Asked what was the most difficult thing about his job, British Prime Minister Harold Macmillan is reputed to have replied, “Events, dear boy, events.” Brexit may be one such event. The only known fact is that a majority of those who voted have elected for Great Britain to leave the European Union. All else is conjecture.
Few political analysts, super-forecasters, pollsters, betting shops or financial markets anticipated the result. Undaunted, the same people are now confidently outlining the consequences and likely outcomes. Putative prophets may benefit from the advice of William Goldman in Adventures in the Screen Trade: “Nobody knows anything... Not one person… knows for a certainty what's going to work. Every time out it's a guess and, if you're lucky, an educated one.”
Perhaps the most interesting observation after the vote was the gallows humour of one trader: “Brexit could be followed by Grexit, Departugal, Italeave, Czechout, Oustria, Finish, Slovakout, Latervia and Byegium. Looks like only Remania will stay”.
When future generations come to debate the 23 June 2016 vote, they may ponder several issues.
The fact that the referendum was ever called will be a cause of bafflement. Conservative leader David Cameron pledged to hold the referendum to placate anti-EU sections of his own party and to outflank a perceived challenge from Ukip. Given his frequent mention of the risks of Brexit, the wisdom of calling the referendum in the first place remains puzzling.
Cameron, who did much to make the Tories electable and won a famous general election victory, has gone, leaving behind a divided Conservative Party. The Labour Party, too, is divided. The episode has also left behind a divided country, which will prove difficult to unite or even hold together.
The referendum debate was unedifying. The tone was shrill, lacking civility. The participation of respected analysts, commentators and supposedly non-political public officials brought them no credit. Facts were water-boarded to support partisan positions. A future of economic damnation and a revival of empire outside the EU are equally illusory.
The response at the result among those who voted to Remain is most interesting. The willful ignorance of the affluent, educated and cosmopolitan on how divided and polarised British society has become is striking. The voting patterns mirrored divisions along the lines of class, economic standing, education, age, residence and ethnicity.
The debate was always between economics and sovereignty (in the guise of immigration and border control). Exaggerated claims of economic losses, based on macroeconomic models which have failed repeatedly over recent years, to engender fear were rejected. Some UK regions reliant on exports to the EU voted strongly to Leave. For the disenfranchised, the fruits of growth, investment and international trade remain unattainable. Threats – perceived or real – to jobs, and uncertainty about nationality, are powerful forces. The inconvenience of the non-EU line at immigration or the ability to own a holiday retreat on the continent does not concern those who have never had those opportunities.
The failure of the economic arguments to sway the vote may spell the end of economic rationalism which began with Margaret Thatcher and Ronald Reagan.
It may be that the vote against the EU was, in part, a protest vote against the long-term changes in economic structure of the UK economy, which has destroyed many working- and middle-class lives. Insofar as the decision represents a retreat to economic nationalism and closed borders, it may highlight the diminishing appeal of globalisation.
Increasing scepticism about experts and expert advice may also be one longer-term effect. The views of the Governor of the Bank of England and the Archbishop of Canterbury were disregarded equally.
In a pivotal moment in the campaign, challenged to name a single expert who thought that Brexit would economically benefit Britain, Justice Secretary Michael Gove’s defiant response was: “I think people in this country have had enough of experts.” The reality is that experts no longer relate to ordinary people.
Policy orthodoxy, such as free trade, de-industrialisation and, in the aftermath of the 2008 crisis, austerity and unconventional monetary policy, have not benefited large parts of the population. Ordinary people’s appetite for sacrifice in return for unquantified future benefits promised by experts has waned.
The gravitational pull of aspiration, central to Thatcher and Reagan’s brand of conservatism, has faded as trickle-down economics has betrayed many people.
The immediate effects of the Brexit vote on currencies and interest rates were significant, but it will take time to see whether there are major casualties as a result of the usual highly leveraged bets. The decision to downgrade the UK’s credit rating to a (still very strong) AA will have little effect. The UK’s ability to meet its obligations has not changed.
The real economic and political effects will take time to emerge and are highly dependent on events not yet known. History will have to decide whether the vote was simply a mutiny on HMS Britannia or an influential decision on the shape of the modern world, the structure of society and values which resonate and lead to change in other countries.
If the latter proves correct, then the event will prove truly significant.
The Leave campaign may have won the vote but there is confusion about reshaping the UK’s relationship with the EU. Maintaining continued special access to European markets would require accepting many policies rejected by a majority of those who voted. The prospects of meaningful reform within the EU also seem remote.
The EU is circling the wagons, painting Britain as a reluctant European, and seeks to punish her to dissuade other nations from similar actions. EU Commission President Jean-Claude Juncker’s tart summary reflects this view: “It’s not an amicable divorce, but it never really was a close love affair anyway”.
The intellectual response is framed by cognitive dissonance. Chris Patten, the last British governor of Hong Kong and a former EU commissioner for external affairs, lamented the fact that the referendum outcome was the result of a complex question being reduced to “absurd simplicity”.
Kenneth Rogoff, professor of economics and public policy at Harvard University, saw it as “Russian roulette for republics”. He complained that the simple majority of those who voted (36 per cent of eligible voters voted for leaving) was an absurdly low bar – although that level is significantly higher than the average winning vote proportion in recent US presidential elections, for example. Such a significant decision, he said, should not be made without appropriate checks and balance.
And in an editorial for Business Insider, American columnist Josh Barro termed the decision “a tantrum”. British voters had made “a bad choice”. It was an “error of direct democracy”. Such important decisions should not be decided by voters but left to “informed” elected officials.
For those who believe they are born to rule, democracy should be for those who meet some standard set by them with the proviso that the vote coincides with what they think ought to happen. For this group, the Brexit vote signals the need to limit democracy to ensure that important decisions are left to self-certified experts.
History may well record that little changed as a result of the Leave vote. But if the deep-seated economic and social divisions within Britain cannot be dealt with peacefully and through existing processes, the risk is that it will unleash the furies of nationalism and isolationism in unknown ways and with unpredictable results.
Satyajit Das is a former banker. His latest book is 'A Banquet of Consequences'. He is also the author of 'Extreme Money' and 'Traders, Guns & Money'
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