On a recent visit to London for the Institute for Economic Affairs annual Think conference, conversations with students and other speakers centered on the Brexit vote. I was struck by the wide array of views on the future of the UK economy post-Brexit.
As the Conservative party prepares to select Theresa May as prime minister to guide the United Kingdom out of the European Union, the question remains: Will Brexit help or harm the UK economy?
George Mason University economist Tyler Cowen, a fellow speaker at Think, expressed major concerns over the UK’s future. He argued that the Leave vote was mainly about limiting globalization, and that the country’s economy will suffer as a result. He argued that the UK’s productivity is below that of many other EU countries, a lower-value pound sterling will not boost domestic production, and services (which comprise about 85 percent of the UK economy) are increasingly global.
Diego Zuluaga, a research fellow at the Institute for Economic Affairs, was not as pessimistic as Cowen. He says it is too early to predict if the UK economy will be better off outside the EU, but he is worried about the future of the European Union.
Zuluaga told me, “One reason for concern over Brexit is that the UK has been a powerful free-market voice in the EU. It is precisely because of British influence during Margaret Thatcher’s tenure that Europe has legal provisions against economic interventionism and state subsidies to industry.”
He explained that recent proposals for a more free-trade and pro-innovation EU were largely British in origin, with the support of Nordic and East-Central European countries. With the UK’s departure, this balance will tilt more protectionist and stagnant, the attitudes espoused by France and Mediterranean countries.
Even though many people were concerned about the future of the UK and the EU, a similar number were optimistic—especially about the UK’s future. The EU is often lauded for its commitment to free trade. But many people I met with reminded me that, while the EU offers free trade for its member countries, the EU is effectively a cartel that serves to protect European businesses from trade and competition with the rest of the world. If the UK is able to work out a low-cost way to access the European market (similar to the situation of Norway and Switzerland) and negotiate free trade deals with other countries from around the world, it is easy to see how Brexit would end up boosting the UK economy.
Director of The Freedom Association and the Better Off Out campaign Rory Broomfield explained that, "Having voted to leave the EU in record numbers, the UK has many opportunities ahead. If the political establishment can use this opportunity to embrace the global market, shed onerous EU regulations, and install a fair and merit-based immigration system, the UK can become a beacon of international investment and long-term economic growth."
There are other positive economic signs that show the UK is headed in the right direction. In his first interview after the Brexit vote, the UK’s Chancellor of the Exchequer George Osbourne called for cutting the country’s corporate tax rate to less than 15 percent from the current rate of 20 percent. This is discouraged within the EU, as member states are worried about a “race to the bottom” to create a business-friendly environment. Making the UK an even more attractive place to do business from a tax and regulatory perspective could help attract companies during what is likely to be an economically turbulent next few years.
While markets fell after the Brexit vote, this decline was not necessarily indicative of long-term negative economic effects. Britain has a lengthy path forward to leave the EU, and there are many questions that still need to be resolved. This leads to high levels of uncertainty for both the UK and EU, which unsettle markets. But if the British embrace globalization and a freer economy, Brexit will be remembered as a major step towards encouraging a more dynamic UK economy.
Jared Meyer is a fellow at the Manhattan Institute for Policy Research. Follow him on Twitter here.