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A Single Market for Governance?

Article by Tom Arbuthnott

September 15, 2006

3 million British people will this year clamber on a cross-channel ferry and take boxes upon boxes of wine, beer and cigarettes back to England’s leafy suburbs. It stands to reason: the average tax on a bottle of wine is 4p in France and £1.16 here.

This is a headache for Gordon Brown in a number of ways. Each of these trips will cost the British exchequer £450, not including the costs of policing and closing down the black market which has resulted: 80% of the rolling tobacco now consumed in the UK is contraband. According to the Tobacco Alliance, 8000 small tobacconists have been put out of business as a direct result of the EU’s single market policies.

And yet, what can the government do? It’s all very well for the Cancer Research Campaign to call for a further 20 pence worth of taxation to go on a packet of Marlboro Lights. But if the consumers of those cigarettes have the ability to pop over the Channel to replenish stocks from a friendly Belgian tobacconist, then, as a policy option, it has more symbolic than substantive benefit.

The ‘booze cruise’ is just one example of the competition that the European single market has delivered. But this is not competition between companies for consumers: it is competition between governments. Gradually, in certain areas, a single market for governance is developing, within which consumers have the ability to choose between the services (i.e. the taxation, regulation and other regimes) offered by different governments. Another example is education, where, despite the EU having limited competence in the area, there are now 360, 000 students yearly from EU countries who have, for various reasons, chosen the British education system rather than their own.

Among the reasons for the rising importance of this model are the growing use of the Internet and the greater ease of finding information about comparative data in a common language (English). Personal Internet usage is increasing by 51% year on year; almost all EU governments and many civil society organisations now offer an option to view their sites in English.

Further, the ability of consumers to choose which system to use when purchasing goods and services will increase dramatically on January 1 next year: as purchasing becomes possible using a common currency and with no built in transaction costs, so businesses and consumers can shop around for the best bargain for a given product. Economists are predicting enormous increases in cross-border shopping, as the ability of manufacturers to hide behind differential pricing fades – for example, the 37% difference in the prices of identical branded goods in Germany and Spain is unlikely to survive. The single e-marketplace developed by the Internet will exacerbate this effect. This will not only impact on businesses: it will also impact on the governments which have developed the regulatory and fiscal environments within which those companies operate. As PWC puts it: “demand for price competitiveness will augment the pressure for convergence of indirect taxation levels across national boundaries.” This effect will hit the UK as well: the DTI has written numerous factsheets explaining what the effects on companies will be, but it will find its own options circumscribed by the same effect.

Whatever the feelings of the more prurient Conservatives, the European Union has changed patterns of behaviour: it has opened up British borders, both political and psychological. Increasingly, also, it pits the British Government against other EU governments in terms of their ability to deliver key services, and gives a touchstone against which our national government’s competence in certain areas can be judged.

One example of how Europe has changed the British political discourse can be seen in the Prime Minister’s commitment to raise health spending to the EU average before 2005. In the past, it was perfectly possible for successive governments to manage the NHS in isolation: without comparative statistics, it is easy to pass off inadequate performance by claiming that circumstances constantly conspire, and that it is simply impossible to do better. In fact, to give just one example, the UK spends less than almost all other EU countries on health as a proportion of GDP. Increasing awareness of these discrepancies has led to a political commitment from the government, and changed the language of politics in the UK – in Bournemouth at their party conference, the Liberal Democrats committed to raising spending on all public services to the European average.

The European Union has not only created a set of institutions, a host of legislation and a culture of communication amongst elites, it has also changed the ground rules for consumers: and generally for the better. But it is a different sort of political space than that envisaged by the Utopians, who see homo europeus taking a deep interest in the five yearly elections to the Strasbourg Parliament or feeling a twinge of affinity when faced with the twelve stars and the Ode to Joy. It is a political space which is largely mediated within national frontiers, where comparability to other European benefits and systems opens out national political discussions. Gordon Brown’s ability to act on cigarette taxation is not circumscribed by any harmonising legislation coming out of the European institutions: rather, it is contextualised by the fourteen other EU systems which, in some senses, compete with it.

At this level, the plaintive laments by the European elite that citizens are failing to engage in the EU process seem rather detached from reality: even if, particularly in the UK, people are not using their European votes, they are using their national votes, usually without realising it. The development of this political space could actually be the key to democratising Europe, in terms of giving a powerful argument for the European Union’s utility: and a powerful example of a European identity that is not constructed around institutions and constitutions, nationalist-style, but demonstrates instead the utility of a European network of co-operation and competition. The central institutions need to rethink part of their role, in order to become the impartial providers of information that can launch citizens into national political activism; and national governments need to restrain their national instinct to control, regulate and ‘spin’ the flow of comparative information.

However, the development of greater policy competition also needs to be regulated with a certain amount of care. The fuel tax protests, where consumers were turned into political activists by the provision of exactly this type of information on the relative price of fuel in France and the UK, points to the danger. Here, the relative levels of taxation were very different: but so, also, was the structure of that taxation. The French charge autoroute tax: the British do not. There is a danger that this form of policy competition can turn into a Dutch auction, where governments bid each other down on these costs, and general level of service goes down. In the market for policies, some kind of cartel has to operate. But it must be a cartel which does not restrict the potential benefits of a single market for governance.

The development of the process of open co-ordination and the plethora of scoreboards, objectives, peer-review processes and benchmarks which have appeared as a result are the EU’s first response to this. Governments are committing themselves openly to certain objectives, and are being held to account, mostly by other governments, for their success or failure in delivering these targets. The process, slowly, is opening itself out: the Barcelona summit in March 2002 will see the next round of adjudication, and civil society organisations are expressing more of an interest than before: for example, the CBI’s response, on behalf of British business, looks as though it will be more far-reaching than in 2001. However, even with the Lisbon process, there is a real ‘technocracy gap’, in that the process demands a high level of knowledge before people or organisations can participate. Equally, the specific targets and benchmarks which have been set are vague, and worded in such a way as not to cause too high a level of embarrassment to any member state. Thirdly, where the Commission does hold national governments to account for their commitments, as it did when criticising the Irish budget earlier this year, its comments come out of context, and add to the usual impression of a power-hungry centre trying to tie the hands of directly elected national politicians. Finally, national governments are very reluctant to call attention to their own failure to deliver any of these targets; and, for political reasons, other governments are reluctant to criticise each other openly.

The key is to provide this information in such a way that civil society organisations, activist groups and individuals themselves are able, simply and easily, to measure the performance of their government against the commitments it has made, and against the performance of other governments in the same area. This will be a major part of a Foreign Policy Centre project over the next year: among the ideas which might be considered are the following.

First, the Commission could ensure that policy outcomes are directly comparable between member states. It does this already to an extent, through the Eurostat service. However, often national indicators are non-comparable, and measure things differently. National governments should be encouraged to overhaul their national accounting and audit rules so that figures can be compared as best as possible.

The Commission’s role should be to provide a space, most easily on the Internet, where all figures about the comparative effectiveness of governments is reachable. This should be designed for the consumer or the small NGO rather than around trained operatives – the current Eurostat site requires a degree in Information Systems Management to navigate. The figures contained here do not need to be only Commission figures: the OECD, the WHO and a host of other organisations pull together these figures. It should be the Commission’s responsibility to ensure that they are presented fairly and without prejudice.

Second, the Commission can be responsive. A rule could be introduced that stipulated that a petition of a given size (say 30,000 signatures) or a European Parliament request should lead within three months to the publication of comparative figures on any subject. National ministries would have a legal, and enforceable, obligation to respond within a given timeframe.

Finally, the Commission should not take on the role of critic. It should leave this to civil society organisations, to national governments themselves, and, most importantly, to the European Parliament. The Parliament, as an elected body with a view over the EU as a whole, should be in the perfect position to take critical positions on the relative performance of national governments as judged against objectives. It also, with a restructuring of its working practices, has the capacity to deliver in-depth reports on national-level implementation of commitments. Third, this role plays to the strengths of the Parliament as a body which shares power between political groups, and does not have any single group with an absolute majority: as such, no government party can ever be sure of a majority vote. Also, the Parliament is supposed to hold the executive to account: within these policy areas, the executives are actually based at national level rather than European level.

Playing with statistics may seem a small thing. But it will bind together the fifteen or more separate governance systems into a directly comparable area, can develop a ‘political space’ which can add dynamism to the national political process and engage citizens at national level where conventional politics can not. Who knows? The booze cruise might be the key to engaging Europe with its citizens.

‘A consumer’s Europe’ and ‘Policy Competition’ are research projects within the Foreign Policy Centre’s Europe Programme. We would welcome any feedback on this initial article to

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