Britain 0, Insanity 2: How the U.K. Election May Play Out

In an outcome at least as implausible as the improbable Brexit referendum 12 months ago, Britain must now negotiate its exit from the European Union hamstrung by a minority (not only weak but also potentially divided and unstable) Conservative government -- following this week’s stunning rebuke of Theresa May’s prime ministership in the United Kingdom election.

In soccer/football parlance: Britain 0, Insanity 2 (with two British own goals -- first Brexit, now this election).

For non-football fans, an “own goal” is when a team kicks the ball into its own net, a win for the other side that it did not cause. It is worse than shooting yourself in the foot; you not only hurt yourself, you help your opponents harm you.

Brexit was an own goal, because then Prime Minister David Cameron insisted on a referendum on whether the U.K. should leave the EU that most people in the country, and in his government, did not want. He thought he would win, that the U.K. would stay in the EU once and for all, and he would enter the pantheon of great British PMs. He went 0-for-3, as it were.

May’s own goal looks very similar in reasoning -- “I will call a (very) early election to win a big majority in the House of Commons” -- but with a massive difference in goal ("so I can successfully negotiate a 'hard Brexit' with the EU").

After this week’s stunning election, the very best May can hope for is that she limps, badly injured and weakened, into the Brexit negotiations that will commence at the end of this month. At worst for her personally, she will be deposed as prime minister in a palace coup within the Conservative party. At worst for Brexiteers, the British position will become much softer -- with the possibility of another British referendum to reverse Brexit, or perhaps even a government strategy for a very “soft” Brexit (i.e. Brexit in name only, with nothing really changing).

At worst, for everyone else, no deal of any sort over Brexit -- in which case Britain’s economic relations with Europe would be no better than those for any other country outside Europe, and probably worse because at least other countries have established trade and investment agreements with the EU.

Here’s the electoral math that makes all this possible: the Conservatives are the largest party in Parliament, but they don’t have a majority. They can only govern with the support of the DUP, a Northern Ireland party that is pro-Brexit, conservative, and pro-Britain (and hence in some sense anti-Ireland).

What explains the outcome? There is no real evidence it was “Brexit remorse” -- a conscious decision by the voting public to second guess Brexit, to weaken the impetus towards hard Brexit that May has come clearly to embody.

May probably lost because her pitch was a simple “I am a strong leader” not “this is the Brexit that is best for Britain.” This made her vulnerable to a bunch of truly unexpected things that had essentially nothing to do with Brexit:

• May stubbed her toe badly over “elder care” -- who pays for home health care for the aged. Another mini ‘own goal.’
• Labour leader Jeremy Corbyn had been dismissed as the party’s worst leader since Michael Foot more than 30 years ago. But whereas Foot was thrashed by Margaret Thatcher as a “woolly socialist,” Corbyn won big by not talking at all about Brexit but focusing instead on things like cutting Britain’s 9,000 pounds a year university fees to zero.
• The Manchester and London terrorist attacks did the reverse of what normally happens. Instead of driving voters to the “stronger on security” party, the Conservatives, voters questioned May about why she has cut the police force.

So an election that was designed to help Britain “win” Brexit through a campaign that had nothing do to with Brexit has generated an outcome that makes Brexit even harder than it already was. In a world in which the bar has been raised dramatically on what counts as a “wow” in politics, this is a wow. Just take a look at the massive Labour surge in votes -- 33% bounce back from the devastation of 2015.

So what’s next? In one of my most-read posts on LinkedIn, I wrote a week after the Brexit referendum last year that the number one consequence of the then-shocking vote was the pervasive and cascading uncertainty it set off:

We don’t know if the United Kingdom will leave the European Union. We don’t know anything about what the U.K.’s relationship with the EU will be going forward, nor what the EU will look like in the future. The only certainty about the Brexit vote is the uncertainty it has created. 

Rather than patting myself on the back for my soothsaying, today I feel even worse. Let me update: The only certainty about this week’s British election is the uncertainty it has created over Brexit -- on top of all the uncertainty that preceded it.

Let me very briefly sketch two sets of scenarios: how Britain approaches Brexit and what happens to the EU in light of Brexit.

The British position:

• Britain continues to push for a hard Brexit, and it is successful. (The U.K. leaves the EU, is not subject to European rules, pays the EU a decent price for doing so, and gets to keep London as the European financial capital and to keep open free trade with Europe -- this is more or less where Switzerland sits.)
• Britain pushes for a hard Brexit, but the EU won’t accept the deal. (This would leave the U.K. out of the EU in two years, but with no privileged position on finance or trade, dealing with Europe under WTO rules, and worse off than other countries that have cut trade and investment deals with Europe -- arguably putting the U.K. in a uniquely bad position)
• Britain goes soft on Brexit, and the EU agrees. (Britain is out of the EU, but remains subject to most EU rules and pays the full price of membership -- more or less the current position of Norway.)
• Britain goes really soft and calls off Brexit. (Britain is still in the EU, having cheesed off everyone over what would then clearly be a long fiasco -- this happened to Denmark regarding the Euro when it had a “no” referendum but subsequently changed its mind.)

If I had to guess, I would say the second scenario is the most plausible outcome, and one I think is worst for both the U.K. and the EU. The first set -- the outcome May sought in calling the election -- seems the least likely while the third and fourth outcomes may look like fantasy land. But in today’s world, who knows?

What Europe will look like:

• Nothing much changes: Britain stays in the EU or does a really soft Brexit, Macron’s pro-Europe position sticks in France, Germany remains pro-Europe after its elections this autumn. This would be a much ado about nothing outcome -- with Britain as a supersized Switzerland
• Britain is out, and it all happens civilly: This would reduce the frictions between the non-euro EU members and the Eurozone (only 19 of the EU’s 29 members use the Euro -- with Britain the most important, by far, of the outs). The EU and the Eurozone would converge, creating very much a second-tier Europe for the “outs” that Britain could lead.
• Britain is out, but Europe blows up: Under this scenario, a messy/hard British exit (plus, say, a political crisis in Italy, which some say could be likely early next year) triggers a major European crisis about the disconnect between Europe’s “economic and monetary union” (the euro, plus free trade and free movement of people) and the absence of “fiscal and political union” (no real European budget, most fiscal decisions are made at the national level) in the EU.

The second is probably the best outcome given everything, but it is the least likely. The first outcome seems much more attractive than the third. But if I had to bet today, I would have to say that this outcome -- a messy Brexit followed by an EU crisis -- seems more likely than a civil, no-crisis Brexit.

Here is what former U.S. Attorney General Robert F. Kennedy said in 1966, which seems most appropriate today:

There is a Chinese curse which says 'May he live in interesting times.' Like it or not we live in interesting times. They are times of danger and uncertainty.

But he then immediately followed with this -- “but they (the interesting times) are also more open to the creative energy of men than any other time in history.”

Let’s hope he’s right.

Geoffrey Garrett is Dean, Reliance Professor of Management and Private Enterprise, and Professor of Management at the Wharton School of the University of Pennsylvania. Follow Geoff on Twitter.