The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
The debate over Brexit has divided libertarians and otherfree market advocates in both the US and the UK. Those who view Brexit with skepticism (myself included), emphasize its potential negative effects on free trade and migration. But libertarian defenders of Brexit understandably emphasize the European Union's many dubious economic regulations. A Britain freed from the dictates the EU bureaucracy might potentially have a much freer economy. Although I am on balance critical of Brexit, I don't think this latter consideration can be lightly dismissed. But it may not be nearly as powerful an argument for Brexit as it may seem.
I. Why Brexit is Unlikely to Reduce the Burden of Economic Regulation.
Jacob Levy is one of the world's leading libertarian political theorists (he might prefer the term "market liberal" or "classical liberal"). In an excellent recent post, he casts some cold water on the notion that a post-Brexit UK is likely to pursue much more free-market policies than it did before:
On the regulatory side- which is what the right-leaning British press talks about a lot- there's the usual number of silly and micromanaging stories that emerge out of any regulatory system. Bananas and vacuum cleaners and light bulbs, oh my. But these are anecdata, and any regulatory system (public or private) that governs by rules will have some silly ones…. We don't have great aggregate measures of regulation, but we do have some that libertarians are generally willing to use….
According to the 2015 Economic Freedom of the World report's overall measure for regulatory burden, Czech Republic, Denmark, Estonia, Lithuania, Sweden, Ireland, and Romania are all less regulated than the UK. The most recent Heritage index of "business freedom" ranks Denmark, Finland, Germany, and Sweden ahead of the UK; for labor freedom, Denmark, Austria, and Ireland. In all these cases, these relatively-liberal EU countries compare favorably with other developed countries in or out of the EU.
None of these measures are perfect, but they shouldn't be systematically biased against the UK. And what they tell us is:
a) Membership in the EU is perfectly compatible with maintaining a light overall regulatory burden by developed country standards; and
b) the UK is not pushing the deregulatory envelope inside the EU, is not running into an EU constraint in its attempt to minimize the regulatory burden.
Once we move beyond anecdata about light bulbs, vacuum cleaners, and bananas, I don't see any reason to think that there's some tremendous unmet demand for deregulation in the British political system, or that overall leaving the EU will much lighten the total regulatory load when the UK is often above the EU floor anyway.
Notice that Jacob is not claiming that EU regulations are a good thing. Nor does he deny that Brexit might free Britain from some dubious EU economic policies. His point is that it is unlikely to lead to a significantly less regulated British economy overall. In some fields, as he points out, the EU actually forces member states to regulate less than they would otherwise, for example with respect to favoritism for politically influential domestic industries. Much of the far left supports Brexit for precisely this reason: they hope it will free the UK to pursue more statist economic policies, rather than more free market ones. The deregulatory effects of Brexit in some areas might be counterbalanced by increased interventionism in others. As Jacob explains, the data also do not support the notion that EU membership has increased overall government spending in Britain.
Jacob also makes the important point that Brexit might lead to more interventionist economic policies within the remaining EU. Relative to the other big powers in the Union, such as France, Germany, and Italy, the UK has traditionally been a voice for relatively more market-oriented EU policies. Removing that influence will make the EU more statist, at least in the near term. As Jacob puts it, "the likelihood is that overall economic freedom will decline even if there's some increase in it in Britain."
I would add that Brexit might well generate added political political momentum for xenophobic national forces in both the UK and elsewhere in Europe. Such movements are not only hostile to free trade and migration, but also tend to favor large welfare states and interventionist economic policies across the board (so long as the perceived beneficiaries are native-born white Europeans). F.A. Hayek long ago warned that right-wing nationalism is often closely linked to economic statism. The growing power of this ideology is not a development free market advocates should welcome.
II. Some Caveats and Uncertainties.
I do have a few potential reservations about Jacob's otherwise compelling analysis. First, he implicitly assumes that the UK will not become significantly more pro-free market than it was before Brexit. If you think that a Conservative government led by Boris Johnson or Theresa May will adopt much more market-oriented policies than it did under David Cameron, then its possible that the leaving the EU will facilitate such reforms. So far, however, I see little evidence of any such free market revolution in the offing.
Conversely, it is also possible that, even if the EU has not made British economic policy much more interventionist so far, it might have done so in the future had Britain voted for Remain. I don't doubt there are many in the EU bureaucracy who would love to expand their power and impose tighter, more centralized regulation on Europe. At the same time, such power-grabs will be difficult in an era when the EU and its bureaucracy are increasingly viewed with suspicion, not just in Britain but in many other European countries. The fact that the EU is "distant and unloved," as Jacob puts it, makes it more difficult for it engage in massive overregulation. By contrast, many Europeans will be less likely to resist similar policies adopted by national governments, which command deeper reservoirs of loyalty.
Finally, it is possible that free trade and migration will be preserved intact if Britain joins the European Economic Area—the so-called "Norway option" favored by some Brexit proponents. EEA membership requires free trade and migration for EU citizens, and would also subject the UK to many (though not all) EU economic regulations. From a libertarian standpoint, the Norway option retains most of the good features of the European Union, while freeing Britain from at least a few of the bad ones.
But it may be politically difficult for the UK to sign a deal with the EU that forces it to accept free migration—the very thing that much of the base of the Brexit movement most sought to eliminate. Mamy Brexiters may also not care for an arrangement under which the UK remains subject to many EU rules, but no longer has any direct influence over their content. Even if the UK ultimately does endorse the Norway option, the rump EU might reject it. Some EU leaders want to take a hard line in negotiations with the British, and might not be willing to give it a favorable deal that encourages other states to leave the EU as well.
Obviously, both my post and Jacob's assess Brexit from a libertarian perspective. Adherents of some other ideologies might well regard as virtues of Brexit some of the very things that I see as defects.
In sum, there is still a lot of uncertainty over the long-term impact of Brexit. But Jacob's analysis should at least give pause to those who expect that Brexit will lead to a more libertarian Britain, or a more free-market Europe more generally.