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On Brexit and Other Exits

On Brexit and Other Exits (Praxeo)Logical insights regarding economic and political integration

The United Kingdom has just spent its first days out of the European Union. The exit, completed by the Prime Minister Boris Johnson (the third British PM in a row, since Brexit began, four years ago) together with his political counterparts from the intricate EU institutional architecture, stands proof that in the age of multilateralism, unilateralism is far from a lost idea. 

The implacable theory 

Praxeologically speaking – that is in the (very) logic of (every) human action –, we can better grasp the Brexit process with the help of an analogy. Think about it as a bargaining process between two contracting parties. If A signs a contract with B, C, D, and E, it is because he/she evaluates, on an ex ante basis, that the expected benefits will exceed the borne costs. The same thing can be said if one considers the option of exiting from a contract. In this case, the same basic law (“fundamental theorem”) of exchange applies: if A decides to leave, it is because he/she evaluates that the payoffs from leaving will exceed the sacrifice. However, it should be obvious that an economic agreement, based on a contract, is a far cry from a “political contract”. Economic agreements are based solely on the consent of the contracting parties. At the same time, political deals (such as the decision to enter or leave a treaty with other states) do not rely on the consent of all the parties involved. Such arrangements allow only political elites to have a say, although they may or may not be democratically elected, or that they represent a heterogeneous electorate. Because of this, such arrangements beg the question to what extent can a citizen successfully oppose the state’s decision to enter such political agreements. Therefore, from a praxeological point of view, the only sure thing that can be said about a political contract is that the primary beneficiaries that stand to gain from it are those who sign it.

Another significant difference between economic and political contracts is that, in the case of the latter, one can always be exiting such arrangements with relative ease, whenever the contracting party judges that such a decision will leave him better off. In the case of political understandings, exiting a harmful arrangement is possible only by convincing the political elite. However, such a change of hearts may require a vast amount of time and resources, exceeding by far an ordinary citizen’s budget/resources. Nevertheless, it is important to mention that, in order to have any chance of success, this exercise of convincing the political elite must be based on the (unrealistic) assumption that, in all political matters, the decisionmakers are selfless actors/agents. Although the praxeological point of view is not concerned with the motives that determine an individual to act, a historical analysis of political collective-action cannot abstract from the intimate/individual purposes. This also holds in those instances in which one acts in the capacity of a member or representative of a collective body. In this light, it is noteworthy the realpolitik reaction of Hermann van Rompuy, the first permanent President of the European Council, who labeled UK PM David Cameron’s decision to organize the Brexit referendum as “a historical mistake”.

To what extent can an individual’s purposes converge with that of the collective – what some call “the will of the people” – remains an open discussion. One might even be tempted to call it an idealistic presumption: e.g., only note how many matters exist on which citizens are not allowed to have a “say” or how many policy problems are so remote from the citizen’s actual concerns making his “sovereignty” illusory.

The most straightforward way of seeing the EU is to look at it as a political contract. First and foremost, it is a union of… political elites (Myddelton, 2013). The analytical attempts which build on the Oppenheimerian dichotomy – economic vs. political means (Oppenheimer, 1922) – to de-homogenize economic integration and political integration, conclude that the phenomena are quite different. While economic integration is based on the extension of the division of labor and professional specialization (based on the voluntary cooperation among individuals), the phenomenon of political integration is grounded in coercive means. Political integration is devoted to extract/expropriate resources from the genuine producers of wealth – entrepreneurs, employees. In this logic, political action/integration can only develop at the expense of economic action/integration, since it involves taking from rather than adding to the fruits of the market. The logic of economic competition is linked to the logic of consumers’ preferences, which are in continuous change. One can refer to the theory of comparative advantage to explain why some states/regions specialize in producing certain goods/services. It is not the state that engages in specialization, but the natural and legal persons that operate in its jurisdiction. Specialization is a dynamic process: some are able to maintain their advantage, while others must shift to other specializations (Mises, 1949). The logic of political competition, both internally and internationally, is, at best, roughly connected to the citizen-consumers’ preferences. Political actors deliver only “one size fits nobody” public/political goods and services (Apăvăloaei, Jora & Iacob, 2019).

Another interesting praxeological explanation of political integration or unification starts from the desire of political elites to solve the problem of national governments’ huge debts by extending their territorial political influence (Hülsmann, 1997). The immense sovereign debts of Greece, Spain, and Portugal have revived the narrative of political unification. This is because a regional mechanism of welfare redistribution (from the more responsible states in monetary and financial affairs to the less prudent ones) makes it easier for governments to continue irresponsibly, considering that the consequences of inflationary and debt-extending policies are easier to sweep under the rug at a larger scale. The larger the territory where such policies ar practiced, the more dispersed their effects become. Irresponsible politicians are thus bailed-out, while cynical and yet precautious politicians offer salvation in exchange for cross-border influence, for instance, in the form of political unions. The citizens pay the final bill for such successive layers of silent and stabilized expropriation. In a sense, the tab is picked up by both by the citizens in the savior states (whose resources are infused in salvation) and by those from the saved states (since this salvation is only a palliative, not a genuine cure). Thence, international political competition is not really desirable from the political elites’ perspective, which would favour a cartel-like perpetual bail-out mechanism. It goes without saying that the adverse holds true if one were to look at things from the consumer or citizen’s perspective. Competition between states reveals different models of economic systems and make apparent their relative success or failure. Because of this, the citizens from those countries that have embraced an economic system that is incompatible with peace and prosperity can “vote with their feet” and emigrate in countries with more friendly institutional arrangements. In a regime of political unification, this freedom of jurisdictional choice would no longer be possible. 

And the open histories 

What can be said of Britain in the light of the (praxeo)logical paradigm?

It is important to point out that modern states, as we have come to know them, are the product of political disintegration, as much as they are of political integration. Moreover, one could argue that the process of disintegration has not yet reached its full potential if we are to judge the situation of Celtic, Scottish, and Welsh nations in Britain, of Catalans, Basques, and Andalusians in Spain or the Bretons and the Languedoc people in France. And the list of examples can continue (Rothbard, 1994). The disintegration of old empires was followed by a new territorial architecture composed of sovereign states. The French Revolution itself supplies the political establishment with the idea of “exit”, or break-off from the empire.

From a praxeo-logical-economic perspective, the disintegration of an empire (or a state operating under any other form of organization) is motivated by the deploring economic state in which the peoples living under the empire, characterized by their different cultures and traditions, find themselves. The dissolution of an empire is presumably the effect of bad economic policies, which lead to capital consumption and loss of individual welfare. With the loss of welfare, peace can hardly be maintained, leaving the door open to revolutions and wars. Bearing this in mind, one might look at the EU and all proposals for political unification and ask: what does the past teach contemporaries in respect to the economic effects of political unification?

Back in the 20th century, the dissolution of the USSR cleared the way for the rebirth of nationalities such as Tatars, Yakuts, or Chechens and their right to self-determination. At this very moment, the EU is in a state of disintegration relative to its fundamental final scope of political unification. By adopting this stance, one could say that the entire world, currently composed of states and federations, finds itself in a state of disintegration if we were to take global unification under the aegis of a single state as the logical endpoint of political integration. However, living in a disintegrated jurisdictional milieu is not necessarily a tragedy compared to the prospect of a “global state” – a dystopic image for any decent citizen. The fine balance of unification and fragmentation is the essence of a peaceful and prosperous world, in which excesses of artificial unity and disunity cannot endure. We have just seen the UK’s exit. For a long time now, we have witnessed Switzerland’s evolution. The Swiss federation is rated as the fourth country in the Economic Freedom of the World Report (2019). It has one of the soundest monetary systems in Europe and has the second highest GDP per capita in the world according to the World Economic Outlook Database (2019). All this has been achieved while choosing to stay outside the EU as it stood outside previous European empires. It is a “small union”, fearing a “greater union”. In politics, “small may be beautiful” (Schneider, 2018).

The task of this brief essay was to deliver a praxeological perspective on economic and political integration as distinct phenomena and to point out other historical cases of “exits”. Our aim in this was to provide the reader with an alternative way of understanding Britain’s recent exit and implicitly to suggest the spirit of reforms that could put the EU’s future on a more sound basis (Tupy, 2016).

The exit as such shouldn’t surprise anyone. More important is its rationale, which necessarily draws back to what the EU intended to be (or at least seemed to) in its first days – a free trade area or a common market – and what has become nowadays – a super protectionist quasi-state with powers over national sovereignties. Reforming the Union ex post Brexit has in this insight a decent start.

 

(A more comprehensive version of the presented arguments is forthcoming in the Œconomica journal).

 
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OEconomica No. 1, 2016