Jim Prevor, the Perishable Pundit, follows up his American perspective on the issues at stake in the build up to the UK’s referendum on the EU with insight on next steps for both parties following the dramatic exit result With stock markets and currency markets tumbling in the aftermath of United Kingdom’s vote to leave the European Union, it is worth remembering the words of the intellectual father of value investing, Benjamin Graham. His most prominent student, Warren Buffett, perhaps the greatest investor of all time, likes to quote Graham’s analysis of the stock market: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
So it is that in the short term, all these markets reflect the hysteria and fear of the unknown that are intrinsic in such a big change. In the long run, though, the question is not so much about whether “Brexit” is intrinsically good or bad; it is, instead, about whether governments in the UK, now and in the future, will adopt wise policies.
I had assessed the run up to the vote in a piece for Produce Business UK titled, Considering the UK’s Referendum on the EU from an American Perspective. Afterwards, I have to confess that, even though almost all the business people I know in Britain tell me they voted to remain, I do think that the vote outcome offered one very important point for optimism: It reaffirmed the British character.
As I watched the campaign and saw Prime Minister David Cameron summon all the “high and mighties” in and out of the UK, with the goal of scaring every Brit to death over what might befall the country if it chose to go its own way, I could not help but think that this had become a test of the British character. I was not certain that a people cowed by such an assemblage was actually fit for self-government.
When President Obama announced that the British people should expect to be at “the back of the queue” for trade deals – using the obviously scripted word queue (we don’t say that in America) and referring to something he will have no authority over when his term is done – did he really think the British people would be intimidated? Was that his assessment of the British character?
Indeed, every European official seemed to parrot the same line… that out of love and brotherhood, the people of the UK ought to stand United with Europe – but, alas, if the people of the UK decided to do anything that officialdom disagreed with, the same officials that preached the brotherhood of Europeans intended to do all that they could to make the lives of the British miserable.
It was an ignorant display. Did President Obama, Prime Minister David Cameron and the list of others solicited to scare and threaten the British people not realize that men are not meat, that the more you pound them the tougher they get?
Has education and memory so faded that these luminaries do not recall Churchill, upon occasion of addressing a joint session of Congress on December 26, 1941, when expressing amazement and outrage at what the Axis powers had done, pointed out that in the end they would be defeated not just by weapons but by people, a particular type of people? Churchill asked: “What kind of a people do they think we are? Is it possible that they do not realize that we shall never cease to persevere against them until they have been taught a lesson which they and the world will never forget?”
Churchill also pointed out the issue of character when addressing the Canadian Parliament on December 30, 1941. He pointed out that the French Generals had underestimated the British: “When I warned them that Britain would fight on alone whatever they did, their generals told their Prime Minister and his divided Cabinet, ‘In three weeks England will have her neck wrung like a chicken.’ Some chicken… some neck!”
This was not a statement of Britain military prowess. It was a statement about the British character.
The campaign on both sides showed the enormous problem we have in democracy around the world today, which is an inability to speak openly and frankly about potential problems. When Angela Merkel — the German Chancellor who holds as much responsibility for the outcome of this referendum as anyone – decided, virtually unilaterally, to admit a million immigrants from the Middle East, basically all young men and all of whom will eventually have the right to move to the UK should they so desire, she brought to the forefront this question: Is it not possible for the people of a nation, motivated not by animus against others but only by love of family and country, to want to control immigration both to ensure that personal safety is secured through proper vetting and to ensure the preservation of a national character?
The answer to this question is, of course, yes. But the mere attempts to raise these issues ensures that one will be attacked as, at best, a rube and, most likely, as a racist.
There are attempts afoot to overturn the referendum results, perhaps through a new referendum. This perfectly exemplifies the EU’s anti-democratic culture. The people shall vote! All votes in line with the beliefs of the elitist bureaucrats who run European institutions are permanent and inviolable – that is why no member of the European Parliament has the authority to call for a vote to repeal any EU law. Should the people’s vote go against the desire of the elites, well, we shall have the people vote again and again and again until the people conform to the viewpoint of the elite.
Assuming the results are allowed to stand, the shock of the elites at not winning will fade, market panic will end and then the hard work will begin. For the truth is that whether Brexit will be a plus or a minus for the UK depends heavily on what policies the UK adopts – in other words, on the quality of its governance. And the referendum revealed severe fault lines that leave open the question of whether Britain will be able to seize the opportunity that liberation from the dictates of Brussels will create.
The split in the UK was not a traditional Liberal/Conservative split. All the institutions of the UK – all major political parties, including the Tories, Labour and Liberal Democrats — were on the side of Remain. It was not a traditional economic split, as affluent Brits aligned with poor immigrants in the Remain camp.
If there was a schism identified in the realm, it was this: Of those people who identify themselves as English, more than 70% voted to leave, whereas most of those who identify themselves as something else – British, Scottish, Welsh, etc. – voted to remain.
Yet among those who supported Brexit, there was also a schism. There were two organizations arguing for Brexit: One wing of the argument was carried by Michael Gove and former London mayor Boris Johnson through a movement called Vote Leave, and then there was a group called Leave.eu, through which people simultaneously pessimistic and romantically nostalgic, such as Nigel Farage, argued their case. This division was what enabled the Brexit win. Those who felt the need to be politically correct or fancied themselves as cosmopolitans would never align themselves with someone such as Farage. But those who think of themselves as working class and saw immigrants as competition for jobs never could cotton to the sunny disposition of those such as Gove.
Post-referendum, this division may prove decisive. There is no future as a cowering, protectionist state. But for a free Britain, there is an enormous and bright future for a progressive and open culture.
Although it was portrayed that a vote to stay in the EU was a vote for international trade and an open economy, the opposite is actually true. The EU, and indeed any trade block, depends crucially on being protectionist against the rest of the world. The whole concept of the EU trade block being advantageous for, say, Germany, to be in a “common market” with the UK implies that there is some advantage gained over other countries that are not in the club.
Now, it is said that the EU intends to be harsh with the UK in allowing market access so that other efforts by other EU countries to leave the EU are forestalled. Resolving this problem won’t be easy, but there is a path for an optimistic, future-oriented Britain, and it would be wise for Britain to seize it now. Here is the plan:
- As soon as possible, a law should be passed declaring that effective at the date of separation from the EU, the UK shall be a “free port” allowing tariff-free trade in all goods and services for all countries in the world EXCEPT those in the EU.
- Simultaneously, the EU should be offered the same opportunity for free trade with the UK provided it allows the UK the same deal in trade with the EU.
Adopting this policy would have many advantages:
First, by opening trade to the whole non-European world, it would establish a policy and precedent that the new UK is not looking to shrink back into itself but is, instead, looking to reach out and engage with the world.
Second, the new tariff-free access for goods and services from all over the world will instantly increase the prosperity of every Brit, who will have access to goods and services they desire at lower prices.
Third, Britain’s negotiations with the EU will be smoothed. Right now, the focus is on punishing the UK for having the temerity to want to control its own destiny, but this new free-trade policy would change the dynamic. Under this policy, however, Germany sits down knowing that American and Japanese car makers will have a tariff advantage over Mercedes, BMW, Audi and other German producers.
American and African producers of vegetables will have tariff advantages over those from Spain. The UK is the 5thlargest economy in the world, and the prospect of losing important export markets to a free-trading Britain will not appeal to the EU.
When Benjamin Graham pointed out that markets are voting machines in the short term and weighing machines in the long term, he was saying that value always wins out in the end. So the task now is simply that… to produce value.
Even if there are advantages to being in the EU, they pale before the importance of good governance. In the end, the UK voted that this island nation, with a thousand-year history of popular self-governance, was more likely to produce wise law on its own than if it passed that task over to a committee of continentals.
If they do so, the value of the stock market and sterling cannot but multiply.
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