The European Communities and the Free Economy; J. E. Powell

THANK YOU for inviting me to dis cuss "The European Communities and the Free Economy." I do so the more gladly because I am sure that Britain's presence in or ab sence from the European economic communities is going to be one of the central questions in British politics in the coming months and years. Ten or twelve years ago, when British membership of the Euro pean Economic Communities was first raised, I was under the mis taken impression that the EEC was concerned with free trade. I now know that the first important fact to grasp about the EEC is From an address of February 13, 1973, before a group of ministers - The Remnant - and guests in New York City. that it has nothing to do with free trade. Free trade is the absence of barriers - of artificial barriers to trade between the citizens of the various countries, so that what ever may be the respective circum stances and the types of govern ment under which they live and the follies which those governments respecti vely commit, nevertheless the citizens on either side of the national frontiers may within those limitations enjoy the best return in exchange for that which they produce. In other words, it enables the citizen to make the best choices and obtain the best reward for what he produces and offers for exchange. That is what free trade is about. It is about 259 260 THE FREEMAN May helping those who belong· to differ ent political units nevertheless to exchange automa tically, often un consciously, and as freely as possi ble, the produce of their hands and their brains. And that, I repeat, has nothing to do with the EEC.

The· object of that organization, as the name denotes, is to create ,an economic community. Let us put it the· other way round; to create a common economy. Para doxical though it may appear, an economy is not a fact of economics. An economy is not an economic entity.N 0 amount of economic in formation supplied to a visitor from Mars would enable him to outline on a map of the world the various economies. Of course, he could draw attention to areas where he suspected there would be a maritime economy, a riverine economy, and so forth. But "the British economy," "the United States economy," "the European economy" would remain entirely unknown and invisible to him. In order to detect and define those, the information that he would require would be political. The Essence Is Political "The British economy" means the economic aspects of a political thing, the nation called Britain or the United Kingdom. "The econ omy of the United States" is not something derived from nature; it is about a political thing - the United States of America. When we talk about "the American econ omy," we are viewing from an economic aspect something of which the essence is political. It is not .economic facts that make the United States. It is political facts.

Therefore it is not surprising to find that the intention in the Treaty of Rome, as· it has been im plemented over the past 15 or 16 years, to create a European eco nomic community is a political intention. It is one hundred per cent politics and zero per cent economics. That is not to say that it is right or wrong, wise or fool ish, or that its results will be fortunate or unfortunate; but we must not be misled either by the alternative title, "Common Mar ket" - which the British (rather significantly) have hitherto pre ferred to use-or by the appear ance of the word "economic" in the title of this new political entity. Three months before the due date of British membership on January 1, 1973, the leaders of the nine countries concerned met in Paris and, among other de cisions, arrived at the conclusion that they intended to bring about "economic and monetary union" by 1980. I suppose that the politi cal intention behind the EEC could not have been more sharply de noted than by that assertion. Mon1973 THE EUROPEAN COMMUNITIES AND THE FREE ECONOMY 261 etary union? A single money, or the automatic convertibility of the respective national currencies?

That implies that there is only one government; for the behavior of money is affected or determined by government - and not merely by the direct monetary policies of government, but by all the deci sions that government takes, to intervene or not to intervene, to tax or not to tax, to spend or not to spend. All these have their effect on the value of the currency. One Money - One Government Therefore 'an area in which there is a single money - a single ness of purpose in all the ways in which government may influence the value of money - must mean that in that area there is one and only one government, one and only one political will. That is so obvi ous that it is superfluous to carry through the same proof again in the context of econom,ic union. In deed, it is hardly an exaggeration to say that economic and monetary union is a tautology: the same de gree of political unification is nec essary for monetary as for eco nomic union. This, then, is what is aimed at within seven years - so we are told by the representatives of the nine countries of the Com munity.

Already a very considerable de gree of political unification has taken place. Most people in Britain probably don't know it yet; but since the first of January Britain has had no trade policy. What, no trade policy? Yes, literally, no trade policy! Decisions which fall within the scope and definition of trade policy are no longer within the power of the British Govern ment or Parliament. Those politi cal decisions; that aspect of gov ernment, is now exercised else where and is withdrawn from the control of any purely British authority. So I am not drawing your atten tion to a speculative, hypothetical, ultimate development, but to a process implicit in the nature of the EEC itself, a process which by the very act of membership is car ried a large stride forward, a proc ess which is intended to be might ily accelerated - if not completed - in the years immediately ahead. What Sort of Government?

The immediate effect of politi cal unification is by no means un ambiguous in its economic conse quences. One is obliged to examine what may be the policies of the government which is to be set up within this new political unit. Will it be devoted to the free economy? Will it be bureaucratic? Will it be interventionist? The mere fact that there is to be a new political unit. does not predetermine what 262 THE FREEMAN May will be its policies and its pro clivities. But the effects upon the economic life of the component countries are already more far reaching than I think they suspect, and I should like to spend a mo ment on one very important effect, directly connected with the bid to produce political union and uni formity of economic policy within the Community. Inside a single nation, where there are no trade barriers and not merely the money but the economic policy is the same throughout, the economic balance - which is constantly altering between the various regions of that nation is restored by the movement of people and of re sources. If you could imagine, for example, the United Kingdom di vided into three, four, or five sep arate countries, each with its own government and each with its own money, then the balance between these economies would be main tained by the exchange rate be tween their respective currencies.

But as they are parts of one mon etary and political unit, the con sequence of economic change is a movement of resources and of peo ple which takes place freely in response to those forces. Out of this arises what we know as "the regional problem." Even within a single nation peo ple are so attached, for other than economic reasons, to their own area, to their own part of the coun try, to the historic region to which they belong, that they resent the economic consequences of the na tional unity which is theirs, and demand that the central govern ment shall take interventionist steps in order to defeat the effects of economic and political union, by making it appear more; favorable instead of less to conduct industry in a place which otherwise indus try would desert or giving prefer ences to areas which are economi cally less advantageous. The Regional Problem on an International Scale Bearing in mind that picture of the regional stresses within a uni tary nation, let us look at the European Economic Community.

We immediately see that the effect is bound to be the same on a larger scale. No longer will economic re lations among the members be equilibrated through the exchange of currencies. On the contrary, they will be equilibrated by the free and automatic movement of people and resources; and just be cause that collides with the fact of the enduring local and national affections of the various parts of the Community, regional policy is one of the big problem areas of EEC politics. It is as though, hav ing decided to achieve economic 1973 THE EUROPEAN COMMUNITIES AND THE FREE ECONOMY 263 union, the Community found itself obliged at the same time to undo or counteract what must necessar ily be the effects of political union. So we see straight from the begin ning a direct political impact on the member countries of the po litical intention which lies behind the formation and the extension of the EEC.

So I return to my question: what sort of government is this going to be which is implied by the nascent economic and mone tary union of the EEC? I've al ready given one indication. I have pointed out that the EEC has felt immediately moved to counteract the very economic consequences at which it purported to aim by using the power of the central authority to redistribute resources again, to falsify the economic data and to divert the economio forces within the enlarged community. But if we look at the character of the Community from the beginning, and at its background, I think we shall have little difficulty in dis covering what kind of government there will be, and what kind of policy will be pursued, in this new political entity. Three Communities I notice that very accurately, in the specification of my title, the plural was used - "the Economic Communities" - and indeed there are in fact three. There is not only the EEC itself, as it was set up by the Treaty of Rome in 1957. There is the Coal and Steel Community; and there is EURATOM, the atomic community. So let's have a look at those other two communi ties that make up the plural.

There is a high authority for the coal and steel industry through out the European Economic Com munity. What for? If the inten tion were the freest possible ex ploitation, in response to economic forces, of the coal and steel re sources of the Community, then the last thing which would be needed is an "authority," to do what the market will do of itself. When an authority is set up, that is a clear sign of intention to en sure that the economic forces do not produce their natural effect but that something else happens instead. Sure enough, the object of these two communities, the Atomic Community and the Coal and Steel Community, is not to ensure that the exploitation of the potentiali ties of coal and steel and atomic power occurs wherever and to the extent that it produces the highest return to the resources employed. If that were the object, no author ity would be necessary. The object is a political object. It is so to con trol both the location and the volume of production as to achieve 264 THE FREEMAN May an outcome different from the purely economic - in other words, a political outcome. Already the governments in all the countries of the Community are knee-deep in coal, steel, and atomic energy.

If those governments are to be unified within the Community, then the Community is bound to have an "authority" which will stand in relation to coal, steel, and atomic energy for the Community as a whole as the individual gov ernments have been doing hitherto for their respective territories.! In other words, it is plainly and wholly interventionist. Trade Policy Let us take trade policy as an other example. What is meant by saying - and we hear these words on the most respectable lips - that the new European entity will con stitute a "powerful" economic bloc, that it will wield economic power comparable with that of such giant economies as the United States or the Soviet Union. What does this mean, this talk of eco nomic power? In what sense would western Europe, with no internal tariff barriers, represent a power or force in the world? Not by trad ing freely, either inside its limits or across a common tariff against the outside world. The essence of trade is that one party to a trans action exercises no more power than the other party. Trade in it self is of all human relationships the most pure of any taint of the exercise of power; for trade takes place when mutual advantage is equal and opposite.

Yet "economic power" is very much what lies at the heart and intention of the creators and the magnifiers of the European Eco nomic Community. So what do they intend? How do you wield what is called "economic power"? Obviously, not by freeing economic activity and trade or by multiply ing the voluntary relationships be tween individuals in one part of the globe and in another. You do it by exercising political constraint over your own citizens in their trading activities, so that their behavior may in turn bring duress to bear upon the citizens of other countries. We witnessed in the 1930s what was meant by the exercise of "economic power": the deliberate use of a nation's ability, by mold ing the economic actions of its own citizens, to bring leverage to bear upon others. This is not the attitude or the approach of a new government with ambitions for freedom of trade and intercourse.

It is the language of a neW gov ernment with strictly political am bitions, where economic welfare will be subordinated to politidtl intention.

1973 THE EUROPEAN COMMUNITIES AND THE FREE ECONOMY 265 Taxation Policies Uniform Throughout Turn now to taxation. One of the principles of the European Economic Community is that tax ation, and indeed all the other aspects of government which have an economic consequence in the life of the citizen, shall progres sively be harmonized throughout the Community. We are at the moment enacting in Britain a Value-Added-Tax. Whether good or bad, this taxation is unparal leled in the course of the last 500 years; it is a tax which we cannot repeal, whether we like it or not; for it is a condition of member ship of the European Economic Community that all the countries must have a Value-Added-Tax. In due course, the same logic will re quire that they shall all have the same Value-Added-Tax. In every sort of government ac tion which has economic conse quences, the European Economic Community aims at attaining uni formity. We are, therefore, en gaged in creating a government, a new government, a supergovern ment, which will impose upon all the citizens of that area a system of taxation, a system of social wel fare and insurance, a system of law wherever it touches economic affairs - uniform throughout.

I ask: is that likely to be mini mal or is it likely to be maximal? Is it likely that harmonization will take place downwards or that it will take place upwards? Will in tervention be raised to the level of the maximum which prevails any where in the Community or re duced to the minimum which is anywhere to be had? Well, I can tell you that in Britain, when Rnx ious souls inquire, "Is there any truth in the rumor that in the European Economic Community we would have to dismantle the Health Service?", the reply is al ways confidently given, HOh, no, no! What we expect will happen will be that in due course the rest of the Community will imitate us." That's how political harmonization takes place: in the nature of things, it takes place in an upward and not a downward direction. The Nature of the Animal Let us now have a look at the animal itself. Thus far, I have dis cussed in the abstract the-political unit, the new political unit, the new government, the new super government. But who are they who comprise this government? They don't at all closely resemble the present government, for example, of Britain. Those who make up the present government of Britain, for all their faults and failings, sit in the House of Commons and are answerable to the House of Commons in the sense that they 266 THE FREEMAN Ma,y may be called to debate there, and certainly are ultimately answer able to the electorate, in the sense that the electorate can turn them out. The government of the Euro pean Economic Community will not be like that at all.

The government of the Euro pean Economic Community con sists of two parts. One part of this government is the bureaucracy, the bureaucracy which created it, the bureaucracy which inspired its extension and which is already busily engaged, on an ever-increas ing, Parkinsonian scale, in work ing out plans for harmonizaton. This is a bureaucracy which is not answerable to any democratic au thority whatsoever anywhere in the Community. It thus differs from the civil services of the re spective governments, which, after all, are the servants of those gov ernments although they may some times behave more like masters. The bureaucracy of Brussels, the bureaucracy of the Community, the Commission is entrenched in the Treaty. It is part of the con stitution. It has its own inherent power and its own independent source of growth and of authority. The other part of the govern ment is a combination of the na tional governments, meeting to gether in conclave to arrive at bargains among themselves to their common or mutual advantage, a sort of lowest common de nominator of the national execu tives of the respective countries.

But when they are together they are not the same as when they are separate. When they are separate, they each return to their makers. The British Government at home behaves as the British Govern ment. Parliament has to explain and to argue; the supporters have to defend their actions to their electors; the electors then have the last word. The Whole Differs from the Parts Not so when governments join to become a collective. The com bining of nine governments does not leave those' nine governments unaltered. They become a tenth thing, something new. The deci sions which they take in common are decisions for which none of them is -separately and independ ently responsible. They are all, as individual governments, irrespon ~ible in respect to the decisions which they take together; and each and everyone of them can say, "But, of course, this wasn't our decision. No doubt, if we had been free, we wouldn't have done exactly this. But you see, we had to agree, because we are a Com munity."

Both parts, therefore, of the government of the new political entity are irresponsible. And I 1973 THE EUROPEAN COMMUNITIES AND THE FREE ECONOMY 267 have to ask you this question: is it more likely that a bureaucracy and an executive which are not democratically responsible will be less or more greedy of power, less or more ready to find new work to do, than national governments, which at least in the last resort, have to render account for. their actions to those whose activities and lives are affected? So, I conclude that the Euro pean Economic Community repre sents the erection of a new.. govern ment, a new political unit with a new government, and that the whole spirit and trend of this new unit and new government will be to increase the power of govern ment vis-a.-vis the citizen and to increase the scope and range of government intervention in the economic life of the citizen throughout the area which is cov ered. As I said when I started, this is not about free trade. This is not about economic freedom. It is about the regulation of trade and the regulation of economic life.

A National Interest I want to leave this reflection with you in conclusion. It is a reflection which has been borne in upon me with new sharpness by the many valuable encounters and discussions I have enj oyed here in the United States during the past nine days. Though we hold in common many beliefs and princi ples, these are seen by each of us in the context of his own national background. We err if we imagine that the laws of economics apply merely to individuals, and that the aggregations of mankind into nations and societies is the mere totaling of individuals. The case for a free economy - the case for which we contend~ all of us in our respective situations-the case for economic freedom does not depend upon an artificial picture of hu manity. The case consists in what the application of those principles can·· do in particular societies, the societies into which men are actu ally organized as sovereign na tions; and the story of Britain in the European Economic Commun ity really illustrates this.

The decision that Britain has to make - and we haven't made it yetI - is essentially a national de1 At the last general election, Mr. Heath said that such a thing as membership in the Community could not come about without the full-hearted consent of Par liament and people. The measure was forced through Parliament by paper-thin majorities and no one, however enthusi astic for British membership, has ever dared to claim· that· there is even a bare majority in favor amongst the public out side Parliament. In those circumstances, what has happened must be regarded as provisional and I do not believe that the electorate can be denied the opportunity if it wishes to make this the deciding factor in a decision at a general election.

268 THE FREEMAN May cision, a national political decision. The question is: By whom are we going to be ruled? So, as one who labors with you in the same field, I find myself opposing Britain's membership in the European Eco nomic Community - indeed, be lieving that it cannot be brought permanently to pass - not primar ily on the ground that it will operate to increase the povver of intervention by government over a great area of humanity, but be cause of its political unrealism: that! it assumes a will to be gov. erned where a will to be governed in the new unit does not exist. Economic laws, of course, are independent of human volition; but like the other laws of nature which we cannot change, we seek to place a true interpretation and use of such laws at the disposal of our fellow citizens. And we do that - I believe, all of us - not from general and abstract consid erations of the welfare of the total of humanity, but because we our selves enter as members into the fate and destiny of a specific hu man society. It is in that sense, though only in that sense, that I have always claimed that the eco nomic in human life is subordinate to the political. It is a servant, a servant in the sense that any of the other natural forces is a ser vant if rightly used. That is why the politician has the duty to his own society to insure that that society understands the necessary consequences of the policies which it adopts or rejects. It is because I want to preserve to the people of Britain the opportunity still to take that kind of decision for Britain, that I, for my part, have said "No" to the creation of this new superstate and supergovern ment-at least insofar as Britain is intended to be a part of it. ~ IDEAS ON LIBERTY Freedom to Cooperate INTERNATIONAL CONFL,ICTS are inherent in the systems of inter ventionism and socialism and cannot be solved unless the systems themselves are abolished. The principles of national welfare as conceived by our progressive planners conflict with the principles of international cooperation and division of production. If inter national cooperation is to be restored, the policies of government interventionism and socialism must be abandoned.

IIANS F. SENNHOLZ, How Can Europe Survive?