Britain's busiest port at Felixstowe in Suffolk. John Fielding/Flickr. (CC 2.0 by-nc)
That the British decision to leave the European Union in the 23 June referendum will have profound consequences for the country’s economic policy and the future of its trade relations is no news. The economy not only loomed large in voters’ priorities pre-referendum; it still vies with immigration for the top spot in people’s expectations of Brexit. It remains an issue, which, depending on your interlocutor’s political beliefs, acts as a proxy for all that Brexit stands for: it is either opportunity or disaster, liberation or curse, the dawn of a new age or the self-exile of a country to the global backwaters.
Whatever the pure economic case, it will always be intertwined with and delimited by political viability.
If business and trade have thus substantively dominated the Brexit agenda from the get-go, the views from many trade representatives as well as ‘experts’ hailing from different institutional contexts were perhaps overly politicised. With policymakers now considering the exact kind of relationship Britain should secure with the EU, of course, the likely repercussions of commercial and trade relations the government will seek to establish with the continent need more attention than ever.
As always, however, the devil is in the detail – and in the forever vexed question of how accurately one might model the eventual outcome of today’s policy decisions. Paradoxically, in a debate where the freedom of trade predominates, it is now all about the political in our political economy: the state-devised, supervised and instituted organisation of economic interaction.
In this guest week as well as our half-day public discussion event at University College London on Wednesday, 14 December, we bring together experts from academia, law, financial and regulatory services, start-up businesses and commerce bodies to critically examine the place of business and commercial interests in the negotiations and beyond.
By doing so, the authors attend to the different agendas, which economic sectors in Britain represent and defend. They also discuss the likely nature of Britain’s trade and economic relations with the continent after Brexit, and assess the risks and opportunities associated with the various options. Among the questions they raise are those concerning the effect of Brexit on the UK’s regulatory landscape; its trade pattern; the institutional form of its post-Brexit trading regime; and the direction of travel of post-Brexit economic policy.
What draws the wide range of contributions together is the recognition, poignantly formulated now that we have moved from campaign to negotiation mode, that Brexit is no monolith. It is a vastly complex, multifaceted and time-consuming process with an unstable set of interdependent and only partially controllable elements. Likely to be neither black nor white, neither good nor bad in its entirety, we only begin to grasp what the new settlement might entail – and just what it might take to get there.
In the process, one insight seems already to be gaining ground: whatever the pure economic case, it will always be intertwined with and, crucially, delimited by, political will and viability. In this minefield, we must make a renewed case for reasoned debate, discussion, and the careful weighing up of the evidence. We may not yet know what kind of future will come our way; yet we must understand, to the greatest degree possible, what may shape and influence it.
This guest week is the third in our Brexit Division series. The first two, published prior to the referendum, examined first how and when campaign strategies shift public opinion, and then migration as the key opinion shaper and point of controversy in these campaigns. The series is co-funded by the European Commission Representation in the UK.
Monday: The post-Brexit economy
Iain Begg (‘The economy after Brexit’) analyses the most recent data on the UK’s economic performance in the aftermath of the referendum. Noting the surprise with which many greeted the reasonably positive data on the economy, Begg interrogates the underlying factors driving this growth. He claims it is disingenuous to argue the effects of Brexit have yet to register, since some of the Treasury’s concerns have been borne out, but the country’s economic performance is not as poor as predicted. Yet he regards as equally disingenuous the claim that Brexit will not have detrimental effects on the UK economy, since the transition process has yet to begin and UK growth based on consumer spending may be difficult to sustain in the long-term. Ultimately, Begg argues we need to pay close attention to the underlying drivers of current economic growth and to shy away from simplistic predictions of disaster or success after Brexit, since the available data to date supports neither thesis.
Tuesday: Policy and business decisions during withdrawal negotiations
Brad McKay (‘The business of Brexit’) summarises the results of recent research into how firms make decisions about fundamental issues in uncertain political times. Drawing on interviews with members of the business community conducted during the 2014 referendum on Scottish independence as well as the 2016 referendum on Britain’s EU membership, McKay discusses several identifiable trends in decision-making. These include the tendency to adopt a ‘wait and see’ approach, and a general disinclination for long periods of political uncertainty. Combined with the assumption that investment decisions often take a long while to ‘register’ in economic data, McKay’s findings offer pause for thought for economists whose assessment of the UK’s post-referendum economic performance has been optimistic. McKay goes on to discuss the differences between firms in their stance on Brexit, and their willingness to ‘go public’, both of which he relates to the nature of the firm itself.
David Schäfer (‘The limits of Brexonomics’) argues against the misperception that a ‘rational’ or ‘optimal’ set of arrangements exists for UK-EU relations after Brexit. He notes that the debate thus far has been far too narrowly focused on competing cost-benefit analyses designed with a measure of national economic utility in mind. This, he argues, conceals the magnitude of the political decisions that lie ahead. In particular, he identifies three fundamental choices. First, between an open Britain welcoming trade and investment and a closed Britain shielding its population against the vicissitudes of globalisation. Second, between a Britain actively managing global interdependence and a passive Britain seeking to extricate itself from it. Third, between a dynamic Britain that rewards risk-taking and a protective Britain that seeks to reward the whole population. Neither of these choices can be made by economists, or by experts, argues Schäfer. They are political questions, solvable only through the kind of reasoned debate, which, he argues, has been sadly lacking in recent months.
Wednesday: Interest groups and Brexit I: financial services and banking
Guy Sears (‘Four myths about Brexit and financial services’) examines Brexit from the perspective of the financial services industry, seeking to expose four persistent myths he believes have taken hold since the referendum. The first is that Brexit itself is a single, discernible phenomenon. Sears argues that treating Brexit in this manner fails to do justice to what is a complex, multifaceted and emergent phenomenon, one that is not amenable to such binary categories as ‘hard’ and ‘soft’. The second myth is that retention of ‘passporting’ rights will constitute the principal demand of the financial services industry. Sears argues that, while important, passporting does not cover the many non-treaty privileges of membership that cannot be replicated in a passport. A third myth is that there is a ‘financial services industry’ that has an identifiable stance on Brexit. Sears argues the sector exists as an aggregation of competing businesses, each of which has distinct profiles, interests and positions. Finally, Sears challenges the myth that the UK government will negotiate for free on behalf of financial services, noting that the industry has diminished legitimacy after the financial crisis, and that significant concessions are likely to be forced from it.
Katie Daughen (‘Brexit: Ireland stands to lose most’) examines the likely effects of Brexit on the Irish economy, arguing that Ireland stands to lose the most from British withdrawal from the EU. Daughen begins by depicting the structural links of interdependence between the UK and Ireland. Ireland’s economy, she argues, is therefore vitally dependent not only on British economic performance, but also on the ease with which goods and services can flow between the two countries. Brexit thus stands to harm Ireland both economically and politically, as the damaging effects of the depreciating value of sterling for the Irish agri-food sector already indicate. Once article 50 is triggered, Daughen predicts a significant outflow of businesses from the UK to other European jurisdictions, and a decrease in both British and Irish GDP. In her conclusion, she highlights the crucial role the respective governments will play throughout the Brexit process in working together to ensure everything is done to protect jobs, security and wellbeing for the populations of both countries.
Thursday: Trade options for Brexit Britain
Luis Gonzalez Garcia (‘International Trade implications post-Brexit‘) takes his point of departure in the potential conflict between the government’s two key trade policy aims post-Brexit: agreeing the best possible access to the single market, while achieving greater flexibility in shaping our own trade policy. He argues that none of the existing trade models provide the optimal balance between those competing aims. Rather, a new, bespoke agreement is the only trade model which would allow the UK to achieve both. Gonzalez also examines the need for a transitional arrangement to avoid trade disruptions between the conclusion of Article 50 negotiations and the commencement of a new FTA. He takes into account the need for new FTAs with third countries; its stance vis-à-vis the WTO and the EU’s Generalised System of Preferences; and the urgency for our own trade defence measures, once Britain leaves the EU.
Magdalena Frennhoff Larsén (‘Challenges of negotiating a post-Brexit FTA with the EU’) also assumes that existing models, from ‘Norway’ to Turkey’ or a fall-back WTO option, are not in the UK’s interest. Instead, she looks to the recently signed Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada for a possible precedent. Frennhoff Larsén also however highlights three possible stumbling blocks. First, the foreseeable length of FTA negotiations and the subsequent ratification process. Second, she highlights the potential wariness on part of the EU to set generous precedents in reaching agreements, lest its hands be bound with future negotiation partners. Last but not least, Frennhoff Larsén posts that the required negotiating capacity in terms of resources and personnel are potentially an issue.