Even after Brexit, the Singapore of Europe will remain a fantasy

Singapore is like a porn star for the free-market right. They project all sorts of lurid fantasies onto it and get very excited. Every so often, an article appears breathlessly proclaiming the virtues of the island state and its rapid GDP growth. If only the stodgy old UK were a bit more like deregulated Singapore, we could have a bit of that too. You could make similar arguments for Luxembourg, another filthy rich state which has experienced relatively high per capita GDP growth, but no-one ever seems to suggest that joining the Euro and adopting Luxembourg’s stricter labour laws would be the answer to our economic woes.

That’s because it wouldn’t, of course, but neither would trying to become Europe’s Singapore. Both countries are small city states with large financial services sectors and without the inconvenience of a wider hinterland. When PwC looked at the economies of various major cities, Singapore’s per capita GDP was below that of London and New York. Cities with large financial centres tend to be rich but you can’t build an entire country on the same basis.

Many of those who think the UK should be more like Singapore might be in for a shock if it really happened, for their fantasy star has another side. Forget the Nanny State, Singapore is more like Victorian Governess State. You do as you are damn well told or you get a good thrashing. Most housing is state-owned, either rented or on long leases, and when the Singapore government decided it wanted to integrate its multi-ethnic population it simply introduced quotas. It was a policy of forced integration. Different ethnic groups would live alongside each other whether they liked it or not. As the country’s long-serving prime minister Lee Kuan Yew said:

We inflicted it on the people, we knew it would work, we knew it would be uncomfortable.

Imagine the uproar if we did something like that here.

All this would have been just an amusing debate if it were not for the suggestion by the government that it might make the UK some kind of low tax, low regulation haven after Brexit. There are lost of good reasons why this Singapore Threat is unlikely to come to much but, as John Major said earlier this week, the most important one is that the voters wouldn’t stand for it:

Such a direction of policy, once understood by the public, would never command support. It would make all previous rows over social policy seem a minor distraction.

Since the recession, Britain has struggled to raise enough tax revenue to plug its deficit. The main reason George Osborne fell short of his target was not because the cuts to public service spending didn’t happen (they did, and more) but because revenues constantly fell short. An ageing population is increasing the pressure on public spending. Even if the government achieves further reductions in public spending there will be little room for any significant tax cuts. There just isn’t the scope to attract business to the UK through low taxes. To do so would, as Sir John says, require a complete dismantling of welfare and public service provision. Even George Osborne was never really up for that kind of state shrinkage, for the simple reason that the public wouldn’t wear it. The small state rhetoric pumped out over the last few decades by newspapers, MPs and think tanks has had remarkably little effect. Those favouring tax and spending cuts have always been a small though noisy minority.

screen-shot-2017-02-28-at-17-05-52

Chart by British Social Attitudes survey

It’s a similar story with regulation. Despite the UK’s EU membership, it is one of the least regulated countries in the developed world. There is no evidence to suggest that reducing regulation even further would have any effect on the country’s economic performance. It might even make things worse. There is no clamour from employers to scrap employment laws which are, by and large, popular with the public. The second biggest item on the Leave campaign’s list of savings from regulation was the internationally agreed Basel III rules forcing banks to hold more capital. This is the most effective bulwark against another banking crisis. Abolishing that is unlikely to go down well with the public.

Theresa May understands this, even if some in her party don’t. She has hinted at more business regulation, on high executive pay, on the gender pay gap and at one point even talked about putting employees on boards. She knows she won’t win the votes of the just about managing with talk of deregulation.

John Major is right. There are some who see Brexit as an opportunity to turn the UK into something like a Singapore of Europe, a low-tax low business regulation state. But this is a fantasy that is unlikely to be shared by most of the electorate. If there is one good thing to come out of Brexit it is the revival of the idea that, if enough people vote for something, they can make it happen, despite what pundits, politicians and the plutocrats of Davos say.  After we leave the EU, some will, no doubt, push for radical tax cuts and deregulation. They probably won’t get very far. They will find their efforts frustrated by the Will of the People.

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23 Responses to Even after Brexit, the Singapore of Europe will remain a fantasy

  1. The Pessimist says:

    Well to be fair, the people who voted Brexit don’t really care what the outcome is as long as they get a hard brexit. Even if it means scraping the minimum wage, NHS and labour laws. They will be perfectly happy with just little England, split from Scotland, Ireland, Europe and the rest of the world. Reality does not matter. The moon is made of cheese for all they care.

    • Dipper says:

      This is just nonsense. My understanding of the minimum wage is this was introduced unilaterally by the UK parliament and has nothing to do with the EU. Most Leavers would like to retain the union but that is a matter for the various nations within the union. The referendum has nothing to do with the NHS. Seriously this comment is an entire moon’s worth of gorgonzola.

      • RAY says:

        “… nothing to do with NHS..” how laughable!
        You remember the NHS pledge?
        It was the one plastered over the side of the Vote Leave bus during the EU referendum campaign: “We send the EU £350m. Let’s fund our NHS instead.” …..

    • AlleyMark says:

      This really isn’t constructive, you’re constructing a strawman of your opposition to defeat and make yourself feel good. I’m on your side but this sort of low-effort comment really doesn’t add anything.

  2. Andy Mayer says:

    On the basic politics of this you may well be right, there appears to be little public appetite for massive changes in the structure of public policy and regulation, either to the left or the right. And ever was thus, aggregate public attitudes tend to the conservative in normal times. Brexit is not yet sufficient a crisis to engender major change, and may never be.

    I think though you are creating a straw man here. Deregulation, even under the Thatcher administration was an incremental affair, not a revolution, and not at all consistent. We can for example reasonably assume that there will be deregulation of some areas of agricultural policy post-Brexit. Even fans of the EU think the organisation has an overly bureaucratic approach to this, and UK-based interest groups are split. Many farmers prefer farming to form-filling.

    Conversely we know we’re getting are more interventionist approach in immigration policy. The Prime Minister appears determined to test to destruction the notion that the state can centrally plan population numbers and skills needs, and the economic costs of this are worth the political benefits of marginalising UKIP. How many chaos at borders and disinvestment headlines that survives we will see.

    Everything about the PM’s approach speaks to a belief in ‘what works politically’ rather than deeply held views about the size of the state. Her thought experiments with workers on boards for example was flown when it seemed popular, and went into retreat when it became clear it was more the demand of sectional interest groups rather than actually of much interest to anyone else, while deeply irritating some other interest groups quite happy with current flexibility.

    Singapore then probably not, but from the parts of the Government that have been waiting for Brexit in order to push deregulation agendas not possible within the EU framework, I would expect to see significant initiatives over the coming Parliament. Meanwhile which way the PM will go I strongly suspect largely depends on the politics of the day.

  3. Dipper says:

    I think you are missing the point here.

    You are right about Singapore. It is a tiny state with a specific set of conditions. I worked for banks with Singaporean branches. It has as much relevance to the rest of the world as extrapolating from Jersey to the rest of the UK.

    The point here is that the UK is signalling to the EU that we have alternatives to a bad agreement with the EU. They might not be great, but we have an alternative and we have an alternative that might take business from them.

    The line pushed you are pushing here, which is that we have no viable economic future outside the EU so we have to accept whatever terms they give us, is a defeatist line that simply encourages the EU to offer us really bad terms. I’m not sure why you want that as an outcome. Our high proportion of trade with the EU is a direct result of being in a protectionist zone within the EU. If we were outside it, we would do more trade with the rest of the world.

    Major and Blair have made significant statements recently about leaving the EU. That’s John Major who took us into the EMR causing a deep recession from which we only emerged when we were dumped out of it. That’s Tony Blair who took us into the Iraq war on the basis that weapons of mass destruction could be deployed against us in 45 minutes only to find that there weren’t any, and who said immigration from Eastern Europe would be in the tens of thousands and was out by a factor of 100. I suggest that whatever those two say, we do the opposite.

    • Singapore is a regional hub for high-tech manufacturing and commercial services. It thrives because it is able to access regional markets and it attracts capital because it has also attracted labour through proactive immigration.

      The problem with Singapore as a “signal” to the EU27 is it only works if we assume continued access to the single market and customs union, plus the free movement of labour. To a significant extent, London already was the Singapore of Europe. What it will be post-Brexit is another matter entirely.

    • Also Germany? Bloody Germany? It’s a 10% GDP trade surplus refutation of this “if we were out of the protectionist EU we’d have a bigger trade with ROTW”. Our EU membership is not what’s restraining our trade with ROTW.

    • What would seem to be the logical flow for these arguments about our trade composition is that we should have joined the Euro too, like Germany, and thus benefit from having a permanently undervalued currency (or perhaps a less overvalued one, if you think the City as global finance hub has an undue weight on the value of the pound which doesn’t respect the strength of the rest of the UK economy)

      • Dipper says:

        @lackinggravitas

        re trade with ROTW. I saw nothing in the Brexit discussion that indicated remaining the EU would change the current situation for the UK. Lots of points were made on other things such as how freedom of movement was interpreted by the UK which indicated all sorts of things could happen, but there were no specific proposals from any party about what they were going to do just a blanket “reformed EU”. So the ballot was basically economic continuity and a slide to more integration or press the restart button.

        Also, the point of EU policy is to allow Germany to be the engine of growth, so things like Germany not implementing the free market in Services is tolerated. Just for a moment imagine ahead to 2050 with the UK being the largest country by population, and now add a UK being a next exporter of manufactured goods as well as dominant in services. That would make the UK the most dominant nation in the EU. Can’t see Germany and France standing for that!

        re the Euro, yes. All the arguments about why we benefit from being in the EU are the same ones about how we would benefit from being in the Euro. We were told that remaining out of the Euro and keeping our currency would inevitably mean the UK was in a low-growth zone outside a roaring ahead Euro zone. We all know how that turned out.

        By being in the EU but not in the Euro we are in many ways in the worst of all worlds. Being in an economically sealed area with the majority economies pursuing deflationary policies means all the excess demand and labour is picked up by the countries not in the Euro – the UK and Sweden.

  4. Dipper says:

    just rambling on about the UK and the EU here:

    # UK citizens in EU = 1.2 million
    £ UK pays to EU for medical treatment = £670 m/yr
    cost per citizen = £558/yr

    # EU citizens in UK = 3.3 million
    estimated cost to UK of EU medical bills = £1.84 billion ( = 3.3 * £558)
    amount retrieved by UK = £0.05 billion

    so that’s about £1.8 billion unclaimed which would employ a lot of doctors.

    figures from http://news.sky.com/story/nhs-scandal-as-uk-pays-millions-to-eu-10189381 and wikipedia.

    I know folks have said that UK citizens in the EU are older than the EU citizens here, but a family friends recent visits to a gynae surgery have had quite a lot of Eastern Europeans receiving treatment, and other visits have had a few old Eastern Europeans, so anecdote doesn’t support the view that EU citizens in the UK don;t use our NHS.

    As in my recent comment on the accrual of pension and other liabilities, its a number not big enough to change any opinions but big enough to be significant.

    • Dipper says:

      … and here’s an alternative calculation.

      cost of NHS (2016/17) = £120 billion
      population of UK = 64 million
      annual cost of NHS per person per year = £1,875
      EU citizens in UK = 3.3 million
      annual cost of NHS for EU citizens = £6.1875 billion

      which is a lot bigger than the £1.8 billion above.

      EU citizens working and living in the UK pay income tax, VAT NI etc so they already pay a lot for this, and lots also work in the NHS, but it is just another angle of the cost hypercube. It illustrates the difficulty of apportioning a charge to a single use. It also indicates that the EU are probably undercharging UK citizens receiving treatment in the EU.

      • Jim says:

        “It also indicates that the EU are probably undercharging UK citizens receiving treatment in the EU.”

        Not necessarily. It could also show that we are far too free and easy about who can access the NHS vs who can access State healthcare in other EU States. It could also show that many EU states (particularly the later entrants) have far more basic healthcare systems, and thus any UK citizens in those countries do not qualify for much expenditure (just as the locals don’t either).

        • Dipper says:

          thanks for the reply Jim

          I think most UK citizens in the EU are in the more western countries that have healthcare systems at least as good as our own. I have heard that the Rumanian health service is in crisis because of a shortage of doctors resulting from the fact that many of them emigrate.

          I think the point about people accessing the NHS is that there are no facts. The government has no credible means of compiling this information. I noted that the last migration figures from the ONS are “down 49,000 (not statistically significant)”. The media spent ages discussing the reasons for this fall, but surely the real news story was the fact that the ONS has no idea what the migration figures are to within +- 50,000.

  5. rogerh says:

    What would it take to make Britain like a higly successful go-getting state? To do that we could sell Norfolk to the Chinese and lay concrete and tarmac and build industry/offices all over Hampshire, Hertfordshire and Surrey. At the same time building workers flats all along the edges of the M25, M1 and M40. One or two people might whine a bit a bit and we would have to relocate people from Oop North as well as importing from Europe. But it could be done – but won’t. There will be blustering and noise about new dynamic Britain – but nothing much will actually happen – too horrible my dears.

    • Blissex says:

      «What would it take to make Britain like a higly successful go-getting state?»

      The answer to that is similar but “better” to what you describe and has already been suggested: “Free Enterprise Zones”. The plan is to create “virtual offshore” areas, with no taxation of profits, no import or export tariffs, no immigration restrictions, no labour rights, large sales and labour taxes, no public services, staffed mostly by asian and african indentured workers on £2-3 per house, for example in Sunderland, as business owner paradises.
      Eventually as these “Free Enterprise Zones” proved successful in generating large profits for UK business owners, they would be expanded until the whole of England would be a “Free Enterprise Zone”.
      It is economic model of Manchester in the 1850s, of Chile during Pinochet, of HongKong in the 1960s, of Shenzen in the 1980s, of Dubai today.

      That’s what both T May and P Hammond have promised to the Conservative Party if they can blame hard-exit on the EU27.

  6. Keith says:

    Brexit is a ridiculous, mainly right wing, delusion. Which will either produce no or little net effect on trade with the EU zone and thus be an irrelevance, or alternatively cause a reduction in trade and integration reducing productivity and net wealth. I fail to see any convincing way it will be useful. Politics has been hijacked by people with no morals who lie to the public for career advantage. Backed by a tiny cabal of Billionaire press barons and moronic extreme right knuckle draggers. Bringing a close to the British tradition of moderation and rational political thought. May be the next generation will redeem the nation, lets hope so.

    • Dipper says:

      thanks Keith but no thanks. It’s not my blog, but if I wanted to read the thoughts of someone having a screaming nervous breakdown because they didn’t get what they wanted I’d read the comments section in the Guardian. I keep popping up here because commentors of all persuasions usually try and construct rational informed arguments and i feel I’m reading worthwhile opinions even if I don’t agree with them.

  7. K. Kwelvin says:

    Dipper, I think the reason why he responded that way is that he’s fearful his quality of life will be affected by Brexit. When you do major decisions like that, people will be emotional.

    I have the belief that politicians should be responsible for what they do. If the gurus behind Brexit (of either camp, the UKIP one or pro-free market one) manage to get the UK into a decent or better position post-Article 50, then fair enough. They got a Brexit that the UK survived and/or thrived in.

    If they lose the gamble (either through a severely economically weakened UK and/or a breakup of the UK), they should compensate the British people with their own money. Send them a bill, and seize their mansions and cars if they don’t pay. If that can’t be legally done, hire some folks to acquire kompromat that completely ruins their lives. Either way they should be videotaped gnashing their teeth so future generations know not to do things that ruin countries.

    I believed that Theresa May should have outright rejected Brexit because it was a much safer option compared to putting the UK into this uncertainty, even if it doomed her political career and that of her advisors. Knowing that she was pro-remain, perhaps she thinks that a Brexit would have been forced anyway within two or so years if she rejected it and then resigned. Maybe her idea is to just run Brexit to the ground and make the result so unpalatable that the UK comes crawling back to the EU.

    • Dipper says:

      To take one part of this, having fears about the future is just part of life, and part of becoming an adult is learning how to cope with this. People who are particularly fearful about things and publicly advertise it are not doing themselves any favours, as they tend to attract people who sense a profit in exploiting people’s fears. Any risks create fears, but they also create risks for others and opportunities. Learning to judge the strengths and weaknesses of your own position and the position of others and then working out your best options is a basic process which people should learn to do. Many Remainers seem to want to live in a risk-free world. My view is that the price people will charge you when they promise you they can eliminate risks is often much higher than the value of the promised certainty, and they often cannot keep their word. After all, staying out of the Euro was the risky alternative against the safe option of adopting the Euro. We know how that has turned out for many European countries.

      Personally I now think the best options is for the UK to demand an exit to WTO rules on a very short time-scale with no exit payment to the EU. Very often the fear of something is worse than the reality, and the fear of a hard Brexit will be worse than the reality, so better just to move to WTO quickly before firms and investors have time to withdraw their positions and then work on rebuilding relationships ASAP. Alternatively the EU faced with immediate massive loss of finance and markets could start some proper negotiations.

  8. Blissex says:

    «when the Singapore government decided it wanted to integrate its multi-ethnic population it simply introduced quotas. It was a policy of forced integration. Different ethnic groups would live alongside each other whether they liked it or not»

    That also has the effect to rig the electoral system under first-past-the-post: most ethnic-chinese voters still vote for the ruling party, and dispersing minorities into chinese-majority constituencies means effectively disenfranchising those minorities.

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