UPSIDE DOWN WORLD: Britain’s wake-up call for the EU

UPSIDE DOWN WORLD: Britain’s wake-up call for the EU
I am pleased that my country has chosen to put a halt to undemocratic and dysfunctional governance.
By Dr Jerome Booth of New Sparta June 24, 2016

I am pleased that my country has chosen to put a halt to undemocratic and dysfunctional governance, even as I am aware that there are major challenges for Britain ahead. I do believe Westminster can do better than Brussels for the simple reason that our government and MPs are more likely to be kept in check by the electorate.

Democracy is often frustrating for policymaking. It is messy and very hard work. It is very easy to slip into a preference for technocratic solutions. Democracy prevents extremes, though – extremes like famine. As the Nobel economist Amartya Sen discovered, famines are best understood as resulting from highly concentrated entitlements. If quickly brought to the attention of democratic representatives, such concentrated entitlements can be tackled. Democracies also facilitate major policy U-turns when needed. In a democracy, failed policies go out with failed politicians, while autocrats stubbornly persist.

In development economics, there has long been a debate on the effectiveness of autocracy versus democracy. The issue is not settled definitively, but democracy is more adaptive and has tended to create more stability over the long term. While successes can be secured by benevolent dictators, especially in the very short term, as a society becomes more complex (and, excepting city states, more urban) it becomes increasingly difficult to create a set of policies that please the majority.  As interest groups multiply, it just becomes mathematically impossible. Democracy, especially mass-membership party democracy, can be thought of as a way to create compromises that the majority can accept. The structure of how interests and views are collated and then represented up to higher levels in a representative democracy is a filtering system. Compromises are made at numerous levels to end with a policy mix that may be internally inconsistent in a number of ways, but which also amounts to an overall package avoiding extremes and which the majority can live with. This creates the adaptability and regime stability autocracy so often fails to provide.

The EU (certainly from the British electorate’s perspective) has a massive democratic deficit – and that, above all, has been its undoing. This is not to say that it is entirely undemocratic, just nothing like enough. I am also not arguing that Westminster is some panacea – indeed its democratic vibrancy is somewhat tarnished due to the presence of the EU, the decline in mass-membership parties and affluent complacency.

I believe, however, that the interests of the British people and economy are best served by our own independent legislature, and homegrown social and economic policies. I believe an independent vibrant financial centre requires its own currency, and that the British economy is better off with our own monetary, fiscal, trade and structural policies.

People abhor uncertainty, however, and often cling to false certainties. “Project Fear” has been built on highly partial economic guesswork (otherwise called modeling: the game is to make the necessary assumptions to reach the desired conclusion) and the idea that there is huge uncertainty for the UK outside the EU but none inside the EU. Yet uncertainty is not restricted to life outside the EU. Indeed, EU stability has for a while been a fiction. The EU’s failures are too large, its ability to reform too limited.

Political project

The EU was always a political project, a hugely successful one in many ways. It sometimes took years, but every major initiative since the Treaty of Rome in 1957 has been eventually initiated, in the inexorable if sometimes numbingly slow move to “ever closer union”. Yet that there have been delays but no outright reversals is in itself telling – a sign of following a long-term plan despite, not driven by, the ebb and flow of whims of the broader citizenry. The idea of “Europe” has had a powerful hold over the peoples of our continent and leaders have grown adept at overcoming the many obstacles of creating policy consensus from so many disparate parts through enormous efforts of negotiation, persuasion and threat. The effort and its outcome are indeed impressive, but that is not a reason in itself to support the status quo.

This historical process of building the EU has been necessarily and essentially between member governments not at the instigation of electorates. Overall policy direction, not just individual policies, has been designed by technocrats. In terms of logic and consistency (though not necessarily in implementation) this may appear superior to the products of a more democratic (chaotic) process. And what is wrong with that? The answer is that there is no common ownership, no widespread sense of belonging that can compete with the nation state.

The trade-off between legitimacy and superior policy, moreover, if it ever existed, has now evaporated. The EU does not have the benefit of a fresh dictatorship that can make bold decisions. It does not have the ability to change in the face of overwhelmingly changed circumstances. Any management consultant will tell you that a board of 28 members is a recipe for inaction and a lack of momentum. With 28 countries whose primary loyalties are back home to their countrymen and not with the common (EU-wide) good, the most likely outcome is slow adjustment based on technocratic argument – and that is what we have.

But this lacks necessary dynamism. What is most lacking is the ability to conceive and effect radical policy change. The status quo is too comfortable, the existing grooves of thought inadequately challenged for healthy reassessment. Since the financial crisis of 2008, seriously radical reform has been desperately needed yet sorely lacking. The ineffectiveness of European leaders has been astounding. Only the wealth of the EU has preventing macro-economic catastrophe so far. Unsustainable polices have been persevered with, year after year. Denial reigns supreme nearly a decade after the death of “The Great Moderation”: denial about the nature of the economic problems and the best policy solutions. Above all the dangers of a repeat of 2008 are frighteningly ignored, even if a little double-think has crept in here and there.

So I hope our European partners take this shocking British news in the right spirit.  The house is ablaze and we’ve decided to shout Fire! Very rude of us, I know. Sorry.

New Sparta is the private office of Dr Jerome Booth – economist, entrepreneur, investor, commentator and leading expert on emerging markets. New Sparta is majority owner of bne IntelliNews. Follow him on @Jerome_Booth