The British might have a bumpy transition to full independence following last week’s Brexit vote, but the European Union (EU) may now face a challenge to its very existence: the outcome of the British referendum amounts to a revolt against overbearing rule by a distant, authoritarian central government. The vote demonstrates resentment by many Brits to absurd regulation of many aspects of life, to the loss of sovereignty inherent in EU membership, and to the EU’s controversial immigration policies. Other members of the EU may face popular exit movements of their own, as sentiment in France and elsewhere is running strongly against the Union. Economist Joel Kotkin writes the following in his assessment of the Brexit vote:
“In the last economic expansion, something close to 70 percent of all the new jobs created went to non-U.K. citizens. … In the media and polite circles in both parties, opposition to EU immigration has been widely denounced as racist. But, in reality, UKIP’s [U.K. Independence Party] leader, Nigel Farage, has spoken positively about continuing migration, largely non-white, from the Commonwealth, particularly for skilled workers. In contrast, Cameron’s failure to slow down the largely unregulated EU migration may have been the single largest factor behind the Brexit result.“
This was a vote for self-determination and also a vote for cultural identity. The left has been quick to call it racism, but Tyler Cowan, himself in the Remain camp, thinks that label is misleading in important ways:
“Quite simply, the English want England to stay relatively English, and voting Leave was the instrument they were given. … Much has been made of the supposed paradox that opposition to immigration is highest where the number of immigrants is lowest. Yes, some of that is the racism and xenophobia of less cosmopolitan areas, but it would be a big mistake to dismiss it as such or even to mainly frame it as such. Most of all it is an endowment effect. Those are the regions which best remember — and indeed still live — some earlier notion of what England was like. And they wish to hold on to that, albeit with the possibility of continuing evolution along mostly English lines. … The regularity here [comparing England to Denmark and Japan] is that the coherent, longstanding nation states are most protective of their core identities. Should that come as a huge surprise?“
Megan McArdle also takes a stab at illuminating the disconnect between those who believe in forging a European “nation” and those who prefer independence:
“Surrendering traditional powers and liberties to a distant state is a lot easier if you think of that state as run by ‘people like me,’ … particularly if that surrender is done in the name of empowering ‘people who are like me’ in our collective dealings with other, farther ‘strangers who aren’t.’ … The EU never did this work. When asked ‘Where are you from?’ almost no one would answer ‘Europe,’ because after 50 years of assiduous labor by the eurocrats, Europe remains a continent, not an identity.“
Those who had hoped for Britain to remain in the EU include elites who stood to gain from crony capitalism that benefits from heavy regulation, as well as collectivists whose naive ideals dictate government planning and a borderless world. Others may have hoped to profit from another upshot of a remain vote: the U.K., unlike other member states, still has its own currency and its own monetary authority (the Bank of England — BOE); as Paul Craig Roberts says, a British commitment to the EU, and adoption of the euro, would have greatly diminished London as a financial center, bringing potentially significant windfalls to major U.S. financial institutions.
Great Britain has its own economic problems, of course, and there is no guarantee that exit from the EU will pave an easy road to prosperity. The country is attempting to reign in budget deficits, but relatively slow economic growth is making that more difficult. The steep slide in the value of the pound after the Brexit vote will stimulate exports, but it makes imported goods more costly and has inflationary consequences. That makes the BOE’s job of conducting monetary policy tricky. Fears of a post-Brexit liquidity crisis and recession must be balanced against the inflationary impact of the cheaper pound.
Even worse, with or without the EU, politics in the U.K. tends increasingly toward statism. This is from Sohrab Ahmari in his article “Illiberalism: The Worldwide Crisis“:
“Then there is Britain, where the hard-left wing of Labour has taken over the party. Rising to the leadership in the aftermath of last year’s electoral rout, Jeremy Corbyn has broken the party’s peace with free enterprise and individual responsibility—the main reformist achievement of Tony Blair’s New Labour. The party once again longs for socialism and speaks the language of class warfare at home, while anti-Americanism, pacifism, and blame-the-West attitudes dominate its foreign policy. at home.“
From my perspective, the worst-case scenario for Britain is that post-Brexit economic policy will be marked by a continued drift toward government activism, and that “softening the Brexit blow” will be an additional pretext. I believe the British have something to gain from Brexit, but much of it will be frittered away by giving things over to government control. But then again, perhaps homegrown authoritarianism is preferable to imported varieties.
Unfortunately, the exit itself will be a bonanza to the rent-seeking class, as negotiation of its terms with the EU, and implementing the exit, promise to be complex exercises involving an army of technocrats. They should not be too eager to make regulatory concessions to the EU, or anyone else, in order to maintain close ties. The best approach would be to reduce trade barriers unilaterally, blunting the impact of the cheap pound on import prices while enjoying the favorable effect on exports.
My hope is that Brexit will prove to be an economic and cultural tonic for the U.K. in the long run. It would be far better for the country to use its power of self-governance to the good of private individuals, steering clear of government domination of economic activity and excessive regulation. Authorities should cultivate a light touch, allowing markets in the U.K. to do what they do best: promote the general welfare.