Niall Ferguson and his “Hannan paradox”

Niall Ferguson has written a piece in The Times suggesting that all Leavers are what he calls “happy morons”.

Aside from him hurling insults (not for the first time), his central point within the article is that Leavers are trying to have it both ways, and for this he calls in Daniel Hannan and specifically Hannan’s book “Why Vote Leave”.

To quote Ferguson:

To allay my fears, I decided to read one of the most widely lauded pro-Brexit publications so far, Daniel Hannan’s Why Vote Leave. It surprised me very much. “Nothing will change” in the event of Brexit, according to Hannan. “The short-term effects will be slight.” And: “No jobs will be lost.” This, he explains, is because “on a technical level — certainly when it comes to trade — most existing structures will almost certainly be left in place”.
The paradox at the heart of the Brexiteers’ case lies here. First, we are told that nothing much will change. But then we are told a great deal will change, because the EU is an undemocratic superstate that is strangling British economic life with regulations. June 24, says the mayor of London, will be our Indepen­dence Day.
The central claim of Why Vote Leave is that Brexit would liberate Britain from a federalist plot hatched in Brussels, yet leave it free to enjoy “the European free trade zone that stretches from non-EU Iceland to non-EU Turkey”.
Though he does not make clear which model he prefers — Iceland, Norway, Switzerland or Guernsey — Hannan is pulling a fast one whichever it is. Access to the single market is limited for non-EU members unless, like Norway, they accept EU regulations.

Firstly let’s take the point about “which model?” Ferguson is right in saying that Hannan doesn’t make this explicitly clear in the sense of writing a conclusion that states his preference. However he does, on first reading, appear to come down in favour of a model that comes closest to either Switzerland or Guernsey.

But — and it’s a big ‘but’ — for the more sophisticated reader who knows about the EU and the different models, Hannan leaves a trail of breadcrumbs that puts a rather different slant on matters.

Chapter nine is the key chapter in this regard, entitled “What are the alternatives?” After a fair amount of scene setting, these are the points I noted:

  1. Dan starts by making the point that no two European non-EU countries have “identical” deals. That’s true and this could imply to the less knowledgeable that they are all a considerable distance apart, which Iceland and Norway are not. But Norway does do some things differently to Iceland so pays a different amount per head…..ergo they are not “identical”.
  2. Then this paragraph: “It is nonetheless worth considering what some of the non-EU states do, if only to give ourselves a rough idea of what a trade-based deal — half-in and half-out to quote the obligatory cliche — actually looks like.” Just in case you missed that: A trade-based deal that’s “half-in and half-out” (the operative phrase).
  3. Hannan then goes on to say that Norway, Iceland and Switzerland are the most useful comparisons. “Before we look in more detail at what they do, though, we should stress that no one is suggesting that Britain slavishly mimic any of them. Each country has unique circumstances.” The phrase “slavishly mimic” and “unique” are both used to reinforce the earlier word “identical”, which together set an impossibly high threshold for proximity.
  4. Hannan is clearly NOT talking about different models here e.g the EFTA/EEA model being different from the EFTA-only model. As if to quietly reinforce the point that he is comparing countries not models, he goes on to say that “of course, these three countries all differ from one another”. He then focuses on the example of Switzerland (and so gently steers the casual reader away from the other two which are also slightly different from each other). And with Switzerland, he makes the point that she is in the Schengen zone….which of course Britain wouldn’t join. The purpose of this passage on page 156 is, for me, to note an example (and a big one) where Britain would be different. Of course anyone with sufficient knowledge knows that Schengen membership and EFTA/EEA membership are independent of each other, so getting an EFTA/EEA deal without Schengen is as straight forward as getting one with.
  5. We have to wait until page 163 before Dan returns to differences between the EFTA/EEA countries, this time noting the differences in EU contributions between Iceland and Norway. Iceland, he says, pays per head half of what Norway pays per head. Yes that is a difference and it means they are not “identical”.
  6. So having dealt with all three countries differences, and a discussion of what policies Britain might wish to continue cooperating with the EU on (as EFTA countries do), we arrive at this very intriguing paragraph running across pages 163 and 164: “How much would Britain pay on leaving? Plainly, there would be a small administrative cost to cover the functioning of the institutions that invigilate the free market. The EFTA states contribute to a Surveillance Authority and a Tribunal that polices tariff-free commerce across the EFTA and EU zone. They also agreed to pay a fee, phased in, to the new EU states to help them meet the cost of adopting EU standards.” Hannan is unquestionably referring to an EEA position here (Iceland, Norway) because Switzerland is not a part of the Surveillance Authority or “Tribunal” (i.e. Court) and the last bit about paying to new EU states is, in my view, contextually referring to the EEA & Norway grants, although admittedly (and less well known) the Swiss also provide grants.
  7. Then moving onto page 167 we get a summary of Hannan’s broad guidelines for the government to negotiate: “We’d retain free trade with the single market; we’d withdraw from the Common Agricultural and Fisheries Policies; our laws would be supreme in our own territory; we’d apply no tariffs, either to EU or non-EU states; we’d remain outside Schengen; we’d stay in NATO and the Council of Europe.” That is as good a description of a British EEA position as you’ll get. And as you would expect, it contains no mention of free movement/ immigration. Which is good.

In some senses, none of this is surprising, as Hannan regularly uses the phrase about a single European market “running from Iceland to Turkey” — Iceland being in EFTA/EEA and Turkey being in the customs union itself. From the above passages, I’d suggest that he now favours an EFTA/EEA position, despite having favoured the Swiss option (EFTA only/bilaterals) for many years.

But bringing this back to Ferguson’s specific accusation, namely that:

The paradox at the heart of the Brexiteers’ case lies here. First, we are told that nothing much will change. But then we are told a great deal will change, because the EU is an undemocratic superstate that is strangling British economic life with regulations.

He is actually right on the point that there will be much continuity — no doom, gloom, fire or brimstone. He goes on:

“You cannot have it both ways. Either, as Hannan promises, British bankers, car makers and herbal medicine producers — not to mention “art dealers, cheesemakers, temping agencies, slaughtermen, fund managers, trawlermen, steel workers [and] cider producers” — will be freed from EU regulations, in which case British exports to the EU will be reduced, or they will not, in which case all a Brexit vote achieves is to remove the UK entirely from the process whereby those regulations are made.
Having assured us that nothing much will change, Hannan offers a cornu­copia of post-Brexit benefits: trade agreements with non-EU economies that are growing faster than the EU; cheaper food, gas and electricity; and emancipation from the crushing burden of our net contribution to the EU budget — £11bn a year. He makes not the slightest attempt to estimate the value of the first two categories. And we should use the correct figure for the third, which — according to the Institute of Fiscal Studies — is closer to £8bn. That is approximately 0.4% of GDP.”

It’s no secret that I take issue with the way Vote Leave inflate the cost issue beyond what is credible, although the figure that they use daily — £18bn per year or £350m per week — isn’t picked up by Ferguson. The cost savings (if any) are, for an economy of Britain’s size, down in the small change department. So on that particular topic, Ferguson comes close to having a point.

But his point that “all a Brexit vote achieves is to remove the UK entirely from the process whereby those regulations are made” is spectacularly wrong and completely misses the modern reality of globalisation. If only he’d known that, he might have made a different point about deregulation, one I have made elsewhere.

Ferguson’s substantive point, though, is that Hannan is trying to have it both ways: continuity…and yet huge change.

I can’t put words in Dan’s mouth over this but if he’s anything like me who also favours a step back to the EFTA/EEA position, it is that leaving creates an opportunity — the start of a journey — and as anyone knows, your surroundings don’t actually change at the start of a journey. That only happens gradually as you undertake the journey. To use a different metaphor, taking an EFTA/EEA exit from the EU is a bit like exiting the M25 at the M3 junction. Initially it feels like nothing has changed — it’s a rather smooth process, all the rules are basically still the same, it just feels like you are moving quicker, that you can breathe easier, and you are no longer going round in circles (when you were not stuck in a traffic jam). You are also heading in a different direction, to somewhere you have actually chosen to go.

So it’s the opportunity, the agility, and the journey that leaving the EU opens up. That is what Ferguson doesn’t understand. Perhaps that’s because his article and his outlook, like that of all Remainers, depends on him not understanding.