October 4, 2016

October 4, 2016 | Commentary on Economic Freedom

Brexit Could Lift All Boats, If the EU Will Let It

Fear-mongering pundits and politicians campaigning for the United Kingdom to remain in the European Union predicted dire consequences if British voters decided to leave. Developments in the months since Britain voted decisively to “Leave” prove that the Remain side alarmists were wrong.

The pound dropped right after the Brexit vote, making British exports cheaper. U.K. exports have surged by more than $1 billion versus a year ago, creating hundreds of thousands of new jobs for English workers and sending the London stock market to new highs. And foreign tourist dollars are flowing into a now more affordable London.

But all that hasn’t stopped Remain supporters from deploying fresh scare tactics to delay Britain’s EU departure. In one heavy-handed example, BMW threatened before the vote (and has repeated since) that workers at its U.K. plants might lose their jobs. That sounds like blackmail.

After all, why would BMW be unable to continue its U.K. operations post-Brexit? The car manufacturer has built SUVs in South Carolina for more than 20 years, and the U.S. has never been a member of the EU (despite President Obama’s best efforts).

The fact is that an independent U.K. will be free to join an expanded trade agreement with the USA. NAFTA will then stand for the “North Atlantic Free Trade Agreement,” and the new NAFTA will continue to trade and invest with the EU.

Meanwhile, the EU has appointed some hard-liners to negotiate the U.K. exit. One, former Belgian Prime Minister Guy Verhofstadt, is a longstanding and harsh critic of the euroskeptics. Another, former French Foreign Minister Michel Barnie, is a well-known protectionist who, according to The Wall Street Journal, is openly hostile to what he derides as the “Anglo-Saxon” free market model of capitalism.

Such appointments by the EU are very short-sighted. The smarter move for the bloc would be to look on the bright side of Brexit.

How? Well, for starters, Europeans should remember that the U.K., Ireland and Estonia were the only EU countries ranked among the top 10 in The Heritage Foundation’s annual Index of Economic Freedom in 2016. With the departure of the U.K., the EU will lose a role model of economic freedom. The U.K. had especially strong scores for its legal system and the openness of its markets.

And the EU can negotiate new ways to continue mutually beneficial economic and commercial relations with the U.K., as well as make structural reforms to reduce regulatory burdens on business and increase accountability of government.

While the U.K.’s economy accounts for only about 17.5 percent of total EU gross domestic product, approximately 40 percent of all euro-denominated assets are held or traded in Britain. A recent study by The Center for Policy Studies, a free market think tank, concluded that the City of London — the Wall Street of Europe — will do just fine post-Brexit.

Why? Because international investors have confidence in British rule of law. It is no accident that most international financial contracts are drawn up under English law.

Hard-core anti-Brexiters in the EU and among multinational corporations (along with their apologists in the professions, media and the academy) are really just trying to feather their own nests, either to protect their cushy EU civil service jobs or to keep their companies’ transaction costs down.

But those interests do not outweigh the concerns expressed by Brexit voters and, increasingly, others across Europe and the U.S. They are deeply worried about out-of-control and unelected administrative states cutting cronyist deals with big businesses and trampling on democracy and individual liberties in the process.

Brexit is not the end of the world. The end of the world will happen when government-worshipping leftists finally admit that an all-powerful state cannot save their souls and they bend their knees to a higher authority. That’s when it will be OK to skip the next mortgage payment and look to the eastern skies. In the meantime — Rule, Britannia!

About the Author

James M. Roberts Research Fellow For Economic Freedom and Growth
Center for Trade and Economics (CTE)

Related Issues: Economic Freedom

First appeared in The Washington Times.