Scare stories will not stop populist insurrections
Unpredictable electorates will no longer be cowed
Britain’s vote to leave the EU has been the most cataclysmic global political event this year so far. Over the next 12 months, we may see one or more of the following: a victory of Donald Trump in the US; a defeat of Italy’s government in a referendum over constitutional reforms; a Marine Le Pen victory in the French presidential election; a rightwing anti-immigration and anti-euro party becoming Germany’s largest opposition party. Not all these calamities will happen. But one or two might. And to this list one could add a few minor misfortunes, such as the failure of bilateral trade deals between the EU and the US or Canada.
The lead-up to the Brexit vote offers four important lessons to those who are fighting the forthcoming campaigns from an establishment position. They matter because some of the mistakes made by the pro-EU camp in the UK are being repeated elsewhere with the same enthusiasm.
The first is: do not rely on opinion polls or other forms of crystal-ball gazing. The crassness of the pro-Brexit campaign galvanised millions of voters who did not turn out in previous elections. I have been told that US polling techniques are technically superior to those in the UK. Maybe. But if the decisive factor in an election is turnout, then even the best polls cannot be relied upon. The same goes for betting markets. If there is genuine uncertainty, market mechanisms do not produce any information. It just means that more people are getting it wrong.
The second lesson is: do not double down. An insurrection of sorts is under way against financial globalisation and its institutions. Real incomes for voters have stagnated in the US and the UK, and also some eurozone countries. People may be wrongly associating the fall in their incomes with a rise in immigration or with trade liberalisation. If you want to dispel these perceptions, you need to do more than pull out studies by liberal economic think-tanks. You should offer credible policies to address the decline in real incomes. The absence of such a promise was a major failing of the pro-EU campaign in the UK.
Also beware of provocation. In Europe, where electorates are rebelling against EU integration, make sure that former European Commission presidents do not offer their lobbying services to large US investment banks, as just happened with José Manuel Barroso and Goldman Sachs.
The European institutions should leave both parties in no doubt that this arrangement will be to their disadvantage.
When I saw a study claiming that Mr Trump’s trade polices would cause a US recession, my immediate reaction was: oh no, not again. The problem with scare stories is not just that they no longer work with unpredictable electorates. More often than not they are also not true or vastly exaggerated.
While the long-run effect of Brexit remains uncertain, the UK economy has so far defied predictions of a deep recession. I suspect the same would be true of a Trump victory, or a triumph of the populist Five Star Movement in Italy. The markets may panic the next day but the economic consequences will depend largely on the subsequent policies.
These scare stories have added to a generalised loss of confidence in the economics profession and its reputation of independent judgment. With that loss also goes respect for international institutions such as the OECD and the International Monetary Fund, all willing participants in the anti-Brexit scare.
As a result of a collective over-reach, the profession has lost influence in the important current debate of what form Brexit should take. This is now a debate between lawyers and politicians from within the Conservative party.
Brexit is a fitting example of the dynamics of electoral insurrections in the north Atlantic democracies. It tells us how fast firmly entrenched establishment positions can crumble and how the improbable becomes the inevitable. The western policy establishment needs to smarten up.