By Nitin Bajaj
On June 24th, Britain’s decades-old political and economic association with the European Union came to an end. However, the official procedure required for a split from the union as per the EU regulations i.e., the enactment of Article 50 of the Lisbon treaty, still needs to be initiated. Although Article 50 sets a 2-year timetable to agree to the terms of the departure, the polling results seem irrevocable. The referendum that precipitated the split was promised by Britain’s prime minister—David Cameron. He has since announced his resignation to step down from the prime ministership, at a more propitious time in the recent future.
As a result of facing a divided conservative party in 2013, the announcement of the referendum was made to exact some political leverage from the process. Mr.Cameron had promised, “to give the British people a referendum with a very simple “in or out” choice—to stay or to come out all together. The referendum stopped the inner conservative party bickering for a while, but little did Mr. Cameron know then about the outcome of his precipitous announcement. To put it in historical perspective, this is probably the greatest crisis for a British PM since the Suez crisis of the 1960s. As Tim Harford—a British economist—says, “On June 24th, the unthinkable became the irreversible.”
So much for consolidating inner party workings.
Brexit Resonates the People’s Voice?
Brexit isn’t a story of political division based on the conventional left-right spectrum. Rather, it’s a demographic division on ideas pertaining to free movement of people and commerce across borders. As an aftermath of the referendum results, the stock markets around the world have lost more than $2 trillion. However, I think these economic consequences are interim as this is no 2008.
The British people have spoken through the electoral franchise, although not in the most conventional sense. They have spoken about controlling immigration, freeing themselves from the Brussels regulations and embracing global free trade. Ironical as it might be, but free trade often goes with free movement of people across borders. Yet, the Britishers want to do that by restricting free movement of people. Nevertheless, it’s an absolute foolhardy to brush off the British consensus with a stroke of an elitist reluctance and denial; the media would do better than being troglodytes where adult suffrage performs contrary to their expectations.
Current Account Deficit
The certitudes of a million experts—who offer their time rather generously to the eye-ball catching prime time TV—and media people have been upended. This is due to the uncertainty created by not one, but many different reasons people had for voting.
The British voted against interference, big government and outside influence in sovereign matters. Most importantly, they voted against not having the wherewithal to do their own thing as part of the EU.
An important yet contextually insignificant issue highlighted by the media is Britain’s current account deficit. For some time now, Britain has had a sizable current account deficit. However, capital inflows of various kinds could easily finance this deficit. After all, London isn’t going to suddenly cease being a major financial center for the world. London’s attractiveness for FDI and as a global financial center has far exceeded the EU’s time period of existence. Besides, the plummeting of EU-related imports—if it happens—is not an onerous factor in Britain’s budget deficits. Because, supplier credit from the importers hardly ever finance the current account deficits.
It is true that a lot of bickering one hears about the silly regulations of EU is fictional. For instance, one doesn’t assume in common sense for the cabbage regulations to be 26,000 words long or the EU bureaucrats to slow down the British tea time by making their tea cattle of a lower wattage. Yet, behind the complaints about silly regulations, bloated EU budgets and pompous bureaucrats, there is remorse and unheard sentiment.
The Rise of Xenophobic Populism
There’s a growing phenomenon of xenophobia and seeming fascism. This is also apparent in the rise of right-wing nationalist ideologies, throughout the western world. The buzzwords of this decade’s politics are populist, protectionist, nationalist and xenophobic.
According to a poll by the Economist, the older, non-university-educated, working-class, white and male citizens strongly supported xenophobic populism. Wall Street Journal recently polled the British electorate that voted in the Brexit referendum.
The poll declared that 68% of those who voted for ‘Brexit’ didn’t graduate high school. On the other hand, 70% of those who voted for ‘Remain’, graduated college.
Despite the aforementioned, we should acknowledge that when it comes to blue-collar and lower-paying white-collar jobs, the norms have been shattered throughout the rich western world. Quality jobs along with the industrial towns of the American mid-west and Europe, that were readily available a decade ago, are nowhere to be seen.
The Outsider Influx
The older, white, working class and less-educated people in northern England may not be able to afford the basic heating amenities in a cold winter. Whereas, the recently migrated Syrian refugees—although Britain has accepted a mere two hundred and fifteen—are entitled to a government-provided warm house. In such a case, there’s something amiss along the sociological lines. Additionally, the truth is that the respective countries’ democratic processes will continue to validate the European politicians. Therefore, their policies of national advantage would keep conflicting, from time to time, with the policies of regional welfare. Leaders would then have to continue choosing between either disregarding people’s will or following it in opposition to Brussels. In the decades to come, non-European influxes of people—or in this case, legal immigration within the EU—will remain a concern for the local people.
Economically, it is a crisis, but not the one we’ll care for long. In fact, this morning when I quizzed a US stock-trader about the repercussions of Brexit for his investment portfolio, he retorted by saying, “Brexit, what Brexit?”
What will stanch the financial and economic bloodletting in the aftermath of the Brexit, isn’t the endeavor to find a solution to undo the referendum. The best solution is to go ahead and enact Article 50 of the Lisbon treaty in a timely manner.
Sovereignty Pool Branches Out
Politically, it’s as simple a transition back from a system of pooled sovereignty to that of a traditional westphalian state. In other words, a renunciation of collective political rule in favor of non-interference. In fact, the same principles of national interest and non-interference had proved effective arguments against the European colonizers, in much of the 20th century independence struggles. Now, these have come to the surface again in Britain’s exit from the EU.
Is the Brexit, alongside the rise of fascist-looking nationalists around the western world, one of the most event-filled episodes in modern history? – Probably yes.
Is there an apparent emergence of a new political divide across the demographic line within countries? – Probably yes.
But is it forceful enough to throw away the old guard of the Westphalian state and disrupt Europe’s economy? – Probably not.
And, is it right to plainly label those who voted in favor of Brexit as jingoists and xenophobes? –Absolutely not.
Leon Trotsky, one of the more popular socialists of the 20th century, had once quipped, “The end may justify the means, as long as there is something that justifies the end”.
Nitin Bajaj works as an economist for EY. The views expressed are his own and do not represent the views of any organization.
Featured Image Credits: Imgur