29 June 2016

Brexit: Reaching for a Higher Vision


In the closing moments of what became a nasty referendum campaign, perhaps the worst side of humanity was on show. Now, with a country divided amongst itself by regions, and by age groups, it is time to appeal not to the worst demons that have been unleashed, but rather, as Abraham Lincoln once said, to the better angels of our nature. It is time to seek a higher ground, and to come together for a common purpose where Britain can point the way to genuine liberty by a free trade and free market orientation with respect to its relationships with the rest of the world.

At a time of increasing nationalism, populism and protectionism, a positive vision of classical liberalism is desperately needed. To be sure, some who voted for Brexit voted for Britain to withdraw from an increasingly globalized world. Some appeared to hanker after a fictional time, when Britain was entirely sovereign and where no immigrants could be seen or heard. Whatever the motivations, the reality is that the British people have spoken, and their voice cannot be ignored.

So what’s to be done? To those who voted for Brexit: how can we use this opportunity to carve out a role for Britain in the world that is appropriate for the world’s fifth biggest economy with a rich and storied history? To those who voted for Remain: how can we play the hand we have been dealt in a way that is best for the country and the world? While anger and pain are the emotions of the day for about half the country, we must not allow our emotional responses to defeat a pragmatic approach. For a country whose favourite motto is “keep calm and carry on”, pragmatic realism is required.

Britain’s Relationship with the EU Single Market

First, we must put our relationship with the European single market on a firm footing. Unlike the suggestions of some in the Leave campaign, access to the European Single Market remains critical for the UK’s economy (and also for the economies of the European member states). This will require at least the following key mandates in an Article 50 negotiation (whenever that is triggered):

  1. Market access and contestability for Britain’s powerful services industries. This includes financial services passporting, legal services access, and access for other key professional services.
  2. Freedom of movement of persons. While this became the bugbear of the referendum, the reality is that a deal on access to the single market can relatively easily be struck as long as Britain agrees that if a national of a European member state is offered a job in the UK, they should be entitled to take it. This is precisely the kind of immigration which any country should want – it is the highly skilled immigration that has transformed the City of London into one of the most powerful economies on earth, and breathed a dynamism into London which makes it the envy of the world. The notion that this is a vote for closing the borders should be firmly and unequivocally rejected.
  3. Britain now has an opportunity to divest itself of one of the most odious policies that has been foisted on it – the Common Agricultural Policy (and its partner in crime, the Common Fisheries Policy). New Zealand, over the last two decades finally got rid of its agricultural subsidization and the result has been to create one of the most competitive agricultural offerings in the world. Britain does not have the same defensive interests in agriculture that plague member states such as France. This is Britain’s chance to break free of a policy that has directly pushed people in developing countries into poverty, and visited untold harm on billions, to say nothing of the overproduction and waste it causes.
  4. Lord Denning once described European law seeping into the rivers of English law, and it is true that English law and European law is inseparable at this moment. There will be divergence once the negotiations are over, but this divergence will be gradual. There need be no fear of an uncertain legal environment. It is also possible that Europe will continue to regulate in ways that exacerbate this divergence. That will be a matter for the Council of Ministers and the European Commission.
  5. The UK has taken on the benefits and burdens of a number of agreements the EU has signed (with Mexico, and South Korea for example). These countries negotiated with the EU on the basis of the UK being part of the agreement, and the UK should be grandfathered into the agreements that were concluded while it was a member. It should be able to enter into new agreements where the EU has been unable to conclude a deal, such as with India or with the US (through TTIP) by itself. Colombia has just requested that the Pacific Alliance enter into a Free Trade Agreement with the UK. Other opportunities like this will continue to present themselves.

A Prosperity Zone

Britain could also take the lead in reaching out to those countries that actually believe that the economy grows and people are lifted out of poverty when property rights are protected, trade is open, and competition on merit is the organizing economic principle. In the first instance, the US, Australia, Singapore, New Zealand, Canada and perhaps Switzerland could form the basis of a Prosperity Zone. Economic distortions, which are deviations from the principles set forth above could then be reduced within this Zone. Our distortions work at the Legatum Institute suggests that if these countries eliminated their distortions over a fifteen year period, the result would be an injection of 3% into Global World Product every year. Compared with the status quo, it would create a world with fully sixty per cent more economic activity over that period. Such a zone could become the world’s economic engine – vital given the current status where there appear to be no engines of growth. Such a Zone would even give rise to job creation and poverty alleviation in countries outside it, even where those countries change nothing.

Such a conversation could not occur in the WTO or in the EU because not all countries actually do believe that classical liberalism is the path forwards. Famously, Victor Orban in Hungary revels in saying he is illiberal.

Prior to NAFTA, it was Mexico’s President, Carlos Salinas de Gortari who reached out to the US for a trade agreement. Mexico then embarked on a strategy of a number of FTAs with many countries around the world. Chile did the same. It is inconceivable that Britain, the fifth biggest economy in the world cannot do the same or better. Many have said that negotiating trade agreements is time consuming and difficult and while any negotiation between countries has its inherent challenges, the length of time of a negotiation largely depends on how a country manages its defensive interests. Since Britain has far fewer defensive interests than most countries, it should be able to negotiate agreements relatively easily.

Britain’s Relationship with the Commonwealth

Britain has an opportunity to lead the Commonwealth into a single free trade zone. By no longer carrying the burden of agricultural subsidization, and by offering tariff-free treatment to the Commonwealth and encouraging tariff-free treatment among Commonwealth countries, trade will be enhanced, and agricultural producers in developing countries will be benefited. This is a way of putting meat on the bones of an organization that has some long standing and highly developed relationships, but is in danger of slipping into anachronism.

Opportunities are usually born out of crisis. An entrepreneurial nation looks at a crisis as an opportunity to look for what is not present in the world and ask why it is not there. An entrepreneurial nation is not afraid of chaos and uncertainty, because the reality is that certainty is and always has been an illusion. Of course, Britannia will be buffeted as it sets its course and unfurls its sails. But surely this is a resilient country that can create a future for itself and then follow the course until it gets there. We must remember that Britain has played a pivotal role in many of the great historical moments of the last several hundred years. The only danger we face is that the creativity, resilience and courage that won two world wars, ignited an industrial revolution, and made staggering and disproportionate contributions to science and the arts will desert us in our hour of need. There are no guarantees except the certainty of failure if we do nothing.

In many ways, Britain has been dealt an exceptionally good hand. It is now time to play it.

Shanker Singham is Director of Economic Policy and Prosperity Studies at the Legatum Institute