In a new WISERD blog post, entitled ‘Need for Non-Market Institutions for Inter Country Transfers: A lesson from the EU Referendum‘, Professor Shanti Chakravarty, an Emeritus Professor of Economics at Bangor University, reflects on the work of his colleague at Bangor – Professor R. Ross MacKay – in understanding the reasons why the EU might have started to disintegrate.
The 1977 Brussels-commissioned MacDougal report stated that:
The changing pattern of production and exchange that characterises an integrating Community typically brings gains to some but losses to others. To make integration acceptable to all participants may thus require an explicit distributive mechanism to divide the gains from integration in a politically acceptable way. Failure to attend to this matter may at the least result in a stagnation of the integration process, and at the worst result in secession and dissolution. (MacDougal Report, 1977, vol. 1, p. 60)
In a paper written for the Cambridge Journal of Economics 1994 Ross argued that the 1992 EU project was being analysed by economists at the time without reference to economic history. Nation states are defined by fiscal transfers between rich and poor regions, transfers that are politically difficult to achieve between nations.
Professor Chakravarty comments “Ross worried that that 1992 project would fail unless there were built in regional transfers overriding market distribution of fortunes. In the event, the warning was not heeded. The cost of Brexit to the EU by far outweighs the cost of solving the Greek debt problem”.
To read this blog post please click here