Why deciding on Brexit by referendum could only have been an uneducated punt given the process design.
Like many of us, I spent a significant amount of time reflecting on Brexit, listening to the various parties advocating one option or the other and going through the wealth of information that each party put out to support their respective positions. But, despite all my well-intentioned efforts to inform myself, I still do not have a good idea whether the best decision was for the UK to Leave or Remain in the EU. Moreover, I have a bitter taste that I was forced to cast my vote following a largely emotional (& hence unreliable) decision making process.
Why is that?
I think it is worthwhile to quickly go through the process that big public corporates undertake to decide on transformational events. The reason why they go about it the way they do should have provided an useful precedent to the politicians to inform their decision on whether a referendum on Brexit is a good idea.
1.How do big corporates and their shareholders decide on important complex events?
The shareholders of the company (the people that stand to be impacted the most by the complex event say a large acquisition or divestiture) do vote on whether to proceed with the transaction or not. However, before they are asked to vote, three key things would have happened:
- The terms of the transaction would have been agreed and are legally binding between parties subject to a very few conditions such as a favourable shareholders vote and government approvals.
- The Board of the Company would have voted for the transaction favourably. The Board has all the necessary expertise to be able to evaluate the terms of the transaction. Importantly, the Board is elected by and has a legal responsibility to the shareholders; the shareholders can sue the board members if things go wrong because the Board was say superficial in their analysis or lied/made false claims about the transaction. Another important point is that there are only relatively few instances in which a transaction would go directly to a shareholder vote without the Board’s recommendation. That’s because the shareholders consider it useful to hear what the Board has to say.
- The shareholders would have had the chance to review all the material information regarding the transaction prior to voting on it. This information is based on months and years of detailed discussions / analysis around the transaction including the risk/benefit analysis of the transaction itself but also the analysis of all alternative options including doing nothing. While the management team will have a heavy sales spin on benefits when presenting the transaction, the shareholders will also have access to a largely factual document which includes an unbiased lawyer-drafted view of all the risks associated with it. Importantly, many of the company’s shareholders with limited expertise in financial or other transaction-relevant matters, trust the Board’s opinion on it.
Access to full information, proper rigorous analysis and advice from elected experts they pay for are all useful to inform the shareholders’ decision. To be clear, it is the shareholders’ decision in the end but it is as educated as one can make it.
2. Did we apply the same framework when voting for Brexit?
Let us ask a few simple questions:
1.Were the deal terms (The Withdrawal Agreement) binding and known before the people were asked to vote (the Referendum) on the major transformational event (Exiting the EU)?
The answer is NO. Absent a deal, most of the people had different interpretations on what the event meant. Albeit catchy, slogans such as “Lets take back control” and “Britain stronger in Europe” and, in the aftermath, “Brexit means Brexit” and “Brexshit” did not help clarify matters.
2.Did the people’s elected experts (The Parliament) vote on the deal (The Withdrawal Agreement) favourably?
Following from the above, the answer is also necessarily NO. The Parliament couldn’t have voted on the deal because there was no deal available to them to assess before the people’s vote. The Parliament did vote on a deal but that was a not binding document with areas that parties “agreed to agree on” in certain timeframe. Also, crucially, the Parliament’s votes occurred after the people have voted already which means that, in case of disagreement between the electorate and the Parliament, the UK was forced to choose one democratic decision over the other. Which is exactly what happened and naturally it created a lot of friction.
3.Should the people have been asked to vote in the Referendum without knowing the terms of The Withdrawal Agreement and without having the benefit of the analysis and advice of their elected experts, The Parliament?
The answer is also NO. It would be nothing short of stupid to ask shareholders of a company whether they want to proceed with a complex transaction before they were shown the exact terms of that transaction and before their elected experts (the Board) would have recommended that the transaction makes sense after evaluating its terms and alternatives to it. I do not understand why the Brexit decision would need not follow this framework.
4.However, could the terms of The Withdrawal Agreement have been possibly known under the rules that govern the EU exit process?
Finally, the answer is NO. Given current rules, the UK people had to decide whether they wanted to exit before the UK and EU agreed on terms. Not clear to me if the process was designed in this fashion to make countries think twice before they decide to exit. But, for the reasons described above, this sort of decision making process is illogical in a business setting. It seemed to make sense to whoever designed the EU rules.
3. But don’t we do the exact same thing during normal elections? Why is this different?
Indeed, during normal elections & similar to the Brexit campaign, the parties and politicians come in front of us with a bunch of promises about what they will do if elected. Those promises are just that, promises. There is no binding agreement between the electorate and the politician to make sure that the politician actually does what they say during the campaign. In other words, they could in theory lie. The remedy the electorate has is to not elect the politician again during the next elections. In practice, the process follows the Popperian principle that the only thing we should care about in a democracy is retaining the ability to remove the politician from power without violence. Hence, we do not need to make the right choice in an election but rather to put the elected politicians in full position of power and have them take full responsibility for their actions — this is to avoid their invoking that they tried to do what they promised but other factors influenced their decisions (such as being part of a multi-party coalition where different parties have different objectives). If the politicians fail, it is because of their own doing, they get removed without violence and others are put in their place.
So what is different about Brexit?
Two things:
1.Firstly, Brexit issues are more complicated than those made in normal elections. A large part of a delivering on a successful Brexit is, for instance, the ability to negotiate a massively complex exit agreement with the EU in a short timeframe and without any precedent. It also involves the ability to negotiate trade agreements between the UK and all the its trade partners. Any promise of what happens to the UK after Brexit (which would be similar to a promise made in an election) hinges on the outcome of these agreements (which are outside the type of promises made in an election).
2.Secondly, the Brexit decision is stickier because the electorate’s remedies are different. In a normal election cycle, the electorate can remove the politician after maximum of 4 years. In the case of Brexit, the timeline is unknown but likely long — we are probably looking at 10+ years before the country is likely to be receptive again to spending years debating the EU again. And there is no guarantee that the EU will agree to the UK re-entering under the same terms it has pre-Brexit (say by retaining its own currency or keeping the financial rebates).
4.So what does this mean?
It means that the people were unfairly put in a position to vote on a complex highly consequential situation loaded with significant emotional charge and on the back of conflicting information coming from politicians with limited skin in the game. And, by consequence, people worked with what they had and voted emotionally and tribally, largely based on a single issues (eg immigration (Leavers) or access to single market (Remainers)) — an uneducated punt for both Leavers and Remainers.
At the minimum, the Parliament should have been asked to make this decision not the people. The Parliament is being elected and paid by the electorate to debate and make decisions about complex matters. Brexit is clearly one of them. Richard Dawkins and others made this point repeatedly before and after the Referendum vote by saying “Brexit is much too difficult and detailed to be left to voters who know no economics”. I agree with that.
I go one step further and say that the decision would still have been an uneducated punt even if the Parliament would have had the vote not the people. It is impossible for someone to take a reasonable view on Brexit without knowing what the Withdrawal Agreement was. And knowing what the Withdrawal Agreement was before voting on it was not possible based on the current EU rules. A circular illogical circle.
My hope is that, at some point in the future:
- The UK electorate will decide to have a proper rigorous and rational debate about the benefits of re-joining the EU and will allow their elected representatives to take a decision or at least look for a consultatory vote from the Parliament before they themselves make a decision.
- Of course the above is not worth much if EU rules do not change such that the UK vote on rejoining after they know what the re-joining terms are with the help of their elected representatives or not.
What are the chances of these two things happening?
