THE FOUR FREEDOMS
Politicians love to bestow gifts at no personal cost to themselves on to a grateful electorate but most gifts have cost implications and pointing out where the burden falls is an unwelcome task. Nowhere have politicians fallen more in love with their own munificence than the EU’s ‘four freedoms’.
Article 4 of the failed Constitutional Treaty stated "Free movement of persons, services, goods and capital and freedom of establishment shall be guaranteed within and by the Union in accordance with the Constitution".
The Treasury/DTI report of January 2007 proclaimed that ‘the four freedoms’ are the "fundamental principle of the European Union’ and Siim Kallas, Vice-President of the Commission, said on 18th January 2007 ‘It is with these four fundamental freedoms that the European Union has made so much progress during its existence".
‘The four freedoms’ are, of course, not new. In embryonic form, they were part of the original Treaty of Rome and have been the subject of uncritical support by all the major British political parties.
It would have been sensible to take a closer look at what it was meant by ‘the four freedoms’, who benefits from them and who pays for them but there has been little sign that EU politicians have ever considered their implications.
In British politics, it is assumed that nobody could possibly object to ‘free movement of goods and services’. Both free market enthusiasts on the right, as well as europhiles of all stripes, find these objectives attractive.
However, as the EU was conceived in more protectionist times as a Customs Union what the EU freedoms mean by ‘free movement of goods and services’ are free movement of goods and services within the EU Customs Union with the EU regulating what can move freely within the EU (e.g. the beef bans), regulating what can and cannot enter the Customs Union (e.g. quotas, anti-dumping duties) and, indeed, regulating the cost structure of certain products such as rigging the market prices of agricultural produce. Recent illustrations that the EU concept of freedom is far different from real freedom of trade were provided by the dispute over the imports of clothing from China and the apparent failure of the Doha round of the WTO talks on the rock of the CAP. It has been pointed out since the 1960’s that the effect of the EU concept of free movement of goods has been to depress the living standards of poorer people who have to buy expensive EU products, produce an ever-growing class of Brussels’ bureaucrats and, as far as Britain is concerned, disturb its traditional worldwide trade so as to produce a permanent deficit in goods (but not services) with the rest of the EU.
True free trade corrects misallocation of resources – a basic point in economic theory - and maximises wealth. The EU concept of free movement of goods is a very different concept from free trade.
If there was true ‘free movement of goods and services’, Britain could purchase many of the products it requires in world markets at prices less than those produced by what Patrick Minford calls ‘the common manufacturing policy’. (Should Britain leave the EU?)
Indeed, Minford quite correctly points out that the whole concept of free movement of goods within a Customs Union is tantamount to a ‘common manufacturing policy’ to which exactly the same objections apply as to the common agricultural policy. There are few British politicians who support the CAP but why is the ‘common manufacturing policy’, which is just as injurious to free trade, regarded as sacrosanct and supported by all leading politicians, the CBI, etc.?
Furthermore, as Eurofacts keeps pointing out, even on the European Commission’s own forecasts, the EU’s share of world production is likely to fall by half in the next thirty years so the ‘free movement of goods and services’ will take place in a much smaller economic area.
A further distortion being threatened by the EU is the creation of a common financial services policy – yes, it’s the CAP again – which is likely to become another bureaucratic, trade distorting monster and is gradually making progress as an EU policy.
What about the gift of ‘free movement of persons’? According to the Treasury/DTI report it means that "UK citizens have the right to work, study or retire in all member states". But, of course, this gift is reciprocal. EU nationals can work, study or retire in the UK. What is wrong with that?
Plenty.
Although the founders of the EU do not appear to have noticed, there is, of course, a fundamental difference between ‘free movement of goods and services’ (free trade - if it really was free trade in the EU) and ‘free movement of persons’. Economists, such as the US National Academy of Science, in its iconic study of immigration, The New Americans, point out the difference in concept; that trade is a flow, while movement of people is a transfer of stock.
"An immigrant who comes permanently to the United States competes with natives for every year of his or her working life. Trade is a flow, dependent on exchange rates and trade policies".
As Professor Borjas, the great American expert on immigration, puts it, "The goods that were imported in the last decade have long since been consumed and trade leaves no ‘footprint’. Immigration, however, increases the labour supply permanently".
Furthermore, trade has no effect on the accumulated wealth or capital of a country, such as homes, water supply, roads, etc. An influx of people has an enormous effect, depressing capital and wealth per capita.
So, if you have a greater stock of inhabitants, you need a larger infrastructure which has to be paid for by the country receiving people.
Someone has to pay for the share of capital each immigrant worker into an economy requires. Unless an immigrant brings appropriate capital with him, or can generate it himself very quickly, (and the amount for the UK for an immigrant family of four in 2006 is about £315,000) he crowds in and appropriates wealth from natives. So the EU ‘freedom’ can be very costly for a state accepting net immigration from other EU states.
There are straws in the wind that these simple truths are beginning to be recognized. The advocates of free movement and immigration from the EU may now be adopting the Blair-Clarke chess defence of first denying the problem, then saying the problem is under control and finally stating it was always obvious there was a problem. For example, The New Statesman of 27/8/07 commented, "They [immigrants] should have as much right to live and work here as any of the rest of us and if that means building more houses and roads to accommodate them, so be it". Actually, the EU immigrants are not in the position of ‘should have’ they already have this right. So now the British electorate know. The ‘contribution’ by EU immigrants to the economy means the taxpayers are paying for infrastructure to support them. And, indeed, as The New Statesman quite correctly points out, this is the true economic outcome.
It is not just immigrant workers who require extra wealth to be provided for them. So do students who also require housing, roads, water supply, etc. and the EU is aiming for a level playing field for students. Commonsense says there are bound to be more EU students wanting to study in English than any other language. Even apart from direct subsidies to EU students, the British taxpayer is disbenefited because he will be funding the wealth requirements of students from other parts of the EU while the counterbalance of British students in, say, Greek or Danish universities is limited.
So the grandiloquent ‘freedom of persons’ is at high cost to the natives of the receiving country of immigrant workers or students.
The position of retirees is, of course, that more British people retire to live in other parts of the EU rather than vice versa. However, what generally distinguishes retirees from workers or students is that they nearly always bring capital with them to buy houses, etc. EU enthusiasts and immigration enthusiasts are wrong to equate the economic effects of emigrating retirees with immigrant workers. Nevertheless a country welcoming retirees should be aware that they do not work or contribute to GDP and, to avoid being a burden on the recipient country, they need to bring with them an income stream to live on, and to take care of the fiscal cost to the recipient country. They also have a wealth effect, using roads, hospitals and water supplies in the recipient country and, therefore, need to make substantial financial investments.
Thrown into this is the notorious directive 2004/58/EC which gives EU immigrants the same access to ‘social assistance’ as native workers after one year’s work as well as permanent residency after five years’ residence. Milton Friedman has famously warned that "it is just obvious that you cannot have free immigration and a welfare state". While most immigrants do not come to the UK for public benefits, some do and some need benefits for no fault of their own.
To sum up, the economic effect of freedom of movement. If you import an immigrant family with two workers on average British wages you are effectively writing a cheque on the British taxpayer for £315,000 to provide the capital they need. If they cease to work and draw social assistance the value of the cheque soars. If there are cultural and language and national identity differences the costs go yet higher.
Freedom of movement of capital is like freedom of movement of persons, a transfer of stock rather than a flow. In other words, it has long-term effects. The EU has hardly been a major player in the increasingly free movement of capital throughout the world. It is, however, reasonable to say that the EU Commission has made some limited impact on the self-harming of certain core EU states who reject the import of capital despite extra capital benefiting the incomes of their own workers.
‘The four freedoms’ are part of the grandiloquent claims of EU politicians and are rarely scrutinized. As far as the UK is concerned it is difficult to see any benefit in ‘the free movement of goods and services’ since this is not free trade but various versions of the Common Agricultural Policy applied to different sectors of the economy, such as industry or financial services. The EU is certain to become a smaller part of Britain’s trade in the future which will increase the disbenefit. One can also conclude that ‘the free movement of persons’ is unambiguously a massive cost to countries receiving immigrant workers or students.
FUTURUS/18 September 2009
Article 4 of the failed Constitutional Treaty stated "Free movement of persons, services, goods and capital and freedom of establishment shall be guaranteed within and by the Union in accordance with the Constitution".
The Treasury/DTI report of January 2007 proclaimed that ‘the four freedoms’ are the "fundamental principle of the European Union’ and Siim Kallas, Vice-President of the Commission, said on 18th January 2007 ‘It is with these four fundamental freedoms that the European Union has made so much progress during its existence".
‘The four freedoms’ are, of course, not new. In embryonic form, they were part of the original Treaty of Rome and have been the subject of uncritical support by all the major British political parties.
It would have been sensible to take a closer look at what it was meant by ‘the four freedoms’, who benefits from them and who pays for them but there has been little sign that EU politicians have ever considered their implications.
In British politics, it is assumed that nobody could possibly object to ‘free movement of goods and services’. Both free market enthusiasts on the right, as well as europhiles of all stripes, find these objectives attractive.
However, as the EU was conceived in more protectionist times as a Customs Union what the EU freedoms mean by ‘free movement of goods and services’ are free movement of goods and services within the EU Customs Union with the EU regulating what can move freely within the EU (e.g. the beef bans), regulating what can and cannot enter the Customs Union (e.g. quotas, anti-dumping duties) and, indeed, regulating the cost structure of certain products such as rigging the market prices of agricultural produce. Recent illustrations that the EU concept of freedom is far different from real freedom of trade were provided by the dispute over the imports of clothing from China and the apparent failure of the Doha round of the WTO talks on the rock of the CAP. It has been pointed out since the 1960’s that the effect of the EU concept of free movement of goods has been to depress the living standards of poorer people who have to buy expensive EU products, produce an ever-growing class of Brussels’ bureaucrats and, as far as Britain is concerned, disturb its traditional worldwide trade so as to produce a permanent deficit in goods (but not services) with the rest of the EU.
True free trade corrects misallocation of resources – a basic point in economic theory - and maximises wealth. The EU concept of free movement of goods is a very different concept from free trade.
If there was true ‘free movement of goods and services’, Britain could purchase many of the products it requires in world markets at prices less than those produced by what Patrick Minford calls ‘the common manufacturing policy’. (Should Britain leave the EU?)
Indeed, Minford quite correctly points out that the whole concept of free movement of goods within a Customs Union is tantamount to a ‘common manufacturing policy’ to which exactly the same objections apply as to the common agricultural policy. There are few British politicians who support the CAP but why is the ‘common manufacturing policy’, which is just as injurious to free trade, regarded as sacrosanct and supported by all leading politicians, the CBI, etc.?
Furthermore, as Eurofacts keeps pointing out, even on the European Commission’s own forecasts, the EU’s share of world production is likely to fall by half in the next thirty years so the ‘free movement of goods and services’ will take place in a much smaller economic area.
A further distortion being threatened by the EU is the creation of a common financial services policy – yes, it’s the CAP again – which is likely to become another bureaucratic, trade distorting monster and is gradually making progress as an EU policy.
What about the gift of ‘free movement of persons’? According to the Treasury/DTI report it means that "UK citizens have the right to work, study or retire in all member states". But, of course, this gift is reciprocal. EU nationals can work, study or retire in the UK. What is wrong with that?
Plenty.
Although the founders of the EU do not appear to have noticed, there is, of course, a fundamental difference between ‘free movement of goods and services’ (free trade - if it really was free trade in the EU) and ‘free movement of persons’. Economists, such as the US National Academy of Science, in its iconic study of immigration, The New Americans, point out the difference in concept; that trade is a flow, while movement of people is a transfer of stock.
"An immigrant who comes permanently to the United States competes with natives for every year of his or her working life. Trade is a flow, dependent on exchange rates and trade policies".
As Professor Borjas, the great American expert on immigration, puts it, "The goods that were imported in the last decade have long since been consumed and trade leaves no ‘footprint’. Immigration, however, increases the labour supply permanently".
Furthermore, trade has no effect on the accumulated wealth or capital of a country, such as homes, water supply, roads, etc. An influx of people has an enormous effect, depressing capital and wealth per capita.
So, if you have a greater stock of inhabitants, you need a larger infrastructure which has to be paid for by the country receiving people.
Someone has to pay for the share of capital each immigrant worker into an economy requires. Unless an immigrant brings appropriate capital with him, or can generate it himself very quickly, (and the amount for the UK for an immigrant family of four in 2006 is about £315,000) he crowds in and appropriates wealth from natives. So the EU ‘freedom’ can be very costly for a state accepting net immigration from other EU states.
There are straws in the wind that these simple truths are beginning to be recognized. The advocates of free movement and immigration from the EU may now be adopting the Blair-Clarke chess defence of first denying the problem, then saying the problem is under control and finally stating it was always obvious there was a problem. For example, The New Statesman of 27/8/07 commented, "They [immigrants] should have as much right to live and work here as any of the rest of us and if that means building more houses and roads to accommodate them, so be it". Actually, the EU immigrants are not in the position of ‘should have’ they already have this right. So now the British electorate know. The ‘contribution’ by EU immigrants to the economy means the taxpayers are paying for infrastructure to support them. And, indeed, as The New Statesman quite correctly points out, this is the true economic outcome.
It is not just immigrant workers who require extra wealth to be provided for them. So do students who also require housing, roads, water supply, etc. and the EU is aiming for a level playing field for students. Commonsense says there are bound to be more EU students wanting to study in English than any other language. Even apart from direct subsidies to EU students, the British taxpayer is disbenefited because he will be funding the wealth requirements of students from other parts of the EU while the counterbalance of British students in, say, Greek or Danish universities is limited.
So the grandiloquent ‘freedom of persons’ is at high cost to the natives of the receiving country of immigrant workers or students.
The position of retirees is, of course, that more British people retire to live in other parts of the EU rather than vice versa. However, what generally distinguishes retirees from workers or students is that they nearly always bring capital with them to buy houses, etc. EU enthusiasts and immigration enthusiasts are wrong to equate the economic effects of emigrating retirees with immigrant workers. Nevertheless a country welcoming retirees should be aware that they do not work or contribute to GDP and, to avoid being a burden on the recipient country, they need to bring with them an income stream to live on, and to take care of the fiscal cost to the recipient country. They also have a wealth effect, using roads, hospitals and water supplies in the recipient country and, therefore, need to make substantial financial investments.
Thrown into this is the notorious directive 2004/58/EC which gives EU immigrants the same access to ‘social assistance’ as native workers after one year’s work as well as permanent residency after five years’ residence. Milton Friedman has famously warned that "it is just obvious that you cannot have free immigration and a welfare state". While most immigrants do not come to the UK for public benefits, some do and some need benefits for no fault of their own.
To sum up, the economic effect of freedom of movement. If you import an immigrant family with two workers on average British wages you are effectively writing a cheque on the British taxpayer for £315,000 to provide the capital they need. If they cease to work and draw social assistance the value of the cheque soars. If there are cultural and language and national identity differences the costs go yet higher.
Freedom of movement of capital is like freedom of movement of persons, a transfer of stock rather than a flow. In other words, it has long-term effects. The EU has hardly been a major player in the increasingly free movement of capital throughout the world. It is, however, reasonable to say that the EU Commission has made some limited impact on the self-harming of certain core EU states who reject the import of capital despite extra capital benefiting the incomes of their own workers.
‘The four freedoms’ are part of the grandiloquent claims of EU politicians and are rarely scrutinized. As far as the UK is concerned it is difficult to see any benefit in ‘the free movement of goods and services’ since this is not free trade but various versions of the Common Agricultural Policy applied to different sectors of the economy, such as industry or financial services. The EU is certain to become a smaller part of Britain’s trade in the future which will increase the disbenefit. One can also conclude that ‘the free movement of persons’ is unambiguously a massive cost to countries receiving immigrant workers or students.
FUTURUS/18 September 2009