Millions of Brits are going to the polls today to take part in an “historic vote” on the European Union that will have a huge impact on the economic, political, and social future of the United Kingdom and its relationships with the rest of Europe.
Two European-born members of the Harvard Business School faculty offer their views – Isidor Straus Professor of Business History Geoff Jones, who researches the evolution, impact, and responsibility of global business and has authored numerous books on these topics, including Multinationals and Global Capitalism and British Multinational Banking 1830-1990, and Professor of Management Practice Dante Roscini, who held top leadership roles in the capital markets units of Goldman Sachs, Merrill Lynch, and Morgan Stanley before coming to HBS, where he teaches the elective course Managing International Trade and Investment.
Britain rarely has referendums, and for good reason. They call for binary decisions on complex issues, and voters have all sorts of reasons for voting one way or another. It is unprecedented that British Prime Minister David Cameron, whose faltering standing with the public was further damaged recently by revelations in the Panama Papers about his stockbroker father’s offshore activities, has presided over two of them. The Scottish independence referendum in 2014 nearly resulted in Scotland’s leaving the United Kingdom. Worse still, it has caused deep divisions and acrimony in Scotland, with those wishing their country to remain part of the UK often accused of being traitors and sellouts.
The referendum on staying or leaving the European Union, called entirely because of Cameron’s desire to hold off opponents in his own Conservative Party and an anticipated challenge in a forthcoming election by the United Kingdom independence Party, has had an even worse outcome.
The campaign to leave descended, as might have been predicted, primarily into a populist campaign against foreign-born people living in Britain. The target was not Syrian refugees, of whom Britain has shamefully taken almost none, but the Poles, Hungarians, Romanians, and others who settled in Britain under rules of the European Union that allow the free movement of labor inside the EU. Hundreds of thousands of Britons live or work elsewhere in the EU under the same rules. The issue of stopping immigration seemed to be leading inexorably into a Leave vote before the murder last week of the young Member of Parliament Jo Cox by a man who gave his name to the court as “Death to traitors, freedom for Britain.”
Brexit is an absurd idea led by people with fantasies about returning to Britain’s perceived glory days in the nineteenth century, when the country was the economic hub of the world. The Governor of the Bank of England, a legion of economists, and scores of other experts have pointed to the economic risks, involving both short-term shocks and long-term pain.
Consider that the rest of the countries in the EU are Britain’s largest market – countries to which it needs unimpeded access. Foreign firms and banks invest in Britain because it is a business-friendly platform for accessing that wider market. Norway and Switzerland, which are not EU members, have access to the Single Market so long as they pay into the EU budget and implement virtually all EU legislation. At best, therefore, leaving the EU would amount to little more than Britain’s throwing away the voting rights and influence it has now, while still having to follow the same rules.
However it is the wider political implications that concern me most. Brexit will put a real border between Northern Ireland and the Republic of Ireland, for example, and that will pose a threat to reverse the (finally) peaceful relationship between the two parts of the island of Ireland. In addition, the rest of Europe is seething with nationalism and racism. There are large and growing extreme right wing parties from Sweden to Greece, many of which enjoy waving Nazi flags. Fascist parties are in power in Hungary and Poland. There is a huge crisis with the diaspora of a million refugees, the threat posed by home-grown disaffected Islamic extremists, and the ongoing social catastrophe in southern European countries because of the Euro crisis.
Brexit will at best divert the attention of the political and administrative talent of Europe from dealing with these major crises. At worst, it will accelerate the reversal of European integration already underway. The EU was created by people who had seen World War II and never wanted to see Europeans go to war with one another again. In the years since the Treaty of Rome in 1958, which marked the creation of the earliest form of the EU, it has helped Europeans achieve peace and prosperity. For this to be torpedoed by a vote to leave would be a tragedy.
This is the moment of truth, and we will soon know the outcome of the Brexit referendum.
A vicious political campaign, full of the worst type of populist fear mongering, has culminated in the tragic assassination of Jo Cox, the young Member of Parliament active in the Remain campaign. Besides the appalling violence, so uncharacteristic of the highly civilized political discourse in Great Britain, this was a horrible sign of the extreme feelings that this issue has stirred in the country’s public opinion.
Financial markets and bookmakers seem to indicate that Remain is the more likely outcome, but the last poll done by the Financial Times pointed to a chilling neck-and-neck finish between the two camps.
This is indeed a dark moment for the European Union. Much has been written about the distressing consequences of an exit, both for the UK and Europe. Such an outcome would be contrary to economic and historical common sense, would further damage a barely nascent economic recovery on this continent, and potentially would begin a domino effect of further European disintegration.
As a committed European, I firmly declare my ardent hope that British voters will see the light. Nevertheless, even in the best case of a vote to remain in the EU, the strong arguments that sophisticated commentators have put forward to justify an exit, the deep division created in the country, and the anti-European movements in the rest of Europe fueled by the campaign have certainly wounded the already fragile European Union project.
Europe is all too often associated with an uber-bureaucratic, business-stifling, and burdensome apparatus that regulates myriad things, including seemingly irrelevant if not ridiculous ones such as the shape of bananas, the use of children’s balloons, or the recycling of tea bags.
With all the noise, it is easy to forget that Europe is the largest economy, the leading trading power, the top destination for foreign direct investment, and the biggest donor of development aid. It also has the second reference currency in the world.
European integration is facing its gravest crisis since its creation. This moment should be leveraged as an opportunity to push forward with a new vision—a vision that leverages sixty successful years of the grandest experiment in cross-border supranational cooperation. A vision founded on Europe’s fundamental values of freedom, democracy, rule of law, and respect for human dignity.
It is time for a rethink; it is time for Europe 2.0.
A new European governance, both economic and political, should be pursued, and while preserving sovereignty, the division of responsibilities at the national and European level should be reconsidered.
The overgrown regulatory regime should be vastly simplified, the Capital Market Union should be accelerated, and the Digital Single Market should be finalized. The size and funding of the European Union budget as well as the role of the European Investment Bank and the European Stability Mechanism should be enhanced. The issuance of Eurobonds to finance infrastructure, human capital, and R&D should be considered.
Europe needs a new strategic impetus to work closer together on global challenges, from poverty and migration to climate change and energy security, from terrorism to geopolitical issues. This requires a new, bold common purpose that can take it to the next stage of its integration. That said, can it find the political leadership to take it there?
As Jean Monnet, one of the founders of the European Union, wrote in his memoirs, "Europe will be forged in crises and will be the sum of the solutions adopted for those crises." This is a prodigious crisis. Let’s hope Europe can find a prodigious solution.