Brexit: What's Next? - The Library of Economics and Liberty

27 April 2019 - Access to the EU market still remains a central and immediate concern with leaving. Britain, however, retains trade with the rest of the world which surpasses trade with the EU bloc, and it is in the interests of the EU to come to agreement with the UK on trade over time.

Garreth Bloor
In Bloomberg Opinion, columnist Munir Sharma quipped that Britain is a small country like its European allies. In his view Britain has simply not accepted the truth of its smallness, unlike fellow EU members. In his view, Brexit is simply display of misplaced overconfidence. There is no “great” in Great Britain to be sought.

Imminent disaster is virtually guaranteed, following the conundrum of recent months, according to many pundits.

With an extension of the deadline for a Brexit deal to October 31st, those advancing a “hard” Brexit – totally free from the rules of the European Union – hold a set of ideals perhaps more coherent than what has been articulated in the press. It is unlikely they will be backing down anytime soon. So what is the plan for a hard Brexit?

The Power of an Ideal

Sovereignty was rallying call of Brexiteers. With sovereignty, economic freedom would trump political interdependence and secure a vibrant and open country; keeping the ‘Great’ in Great Britain, able to surpass European Union economic growth levels.

Alongside (and owing to) a freedom from EU rules, Britain’s Parliament would execute a sole mandate to legislate.

The Institute of Economic Affairs, Lady Thatcher’s favorite think tank, was quick to set up a Brexit policy unit dedicated to a post-Brexit Britain in the weeks following the referendum. It is speculated the former Prime Minister would have supported Brexit, even laid the seeds for an exit, and would certainly have been best placed to lead it, according to at least one opinion poll.

“Brexit provides a once in-a-generation opportunity to create a more flexible, open and vibrant economy and to set an example of free trade.” However, “a positive outcome is not guaranteed, with a good deal far from certain,” says the IEA. “Brexit could actually lead to more bureaucracy and protectionism rather than less, especially with all major political parties in the UK now proposing a bigger role for the state.”
What are the plans of the Leave side to realise  the ‘fruits of sovereignty’ in terms of open markets and global economic integration through trade?

Proposals from the IEA include a reformed regulatory regime,  a points-basedimmigration system and most importantly, free trade.

“Free Trade Agreements – A tool for economic prosperity” – Senate of Canada

Pro-Brexit British Member of the European Parliament, Daniel Hannan, addressing the Conservative Party Canada’s Convention last year, touted total free trade between the UK and Canada – noting Canada’s existing free trade deal with the EU.

The Canada – EU trade deal is one all in the ruling UK Conservative Party essentially agree on as a good basis for trade with the EU. (Such agreement is a rarity at present, though the question of whether it can be negotiated successfully is a divide).

MP Jacob Rees-Mogg, a leading proponent has called the IEA’s Brexit plan “Canada Plus or Super Canada,” underlying the theme of its close fellow Commonwealth country, which moved from five trade deals to 51 under Conservative Prime Minister Stephen Harper. (The current Liberal government subsequently closed the current EU free trade deal).

Such trade deals take time, say detractors, though Canada itself is keen to adopt a UK free trade deal imminently (so long as the UK is within the EU, it cannot yet be signed)

Not withstanding Canada and countries like it – as well as the assumption new deals would take years of negotiation – Mogg argues that the legislative power in the hands of the UK is more than sufficient to immediately deliver results. A sovereign Parliament allows the country to swiftly remove tariffs and quotas on all products the UK does not produce, as proposed by the IEA’s plan. Parliament can eliminate non-tariff barriers which “saddle the UK with regulations that protect large incumbent businesses from competition” and “prevents the UK from entering into its own free trade agreements with countries outside the EU”.

With access to the British market being immediate (as full two-way trade deals are negotiated), prices would be lower for Britain’s consumers almost immediately, giving a greater array of consumer choice and lower input costs, according to proponents. Consumers and businesses would be able to source from anywhere in the world versus only the European Union.

The debate over how to forecast economic outcomes

Such trade may be worth around a trillion pounds over a period of 15 years, argues Economists for Free Trade, a group who contends trade benefits with the world versus just the EU is enormous.

For Brexiteers, what then of ‘doomsday’ forecasting from the UK Treasury and Bank of England? Part of the response involves the economic modeling used, which has been critiqued for being unable to quantify new innovation and markets – which arise only in response to opportunities once the fundamentals have shifted. To illustrate the point, economist Shanker Singham says New Zealand’s free trade projections were 500% below what actually occurred when free trade took effect.

Furthermore, Brexiteers draw parallels to predictions the British pound would suffer were the country not to adopt the euro in 1992, saying some of the same experts got it wrong then on Europe, and stand to get it wrong again.

Access to the EU market still remains a central and immediate concern with leaving. Britain, however, retains trade with the rest of the world which surpasses trade with the EU bloc, and it is in the interests of the EU to come to agreement with the UK on trade over time.

Nevertheless, business does not appreciate uncertainty. Hence, it is no surprise that negative economic consequences have arisen. Often underappreciated is the uncertainty arising from a potential Jeremy Corbin victory in the next election. Brexit is therefore an opportunity for the Leave side (though not a guarantee) of the free economy as envisaged by some of its proponents.

Of concern, nativism and racism have been seen as major drivers of Brexit, according to some critics. Daniel Hannan maintains that while some Leave supporters crossed lines into xenophobia in campaigning for Brexit, the official campaign rested on positive ideals, not narrow reactions to immigration per se or a sense of racial identity.

Big Business vs Free Markets?

While many corporations were largely in favour of Remaining in the EU, those explicitly pro-market in philosophy rather than pro-business tended to support Leave – among them a range of think tanks. The Institute of Economic Affairs (IEA), the Adam Smith Institute, Policy Exchange and the Legatum Institute are ‘prominent’ in the debate, according to an editorial in the UK Guardian.

The Post Brexit Future: What will prevail in the battle of ideas?

To what extent will the notion of sovereignty, which secured Brexit in the first place, win out in the debate on the wider policy options available post-Brexit? More specifically, what of the notion of consumer sovereignty, in the context of open markets?

Ideas have consequences, as the modern theorist of rhetoric Richard Weaver famously reasoned. For the IEA and their peers, the sovereignty of consumer choice in open markets is a second major battle of ideas underway. A battle that will in their estimation – if successful – fulfill the promise of a prosperous and free post-Brexit future, as envisaged by its leading voices.

Garreth Bloor is a vice president of the IRR, the oldest classical liberal think tank in South Africa. He served as a former executive politician in the country and is the founder of a venture capital firm. Bloor currently resides in Toronto.

https://www.econlib.org/brexit-whats-next/

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