The referendum on British exit from the European Union is a symptom of the rise of the politics of identity over the politics of prosperity in Europe. Both sides in this debate make forecasts of the economic consequences of the referendum outcome, but the Brexit camp is more focused on national identity.
Forecasting organisations, barring a couple of dissenters, have expressed fears of a sharp decline in the economy, at least in the short run, if the Brexit camp wins. The Brexit camp counters these gloomy forecasts asserting that the economy would adjust to a new pattern of trade in no time and enter into a new era of prosperity by leaving the EU. In any event, these arguments about economic forecasts are considered simply as a distraction by those that wish to leave. The Brexit camp places greater store on sovereignty -- taking control over the legal definition of human rights without interference by international courts, dispensing with much of the regulations governing commerce and industry, and setting rules for immigration free of treaty obligations. There is considerable fuzziness in the arguments made by both sides.
For example, there is confusion in the political discourse about the European Court of Human Rights, which predates the formation of the EU, and the European Court of Justice, which is an EU institution. Playing on the fear of terrorism to denigrate human rights, the dog whistle politics of sovereignty does no credit to the quality of the current political debate. Forecasts by the anti-Brexit campaigners of adverse economic consequences of leaving the Union are broadly shared by economists, but the quality of the discussion is compromised by a spurious degree of precision claimed for numbers that are only roughly correct. The more important point is that once the vote is cast to leave, that would be a point of no return. The mini-max decision criterion of minimising the maximum potential disruption to the economy is the only rational choice given the impossibility of computing the probabilities of predicted economic consequences of the outcome of the vote. This criterion favours a vote to remain a member.
We know what it is to live with membership, and we have some idea about the likely success of agitating for change to make institution within the UK and also in the EU more responsive to the voter. Institutions of governance are always under the scanner in a democracy. Within the UK, composition and selection rules of the upper chamber and devolution of power between regions are not settled matters.
Likewise, the question of democratic legitimacy of distribution of powers amongst various institutions within the EU is being debated, and not just in the UK. An economic ideology embraced at the EU level, and also within member countries, which has thrown up massive inequalities and blighted the prospects of large segments of the population, especially the young, is not sustainable in societies that aspire to democratic legitimacy. There is urgency for reform. That is not a case for destroying the Union. In a pluralist democracy, not all citizens wish to subscribe to the same agenda for change. Even an encompassing view which might emerge would remain under scrutiny. A referendum is not the best way to proceed, and a referendum on EU membership is especially pointless in addressing the current economic malaise.
A difference between participating in parliamentary elections in a system of representative government and voting in referenda is that the voter imposes on herself and the rest of society a greater burden of any unintended and unwelcome consequences of the outcome of a referendum. This is especially so when the status quo is severely jolted in pursuit of identity politics, which sit uneasily with economic reality.
In electing representatives to govern, the voter has the luxury of voting for government on a policy platform, but judging the government on consequences of that policy. Casting a vote for candidates espousing, for example, a tough stance on immigration does not constrain the voter from criticising a government thus elected if food prices rise in consequence or if the availability of medical care is compromised due to lack of qualified staff.
Mrs Thatcher secured a parliamentary majority in 1979 on a policy platform comprising, inter alia, a vow dramatically to reduce the share of government expenditure in the GDP. The ratio had climbed to 45 per cent. Notwithstanding this harsh rhetoric, government expenditure and its share in the GDP continued to increase in the initial years driven by unforeseen fiscal pressure of a sudden and sharp rise in unemployment. The ratio finally came down, but only to 40 per cent of the GDP, when she left office a decade later.
This is not to say that representative governance entails a cavalier disregard of promises made at election but to suggest that the promises need to be interpreted in context. The context is the need for elected representatives, once in government, to engage with complex technical issues and tedious details of policy coherence to avoid chaos.
Those that vote for a government which commands a parliamentary majority by espousing policies which appeal to the voters’ gut feelings have the option of defeating the government in the next election if the consequences of following these policies turn out to be unappealing. This paradox is understood by representatives and, in stable societies, they moderate in application promises made at election. Governance by referenda, where policies are prescribed by the electorate, is a different matter altogether. Unforeseen consequences can be more disruptive in a referendum. That is why stable democracies choose representative forms of government, and governance by referenda is shunned.
A textbook example of the disruptive nature of referendum politics is the story, reported in the New York Times on the 5th of March 1995, of the three strike sentencing referendum in California. A woman was brutally murdered by a repeat offender recently released on parole after a period in jail. In the background of emotive press reports, a referendum was held on whether to mandate a harsh prison term of 25 years to life, without any possibility of parole before 20 years, for all repeat offenders. Professionals having experience in the maintenance of law and order advised against imposing such an inflexible mandate on the judiciary. The advice was ignored by a majority of the electorate. Soon after the referendum proposal was carried, a young pizza thief, he was in the habit of going into restaurants eating a slice of pizza and then escaping without paying, was sentenced to a term of 25 years to life with no hope of parole before 20 years. Even those that had voted for the referendum mandating this harsh punishment were aghast.
The ensuing referendum on continuing British membership of the European Union is an exercise in making decisions under uncertainty. A House of Commons Select Committee has criticised protagonists on both sides for failing to lay down the facts correctly for the voter to make an informed choice. In our view, the Committee has missed the point about the nature of this referendum. Objective probabilities of the consequences of leaving cannot be computed because Brexit would be a unique event. Attempts at calculating subjective probabilities would be frustrated by the problem of infinite regress in gathering information.
It is not simply that the voter has to decide what type of information that is needed to be collected to judge whether potential outcomes are good or bad, and the probabilities of the outcomes. Before making these decisions, she has to know what data needs to be collected to make these decisions. For that purpose, she has to know how to make sense of the data. To know how to make sense of the data, the voter has to learn about the relative reliability of different ways of making sense of the data. The point is that we have to collect information to decide what type of information to collect. An arbitrary deadline needs to be imposed on voting day cutting off the infinite regress of collection and analysis of evidence. This is especially problematic if the voter is to choose a point of no return by casting a ballot for Brexit. It would be prudent instead to heed the principle of caution before disrupting the status quo of membership.
Whilst the referendum ballot provides a binary choice, whether to remain in or to exit from the EU, the voter is not faced with a binary decision. There are multi-dimensional effects of the decision. The protagonists have forecast vastly different consequences for British trade and prosperity and also for world peace. In our view, even the assignment of subjective probabilities to the forecasts requires knowledge of the unknowable, and the best course of action is to minimise the potential for maximum harm.
Britain is a trading nation where exports counts for slightly less than a third of its GDP. Roughly half of that, 45 per cent to be precise, is trade with the EU. The EU aspires to a single market which entails companies being able to compete for government contracts across frontiers within the EU without discrimination. Those in favour of withdrawing from membership discount the prospect of any adverse effect on British trade.
Their argument is four-fold. Firstly, they assert that access to European markets could be swiftly negotiated without necessarily having to comply with the rules for free movement of labour within the EU and without having to follow EU directives specifying, for example, labour rights at work and environmental conditions in production. There is no precedence of a swift negotiation of trade deals between the EU and a country outside the Union. Norway has gained full access while remaining outside the EU, but on condition that the country must accept all EU regulations, including the right of free movement of labour. The experience of other countries -- eg Canada, Switzerland and Norway – in negotiating with the EU is ignored by the Brexit camp which asserts that the UK is an exception.
A second line of argument is that it does not matter if negotiations stall. Any adverse consequences of disruption to trade with the EU could be ameliorated through improving trade relations with countries outside Continental Europe. This assumption is oblivious of the fact that the leaders of some of the largest economies outside the European continent have advised against British departure from the EU. A third line of argument derives from the belief that hitherto untapped energies would be unleashed in the British economy freed from EU regulations, which are derisorily described as red tape by right wing commentators. A fourth line of argument for parting with the EU, put forward by some on the left, is a modified version of the above. They hanker for an imaginary world where governments could pursue industrial policies and set tariffs unconstrained by international treaties.
The Brexit camp refuses to engage with an essential feature of trade amongst EU nations, the single market to which the EU aspires. Government expenditure is around half of the GDP in the prosperous countries of Europe. The single market allows non-discriminatory access to government contracts in all EU countries to companies based in any of the member nations. What is the likelihood that British companies could continue selling to the public sector in the EU without conforming to labour regulations and environmental standards agreed at Brussels? What is the probability that British exporters would be allowed to sell to companies in the EU goods and services which are used in fulfilling public sector contracts there?
The idea that dispensing with environmental and labour standards would necessarily make British products more attractive outside Europe is questionable. International competitiveness does not necessarily improve by reducing labour rights and embracing polluting technology. For example, sharp reductions in the rights of workers in the 1980s did not increase the share of British manufacturing in international trade. In fact, Britain lagged even behind France, one of the most regulated labour markets, as observed by the Adair (now Lord) Turner in his address to the Confederation of British Industry in 1996.
Both sides in the debate also put forward their assertions about the impact of membership on political stability. For many of those campaigning to remain, it is an article of faith that the democratic and cooperative ideal of the European Union contributes to peace in Europe. The anti-EU campaigners disagree. Some prominent members in the Brexit camp claim to be fearful of German hegemony summoning the memory of world wars. They have got off on the wrong track.
It was not German malevolence which caused the Iraq war. It was not too much interference by the EU but, alas, too little influence on British policy of the German Chancellor and the French President that led to one of the worst military adventures, destabilising the Middle East, undertaken by Prime Minister Blair.
It is true that German economic policy aimed at generating relentless year-on-year trade surpluses is a detriment to long term financial stability even in Germany. When goods continue to be sold to those who cannot pay and the trade imbalance is not corrected at an early stage, painful problems eventually develop. The international banking system, following financial liberalisation in the late 20th century, has developed tools of financial engineering to postpone adjustments in trade imbalances, thus creating huge financial bubbles that eventually burst contributing to great difficulties. This is a case for the reform of the dysfunctional international banking system which has emerged in recent years. Conflating the spectre of a banking collapse with the spectre of German hegemony as a threat to peace misses the point that modern Germany is a moral force in support of democracy and human rights in Europe, and is not to be conflated with the caricature of Germany in post-war British cartoons aimed at children. It is a conservative German Chancellor who has fearlessly urged on a moral stand on the refugee question to her colleagues at home and abroad.
What is more worrying for peace is the resurgence of the kind of identity politics about language and ethnicity which destroyed much of Europe less than a century ago. British exit could become a catalyst for reawakening destructive nationalism, and not just in countries where pluralist democracy has not yet established deep roots. The cause for peace is not served by proposing a narcissistic obsession with identity as an antidote to a failing economic system which has marginalised, especially, the young. As explained by Peter S. Goodman (New York Times 20 May 2016) the main appeal for Brexit is angst over British identity “masquerading as an economic debate”.
There are more pressing problems for the well-being of the nation than a naval gazing angst over identity and sovereignty.
(This is a revised version of an article which appeared in two parts in The Island newspaper in Colombo, Sri Lanka)