK and Ireland
not in Schengen

Legend:
Uncoloured background - General events related to the EU
Yellow - Finance related events
Blue Trade-related events
Pink - EU enlargements (Pale pink - related events)
Grey - Most significant event/treaty
Bold font - Names of new member states

Fig. 1 Main European Union and selected UK events related to integration,

finance and trade, 1950–present

v
Panel B.

1997 1999 2001 2002 2004 2004 2005

Treaty of European Monetary Treaty of Nice Euro notes and EU membership Treaty of the Voters in France
Amsterdam - plans Union (EMU): opens the way for coins in 12 rises to 25: European and Netherlands
to reform EU Euro for more EU countries create The new 10 Constitution are given a say and
institutions, give commercial and enlargements, the Eurozone. The countries are: signed by 25 they reject the
the EU a stronger financial reforming EU Euro continues to Check Republic, countries European
presence in the transactions in 11 voting rules; comes be adopted by Cyprus, Estonia, Aim: to streamline Constitution.
world, concentrate countries and in into effect in 2003. more countries. Hungary, Malta, democratic Accession
more EU resources 2001 for Greece.. Latvia, decision making negotiations begin
on employment and Not in the Euro Lithuania, and management in Croatia and
the rights of EU Area: Denmark, Poland, Slovenia, Turkey
citizens Sweden, UK Slovakia
UK, Ireland and
Sweden are the
only countries to
open borders
without
constraints.

2007 2007 2009 2010 2013 2015 2016

EU has a special EU membership Lisbon Treaty - Iceland and EU membership The Eurozone has 18 Feb: Voters in
partnership with 78 rises to 27: signed by EU Montenegro rises to 28: > 340 million UK are given a say
countries in Africa The two new leaders in 2007 – become EU with Croatia people in 15 and they decide to
and the Caribbean countries are: focus upon candidate countries. leave the EU -
and Pacific region. Bulgaria and improving countries The European Announcement of
EU is the world Romania competitiveness Stability Last to have the EU
biggest provider of and introducing 2011 Mechanism is joined the in Referendum
development certain elements Estonia adopts the enacted. It Eurozone up to
assistance to poor from the earlier Euro - the 17th includes present (2020): 23 June
countries constitution participant in the emergency Lithuania in 2015, Referendum takes
proposals. Eurozone funding as the 19th place
The Credit Crunch mechanisms and participant. 24 June
and Eurozone crisis tighter fiscal Result: Brexit
begin. supervision
(2014): Latvia-
18th in Eurozone,

2017 2018 2019 2020 2021

13 Mar: 14 Nov: Oct: UK and EU 31 Jan: UK formally withdraws From 1
Vote in the UK UK Government agree a revised from the EU (on terms agreed in January:
Parliament to agrees draft Withdrawal October 2019) UK can
trigger Article 50 Withdrawal Agreement and continue
Agreement with then extension of Since March: Coronavirus world- negotiations on
29 Mar: Article EU Brexit date to 31 wide pandemic - UK and many further various
50 triggered Jan 2020 countries impose severe, deals with the
(Start of a unprecedented social and economic EU and/or the
negotiation 12 Dec: UK restrictions. EU free movement of World.
period of 2 General election labour impinged by many countries
years) - a Conservative in lockdown. World-wide full
Party win economic consequences (e.g. on
trade, jobs) yet to be ascertained.

31 December at 11 PM: End of

Brexit transition period
(unless an extension is jointly
agreed by all parties)

Legend:
Uncoloured background - General events related to the EU
Yellow - Finance related events
Blue Trade-related events
Pink - EU enlargements(Pale pink-related events)
Green - Brexit related events
Grey - Most significant event/treaty
Bold font - Names of new member states
 Preface

The publication of our previous volume, The Economics of Brexit: A Cost-­

Benefit Analysis of the UK’s Economic Relationship with the EU, followed
closely upon the result of the 2016 European referendum, which had
proven to be a surprise (or shock) to many commentators and a decisive
turning point for the UK. The book sought to outline and evaluate the
available evidence relating to how Brexit might be expected to have an
economic impact upon the UK, and present this material in an accessible
form, both to economic specialists and to policy makers, but just as impor-
tantly to a more general readership who are interested in the issues and
points raised in the debate over Brexit and would like to disentangle the
probable from the hyperbole.
Books, however, grow old, particularly those focusing upon a topical
subject matter and seeking to provide the evidence base to facilitate a fast-­
moving popular debate. This is particularly the case when writing about
Brexit, which has dominated discourse in the UK, Europe and, to a lesser
but still significant extent, globally, for the past three years. During this
time, new economic studies have been undertaken, new models of Brexit
have been devised (and often subsequently been rejected), and evidence
has begun to emerge about the economic consequences of the uncertainty
that has prevailed over the final form that Brexit will adopt.
This book has, therefore, sought to build upon the evidence presented
in the previous book whilst noting the changed economic environment.
The UK has now withdrawn from the EU and is scheduled to emerge
from a transition period to a new, independent status, by the end of 2020.
This book has retained the basic structure as its predecessor, since the

vii
viii PREFACE

questions to be answered are similar, whether considering if Brexit offers

a viable alternative to continued EU membership (as in the previous
book), or evaluating predicted impact likely to arise as a result of Brexit
and considering the optimum form that Brexit might take (in this volume).
Thus, the book contains an extended analysis of a broader range of
economic studies which have had a significant effect upon the expectations
of economic actors in relation to the likely future effects of Brexit, not
least those of policy makers charged with designing a form of new trading
relationship with the EU that maximises economic advantage and mini-
mises associated costs. The budgetary implications of Brexit are now much
clearer, as are proposals for a future independent migration system and the
form of future trading relationship that Prime Minister Johnson is cham-
pioning in ongoing trade negotiations with the EU, whilst the significance
of the Irish border issue has been examined in relation to the choice of
post-Brexit model. Other economic aspects such as final trade effects
remain indeterminate at present, in relation to both the EU and new trade
agreements with the rest of the world, as these will need time to develop.
However, the predictions made by new studies in relation to trade, inward
investment and regulation are discussed and evaluated in more detail.
One aspect only briefly discussed in the earlier book concerns the
potential inherent in certain forms of Brexit, for greater economic policy
flexibility and the UK’s independence from significant elements of EU
rules and regulations. This is one of the key considerations for policy mak-
ers, since the ability to use a wider range of economic policy instruments
has the potential to support and transform the UK economy in the post-­
Brexit period and will help to determine whether future generations will
perceive Brexit to have been an economic success or a failed experiment.
Yet, this policy flexibility has a potential opportunity cost, in that there is
a trade-off between close market access to the EU and greater policy inde-
pendence. To put this another way, this is a choice between short-term
damage limitation or medium-term potential opportunities. Consequently,
this book seeks to examine this question in some detail, outlining how
greater economic policy independence could be used by an imaginative
government to deliver many of the objectives that have remained elusive
over recent decades.
Many of the economic impacts that are likely to arise from Brexit are
tied closely to the future economic, political and security relationship that
remains to be forged with the UK’s nearest neighbours. The current time-
table is for this to be agreed by the end of the transition period, so that by
 PREFACE ix

1 January 2021, policy makers will have decided how to resolve the Brexit
trade-off and what form of trading environment will exist between the
UK, the EU and the rest of the world. Businesses will want to have greater
certainty over the new trading rules that will apply when exporting to dif-
ferent nations, and they will wish to understand how the regulatory regime
within which they operate may evolve in the future. Even as these funda-
mental choices become clearer, the detail is likely to remain a work in
progress beyond the end of the transition period. If a closer relationship
with the EU is preferred, this will take a period of time to finesse a positive
working relationship between negotiating partners who have not always
shown themselves in a good light. Similarly, if a more independent rela-
tionship is pursued, then it will take time to negotiate future trade rela-
tionships with other countries, and for UK policy makers to settle upon
the forms of regulation and new economic policy strategies that may rein-
vigorate the productive foundations of the economy. Therefore, the issues
discussed in this book, and the evidence presented, will have an enduring
relevance to those forging these new economic relationships as decisions
of magnitude need to be based upon an understanding of the best avail-
able evidence. We, the authors, hope that this book can play a small part
in helping to inform and challenge all readers who, in great part or in
small, will help build this post-Brexit future.

Preston, UK Philip B. Whyman

 Alina I. Petrescu
 Acknowledgements

There are a large number of people we wish to thank for their assistance,
directly or indirectly, in the preparation of this book.
First, we wish to thank our respective families for their forbearance dur-
ing the countless hours we have been locked in our respective studies. For
your patience and goodwill, we would like to dedicate this book to you:
AP—my husband, child, mum and dad; PBW—Claire, Barbara and Boyd.
Second, we thank Ruth Jenner and her colleagues at Palgrave Macmillan
for their support for this project and patience during the almost inevitable
overruns. I hope you are pleased with the final product and agree that it
was worth the wait!
Third, we would like to thank our colleagues at the University of
Central Lancashire, and research collaborators elsewhere (Mark, Brian,
Tunde), since our single-minded dedication to this project has proven to
be more than a tad distracting for our other work. Thanks for the
comradeship.
Any remaining errors and omissions, we gladly attribute to each other!
Lancaster and Nether Edge
May 2020

xi
 Contents

1 The Elusive Economic Consensus over Brexit  1

Different Methodologies, Different Conclusions   3
Influential ‘Consensus’ Studies  17
References  32

2 The Fiscal Impact of Brexit 43

Composition and Size of the EU Budget  44
UK Contributions to the EU Budget  49
The Uncertainty of Future Budgetary Developments  60
References  66

3 Brexit and Trade 71

The Economic Theory of Trade  71
Trends in Trade Development  75
Deficit  77
The EU—A Declining Market for UK Trade  81
European Trade Integration  82
The Predicted Trade-Related Impact from Brexit  90
The Loss of Future Trade Benefits from EU Membership 103
Conclusions 104
References 106

xiii
xiv Contents

4 Foreign Direct Investment (FDI) After Brexit117

Definition—What Is FDI? 117
Theoretical Impact—Why Is FDI Important? 119
Determinants of FDI 121
FDI and the UK Economy 123
The Potential Impact of Brexit upon FDI 135
Attitude Surveys—International Investors 139
Policy Response 144
Conclusion 150
References 152

5 Regulation161
Regulation—Benefit or Burden? 161
What Proportion of UK Laws Derive from the EU? 162
Can Brexit Deliver a Regulatory Benefit? 163
Regulation After Brexit 172
Conclusion 177
References 178

6 Migration183
Insights into Understanding Migration, Its Motivations and
Impact 184
UK Immigration, Its Poor Image and UK Inequality 193
Migration’s Poor Image in the UK 198
Inequality 200
What Effect Does Migration Have Upon the UK Economy? 206
Wages and Jobs 217
Flexibility and Productivity 219
Designing a Post-Brexit Migration System 221
A New Points-Based Immigration System 223
Reaction and Consequences to the Announced Immigration
System 229
Conclusion 231
References 233

7 Economic Growth and Productivity241

Economic Theories of Growth 242
Openness in the UK and the EU 249
 Contents  xv

Evidence from the UK—Did Joining the EU Reverse the UK’s

Relative Decline? 253
The Impact of Brexit on Openness and Productivity 256
Balance of Payments Constrained Growth 258
Conclusion 263
References 264

8 Economic Policy After Brexit271

Macroeconomic Policy 272
Has Uncertainty Reduced UK Growth? 279
Designing Economic Policy for an Independent UK 286
Microeconomic Policy 291
Public Procurement 309
Active Labour Market Policy 312
Conclusion 313
References 314

9 Alternative Trading Models After Brexit325

Alternative Trade Arrangements 325
Access Prioritised over Independence 330
Trade-off Access for Independence and Flexibility 335
Other Bespoke Solutions 344
Chequers and the Johnson Withdrawal Agreement 350
Future Trade Relationships 357
Conclusion 360
References 362

Conclusion371

Appendix: Brexit After the COVID-19 Pandemic373

Place Index377

Subject Index381
 Abbreviations

BBC British Broadcasting Corporation

BCC British Chambers of Commerce
BIS Department for Business, Innovation and Skills
BoE Bank of England
Brexit Britain exiting the European Union
CAP Common Agricultural Policy
CBI Confederation of Business Industry
CEP Centre for Economic Performance
CET Common external tariff
CFP Common Fisheries Policy
CGE Computable general equilibrium
CIPD Chartered Institute of Personnel and Development
CPB NL Central PlanBureau (Bureau for Economic Policy Analysis) in
Netherlands
CU Customs Union
ECB European Central Bank
EEA European Economic Area
EEC European Economic Community
EFTA European Free Trade Association
EMS European Monetary System
EMU European Monetary Union
EP European Parliament
EPA Economic Partnership Agreement
ERM Exchange Rate Mechanism
ESM European Single Market
ESRC Economic and Social Research Council
EU European Union

xvii
xviii ABBREVIATIONS

FDI Foreign direct investment

FTA Free Trade Agreement
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
GDP Gross domestic product
GNI Gross national income
HMG Her Majesty’s Government
HMRC Her Majesty’s Revenue and Customs
HoC House of Commons
IMF International Monetary Fund
IT Information technology
LSE London School of Economics
M&A mergers and acquisitions
MAC Migration Advisory Committee
MEP Member of the European Parliament
MFN Most Favoured Nation
NAFTA North American Free Trade Agreement
NIESR National Institute of Economic and Social Research
NiGEM National Institute’s Global Econometric Model (a macroeconomic
simulation model)
NTBs Non-tariff barriers
OBR Office for Budget Responsibility
OECD Organisation for Economic Co-operation and Development
ONS Office of National Statistics
IoD Institute of Directors
PAYE Pay-as-you-earn tax
PTA Preferential trade agreement
PwC PricewaterhouseCoopers
R&D Research and Development
RES Royal Economic Society
RIAs Regulatory Impact Assessments
SBE Society of Business Economists
SEA Single European Act
SIM Single internal market
SME Small and medium-sized enterprise(s)
SOC Standard Occupational Classification
TFEU Treaty on the Functioning of the European Union
TPP Trans-Pacific Partnership
TTIP Transatlantic Trade and Investment Partnership
TUC Trades Union Congress
UK United Kingdom
UN United Nations
 ABBREVIATIONS xix

UNCTAD United Nations Conference on Trade and Development

USA United States of America
USITC US International Trade Commission
VAR Vector autoregressive model
VAT Value-added tax
WDI World Development Indicators
WERS Workplace Employment Relations Survey
WTD Working Time Directive
WTO World Trade Organization
WWII The Second World War
 List of Figures

Fig. 1.1 Estimated net costs and net benefits of EU membership (%

GDP), based on significant studies derived from Table 1.1.
Source: Authors’ review of significant studies quantifying net
costs and benefits. Notes: Negative numbers show estimates of
net costs; positive numbers show estimated net benefits. Please
see Table 1.1 for correspondence between the number of
study shown on the horizontal axis and the respective study
(Table 1.1. offers more detail on estimates) 10
Fig. 2.1 Structure of EU financing, 1958–2018. Sources: For
1970–2008: European Commission (2009). Financial Report
EU budget 2008. Publication and accompanying dataset. Last
accessed 15 August 2016. For 2009–2014: European
Commission (2015). Financial Report EU budget 2014.
Publication and accompanying dataset. Last accessed 15
August 2016. For 2015–2016: European Commission (2016).
Definitive Adoption (EU, Euratom) 2016/150 of the
European Union’s general budget for the financial year 2016.
Last accessed 15 Aug 2016. For 2017–2018: European
Commission (2020) 47
Fig. 2.2 Agriculture expenditure as part of the EU GNI, 1965–2015
(€m). Sources: Author-collated data from various reports on
CAP expenditure (European Commission, DG Agriculture and
Rural Development, Financial Reports 2008 and 2013–2015)48
Fig. 2.3 EU net contribution per capita, by member state (in €),
2016–2018—ranked from largest to smallest total net
contribution in 2018. Notes: Negative figures denote a
member state being a net contributor of funds to the EU

xxi
xxii List of Figures

budget; positive figures denote being a net recipient of funds

from the EU budget. Not showing Luxembourg as the figures
are high for the graph scale. Source: Authors’ calculations
based on data from the European Commission (2020) and
OECD 2020 population data series 53
Fig. 2.4 UK contributions to and receipts from the EU budget real
terms (£m at 2015 prices), 1973–2020. Note: Figures for
2019–2020 are forecasts rounded to the nearest £100 million.
Sources: HM Treasury (2016); ONS, UK National Accounts
(2016)54
Fig. 2.5 UK net contributions to the EU budget (% of UK GDP),
1973–2015. Sources: HM Treasury (2019); ONS, UK
National Accounts (2019)61
Fig. 3.1 Total trade relative to GDP in selected countries, 1960–2019.
Source: World Bank (2020) 77
Fig. 3.2 The share of UK trade with the EU(8), measured as % of total
UK trade, 1973–2018. Source: OECD (2020). Notes: EU(8)
economies comprise the eight EU member states of 1973
apart from the UK, namely Belgium, the Netherlands,
Luxembourg, France, Italy, Germany, Ireland and Denmark.
Data from 2018 is the most recently available 78
Fig. 3.3 Balance of trade for various EU member states with the UK,
2015–2018, expressed as % of UK GDP. Source: IMF (2020).
Note: A positive balance of trade for the EU member state
signifies a trade deficit for the UK 79
Fig. 3.4 UK current account balance with trade blocs and selected
countries, 1999–2018, in £m. Note: The Commonwealth
includes here the following countries: India, Canada, South
Africa and Australia. Source: ONS (2019) 80
Fig. 3.5 The UK’s top ten export markets in the world in 2018 (£m).
Source: ONS (2019) 82
Fig. 3.6 The four freedoms according to the Treaty of Rome—
overview and theoretical means of achieving dynamic effects.
Notes: TFEU stands for Treaty on the Functioning of the
European Union (2007); Art(s). stands for Article(s). Source:
Authors’ compilation of EU information based on material
developed by the Bank of England (2015: 11) 83
Fig. 3.7 Declining global tariff barriers: tariff rate, simple mean, all
products (%), 1993–2017. Source: World Data Bank (2020) 91
Fig. 3.8 EU tariff rate, most favoured nation, weighted, 1988–2017,
(%). Source: World Data Bank (2020) 92
 List of Figures  xxiii

Fig. 3.9 EU average trade-weighted MFN tariffs (%) for trade with
developed nations, 1988–2018. Source: UNCTAD (2020) 93
Fig. 3.10 Average EU final bound duties and MFN applied tariffs.
Source: Authors’ interpretation based on data from WTO
(2019b)95
Fig. 4.1 Value and number of FDI projects in the UK, 2003–2018, at
current prices (US$m). Note: Merger and acquisition (M&A)
and greenfield values are shown on the left vertical axis; the
numbers of M&A, greenfield and total FDI projects are shown
on the right vertical axis. Source: UNCTAD (2020) 123
Fig. 4.2 Proportion of inward EU FDI (% of total EU inward
investment flows), 1970–2018. Panel A: UK, Ireland and the
two largest EU economies (Germany and France). Panel B:
Belgium, Netherlands, Austria, Switzerland. Panel C:
Scandinavian countries: Denmark, Finland, Sweden, Norway
and Iceland. Panel D: Southern European countries: Italy,
Spain, Portugal and Greece. Notes: A country’s share of EU
FDI is calculated as a percentage out of the total EU inward
FDI for the respective year. Shares of inward FDI are shown
for all countries, however: the UK, Denmark and Ireland
joined the EU in 1973, Greece in 1981, Portugal and Spain in
1986, while Austria, Finland and Sweden joined in 1995.
Three non-EU member states are also shown, for comparative
purposes, namely Iceland, Switzerland and Norway. Source:
UNCTAD (2020) 125
Fig. 4.3 UK inward FDI flows, comparison across world and selected
countries (US$ million), Panel A. Over the period
1970–1990, Panel B. Over the period 1990–2018. Notes:
Measured in million US Dollars at 2014 prices and 2014
exchange rates. Panel A and Panel B have a different scale on
the vertical axis, in order to allow for an easier comparison.
Source: UNCTAD (2016b) and UNCTAD (2020) 127
Fig. 4.4 Comparison of the flows of inward FDI into the UK and the
World, 1990–2018. Source: UNCTAD (2020) 128
Fig. 4.5 The stock of inward and outward UK FDI, by selected
geographical areas and country, 2001–2018 (in £ million).
Source: ONS (2020c) 130
Fig. 4.6 The value of cross border mergers and acquisitions compared
to greenfield FDI projects in the UK, 2003–2018 (US$m).
Source: UNCTAD (2020) 131
xxiv List of Figures

Fig. 4.7 Net inward FDI stock in the UK by sector, 2008–2018 (% and
£bn). Source: Authors’ compilation of data, based on ONS
(2020a) and ONS (2010:79) 131
Fig. 4.8 FDI stocks as percentage of gross domestic product for the
UK and selected global regions, 1980–2018. Source:
UNCTAD (2020) 133
Fig. 4.9 Expenditure in R&D performed in UK business by foreign
and domestic firms in current prices (£bn), 1993–2018.
Source: The authors, based on ONS (2020b) 134
Fig. 4.10 The impact of Brexit on investment plans, EY survey results
(%). Note: Authors’ interpretation of data. Showing the
answers given investor respondents in the year 2019 to the
survey question: “Have you changed your UK investment
plans (as a result of Brexit)?” Panel A: Answers from all
investors (N=446 investors). Panel B: Investors established in
the UK (N=284). Panel C: Investors not established in the
UK (N=162). Source: EY (2019: 16) 141
Fig. 4.11 Investors’ key factors of concerned about the UK post-Brexit,
survey results (%). Note: Authors’ interpretation of data,
showing the answers given investor respondents in the year
2019 to the survey question: “What are the key factors that
you are concerned about with the UK after it leaves the
European Union?” Two answers were possible. Answers
collected from all investors (N=446 investors); investors
established in the UK (N=284); and investors not established
in the UK (N=162). Source: EY (2019: 40) 142
Fig. 4.12 Investors’ priorities for the UK government to consider
post-Brexit, survey results (%). Note: Authors’ interpretation
of data, showing the answers given investor respondents in the
year 2019 to the survey question: “Which of the following
areas should be domestic priorities for the UK Government to
improve the UK’s attractiveness in future?” Two answers were
possible. Answers collected from all investors (N=446
investors). Source: EY (2019: 41) 143
Fig. 4.13 Perception of Brexit impact on Single Market access and
relocation decisions In Answer to the Survey Question: “In a
scenario where the UK left the Single Market, how likely is it
that your firm would relocate at least some of its headcount
from the UK to a location within the Single Market?” Source:
Based on Punhani and Hill (2016: 11) 144
 List of Figures  xxv

Fig. 5.1 EU legislation adopted by the UK, 1958–2020. Note:

Includes all EU legislation, inclusive of regulations, decisions,
directives and treaties. *For the year 2020, the data only
includes the period 1 January–22 February and amounts to
180 pieces of legislation. Source: Authors’ calculations based
on information available on the website for All UK Legislation
available via https://www.legislation.gov.uk/eu-origin 163
Fig. 5.2 Product market regulation index for selected countries, 2018.
Source: Compiled by the authors from data available at OECD
Statistics (2018). Note: Due to significant changes in
methodology, the OECD product market regulation figures
from 2018 are not comparable to earlier calculations made by
the OECD 164
Fig. 6.1 The basic theoretical model of a labour market: Demand and
supply meet and the wage as the key. Source: The Authors.
Numbers are fictitious and only serve as examples. In this
labour market, when labour supply and demand meet, the
equilibrium wage is £20,000 per year and at that wage 11,000
workers are hired 185
Fig. 6.2 Wage convergence in two labour markets linked by migration.
(a) The net inward migration labour markets. (b) The net
outward migration labour markets. Source: The Authors.
Note: The supply curves (S) are vertical lines here, because
migration is assumed to take place in a short period of time,
that is, when there is not enough time for the supply of labour
to increase via more births or graduates/trained employees
entering the labour market 187
Fig. 6.3 UK net migration and labour employment. Panel A: change in
net migration as % of UK population. Panel B: Events that
marked changes in UK net migration. Panel C: UK net
migration showing immigration and emigration. Panel D: UK
net migration based on citizenship. Panel E: EU and non-EU
nationals working in the UK. Sources: Panel A and Panel B:
Bank of England (2017); Panel C and Panel D: BBC Briefing
(2021) using ONS databases. Panel E: ONS (2020e) 194
Fig. 6.4 The migrant stock (foreign-born people). Panel A. The
continual increase of migrant stock in the UK. Panel B. The
UK ranks fourth highest in the world for migrant stock (in
million people). Panel C: The migrant stock by nationality,
comparison 2001 to 2015. Source: For Panels A and B: BBC
Briefing (2021). For Panel C: BBC (2017) based on ONS
figures197
xxvi List of Figures

Fig. 6.5 Tracing the British public concern with immigration. Panel A:
British adults mentioning important issues to Britain (%), July
2019. Source: Ipsos MORI (2019). Panel B: Public views on
whether migration is good for the economy, % (April 2018).
Source: Authors’ interpretation of YouGov (2018). Panel
C. British views on the level of immigration into Britain in the
preceding decade, %. Source: Authors’ interpretation of
YouGov (2018) 199
Fig. 6.6 Regional wage variation in the UK: Average gross weekly
earnings of full-time employees, by region, 2015–2019. Panel
A: Average full-time weekly wage (£), main UK countries.
Panel B: Average full-time weekly wage (£), UK regions. Panel
C: Average Gini index, selected countries from the EU,
outside the EU, and A10 countries, 2000–2014. Source: ONS
(2020e) for Panels A and B. For Panel C: WDI (2016). Note:
The highest the Gini index, the higher the inequality 201
Fig. 6.7 Regional growth inequality in the UK: Growth rates are
higher in the southern regions. Source: Authors’ interpretation
of data available from ESCoE (2020) 204
Fig. 6.8 Inequality in UK immigration, by region. Panel A: Non-
British migrants, as % of local population. Panel B: EU and
non-EU migrants, as % of local population. Source: Authors’
calculations based on ONS (2019a) for the period June
2018–July 2019 205
Fig. 6.9 UK population size increase. Panel A. Overall population
increase, 2000–2019. Panel B. Overall population change
presented alongside net international migration and natural
population changes. Source: Panel A: OECD (2020); Panel B:
ONS (2019a) 207
Fig. 6.10 Survey of firms in relation to employment of migrants:
percentage of firms employing migrant workers, by sector.
Source: The Authors, based on figures from CIPD (2019: 7)
from a survey of 2182 firms in the UK 208
Fig. 6.11 Share of EU and non-EU migrants in the ten highest
employing economic sectors. Panel A. Migrant employees (in
thousands). Panel B. Share (%) of migrant employees in
sector’s total workforce. Note: Figures are only provided for
the top ten EU-migrant employing sectors and for the top ten
non-EU migrant employment sectors, ranked (in Panel B) by
their share of EU-migrant workforce and secondarily by share
of non-EU migrants. For example, STEM associate
professionals ranks as the seventh highest sector by share of
 List of Figures  xxvii

EU migrants in its workforce, and it also happens to be among

the top ten sectors for employing non-EU migrants, so
numbers are provided in the table for non-EU migrants too.
However, Caring personal service is a sector which only has
figures in the top ten non-EU migrant employers, and hence
no figures are provided for EU migrants in this sector. Source:
Authors’ calculations based on the Migration Observatory
(2019)209
Fig. 6.12 Comparative view of low-skilled and high-skilled share of
workers in the UK, by nationality. Source: Migration
Observatory (2019) 210
Fig. 6.13 Unit costs have been kept low and job growth was hinged on
low-skill jobs. Panel A. Employment growth, by skill level—a
large part of the UK’s job growth is attributable to low-skilled
jobs. Panel B. Unit labour costs decreasing (see red arrow
below)—showing decomposition of changes in unit labour
costs. Source: Bank of England (2014) 211
Fig. 6.14 Estimated lifetime annual net fiscal contribution per head for
UK migrants arriving in 2016, in £. Source: MAC 2018 213
Fig. 6.15 Real wages reach pre-2008 crisis levels—showing average
weekly wages (inflation adjusted). Source: ONS (2020c) 214
Fig. 6.16 Unit wage cost growth has increased in the late 2010s. Source:
Bank of England 2020: 24 216
Fig. 6.17 A summative list of the main elements in the UK’s new
points-based immigration system to be enforced from 1
January 2021. Source: The Authors compilation of
information available from various governmental notifications
inclusive of UK Visas and Immigration 2020 222
Fig. 6.18 Distribution of workers by nationality and skill level, in per
cent, 2016. Source: CIPD 2017b: 19, based on figures from
the Annual Population Survey and the Office for National
Statistics223
Fig. 7.1 Trade openness (trade as % GDP), selected countries and
world areas, 1970–2018. Source: World Bank (2020) 252
Fig. 7.2 UK annual growth rates (% GDP), with trend lines denoting
UK growth performance pre- and post-joining the
EU. Source: Authors’ presentation of data, based on data
available from ONS (2020). Notes: GDP growth rates are
measured annually, in %, with GDP being presented as chained
volume measure 254
Fig. 8.1 UK economic policy uncertainty, monthly index. Note: Each
bar represents a month; however, due to space limitations,
horizontal axis labels are only shown every six months. For
xxviii List of Figures

example, 2019 1 means January 2019, 2019 7 means July

2019. Source: Authors’ interpretation of data available to
download on the website for UK Economic Policy
Uncertainty index, available via: https://www.
policyuncertainty.com/uk_monthly.html277
Fig. 8.2 UK gross domestic product, year-on-year growth (%). Source:
ONS (2020) 280
Fig. 8.3 Research and development (R&D) intensity and government
support to business R&D (as % GDP), 2013. Source: OECD
(2019)284
Fig. 8.4 Gross capital formation as % of GDP, selected countries,
1967–2018. Source: World Bank (2020) 285
Fig. 9.1 Rodrik international political economy trilemma. Source:
Authors’ development of ideas, based on Rodrik (2000: 18)
and Palley (2017) 328
Fig. 9.2 The trade-off between greater independence and greater
market access. Source: The Authors 329
Fig. 9.3 Annual average growth rates (GDP), selected areas and
countries. Notes: The EU here consists of the EU(15)
member countries. The core Commonwealth area includes
here the top six countries by GDP in the Commonwealth
(excluding the UK) amounting to about two-thirds of the
total Commonwealth GDP. The Anglosphere includes the
USA, Canada, Australia and New Zealand. Source: Authors’
calculations based on UNCTAD (2020) and OECD (2019) 346
Fig. 9.4 An illustration of the highly complex variable geometry
Europe and the potential for a new realignment between
Eurozone-Core and SIM-lite-Periphery groupings. Source:
Authors’ drawing, based on Owen (2016:2-3) 351
Fig. 9.5 Game theory potential bargaining solution. Source: Authors’
revised version of material drawn from the academic blog,
available via: https://blogs.lse.ac.uk/brexit/2018/07/16/
two-­years-­after-­the-­vote-­there-­is-­little-­certainty-­where-­ the-­
uk-­eu-­relationship-­is-­heading/ 352
 List of Tables

Table 1.1 Meta-analysis of the summary of net costs or net benefits, and
of competences in significant cost-benefit studies
(chronological order) 11
Table 2.1 Multiannual Financial Framework EU 28 for 2014–2020,
adjusted for 2017 (€m, 2017 prices) 46
Table 2.2 UK net contributions to the EU/EC budget (£m), 1973–2020 50
Table 2.3 Percentage of UK rebate lost due to 2005 changes 55
Table 2.4 Estimated fiscal impact from different future trading
relationships with the EU 64
Table 4.1 Summary of key gravity model estimates, FDI and Brexit 136
Table 6.1 Historical examples of mass migration with limited evidence
for change in wages/employment for natives 191
Table 6.2 The Australian points-based system 225
Table 6.3 Estimates of the impact of immigration reduction from the
EU to the UK by 2030, cumulative, in % 230
Table 7.1 UK current account balance with trade blocs and selected
countries, 2014–2018, in £m 262
Table 8.1 Different types of labour market policies 312

xxix
 Introduction1

The 2016 European referendum proved to be a decisive turning point for

the UK as, despite the position adopted by the majority of the political and
(big) business establishment, 51.9% of the electorate voted to withdraw
from the European Union—a margin of more than 1.2 million people.
This decision may arguably represent “the most significant moment of
political choice and potential rupture since the Second World War, and in
peacetime, possibly since the repeal of the Corn Laws in the nineteenth
century”, having shaken “to its core the world-view that the big contours
of the UK’s economic policy were set and resided outside the reach of
democratic contest” (Kelly and Pearce, 2019: 1, 4). Orthodoxies that
seemed to be set in stone and unchangeable, in the decades before the
2016 referendum result, were suddenly open for discussion and debate.
Apparent permanence and inevitability were overturned by a narrow but
sufficiently clear-cut democratic decision of the UK electorate. For better
or worse, this decision will have a significant impact upon the lives of UK
citizens, in a number of different areas, not the least of which is the
economy.
As the UK rediscovers its independence, it will necessitate a structural
change in its economy and a reconfiguring of economic policy to facilitate
this process. Brexit will inevitably pose both challenges and opportunities
for UK exporters and those engaged in trade more widely, in terms of
seeking to maintain existing trading links with consumers and supply
chains within other EU member states, whilst simultaneously seeking to

1
If you want to read further generalist material on the debate leading up to the EU
Referendum, Gill (2015) provides a good introductory reading list.
xxxii Introduction

take advantage of new and more rapidly expanding markets elsewhere in

the world. There will be challenges for government seeking to rebuild the
UK’s industrial base and increasing both the productivity and interna-
tional competitiveness of UK businesses. The continued attraction of
inward investment will be a key part of this approach, but so will attempts
to increase R&D and technological innovation within UK companies. It
will involve the repatriation of a significant element of regulation and its
redesign with a greater focus on UK rather than EU needs. Similarly, it
will encompass a new approach to the inward migration of labour and, to
the extent that this may be more restricted in the future, a strategy would
be required to ensure the re-skilling of the existing UK labour force to
meet business requirements. Finally, it will require government to reject
the economic orthodoxy of the past half century and ensure a sufficient
level of aggregate demand to provide sufficient incentives for businesses to
invest and produce, thereby increasing employment and productivity.
Therefore, the first objective of this book is to outline the main options
available to policy makers, in how the UK economy might be better
adapted to the challenges and opportunities presented by Brexit.
It is vital that policy makers and other economic actors (e.g. business
leaders, consumers and workers) have accurate information on which to
base their future strategies, whether for the management of the economy,
future investment decisions in productive capacity or whether it is prefer-
able to increase or restrain individual consumption. Similarly, for opinion
formers such as journalists and other commentators, it is important that
their perceptions about the economic news items of the day are based
upon solid foundations. Yet there is a problem here since there is no single
definitive study which satisfactorily deals with all of the relevant costs and
benefits arising from Brexit (Portes, 2013: F4-5; Webb et al., 2015:4;
Miller et al., 2016: 5, 12).
One significant problem for economic analysis to overcome is that
there is no comparable historical precedent to Brexit against which to cali-
brate economic models. Although both Algeria and Greenland have previ-
ously withdrawn from the EU, the Bank of England is correct in stating
that “there is no precedent of an advanced [my emphasis] economy with-
drawing from a trade agreement as deep and complex as the European
Union” (BoE, 2018:3). To the extent that Brexit is unique, this creates
difficulties for economic researchers who rely upon the use of historical
 Introduction  xxxiii

data and examine the lessons to be learnt from precedent to make predic-
tions about future behaviour. As a result, economic studies have depended
more heavily than usual upon a number of (sometimes questionable)
assumptions and co-opting results from previous studies which were
focused upon only slightly related economic questions. Consequently,
their predictions are subject to considerable uncertainty (Harari and
Thompson, 2013; HM Treasury, 2016: 124).
This is quite a serious problem, as policy makers and significant eco-
nomic actors are desperate to base their decision making upon the firm
foundation of the best available evidence, and this has often been shaky at
best. Indeed, it is perhaps not surprising, therefore, that so many of the
studies thus produced have been criticised as being inaccurate (Capital
Economics, 2016: 3). What limited economic evidence is available from
the post-referendum period has not been in line with some of the more
negative predictions made by these studies. As a result, The Times newspa-
per has suggested that the reputations of economists will be judged over
the accuracy of those predictions that have been forthcoming from econo-
metric modelling teams.2 Given the seeming inability of a large section of
mainstream economics to recognise weaknesses in the global economy
prior to the 2008 financial crisis, the inference is that the repute of the
discipline might be under threat if its response to the analysis of Brexit is
found to be less than satisfactory.
Hence, the second objective of this book is to evaluate the available
evidence relating to how Brexit might have an economic impact upon the
UK, in order to assess the rigour of the studies and hence the likely accu-
racy of their conclusions.
It is too easy, when writing a book of this type, for the prior convictions
of the authors to dominate over an objective review of the evidence (Harari
and Thompson, 2013). In this volume, we have sought to avoid this
temptation and the fact that the authors have rather different initial
degrees of enthusiasm or scepticism for the EU has perhaps helped in this
respect. However, we leave it to the reader to decide how ultimately suc-
cessful we have been in this respect.
The book is constituted of nine chapters.
Chapter 1 provides a detailed examination of the mainstream ‘consen-
sus’ economic studies, which have formed the basis for many of the

2
https://www.ft.com/content/e66852f0-3249-11e6-ad39-3fee5ffe5b5b; http://
researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7893
xxxiv Introduction

comments made during and after the European referendum, but which
also form the basis for much of the advice currently being presented to
policy makers. To the extent that the predictions made by these studies are
inaccurate, not only were the electorate presented with flawed information
upon which to make their decision during the recent referendum, but
policy makers and businesses are basing their current decisions upon this
imprecise foundation.
The following five chapters explore key elements that should form the
basis of any economic impact study. Chapter 2 examines the fiscal benefit
that should accrue to the UK following Brexit, as either payments to the
EU budget will be eliminated entirely, as would be the case in a free trade
agreement (FTA) or reliance upon World Trade Organization (WTO)
rules, or these payments would be substantially removed in the case of
other forms of preferential trade association. Chapter 3 examines the
potential impact upon UK trade with the EU following Brexit, whilst
Chap. 4 does likewise with the inflow of foreign direct investment (FDI).
These are the two areas where theorists anticipate that Brexit will incur the
most significant costs. In contrast, Chapter 5 assesses the potential for
significant benefit to accrue to the UK economy, once regulations are
repatriated and redesigned for national rather than super-national eco-
nomic requirements. Chapter 6 explores the issue of inward migration and
the economic consequences of net EU migration being restricted follow-
ing withdrawal.
Chapter 7 evaluates the potential economic impact that may occur due
to dynamic rather than static factors. These range from the extent that the
degree of openness has upon productivity, to evaluating the evidence
relating EU membership to economic growth.
Chapter 8 is concerned with a range of options that the UK may wish
to incorporate in any post-Brexit economic strategy. This area is, for the
authors, potentially the most significant means of influencing the eco-
nomic impact of Brexit.
Finally, Chap. 9 outlines the range of options available for the UK to
consider in its negotiation of a new trade relationship with the EU but,
perhaps just as (if not more) importantly in the long term, how the UK
might seek to build upon existing historical and cultural ties to forge new
preferential trade relationships with the rest of the world.
Another random document with
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century ago and exercise at least a limited discretion in casting their
votes. In a State like Nebraska, for instance, it looks as though it
would be possible that the electoral ticket on the anti-Republican
side would be composed of four Bryan and Watson men and four
Bryan and Sewall men. Now in the event of Bryan having more votes
than McKinley—that is, in the event of the country showing strong
Bedlamite tendencies next November—it might be that a split
between Sewall and Watson would give a plurality to Hobart, and in
such event it is hardly conceivable that some of the electors would
not exercise their discretion by changing their votes. If they did not,
we might then again see a return to the early and profoundly
interesting practice of our fathers and witness a President chosen by
one party and a Vice-President by the other.
I wish it to be distinctly understood, however, that these are merely
interesting speculations as to what might occur in a hopelessly
improbable contingency. I am a good American, with a profound
belief in my countrymen, and I have no idea that they will deliberately
lower themselves to a level beneath that of a South American
Republic, by voting for the farrago of sinister nonsense which the
Populistic-Democratic politicians at Chicago chose to set up as
embodying the principles of their party, and for the amiable and
windy demagogue who stands upon that platform. Many entirely
honest and intelligent men have been misled by the silver talk, and
have for the moment joined the ranks of the ignorant, the vicious and
the wrong-headed. These men of character and capacity are blinded
by their own misfortunes, or their own needs, or else they have
never fairly looked into the matter for themselves, being, like most
men, whether in “gold” or “silver” communities, content to follow the
opinion of those they are accustomed to trust. After full and fair
inquiry these men, I am sure, whether they live in Maine, in
Tennessee, or in Oregon, will come out on the side of honest money.
The shiftless and vicious and the honest but hopelessly ignorant and
puzzle-headed voters cannot be reached; but the average farmer,
the average business man, the average workman—in short, the
average American—will always stand up for honesty and decency
when he can once satisfy himself as to the side on which they are to
be found.
 FOOTNOTES:
[17] Review of Reviews, September, 1896.
 X
HOW NOT TO HELP OUR POORER BROTHER[18]

After the publication of my article in the September Review of

Reviews on the vice-presidential candidates, I received the following
very manly, and very courteous, letter from the Honorable Thomas
Watson, then the candidate with Mr. Bryan on the Populist ticket for
Vice-President. I publish it with his permission:
Hon. Theodore Roosevelt:
It pains me to be misunderstood by those whose good
opinion I respect, and upon reading your trenchant article in
the September number of the Review of Reviews the impulse
was strong to write to you.
When you take your stand for honester government and for
juster laws in New York, as you have so courageously done,
your motives must be the same as mine—for you do not need
the money your office gives you. I can understand,
instinctively, what you feel—what your motives are. You
merely obey a law of your nature which puts you into mortal
combat with what you think is wrong. You fight because your
own sense of self-respect and self-loyalty compels you to
fight. Is not this so?
If in Georgia and throughout the South we have conditions
as intolerable as those that surround you in New York, can
you not realize why I make war upon them?
 Tammany itself has grown great because mistaken leaders
of the southern Democracy catered to its Kellys and Crokers
and feared to defy them.
The first “roast” I ever got from the Democratic press of this
State followed a speech I had made denouncing Tammany,
and denouncing the craven leaders who obeyed Tammany.
It is astonishing how one honest man may honestly
misjudge another.
My creed does not lead me to dislike the men who run a
bank, a factory, a railroad or a foundry. I do not hate a man for
owning a bond, and having a bank account, or having cash
loaned at interest.
Upon the other hand, I think each should make all the profit
in business he fairly can; but I do believe that the banks
should not exercise the sovereign power of issuing money,
and I do believe that all special privileges granted, and all
exemption from taxation, work infinite harm. I do believe that
the wealth of the Republic is practically free from federal
taxation, and that the burdens of government fall upon the
shoulders of those least able to bear them.
If you could spend an evening with me among my books
and amid my family, I feel quite sure you would not again
class me with those who make war upon the “decencies and
elegancies of civilized life.” And if you could attend one of my
great political meetings in Georgia, and see the good men
and good women who believe in Populism, you would not
continue to class them with those who vote for candidates
upon the “no undershirt” platform.
In other words, if you understood me and mine your
judgment of us would be different.
The “cracker” of the South is simply the man who did not
buy slaves to do his work. He did it all himself—like a man.
Some of our best generals in war, and magistrates in peace,
have come from the “cracker” class. As a matter of fact,
 however, my own people, from my father back to
Revolutionary times, were slave owners and land owners. In
the first meeting held in Georgia to express sympathy with the
Boston patriots my great-great-grandfather bore a prominent
part, and in the first State legislature ever convened in
Georgia one of my ancestors was the representative of his
county.
My grandfather was wealthy, and so was my father. My
boyhood was spent in the idleness of a rich man’s son. It was
not till I was in my teens that misfortune overtook us, sent us
homeless into the world, and deprived me of the thorough
collegiate training my father intended for me.
At sixteen years of age I thus had to commence life
moneyless, and the weary years I spent among the poor, the
kindness I received in their homes, and the acquaintance I
made with the hardship of their lives, gave me that profound
sympathy for them which I yet retain—though I am no longer
poor myself.
Pardon the liberty I take in intruding this letter upon you. I
have followed your work in New York with admiring sympathy,
and have frequently written of it in my paper. While hundreds
of miles separate us, and our tasks and methods have been
widely different, I must still believe that we have much in
common, and that the ruling force which actuates us both is to
challenge wrong and to fight the battles of good government.
Very respectfully yours,
(Signed) Thos. E. Watson.
Thompson, Ga., August, 30, 1896.
I intended to draw a very sharp line between Mr. Watson and
many of those associated with him in the same movement; and
certain of the sentences which he quotes as if they were meant to
apply to him were, on the contrary, meant to apply generally to the
agitators who proclaimed both him and Mr. Bryan as their
champions, and especially to many of the men who were running on
the Populist tickets in different States. To Mr. Watson’s own sincerity
and courage I thought I had paid full tribute, and if I failed in any way
I wish to make good that failure. I was in Washington when Mr.
Watson was in Congress, and I know how highly he was esteemed
personally by his colleagues, even by those differing very widely
from him in matters of principle. The staunchest friends of order and
decent government fully and cordially recognized Mr. Watson’s
honesty and good faith—men, for instance, like Senator Lodge of
Massachusetts, and Representative Bellamy Storer of Ohio.
Moreover, I sympathize as little as Mr. Watson with denunciation of
the “cracker,” and I may mention that one of my forefathers was the
first Revolutionary Governor of Georgia at the time that Mr. Watson’s
ancestor sat in the first Revolutionary legislature of the State. Mr.
Watson himself embodies not a few of the very attributes the lack of
which we feel so keenly in many of our public men. He is brave, he is
earnest, he is honest, he is disinterested. For many of the wrongs
which he wishes to remedy, I, too, believe that a remedy can be
found, and for this purpose I would gladly strike hands with him. All
this makes it a matter of the keenest regret that he should advocate
certain remedies that we deem even worse than the wrongs
complained of, and should strive in darkling ways to correct other
wrongs, or rather inequalities and sufferings, which exist, not
because of the shortcomings of society, but because of the existence
of human nature itself.
There are plenty of ugly things about wealth and its possessors in
the present age, and I suppose there have been in all ages. There
are many rich people who so utterly lack patriotism, or show such
sordid and selfish traits of character, or lead such mean and vacuous
lives, that all right-minded men must look upon them with angry
contempt; but, on the whole, the thrifty are apt to be better citizens
than the thriftless; and the worst capitalist cannot harm laboring men
as they are harmed by demagogues. As the people of a State grow
more and more intelligent the State itself may be able to play a larger
and larger part in the life of the community, while at the same time
individual effort may be given freer and less restricted movement
along certain lines; but it is utterly unsafe to give the State more than
the minimum of power just so long as it contains masses of men who
can be moved by the pleas and denunciations of the average
Socialist leader of to-day. There may be better schemes of taxation
than those at present employed; it may be wise to devise inheritance
taxes, and to impose regulations on the kinds of business which can
be carried on only under the especial protection of the State; and
where there is a real abuse by wealth it needs to be, and in this
country generally has been, promptly done away with; but the first
lesson to teach the poor man is that, as a whole, the wealth in the
community is distinctly beneficial to him; that he is better off in the
long run because other men are well off; and that the surest way to
destroy what measure of prosperity he may have is to paralyze
industry and the well-being of those men who have achieved
success.
I am not an empiricist; I would no more deny that sometimes
human affairs can be much bettered by legislation than I would affirm
that they can always be so bettered. I would no more make a fetish
of unrestricted individualism than I would admit the power of the
State offhand and radically to reconstruct society. It may become
necessary to interfere even more than we have done with the right of
private contract, and to shackle cunning as we have shackled force.
All I insist upon is that we must be sure of our ground before trying to
get any legislation at all, and that we must not expect too much from
this legislation, nor refuse to better ourselves a little because we
cannot accomplish everything at a jump. Above all, it is criminal to
excite anger and discontent without proposing a remedy, or only
proposing a false remedy. The worst foe of the poor man is the labor
leader, whether philanthropist or politician, who tries to teach him
that he is a victim of conspiracy and injustice, when in reality he is
merely working out his fate with blood and sweat as the immense
majority of men who are worthy of the name always have done and
always will have to do.
The difference between what can and what cannot be done by law
is well exemplified by our experience with the negro problem, an
experience of which Mr. Watson must have ample practical
knowledge. The negroes were formerly held in slavery. This was a
wrong which legislation could remedy, and which could not be
remedied except by legislation. Accordingly they were set free by
law. This having been done, many of their friends believed that in
some way, by additional legislation, we could at once put them on an
intellectual, social, and business equality with the whites. The effort
has failed completely. In large sections of the country the negroes
are not treated as they should be treated, and politically in particular
the frauds upon them have been so gross and shameful as to
awaken not merely indignation but bitter wrath; yet the best friends of
the negro admit that his hope lies, not in legislation, but in the
constant working of those often unseen forces of the national life
which are greater than all legislation.
It is but rarely that great advances in general social well-being can
be made by the adoption of some far-reaching scheme, legislative or
otherwise; normally they come only by gradual growth, and by
incessant effort to do first one thing, then another, and then another.
Quack remedies of the universal cure-all type are generally as
noxious to the body politic as to the body corporal.
Often the head-in-the-air social reformers, because people of sane
and wholesome minds will not favor their wild schemes, themselves
decline to favor schemes for practical reform. For the last two years
there has been an honest effort in New York to give the city good
government, and to work intelligently for better social conditions,
especially in the poorest quarters. We have cleaned the streets; we
have broken the power of the ward boss and the saloon-keeper to
work injustice; we have destroyed the most hideous of the tenement
houses in which poor people are huddled like swine in a sty; we
have made parks and play-grounds for the children in the crowded
quarters; in every possible way we have striven to make life easier
and healthier, and to give man and woman a chance to do their best
work; while at the same time we have warred steadily against the
pauper-producing, maudlin philanthropy of the free soup-kitchen and
tramp lodging-house kind. In all this we have had practically no help
from either the parlor socialists or the scarcely more noxious beer-
room socialists who are always howling about the selfishness of the
rich and their unwillingness to do anything for those who are less
well off.
 There are certain labor unions, certain bodies of organized labor—
notably those admirable organizations which include the railway
conductors, the locomotive engineers and the firemen—which to my
mind embody almost the best hope that there is for healthy national
growth in the future; but bitter experience has taught men who work
for reform in New York that the average labor leader, the average
demagogue who shouts for a depreciated currency, or for the
overthrow of the rich, will not do anything to help those who honestly
strive to make better our civic conditions. There are immense
numbers of workingmen to whom we can appeal with perfect
confidence; but too often we find that a large proportion of the men
who style themselves leaders of organized labor are influenced only
by sullen short-sighted hatred of what they do not understand, and
are deaf to all appeals, whether to their national or to their civic
patriotism.
What I most grudge in all this is the fact that sincere and zealous
men of high character and honest purpose, men like Mr. Watson,
men and women such as those he describes as attending his
Populist meetings, or such as are to be found in all strata of our
society, from the employer to the hardest-worked day laborer, go
astray in their methods, and are thereby prevented from doing the
full work for good they ought to. When a man goes on the wrong
road himself he can do very little to guide others aright, even though
these others are also on the wrong road. There are many wrongs to
be righted; there are many measures of relief to be pushed; and it is
a pity that when we are fighting what is bad and championing what is
good, the men who ought to be our most effective allies should
deprive themselves of usefulness by the wrong-headedness of their
position. Rich men and poor men both do wrong on occasions, and
whenever a specific instance of this can be pointed out all citizens
alike should join in punishing the wrong-doer. Honesty and right-
mindedness should be the tests; not wealth or poverty.
In our municipal administration here in New York we have acted
with an equal hand toward wrong-doers of high and low degree. The
Board of Health condemns the tenement-house property of the rich
landowner, whether this landowner be priest or layman, banker or
railroad president, lawyer or manager of a real estate business; and
it pays no heed to the intercession of any politician, whether this
politician be Catholic or Protestant, Jew or Gentile. At the same time
the Police Department promptly suppresses, not only the criminal,
but the rioter. In other words, we do strict justice. We feel we are
defrauded of help to which we are entitled when men who ought to
assist in any work to better the condition of the people decline to aid
us because their brains are turned by dreams only worthy of a
European revolutionist.
Many workingmen look with distrust upon laws which really would
help them; laws for the intelligent restriction of immigration, for
instance. I have no sympathy with mere dislike of immigrants; there
are classes and even nationalities of them which stand at least on an
equality with the citizens of native birth, as the last election showed.
But in the interest of our workingmen we must in the end keep out
laborers who are ignorant, vicious, and with low standards of life and
comfort, just as we have shut out the Chinese.
Often labor leaders and the like denounce the present conditions
of society, and especially of our political life, for shortcomings which
they themselves have been instrumental in causing. In our cities the
misgovernment is due, not to the misdeeds of the rich, but to the low
standard of honesty and morality among citizens generally; and
nothing helps the corrupt politician more than substituting either
wealth or poverty for honesty as the standard by which to try a
candidate. A few months ago a socialistic reformer in New York was
denouncing the corruption caused by rich men because a certain
judge was suspected of giving information in advance as to a
decision in a case involving the interests of a great corporation. Now
this judge had been elected some years previously, mainly because
he was supposed to be a representative of the “poor man”; and the
socialistic reformer himself, a year ago, was opposing the election of
Mr. Beaman as judge because he was one of the firm of Evarts &
Choate, who were friends of various millionaires and were counsel
for various corporations. But if Mr. Beaman had been elected judge
no human being, rich or poor, would have dared so much as hint at
his doing anything improper.
 Something can be done by good laws; more can be done by
honest administration of the laws; but most of all can be done by
frowning resolutely upon the preachers of vague discontent; and by
upholding the true doctrine of self-reliance, self-help, and self-
mastery. This doctrine sets forth many things. Among them is the
fact that though a man can occasionally be helped when he
stumbles, yet that it is useless to try to carry him when he will not or
cannot walk; and worse than useless to try to bring down the work
and reward of the thrifty and intelligent to the level of the capacity of
the weak, the shiftless, and the idle. It further shows that the maudlin
philanthropist and the maudlin sentimentalist are almost as noxious
as the demagogue, and that it is even more necessary to temper
mercy with justice than justice with mercy.
The worst lesson that can be taught a man is to rely upon others
and to whine over his sufferings. If an American is to amount to
anything he must rely upon himself, and not upon the State; he must
take pride in his own work, instead of sitting idle to envy the luck of
others; he must face life with resolute courage, win victory if he can,
and accept defeat if he must, without seeking to place on his fellow-
men a responsibility which is not theirs.
Let me say in conclusion, that I do not write in the least from the
standpoint of those whose association is purely with what are called
the wealthy classes. The men with whom I have worked and
associated most closely during the last couple of years here in New
York, with whom I have shared what is at least an earnest desire to
better social and civic conditions (neither blinking what is evil nor
being misled by the apostles of a false remedy), and with whose
opinions as to what is right and practical my own in the main agree,
are not capitalists, save as all men who by toil earn, and with
prudence save, money are capitalists. They include reporters on the
daily papers, editors of magazines, as well as of newspapers,
principals in the public schools, young lawyers, young architects,
young doctors, young men of business, who are struggling to rise in
their profession by dint of faithful work, but who give some of their
time to doing what they can for the city, and a number of priests and
clergymen; but as it happens the list does not include any man of
great wealth, or any of those men whose names are in the public
mind identified with great business corporations. Most of them have
at one time or another in their lives faced poverty and know what it
is; none of them are more than well-to-do. They include Catholics
and Protestants, Jews, and men who would be regarded as
heterodox by professors of most recognized creeds; some of them
were born on this side, others are of foreign birth; but they are all
Americans, heart and soul, who fight out for themselves the battles
of their own lives, meeting sometimes defeat and sometimes victory.
They neither forget that man does owe a duty to his fellows, and
should strive to do what he can to increase the well-being of the
community; nor yet do they forget that in the long run the only way to
help people is to make them help themselves. They are prepared to
try any properly guarded legislative remedy for ills which they believe
can be remedied; but they perceive clearly that it is both foolish and
wicked to teach the average man who is not well off that some wrong
or injustice has been done him, and that he should hope for redress
elsewhere than in his own industry, honesty, and intelligence.

FOOTNOTES:
[18] Review of Reviews, January, 1897.
 XI
THE MONROE DOCTRINE[19]

The Monroe Doctrine should not be considered from any purely

academic standpoint, but as a broad, general principle of living
policy. It is to be justified not by precedent merely, but by the needs
of the nation and the true interests of Western civilization. It, of
course, adds strength to our position at this moment to show that the
action of the national authorities is warranted by the actions of their
predecessors on like occasions in time past, and that the line of
policy we are now pursuing is that which has been pursued by all our
statesmen of note since the republic grew sufficiently powerful to
make what it said of weight in foreign affairs. But even if in time past
we had been as blind to the national honor and welfare as are the
men who at the present day champion the anti-American side of the
Venezuelan question, it would now be necessary for statesmen who
were both far-sighted and patriotic to enunciate the principles for
which the Monroe Doctrine stands. In other words, if the Monroe
Doctrine did not already exist it would be necessary forthwith to
create it.
Let us first of all clear the question at issue by brushing away one
or two false objections. Lord Salisbury at first put in emphatic words
his refusal in any way to recognize the Monroe Doctrine as part of
the law of nations or as binding upon Great Britain. Most British
statesmen and publicists followed his lead; but recently a goodly
number have shown an inclination to acquiesce in the views of Lord
Salisbury’s colleague, Mr. Chamberlain, who announces, with bland
indifference to the expressed opinion of his nominal chief, that
England does recognize the existence of the Monroe Doctrine and
never thought of ignoring it. Lord Salisbury himself has recently
shown symptoms of changing ground and taking this position; while
Mr. Balfour has gone still farther in the right direction, and the Liberal
leaders farther yet. It is not very important to us how far Lord
Salisbury and Mr. Chamberlain may diverge in their views, although,
of course, in the interests of the English-speaking peoples and of
peace between England and the United States, we trust that Mr.
Chamberlain’s position will be sustained by Great Britain. But the
attitude of our own people is important, and it would be amusing,
were it not unpleasant, to see that many Americans, whose
Americanism is of the timid and flabby type, have been inclined
eagerly to agree with Lord Salisbury. A very able member of the New
York bar remarked the other day that he had not yet met the lawyer
who agreed with Secretary Olney as to the legal interpretation of the
Monroe Doctrine. This remark was chiefly interesting as showing the
lawyer’s own limitations. It would not have been made if he had met
the Justices of the Supreme Court, for instance; but even on the
unfounded supposition that his remark was well grounded, it would
have had little more significance than if he had said that he had not
yet met a dentist who agreed with Mr. Olney. The Monroe Doctrine is
not a question of law at all. It is a question of policy. It is a question
to be considered not only by statesmen, but by all good citizens.
Lawyers, as lawyers, have absolutely nothing whatever to say about
it. To argue that it cannot be recognized as a principle of international
law, is a mere waste of breath. Nobody cares whether it is or is not
so recognized, any more than any one cares whether the
Declaration of Independence and Washington’s farewell address are
so recognized.
The Monroe Doctrine may be briefly defined as forbidding
European encroachment on American soil. It is not desirable to
define it so rigidly as to prevent our taking into account the varying
degrees of national interest in varying cases. The United States has
not the slightest wish to establish a universal protectorate over other
American States, or to become responsible for their misdeeds. If one
of them becomes involved in an ordinary quarrel with a European
power, such quarrel must be settled between them by any one of the
usual methods. But no European State is to be allowed to
aggrandize itself on American soil at the expense of any American
State. Furthermore, no transfer of an American colony from one
European State to another is to be permitted, if, in the judgment of
the United States, such transfer would be hostile to its own interests.
John Quincy Adams, who, during the presidency of Monroe, first
clearly enunciated the doctrine which bears his chief’s name,
asserted it as against both Spain and Russia. In the clearest and
most emphatic terms he stated that the United States could not
acquiesce in the acquisition of new territory within the limits of any
independent American State, whether in the Northern or Southern
Hemisphere, by any European power. He took this position against
Russia when Russia threatened to take possession of what is now
Oregon. He took this position as against Spain when, backed by
other powers of Continental Europe, she threatened to reconquer
certain of the Spanish-American States.
This is precisely and exactly the position the United States has
now taken in reference to England and Venezuela. It is idle to
contend that there is any serious difference in the application of the
doctrine to the two sets of questions. An American may, of course,
announce his opposition to the Monroe Doctrine, although by so
doing he forfeits all title to far-seeing and patriotic devotion to the
interests of his country. But he cannot argue that the Monroe
Doctrine does not apply to the present case, unless he argues that
the Monroe Doctrine has no existence whatsoever. In fact, such
arguments are, on their face, so absurd that they need no refutation,
and can be relegated where they belong—to the realm of the hair-
splitting schoolmen. They have no concern either for practical
politicians or for historians with true historic insight.
We have asserted the principles which underlie the Monroe
Doctrine, not only against Russia and Spain, but also against
France, on at least two different occasions. The last and most
important was when the French conquered Mexico and made it into
an Empire. It is not necessary to recall to any one the action of our
Government in the matter as soon as the Civil War came to an end.
Suffice it to say that, under threat of our interposition, the French
promptly abandoned Maximilian, and the latter’s Empire fell. Long
before this, however, and a score of years before the Doctrine was
christened by the name Monroe even the timid statesmen of the
Jeffersonian era embodied its principle in their protest against the
acquisition of Louisiana, by France, from Spain. Spain at that time
held all of what is now the Great West. France wished to acquire it.
Our statesmen at once announced that they would regard as hostile
to America the transfer of the territory in question from a weak to a
strong European power. Under the American pressure the matter
was finally settled by the sale of the territory in question to the United
States. The principle which our statesmen then announced was in
kind precisely the same as that upon which we should now act if
Germany sought to acquire Cuba from Spain, or St. Thomas from
the Danes. In either of these events it is hardly conceivable that the
United States would hesitate to interfere, if necessary, by force of
arms; and in so doing the national authorities would undoubtedly be
supported by the immense majority of the American people, and,
indeed, by all save the men of abnormal timidity or abnormal political
short-sightedness.
Historically, therefore, the position of our representatives in the
Venezuelan question is completely justified. It cannot be attacked on
academic grounds. The propriety of their position is even more easily
defensible.
Primarily, our action is based on national self-interest. In other
words, it is patriotic. A certain limited number of persons are fond of
decrying patriotism as a selfish virtue, and strive with all their feeble
might to inculcate in its place a kind of milk-and-water
cosmopolitanism. These good people are never men of robust
character or of imposing personality, and the plea itself is not worth
considering. Some reformers may urge that in the ages’ distant
future patriotism, like the habit of monogamous marriage, will
become a needless and obsolete virtue; but just at present the man
who loves other countries as much as he does his own is quite as
noxious a member of society as the man who loves other women as
much as he loves his wife. Love of country is an elemental virtue,
like love of home, or like honesty or courage. No country will
accomplish very much for the world at large unless it elevates itself.
The useful member of a community is the man who first and
foremost attends to his own rights and his own duties, and who
therefore becomes better fitted to do his share in the common duties
of all. The useful member of the brotherhood of nations is that nation
which is most thoroughly saturated with the national idea, and which
realizes most fully its rights as a nation and its duties to its own
citizens. This is in no way incompatible with a scrupulous regard for
the rights of other nations, or a desire to remedy the wrongs of
suffering peoples.
The United States ought not to permit any great military powers,
which have no foothold on this continent, to establish such foothold;
nor should they permit any aggrandizement of those who already
have possessions on the continent. We do not wish to bring
ourselves to a position where we shall have to emulate the European
system of enormous armies. Every true patriot, every man of
statesman-like habit, should look forward to the day when not a
single European power will hold a foot of American soil. At present it
is not necessary to take the position that no European power shall
hold American territory; but it certainly will become necessary, if the
timid and selfish “peace at any price” men have their way, and if the
United States fails to check at the outset European aggrandizement
on this continent.
Primarily, therefore, it is to the interest of the citizens of the United
States to prevent the further colonial growth of European powers in
the Western Hemisphere. But this is also to the interest of all the
people of the Western Hemisphere. At best, the inhabitants of a
colony are in a cramped and unnatural state. At the worst, the
establishment of a colony prevents any healthy popular growth.
Some time in the dim future it may be that all the English-speaking
peoples will be able to unite in some kind of confederacy. However
desirable this would be, it is, under existing conditions, only a dream.
At present the only hope for a colony that wishes to attain full moral
and mental growth, is to become an independent State, or part of an
independent State. No English colony now stands on a footing of
genuine equality with the parent State. As long as the Canadian
remains a colonist, he remains in a position which is distinctly inferior
to that of his cousins, both in England and in the United States. The
Englishman at bottom looks down on the Canadian, as he does on
any one who admits his inferiority, and quite properly, too. The
American, on the other hand, with equal propriety, regards the
Canadian with the good-natured condescension always felt by the
freeman for the man who is not free. A funny instance of the English
attitude toward Canada was shown after Lord Dunraven’s inglorious
fiasco last September, when the Canadian yachtsman, Rose,
challenged for the America cup. The English journals repudiated him
on the express ground that a Canadian was not an Englishman and
not entitled to the privileges of an Englishman. In their comments,
many of them showed a dislike for Americans which almost rose to
hatred. The feeling they displayed for the Canadians was not one of
dislike. It was one of contempt.
Under the best of circumstances, therefore, a colony is in a false
position. But if the colony is in a region where the colonizing race
has to do its work by means of other inferior races the condition is
much worse. From the standpoint of the race little or nothing has
been gained by the English conquest and colonization of Jamaica.
Jamaica has merely been turned into a negro island, with a future,
seemingly, much like that of San Domingo. British Guiana, however
well administered, is nothing but a colony where a few hundred or
few thousand white men hold the superior positions, while the bulk of
the population is composed of Indians, Negroes, and Asiatics.
Looked at through the vista of the centuries, such a colony contains
less promise of true growth than does a State like Venezuela or
Ecuador. The history of most of the South American republics has
been both mean and bloody; but there is at least a chance that they
may develop, after infinite tribulations and suffering, into a civilization
quite as high and stable as that of such a European power as
Portugal. But there is no such chance for any tropical American
colony owned by a Northern European race. It is distinctly in the
interest of civilization that the present States in the two Americas
should develop along their own lines, and however desirable it is that
many of them should receive European immigration, it is highly
undesirable that any of them should be under European control.
So much for the general principles, and the justification, historically
and morally, of the Monroe Doctrine. Now take the specific case at
issue. Great Britain has a boundary dispute with Venezuela. She
claims as her own a territory which Venezuela asserts to be hers, a
territory which in point of size very nearly equals the Kingdom of
Italy. Our government, of course, cannot, if it wishes to remain true to
the traditions of the Monroe Doctrine submit to the acquisition by
England of such an enormous tract of territory, and it must therefore
find out whether the English claims are or are not well founded. It
would, of course, be preposterous to lay down the rule that no
European power should seize American territory which was not its
own, and yet to permit the power itself to decide the question of the
ownership of such territory. Great Britain refused to settle the
question either by amicable agreement with Venezuela or by
arbitration. All that remained for the United States, was to do what it
actually did; that is, to try to find out the facts for itself, by its own
commission. If the facts show England to be in the right, well and
good. If they show England to be in the wrong, we most certainly
ought not to permit her to profit, at Venezuela’s expense, by her own
wrong-doing.
We are doing exactly what England would very properly do in a
like case. Recently, when the German Emperor started to interfere in
the Transvaal, England promptly declared her own “Monroe
Doctrine” for South Africa. We do not propose to see English
filibusters try at the expense of Venezuela the same policy which
recently came to such an ignominious end in the Transvaal, in a
piece of weak, would-be buccaneering, which, it is perhaps not unfair
to say was fittingly commemorated in the verse of the new poet-
laureate.
It would be difficult to overestimate the good done in this country
by the vigorous course already taken by the national executive and
legislature in this matter. The lesson taught Lord Salisbury is one
which will not soon be forgotten by English statesmen. His position is
false, and is recognized as false by the best English statesmen and
publicists. If he does not consent to arrange the matter with
Venezuela, it will have to be arranged in some way by arbitration. In
either case, the United States gains its point. The only possible
danger of war comes from the action of the selfish and timid men on
this side of the water, who clamorously strive to misrepresent
American, and to mislead English, public opinion. If they succeed in
persuading Lord Salisbury that the American people will back down if
he presses them, they will do the greatest damage possible to both
countries, for they will render war, at some time in the future, almost
inevitable.
Such a war we would deplore; but it must be distinctly understood
that we would deplore it very much more for England’s sake than for
our own; for whatever might be the initial fortunes of the struggle, or
the temporary damage and loss to the United States, the mere fact
that Canada would inevitably be rent from England in the end would
make the outcome an English disaster.
We do not in any way seek to become the sponsor of the South
American States. England has the same right to protect her own
subjects, or even in exceptional cases to interfere to stop outrages in
South America, that we have to interfere in Armenia—and it is to be
regretted that our representatives do not see their way clear to
interfere for Armenia. But England should not acquire territory at the
expense of Venezuela any more than we should acquire it at the
expense of Turkey.
The mention of Armenia brings up a peculiarly hypocritical plea
which has been advanced against us in this controversy. It has been
solemnly alleged that our action in Venezuela has hampered
England in the East and has prevented her interfering on behalf of
Armenia. We do not wish to indulge in recriminations, but when such
a plea is advanced, the truth, however unpleasant, must be told. The
great crime of this century against civilization has been the upholding
of the Turk by certain Christian powers. To England’s attitude in the
Crimean War, and after the Russo-Turkish War of 1877, the present
Armenian horror is primarily due. Moreover, for six months before the
Venezuelan question arose England had looked on motionless while