John Locke and the Case against Brexit

John Locke – commonly known as the “Father of Liberalism” – was born in Wrington, England, on August 29, 1632.

locke

In his Two Treatises on Civil Government (1690), Locke refuted the idea of absolute authority. Although his immediate target was monarchical power, his argument applies to any form of absolute authority. Authority – whether that of the monarch or Parliament – must always be limited by law.

… Which brings us to maybe the best argument against Brexit: the fact that in Britain the concept of Parliamentary Sovereignty still enjoys widespread support.

Parliamentary Sovereignty is the idea that Parliament can do anything in its legislative capacity  – “Sovereignty” means unrestrained power – and that individual rights and the courts must yield to that democratic imperative.

Membership of the European Union implied an end to Parliamentary Sovereignty because the British Parliament was now bound by European law. After Brexit this check will be gone.

… Nevertheless, I’m slightly more optimistic than pessimistic about the long-run effects of Brexit.

Let’s hope the best.

How to make Brexit Really Worthwhile – Example: Regulation dealing with Information Asymmetries

This is the title of a post I wrote for Notes on Liberty, here is an excerpt:

Information asymmetry between buyers and sellers is a pervasive phenomenon. Ways of overcoming this problem include establishing a reputation or offering warranties. Another solution is third-party certification.

Third-party certification provides assurance to consumers that a product or a supplier of professional services meets certain quality standards.

Private suppliers of third-party certification include organisations such as Consumer Reports, the American Automobile Association (AAA), which rates motels, or A.M. Best, rating insurance companies. Examples of third-party certification provided by the government are product safety regulation, food standards regulation or occupational licensure.

Private suppliers of third-party certification can only exist because the product they offer is valued enough by market participants to justify the cost of providing it. And their profits are determined by their credibility.

The same cannot be said for third-party certification provided by the government. The government does not need to tailor its supply of third-party certification to consumer demand because it is financed by the taxpayer.

There’s much more at the link.

Spontaneous Order versus Centralized Design – Or: How to make Brexit Really Worthwhile

Brexit constitutes a shift in the direction towards more local autonomy and governance diversity. Since, in general, smaller political entities tend to be governed better than larger ones, one may expect Brexit to have a positive effect on the efficiency of the framework of rules governing British society.

So far so good. But simply shifting powers from politicians and bureaucrats in Brussels to politicians and bureaucrats in London will unlikely lead to the dramatic improvement of the legal and regulatory framework that would be needed to significantly raise standards of living in Britain – especially given the fact that Brexit also means losing the benefits of the European customs union.

Regarding the production of rules the central issue is not “London versus Brussels” but “centralized design versus spontaneous order”.

Whether rules are made by Parliament and regulatory agencies in London or by the European Commission and regulatory agencies in Brussels, in both cases they are the product of a centralized ordering authority rather than the result of a decentralized and market-responsive evolutionary process.

The traditional argument for a spontaneous order over centralized design is that, under conditions of dispersed knowledge, only a decentralized and evolutionary process leads to the discovery of the relevant knowledge. In other words: a spontaneous order is able “[…] to make use of knowledge which nobody possesses as a whole” (F. A. Hayek in Law, Legislation and Liberty, Volume 1: Rules and Order).

The argument for the superiority of a decentralized spontaneous order over central planning is evident to most people when applied to the production of ordinary goods and services. But the same argument can also be applied to the production of laws and regulations.

The intuition is straightforward: as individuals discover new rules that work better than the existing ones, the new rules will be adopted unless the transactions costs associated with switching to the new rules are prohibitive. Superior efficiency of the framework of rules is the result of such a discovery process.

Turning to a large extent the production of laws and regulations in areas that up to now have been largely controlled by the European Union over to the private market rather than merely to politicians and bureaucrats sitting in London would give Britain the opportunity to embark on this discovery process.

The Simple Way to Avoid any Disruptions to the Flow of Imports to Britain after a No-Deal-Brexit

The deal negotiated by Theresa May is dead. The EU is not going to yield so there will not be a new deal. Hence, many now see a No-Deal Brexit as the most likely outcome. And it seems that much of the British political establishment and the population at large is suffering from a severe panic at the thought of the impact of such a No-Deal Brexit on the flow of imports to Britain. 

The important thing to understand is that, when it comes to the flow of British imports, the big distinction is not between Brexit with a deal and Brexit without a deal but between

    1. a deal that would keep Britain in the European customs union
      and
    2. a No-Deal Brexit or a deal that would not keep the customs union intact. 

Let us for a moment imagine that Britain had achieved a complete free-trade deal (i.e. zero tariffs) with the remaining EU. Would such a free-trade agreement avoid any disruptions to the flow of imports to Britain after its exit from the EU? The answer is “No” – if the British government did not also commit to zero tariffs on imports from the rest of the world.

Here’s why: the EU is not a free trade agreement like NAFTA; it’s a customs union, setting common external tariffs, which means that once you’re in, you’re in: once goods are unloaded at, say,  Hamburg they can be shipped on to anywhere within the customs union without further customs checks.

In the case of Britain leaving the EU with a free-trade agreement EU products could enter Britain tariff-free. But if Britain charged tariffs on products from (all or some) non-EU member countries, this would mean that EU goods entering Britain would still have to face a customs inspection in order to make sure that they were actually produced in an EU member country rather than, say, Chinese goods unloaded in Rotterdam or Hamburg and shipped across the border to bypass British tariffs. So there would be much more friction compared to today.

And frictions, not tariffs, constitute the greatest concern for British businesses relying on supplies from the EU. The risk of customs delays would make “just-in-time” production infeasible for British companies currently relying on prompt arrival of parts from Europe. They would have to maintain higher inventories, which would substantially raise costs.

Furthermore, in the short run things may turn quite ugly. After almost half a century in the customs union Britain does not have in place the infrastructure needed for the customs inspections mentioned above. Hence the fear of massive delays and of shortages.

However, there is a simple way to avoid any disruptions to the flow of imports to Britain after Brexit with or without a deal: unilateral free trade.

In this case the tariff would be the same for all imports regardless of where they come from: zero. Customs inspections would be unnecessary. Brexit – with or without a deal – would not lead to any friction regarding imports.

Anti-Corn_Law_League_MeetingA meeting of the Anti-Corn Law League in Exeter Hall in 1846

Liechtenstein – the country with the most advanced constitution in the world

Imagine you are living in a country where an internet provider claims a de jure territorial monopoly wherein all inhabitants must be customers. The price-performance ratio is dismal. There are two proposals to fix the problem:

    • First proposal: Democracy … the CEO of the service provider shall be elected by the country’s citizens every four years.
    • Second proposal: Competition … the monopoly of the internet service provider shall be abolished and the market be opened for competitors.

Which solution would you prefer?

I, just like basically all sane persons, would prefer the second over the first proposal. “Democratizing” the internet provider may (or may not) improve things somewhat. But only competition can deliver the best possible price-performance ratio. I don’t care how the CEO of my internet provider gets appointed. He/she can be chosen by shareholders, through “democratic elections” or by rolling the dice.  As long as I’m happy with the service, I couldn’t care less.

What does this have to do with Liechtenstein?

Liechtenstein is, so far, the only country in the world where the provider of governance services does no longer have a de jure territorial monopoly over the country’s inhabitants.

In the words of Prince Hans-Adam:

The State should treat its citizens like an enterprise treats its customers. For this to work, the State also needs competition. We therefore support the right of self-determination at the municipal level, in order to end the monopoly of the State over its territory.

Therefore, since the constitutional reform of 2003, every commune in Liechtenstein has had the right to secede. Even tiny Planken (with roughly 280 voters) could have its independence recognized following a local vote.

The root of bad governance is lack of competition. Incorporating this key insight into its constitution has made Liechtenstein the country with the most advanced constitution in the world.

It’s a catastrophe that in other countries there has, thus far, been so little understanding of the fundamental importance of the right to secession.