Caleb Brown: This is the Cato Daily Podcast for Thursday, June 30, 2016. I’m Caleb Brown. Voters in the UK have opted to leave the European Union, so is the Union now doomed? And what about migration to, and trade with, the fifth largest economy on the planet? For a live #CatoConnects. Today, Cato’s Tom Clougherty and Marian Tupy took questions from Twitter.
Tom Clougherty: The question was should Britain leave the European Union or remain in the European Union? About 52% of British voters decided to leave. Now, that referendum did not have any immediate legal impact. Constitutionally in Britain, referendums are only advisory, so this didn’t immediately trigger a departure from the European Union. Britain is still a member of the European Union until certain negotiations have taken place. What it does do, I think, is create a duty on the part of the government to remove Britain from the set of centralized political and legal institutions which make laws that are superior to British laws. That’s essentially it. We have to leave the political union based in Brussels. Beyond that, there is a huge amount up for discussion. What would the terms of Britain’s relationship after an eventual Brexit look like? When would that actual Brexit actually happen?
Caleb Brown: Alright, so this is from Boris Johnson who recently took himself out of the running to be the next prime minister. He said, “It is said that those who voted Leave were mainly driven by anxieties about immigration. I do not believe that is so. After meeting thousands of people in the course of the campaign, I can tell you the number one issue was control - a sense that British democracy was being undermined by the EU system and that we should restore to the people that vital power: to kick out their rulers at elections, and to choose new ones.” Prior to Brexit, what was the - what were the options available to Britains to decide that they didn’t like their EU overlords?
Tom Clougherty: Well, there certainly were options in a very narrow sense, so the European Union consists of several different institutions. One of those is the European Council. That’s made up of the heads of state or the heads of government of the different member nations of the European Union, so clearly whoever is your prime minister, say, will represent you on that body. The citizens of the European Union also elect a parliament. Now this is not a parliament in the sense that the British know and it’s not comparable to the U.S. Congress. For example, it has no right to initiate legislation. Nevertheless, I guess it does exercise some constitutional role. The main body driving Europe, though, is this thing called the European Commission. It’s an unelected bureaucracy. It consists of 28 commissioners who are appointed. Now one of those commissioners will come from each member state of the European Union. So that’s probably the extent of the democratic accountability there, so it’s not great. I think, though, what that gets at is the sense that ordinary people have no control over the European Union regardless of which prime minister, or which parliamentarians, or which commissioner they send, because right from its very conception the European Union has been a project of elites driving towards ever closer union. The idea, basically, is that one day there will be a United States of Europe. That’s a process which has taken Europe from the 1950s, a union of six countries over coal and steel production all the way through to the creation of the Eurozone. And now we’re thinking of moving past the Eurozone to have a combined fiscal policy and more things like that. So Britain, I think, has essentially opted out of that process towards ever closer union. They’ve said enough is enough, and in fact we’re going to pull back a little bit.
Caleb Brown: Alright, if you’ve got any questions for our guests Tom or Marian, please use the hashtag #CatoConnects. Send it to me @cobrown. We have a question here. This is from Greg Newburn. He says, “Given Brexit, what’s the likelihood of Breenter,” which is the idea that, as the European Union likes to do, offers multiple votes to do the things that the EU wants you to do. So what are the odds that this will come up again?
Tom Clougherty: Well, Caleb, and Greg as well, it’s certainly being talked about a lot. If you were to look at my Facebook feed you will see countless cries for a second referendum, people signing petitions to that effect, people calling on the British Parliament to nullify the decision that was given in the referendum. Nevertheless, I find this extremely unlikely, although as Caleb has said, it has happened a few times before. Ireland were asked to keep voting until they gave the right decision on the Lisbon Treaty, for example. I can’t see it happening in this case. The reason for that is pretty simple. There’s currently a leadership election in the Conservative Party going on. The person who wins that election will become Britain’s next prime minister and will be in charge of negotiating Britain’s eventual withdrawal from the European Union. Now, as far as I can tell, all five of the candidates have said, effectively, Brexit means Brexit. Not to prejudice the relationship that Britain and the EU will have going forward in economic terms, nevertheless Britain will withdraw from the political and legal institutions probably over a time period of two to four years.
Marian Tupy: There was, actually, a widespread attempt to delegitimize the outcome of the referendum. Not only did we see this petition in Britain for a second referendum, we have seen reports about apparently people who had second thoughts about the way they voted and of course there was a deeply disgraceful way in which the media reported on the reasons behind Brexit votes and Brexit voters. In fact, the poll that was conducted before the referendum by Lord Ashcroft has shown that roughly half of the people who intended to participate in the referendum wanted to - wanted Britain to leave because they were concerned about democratic deficit and the fact that Britain was no longer governed out of Westminster, out of London. Only about a third of the potential voters wanted to leave because they were concerned with immigration. And yet listening to the media you would think that seventeen-and-a-half million people in Britain were driven by no other considerations but xenophobia, hatred of foreigners and racism and I don’t think that was the case at all.
Tom Clougherty: And that’s actually been backed up in a second poll by ComRes for - I think it was for the Sunday Mirror. Again it found that about half the people were motivated principally by taking back control. Issues of democratic accountability, about a third motivated primarily by immigration. So I don’t think we can ignore that third of Brexit voters who were principally concerned about taking control of immigration. Nevertheless, they represent I would say about fifteen, sixteen, seventeen percent of the British electorate as a whole, roughly the same amount of people who would be voting for the UK Independence Party in a general election, so views that have to be taken account of by no means dominant and by no means representative of the wishes of the country as a whole at this point.
Marian Tupy: I also want to make one final point on the democratic deficit, which is that one of the definitions of democracy is that people should be able to elect and kick out the government that governs over them. But in order for any kind of election to be a meaningful one, the candidates - it doesn’t only matter that they should come from different political parties with different views, but that they should be able to affect change. And one of the problems with democratic deficit is that no matter whether you voted for a Labour politician or a Conservative politician, ultimately the decisions which impacted lives of the people in Britain were not made by the people that you have elected, but by people in Brussels. So the very meaning, the very definition of democracy, was being compromised by the aggregation of powers from London to Brussels.
Caleb Brown: Alright, if you have a question for either Tom or Marian on Brexit, the referendum, please ask it via Twitter using the hashtag #CatoConnects and send that to @cobrown to make sure that I see it. So here’s a question from Brad Rush: “Why did Gove withdraw support for Johnson and why did Boris Johnson drop out?” Thanks Brad.
Tom Clougherty: Brad, it’s easier to answer, I guess, the second part of that question, why did Boris Johnson drop out. One can only assume that he felt he didn’t have enough support among the Parliamentary Conservative Party to make it through the ballot. So to briefly describe how this process is going to work, there are five candidates to become leader of the Conservative Party next British prime minister. This coming Tuesday, and then Thursday, and then so on until they get it, they will do a ballot. Each ballot one of those leadership candidates will be eliminated until two remain. At which point the decision will go to the nationwide membership of the Conservative Party. So they will vote over the summer, there will be a kind of limited primary of sorts, and then we will know who the next leader of the Conservative Party the next prime minister will be on September the 9th. So clearly I think Boris Johnson did not believe he would have the support to get through the parliamentary ballot, because frankly if he could have made it to the membership given his level of popularity in Britain among members of the Conservative Party, he would have stood a very good chance. Now, the question is why did Michael Gove decide to withdraw his support? So, Caleb, actually right until this morning Boris Johnson believed Michael Gove, currently the British Justice Secretary, was going to be his campaign chairman. They had campaigned together for Brexit. They had been, sort of, number one and number two in the campaign. Gove this morning decided to run for the leadership himself. There are indications that he thought Boris Johnson was going to be a little bit too soft on Brexit, that maybe he was too willing to compromise that he wasn’t terribly concerned about immigration, as that quote from him you read out earlier suggests. Also, the last few days, apparently, surrounding Boris Johnson, have been a little bit shambolic, disorganized, he hasn’t been making the calls and so on that he need to now - I don’t know if that’s the case. Clearly that’s what’s being reported in the British press.
Caleb Brown: Alright, so we have a question here from Jorge Rojas-Ortega: “Are calls for an independent Scotland and Northern Ireland after Brexit at all realistic?” Thank you, Jorge.
Marian Tupy: Well, I’ll take the Scotland first because I’ve written about it, so if I may, I’ll beat you to it. I think there are two or three very important reasons why Scotland will not actually declare independence. The most important reason for that is that all other members of the EU have to okay new member coming in, and the Spanish have already made it very clear that they would veto a Scottish membership of the EU. Now why would the Spanish be concerned about that? And that is because they have their own problem with their own separatists in Catalonia and elsewhere, so the Spanish don’t want to create a precedent under which there could be a Spanish breakaway province that could then reapply to the EU. So what they are hoping is that by preventing Scotland from joining the EU, it will be a disincentive for their own separatists. Second thing that has happened over the last year-and-a-half since the last Scottish referendum on independence is that Scots have realized the vagaries of the oil market. The Scottish budget has broken even at $100 dollars a barrel for the oil that is being explored and exploited in the North Sea, and right now oil is selling for about $50 dollars a barrel and if the fracking revolution continues we are never going to see, or we are very unlikely to see, very high levels of, very high prices for oil. And as a consequence, the Scots can no longer be certain of, A, being anchored in the EU, and they can no longer be certain where the money for independent Scotland is going to come from, so I think those are the two important reasons for that. Northern Ireland…
Tom Clougherty: I think there’s not really any debate about Northern Ireland becoming independent inside the EU or out of it. Certainly they did opt to remain in the referendum by a narrower margin than Scotland did. Northern Ireland, I think, always has to be regarded as a special case in British politics because of the vexed history there and the awful lot of, I suppose, effort that has been made over the years to try and stabilize that particular situation. I haven’t heard any calls for Northern Irish independence. Clearly from the Republicans there have been calls. Well this suggests that maybe we should reunite with the rest of Ireland. Again, that seems a very far-off possibility.
Caleb Brown: Alright, a question from Fannie: “What are the short and long-term impacts of Brexit on the U.S. and on its relationship with UK and EU?”
Tom Clougherty: I don’t think that there is going to be a great deal of impact, actually. I think that certainly it changes the relationship. It certainly will change the way America thinks about its dealings with Britain and with the rest of the EU. I think that traditionally there has been this sense among the American foreign policy establishment that it would be very useful, in geopolitical terms, to have a united Europe. It would be good to be able to pick up the phone and call Europe. And it would also be good to have our man in Europe, being Britain, there as part of the top-table discussions. So the strategy may require a little bit of a rethink. I think the important thing to remember, though, is that Britain geographically remains in Europe, culturally remains in Europe. A lot of these things like defense and security, they are actually conducted between nation states, not within the institutions of the European Union. So that really shouldn’t change all that much. I also think that, you know, this is an opportunity to deepen trade ties between Britain and United States, North America in general, the rest of the world, because once Britain leaves the EU they’ll be outside of the customs union, there will be no common European common external tariff applied to Britain anymore so we can pursue trade relationships with whomever and whoever will take us, basically.
Marian Tupy: UK has the fifth largest economy. It would make no sense for the United States not to want to have at least a bilateral trade agreement with the EU. When it comes to defense, again, both countries are members of Nato, the membership of Nato is separate from membership of the EU. Britain will be in the position of Turkey, basically, whereby it will be in Nato but it will not be in the EU. And of course there is a lot of intelligent sharing that goes on between the United States and the dominions, Canada, Australia, New Zealand, former dominions, and UK, the so-called Five Eyes, who share intelligence and counterterrorism intelligence to a much greater degree amongst themselves than they do even with the EU. So I think all of those things will continue and, if anything, deepen.
Caleb Brown: Alright, this is from Matt Ridley. This appeared in The Wall Street Journal, June 21st. It’s number two, David. “Britain has no desire to withdraw from Nato, the United Nations, the International Monetary Fund, the Council of Europe, or, for that matter, the Olympics. These bodies are agreements between governments. The EU is a supranational government run in a fundamentally undemocratic, indeed antidemocratic, way. It has four presidents. None of them are elected. Power to initiate legislation rests entirely with an unelected commission. Its court can overrule our parliament.” So I mean it seems pretty clear but there is one thing which he did not mention, which is the European Common Market. And so what is the, what are the next steps, or - this show is what’s next - so what are the next steps related to keeping the UK involved in that market and the, I say, relatively good rules, regarding trade in and among those countries?
Tom Clougherty: I mean, it’s important to stress that the decision to leave the European Union is completely separate from the decision over what economic relationship will follow. So how is that going to come about? Once Britain has a new prime minister, which should happen in September, I guess they will determine a strategy for what they want to get from the European Union going forward. At that point, or sometime after, they will trigger what’s called Article 50 of the Lisbon Treaty. This basically starts the clock running on a two-year renegotiation period. So in practical term, I think we can already see, actually, the battle lines being drawn up here, even without knowing who the next British prime minister is going to be. Over the last few days we’ve seen, I think, opinion coalescing around the idea that Britain should, in some way, remain within the Single Market. So it should still be part of the European Economic Area, it should move to a position analogous to that of Norway, in the Single Market, not part of the EU. Now if you listen to Angela Merkel, other European leaders, they are being very clear at the moment that this is a package deal. Now, if you want the free movement of goods and services and capital, and Britain emphatically wants those things, you also have to have the free movement of people. That’s something which the British electorate is little bit touch about at the moment. So on the British side people are saying well, we absolutely want to be part of the Single Market, but we need to have some assurances. We need to have some additional controls on migration. And ultimately that’s going to be the way this negotiation proceeds. How much market access is Britain willing to give up in order to have some more controls on migration? Now, it’s worth pointing out that EEA, that’s European Economic Area, members already have what’s called an emergency brake on migration, which they can pull unilaterally. That’s a bit jargony, but it’s what David Cameron was fighting for in Brussels in his renegotiation before the referendum. He basically wanted Britain to be able to say wow, we’re just being overwhelmed by people coming in from the European Union. We can put a stop to that for a temporary period of time, or whatever. Now, that’s a fairly weak immigration control measure. I guess I would like to stress as well that I think that immigration, migration, throughout the European Union actually has been a good thing in practical terms, good for the economy, brought money into the British Exchequer, nevertheless there are political concerns there. So, will this emergency brake be enough? Maybe not. What other migration controls will Britain insist upon? And, therefore, what things will Britain lose from the goods, services, and capital trade. I’m hoping, obviously, it’s not going to be too much.
Marian Tupy: Right. I do think it’s worth emphasizing that the current members of the EEA, such as Lichtenstein, especially Lichtenstein, actually, because of its small size, have negotiated for themselves special treatment with regard to immigration. And there certainly is a precedent in Europe for access to Single Market with enhanced immigration controls. So, you know, people go around and they blame Cameron for losing the referendum and allowing Britain to exit from the EU. I think the blame really rests with people like Donald Tusk, the President of the European Council, Jean-Claude Juncker, the President of the Commission, and Angela Merkle, who didn’t really meet him even halfway. They didn’t even - they didn’t address any, practically any, of the concerns that he brought to the table. I do believe that he had been given, sort of, the same treatment that Lichtenstein has negotiated for itself, Brexit vote would have gone in the opposite direction.
Tom Clougherty: I mean you’ve got to bear in mind that Lichtenstein is a country of 37,000 people, so…
Marian Tupy: But that is precisely that point, is that we are small, we are surrounded by millions of people…
Tom Clougherty: Right.
Marian Tupy: We have a concern about how many people are going to come in. The same concern is shared, rightly or wrongly, but the same concern is fully shared by the people of Great Britain.
Tom Clougherty: And I think something really interesting is emerging at the moment, actually, which is that there’s this divergence of opinion between European national leaders, people like Angela Merkle, and people who serve in high positions in the European institutions, people like Jean-Claude Juncker. And so, on the one hand, the national leaders, I think, are taking maybe the right message from the British referendum result, which is that people aren’t on board with our constant march towards ever closer union to more and more political integration. They might like the markets that go along with Europe, they might like the trade, they might like the free travel, but they don’t like - the building of this enormous, regulatory superstate. I think they are right in that, and so there’s this one tendency to try and - other countries draw back a little bit from that central European project. On the other hand, you have the European Commission immediately coming out and saying we need more integration now, now more than ever, ever closer union.
Caleb Brown: These events just proved me right is often the case. So, we have a question from Vekica: “Why can’t the UK take up Professor Minford’s idea of rejecting post-exit deals for unilateral free trade under WTO rules?” I don’t know what that means to you, but go ahead.
Marian Tupy: Yeah, I am familiar with Patrick Minford’s work. He is an exceptional, exceptionally brilliant economist and he’s absolutely right on economics. Basically his view is it doesn’t really matter what the EU is offering or what anybody else is offering. Import tariffs are making goods and services more expensive in Britain than they should be and that they could be, therefore what Britain should do is to basically abandon all tariffs and nontariff barriers on imports and that, in itself, will stimulate the economy, create jobs, and so forth. If other countries want to follow Britain’s example, they can do so. On the economics of it, I don’t think there is any doubt that is the preferred option, or that ought to be the preferred option. Is it politically realistic in a world where everybody talks about trade in mercantilist terms, whereby I give up my tariffs if you give up yours. I, you know, I highly doubt that you can have unilateral liberalization but it would be the smart idea and I would fully support it.
Caleb Brown: Okay. So it seems to me, talking with folks here at the Cato Institute about the opinions within the building regarding Brexit, which is they almost entirely hinge on your opinions about what is likely to occur with respect to trade, and migration, and movement of labor throughout Europe. The United States relationship with the UK and Europe is likely to be not effected in any particular way, but bottom line, what is your belief, as we wrap up here, about what the likelihood is of the UK getting - I mean, unilateral free trade is something that we aspire to for the United States, here, as well, but in terms of those two big metrics that actually will determine whether or not this thing was a good idea or not.
Marian Tupy: I would say I want to make two points. First is I’m heartened by the fact that the entire political establishment in Great Britain, whether your are pro Leave, or pro Brexit, or pro Remain, was committed to the idea of free trade. They want to continue to trade with the rest of the world. So when I read an article last week in Washington Post, is this the end of globalization, the answer is emphatically no. People still want to trade in goods, services, and they want to have freedom of capital. And that is what makes the situation in the United States and in the United Kingdom a little bit different, because Trump has actually embraced trade protections very clearly, and that is not the case in the UK. And with regard to - and the second point I want to make is that only future will show whether Britain will end up as a more economically liberal country or not. It will be in the hands of the British people. But I think that Brexit was important for a different reason. Not just to give the people of Britain greater freedom, but also to hopefully open the eyes of the European Union to the fact that there is a lot of dissatisfaction going on in Europe and that reform is really necessary. On previous occasions they were unwilling to reform. Hopefully this is a wakeup call.
Tom Clougherty: I agree to a very large extent. I mean, I think that there are certainly risks involved in Brexit, and you’re right - the correct way to look at this is, is Brexit going to make Britain more free market? Is it going to make Britain a freer place? I think there is a very good chance of that happening. Now, we’re probably not going to get unilateral free trade - we’re probably not going to get a very radical deregulation. On the other hand, Brexit means that Britain is free from the Common Agricultural policy, the Common Fisheries Policy, it’s free from the Common External Tariff. It can trade freely…
Caleb Brown: So that’s a deregulation in and of itself.
Tom Clougherty: …in and of itself. We would pay less into the European Union just as a member of the Single Market. We would be subject to less regulation. These can all be very good things, but the crucial thing to remember is that it all hinges on what Britain’s politicians do, what they do now. What comes after Brexit? That’s the crucial thing. I think it’s important, though, that Britain’s leaders actually have that choice. And Britain’s voters will be able to hold them to account for it. It becomes much harder after Brexit for people to say we can’t do that because of Europe, or that was Europe’s fault. Really the buck stops here at Westminster, and I think that can only be a good thing.
Caleb Brown: Tom Clougherty is Managing Editor of Cato Journal, Marian Tupy edits HumanProgress.org. Subscribe to this podcast on iTunes, Google Play, and with Cato’s iOS app. Follow us on Twitter, @CatoPodcast.