Totems, Reason and the European Economic Area

From time to time a political issue takes on a totemic role. It acquires a significance beyond its practical import and becomes a symbol or icon of virtue. Support for the issue becomes a badge to identify a political in-group.

Something like this has happened to the question of Britain joining the European Economic Area. The rational assessment of the pros and cons or the choices about trade-offs implied by EEA membership have been eclipsed by the symbolism. Support for the EEA has become a symbol of pro-EU commitment.

Last week, I read in a Sunday paper that “true Remainers want to stay in the EEA”. I suspect that true Remainers (I’m one) want to stay in the EU. It is the choice of a good alternative that is not easy.

Many pro-EU politicians have concluded that this is not the best option for post Brexit Britain. But the 75 Labour MPs who rebelled on Wednesday are using the issue to signal that they are more European than their colleagues.

Many may indeed believe that this formula for access to the single market is the best available. There are good arguments on their side. It would appear less economically disruptive to minimise the changes in the framework of business and trade relationships. Studies suggest a small net benefit to the long run level of economic activity in this scenario. In addition, there is an administrative simplicity in opting in to an existing framework compared to the risks and effort involved in creating a new arrangement.

The pro-Europeans who are not convinced by the EEA membership have a diversity of reasons related to political strategy, regulation and economic performance.

For some, particularly MPs in leave voting areas, there is a need to placate the electorate’s concern over immigration. If there is one area where single market rules would inhibit Labour’s manifesto promises it is the pledges made in 2017 on immigration.

Others who are wary of the EEA point to the difficulty of implementing “rules” over which the country has no say and little influence. Under the rubric of removing non-tariff barriers, single market regulations cover not just product standards, but public health, environment, public procurement, competition and a mass of important public policy issues.

The concern is not so much that current rules might thwart existing policy ambitions. (Although even advocates for the single market acknowledge that some objectives would require careful navigation around the rules.) The real problem is that future rules dealing with technologies yet unknown or problems yet to be identified will impact on policies yet to be imagined.

How would a rule-taking government react if a British regulator declared that single market rules may pose an unacceptable risk to customers or taxpayers, as the Financial Services Authority said of banking regulation in 2009? Inside the EU there is scope to fix such problems which would not be available in the EEA.

At a deeper level rule taking has an economic effect. The best known economic impact studies treat the economy like a self-equilibrating machine. Politicians might set the controls but the mechanism runs by its own logic. A more modern understanding does not separate the economy from its social and political context. An economy is embedded in the norms and standards of a society and adapts to its choices on what behaviour and risks are acceptable. Adopting the rules made for a different social context can inhibit economic development.

Making the EEA into a totemic issue for pro-EU signalling obscures the important questions that need to be explored. The choice is not straightforward. Faced with trade-offs different politicians will make different judgements and arrive at different conclusions.

Creating an in group may serve to paint those who reject the totem as less pro-EU. For some opponents of Labour’s leadership that might be the point.