Quick thoughts on Brexit

It’s amusing to see how many in the Leave contingent are invoking Norway as a model for the way forward post-Brexit… apparently without having a clue as to the rules governing Norway’s relationship with the Eurozone.

Briefly:

1. Norway is a member of the Schengen area. Unfettered movement across borders, etc. Per capita migration rates are consequently higher in Norway than they are in the UK. (Never mind that roughly half of the UK’s migration originates from countries outside the EU. You know, ex-colonies and the like, but then what have immigrants from Australia, New Zealand, India and South Africa ever done for the British economy?)

2. Norway, as a (paid-up) member of the EEA, currently abides with virtually all of the EU mandates and regulations, even though it does not vote on them. It simply has to in order to sustain business and service channels with its main trading partners. As one of my former economics professors put it: “In Norway, we get to abide by all the EU rules, without actually having a say on what those rules are.”

3. Speaking of trade, Norway alongside Switzerland, the other poster child for Leave (more on them in a minute), have the highest import tariffs in the Western world. I don’t see how ushering in protectionism jibes with a new era of economic liberalism, but then perhaps the Leave campaign weren’t being quite sincere on this point.

4. Much of what I written for Norway is true for Switzerland. They too have to enshrine their trading relationships in a multitude of bilateral agreements. However, these agreements are largely silent on the services sector, which forms the lifeblood of the British economy. I’m not saying these agreements cannot be extended to include services. I’m saying that an existing framework cannot easily be lifted off the shelf… unless, perhaps, you want to mimic the existing EU rules, but then we’ve already been through that.

5. The two most important lessons that Norway can teach us about becoming a successful, small(ish) nation are i) have inclusive institutions and ii) find a shitload of North Sea oil. The good news is that the UK did find a shitload of North Sea oil back in the 1960s. The bad news is that, unlike Norway, you have already spent most of it.

Final points: I’m not suggesting that Britain can’t do well post-Brexit. I think markets will stabilise after today’s shock. However, political contagion remains a big risk. (Another Scottish Independence referendum anyone? Growing independence grumbles in France, the Netherlands and elsewhere?) And just think about the incentives of the EC and the rest of the Brussels brains trust. If their entire raison d’etre is to preserve the EU project, what prevents them from punishing Britain with unfavourable bilateral terms so as to deter further defection? Most of all, be wary of glib comparisons to Norway. The Norwegian European experience is anathema to many of the promises that Leave used to sway the vote.