An Important Lesson from Brexit

I have, I must confess, not studied Brexit. Seceding seemed like a poor choice a priori, but a pretty straightforward process once undertaken: disengage from the regulatory regime in Brussels, negotiate a trade deal with the EU equivalent to that of the 36 other trade agreements the EU has negotiated, and finally, actively negotiate comparable deals with other trading partners. A worst-case scenario, it seemed to me was for the UK to live with its trade agreement it has with 163 other members negotiated in the WTO. Not costless and not without some effort, but a fairly straightforward and manageable task. One might forgive me for thinking that the Great Britain, home to Adam Smith, David Ricardo, Alfred Marshal, John Hicks, Joan Robinson and many more pillars of free and open trade, would be up to the challenge. Well.

I am drawn into commenting on Brexit only because while vacationing in Alaska for the past fortnight, I uncovered the solution. And, it is a lesson that also offers an important path for some of America’s more pressing problems.

On June 23, 2016, Britain conducted a referendum to leave or stay in the EU. It was essentially an opinion poll in which 51.9 percent voted, apparently to everyone’s surprise, to leave. This simple act has led the nation into a morass of financial uncertainty, political upheaval, administrative angst, and no small amount of buyer’s remorse. Brexit is complicated. Who knew?

And expensive. Estimates I have seen to be north of $40 billion dollars. One puts it at nearly £1,000 per UK citizen. Not to mention a lot more disruption economically, politically, and socially than anyone seemed to expect. Much of the angst is naturally how to pay for it.

Alaskans, a playful but pragmatic group of libertarians, offer a sound solution.

In 1974, in the frenzied days of oil exploration and development, 56 percent of Alaskan voters embraced the idea of moving the capital from Juneau (which Juneauans playfully tell me you can reach only by plane, boat or birth canal). Alaskans finally settled on Willow, currently home to about 2,100 residents.

Shortly after the new capital site was settled, the pragmatic side kicked in. Alaskans passed the Fiscally Responsible Alaskans Needing Knowledge (FRANK) Initiative. Simply put, it required that the expenses for the move be assessed in detail and revealed before being spent. A bond issue appeared on the same ballot, asking voters to approve $966 million in debt for a new capital city in Willow. The FRANK Initiative was approved by more than 55 percent of voters. Spending almost $1 billion on the new capital got a resounding “no” from 74 percent.

The FRANK requirement was tested again, in 1982 when 53 percent of voters rejected spending almost $2.9 billion to build a new capital in Willow. The severe economic downturn in the late 1980s prevented the issue from resurfacing again for over a decade.

In 1994, the capital move saga returned. Again, nearly 55 percent of voters said no to moving the capital, this time to Wasilla. More than 77 percent of voters approved a renewed FRANK Initiative to ensure that no capital move scheme could advance without ample information about its direct and indirect costs.

Alaska’s “move the capital” initiative remains alive. The legislation to move it is still on the books. But the FRANK requirement also remains alive and kicking, and the voters still refuse to pay for it.

For Brexit, the lesson seems clear. Rather than a referendum to question its previous decision, responsible leadership in London should reveal the cost of Brexit and get a proper ballot in place to confirm that British voters are willing to pay for it. If not, it stands as a referendum to leave the EU, on hold until the British citizens decide officially that they want to pay for it. Alaskan’s seem entirely comfortable with the ambiguity. I don’t know why the British shouldn’t be as well.

We assume our elected leaders are launching new initiatives and paying attention to the cost. In fact, they usually are not. The debt explosion in our national and state governments is abundant evidence of that. For instance, would Americans have jumped into the Iraq War if they had a detailed assessment of the roughly $1 trillion cost? Would California voters have accepted the devastating pension obligations negotiated by their state and municipal administrators if they had an honest assessment of the long-run cost?

A Fiscally Responsible Americans Need Knowledge initiative is not a bad idea as our governments—at all levels—struggle desperately with often wasteful projects and historic debt overloads.

Robert A. Rogowsky is Professor and Program Co-chair of the Masters in International Trade & Economic Diplomacy at the Middlebury Institute of International Studies in Monterey, CA and Adjunct Professor of Trade & Diplomacy at Georgetown University’s Masters School of Foreign Service.
These essays are the opinions strictly of the author. They do not necessarily reflect the views of the Institute or any officials of the Institute.

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