The Telegraph — There are two ways of looking at the IMF’s pronouncements on the economy, Brexit and all other matters. The first is to dismiss everything it says as irrelevant: after all, it has regularly changed its mind in recent decades over central issues of economic policy and utterly failed to predict or understand the bubble of the 2000s and the subsequent crash and financial collapse.
Time and again, its predictions or prescriptions turn out to be wanting. I wouldn’t go as far as to claim that it is a contrary indicator – it is right on some major questions, such as the desirability of globalisation and free trade – but its record is poor when it matters.
Like almost all international organisations and even big financial institutions, it buys into the current (and ever-changing) received economic wisdom.
International bureaucracies support other international bureaucracies; and the IMF, all too predictably, backs the EU. Christine Lagarde argues that the referendum on Brexit could create uncertainty, whereas she believes that certainty would be preferable (sadly, bureaucrats never like the fact that democracy actually implies a choice from empowered voters).
Despite all of that, I prefer the second option, which is to take all arguments seriously, even if their source is suspect and has a terrible history of getting it wrong.
The IMF is engaged in what could be a six-month project to write a report on how Brexit would impact the economy, the conclusions of which are likely to be predictable; but when it is published, it will deserve to be taken seriously even by those of us who already suspect that they won’t be convinced.
The real debate to be had within the business community is slightly different, however. I have spoken to several anti-Brexit CEOs in recent weeks who have made the same point: they believe that the EU is pro-capitalist and those who oppose it are not.
I have also spoken to pro-Brexit business people and economists who have argued the exact opposite:
it is the EU that is anti-capitalist, its centralising, harmonising and regulatory instincts inherently at odds with real free markets. It is a fascinating divide: two groups of intelligent people are looking at the same organisation, and coming to radically different conclusions. One group is right, and the other wrong.
In a variation on the same theme, one prominent chief executive told me that his own decision as to whether or not he would back Brexit would boil down to whether he thought that an independent UK would be more protectionist and inward-looking – or whether Brexit would make us more global in outlook and more likely to embrace pro-growth reforms.
The truth is that we cannot know for sure. It is possible that we would become a lot more protectionist if we were to leave the EU, or at least loosen our ties with it; in particular, there is a good chance that the labour market will become less liberal (though more barriers to EU migrants might be cancelled out by fewer barriers for certain non-EU ones).
But it is equally possible that the rise of Marine Le Pen in France and other factors will make the EU far more interventionist and illiberal than it is today, impacting us, too. The status quo itself is unstable: the EU will change over the next few years and us with it.
My own guess is that the sort of constitutional and cultural shock that a Brexit/proper renegotiation would guarantee would jolt Britain out of its current complacency. Paradoxically, trade and life would continue unchanged for the first few years at least; but it would nevertheless be a seismic event for Westminster elites. Attitudes would change very quickly.
They would become far more aware of the need to attract capital and talent; the pressure to allow the construction of new airport capacity would be greater; we would finally sort out our domestic political institutions; we would have to fight harder and be better in every way, focusing on education, investment and competitiveness.
The artificial European cocoon would be gone, if only psychologically (in practice, the UK and the EU would probably remain just as economically integrated as they are today). Far from retreating into protectionism and nimbyism, I suspect that we would become even more open. It’s just a guess, of course – but contrary to what the IMF seems to believe, certainty isn’t possible in the real world.
