Is Brexit Good Or Bad? Experts Pick A Side – WalletHub
British voters shocked the world and sent ripples through the global economy with their 52% to 48% decision to leave the European Union on June 23, amid vociferous concern regarding immigration, terrorism and joblessness. And while the so-called Brexit conflates a variety of interconnected socioeconomic issues into a complex topic capable of sparking heated emotions, it’s difficult to tell whether Britain’s impending departure is actually a good or bad move.
On the one hand, from a people’s-choice perspective, it clearly showed the power of the vote in a democratic society. But when you consider that Google searches for “what happens if we leave the EU” rose by 250% after the polls had closed, it doesn’t seem to be the most informed decision in the world. And looking at just the dollars and cents of the equation, Great Britain is expected to save roughly $9.7 billion per year as a result of leaving the EU, which is less than one-third of the market value lost by the Royal Bank of Scotland and Lloyds Banking Group – 84% and 43% owned by British taxpayers, respectively – since the results were tallied.
With that being said, we’re still in the early stages of the transition, as Great Britain won’t completely sever ties from the European Union until at least December 2018. So in the interest of obtaining a better understanding of what the world can expect as Brexit comes to fruition and thereafter, we asked a panel of leading experts in global economics and public policy a single question that is simultaneously simple and immensely complex: Is Brexit good or bad?
You can check out their responses – including nine votes against Brexit and one in favor of it – below. And don’t hesitate to share your take on the issue in the Comments section at the end of the page!
Why Brexit Is Bad
- "Brexit is a bad idea because it takes British policymakers out of the regulatory conversation – both within the EU and across the North Atlantic. … The political constitution of the United Kingdom is ill-suited to making difficult trade-offs and British governments have a bad track record for building competitive industries at the expense of local autonomy. The UK also has a better alternative in the form of EU membership. Rejecting that alternative was a mistake."
- Erik Jones // Director of European and Eurasian Studies at the Johns Hopkins University School of Advanced International Studies (SAIS)
- "Brexit is potentially dangerous for the UK, though the extent of the damage will depend on the negotiations occurring over the next six months. The principal problem is that it is not clear what 'Brexit' means. ... The difficulty is that there is a clear negative meaning – ending UK membership of the European Union and repealing the legislation under which the UK originally joined the European Economic Community. But, alas, the positive content of Brexit, what will replace the EU, is opaque."
- Harold James // Professor, Woodrow Wilson School of Public and International Affairs, Princeton University
- "As much as the historian in me hates answering straightforward questions like this without adding a multitude of qualifiers, this is one which allows a direct response. Brexit was not a good idea, and not primarily because of its economic or financial impact. The simple fact is that the European Union, with all its faults and problems, is one of the most creative and hopeful ideas for keeping nations and peoples from killing each other to emerge out of the bloody 20th century."
- Thomas Schwartz // Professor of History and Political Science, Vanderbilt University
The people who want England for the English? Well, we are talking not about England, but about the United Kingdom, and the Scots and people from Northern Ireland apparently prefer an open country that shares its destiny with Europe.
Democracy and self-governance? The truth is that only countries living in isolation can have complete control over the laws that govern them. Open, inter-dependent systems will have to compromise with others. We, thankfully, no longer live in the times of empire when one country imposed its own rules on the rest.
The financial sector and other businesses that will no longer have to dance to the tune of Brussels? If they want to do business on the Continent, they will have little choice. Now their own polity no longer has a voice in Brussels to help shape the rules that will govern them.
The workers in factories that export cars and other manufacturing goods to Europe? The people living in remote parts of England who received support from the EU’s regional development funds? Universities who attracted thousands of students, hundreds of faculty and millions in research funds from EU funds?
Hospitals, restaurants and the entire service sector that employs people from Europe and elsewhere? Clearly, the young are not the winners – they mostly voted against Brexit, although foolishly did not come out in large enough numbers. And the old who did favor Brexit will have to confront the fact that globalization is upon us. Each polity should discuss the terms on which it wishes to engage with the world. The Brexit vote was the wrong battle to fight over the spoils and the harms of globalization. Take a look at the equivalents of Brexiters in the US – with no Brussels in sight. In fact, brexiting is likely to hurt the current losers of globalization even more.
Last but not least, the European Union, its member states and citizens also lost. They lost their confidence that political integration is critical for economic in ways that is compatible with democratic self-governance. They have seen a core value of the European integration project – that integration is not only about goods, services and capital, but also about people – rejected. They lost a member state that provided a unifying language to all; that offered healthy criticism of the direction of integration and the choice of means; and a country where they could find education and work, with which they could share their wine, cheese and culinary traditions, and from which they could welcome, without bureaucratic hassles, students, workers, and ordinary people looking for a little bit of sun as tourists or retirees.
The principal problem is that it is not clear what “Brexit” means. The new British Prime Minister, Theresa May, announced a simple linguistic identity as the core of her government’s new policy: “Brexit means Brexit.” The difficulty is that there is a clear negative meaning – ending UK membership of the European Union and repealing the legislation under which the UK originally joined the European Economic Community. But alas, the positive content of Brexit, what will replace the EU, is opaque.
There is a “soft” Brexit, in which the UK has a dense network of trade agreements with Europe, perhaps via the European Economic area, that would preserve market access (and possibly involve some UK payments) while offering to respect UK restrictions on labor mobility. Switzerland seems close to negotiation precisely such a deal, after Swiss voters rejected the existing bilateral agreements in a vote of February 2014 (with a 56.6% vote). A “soft” Brexit would also help to keep Scotland and Northern Ireland in the UK, while a “hard” Brexit will produce constitutional chaos.
The problem with the soft version is not that it is obscure, but that it isn’t basically different from the compromise negotiated with David Cameron’s government that was the subject of the referendum on June 23. Cameron already had negotiated a recognition of a different currency arrangement, and of the UK’s right to put temporary limits on benefits that encourage migration. The would-be soft negotiators are envisaging simply an extension of the emergency brake on migration so that it would become in practice a part of the permanent settlement. The idea is to perpetuate what was actually the pre-existing problem, to which Brexit was supposed to be the solution, of a fundamentally ill-defined relationship of Britain to Europe.
The “hard” Brexit, as advocated by many of the participants in the Brexit campaign, is based on a fantasy about how well the UK might do if it threw off all the bureaucratic controls that are said to come from Brussels. But there is little political appetite for doing this, and indeed part of May’s new government program was a labor market reform designed to make Britain more like Germany, with workers’ representation in corporate governance. So the likelihood is that the post-Brexit UK in this scenario would look isolated, investment would flag, unemployment surge, and popular discontent increase even more.
Brexit supporters hoped that leaving the EU would offer two advantages. They could set their own regulations in Westminster rather than having to accept rules made in Brussels. And they could negotiate free trade deals with Europe and the rest of the world that more protectionist countries like France were reluctant to pursue. Both claims show an outdated understanding of global trade.
The major distortions in global trade markets have little to do with tariffs and quotas, particularly when we are talking about trade between advanced industrial economies like those found on both sides of the North Atlantic. Instead, most of the major trade issues deal with regulations -- for product safety, environmental protection, worker rights, market competition, intellectual property, and quality assurance.
This distinction between traditional trade barriers and regulatory obstacles is important for how any one country interacts with all the rest. The reason is simple: countries can discriminate with tariffs and quotas because they take place at the “border” between any two countries. By contrast, regulations are indiscriminate because they have to be applied beyond the border where the products are made or the services are provided.
To see this in practice, consider a country like Singapore. The United States can trade freely with Singapore in the traditional sense of having no tariffs or quotas on transactions between the two countries. Yet that tells you very little about what happens inside either country or how either country relates to the rest of the world. That is the scenario the pro-Brexit camp imagines for the United Kingdom outside the EU.
If we think in terms of regulations, however, the relationship between the United States and Singapore is very different. U.S. regulators have little or no interest in changing their practice to meet the requirements to enter into Singapore. The market in Singapore is too small, the cost of changing regulations for U.S. manufacturers is too large, and the implications for accessing other more important markets are too great to make any kind of regulatory convergence worthwhile.
For Singapore, however, the situation is different. Singapore regulators have a strong interest to encourage (convince, compel, require) domestic manufactures or service providers to do whatever it takes to penetrate U.S. markets. Moreover, that same logic applies to many other small countries. As a result, doing whatever is necessary to penetrate the United States is likely to make it possible to enter other markets as well. The adjustment to U.S. rules may be expensive, but the payoff is high enough to warrant the effort.
This illustration yields two insights. The first is not only that relative size matters more when we are talking about regulation that when we talk about tariffs and quotas, but also that the logic of relative size is totally different. Small countries can be ignored in both cases. But where ignoring small countries made it easier to promote free trade in the old agenda related to tariffs and quotas, relative size means that small countries have to adopt the regulations written in larger markets under the new agenda.
The second insight is that politicians hoping to have some influence over the regulations that define global trade have to have a voice in the regulation of larger markets. This is important for British voters who care about protecting the rights of workers and consumers, preserving the environment, promoting intellectual property rights, and all the rest. Without that voice in large markets, any influence is lost and what we think about as domestic 'autonomy' boils down to a question of trade-offs in terms of access and adjustment costs.
These insights are fundamental but they are not new. In fact, this argument lay at the heart of the project to relaunch European integration in the 1980s. It explains why Margaret Thatcher was such an advocate of completing Europe's internal market. It has been an increasingly important theme at the global level through successive rounds of multilateral trade talks. When those talks became too complicated, this argument was used to launch negotiations for a transatlantic trade and investment partnership between the United States and the European Union.
Brexit is a bad idea because it takes British policymakers out of the regulatory conversation – both within the EU and across the North Atlantic. It makes Britain like Singapore. But that is a 20th - century model for success that is ill-suited to the 21st century. Singapore can tolerate that fact because it has a strong domestic government that is accustomed to making difficult trade-offs. Singapore also does not have a choice. By contrast, the political constitution of the United Kingdom is ill-suited to making difficult trade-offs and British governments have a bad track record for building competitive industries at the expense of local autonomy. The UK also has a better alternative in the form of EU membership.
Rejecting that alternative was a mistake.
Britain benefited especially from the development of its world-leading financial services sector for which EU countries and companies, and third countries engaged with them, are major clients, and from investments by foreign multinationals which established manufacturing facilities here to serve the continental market. These created jobs that would not have existed if Britain had remained outside the EU, contributing to the country’s low unemployment.
Brexit will impose many costs on the British economy. First, it will take time to unwind – and negotiate and implement replacements for – all the EU trade, financial and other institutional arrangements that govern British domestic and international economic activity. This uncertainty alone will discourage some business activity, especially new investment (on which growth depends).
Second, uncertainty aside, Britain loses its attractiveness as a production base for the larger EU regional market, so there will be a diversion of new investment to competing European locations (e.g. Frankfurt for financial services, Ireland for manufacturing) if not outright disinvestment (office and plant closures). Britain relies heavily on foreign investment to fund its chronic current account deficit, so a reduction in capital inflows will further depress the pound.
Third, more restrictive immigration – a reduced inflow of both skilled and unskilled labor – will also reduce growth, which comes from increased capital and labor inputs and productivity growth on the supply side, and consumer and business spending on the demand side, all of which will diminish.
Fourth, slower growth itself reduces the country’s fiscal and monetary policy autonomy – ironic given that “independence” in economic policy was one of the motivators for the Leave vote. The budget deficit will worsen as tax revenues and EU subsidies fall, further crimping public services (including the popular National Health Service) that have already endured years of austerity, and requiring reductions in transfer payments such as pensions which have so far helped to keep consumer spending afloat.
Monetary stimulus by the Bank of England to minimize the impending recession will add to downward pressure on the pound, and thus increase imported inflation (which under other circumstances would call for an interest rate increase). Since British industry, like British consumer spending, is heavily (more than 25%) dependent on imports, the weak pound would limit any improvement in, or even reduce, cost competitiveness, from the currency depreciation.
Brexit will also slow the already anemic EU economy, and because of its size, also the global economy. Like any economic shock, there will be winners as well as losers, with the former including foreign investors now able to enjoy a windfall by scooping up cheap British assets, as some are already doing.
Yet in all of this discussion about Brexit, and the trade options that may emerge, there is less attention to the impact of British exit on the future of market integration in Europe. For over seven decades, the single market has been one of the core attractions for joining the EU. It is easy to forget the extent of market liberalization undertaken in Europe. While the single market is still incomplete, the British referendum should not be viewed as a harbinger of economic nationalism and rising protectionist sentiment. Trade did not generate the same kind of negative campaigning and antipathy that has emerged in the US. In Britain, it was quite the opposite as both sides promoted different trade options to the public. While the leave campaign advocated trade deals with emerging economies, and more sovereign control over British trade policy, the remain campaign fought hard to promote the importance of the European single market for goods and services. Now that we know the outcome, one of the major effects will be the loss of one of the strongest voices for liberalization of the single market.
To understand this impact, we might remember that Britain has been a strong advocate of the US-EU trade negotiations, known as TTIP. Given the importance of the City of London for financial services, Britain is a strong proponent for the inclusion of financial services in TTIP. In addition, Britain supports a digital single market in Europe that reflects the dynamic nature of the digital economy. Britain has steadfastly pushed for further services liberalization, wanting more liberal economic reforms across Europe, as the EU has failed to integrate national services markets which is central to a long term growth plan. Finally, Britain has been at the forefront of the better regulation agenda, pushing the EU to evaluate its legislation to reduce red tape and cut administrative burdens. The British have long argued for “light touch” regulation to promote innovation, creativity and growth in the single market. As the instigator of the regulatory reform drive, as well as a strong proponent of a flexible, open single market, the issue is not simply what the end trade deal will be for Britain upon “exit” from the EU, but what the nature of the single market will be without the British ‘voice’ in Europe.
The results of the election were close, with the side favoring British exit prevailing over those who wished to remain by 52 to 48 per cent. As interesting as the final result was the way in which opinion was split in the country. Polls showed younger people preferred to remain in the European Union while older people favored leaving. Geographically, cosmopolitan London heavily favored remaining. More ominous, Scotland strongly favored remaining in Europe and many Scots have said that if England carries out the plan to leave, Scotland should secede from Britain and remain in Europe.
Nothing changes legally until Britain invokes Article 50 of the EU treaty which triggers a two-year period to negotiate the terms of the separation. Untangling economic integration and negotiating new trade arrangements will not be easy. Some British commentators argue that because the decision is not legally binding, Parliament should ignore it, but Prime Minister Theresa May says that the will of the people cannot be ignored. Brexit will continue. Others hope that with possible new elections, and prolonged negotiations, the game may not be over.
The geopolitical consequences of Brexit may not appear immediately. The EU might temporarily pull together, but there will be damage to its sense of mission and to Europe’s soft power of attraction. Problems of financial stability and dealing with immigration may become harder to manage. Britain might see not only a revival of Scottish separatism, but an acceleration of its inward turning trends of recent years. And over the longer run, the effects on the global balance of power and the liberal international order will be negative.
Faced with a rising power in China, a declining but risk acceptant power in Russia that is meddling in European politics, and the prospect of prolonged turmoil in the Middle East, close cooperation between Europe and the United States will be crucial to maintaining a stable international order over the long term. If Brexit weakens Europe and weakens Britain, it will make that task more difficult.
I say this because I think that as time goes on, there will be an increasing realization that an actual Brexit would entail political, legal, economic, financial and social costs judged to be highly detrimental to Britain’s national interest. Politically, as some have noted, therein lies the potential secession of Scotland from the United Kingdom. It is also by no means clear what type of political relationship Britain might have with the EU: there’s a clear incentive for the EU to make an example of the UK, as it did with Greece, in order to preclude others from pursuing such a policy. This would translate into economic and financial costs.
In order to maintain access to the EU market, the UK would need to agree to the free movement of people – negating a key component of the Leave campaign. Moreover, Paris and Frankfurt are ogling London’s privileged financial position hoping to attract banks to the continent. From clearing Euro denominated financial instruments – which needs to be under the jurisdiction of the ECB – to direct access to the EU financial markets, a post-Brexit Britain might find itself increasingly politically and economically marginalized.
Thus, the Brexit referendum could very well end up as part of the long list of popular referendums conducted in the EU whose awkward results were conveniently ignored by the European political classes over the past decade. The fundamental issue concerning Brexit isn’t necessarily whether it was a good idea or not; rather, Brexit and the previously ignored referendums are symptomatic of an EU system that is increasingly unresponsive to the consent of the governed.
Brexit underlines the inchoate nature of a European state: it pursued monetary unification without central political authority; it pursued economic integration without budgetary coherence based on geographic necessity; and it pursued this thinking that it would offset the geopolitical fault lines that plagued the continent. The success of the Leave campaign reflects an EU in the throes of a crises of legitimacy, an increasing legitimation of xenophobic parties across the continent and an increasing chasm between social and economic classes.
The United Kingdom was initially reluctant to join, but as its empire disappeared and it sought a new world role, joining Europe gave it the opportunity to assume a new leadership position. As serious and difficult as the problems of the European Union have been in recent years, no one with a sense of history should underestimate the extraordinary contribution to world peace and economic development which the EU has provided. To the extent that Brexit might weaken, damage, or even unravel that contribution, it is a singularly bad idea.
What is worse than Brexit is the political stupidity, or perhaps political hubris, which led British lawmakers to place such a fundamental issue on the ballot as a referendum with a simple, 50 plus 1, majority rule. This is madness. As many public opinion polls have shown in the United States, placing the Bill of Rights up for majority approval would have us soon living under a dictatorship. Allowing Brexit to be decided in such a way, with no provisions safeguarding Scottish or Northern Irish concerns, or even a two-thirds provision for England, was truly political malpractice in its highest form, and should serve as a warning to other EU members tempted to put such a critical decision before their publics in the same manner.
There may be a silver lining in Brexit, if it does lead European leaders to recognize the concerns of their citizens with excessive centralization and regulation in Brussels and the importance of remaining accountable to their electorates. As for British leaders, it should be hoped that they show greater intelligence and wisdom in negotiating their exit from the EU, minimizing the harm done and seeking an arrangement similar perhaps to that which the Norwegians enjoy. Brexit was a mistake, but it may provide an opportunity for creative statesmanship similar to that which created the EU in the first place.
This gamble by Cameron failed dramatically and there was no constitutional backstop – unlike in the United States - to this wild-pitch. The narrow victory of Leave has thrown up questions around every traditional institution of British government. How can each party recover its political identity when the majority party Conservatives are deeply divided? How can regions which voted Remain like Scotland and Northern Ireland be reconciled to a United Kingdom outside the EU? How will major areas of policy like agriculture, fisheries, health and safety regulations, and the treatment of borders be made by a Parliament that is as widely split as the country?
The success of the Leave campaign was largely due to fears that traditional controls on borders were being eroded by EU power. The campaign triggered a revival of immigration fears and the Syrian migration crisis hit just at the wrong time. Leave succeeded in a ludicrously over simplified debate. Give us back our sovereignty! The reality is of course that every modern state, through treaties, membership of the UN, etc. sees it interdependence with others on the planet mean that some pooling of sovereignty through international relations is beneficial. Now the complications of remaking a country at home as well as its international relations have left many scratching their head. New ministries have been formed. Adversaries from the referendum campaign are now trying to remake policy. Not a recipe for successful government.
The answers? They’re all in the future and that appears singularly uncertain. Scaremongering brings sometimes easy victories and the latest joke is that a ‘Regrexit’ party should be formed. So rather than argue whether Brexit was good or bad, my main hope is that the UK has an early election. Power and identity needs to redrawn, as it always has been, by debating complicated issues and electing accountable officials. The fault-lines of British politics exposed by Brexit need repairing and redefining. Only a new vote can do this - in any case the terms of withdrawal will require a parliamentary vote as well as in the Regional Assemblies of Wales, Scotland and Northern Ireland. And without that, the existing membership of parliament has tainted authority. When Britain has needed to freshen the air and restore confidence in politics it has always seen an election as the best way. That is the answer this time. The referendum seemed an easy way out – but legitimacy and sober consideration got swept away as well. The UK needs to go back to basics and ask the people what they think.
Why Brexit Is Good
Only one of the experts we consulted fell in the pro-Brexit camp. You can find his comments in full below. And if you also believe there’s a case to be made in favor of the move, be sure to let us know with a comment.
Sandeep Mazumder // Associate Professor and Associate Chair of Economics at Wake Forest University
When Brexit occurred the morning after June 23rd 2016, I along with most other economists was taken by surprise since I was fully expecting a "remain" decision. From an economic standpoint, the UK is quite likely to suffer in the short-run. We have already seen that the immediate effect of Brexit was a negative one, as seen by investor reactions in markets. For instance, the closing value of FTSE 100 index was approximately 3 percent lower the day after Brexit, while the British pound depreciated by a massive 8 percent against the dollar immediately after Brexit. This represented the weakest value of the pound since the mid-1980s.
On top of this, the UK is likely to see less trade and foreign direct investment with other members of the EU over the next months and years, which will certainly cause economic hardship in Britain. Without doubt, the likelihood of a UK recession at some point over the next year to two years is much higher today than it was on June 22nd 2016, largely due to the high degree of uncertainty that now exists – both across investors and consumers.
That being said, I do not think it is all doom and gloom. We have already seen stock markets in the UK recover fairly well. The FTSE 100 index fell by a couple hundred points to 6,138 right after Brexit, but as of July 28th 2016 the index has rebounded to 6,721.
Looking beyond the stock market, if London is able to retain its place as the financial center of Europe, then that may enable Britain to preserve a great deal of business. They were able to remain the financial center of Europe even without adopting the euro as their own currency while so many other countries in the EU did, so it is not impossible to see London continuing this role in the future as well.
And thinking even longer term – one sharp criticism of the EU is how hopelessly bureaucratic and sometimes even undemocratic it can be – and if the UK is able find tangible ways to enact good economic policies without EU bureaucracy, then there is a lot of reason to believe that the UK may actually benefit from Brexit in the long term. This of course is highly dependent on what trade negotiations are conducted with the EU once Article 50 has been enacted. In particular, future UK economic prosperity could result if they are able to embark upon trade negotiations with non-EU countries, such as the United States.
Overall, I would conclude that the UK may benefit from Brexit.
Image: Christopher Ames / iStock.
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