Patrick Minford: Our economy will gain billions after Brexit
Our report, From Project Fear to Project Prosperity, estimates that the gains from a full Brexit will be £135bn – around a 7% boost to GDP, with the reforms also raising the longer term growth rate.
There are four elements in the calculation: 1) free trade, either via free trade agreements with the EU and the rest of the world, or if those are sticky via unilateral moves to remove our trade barriers 2) UK-run pragmatic regulation to replace the EU’s intrusive single-market regulation of our whole economy 3) our net EU contribution and 4) the cost to the taxpayer of the subsidy paid to unskilled EU immigrants, which we estimate at £3,500 per adult.
Predictably, our estimates have triggered howls of protest and derision from the economists who aligned themselves with “project fear”. However that project was founded on two main planks: the assumption that Brexit UK would pursue protectionist and other illiberal policies, and the use of a “gravity” trade model.
The first assumption envisions that the UK would plainly not reap any gains from free trade; even worse, it would raise barriers against the world as well as against the EU. It was then combined with assumptions about “uncertainty”, which led these economists to predict a bad recession. Both these assumptions are now seen to be baseless. We have a government committed to free trade. The recession simply has not happened: indeed the economy has had robust growth and now, due to the large Brexit devaluation, is experiencing a strong “rebalancing” towards net exports away from consumption. There are leads and lags, but growth is plainly still well underway.
This brings me to the gravity model. This is a model that has strongly caught on among trade economists who argue that trade is associated with the size of trading partners and their closeness to them. This model is widely used to support the case for UK integration into the EU as our closest, largest neighbour.
In fact the gravity model does not fit the UK’s trade history at all well: it cannot account for the surge in our service exports all around the world, or our huge trade with anglophone countries, or indeed the steady decline in the share of our trade with the EU. Our classical model, based on comparative advantage, by contrast fits these facts well. Our trade gain estimates are therefore based on the best model of UK trade.
• Patrick Minford is a professor of economics at Cardiff University; he was a founder and former director of Liverpool Research Group
Molly Scott Cato: The idea that we can thrive alone is phony
Patrick Minford’s projection of a £135bn economic boost from a hard Brexit is an example of the worst sort of voodoo economics. His modelling is based on the UK unilaterally removing all restrictions and tariffs and trying our luck in a global market. According to LSE economists who have analysed his work, this would mean a massive fall in wages and the “elimination” of UK manufacturing.
Minford’s self-styled “Liverpool model” has no credibility with the vast majority of economists. His view of the EU as a costly protectionist club reflects this debunked position. In reality, the single market eases internal trade and reduces costs. As is typical of theoretical economists, his model makes gross assumptions, including the idea that consumers have no preference, for example, between a US computer and one made in Taiwan, and that the distance goods travel to market is irrelevant.
In the real world, proximity, common standards, and rapid movement of components matter, hence the importance of the customs union. UK manufacturing is largely foreign-owned and revolves around assembly of components manufactured elsewhere in the EU. Ironically, this makes it even more important that we stay in the customs union, to ease the passage of components across borders.
Minford’s work is indicative of the whole Brexit project: based on the illusion that the UK has some manifest destiny that allows us to stand alone in a globalised world. It is high time this phony economics was sent into retirement.
• Molly Scott Cato is the Green party speaker on economy and finance and spokeswoman for EU relations