9 December 2017

The real Brexit fantasists


For those on the losing side of last year’s referendum, the outline of the terms of the UK’s departure, finally agreed yesterday, was – in one particular sense – a moment of vindication.

To ardent Remainers, “regulatory alignment” – which the UK has committed to as part of the plan to avoid a hard border between Northern Ireland and the Republic of Ireland – was proof of the illusory appeal of Brexit.

This promise of a close economic relationship with the rest of Europe was reassuring to those on both sides of last year’s referendum who understand the overwhelming importance of a trade deal with the EU. But to some it was also proof that sovereignty is a romantic idea with little meaningful application in the modern world; that there’s only so much control you can take back.

Writing for CapX this week, trade expert Philippe Legrain described Brexit’s stark trade off: “if the UK wants its regulations and standards to diverge from those of the EU, it will inevitably suffer a big loss of exports, especially in services, to its main trading partner. To have any hope of offsetting those losses, the benefits from deregulation and new trade deals with the rest of the world need to be very large indeed.”

Much hangs on the meaning of the phrase “regulatory alignment”, a deliberately ambiguous choice of words that leaves scope for UK rule-making. As another trade expert, Shanker Singham, explained on CapX on Monday, “the direction of travel of international trade thinking is towards countries recognising each other’s regulatory systems if they achieve the same ultimate goal of regulation, even if the underlying regulation differs.”

But there is a deeper debate going on here than the one over the meaning of “alignment”. It is one that pits competing visions of the modern economy against one another.

According to those who think taking back control just isn’t compatible with running an open, outward-facing economy in 2017, the national must give way to the supranational. This group argues that interconnected global problems demand interconnected global solutions. Their view of the declining relevance of the nation-state has been in the intellectual ascendency for some time.

It has been taken as a complete truism that the nation-state is, slowly but surely, on its way out. And yet, as Harvard economist Dani Rodrik argues in his thought-provoking book Straight Talk on Trade: Ideas for a Sane World Economy, “the nation-state has proved remarkably resilient and remains the main determinant of the global distribution of income, the primary locus of market-supporting institutions, and the chief repository of personal attachments and affiliations.”

National governments are more powerful than they are given credit for. The financial crisis was an unmistakably global crisis, but it was national governments that had the power (dare I say, sovereignty) and legitimacy required to steady the ship.

Defending Britain’s decision to leave the EU is tiring. It involves fending off regular accusations of unrealistic – even fantastical – thinking. But whose thinking is at odds with reality? Those pushing for a vision of globalisation that involves the continual eradication of a country’s ability to set rules for its own economy, or those who recognise, as Rodrik does, that “the nation-state remains the only game in town when it comes to providing the regulatory and legitimising arrangements on which markets rely”?

The logical conclusion of the former approach is a homogeneous global economy, in which there is no regulatory experimentation or diversity and no democratic legitimacy to the decisions that change people’s lives. Such an outcome would be both politically and economically undesirable. The latter, by contrast, is nothing more than a commitment to the system that has delivered prosperity for generations. Some global governance is undoubtedly necessary. But there needs to be a sensible balance between the national and the global.

Brexit will help to restore that balance in the UK. For the rest of Europe, however, the future is less clear. Emmanuel Macron continues to claim that the answer to Europe’s problems is more Europe. This week, in the midst of coalition talks with Angela Merkel, Martin Schulz, the leader of Germany’s SPD, called for a “United States of Europe”. A constitutional treaty to create a fully federal Europe should, he said, “be presented to the member states, and those who are against it will simply leave the EU”. Who are the real fantasists?

This article is taken from CapX’s Weekly Briefing email. Sign up here.

Oliver Wiseman is Deputy Editor of CapX