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Why Brexit Britain should embrace a European-style economic model


This week, the Conservative Party conference took place on the planet of Boris Johnson – a world in which energy companies collapse, gas prices skyrocket, gasoline and food shortages, and Universal Credit’s brutal cuts miraculously missing. In the frozen north of the planet Johnson lies Frostland, a small outpost run by the government’s “Chief Negotiator for Task Force Europe” David Frost.

Frost’s alleged job is to ensure a smooth transition to good post-Brexit relations between the UK and the EU.27 He pursues this goal by striking the EU repeatedly. This mainly consists of attacks on the Northern Ireland Protocol, which he co-authored (Frost seems to have forgotten), arguing that the negative consequences that were widely foreseen prior to its entry into force (not least from union members in Northern Ireland) are the result of EU malpractice. Surprisingly, things aren’t going so well.

But at the conference, Frost’s foray into an altered reality entered a new dimension. Addressing the Tories, he summarized the difference between the economic models of the UK and the EU: “We know that there is only one path to prosperity – free enterprise. We were unable to successfully move the EU borders away from our country with Brexit just to import the European economic model. ”

Where to start with this? Well, after you stopped frowning at images suggesting Brexit was akin to repelling an enemy invasion, you might have noticed that nine countries within the EU, GDP per capita is higher than in the UK. You could point out that in terms of productivity per hour, productivity in the UK is more than 10 percent lower than in Italy, more than 22 percent lower than in France, and more than 26 percent lower than in Germany. You can laugh at the absurd implication that there is no such thing as free enterprise in the EU. And once you see the ludicrous caricature of the EU as a state-run federalist conspiracy in which freedom and prosperity are banished, you can smile at the odd notion of a single economic model for Europe. Greece? Just like in Sweden. Portugal? Copy of Denmark. Croatia? The poured image of Belgium. Obviously.

But let’s put aside the minor factual amendments and take the word of the chief negotiator of Task Force Europe at his word. What have the leading EU economies ever taught us to prosper? Oddly enough, quite a lot.

Take Germany, for example: since its reunification after 1990, this has been the most successful political and economic project of my life. most successful export of democracy in the world. How did Germany become so prosperous? Not through a rejection of private enterprise, but through a commitment to organized private enterprise rather than laissez-faire Anglo-Saxon capitalism. The German economy relies on an overarching system of laws, regulations, partnerships and government institutions – all interconnected to create an economic model known for its high-paying, high-skilled and high-productivity job productivity.

Frost may be surprised to learn that at the heart of this system is a thriving private sector economy. Germany has never played with nationalization on the same scale as Great Britain. Germany’s economic success since 1945 has been based on its small and medium-sized enterprises. Mittelstand. German industry is highly organized and provides sector-wide education and training in collaboration with the formal education system (divided into academic and technical specialties). The supply of a highly skilled workforce means that companies can invest significantly more in research and development than in the UK. This, in turn, is linked to banks, which provide long-term capital, and allows the relationship between employers and trade unions to be collaborative and strategic. Yes, it has problems, and yes, it is an evolving model. But if you want a gold standard for a high performing economy, you will probably start in Germany.

What can countries like Germany teach Frost and Johnson in their newly found embrace of a highly paid, highly skilled and highly developed vision for the future of Britain? These high wages are the result of high productivity economies, not the other way around. This highly productive, balanced economy is the result of interactions between organized systems of industrial relations, research collaboration, education, bank-company relations, and coordination between firms. This ongoing collaboration between unions, employers and government (national and regional) is integral to supporting the incentives and behaviors that support the “do it all” model.

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Of course, the UK must find its own path to higher productivity and not emulate other countries whose comparative advantages and economic activity are so different. But most strikingly, a successful economy like Germany shows that overcoming Britain’s disease of low productivity will be a long-term national mission that requires economic partners and political parties to work together to rethink how our economy works.

Instead, the path to higher productivity that Johnson has charted so far has one point: forced wage increases in sectors with labor shortages caused by Brexit. Meanwhile, the UK is on the cusp of a painful period of austerity, open conflict between business and government, and serial surges in energy prices. As for the plans, it is not clear. Is this what we “pushed back the EU borders” for? Well, at least Frostland is warmed by a delusional thought: “Finally free, finally free, thank God Almighty, we are finally free.”

[See also: Boris Johnson is asking for trouble by promising a high-wage economy]

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