Researchers vs the People

The Malta Independent

Ten candidate countries that will accede to EU membership next year have all had such decision approved by a popular referendum vote except for Cyprus where the agreement was so broad that a referendum was considered a waste of time. There is no doubt, the people want it. Compare that to the Euro referendum in Denmark and in Sweden where the people said no thank you or at least not just yet.

Respectable economic researchers seem to think that the people got it wrong. A new study from the Cato Institute, a Washington-based public policy research foundation, challenges the belief that joining the EU will improve the competitive position of Central and Eastern European Countries (CEEC) in the world economy. It is hardly surprising that the study omits Malta and Cyprus and it is becoming quite a habit for the two island states to be taken so for granted that it is not worth anybody’s while to include in discussion or research studies.

The study, entitled EU Enlargement: Costs, Benefits, and Strategies for Central and Eastern European Countries, states that the eight CEECs will benefit from reduced barriers to trade and investment and, by 2010, free movement of labour. EU membership, however, brings with it some serious disadvantages and the Cato Institute believes that it will make the accession countries less competitive.

The study argues that the EU forces poor member countries to adopt rules and regulations inappropriate to their level of economic development. Those burdens will result in suboptimal economic growth and complying with the EU’s regulations on labour, agriculture and the environment will raise production costs, while future harmonisation of taxes looms as an additional threat to the new members’ comparative advantages.

The Cato research team recommends a two-part strategy for the new entrants:

· First, they should oppose further limits on tax competition that would make them less attractive to investors;

· Second, they should work to repeal regulations that are excessively stringent for their present level of development.

The study argues that if the new member states follow these strategies and protect their economic liberty, they can demonstrate to the rest of the EU that market-friendly reforms are good for growth. “It is to be hoped that the CEECs will be able to supply such policy competition before they themselves begin to suffer the consequences of an overbearing bureaucracy in Brussels,” concludes the study.

This is not so different from Labour’s pre-election main argument for resisting membership and supporting a loser arrangement with the EU. How is it that the people who have a direct stake in the project can be so much more positive about EU membership for candidate countries than independent academic researchers? How is it that Labour found itself more on the side of US academic researchers rather than on the side of the people?

Only time will tell whether candidate countries will make a success or otherwise of their acceding to membership. Undoubtedly membership on its own is no guarantee of success and there will be different fortunes for those who make the most of it than those who just have to live with it.

But if researchers think that CEEC’s will have difficulty to succeed when they are clearly the major beneficiaries of FDI resulting from EU membership, it will certainly be much more difficult for Malta when we have dimmer prospects of benefiting from such FDI inflows given our higher cost base and distance from the core EU market.

For us the true success of EU membership will be the discipline to force our political leaders to stop studying and analysing the weaknesses in our economic set-up and start really doing something to address them. Only then will we regain global competitiveness which will put us back on the economic map of FDI suppliers.