Skip to content

PETER DOLEZAL: Brexit: was it another referendum disaster?

In garnering support for their side, both the ‘pros’ and ‘cons’ generally overstate the benefits and risks of either outcome.

The latest example of the questionable use of a referendum to decide major economic policy is the recent “Brexit” vote — perhaps the greatest political misjudgement in modern history — costing the U.K. Prime Minister his job.

While the outcome, in favour of leaving the European Union, was a close 52 per cent to 48 per cent, few expected the result. Certainly no one expected the ensuing fallout to be so dramatic. The British pound took a dive; investment and real estate prices are in jeopardy; and consumer confidence has plummeted — threatening to trigger a recession.

In garnering support for their side, both the  ‘pros’ and ‘cons’ generally overstate the benefits and risks of either outcome — at times to an outrageous degree.

The Brexit vote was no exception.

The ‘pro-exit’ faction greatly understated the potential consequences, perhaps not comprehending its effect themselves. Is it really coincidence that its leading proponents have quickly run for cover, exiting the political stage?

In any referendum, whether pro or con, arguments need to appeal to masses of voters; the more passionate the argument, especially by those of stature, the more receptive the voter tends to be.

Remember B.C.’s Harmonized Sales Tax (HST) referendum? Another major economic issue, with the “against” faction led by a charismatic and passionate former Premier.

It did not matter to the voter that the same leader had introduced B.C.’s largest-ever tax hike with the Property Purchase Tax — now costing citizens $1.5 billion annually.

This leader’s passionate argument prevailed, despite the fact that it represented poor economic policy, as evidenced by the fact that many provinces have adopted the HST.

Referenda are a useful democratic tool for providing guidance to governments on straightforward, easy-to-grasp issues — capital punishment, for example.

However, to determine economic policy, a referendum is perhaps the worst of tools. If difficult for legislators to fully comprehend the nuances of complex economic issues – even with the unlimited resources available to them, how can we expect the voter to provide meaningful and accurate guidance?

Rather than investing government energy in obtaining unbiased input, the electorate is courted by two ‘sides’ offering simplistic, and often inaccurate information.

Passion of presentation and gut-feel are just as likely to determine the result, as are the facts. We elect our legislators, entrusting them to make difficult economic choices and decisions — not to abdicate that responsibility back to the public which elected them. If, after four years, we don’t like the sum total of their decisions, we as voters, have the ultimate say — we can vote them out of office.

In the U.K., it is reasonable to assume members of Parliament were better informed than the voter-at-large. Interestingly, before the referendum, about two-thirds of parliamentarians were against Brexit — yet they allowed the referendum to proceed. Today, allowed a free vote, it is likely that even more MPs would vote against Brexit.

Most referenda are not binding on government, unless specifically put forth as such.

The Brexit vote was not binding, yet the U.K., now led by a  new Prime Minister, seems resigned to Brexit proceeding.

Do Canadians have a stake in the outcome of this issue?

The European Union, which included the U.K., was on the verge of ratifying a major Canada/EU trade pact — which is now in doubt and certainly delayed. Canadian industry has extensive investment in both the U.K. and the Continent. Economic uncertainty exerts a negative effect well beyond the EU — not only in Canada, but also world-wide.

We are inextricably interconnected globally. The U.K. Brexit vote, to disconnect itself from the EU, is not only counter intuitive, but may prove to be self-destructive.

 

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his recent Second Edition of The SMART CANADIAN WEALTH-BUILDER.

 

Contact Panorama Rec Centre to register for Peter’s Elder College Fall session – Financial & Investment Planning for Retirees & Near-Retirees (Wednesday mornings; October 5 to November 2).