Read Lord Mandelson's full speech to the EEF manufacturing lecture in which the former business secretary backs David Cameron's ambition to achieve "timely and achievable" reforms form the EU.
It is a great pleasure to be delivering this lecture because the most consistent association of my ministerial life has been with Britain’s manufacturers notably when, in the wake of my return to the government from Brussels after the banking crisis broke over us in September 2008, I immediately pronounced my aim to promote “more real engineering and less financial engineering” in the UK.
This became the motif of my time at the Business department as I pursued new policies of industrial activism.
I had returned having had my eyes opened on the European continent to the need for government to do more to support innovation, productivity and business growth in the UK economy.
This was not to do with the government owning more or controlling more in British industry but, where appropriate, helping in the financial pump priming and heavy lifting in building markets, promoting research and development – and by the way British universities receive more EU research funding than all French and German universities combined – then commercialising research in the higher education sector, facilitating access to markets by new businesses, encouraging the take up and spread of new technologies and opening up global markets to UK exporters and investors.
If government fails to undertake these essential roles while other governments continue to pursue them we will be undermining the competitive advantages of UK companies.
I hope the Chancellor and the Business secretary bear this in mind given what we are beginning to hear about the threatened cuts to business support in the autumn statement.
There is a very simple dictum that should guide us: markets wherever possible, government where necessary. If we leave out the second part we will let down our own side and pass an important advantage to our competitors.
Naïve or knaves ?
The same is true of our membership of the European Union. Our economy depends on the vast 500 million market – the biggest of its kind in the world – created and safeguarded by the EU.
Our manufacturers – big and small – depend on access to it, its supply chains and production networks.
80% of UK-manufactured cars, for example, are exported, and 49% are exported to the EU. 56% of British chemical and pharmaceutical exports go to the EU, worth £30bn a year. 88% of British SMEs that export do so to the EU, compared to 13% which export to the BRICS. Nearly 50% of our trade goes to the EU.
And for Britain to have untrammelled access to this market and an equal say in the rules that govern it, we need to be a full member of the EU.
The one comes with the other.
It’s the truth that dare not speak its name in the propaganda of the Leave campaigners.
The “leavers” are either naïve or knaves in claiming that we could leave the EU and the next day have a full access free trade agreement between Britain and EU.
Rightly or wrongly there would be a price to be paid. And with half of UK exports going to the EU, while about just a tenth of EU exports come to the UK, we need them more than they need us in straight trading terms. The fact of life would be that their negotiating hand would be stronger than ours.
Let me tell you a bit more about free trade agreements. I have negotiated many in my time as Trade Commissioner.
They only start when the other side wants. They are very difficult to conclude. They always take longer than you think. The advantage is always with the bigger party. And to get what you want you have to concede far more than you bargained for. They are not a cake walk.
Out of the EU, we would be at the back of the queue when it came to negotiating trade deals with superpowers as both the US and China have made clear.
There is no alternative relationship to EU membership that would give us the same full market access and the same full rights we have at the moment.
Ask the Swiss or ask the Norwegians as I did last week when I met Norway’s Europe minister.
He told me that, in return for its access to the single market for which it pays handsomely to the EU budget, Norway receives on average a day five fresh notifications of laws, regulatory adjustments or new conditions which it has to enforce without having any say in their formulation because Norway is not an EU member.
So, all pay and no say.
Is this really what a country like Britain wants for its manufacturers and exporters ? Rule takers not rule makers ?
I don’t think so. There is a big difference between being in something like the EU and merely being alongside it.
We need to think about our economic relationship with the EU in dynamic, not static terms. Should we quit, things won’t remain as they are.
I hope I have shattered their illusions about free trade arguments being as easy to negotiate as falling off a log.
Regulatory barriers, not tariffs
But even if we negotiated as equals the result would miss something fundamental about economic integration with Europe. Which is that it is not only about paying tariffs on finished products at borders. More and more trade is in components and parts of finished products.
The issue for these is about regulation, standards, licensing, authorisations, professional qualifications – all the individually small but cumulatively big obstacles between us and our European customers and suppliers that the single market has stripped away by merging them into a single European framework.
It is that common framework that enables British business – big, medium and small – to be part of predictable and unhindered European supply chains and distribution networks. It is this single framework which makes our country such an attractive base to locate and then trade onwards into the single market.
Most importantly, this framework is a living political agreement. It evolves all the time, as regulation does, and at the moment we have a strong say – unlike the Norwegians – in every change, every permutation. The decision-making benefits of Europe are fundamentally different when you are in, as opposed to simply alongside.
When you think about it for a moment this is exactly what we are trying to tackle in the TTIP negotiation with the United States. Because of the regulatory barriers to trade that exist on both sides of the pond, it is a heck of a challenge to reduce, eliminate or harmonise them but that is what we are trying to do.
Believe me, trying to align the ways two or more interdependent markets regulate is the toughest problem in trade policy. And Europe, internally, has actually cracked it. Leaving the EU would recreate that problem for Britain big time.
And what is at stake here is not simply our ability to trade with our largest market – the EU – it is about our ability to trade around the world. A Britain on its own, outside the EU, would simply have a lot less clout getting access to markets around the globe.
And on regulation, let’s look at the claim that Europe is a regulatory burden on us. Regulatory convergence in Europe, and the smooth access it gives us to the single market, has delivered infinitely more for British economic interests than European regulatory burdens have ever taken away.
The reality on regulation is that Britain is a strong and effective voice in Brussels for better regulation. Time and again we have secured regulation that brings real benefits – such as Brits having the right for the first time to have paid holidays and decent maternal and paternity leave rights – while avoiding heavy handed rules. And let me pose a challenge to the “leavers”: are they saying they want to scrap paid holiday entitlements and the rest ?
The Prime Minister is right to exert pressure in favour of economic competitiveness in Europe but he would be ill advised to put any question mark over these social and labour protections in his current negotiations with EU partners.
Of course, European regulation can be good and bad, proportionate or disproportionate. The EU could almost certainly regulate less and it could certainly regulate better. The Juncker Commission freely acknowledges this and, under his deputy Frans Timmermans, is dealing with it. But one rule is generally better than 28. And a rule you have a say in devising is always better than one you don’t.
And our success in securing an EU membership that serves our national interest is well demonstrated by the fact we have some of Europe’s most liberalised market places. Only the Netherlands scores better and they are in the EU too.
It’s all about scale
Perhaps the argument of the “leavers” that most misses the point is about something very fundamental to business growth and that is scale.
A large and easy-to-access market matters far more than just its spending power on our doorstep. It matters because it is a platform for scale. Big domestic markets allow their companies to grow quickly and take a strong global position. Big in Europe, big in the world.
The tech/digital sector is an interesting case study. It’s a fact that very few of the new tech/digital giants have a European base. Most innovation occurs in the US and US companies are dominant in many fields. In many cases the fiercest competition they face is increasingly coming from China.
What do the US and China have in common ? The scale of their home markets is their launching pad. Our version of that growth model – our home market – is Europe, but only if we are in it rather than bobbing around outside it.
Indeed, Europe needs to go further in breaking down its market barriers, most clearly in services and e-commerce. Both sectors are growth areas globally and are important for the UK. And the answer is not to assume that we can do better in isolation but to grow in Europe in order to become bigger in the world.
This goes to the heart of why ‘taking back’ British control is so misguided if all we were doing is controlling better a more impoverished nation. Take the further example of Europe’s banking union. Is this a threat to the City? Well, yes in some respects, but not because it will impose costs on London.
It is a threat because it is an enormous jurisdiction with huge economies of scale in both commercial and regulatory terms, and it is both strong and attractive as a place to base a financial services business. And we’re not in it.
And if we’re not going to be in it we need to be absolutely sure we are focused on making it as easy as possible to trade there – remember 41% of UK financial services exports go to the EU – something that would be hard to negotiate if we were not in the EU at all.
When you put it like this the risks of insularity and isolation become very stark. And the idea that turning Britain into a kind of ultra-deregulated entrepot for rootless, rule-averse business is not the answer.
The false argument of taking back ‘control’
So let me pass on and talk about the politics of Brexit. When their economic arguments run dry, the “leavers’ enjoy their hyperbole about ‘identity’ and ‘control’ and the awful European project that is supposedly robbing us of both.
I believe that questions of ‘who we are’, and a sense of control over our political lives, are important and cannot just be brushed aside; they are big issues for Europe and not just the UK.
My point about the “leavers” is that they ask these identity questions with a very narrow sense of ‘Britishness’ in mind.
They make Britishness an exclusive and insular concept rather than an open and multi-dimensional one, with a very anachronistic idea of the realities of a global economy and globalised society.
It reduces our interests to our identity and our identity to a caricature of ourselves.
Identity politics that becomes uncoupled from practical realties puts people in boxes. And it misses the most important thing about politics, which is learning to live with and work with people who aren’t exactly like you.
We need a sense of our own identity that’s big enough to take in the fundamental economic realities of our interconnected lives and our interests in an interconnected world and how we make our living in it.
Otherwise all we’ll be left with is our identity, and it will be a pretty impoverished, bargain basement identity at that.
It’s also necessary, in the context of this debate, to say something about migration.
The “leavers” argue that even if European exit were to cost jobs, it would at least reassert our control over EU migration.
Well, that’s true it would. And if the UK used that reasserted control to block European migration it would also be an act of self-harm as British people would relinquish their rights to live and work freely in other parts of the EU.
The available evidence on the effect of eastern and central European migration on British workers’ wages concludes there has been little discernable impact. The evidence also suggests that the more highly-skilled immigration from EU countries is likely to have slightly increased the productivity and wages of British workers.
However, I accept we have to consider legislative protection for people if it is clearly demonstrated that their terms and conditions are being systematically undercut. It is also reasonable that we look at how quickly EU nationals working in Britain are entitled to receive welfare benefits.
Of course reform, but not second class members
The Prime Minister has said he wants Britain to remain inside a reformed EU. His reform proposals are timely and achievable. Some will be more difficult than others but EU member states will want to accommodate Britain to the greatest extent possible.
It seems to me that the mountain of evidence points unequivocally to the practical advantages of membership and the illusory benefits of exit from the EU.
Does being in the EU mean economic compromise for Britain? No, not in any meaningful sense.
Does being in the EU mean political compromise? Yes it does. But that compromise is the price of opportunity, scale and strength.
Does the way the EU operates need reform ? Yes. What should be done at the EU level and what should not – the issue of subsidiarity – needs to be addressed much more effectively.
Does European decision-making need to be more responsive to national electorates ? Yes. Introducing greater powers for national parliaments, alongside the European Parliament, in screening new EU legislative proposals is desirable.
But we won’t fix all this by leaving the EU and we won’t actually serve our own wider interests by doing so either.
And the truth is Euroscepticism is threatening to burn bridges at the moment when what we really need to be doing is building them given all the ructions going on in our neighbourhood.
Within the EU we need in particular to build a new bridge between Britain and the Eurozone, because so much of our financial services trade is done there.
The Eurozone is on a trajectory towards ever closer union, Britain is not. This is well known and accepted. For me, the most important part of the government’s negotiations in the EU concern the future relationship between the Eurozone ins and outs, those who use the euro currency and those member states which don’t.
We cannot allow a situation to grow, as the Eurozone integrates further, where the policies and decision-making of Eurozone members jeopardise the interests of the non-euro states. I am not suggesting there is a conspiracy against us but there is a risk of others’ interests driving decision-making.
I thought the outline proposals set out by the Chancellor in Berlin last week to deal with this risk were broadly right. But we should not allow ourselves to become “second class” members of the EU. I know from experience that accepting such a relegation would mean less and less influence inside the EU.
There is no point in being in a club and then implying that as we only want to use some of the facilities, we are in principle happy to be treated as second class or associate members – especially when we still pay the full membership fee.
This is not going to serve our interests in Europe. Nor, at home, is it going to help us defuse the public’s temper about Europe. It will just leave us in Europe but exposed to the argument that we are less effectual in getting our way.
We need to build a political bridge for those millions of voters who have started to conflate Europe with the fall out from global economic change, the changing social face of Britain, every frustration of government or regulation.
The EU is a useful whipping post for populists but the truth is, the economic and employment problems of ‘new Britain’ as opposed to ‘old Britain’ would still be with us in large part, in or out of the EU.
The facts of our economic lives in Britain are European. Your own business survey makes this clear, including that one third of UK manufacturers, and 50% of large companies, would be less likely to increase investment in the UK if we left the EU.
What we have to do, though, is win the political argument – that Britain enjoys stronger prosperity in the EU, stronger security and stronger influence in the world as a result of being in the EU. Britain stronger in Europe.
Convincing people of this is our challenge in the great referendum debate and battle for which we are now limbering up.