Leibowitz on Trade: Five Takeaways from Brexit

More generally, Brexit is emblematic of 21st Century feelings about representative democracy, international trade, global security, economic policy and government regulation. Those broader issues affect the United States and many other countries no less than the UK and the 28 remaining members of the EU.

Representative Democracy

The Brexit vote was a national referendum, with the British electorate asked to vote “Leave” or “Remain” in the EU. The victory for the “leave” side was a jolt to the British ruling class, which spent the last four years attempting to frustrate the vote by deadlocking the British Parliament, which had to approve a Brexit deal with the EU. 

The issue for all representative democracies is when to bypass representative bodies (e.g., Congress or state legislatures) and ask the people directly for a decision. This has always been a risky game. The National Conference of State Legislatures reports that 26 states in the U.S. have provisions for petitioning an issue to a voter referendum. In 21 of those states, voters can petition to put new laws on the ballot, essentially bypassing the state legislature. In the other six, legislative initiatives must be considered by the state legislature before going on the ballot.

Federal law, by contrast, does not permit referenda. All legislative power is vested in the U.S. Congress. Voters do not pass laws—they elect representatives who do that. Even amendments to the U.S. Constitution are passed by a two-thirds vote of both houses of Congress and then submitted to state legislatures. 

In Europe, which gave birth to votes of the people on issues of the day (or plebiscites, as they are sometime known), popular referenda are more common. But they are sometimes open to abuse. In the case of the Brexit vote, the “Remain” forces claimed that voters were grossly deceived by propaganda from the “Leave” proponents. 

In general, a representative democracy leads to less radical results. It may be a while before Britain puts an important issue to a popular vote. Prime Minister Boris Johnson recently rejected calls for a second referendum on Scottish independence before about 2050. The Scottish referendum failed in 2014 by a 55-45 tally, and encouraged then-Prime Minister David Cameron to call for a referendum on Brexit, which was held in 2016. When the Brexit vote was cast, Mr. Cameron immediately resigned as Prime Minister, leaving the task of managing Brexit to Theresa May, who was unable to accomplish it. Boris Johnson took over and “got Brexit done” after a landslide victory in the December 2019 general election.

The idea of making important decisions on fundamental constitutional issues by a popular vote is inherently risky.

International Trade

The Brexit agreement is very long and very complicated, which is why it took nearly a year longer than called for in the original timetable. Britain is an island and a quarter of another island (Ireland). The land border between the UK and the Republic of Ireland caused a great deal of trouble. But those were not the only issues. The media points out the clumsiness of the breakup, such as having UK passport holders stand in the endless “non-EU” line at airports and train stations (alongside the Americans). Trade will be similarly affected, although tariffs and quotas will not be applied between the UK and the EU. 

Certain provisions could be a model for future trade agreements involving the United States and its trading partners. Britain and the U.S. are currently negotiating a trade agreement to improve access and efficiency between the U.S. and UK. Similarly, negotiations are pending between the United States and the EU, but progress on that front has been slower—and since 2017, essentially nonexistent. The Biden administration looks to work to improve trade relations with Europe.

Global Security

Brexit means that the United Kingdom will no longer partner with the rest of Europe in developing a common defense or foreign policy. Instead of four major member states, there will be three: Germany, France and Italy. Defense policy will be less uniform—but this is what the British voters wanted in 2016, to chart their own course. Britain is not exactly a stranger to global affairs, having controlled about one quarter of the globe until shortly after World War II. Since the war, the U.S. and UK have nurtured a “special relationship” that has helped preserve the peace. As Britain’s role in the world has diminished with the end of Empire, the UK has maintained its financial involvement in world affairs and has stood with the United States in many world crises, such as the Gulf War. This “special relationship” will be a key goal of British foreign policy and trade policy in the future.

Economic Policy

The UK had a 30-year flirtation with a rather benign form of socialism after World War II. The famous Conservative Prime Minister Winston Churchill oversaw Britain’s struggle against fascism and Japanese imperialism and was replaced by Clement Atlee before the war against Japan was finished. Labour and Conservative governments alternated from 1951-1979, but the trend was toward more government ownership and less free enterprise in the UK—until Margaret Thatcher came along in 1979.  She served as Prime Minister for 11 years, and the Conservatives ruled for another six years after that. Then came the Labour renaissance led by Tony Blair, who served as Prime Minister for 10 years (1997-2007), followed by Gordan Brown.

Since the election of 2010, the Conservatives have held the gavel in Britain. While the Conservatives are more like Republicans and Labour more like Democrats in the United States, the comparison is not perfect. There are major differences in policy and, of course, the two countries are very different despite their common ancestry. 

Conservatives traditionally believe, like Republicans, in the virtue of free markets (although Conservatives know better than to disentangle government from health care in the UK). 

The Brexit vote was largely a pro-conservative and pro-free-market decision. England favored it (at least outside London), while Scotland and Wales, much more dependent on government, were largely against it. The post-Brexit United Kingdom will likely lean in that direction until Labour makes a comeback. The aftermath of the pandemic will see a weakening of the free market as a source of gainful employment, putting Labour in a stronger position, if they can avoid overly radical economic positions.

Government Regulation

There may be a lesson for the U.S. in the Brexit vote regarding the ascendancy of government regulation. A rallying cry for the “Leave” contingent was faceless, unelected “Eurocrats” in Brussels telling the Brits what to do on many fronts. There was anti-immigrant sentiment that added to the pro-Brexit vote, rule from Brussels and simply too many rules.

If this sounds familiar, it should. Similar sentiments motivated voters in 2016 in the United States—and 2020. It should not be forgotten that the “deep state” does not just exist here in the U.S., but in many countries in the developed world voters will continue to make it hard for governments to increase their regulation.

In this sense, Brexit was a forerunner of the Trump victory in November 2016, and his receipt of more than 75 million votes last November. 

My takeaways from the Brexit saga: (1) Be careful—very careful—about staging referenda to decide major issues of government and economic policy; (2) trade policy is a blend of “go-it-alone” nationalism and the need for rules to limit the ability of government to impose burdensome rules that will kill innovation and reduce employment; (3) global security is also a blend of the need to prepare for conflict as well as preventing it; (4) economic policy does not exist solely to protect entrenched interests but to allow innovation and new thinking to keep markets active and growing—we need to grow the economic pie as well as dividing it equitably; and (5) the era of “big government” is no longer over, but voters and leaders of the private sector will turn on government that gets too big and imposes too many rules. 

Brexit is many things. Above all, it is a testament to the strength of democracy—the “Remain” forces are no doubt convinced that Britain’s leaving the European Union was a historic mistake. But, when you let the people decide, there is no escaping that decision without destroying democracy—and that is the greatest risk of all.

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