The Brexit Referendum: A Game of Many Halves

 

Half-In or Half-Out?

We don’t have a choice about being In or Out of the EU. We have a choice about being Half-In or Half-Out. They may sound the same but they’re not. Right now, we’re already Half-Out. That means we are in the EU, but we have opted-out of, for example, the Euro, Schengen, the European Central Bank, the bail-out plans and the Commission’s refugee plans. We have enthusiastically opted-into the free trade in goods, the expansion of liberal democracy and the cheap travel and phone calls. We have mixed views as a nation about the free movement of people, energy policy and the accession of some of the new or future countries. But, love it or loathe it, we know what EU deal we already have. We can’t be made to give-up what we have, like our opt-out of the Euro or our budget rebate. If we remain Half-Out, then we know what we’re entitled to block, modify or opt-out of in the future. If we vote for Brexit, then we could be Fully-Out. But that won’t happen, because we’ll end-up arguing our way back into parts of the EU and thus become Half-In. But if we decide to be Half-In, we lose all our current certainty about which half we can have and which half we can forget. We lose our veto over the EU’s decisions. And we lose our automatic rights to anything all. We will have to hope that we’re given somethings we want and that the price the EU charges us for those things isn’t too painful. One of the faults of the EU is that it is protectionist and against outsiders. If we stay, we can try to change that. If we leave, I fear that we will experience the same frustrations as others who try to trade with the EU. We do need to be at least Half-In. Like it or loathe it, the rest of Europe has decided to govern itself through the EU. So that’s where they will decide upon the direction of Europe, the operation of its markets and how it relates to the outside world, which would include us, if we leave. That Europe would be 20 miles away and the source of half of our trade and foreign investment. Our most successful industries (aerospace, automotive, pharmaceuticals and financial services) are woven into the European ecosystem. I make a rule of always discounting all economic forecasts, as economists have no more certainty about a highly uncertain future than anyone else. But it’s clear that the disruption of leaving the EU would have a big short-term hit on the UK economy. Beyond that no-one knows. But it’s not just about trade and investment, vital though that is. It’s about all the big strategic issues. It is clear that the US has pivoted towards the Asia Pacific region and now expects a rich and highly developed Europe to increasingly sort itself out, and its backyard. They have a point. Much of Europe has been a free-rider on US defence spending and diplomatic power for decades. Europeans are going to have to step-up, spend-up and face-up to the regional big issues on their doorstep, including Russia, Turkey and the Mediterranean countries of the Middle East and North Africa. These issues won’t fit neatly into NATO and the EU will be key forum for our main allies. Anyone who thinks we can ignore the EU as a geo-political forum hasn’t looked at the  parlous state of the UN recently. There simply isn’t an alternative for our wider region. And, anyway, at times we may want to side against the US and with our European neighbours, as we should have done over Iraq in 2003, for example. I am certainly not arguing that we are too weak to be Fully-Out of the EU. The comparisons with Norway, Switzerland or Iceland are a category error. By population, the UK is 8 times bigger than Switzerland, 13 times bigger than Norway and 200 times bigger than Iceland. The UK’s economy is much bigger than India and twice the size of Russia. A UK outside the EU is probably more analogous to Canada’s relationship with the US. A good place to be, but not good enough for the UK, by a long way. We will not want to be Fully-Out, because there is so much we will need to influence. My point is that the world is regionalising, both economically and politically. To most countries and companies in the world, we sit in a region they call “EMEA” (Europe, Middle East and Africa). The other two global regions are “ASPAC” (Asia Pacific) and “The Americas” (North, Central and South). Both business people and diplomats have to work within these very real, and deepening, divisions of the commercial and political world. The EU will dominate, for good or bad, what’s happening in much of EMEA and we will have to influence that. The seats for that influence sit within the EU. Nowhere else. So, I have concluded, as fully paid-up Eurosceptic, that we can’t be Fully-Out. If we had to be a Fully-In member of the current EU (with the Euro, etc) then I would almost certainly vote to leave. And if our membership of the EU required us to join a United States of Europe, with a federal government for Europe, I would definitely vote to leave. But the best way to stop that happening is to stay in the EU, where we have a total veto on a United States model. I do think that idea is dead and buried anyway. But just in case it rises from the dead at some point or in some form, we have the legal right, in our current Half-Out state, to veto it. If we leave the EU and creep our way back into a Half-In state, then we will have no such power to prevent the rest of Europe committing an error that make the Euro look like a minor hiccup. If we leave, it’s hard to imagine ever getting a Half-In position anywhere near as good as our current Half-Out one. So let’s hang onto it. And if the worse to come to the worse, we retain the power to leave the EU in the future if we want. If we leave now, we have no right of return.

Half-Full or Half-Empty

But hanging onto our Half-Out EU membership doesn’t mean just accepting the EU we have now. The point of remaining in the EU is to make it better, not just for us, but for our trading partners and our military allies, whose strength and stability is our strength and stability. In fact if the EU was already perfectly placed for the future, it might be easier to decide to leave it, knowing all would be well. Agreeing whether the EU glass is Half-Full or Half-empty, and in what ways, is the critical next moment for Europe as a whole. It’s definitely not empty. The EU has, for example, created the incentives and framework for Eastern Europe to move from being poor, totalitarian communist states to the liberal democracies and increasingly prosperous economies they are today. It similarly supported Spain, Portugal and Greece on their journey from dictatorship in the 1970s to today’s democracies. The Balkans are being incentivised out of their genocidal destruction to a much better future. By any measure, the EU has created a remarkably strong single market in many sectors. However, the EU glass is definitely not Full either. And it’s certainly not Over-Flowing in bad ways, as some of its existential critics allege. Freedom of movement is not out of control. 97% of Europeans live in the country in which they were born. Countries have overwhelming sovereignty over their own affairs. You only have to contrast the UK’s flexible labour market with the French labour market to see this. No-one is forcing us to have Denmark’s tax levels or Italy’s business-stifling regulation. No-one is stopping us emulating Germany’s skill system or fixing our own housing problems. Nor is European regulation out-of-control compared to the rest of world. In fact it is quite the opposite. But even to its supporters, the EU can look Half-Empty, often for different reasons to those with competing visions. To the federalists, there is the Half-Emptiness of economic policy-making, where currency union has not been matched by fiscal union and the structural imbalances which make the Euro such bad news for some countries have not been addressed. The federalists can see that whilst the EU now represents Europe in foreign policy forums (eg the G7), it does so as a very junior partner alongside the sovereign leaders of the member states. I don’t think the federalist glass is Half-Empty, so much as broken and leaking. The last few years have shown the Federalists that their dream is over – there was no appetite for fiscal transfers to Greece; there was no acceptance of a co-ordinated plan for allocating refugees across Europe. Public sentiment in many countries turned strongly against further European integration. And it’s obvious that perpetually half-pregnant solutions like the Euro will need to be rethought. To the free-marketeers, their sense of Half-Emptiness focuses on the incompleteness of the single market, the EU’s protectionist attitude to trade with non-European countries and its favouring of regulation at the expense of economic dynamism. Like others who have run global businesses, I know that, compared to most of the world, the EU is very definitely Half-Full, rather than Half-Empty as a free market. But it could be so much better. There is an urgent need to complete a single market for services, which really doesn’t exist. We’ll know we have this when, for example, Google responds to our retail searches with the best offers and adverts from right across the EU. There is a pressing need for a fresh attitude to trade deals outside the EU. On the one hand, the EU’s approach is stifling other countries, e.g. on food trade with Africa. On the other, the EU is held back by the lack of trade deals with the world’s two biggest economies, the US and China. Unless the EU embraces and demands more creative destruction in the economy, it seems unlikely that the EU will catch-up with the US on new technology. Without intense EU collaboration, it is hard to see Europe’s universities catching up with the US or our defence industry surviving in the face of US competition. Those who believe that Europe is not capable of working together to create world-beating industries only need to look at the amazing, inter-governmental success of Airbus. With the federalist dream now dead and the increasingly pro-market reforms in countries like Italy, this is a good moment to ask not whether the EU glass of the last 20 years is Full or Empty, but how many glasses do we want in the future (i.e. what do we want to do together, or not) and how big should they be (i.e. how far do we want to pool sovereignty for our own good). A good example is free movement of people. We need to debate how big this should be. Perhaps, countries could have the power to cap free movement at the European average level of 3% and after that apply their discretion. I am big fan of free movement, but I don’t think its sustainable to say that well over 400m Europeans have the right to live in the UK if they want. Nor is it right to deny people control over such a key issue about their country. The time is right for this debate, and a much wider reset of what the EU is about. And it’s no longer just the UK asking to have the debate. If we vote to stay a member of the EU, we have a powerful position to shape the next Half of the EU’s life to suit our vision for the future and the best way to get there. If we leave, we’ll most likely just be a nervous spectator, ignored and resented by all. And without us as a member and without our current veto, the EU’s ability to get it wrong or skew things in a way that is bad for the UK is a real and present danger to our future. And we get all this influence by simply staying Half-Out.

Half-Hopeful, Half-Fearful

The third Half of the game is how we move-on from the referendum. Because the country is clearly split down the middle, with the vote itself on a knife-edge. Nearly Half of the country will be disappointed by the end of this week. It’s important to see how people are dividing. It seems likely that the biggest difference will be age. People under 43 seems to be in favour of staying, with that feeling strongest amongst the youngest. People over 43 seems to be in favour of leaving, with that feeling strongest amongst the oldest. It is, co-incidentally or otherwise, 43 years since the UK joined the EU. But the vote is also likely to be divide by social class, with the poorer groups wanting to leave and the richer ones wanting to stay. And the geographical divides are likely to be quite stark, with London and Scotland overwhelming wanting to stay in the EU. This isn’t just about the Optimists versus the Pessimists. I am definitely an Optimist. On any objective measure there has never been a better place to live than the UK in 2016. There are, of course, some equally good places enjoying record success in 2016. I want the UK to be even better in the future, more equal, more inventive and more caring. But I feel very positive about the UK’s future. And one of the problems in this Referendum is that the Optimists are divided. Some have a strong preference to be Half-Out of the EU (like me) and some want to only be Half-In in the EU (like some of the people I admire hugely who have joined the Leave side). Both believe that the UK is a great place and that it can be better still. But with the Optimists divided into two camps, each needs to attract a large number of pessimists to achieve more than 50% of the vote for their favoured EU solution.  The Remain side has targeted the risk-averse and vocally stressed the risks to win their vote. The Leave side has targeted those who blame others (immigrants, Brussels, etc) for things they don’t like about the UK today and who don’t trust the opinion of the elites. By definition, the risk-averse tend to be those who have most to lose or who are most positive about the current path the country is following. By contrast, those who distrust the elite, want someone to blame or prefer the past, are more likely to be the have-nots, the older population and those in depressed local economies.  The combined and (mostly) unintended effect of the campaign has been to create a degree of doom, gloom and division which is out of proportion to the problems the UK faces, either now or in the future. Whichever way the vote goes, there will be a need for a really strong One Nation political leadership. We will need it to heal the divisions of the referendum. If we decide to leave the EU, we will need it to hold Scotland within the UK. If we’re leaving the EU, it will take something extraordinary to prevent millions of settled, successful EU immigrants from panicking and throwing our economy and public services into complete chaos.  But the referendum has also shown that we need a One Nation politics to bind together the optimists, the risk averse and the dissatisfied into a new coalition that protects what’s great about the UK, as well as confidently opening up to the world and to economic disruption to create an even better future. This need cuts across traditional party politics, as many Labour politicians have been shocked to see during the campaign. I think that many people are deeply uncomfortable with a binary vote of being In or Out. Nearly everyone wants a different type of EU and to be selective over which parts of the EU they want to keep or lose. I think our best shot at achieving this sort of third way is being a strong One Nation country which votes to remain Half-Out of the EU and from that powerful position plays a leading role in reshaping the EU into a powerful alliance of liberal, prosperous and independent nations who shape their individual destinies together.

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One thought on “The Brexit Referendum: A Game of Many Halves

  1. The oil price rose in 2007 triggering recession and the banks’s latest version of overlending made it an interesting recession. But raw materials were underneath it all. Now prices have fallen First, the oil rich collapse and the oil poor do no more than repay their debts. However it’s a 25 year cycle Prof. Sir Patrick Minford says so. The oil poor are about to boomas debt clears – and interest rates are zero so debt will clear.. #1 EU, Japan so far as demographics permit, India, Turkey, Chile, Kenya. China & the Anglos had quite a !ot of natural resources of their own. They’ll sit in the middle. It’s a bad time to detach from EU. Almost perfectly bad.

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