On Brexit, Leavers Bear the Burden of Proof

I am encouraged by the fact that our conversation has avoided extreme views. All contributors appear to agree that EU membership is a mixed bag and that Brexit is neither bound to be a disaster, nor is it guaranteed to boost Britain’s – or the EU’s – prosperity. We seem to agree that the UK’s departure increases the variance of possible outcomes. Or, to quote Ryan’s original contribution, “for better or worse, Brexit broadens the scope of opportunity.”

Common prudence normally cautions against policy changes with uncertain outcomes – unless there are compelling reasons to believe that the potential upsides of proposed change strongly outweigh the downsides. My contention is that Leavers have not provided such reasons.

It is not enough to suggest that Brexit will lead to good economic outcomes, if accompanied by “liberal domestic regulatory, tariff, and trade policy reform.” Neither is it enough to express the hope that British parliamentary democracy provides a reliable self-correcting mechanism to public policy – at least not without accounting for the political drivers of Britain’s relative economic decline between the 1930s and the 1970s.

In order to make the case for Leave convincing, one would need to identify the specific policy areas in which burdensome European rules stifle economic activity and also to show what political dynamics would lead to desirable change after Brexit. While it is possible to find many intrusive, costly, or obsolete EU rules, the bottlenecks to the UK’s growth are overwhelmingly domestic. Furthermore, for a bonfire of EU regulations – or of British ones – to occur after Brexit, the British public would have to become dramatically more pro-market than is currently the case.

True, leaving the EU offers the possibility of scrapping British tariffs, currently dictated by the EU’s Common External Tariff, and striking new trade agreements with countries around the world. But in a world of non-tariff barriers, effective trade liberalization is difficult, politically and technically. The international environment does not appear particularly auspicious to it at the present time, either. The administration in Washington harbors suspicions of the rules-based WTO system. Although President Donald Trump announced a “very big and exciting” trade deal with UK was in the making, his understanding of international trade is limited and seems driven by an obsession over bilateral trade deficits, suggesting a very shaky foundation to future trade negotiations.

Elsewhere, we do not see a rush to strike trade deals with the UK. Canada’s Prime Minister Justin Trudeau, in turn, promises that the UK will be able to replicate the terms of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU. Trade negotiations require willingness to do contentious political bargains and need technical expertise, oftentimes in scarce supply. For most countries, tailor-made deals with the UK are simply not worth the trouble. The UK might end up with versions of agreements negotiated by the EU – without any influence over their content. In other situations, the UK might lack the bargaining power needed to persuade governments of large economies to open up their protected industries or coordinate their regulatory regimes with the UK’s.

To the extent to which Brexit “broadens the scope of opportunity,” it does so symmetrically, for better and for worse. One cannot dismiss Jeremy Corbyn, a genuine political extremist, as a one-off fluke. As Prime Minister, he is bound to do more when not bound by EU rules. As Alex Massie writes in an eloquent piece in The Spectator, “[Corbyn’s] government would know no boundaries, recognize no sensible or proportionate limits, accept no compromise. Like the Tory Brexiteers, Corbyn recognizes that the EU makes achieving this more, not less, difficult. Those pesky rules!”

For Ryan, “economic reality is a helpful constraint against the downsides,” including Corbyn’s socialism. But that is inadequate in light of the UK’s own economic experience during the 20th century, and of the many policy-driven growth disasters that regularly afflict liberal democracies. The EU has provided European governments (including Margaret Thatcher’s) with an anchor that commits them to a broadly market-friendly outlook. Yes, unmoored, the UK could become the next Hong Kong – in principle at least. But observing the current political winds and drawing lessons from public choice theory, it seems a safer bet that new discretionary powers acquired by British politicians will result in a drift towards less, not more, economic freedom.

I close with two observations.

First, contrary to arguments advanced by some Euroskeptics – not necessarily by Ryan — we do not find ourselves in a world of binary choices. Even after Brexit, the UK will be bound by some EU rules. Simultaneously, it will forego any influence over the content of those rules.

For all the British grumbling about Brussels, the UK has been among the most influential member states in actively shaping European legislation. As a European of a classical liberal disposition, I believe that it was a force for good: for more flexibility, for more market-friendly approaches, and for less continental dirigisme. For the EU as a whole, the UK’s departure is thus highly regrettable.

But more importantly for the British, if the EU takes an anti-market turn as a result of Brexit, the UK will be affected too. Britain can withdraw from common European institutions but it cannot unshackle itself from the constraints of economic geography. Abandoning the influence the British once exercised in Brussels can easily become an act of irreparable self-harm.

Second, and finally, I take issue with Ryan’s rhetorical question, “Is the EU really a nimbler, more effective level of government able to confront and adapt to the challenges of the day?” as well as his contention that “it is difficult to think of any economic issue where the answer to the question ‘what is the optimal governance level for this?’ would be ‘the current contours of the European Union.’”

Until the postwar era, the European continent has been characterized by a recurrence of protectionism, tyranny, and war. The multitude of tribes, ethnic groups, and nations on a single continent has always been a source of frictions that Europeans tried to remedy by devising more or less successful systems of governance that bound such groups together in order to provide for common defense and sustain integrated common markets. The EU is nothing but an extension of those past efforts – and an incredibly successful one at that.

The past 70 years of Europe’s history, characterized by the continual deepening of economic ties between European countries, liberal democracy, peace, and passportless travel are unparalleled in European history. A skeptic could say that perhaps those beneficial outcomes would have arisen in the EU’s absence as well. We are not able to test that claim. But if we believe, in a true Hayekian spirit, that caution is justified in face of complex social orders, we might not want to test it, either.

Also from this issue

Lead Essay

  • Daniel Hannan reviews what Britain stands to gain by leaving the EU, as well as what it should seek to preserve. An economic common market has always been a desirable goal, he argues, but the same cannot be said of a common goverment. Obstacles to free trade tend to be local and concentrated interests, while consumers tend to benefit most, albeit in a dispersed way. Britain’s economy is healthy despite the naysayers, and it will be better able to pursue free trade agreements outside the EU once Brexit is completed.

Response Essays

  • Dalibor Rohac challenges the claim that Brexit wasn’t about immigration. Leave voters overhwlmingly wanted to restrict immigration, and they responded to anti-immigration messages issued by various groups in the Leave campaign. As a result of the vote, Britain’s place in the Single Market may be in danger, and without it, economists generally agree that the British economy will suffer. The promised free trade agreements that were to arise before Brexit seem not to have materialized. All of these, he says, are sound reasons for concern.

  • Ryan Bourne sketches the way forward for an independent Britain. He begins by looking at what Leave voters appear to have wanted, namely, a return to parliamentary sovereignty and a rejection of political integration into a supra-state. Leave voters were not anti-trade so much as they were in favor of using local institutions and local rule as the instruments to oversee it. The current political leadership may be less than inspiring, Bourne writes, but Brexit is a long-term proposition, and it tends toward greater freer markets, he believes.

  • Sam Bowman of the Adam Smith Institute explains why he does not view Brexit with much optimism. The best available models predict that trade will probably suffer on net. This is already reflected in a drop in the value of the British pound. Not only that, but socialism remains popular at home and will now face no EU controls to slow it down. Most Britons are neither xenophobes nor free market liberals, and the political climate is unsettled enough that Britain stands to suffer genuine harms from leaving the EU.