Archives For economic freedom

A recently published book, “Kochland – The Secret History of Koch Industries and Corporate Power in America” by Christopher Leonard, presents a gripping account of relentless innovation and the power of the entrepreneur to overcome adversity in pursuit of delivering superior goods and services to the market while also reaping impressive profits. It’s truly an inspirational American story.

Now, I should note that I don’t believe Mr. Leonard actually intended his book to be quite so complimentary to the Koch brothers and the vast commercial empire they built up over the past several decades. He includes plenty of material detailing, for example, their employees playing fast and loose with environmental protection rules, or their labor lawyers aggressively bargaining with unions, sometimes to the detriment of workers. And all of the stories he presents are supported by sympathetic emotional appeals through personal anecdotes. 

But, even then, many of the negative claims are part of a larger theme of Koch Industries progressively improving its business practices. One prominent example is how Koch Industries learned from its environmentally unfriendly past and implemented vigorous programs to ensure “10,000% compliance” with all federal and state environmental laws. 

What really stands out across most or all of the stories Leonard has to tell, however, is the deep appreciation that Charles Koch and his entrepreneurially-minded employees have for the fundamental nature of the market as an information discovery process. Indeed, Koch Industries has much in common with modern technology firms like Amazon in this respect — but decades before the information technology revolution made the full power of “Big Data” gathering and processing as obvious as it is today.

The impressive information operation of Koch Industries

Much of Kochland is devoted to stories in which Koch Industries’ ability to gather and analyze data from across its various units led to the production of superior results for the economy and consumers. For example,  

Koch… discovered that the National Parks Service published data showing the snow pack in the California mountains, data that Koch could analyze to determine how much water would be flowing in future months to generate power at California’s hydroelectric plants. This helped Koch predict with great accuracy the future supply of electricity and the resulting demand for natural gas.

Koch Industries was able to use this information to anticipate the amount of power (megawatt hours) it needed to deliver to the California power grid (admittedly, in a way that was somewhat controversial because of poorly drafted legislation relating to the new regulatory regime governing power distribution and resale in the state).

And, in 2000, while many firms in the economy were still riding the natural gas boom of the 90s, 

two Koch analysts and a reservoir engineer… accurately predicted a coming disaster that would contribute to blackouts along the West Coast, the bankruptcy of major utilities, and skyrocketing costs for many consumers.

This insight enabled Koch Industries to reap huge profits in derivatives trading, and it also enabled it to enter — and essentially rescue — a market segment crucial for domestic farmers: nitrogen fertilizer.

The market volatility in natural gas from the late 90s through early 00s wreaked havoc on the nitrogen fertilizer industry, for which natural gas is the primary input. Farmland — a struggling fertilizer producer — had progressively mismanaged its business over the preceding two decades by focusing on developing lines of business outside of its core competencies, including blithely exposing itself to the volatile natural gas market in pursuit of short-term profits. By the time it was staring bankruptcy in the face, there were no other companies interested in acquiring it. 

Koch’s analysts, however, noticed that many of Farmland’s key fertilizer plants were located in prime locations for reaching local farmers. Once the market improved, whoever controlled those key locations would be in a superior position for selling into the nitrogen fertilizer market. So, by utilizing the data it derived from its natural gas operations (both operating pipelines and storage facilities, as well as understanding the volatility of gas prices and availability through its derivatives trading operations), Koch Industries was able to infer that it could make substantial profits by rescuing this bankrupt nitrogen fertilizer business. 

Emblematic of Koch’s philosophy of only making long-term investments, 

[o]ver the next ten years, [Koch Industries] spent roughly $500 million to outfit the plants with new technology while streamlining production… Koch installed a team of fertilizer traders in the office… [t]he traders bought and sold supplies around the globe, learning more about fertilizer markets each day. Within a few years, Koch Fertilizer built a global distribution network. Koch founded a new company, called Koch Energy Services, which bought and sold natural gas supplies to keep the fertilizer plants stocked.

Thus, Koch Industries not only rescued midwest farmers from shortages that would have decimated their businesses, it invested heavily to ensure that production would continue to increase to meet future demand. 

As noted, this acquisition was consistent with the ethos of Koch Industries, which stressed thinking about investments as part of long-term strategies, in contrast to their “counterparties in the market [who] were obsessed with the near-term horizon.” This led Koch Industries to look at investments over a period measured in years or decades, an approach that allowed the company to execute very intricate investment strategies: 

If Koch thought there was going to be an oversupply of oil in the Gulf Coast region, for example, it might snap up leases on giant oil barges, knowing that when the oversupply hit, companies would be scrambling for extra storage space and willing to pay a premium for the leases that Koch bought on the cheap. This was a much safer way to execute the trade than simply shorting the price of oil—even if Koch was wrong about the supply glut, the downside was limited because Koch could still sell or use the barge leases and almost certainly break even.

Entrepreneurs, regulators, and the problem of incentives

All of these accounts and more in Kochland brilliantly demonstrate a principal salutary role of entrepreneurs in the market, which is to discover slack or scarce resources in the system and manage them in a way that they will be available for utilization when demand increases. Guaranteeing the presence of oil barges in the face of market turbulence, or making sure that nitrogen fertilizer is available when needed, is precisely the sort of result sound public policy seeks to encourage from firms in the economy. 

Government, by contrast — and despite its best intentions — is institutionally incapable of performing the same sorts of entrepreneurial activities as even very large private organizations like Koch Industries. The stories recounted in Kochland demonstrate this repeatedly. 

For example, in the oil tanker episode, Koch’s analysts relied on “huge amounts of data from outside sources” – including “publicly available data…like the federal reports that tracked the volume of crude oil being stored in the United States.” Yet, because that data was “often stale” owing to a rigid, periodic publication schedule, it lacked the specificity necessary for making precise interventions in markets. 

Koch’s analysts therefore built on that data using additional public sources, such as manifests from the Customs Service which kept track of the oil tanker traffic in US waters. Leveraging all of this publicly available data, Koch analysts were able to develop “a picture of oil shipments and flows that was granular in its specificity.”

Similarly, when trying to predict snowfall in the western US, and how that would affect hydroelectric power production, Koch’s analysts relied on publicly available weather data — but extended it with their own analytical insights to make it more suitable to fine-grained predictions. 

By contrast, despite decades of altering the regulatory scheme around natural gas production, transport and sales, and being highly involved in regulating all aspects of the process, the federal government could not even provide the data necessary to adequately facilitate markets. Koch’s energy analysts would therefore engage in various deals that sometimes would only break even — if it meant they could develop a better overall picture of the relevant markets: 

As was often the case at Koch, the company… was more interested in the real-time window that origination deals could provide into the natural gas markets. Just as in the early days of the crude oil markets, information about prices was both scarce and incredibly valuable. There were not yet electronic exchanges that showed a visible price of natural gas, and government data on sales were irregular and relatively slow to come. Every origination deal provided fresh and precise information about prices, supply, and demand.

In most, if not all, of the deals detailed in Kochland, government regulators had every opportunity to find the same trends in the publicly available data — or see the same deficiencies in the data and correct them. Given their access to the same data, government regulators could, in some imagined world, have developed policies to mitigate the effects of natural gas market collapses, handle upcoming power shortages, or develop a reliable supply of fertilizer to midwest farmers. But they did not. Indeed, because of the different sets of incentives they face (among other factors), in the real world, they cannot do so, despite their best intentions.

The incentive to innovate

This gets to the core problem that Hayek described concerning how best to facilitate efficient use of dispersed knowledge in such a way as to achieve the most efficient allocation and distribution of resources: 

The various ways in which the knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining the economic process, and the problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy—or of designing an efficient economic system.

The question of how best to utilize dispersed knowledge in society can only be answered by considering who is best positioned to gather and deploy that knowledge. There is no fundamental objection to “planning”  per se, as Hayek notes. Indeed, in a complex society filled with transaction costs, there will need to be entities capable of internalizing those costs  — corporations or governments — in order to make use of the latent information in the system. The question is about what set of institutions, and what set of incentives governing those institutions, results in the best use of that latent information (and the optimal allocation and distribution of resources that follows from that). 

Armen Alchian captured the different incentive structures between private firms and government agencies well: 

The extent to which various costs and effects are discerned, measured and heeded depends on the institutional system of incentive-punishment for the deciders. One system of rewards-punishment may increase the extent to which some objectives are heeded, whereas another may make other goals more influential. Thus procedures for making or controlling decisions in one rewards-incentive system are not necessarily the “best” for some other system…

In the competitive, private, open-market economy, the wealth-survival prospects are not as strong for firms (or their employees) who do not heed the market’s test of cost effectiveness as for firms who do… as a result the market’s criterion is more likely to be heeded and anticipated by business people. They have personal wealth incentives to make more thorough cost-effectiveness calculations about the products they could produce …

In the government sector, two things are less effective. (1) The full cost and value consequences of decisions do not have as direct and severe a feedback impact on government employees as on people in the private sector. The costs of actions under their consideration are incomplete simply because the consequences of ignoring parts of the full span of costs are less likely to be imposed on them… (2) The effectiveness, in the sense of benefits, of their decisions has a different reward-inventive or feedback system … it is fallacious to assume that government officials are superhumans, who act solely with the national interest in mind and are never influenced by the consequences to their own personal position.

In short, incentives matter — and are a function of the institutional arrangement of the system. Given the same set of data about a scarce set of resources, over the long run, the private sector generally has stronger incentives to manage resources efficiently than does government. As Ludwig von Mises showed, moving those decisions into political hands creates a system of political preferences that is inherently inferior in terms of the production and distribution of goods and services.

Koch Industries: A model of entrepreneurial success

The market is not perfect, but no human institution is perfect. Despite its imperfections, the market provides the best system yet devised for fairly and efficiently managing the practically unlimited demands we place on our scarce resources. 

Kochland provides a valuable insight into the virtues of the market and entrepreneurs, made all the stronger by Mr. Leonard’s implied project of “exposing” the dark underbelly of Koch Industries. The book tells the bad tales, which I’m willing to believe are largely true. I would, frankly, be shocked if any large entity — corporation or government — never ran into problems with rogue employees, internal corporate dynamics gone awry, or a failure to properly understand some facet of the market or society that led to bad investments or policy. 

The story of Koch Industries — presented even as it is through the lens of a “secret history”  — is deeply admirable. It’s the story of a firm that not only learns from its own mistakes, as all firms must do if they are to survive, but of a firm that has a drive to learn in its DNA. Koch Industries relentlessly gathers information from the market, sometimes even to the exclusion of short-term profit. It eschews complex bureaucratic structures and processes, which encourages local managers to find opportunities and nimbly respond.

Kochland is a quick read that presents a gripping account of one of America’s corporate success stories. There is, of course, a healthy amount of material in the book covering the Koch brothers’ often controversial political activities. Nonetheless, even those who hate the Koch brothers on account of politics would do well to learn from the model of entrepreneurial success that Kochland cannot help but describe in its pages. 

The terms of the United Kingdom’s (UK) exit from the European Union (EU) – “Brexit” – are of great significance not just to UK and EU citizens, but for those in the United States and around the world who value economic liberty (see my Heritage Foundation memorandum giving the reasons why, here).

If Brexit is to promote economic freedom and enhanced economic welfare, Brexit negotiations between the UK and the EU must not limit the ability of the United Kingdom to pursue (1) efficiency-enhancing regulatory reform and (2) trade liberalizing agreements with non-EU nations.  These points are expounded upon in a recent economic study (The Brexit Inflection Point) by the non-profit UK think tank the Legatum Institute, which has produced an impressive body of research on the benefits of Brexit, if implemented in a procompetitive, economically desirable fashion.  (As a matter of full disclosure, I am a member of Legatum’s “Special Trade Commission,” which “seeks to re-focus the public discussion on Brexit to a positive conversation on opportunities, rather than challenges, while presenting empirical evidence of the dangers of not following an expansive trade negotiating path.”  Members of the Special Trade Commission are unpaid – they serve on a voluntary pro bono basis.)

Unfortunately, however, leading UK press commentators have urged the UK Government to accede to a full harmonization of UK domestic regulations and trade policy with the EU.  Such a deal would be disastrous.  It would prevent the UK from entering into mutually beneficial trade liberalization pacts with other nations or groups of nations (e.g., with the U.S. and with the members of the Transpacific Partnership (TPP) trade agreement), because such arrangements by necessity would lead to a divergence with EU trade strictures.  It would also preclude the UK from unilaterally reducing harmful regulatory burdens that are a byproduct of economically inefficient and excessive EU rules.  In short, it would be antithetical to economic freedom and economic welfare.

Notably, in a November 30 article (Six Impossible Notions About “Global Britain”), a well-known business journalist, Martin Wolf of the Financial Times, sharply criticized The Brexit Inflection Point’s recommendation that the UK should pursue trade and regulatory policies that would diverge from EU standards.  Notably, Wolf characterized as an “impossible thing” Legatum’s point that the UK should not “’allow itself to be bound by the EU’s negotiating mandate.’  We all now know this is infeasible.  The EU holds the cards and it knows it holds the cards. The Legatum authors still do not.”

Shanker Singham, Director of Economic Policy and Prosperity Studies at Legatum, brilliantly responded to Wolf’s critique in a December 4 article (published online by CAPX) entitled A Narrow-Minded Brexit Is Doomed to Fail.  Singham’s trenchant analysis merits being set forth in its entirety (by permission of the author):

“Last week, the Financial Times’s chief economics commentator, Martin Wolf, dedicated his column to criticising The Brexit Inflection Point, a report for the Legatum Institute in which Victoria Hewson, Radomir Tylecote and I discuss what would constitute a good end state for the UK as it seeks to exercise an independent trade and regulatory policy post Brexit, and how we get from here to there.

We write these reports to advance ideas that we think will help policymakers as they tackle the single biggest challenge this country has faced since the Second World War. We believe in a market place of ideas, and we welcome challenge. . . .

[W]e are thankful that Martin Wolf, an eminent economist, has chosen to engage with the substance of our arguments. However, his article misunderstands the nature of modern international trade negotiations, as well as the reality of the European Union’s regulatory system – and so his claim that, like the White Queen, we “believe in impossible things” simply doesn’t stack up.

Mr Wolf claims there are six impossible things that we argue. We will address his rebuttals in turn.

But first, in discussions about the UK’s trade policy, it is important to bear in mind that the British government is currently discussing the manner in which it will retake its independent WTO membership. This includes agricultural import quotas, and its WTO rectification processes with other WTO members.

If other countries believe that the UK will adopt the position of maintaining regulatory alignment with the EU, as advocated by Mr Wolf and others, the UK’s negotiating strategy would be substantially weaker. It would quite wrongly suggest that the UK will be unable to lower trade barriers and offer the kind of liberalisation that our trading partners seek and that would work best for the UK economy. This could negatively impact both the UK and the EU’s ongoing discussions in the WTO.

Has the EU’s trading system constrained growth in the World?

The first impossible thing Mr Wolf claims we argue is that the EU system of protectionism and harmonised regulation has constrained economic growth for Britain and the world. He is right to point out that the volume of world trade has increased, and the UK has, of course, experienced GDP growth while a member of the EU.

However, as our report points out, the EU’s prescriptive approach to regulation, especially in the recent past (for example, its approach on data protection, audio-visual regulation, the restrictive application of the precautionary principle, REACH chemicals regulation, and financial services regulations to name just a few) has led to an increase in anti-competitive regulation and market distortions that are wealth destructive.

As the OECD notes in various reports on regulatory reform, regulation can act as a behind-the-border barrier to trade and impede market openness for trade and investment. Inefficient regulation imposes unnecessary burdens on firms, increases barriers to entry, impacts on competition and incentives for innovation, and ultimately hurts productivity. The General Data Protection Regulation (GDPR) is an example of regulation that is disproportionate to its objectives; it is highly prescriptive and imposes substantial compliance costs for business that want to use data to innovate.

Rapid growth during the post-war period is in part thanks to the progressive elimination of border trade barriers. But, in terms of wealth creation, we are no longer growing at that rate. Since before the financial crisis, measures of actual wealth creation (not GDP which includes consumer and government spending) such as industrial output have stalled, and the number of behind-the-border regulatory barriers has been increasing.

The global trading system is in difficulty. The lack of negotiation of a global trade round since the Uruguay Round, the lack of serious services liberalisation in either the built-in agenda of the WTO or sectorally following on from the Basic Telecoms Agreement and its Reference Paper on Competition Safeguards in 1997 has led to an increase in behind-the-border barriers and anti-competitive distortions and regulation all over the world. This stasis in international trade negotiations is an important contributory factor to what many economists have talked about as a “new normal” of limited growth, and a global decline in innovation.

Meanwhile the EU has sought to force its regulatory system on the rest of the world (the GDPR is an example of this). If it succeeds, the result would be the kind of wealth destruction that pushes more people into poverty. It is against this backdrop that the UK is negotiating with both the EU and the rest of the world.

The question is whether an independent UK, the world’s sixth biggest economy and second biggest exporter of services, is able to contribute to improving the dynamics of the global economic architecture, which means further trade liberalisation. The EU is protectionist against outside countries, which is antithetical to the overall objectives of the WTO. This is true in agriculture and beyond. For example, the EU imposes tariffs on cars at four times the rate applied by the US, while another large auto manufacturing country, Japan, has unilaterally removed its auto tariffs.

In addition, the EU27 represents a declining share of UK exports, which is rather counter-intuitive for a Customs Union and single market. In 1999, the EU represented 55 per cent of UK exports, and by 2016, this was 43 per cent. That said, the EU will remain an important, albeit declining, market for the UK, which is why we advocate a comprehensive free trade agreement with it.

Can the UK secure meaningful regulatory recognition from the EU without being identical to it?

Second, Mr Wolf suggests that regulatory recognition between the UK and EU is possible only if there is harmonisation or identical regulation between the UK and EU.

This is at odds with WTO practice, stretching back to its rules on domestic laws and regulation as encapsulated in Article III of the GATT and Article VI of the GATS, and as expressed in the Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) agreements.

This is the critical issue. The direction of travel of international trade thinking is towards countries recognising each other’s regulatory systems if they achieve the same ultimate goal of regulation, even if the underlying regulation differs, and to regulate in ways that are least distortive to international trade and competition. There will be areas where this level of recognition will not be possible, in which case UK exports into the EU will of course have to satisfy the standards of the EU. But even here we can mitigate the trade costs to some extent by Mutual Recognition Agreements on conformity assessment and market surveillance.

Had the US taken the view that it would not receive regulatory recognition unless their regulatory systems were the same, the recent agreement on prudential measures in insurance and reinsurance services between the EU and US would not exist. In fact this point highlights the crucial issue which the UK must successfully negotiate, and one in which its interests are aligned with other countries and with the direction of travel of the WTO itself. The TBT and SPS agreements broadly provide that mutual recognition should not be denied where regulatory goals are aligned but technical regulation differs.

Global trade and regulatory policy increasingly looks for regulation that promotes competition. The EU is on a different track, as the GDPR demonstrates. This is the reason that both the Canada-EU agreement (CETA) and the EU offer in the Trade in Services agreement (TiSA) does not include new services. If GDPR were to become the global standard, trade in data would be severely constrained, slowing the development of big data solutions, the fourth industrial revolution, and new services trade generally.

As many firms recognise, this would be extremely damaging to global prosperity. In arguing that regulatory recognition is only available if the UK is fully harmonised with the EU, Mr Wolf may be in harmony with the EU approach to regulation. But that is exactly the approach that is damaging the global trading environment.

Can the UK exercise trade policy leadership?

Third, Mr Wolf suggests that other countries do not, and will not, look to the UK for trade leadership. He cites the US’s withdrawal from the trade negotiating space as an example. But surely the absence of the world’s biggest services exporter means that the world’s second biggest exporter of services will be expected to advocate for its own interests, and argue for greater services liberalisation.

Mr Wolf believes that the UK is a second-rank power in decline. We take a different view of the world’s sixth biggest economy, the financial capital of the world and the second biggest exporter of services. As former New Zealand High Commissioner, Sir Lockwood Smith, has said, the rest of the world does not see the UK as the UK too often seems to see itself.

The global companies that have their headquarters in the UK do not see things the same way as Mr Wolf. In fact, the lack of trade leadership since 1997 means that a country with significant services exports would be expected to show some leadership.

Mr Wolf’s point is that far from seeking to grandiosely lead global trade negotiations, the UK should stick to its current knitting, which consists of its WTO rectification, and includes the negotiation of its agricultural import quotas and production subsidies in agriculture. This is perhaps the most concerning part of his argument. Yes, the UK must rectify its tariff schedules, but for that process to be successful, especially on agricultural import quotas, it must be able to demonstrate to its partners that it will be able to grant further liberalisation in the near term future. If it can’t, then its trading partners will have no choice but to demand as much liberalisation as they can secure right now in the rectification process.

This will complicate that process, and cause damage to the UK as it takes up its independent WTO membership. Those WTO partners who see the UK as vulnerable on this point will no doubt see validation in Mr Wolf’s article and assume it means that no real liberalisation will be possible from the UK. The EU should note that complicating this process for the UK will not help the EU in its own WTO processes, where it is vulnerable.

Trade negotiations are dynamic not static and the UK must act quickly

Fourth, Mr Wolf suggests that the UK is not under time pressure to “escape from the EU”.  This statement does not account for how international trade negotiations work in practice. In order for countries to cooperate with the UK on its WTO rectification, and its TRQ negotiations, as well to seriously negotiate with it, they have to believe that the UK will have control over tariff schedules and regulatory autonomy from day one of Brexit (even if we may choose not to make changes to it for an implementation period).

If non-EU countries think that the UK will not be able to exercise its freedom for several years, they will simply demand their pound of flesh in the negotiations now, and get on with the rest of their trade policy agenda. Trade negotiations are not static. The US executive could lose trade-negotiating authority in the summer of next year if the NAFTA renegotiation is not going well. Other countries will seek to accede to the Trans Pacific Partnership (TPP). China is moving forward with its Regional Cooperation and Economic Partnership, which does not meaningfully touch on domestic regulatory barriers. Much as we might criticise Donald Trump, his administration has expressed strong political will for a UK-US agreement, and in that regard has broken with traditional US trade policy thinking. The UK has an opportunity to strike and must take it.

The UK should prevail on the EU to allow Customs Agencies to be inter-operable from day one

Fifth, with respect to the challenges raised on customs agencies working together, our report argued that UK customs and the customs agencies of the EU member states should discuss customs arrangements at a practical and technical level now. What stands in the way of this is the EU’s stubbornness. Customs agencies are in regular contact on a business-as-usual basis, so the inability of UK and member-state customs agencies to talk to each other about the critical issue of new arrangements would seem to border on negligence. Of course, the EU should allow member states to have these critical conversations now.  Given the importance of customs agencies interoperating smoothly from day one, the UK Government must press its case with the European Commission to allow such conversations to start happening as a matter of urgency.

Does the EU hold all the cards?

Sixth, Mr Wolf argues that the EU holds all the cards and knows it holds all the cards, and therefore disagrees with our claim that the the UK should “not allow itself to be bound by the EU’s negotiating mandate”. As with his other claims, Mr Wolf finds himself agreeing with the EU’s negotiators. But that does not make him right.

While absence of a trade deal will of course damage UK industries, the cost to EU industries is also very significant. Beef and dairy in Ireland, cars and dairy in Bavaria, cars in Catalonia, textiles and dairy in Northern Italy – all over Europe (and in politically sensitive areas), industries stands to lose billions of Euros and thousands of jobs. This is without considering the impact of no financial services deal, which would increase the cost of capital in the EU, aborting corporate transactions and raising the cost of the supply chain. The EU has chosen a mandate that risks neither party getting what it wants.

The notion that the EU is a masterful negotiator, while the UK’s negotiators are hopeless is not the global view of the EU and the UK. Far from it. The EU in international trade negotiations has a reputation for being slow moving, lacking in creative vision, and unable to conclude agreements. Indeed, others have generally gone to the UK when they have been met with intransigence in Brussels.

What do we do now?

Mr Wolf’s argument amounts to a claim that the UK is not capable of the kind of further and deeper liberalisation that its economy would suggest is both possible and highly desirable both for the UK and the rest of the world. According to Mr Wolf, the UK can only consign itself to a highly aligned regulatory orbit around the EU, unable to realise any other agreements, and unable to influence the regulatory system around which it revolves, even as that system becomes ever more prescriptive and anti-competitive. Such a position is at odds with the facts and would guarantee a poor result for the UK and also cause opportunities to be lost for the rest of the world.

In all of our [Legatum Brexit-related] papers, we have started from the assumption that the British people have voted to leave the EU, and the government is implementing that outcome. We have then sought to produce policy recommendations based on what would constitute a good outcome as a result of that decision. This can be achieved only if we maximise the opportunities and minimise the disruptions.

We all recognise that the UK has embarked on a very difficult process. But there is a difference between difficult and impossible. There is also a difference between tasks that must be done and take time, and genuine negotiation points. We welcome the debate that comes from constructive challenge of our proposals; and we ask in turn that those who criticise us suggest alternative plans that might achieve positive outcomes. We look forward to the opportunity of a broader debate so that collectively the country can find the best path forward.”