Understanding the UK General Election

CREBO-REDIKER: Well, hello and welcome today to our call on understanding the U.K. general elections that just took place. We’d like to welcome you. And we have on the line today Charlie Kupchan and Sabastian Mallaby to walk us through what happened and what the implications are. Charlie Kupchan is a senior fellow at the Council on Foreign Relations. Sebastian Mallaby is also a senior fellow at the Council on Foreign Relations for international economics. My name is Heidi Crebo-Rediker. (Background noise.) I apologize for that phone. (Laughs.)

Before I’d like to begin I’d like to remind the members on this call that the call is on the record. We’ll have a brief conversation between us, and that will be followed by a Q&A. So please be ready when we open up the call for questions. We’d love to get your questions once we’ve—once we’ve finished our discussions.

So Boris Johnson just brought home the biggest win for the Conservatives in decades. And we just saw the biggest loss for the Labour Party in decades, on the platform of get Brexit done. There are—you know, there are many implications, and I’m sure a lot of questions that everyone has. But I guess what I’d like to start with are what are the main takeaways sort of at the thirty-thousand-foot level for the outcome of this election? How do we interpret such a landslide decisive victory for Johnson and for the Tory Party? And are there any lessons we can draw? I’m going to throw that to Charlie and see what his view is.

KUPCHAN: Thanks, Heidi. And good afternoon, everyone.

I have two reactions to the outcome, somewhat contradictory in that one is positive, and one is negative. So let me start with the positive. And that is that we have achieved a closure, of sorts. The United Kingdom has been in a political and strategic limbo for three years, really since the 2016 referendum. It has led to stasis and drift in the U.K. It has distracted the EU. It has weakened the transatlantic alliance because no one knew where this debate was heading. And the decisive victory of Johnson, campaigning on a platform of let’s get this done, makes it clear that the debate is over, and that the U.K. is willing to leave the EU. That doesn’t mean that the process is over. In fact, the process is just beginning. The negotiations that the U.K. will enter into with the EU and other parties on its future trading relationships, that’s going to be a tortured and difficult process. But at least we know how what will happen. We know that the U.K. will leave, most likely by the January 30 deadline. So there is a certain sense of finality and clarity that there was not before. And I think that’s in general good for the U.K., for Europe, for businesses.

My negative reaction stems from the fact that in some ways this was a second referendum because the British public had a much better sense of how difficult Brexit is than it did in the first referendum. And it is disconcerting to me that the vote was so decisively for Brexit. And I say that because I think one of the—one of the defining questions of our day is, is this illiberal moment—is this moment of more ethnic nationalism, more nativism, more anti-immigrant—is this a passing moment, a detour? Or is this new the new normal? And I fear that this election says it’s becoming the new normal, and that the pendulum is not swinging back towards the political center. And that’s consistent with what you see in Poland, where Law and Justice has only gotten stronger. In Hungary, where Orbán has only gotten stronger. In Italy, where even though Salvini—Matteo Salvini is out of power, he’s by far the most popular politician in Italy. We will watch carefully what happens in our 2020 elections. But I do come away from the outcome of last Thursday’s election in the U.K. saying that this illiberal turn that we’ve seen may be lasting quite a long time. In fact, it may be the new normal.

CREBO-REDIKER: Well, that’s—on that pessimistic note, I would—I would draw down a little bit deeper on going back to the U.K., and saying, you know, you’ve got this—you’ve got this process in motion for the scheduled departure of the U.K. And you have withdrawal legislation being proposed that will set the border in the Irish Sea. So even though there was a decisive victory, I think we still actually have quite a bit of uncertainty about what comes next, sort of what is the—once this—once this legislation goes to Parliament, what is the timeline that Boris Johnson has set out for—to achieve his objectives? And does he have—is that a realistic timeline for the amical divorce—to get it finalized by the end of 2020? Or, you know, will we be having another CFR call at the cliff’s edge about what’s going to come with negotiations with the EU this time next year? Sebastian, you are—you are based in the U.K. What do you think? Is Boris Johnson being realistic with his ambitions for Brexit, and getting it done?

MALLABY: It’s a great question, Heidi. You know, his immediate promise in the election was, quote/unquote, “get Brexit done.” And if that’s interpreted to mean passing the withdrawal agreement by the end of January, he’s going to do that easily now because he has such a big majority in Parliament. But then, as you’re suggesting, the tough stuff comes after that, because having gotten the withdrawal agreement through, the next step is to negotiate the new relationship between the U.K. and the European Union, which is going to exist after Britain is getting out. So Britain enters this transition period when stage one is finished. And that is due to end at the end of 2020. And that allows eleven months in which to negotiate a very complex set of agreements, not just one agreement, because we’re talking about U.K.-EU relationship, security, student exchanges, on scientific collaboration, all kinds of things, as well as the whole trading relationship.

And if you look at the history of the EU’s negotiations with other economies, with free trade deals with Japan, with Canada, these take a minimum of about four years. So the notion you’re going to get it done, when it’s a more complex deal, in eleven months seems on the face of it to be a stretch. And there are a couple of things that turn that stretch into a real worry. One is that the rules in the withdrawal agreement that’s about to be passed in the next month or so say that you can have an extension to the 2020 December deadline, but you have to ask for it by the end of June. And therefore, there’s a strong danger that as of June 2020, the British government may be somewhat in denial and be saying, yes, the talks are going fine. We’re going to make it by our deadline at the end of the year. And at that point, they won’t be minded to pay the political cost of asking for an extension. But technically, it will then be too late after June the 30^th to ask for an extension.

Now, of course, it may turn out that you can get an extension later, but it’s not as simple as that might sound. This is not one of those political deadlines where you can kick the can so easily, because in order for there to be a future extension of the transition period Britain would have to agree to how much it’s going to pay to Brussels in the way of budget contributions to cover its membership during the transition. So it’s not just a simple let’s have more time to negotiate. There is a money angle to it too. And what does that mean? Although I don’t think another crash out is likely when the transition period expires at the end of 2020, to me that tail risk is going to be there. And that’s why in some sense, as I watch the currency market push sterling up in value against the dollar in the euro area on the theory that the tail risk for a crash out is gone, I would say it’s gone for now, but not gone permanently.

CREBO-REDIKER: So just to—just to follow up on that, if, as you said, you know, you get to a point where there’s a need to—there’s a need to extend, and even if they were able to get that extension passed with the June 30 date, what would be the consequences for the new—for Johnson’s government if they were in a position where they would have to pay into the EU budget again? If they were back into, you know, having to act and behave as a member the EU beyond the date that’s accepted for the final withdrawal?

MALLABY: Well, I mean, with a majority of eighty in the House of Commons, you know, Johnson is effectively the elected dictator for five years. And so he can weather embarrassments. He’s pretty good at that just, you know, at all times, just by personality. But in this case, even if he had to turn around, change his mind, say he’ll ask for an extension or that, you know, he will pay more into the budget, really it won’t change his grip on power. So I think he can afford to change his mind. And that’s why before the election there was a lot of speculation in the media that if he were to win a big majority, like the one he’s actually now got, it would push him to the center and it would enable him to be more moderate in his position on the talks with Europe, seeking a close relationship with the European single market, undoing some of the hardline stuff he was saying before.

The theory being that before the Conservative leader was forced to respect the hard-right ERG Group, which is a faction within the Conservative Party that is sort of very hardline Brexit, because when you’ve got a majority, or even a negative majority—they had a minority before the election—the Conservative leader has to pay attention to this pressure group within the party. But with a big majority of eighty, you could ignore the ERG and they won’t have the votes to cause you any defeats. So there’s been speculation that that would push Johnson toward the middle. That speculation in the last forty-eight hours has been, you know, dented somewhat because senior people around Johnson have been saying, no, they’re not going to extend the deadline. No, they’re not going to do anything other than a pretty hard, clean break from the single market. So but Johnson has the wiggle room to change his mind multiple times over between now and next December, and he will still be in power.

CREBO-REDIKER: Well, one of the other takeaways from this is not just the strong Tory win, but also the significant Labour loss. So I’d open it to either one of you. What do you think the future of the Labour Party is? And was this reaction that you had Labour voters in parts of the U.K., and the Midlands, and North England that, you know, really had not voted Tory for many, many decades? Was it just because of sheer Brexit exhaustion? Was it an anti-Corbyn vote? What was—what were the primary reasons for Labour support? And is this—is this going to be enduring? What is the future of the Labour Party?

MALLABY: Charlie, do you want to take a crack at that?

KUPCHAN: Well, I think, Heidi, I’ll take a quick swing. That, you know, this is a phenomenon that is not unique to the United Kingdom. We see center-left parties everywhere going through an identity crisis, trying to figure out what their natural—who their natural constituency is. Here in the United States the centrists and the left-wing movements in the Democratic Party are duking it out. The social democrats in Germany are on their heels. The socialists in France are in demise. This has everything to do with the fact that we have seen deindustrialization, stagnant wages, unemployment in traditional manufacturing sectors. And there has been a move to the left to try to expand the welfare state, bring jobs back home. And that is what sort of brought Corbyn into the scene. But some of those voters have also defected, partly for policy reasons but I think more for reasons of identity, anger, anti-immigrant sentiment, to the center-right and the right, which is partly how Trump got elected and why there is now a big debate in the United States about whether the Democrats can lure back some of the white working class.

So I would say that the future of center-left parties everywhere is up for grabs and being duked out. One of the interesting issues that I think confronts Boris Johnson—and I’d be interested to hear Sebastian’s take on this—is that he’s going to be pulled in different directions because he now has this one constituency up in the north, the manufacturing areas. And they have a very different view about how to manage the economy, about deregulation, and relationships with the EU, than the—than does the traditional Tory base. And this also raises questions about the future of the city of London. You know, my own take on this is that the city is going to need something to remain the city in the aftermath of Brexit. And I’m guessing that that is going to be deregulation, what people tend to refer to as Singapore on the Thames. And that, again, raises this question of where is Boris Johnson going to location himself when he does have a voter base that is at this point quite diverse.

CREBO-REDIKER: Sebastian?

MALLABY: Yeah, I think—I mean, to sort of comment there. I mean, on the Labour Party, you know, what’s going to happen is that on January the 6^th there’s going to be a meeting of the National Executive Committee of the Labour Party. And they’re going to set out the rules for choosing the new leader who will succeed Jeremy Corbyn. And those rules vary from time to time. And therefore the membership of that committee—the National Executive Committee—matters, because they can tweak to provide the outcome that they favor. And they happen to be very much in the grip of the pro-Jeremy Corbyn, Momentum wing of the party, which is the left-wing—harder left, by some considerable degree, by anything you see on the left of the Democratic Party in the United States, with a program that wants to nationalize major industries outright, and then to also take 10 percent of the equity of all of the companies—that’s all of them—and put into essentially a state fund. So this is a very far-left agenda.

And I think it’s more than just the kind of populism you see around the rest of Europe. This has something to do with the way the mechanics of this particular party has been sort of controlled by this group, Momentum, which have been effective in almost rigging the internal democracy of the Labour Party in a way that gives outcomes that favor their side. So there will now be a contest between those in the Labour Party who argue that Corbyn’s left-wing agenda was to be blamed for the big election defeat, and those on the other hand who say it wasn’t anything about our agenda. Our agenda was very popular. It was just that this is a Brexit election and Johnson won big on Brexit. So there’s a kind of plausible deniability for the left when it wants to say it wasn’t our policies at fault. Nationalization of the rail service and the water service, that would be perfectly fine. So we’re going to see a contest. I don’t know who’s going to win. But I think the left has a stronger chance, given the mechanics of the National Executive Committee than it might otherwise have.

On Boris’—Boris Johnson’s sort of positioning, you know, Charlie is precisely right that there is a huge dilemma for him. He now represents large numbers of northern constituencies that were not in the Conservative column for eighty years, or even a hundred years in some cases. And to represent those groups is a challenge when you’re also representing traditional Conservative heartland. And I think the truth of the matter is that the whole agenda is up for grabs. There’s a lot of confident speculation in the British press about there’s going to be this one nation unifying Toryism that Boris Johnson promised during the elections. The party will move toward the middle, it will establish itself for the governing party for at least a decade, and maybe beyond that, because the Labour Party is so hopelessly far off to the left.

But when you look under the hood, the definition of this new one nation centrism in the Conservative Party is really unclear, because there are elements that want to go for a big deregulation, Singapore on the Thames. There are others—and, in fact, Boris Johnson did this himself during the campaign, pushing really quite left-wing policies, like state aide for industry, something that Margaret Thatcher would have shuddered at. And he, Boris Johnson, raised this as a conservative proposal in the run-up to the elections. So the agenda is wide open. Just as there’s a lot of uncertainty on whether Brexit really does get done by the end of 2020. Equally there’s uncertainty as to what kind of domestic policy the Conservative government will pursue.

CREBO-REDIKER: So there’s a lot to work on—a lot to work from, from both of you. And thank you for giving the opening comments. I’d like to invite members to join the conversation with questions. And just as a reminder that this meeting is on the record. So I’m hoping that Brandon (sp) has a number of questions on the line right now. Please limit yourself to one question and try to keep it concise so we can allow as many members as possible to speak.

Brandon, do we have anybody on the queue?

OPERATOR: Yes, ma’am.

(Gives queuing instructions.)

The first question will come from Trudy Rubin with the Philadelphia Inquirer. Please go ahead with your question.

Q: Hi to both of you. Thanks for doing this.

I’d like to explore a little bit more the comparison between the U.S. and Britain. If there had been a centrist Labour candidate, such as David Miliband, do you think the results would have been different? Or was the loss due to broader factors that would have led Boris Johnson to win anyway? And I’d love to have Sebastian say a word about why the LDP did so poorly.

MALLABY: Sure. Well, in a way the answer to those two things are very closely connected. So we’ll count that as one question. (Laughs.) So that you’re not violating Heidi’s rules.

But I mean, the Liberal Democratic Party actually gained its share of the national vote by four percentage points, whereas the Conservatives gained only one percentage point. So they did—Liberal Democrats did very badly in terms of number of seats won in Parliament, but less badly in terms of the popular vote. And in fact, if you count up the votes for parties that were remain, and then you compare that vote for parties that favored Brexit, the remainers got more votes. And I’m not suggesting that therefore we should go back to another referendum or something like that. Water has gone under the bridge and it’s time to fully accept that Britain is leaving the EU. I think it’s fruitless and counterproductive to suggest otherwise.

But I do think that had somebody such as David Miliband, a plausible centrist Labour leader who would have been unambiguously pro-remain, somebody like that might have united the national remain vote instead of allowing it to be fragmented between the Labour Party and the Liberal Party. And he would have given at least the Conservatives a run for their money. I think on the doorstep, you know, those Labour members of Parliament who lost their seats last Thursday stated as they were canvassing door-to-door Jeremy Corbyn himself, the character, the personality, and particularly the record of being unpatriotic and not really believing in record, instead supporting all kinds of slightly fringe leftist protest groups—whether it’s the Palestinian Liberation Organization, the Irish Republican Army, Chavez in Venezuela—that that kind of stuff just did not go down well in these traditional Labour constituencies and caused voters who had always backed Labour to switch to the Conservatives. David Miliband would not have had that kind of problem. So I think it’s a good question, Trudy. And I think quite possibly a different kind of Labour Party might have won the election.

KUPCHAN: I would just add, Trudy, that I do think there is a cautionary tale there for the United States’ Democrats in that, you know, in the U.K. there is a tradition of a very robust welfare state, bordering on what we would call a traditional social welfare, dating back to the post-World War I era. The U.S. doesn’t really have that same tradition. And I do think that Corbyn did suffer from going too far to the left, even in a country with that tradition, which suggests to me that those in the United States running on the left should be cautious about going too far in a country much of which is still quite conservative.

CREBO-REDIKER: So I think there’s been no end of speculation on where—you know, where you can draw conclusions between what happened in the U.K. election and what’s coming ahead of us for 2020. But while we’re getting more questions on the line, I just wanted to throw out another dimension of this to both of you, and that is: What is this, now that we have some certainty about at least the desire to not do a revote and think about what the option for remains, what’s the future of the union in the long term? The Irish and Scottish cases are obviously very distinct from each other, but Brexit as a project is one that seems to be more of English nationalism. Is there—do we see—do we see any way that this could have a serious implication to the future of the union as a whole?

MALLABY: Sure. I mean, the election featured, first of all, that Tory landslide that we’ve been talking about for Boris Johnson, but it also featured a big swing in favor of the Scottish National Party. And Nicola Sturgeon, the Scottish leader, you know, is already quite open in saying that this is a mandate for a second independence referendum for Scotland. There was one back in the fall of 2014, where Scotland voted fairly narrowly to remain in the United Kingdom. And the Scottish nationalists would like to have a rerun. Boris Johnson is going to respond to that by saying: You won’t have one. I’m not going to allow it. And that creates a kind of Catalonia situation where, if you remember, the Catalonian government went ahead with a referendum about independence, even though it was not allowed by the central government in Madrid. And that triggered then the arrest and so forth of the Catalonian nationalist figures.

I don’t think that the Scottish National Party is going to be that rash. That’s just an invitation to, you know, a crackdown from London. It would create a crisis. I don’t think they want to win their independence in that way. So they’re going to be patient. But they’re going to use Boris Johnson’s refusal to allow a second referendum to build a long-term case for why Scottish independence is necessary. They’re going to say: The Scottish people vote for us, the Scottish National Party. We didn’t want Brexit. It’s being foisted upon us. And then the centralization of power in London has meant that we didn’t get the right for a second referendum. It was denied to us. Our demographic opportunity was denied. And they’re just going to stoke national sentiment, no doubt, and bide their time until they get an opportunity to have another referendum. And I think in the long term this is an issue that’s not going to go away.

And then Ireland is the other big question because two big things have happened. First of all, Boris Johnson’s renegotiated Brexit deal cuts Northern Ireland off from mainland Britain in terms of economic—in terms of commerce. There will be customs checks of various kinds between Northern Ireland and mainland Britain. And so that does create a bit of a wedge between Northern Ireland and mainland Britain. And secondly, and I think this is perhaps almost more important, the nature of southern Ireland, the Republic of Ireland, has changed radically in the last twenty years. You know, a very conservative—socially conservative Catholic society has become a rather tolerant, modern, secular society in a way that I think ought to make Northern Irish Protestants less fearful of the prospect of unification. Particularly as generations shift, I would foresee that the logic of unification in Ireland will become gradually stronger.

KUPCHAN: And then also I’d piggyback on that—piggyback on that by saying that everything that Sebastian just said cuts against the grain of the talking points of the leave campaign, in the sense that they were—you know, they’re talking about global Britain, about going back to rule Britannia. And the opposite is going to happen. I think what we’re witnessing here is a dramatic stepping back of the United Kingdom from its global role, in part because these issues of the future of the union, of the relationship with the EU, are going to tie up the U.K. for the foreseeable future. And there is, as part of this debate, a kind of neo-isolationism, a little England component to it, that I think is going to, as I said, lead to a systematic programmatic diminution of Britain’s global role.

CREBO-REDIKER: So let’s go to Brandon (sp) and more questions from members. Brandon (sp), we have another person on the line?

OPERATOR: Yes, ma’am.

(Gives queuing instructions.)

The next question will come from Cameron Findlay with ADM. Please go ahead with your question.

Q: Hi. Thanks very much. An excellent call.

I wonder if you guys could handicap the Labour leadership race. Jeremy Corbyn is temporarily sticking around, apparently to try to assist in the selection of his successor, which some are questioning. And I’ve seen various speculation about different potential leaders. But do you have any thoughts on that?

MALLABY: Charlie, do you want to—

KUPCHAN: No, that’s above my paygrade. I’ll leave that to you.

MALLABY: (Laughs.) OK. Well, so some of the candidates, the kind of bookie favorite is Sir Keir Starmer, who is a political moderate. He has been the Labour Party spokesman on Brexit and used that position to make the case for remain and to slow down the Brexit process in the past. He was head of public prosecution by profession before. And so you have a kind of, you know, sort of articulate, professional, establishment, centrist remainer as the person regarded by the bookies as the lead candidate. On the other side of the coin you’ve got the Corbyn Momentum movement that would like to keep with the left-wing economic policies that were in the manifesto most recently. And there the candidate is Rebecca Long-Baily, who is a youngish—I think she might be forty years old—up-and-comer who is popular with both Jeremy Corbyn and with his right-hand man John McDonnell, who’s the outgoing finance spokesman, because Rebecca Long-Bailey has been sort of the member of the younger generation in the Labour Party who has been involved in the formulation of that left-wing policy manifesto.

She might join forces with Angela Rayner, another left-wing young candidate. In the picture there’s also a couple of wild cards, Emily Thornberry, the more sort of centrist remainer, a bit like Keir Starmer, who has been the foreign policy spokesperson for the Labour Party. And then one young, charismatic, slightly sort of firebrandy up-and-comer called Jess Phillips. So that’s the field. And I think it really boils down to Keir Starmer versus Rebecca Long-Bailey. And even though the bookies are—the betting market, they’re favoring Keir Starmer, because of the grip of Momentum on the party something inside me says that Rebecca Long-Bailey has a decent fifty-fifty shot of getting it.

CREBO-REDIKER: Can we go to the next caller on the line?

OPERATOR: Yes, ma’am.

(Gives queuing instructions.)

The next question will come from Ed Cox, Republican State Committee. Please go ahead.

Q: Well, my question really goes to Boris Johnson looking across the pond at the United States. And he’s trying to stitch together his new coalition. And realized that the key to Donald Trump doing it here and keeping his base, which now includes the blue-collar Democrats who voted for him, is basically economic growth. To do that, he really adopted Larry Kudlow’s Reagan supply-side economics, deregulation, tax cutting. Could Boris Johnson, looking over at the American side and what gave Donald Trump his political strength and knitting together the coalition, he would have to do the same, or to even back to more of a tax ride kind of program?

KUPCHAN: Well, the first comment I’d make in response is that I think that the relationship between Washington and London is not going to be quite as close as predicted, in the sense that Boris Johnson kept his distance from the president, especially when the president was there just before the elections for NATO summit. And I’m kind of doubtful that we’re going to see a big trade deal between the U.S. and the U.K. out of the box. I think, you know, the U.K. is going to have its hands full in negotiating its relationship with the EU, and its negotiating leverage with the U.S. will diminish now that it is in the process of leaving a much larger market. And as we talked about a little bit earlier, I think it’s unclear which way Boris Johnson is going to go, when it comes to whether he takes a more Thatcherite approach or a more centrist approach, because he does have this new constituency up in the North to which he does need to cater.

MALLABY: I agree that, you know, economic growth is the thing that keeps coalitions together. And I think the consequence of that insight is that Boris Johnson is going to throw a lot of money at the economy. He’s promising, you know, to spend a lot on the National Health Service—not a particularly Thatcherite policy. It’s bigger state, not smaller state. But it is going to be keeping people happy. And it will be stimulatory as far as it’s increasing the deficit. And so that—and, by the way, the extra money for the National Health Service is going to be echoed by extra money for police, and extra money for other public services. And so whereas the post-2008 financial crisis conservative government which came in in 2010 was known for austerity, this conservative government is going to be known for the opposite.

I think that’s where the growth strategy is going to be focused initially because deregulation is constrained by membership of the European Union. And that membership doesn’t end until this transition period of finished. And as we discussed, the earliest that that transition period ends is the beginning of 2020. And there is a decent chance that it will be extended one way or another beyond that. So—and also deregulation, though it is good for growth, quite often can take a while to produce the growth and to some extent to get dislocation in the immediate aftermath of deregulation, which can be negative for growth as well as some stuff that’s positive. So on net you don’t see many benefits right away.

So I think the politics of this drive towards a big fiscal stimulus. And the question is really whether Britain can do that without triggering financial market consequences because, unlike the U.S., Britain does not issue the world’s reserve currency. Therefore, its ability to finance a government deficit forever is less obvious. It’s going to be raising questions about the Bank of England which may be under pressure to finance the deficit through some kind of loose monetary policy, possibly including, I suppose, QE. But I don’t—you know, that would be getting pretty radical for a Conservative Party that wants to retain its reputation for sound economic governance.

CREBO-REDIKER: Just a quick follow-up, Sebastian. In terms of—you know, obviously the platform of Brexit and the separation from the European Union had to do with wanting a complete—wanting control over issues like deregulation. But the EU’s still going to be largest trading partner. Now far can—if there were a push to move away from the EU model, how much could there be a push from Boris Johnson without hurting that relationship and the ability to work together with the EU?

MALLABY: Well, that’s exactly the right question, Heidi. I mean, the basic strategic question about whether in these talks, that will begin from February or so, does Britain want to go for a close relationship with the single market of Europe that gives it maximum export access, including for its services which represent 80 percent of the U.K. economy? Because if it wants to go for maximum access, it’s going to also have to be aligned with EU regulations. Or does the U.K. prioritize its regulatory freedom? In which case if it won’t be aligned with Europe it will have to accept much less market access.

Now, I think most economists would say that the market access is quite valuable, and unless you’re sure that you’re going to use your regulatory freedom in a strongly pro-growth way, it’s probably not a good trade to give up the market access. But the political signals, including in the last forty-eight hours from Michael Gove, who is probably—you know, he’s one of the top members of Boris Johnson’s Cabinet and is probably going to play an enhanced role next year in terms of sharping the progress of the negotiation with Europe. He has reiterated in the last day or two that the priority is going to be regulatory freedom. That this notion of Singapore on Thames, that you could have a substantially deregulated British system that drove growth through being less heavy in terms of state intervention than the European Union—that that remains the aspiration.

Now, you know, we’ll see when the negotiations get into the detail and it becomes clear how much market access you have to give up, we’ll see if Boris Johnson sticks with that. But I really think that that’s why—in an odd way, this massive landslide election, which appears on the one hand to create political certainty for the next five years, in fact doesn’t really create much policy certainty, because we just don’t know which way the Conservative government is going to jump on this key question of whether to align in regulatory terms or to go for a lot of nonalignment.

CREBO-REDIKER: That’s going to be a fascinating—it’s going to be fascinating to watch this to play out over the coming—the coming months.

Brandon (sp), in the queue do we have a couple more calls, I understand?

OPERATOR: Yes, ma’am. The next caller is Jove Oliver with Oliver Global. Please go ahead.

Q: Hi, there. Thanks for this. Very interesting.

Following up on that last point, Sebastian. Sort of medium-term, if they went for the regulatory freedom, can you talk about the role the WTO would play in that? And also the Trump administration sort of slow-rolling a lot of the senior, I guess, judges on the arbitration committee at WTO down to one now, so it’s not really functioning the way it’s sort of designed, what the implications would be, you know, sort of if a year from now they’re not aligning with the EU, they’re on their own. What role would WTO play? And is the Trump administration sort of undercutting, you know, WTO? Going to really provide them some hard navigation there?

MALLABY: Yeah. I think that the loss of a functioning dispute settlement mechanism at the World Trade Organization thanks to Trump’s refusal to confirm nominees to the dispute settlement body—I think that’s, you know, a bad thing for the world. But I don’t think it’s the central issue in terms of Britain’s Brexit calculations, because what—the key thing about not having a good trade agreement with the single market in the future is that WTO rules, if you fell back on those, wouldn’t really provide for the service exports. WTO’s pretty weak on services. Some people say the EU’s single market is weak, but in fact it’s way, way, way stronger than the WTO. So when you have an economy like Britain’s, where the strongest industries are service industries—whether it’s banking, insurance, management, legal services, media—you know, these are the key exports that Britain has. And 80 percent fully—fully 80 percent of the U.K. economy is services. So to fall back on WTO rules which pertain to goods more than services is a bad idea, irrespective of whether the dispute settlement mechanism is working.

And I would add just one more thing. You know, the one manufacturing sector where Britain has quite a lot of exports and is quite strong is automobiles, thanks to investment both by Japanese, and by German, and American companies. And that’s precisely where the WTO is less effective than one would wish, because under the WTO you can raise auto tariffs up to 10 percent. And that would be a killer in terms of a just-in-time supply chain which links different countries in the single market together. And I think Britain stands to lose a good chunk of its car industry if it does not do a satisfactory deal that aligns itself with Europe on that. And, by the way, quite a lot of that car manufacturing goes on in these Labour—traditional Labour constituencies in the north, which have been newly won over by Boris Johnson. So he should be worrying about that.

KUPCHAN: The only comment I’d add to this conversation is that judging from what’s transpired over the last three years, I’m not that confident that these issues will be resolved by what makes the most economic sense, inasmuch as the Brexit debate has been driven more by emotion than it has been by cranking the numbers. In fact, I think in some ways the leave campaign has succeeded by playing to emotions—making this a debate about identity, making this a debate about sovereignty—while the remain folks have been doing spreadsheets and talking about budgets. And so my gut tells me that when push comes to shove, if Boris Johnson had to choose between close alignment with Europe and deregulation, he would go for the latter, in part because I think that the hard Brexiteers would hoist him on his own petard if he ends up leaving the EU in—excuse me—leaving the U.K. in close alignment with Europe. What would his critics then say, Sebastian? Well, then, what the hell did we do all this for?

MALLABY: Yeah. I mean, that’s right. The only kind of caveat is that those critics on the right-wing of the Conservative Party are less key to Boris Johnson’s grip on power, now that he has such a big majority. So he does have a choice. He could tack to the center and ignore the right. I’m not saying he’s going to, but it’s possible.

CREBO-REDIKER: May we have the next question, please.

OPERATOR: Thank you.

(Gives queuing instructions.)

The next question comes from Missy Raney (sp) with CFR. Please go ahead.

Q: Hi. Missy Raney (sp), retired journalist.

Just wanted to go back to the handicapping about the Labour Party leadership. Does the outcome of that have any impact on whether there is a third party talked about in terms of sort of the middle path?

MALLABY: Do you mean whether people might defect from the Labour Party to create a new party, or do you mean the Liberal Democratic Party?

Q: Yes. Yes.

MALLABY: I mean, you know, one of the—one of the lessons of the last, you know, year or so is that it’s incredibly hard to set up viable center parties, even when the case for doing so is at its strongest in memory, right? So you had before this election a Conservative Party that was in the grip of a small, hard Brexit, sort of Singapore on Thames right-wing group. And this group was rebelling against Theresa May, the leader, and blocking her and stuff and, you know, was pulling the Conservative Party to the right. And then you had a Labour Party which was being pulled to the left by this other sort of group within the group, Momentum. And the center seemed to be, you know, wide open and up for grabs. And in response to that, two things happened. There was a minor flurry around a handful of defections from the Labour Party and the Conservative Party, with the view to setting up a new center party. The excitement around that lasted about half an hour. That party just fizzled, sank under the waves, and there’s no trace left to be seen.

And then on top of that, the traditional center part, the Liberal Democratic Party, didn’t gain any seats in this election. In fact, it lost a seat. Not only that, it lost a seat which was held by the leader of the party, Joe Swinson. And nobody quite knows who will be the leader of the Liberal Democrats to take over from her, because there isn’t any very charismatic or probable candidate. So what I’m saying is that if the British system—you know, if ever there had been a time for a center surge, a new party to come in, we just had it and didn’t happen. So I think we’re stuck with these two big parties in—at least in England. Perhaps the Scottish National Party in Scotland. And so—there’ll be votes for the Welsh Plaid Cymru Party in Wales, and votes for the particular Northern Irish parties in Northern Ireland.

But in Britain, which accounts for, you know, the lion’s share of the United Kingdom—in England, I mean—you’re stuck with the Labour Party and the Conservative Party. And so what happens in this contest to take over the Labour Party matters a huge amount. As I said before, I think under a moderate leader, such as David Miliband, it’s conceivable that Labour would have won this election. Under Jeremy Corbyn or somebody who looks like Jeremy Corbyn, it’s not really conceivable. So it matters a huge amount who gets chosen to lead the Labour Party next year.

KUPCHAN: I just want to point out that I think one of the—one of the reasons that continental Europe has been more politically stable or—let’s put it this way—more able to adhere to the center than either in the U.K. or the United States is precisely because they are not dominated by two parties. So when you look at Germany, people have alternative places to go when they are disaffected from the two parties, but centrist parties are still in control. In the U.K. and in the United States, because there are only two parties, the angry, disaffected voters tend to go to both of them. And they pull the left further to the left, and they pull the right further to the right. And I think that’s why the center has been particularly hard hit in the United States and in the U.K., but it’s in better shape in continental Europe.

CREBO-REDIKER: I just wanted follow up with a quick question, on where does this leave Nigel Farage?

MALLABY: He was last on television on the evening of the election. You know, would he be off to the United States doing debate prep with Donald Trump and perhaps hosting a Fox News show? I think his job in British politics is now done. You know, he campaigned for Brexit. He won on the issue. But his party is nowhere, the Brexit party. It did not win any seats in Parliament. So I think he’ll be a personality in politics. He, I’m sure, would love to be a personality in American talk show chatter, and leverage his relationship with Donald Trump to that end. But I think, you know, he’s one of those single-issue people who’s won on his issue. And therefore, his main political relevance is finished.

KUPCHAN: Does this mean he won’t be the ambassador to Washington?

MALLABY: (Laughs.) I think—no. Maybe one piece of good news from this election is that actually Boris Johnson doesn’t need to give him any prizes because Boris Johnson has so much power there’s no need to pay him off.

CREBO-REDIKER: I just want check and see if we have any other—any other questions on the line right now. We have a few minutes left to go.

OPERATOR: I’m showing nothing further in the queue at this time.

CREBO-REDIKER: So I think leaving on the note where we might see the likes of Nigel Farage on our televisions in the 2020 cycle over here should be—(laughs)—a perfect note to end on. I want to thank both of you, Sebastian and Charlie, so much for what I think is a great overview of what—of what we have to look ahead in terms of the future of the U.K., and drilling down on some of the more important political dimensions, and also what the implications could be for the United States and for other parts of continental Europe. So on that note, we’ll conclude this CFR call. And I appreciate that all of you joined us today. Thank you very much.

KUPCHAN: And thanks to you, Heidi.

MALLABY: Yeah, thank you, Heidi.

(END)