How Brexit Failed

Brexit Is Dead. It Just Doesn't Know It Yet

Jan 16, 2019
Management

SMITH BRAIN TRUST  Brexit is dead. It just doesn’t know it yet.

The British House of Commons’ 432-202 vote Tuesday to defeat Prime Minister Theresa May’s agreement for the U.K.’s exit from the European Union was its final, mortal wounding, says Maryland Smith’s Anil K. Gupta, Michael Dingman Chair in Strategy and Globalization and ranked by Thinkers50 as one of the world’s most influential management thinkers. All that’s left to do now is to watch as Brexit stutters, stumbles and falls into a heap. “It cannot survive,” he says.

What happens next, he says, can take several different paths. But, he says, the two likely options lead to the same place – a second referendum on whether to leave the EU. And that vote, he says, is doomed.

It’s been more than two and a half years since British voters cast their ballots on the fateful referendum on whether to separate from the European Union, with 52 percent voting “leave.”

Of course, at the time, those voters didn’t have the details they have now. No terms had been negotiated for the country’s exit from the EU’s 28-member trading bloc, no solutions drafted for how to handle the “soft” or open border between the EU-member Republic of Ireland and the U.K.’s Northern Ireland.

Now the voters have seen those details. “And this whole thing is like a pile of spaghetti. It’s a mess; there is no good option at all,” says Gupta.

On Wednesday, one day after the House of Commons virulently rejected the Brexit terms she negotiated, May faced a no-confidence vote. She was widely expected to survive and did, helped by the Conservative MPs who didn’t like the Brexit plan but are even less charmed by the idea of a Labour prime minister.

In the next week, the House of Commons is likely to hold a series of indicative votes, to gauge whether there are any Brexit options that might have stronger support. “Once that becomes clear, the idea is that Prime Minister Theresa May can seek votes in the House of Commons on the most popular, or least unpopular, of the various options,” says Gupta.

Don’t get too excited. “None of the options is likely to get a majority of indicative votes because if there were such a popular option, Theresa May would have presented it as a plan.”

Under the recently rejected plan, Britain would formally exit the bloc, paying the EU more than 50 billion pounds for its own liabilities. The deal would leave in place the soft border between Ireland and Northern Ireland, a move that would require that Britain remain part of the European Customs Union, subject to EU regulations. “It’s a case of leaving the EU, but not yet leaving the EU, agreeing to pay a huge amount of money to the EU and still remaining subject to EU regulations,” says Gupta. “It’s a nightmare and the primary reason why neither the ‘leavers’ nor the ‘remainers’ liked this plan. But it’s not easy to see how you solve it in any other way.”

According to most analyses, there are four possible roads forward for Britain now.

The May plan, Part II: Present a slightly revised version of the plan that the House of Commons roundly rejected this week. Gupta says this path is unlikely to succeed. The plan is deeply unpopular and likely only to get worse. EU leaders have explicitly said there won’t be further concessions.

Hard Brexit: Around the end of March, Britain leaves the EU without any kind of plan at all. Economically, Gupta says, it’s a devastating option. And it’s not likely to gain many supporters in Parliament.

General election: Put a vote to the people and start over with new leadership, while asking Brussels for an extension on the March exit deadline. It’s among the likeliest of scenarios, says Gupta. But it only delays the inevitable – a second referendum on the Leave Vs. Remain, he says. Any new government – regardless of majority – will face the question of whether, and how to leave, with no better plan than the one rejected this week.

Second referendum: Put the Leave Vs. Remain question to voters again, while asking Brussels for an extension of the March exit deadline. “The chances of a second referendum are very high because none of the other options are very palatable,” he says. “It would still be Leave Vs. Remain, but now people know what ‘Leave’ means.” And they know they don’t like it.

The biggest failure of the past three years in Britain, says Gupta, is that the politicians who championed the Brexit idea “never thought through what this would mean for Britain.”

Economic analysis from Bloomberg shows that if after leaving the EU, Britain were to sign free trade agreements with the United States, Canada, Australia, New Zealand and India, the economic benefits from those deals would still amount to only one-quarter of the benefits Britain receives from being part of the EU.

“In their own heads, those politicians were stuck in the decades-old concept of Britain, where in the 1940s and 1950s, Britain had this global empire. They envisioned a new Britain on the global stage that is much more powerful than Britain as part of the EU. And that was a whole bunch of nonsense,” he says.

“With far better information now about what ‘Leave’ means, and with the various champions of the ‘Leave’ movement having gone mostly silent, I would say that in a new referendum, the chances of leave winning are basically nonexistent,” says Gupta.

“A new referendum means that Britain will remain in the EU.”

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About the Expert(s)

GuptaAnil

Primary Research Areas

  • Emerging Markets (especially China and India)
  • Frugal Innovation
  • Global Strategy & Organization
  • Corporate Innovation and Entrepreneurship

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