Brexit and the Red Tape State

The unexpected success of Brexit and the policy possibilities of Britain’s withdrawal from the European Union raises what might be the most important question of the twenty-first century: can the red tape state be unwound?

The original idea behind European unity was a free trade area that would prevent the outbreak of a future continental war through commerce and diplomacy. But over time this noble idea has morphed into a byzantine, undemocratic, red tape automaton. In the name of reducing barriers to trade, the EU has sought to expand its regulatory fingers in to all aspects of the economies of its member states. Margaret Thatcher warned in 1988 that European economic cooperation must not be ‘ossified by endless regulation’. But that was exactly what happened.

The think tank Open Europe calculates that since 1957 the EU has itself passed 666,579 pages of law. Of this, more than 170,000 pages are still active. Over 100,000 of those pages have been produced in the last decade.

This is, of course, on top of the burden of domestic legislation—of which, in some federations, up to three levels of government impose their own red tape burdens. Some member states have almost entirely outsourced their legislative production to the EU. It has been estimated that 84 per cent of German federal legislation emanates from the EU. Other estimates suggest the EU influence on domestic legislation is much less—in some countries, as low as 6 per cent. But these lower estimates seem to reflect hyperactive legislation at the domestic level. More democratic, certainly. But hardly good for the economy.

The IPA Review has been tracing the global impact of European regulation for more than a decade. In December 2006, Professor Wolfgang Kasper identified the international aspirations of the byzantine European chemical regulation system—formally known as Registration, Evaluation and Authorization of Chemicals but with the unintentionally apt acronym of REACH—and how it erodes the property rights and responsibility of chemical producers and users.

When the European Member of Parliament Dan Hannan came to Australia as a guest of the IPA in 2012, he laid out the problems of European regulatory excesses. In this issue of the IPA Review, IPA adjunct fellow Georgina Downer argues that the case for Brexit was founded in the possibilities of economic liberation from overweening red tape.

How to wind this red tape back? The new Prime Minister Theresa May is trying to figure out exactly how to remove her country from Europe’s bureaucratic Leviathan. If red tape needs to be in order to fulfil the economic promise of Brexit, Britons shouldn’t underestimate the enormity of that task. Special interests will need to be confronted, and whole bureaucracies that depend on administering European red tape will need to be eliminated. But Brexit offers an opportunity to do so—possibly a one-in-a-hundred-year opportunity. Brexit was a political avalanche. In its wake, much large scale reform can be pursued. Australia has not had such an avalanche. Yet our red tape problem is just as pressing. IPA research has found that the lost economic output from domestic red tape is at least $176 billion a year. At 11 per cent of GDP, this makes red tape our largest industry—a stubborn drain on the prosperity of Australia at a time when we should be looking to revive rather than hamper our economy. We have estimated that there are 497 bodies.

In March this year the IPA launched a major new project—Cut Red Tape to Unleash Prosperity. The project will bring to bear new research and the IPA’s voice for freedom on Australia’s red tape challenge. It has never been needed more than now. At the Commonwealth level political action on red tape reduction has slowed. In part this is because of the trouble the Coalition had with the crossbench senators in its previous term of government.

The Australian government has backed itself into a corner on the budget. It can’t—or won’t—commit to seriously reducing spending. The budget gap is not going to be closed through tax increases either—certainly not without harming the Australian economy.

Red tape reduction, done right and explained coherently, can be a political and policy winner. It’s a political winner because it runs around the quagmire that is the tax and spend debate. And it’s a policy winner because it tackles what is unambiguously Australia’s most fundamental economic problem: low growth.

Reducing red tape would free entrepreneurs and businesses to focus on building better products, developing better services, and creating value rather than wasting their time filling out applications, obtaining permits and registering for licences.