Wednesday 2 January 2019

Britain is on the brink of an historic strategic decision

What happens in the next three months, perhaps even the next couple of weeks, is going to shape the fate of the country for decades. If Brexit goes ahead, in any form, it will enact a profound misreading of the nature of the contemporary political and economic world and represent an unprecedented failure of British statecraft. Before the next round of political theatre begins, it’s worth standing back to consider just why that is so.

It has become commonplace to see Brexit as a backlash against globalization and/or to bemoan it for failing to accept globalization. In fact, it would be better to see it as a failure to understand the regionalization of economics and the multi-polar nature of international relations.

Brexit as a failure of economic strategy

Economic regionalization is most obvious in relation to trade, although trade is only one of its manifestations. On the one hand, and there is nothing new about this, countries tend to trade more with their closest neighbours than with those that are more distant (the so-called ‘gravity model’ of trade). Dominic Raab recently tweeted a strange comment to the effect that the difference between remainers and leavers is that the former believe UK prosperity to be dependent on its location, whereas the latter believe that it is dependent on our character. It’s an absurd notion. There are obvious cost and logistic reasons for location to matter in terms of goods trade, but it also applies to trade in services. National ‘character’, whatever that may mean, doesn’t enter into it.

On the other hand, and which is newer, that basic reality has been institutionalised via the creation of regional trade blocs of various sorts – MERCOSUR, AEC, CPTTP, NAFTA and so on. The European single market is not only one example of this, but is an example of a particular sort. Being a single market rather than simply a free trade bloc or area entails a far more extensive deepening of economic integration.

Amongst other things, this accounts for the fact that there is far greater services trade liberalisation in the single market than in any of the other regional blocs. It also accounts for the highly integrated supply chains running across national borders, and for the fairly integrated labour market by virtue of freedom of movement.

These facts, taken together, mean that alongside the general propensity of trade to be geographically skewed to close neighbours, UK services and also its most advanced manufacturing industries are very deeply embedded in the European market. It is not necessary to make or accept economic forecasts, only to understand basic institutional realities, to see that detaching a country from its regional bloc and then seeking to re-attach it on unknown, but by definition worse, terms to that same bloc, in an unknown time frame, is going to have adverse consequences for businesses and trade, and hence for employment and tax revenues.

The limitations of globalization and the naivety of Brexiters

However, the deeper issue about regionalization is that although it is not the reason for the foundation of the EU it has emerged as one of its key functions because of the failures and limitations of globalization. This is most obvious in the way that the WTO has made relatively little progress in providing a comprehensive architecture for global trade in, especially, services and agriculture. The stasis that has been evident since the ‘Doha round’ can only be exacerbated by Trump’s anti-WTO positions. In this way, regionalization makes a mockery of both the globalist and the nationalist cases for Brexit.

The naivety of globalist Brexiters

The naivety of the globalists is evident in their repeated call for Britain to trade on WTO terms as if these provided anything other than the most basic and limited participation in global trade. By exiting not only the regional single market but also the EU as a gateway to preferential trade deals around the world, the Global Britain agenda is, as a Foreign Affairs Select Committee report put it, a meaningless one. Indeed, its irony is very obvious in Liam Fox’s recent delighted announcement of the value to Britain of the new EU-Japan trade deal – a deal which Britain is due to fall out of once Brexit is completed.

The naivety of nationalist Brexiters

No less naïve are nationalist Brexiters of various hues, both right and left wing. For they fail to recognize that whilst the WTO doesn’t provide a comprehensive and deeply-developed trade system of the sort found in the single market, nor does it allow the pure ‘sovereignty’ of national self-determination. Thus it makes no sense at all for right-wing nationalist proponents of such sovereignty to be so enthusiastic about being bound by WTO rules over which Britain will have far less say than, as a member, it has over EU rules.

Equally, ‘Lexiters’ who imagine that Brexit will bring, or is required to allow, freedom from state aid rules are entirely wrong, as competition law expert George Peretz QC explained in a recent article. More generally, the Lexiter vision of ‘socialism in one country’, which seems to inform Corbyn’s approach to Brexit, is rooted in pre-regionalization economic thinking: national economies are no longer discrete, bounded entities and could only be made so by mass immiseration.

In short, different kinds of Brexiter share a fundamental misunderstanding of the nature of the contemporary economic world. The globalists don’t understand that globalization has taken the form of a series of regionalizations. There’s no realistic way of being global without also being regional. The nationalists don’t understand that nationalism has been embedded within regionalism. There’s no realistic way of being national without also being regional.

It’s no good Brexiters saying ‘but Britain managed perfectly well before’: even if that were true, which is highly questionable, Brexit isn’t a time machine. The world that existed in 1973 has disappeared. In this sense, Brexit represents a profound strategic error for the British economy: if the most basic feature of a national (like an organizational) strategy is its fit with the realities of its environment then Brexit is certain to have a poor outcome because it is incompatible with the realities of regionalization.

Brexit as a failure of geo-political strategy

But the strategic error goes well beyond trade and economics. It is also based on a complete misunderstanding of contemporary geo-politics and international relations. In the aftermath of the collapse of the Soviet Union there was a brief period when the idea of the ‘end of history’ gained ground. Western capitalism and liberal democracy had ‘won’ and were now the only game in town. That analysis was bound up with the idea of economic globalization, but it also implied a uni-polar geo-politics and a trend to ideological homogeneity. In Britain, that analysis was most obvious in the politics of New Labour.

Thirty years on from the fall of the Berlin Wall, and we can see how, again, naïve that analysis looks in almost every respect. The world is not uni-polar, nor is it any longer bi-polar in the way it arguably was during the Cold War, but multi-polar. One aspect of that, in part because of the impact of end of history type-thinking on reshaping the post-Soviet space, is that Russian nationalism is resurgent, of which more shortly. The rise of Chinese global capitalism – China joined the WTO in 2001 - has not been accompanied by liberal democracy and in many respects, most obviously state involvement in private enterprises, is completely different to the neo-liberal model of capitalism that had supposedly triumphed.

At all events, there are now three military superpowers (the US, China and Russia) and three economic superpowers (the US, China and the EU). And of course there is also a string of regional power brokers – India and Iran being examples, albeit of very different sorts.

This would always have been a complex and unstable world within which Britain had to operate, made far more so by a US administration so radically different to those we have been used to. Adding to that by fundamentally shifting geo-political positioning – not for strategic reasons or with any planned or desired end-state in mind, but simply by the series of political accidents and miscalculations that led to the Brexit vote – is folly of the highest order.

Russia and Brexit

That is true both in a general sense but in at least two more specific ways. First because it entails repositioning Britain within an international order which almost universally sees Brexit as incomprehensible, if not downright crazy. And second because about the only international player who gains from Brexit is Russia, a country currently routinely hostile to the rules-based international order in general, and to Britain in particular.

Indeed, it is extraordinary that Brexiters should see ECJ rulings as a threat to British sovereignty when there are regular aggressive Russian incursions into British airspace and waters and when the Russian state “almost certainly” made a chemicals weapon attack on British soil in Salisbury.

It is not necessary to believe that Russia directly or decisively interfered in the 2016 referendum – although there is evidence for this - to see how destabilising both Britain and the EU is firmly in the interests of Putin’s Russia. And the flip side of that is the way that – as the Salisbury attack showed – Britain relies on the EU as one part of its diplomatic defences in relation to Russia in that case, but also more generally.

At all events, Putin’s recent statements about Brexit are abundantly clear. The 2016 Referendum, he opined, expressed the will of the people and a further vote would be a betrayal. That is, ironically, precisely the line that Theresa May is taking. It is obviously also a gloating taunt, mocking Britain, and more especially Brexiters could they but see it.

Brexit is a huge victory for Putin. It damages Britain, it damages the EU, and it presents possibilities for Russia in the Baltic and Balkan states. If Brexit is a strategic disaster for Britain, it’s a triumph for Russia.

The abandonment of strategy

As with economic regionalization, the lesson of multi-polar geo-politics is that few countries, and certainly not Britain, can operate outside of power blocs. It doesn’t matter if a country is the fifth (or sixth, or seventh) biggest economy in the world, or one with, relative to many countries, considerable military, security, and soft power assets. Outside of the big three or four economic and/or political blocs is a chilly place to put yourself by choice rather than necessity.

Current attempts to retro-fit a geo-political strategy to Brexit, notably Jeremy Hunt’s notion of an Asian pivot, underscore this. Not only is it incoherent in its own terms, not least for being predicated in part on Britain having a close relationship with the EU, it also contains nothing that could not be done, and done more effectively, whilst remaining an EU member. The exception to that might be the idea of adopting the ‘Singapore model’, but not only has this been debunked by the PM of Singapore as a non-starter it is also completely incompatible with maintaining a close relationship with the EU (for whom it would be an evident act of economic hostility) and, needless to say, is nothing remotely like what leave voters were promised.

The reality is that Brexit was never conceived of as a strategic project, still less a strategically desirable one. It was always a protest campaign not a plan. Now, it has really come down to just two justifications: to end freedom of movement and to honour the result of the referendum. Without even discussing, yet again, whether or not these are good political justifications for Brexit, the point to make is that whatever else they are, they are not a strategic basis for Brexit.

So if Brexit goes ahead it will mark not just a failure of economic and geo-political strategy – and, after all, such failures are common enough – but something much more unusual: the abandonment of any serious attempt to have such strategy. The difference between May’s deal and no deal in this respect is only one of how quickly and how dramatically the effects of that are felt. If MPs vote against May’s deal, then that will be the first step away from the brink – not enough in itself, but a necessary pre-condition for avoiding disaster, as well, of course, as risking the even greater one of no deal.

However, if it were then to come about that - by virtue of a referendum or some other route – Brexit is abandoned it will be vital to understand and make a case for that not on the basis of returning to 2016 but as a long-term strategic decision about Britain’s future, mediated by its regional position and recognizing the fraught complexities of a multi-polar world.

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