Green House – Written Evidence (UST0048)

Green House (www.greenhousethinktank.org) is a think tank founded in 2011. It is principally concerned with exploring ways of securing the full inclusion of ecological issues in political and economic debate and policy-making.

1. The DIT’s strategic approach ‘UK-US Free Trade Agreement’ (published on 2 March 2020) uses standard trade theory in chapter 4 to calculate the gain to the British economy of a US-UK free trade deal.  This theory omits major costs to society and the environment: if included the tiny calculated gain in the UK GDP (0.16% for the best-case scenario) of a UK-US free trade deal is likely to be far outweighed by these costs.
2. Standard trade theory: This is the theory of comparative advantage: we can all have more ‘things’ (including services) if each person (or country) produces the things for which they have a comparative advantage and then these ‘things’ are traded. For two countries entering into a trade deal, in each country some jobs will be lost to foreign competition, but consumers in both countries will ‘win’ from having cheaper goods. In theory, in both countries the ‘winnings’ of consumers could more than compensate the loses – for instance, by paying for re-training of employees – but in practice it is difficult to compensate the losers for their loss of livelihood. The UK has had a comparative advantage in the financial sector, and increasing trade has brought us more profits in this sector, but with great losses in our manufacturing sectors.
3. Shortcomings of the standard theory: (a) Increased fragility: The pursuit of profits often decreases resilience. Goods are sourced where they are cheapest, and as storage is expensive many firms rely on long, ‘just-in-time’ supply chains. Firms tend to grow in size, due to efficiencies of scale. In the absence of a crisis – be it an extreme weather event, a war, or COVID-19 – this can be economically efficient as goods are produced where costs are lowest. Smaller firms, and firms which have more resilient practices, are likely to have higher costs so over time they must change or be driven out of business. However, COVID-19 is teaching us that international supply chains can make national economies fragile: come a crisis, supply of key goods can just dry up, as happened with face masks. In the future crises due to extreme weather are forecast to affect the globe with increasing magnitude and regularity. The cost to the UK of not having a home-production capability is likely to be large, and is not included in standard trade theory. If, say, climate conditions cause a world food shortage, loss of our farming and food businesses could leave us hungry.
4. Shortcomings of the standard theory: (b) Increased greenhouse gas emissions due to international transport: Free markets are only economically ‘efficient’ if all the costs work their way through to prices. Aviation and shipping do not pay for the damage they cause due to their greenhouse gas emissions, as prices for the fossil fuels they use do not incur a carbon tax. All goods traded between the US and UK will be cheaper than what would be considered economically ‘optimal’ from standard theories, thereby increasing damaging greenhouse gas emissions.
5. Shortcomings of the standard theory: (c) Loss of sovereignty: The UK may be entitled to apply a high level of environmental or worker standards after agreeing a US-UK trade deal, however, if UK firms become uncompetitive due to these higher standards, then they will be driven out of business. Either the UK will have to lower standards or jobs will be lost. This ‘Hobson’s choice’ is the opposite to ‘Take Back Control’. The loss of sovereignty is another ‘cost’ which does not appear in the standard trade theory.
6. Shortcomings of the standard theory: (d) Loss of social capital: The short-term upheaval in society with job losses and resultant migration of people to find work is likely to reduce people’s sense of ‘belonging’ to their area, reduce their social networks, and ultimately their wellbeing. Job gains are likely to be for higher-skilled workers and losses for less-skilled workers in farming and food production (generally less able to ‘cope’ with lower wellbeing).
7. The Alternative: The strategy for Brexit in the era of COVID-19 and climate emergency should be to build resilience and security in the UK economy through greater national and local self-sufficiency together with global cooperation. More details are given in the report Another Brexit is possible*. The recommendations from this report are submitted in support of this response, as summarised in the table below.

*https://www.greenhousethinktank.org/uploads/4/8/3/2/48324387/another_brexit_is_possible.pdf

3 July 2020