May Britain Adopt the “Special Zone System” in its Brexit?/Sheng Hong

Britain finally left Europe. But there is controversy. Johnson’s success is still due to that he finally chose the resolution of Northern Ireland temporally no leaving the EU single market. It has been tested by the British Parliament and accepted by the European Union. Procedural justice means that brexit may be a good thing. But ultimately, it depends on the long-term results. In my old article last year, I discussed the problem of Northern Ireland staying in the EU. It seems that there is still some information. Reissue it.

Humphrey

I remember in the British political comedy Yes, Prime Minister, there is a joke about Britain’s accession to the European Union. Sir Humphrey Appleby, the cabinet secretary, said, “We join the EU in order to destroy it.” This is, of course, British self-mockery. Unexpectedly, the task was not completed, but Britain had been unable to bear the hardship of undercover, decided to withdraw, and was almost overwhelmed by the Brexit. Prime Minister Teresa May’s plan to leave European Union ran into a wall three times in the British Parliament and had to ask the European Union to relax its deadline. In desperation, it was postponed to the end of October by the European Union. This is a good news, but there is still no bright future. In Britain, there have been public demonstrations calling for a referendum again, and the Labour Party has also expressed its support. Regionally, most people in Scotland and Northern Ireland in the referendum opposed leaving Europe. The European Union has also said that through a referendum back to Europe is the best option. However, if the previous referendum is negated by a new referendum, the new referendum will also be negated according to the same rule. There will be no peace in Britain. The unrest in Northern Ireland on April 18 and the death of a female journalist illustrate the urgency of the problem. How can this be done?

The problem of Brexit is fundamentally that this voting rule has serious defects, but it is regarded as an undoubtedly superior system. The voting system is based on the principle of consent. When a person agrees with a decision, it means that he thinks it is good for him, at least not harmful to him; when he opposes it, it means that he thinks it is bad for him. So Professor Buchanan argues that unanimous consent is the best rule of public choice, which means that no one is harmed. But in reality, among such a large number of people, it is difficult to agree. So people have to choose second best, voting rules are actually majority rules. But this raises the question that a minority who disagree will suffer from this decision. In the tradition of economics, there is a belief that among different people, their utility is not comparable. That is to say, it cannot be said that two people’s utility must be more than one person’s utility. Therefore, the majority rule in voting does not have a very solid economics foundation, but in reality, it is intuitively better than the rules of the majority obeying the minority, and is accepted as an alternative rule of unanimous consent rule.

However, the majority rule is bound to bring harm to minorities in voting, especially under the simple majority rule. There may be 51 Paul depriving 49 Peter, or even 51 Paul depriving 49 Peter of 2 million yuan in order to get 1 million yuan. Thus, although the majority rule saves the cost of voting, it does harm to minorities, which is called “external cost”. And the deeper the damaged interests are, the more intolerable the outcome of such public decision-making will be. This is precisely the situation of the referendum on Brexit, with about 52% in favor and 48% in opposition. There is little difference between the votes of the two sides. The closer the votes are, the more harm minorities suffer and the more likely they are to be unwilling to accept the result. What’s more, there are regional differences in the results of the referendum, such as Scotland and Northern Ireland’s opposition to Brexit. The result of the vote is not fair because of the difference of sizes of the population in difference of regions. More importantly, since the majority rule is an alternative form of the unanimous consent rule, the effective quality of the latter is transferred to the former, and the result of the majority rule has the authority of the unanimous consent rule. In the public sphere, since the opposing minorities cannot withdraw from the system to avoid harm, they have to only tolerate the public decision imposed on them.

英国脱欧公投.png

Explanation: Blue represents to favor Brexit in referendum, yellow represents not.Source: BBC News, https://www.bbc.com/news/politics/eu_referendum/results

As for the drawbacks of voting system, Buchanan’s reform plan is that with the increasing importance of voting decision-making, it can increase the proportion of majority rule, such as two-thirds majority, three-quarters majority, and so on. In Buchanan’s view, the Constitution is the most important public decision-making in a country, so it is necessary to increase the proportion of the majority. The same is true in reality. For example, the amendment procedure of the U.S. Constitution is to be approved by two-thirds majority of the Senate and the House of Representatives and three-quarters of the state legislature. The result of the decision on Brexit will directly affect the actual economic interests of millions of people, which can be called “deep”. More importantly, the nature of “leaving Europe” and “staying in Europe” is asymmetric. To leave Europe is to “change the status quo”, while to stay in Europe is to “maintain the status quo”. The key is that “the status quo” is a situation in which people live and experience. In theory, people have grasped all the information of the present situation, but they may exaggerate the shortcomings of the present situation. “Changing the status quo” is to propose a future plan. For most people, the plan has only a rough outline, but no details. Proposers will emphasize the benefits of the scheme and underestimate its costs. This will cause people to overestimate the future plan, so that more people will agree with it, and once the new plan is implemented, people will find the hidden or neglected defects and costs.

Therefore, respect for the status quo is an important principle. Buchanan said, “If an existing institutional structure is really inefficient, then there must be some factors to change or transform it, so as to benefit all members of society or all groups. If an economist cannot find out the ways and means of reform (objectively, of course, there will be many ways and means), then he has no right to say that the existing structure should be changed.” (Freedom, Market and the State, Shanghai Sanlian Bookstore, 1989, P. 257) If we use the voting rule to describe it, we should adopt the unanimous consent rule when we want to change the status quo, which means that no one is harmed, and at least one person benefits, which is what economists call “Pareto Improvement”. For the referendum on Brexit, the reality is to change from a simple majority rule to a more majority rule, for example, two-thirds rule. This can be used not only in future referendums, but also in correcting the mistakes of the previous referendum. In other words, a two-thirds majority is needed if the second referendum is to be held on the Brexit. This can not only correct people’s psychological deviation of cost and benefit of “present” and “future”, but also solve the problem of regional differences in the referendum, that is, it is more likely to reach a two-thirds majority when the votes of all regions are more than a half.

But the premise is to change the rules, which requires a decision by the British Parliament. This in itself adds to the time and difficulty of the political process, and may not be the solution to the problem. In fact, in a January vote, the British Parliament has vetoed a second referendum. More likely, Britain will have to face the existing referendum to solve the problem. This is the dispute between soft and hard Brexit schemes, as well as the different solutions to Northern Ireland’s land boundary problems with Ireland. Soft Brexit scheme refers to the “single market” and “customs union” that Britain still wants to remain in the EU, while following the relevant rules of the EU. Hard Brexit scheme is unwilling to accept these arrangements in which Britain has no rule-making sovereignty. One solution to the border between Northern Ireland and Ireland is that Northern Ireland remains in the European Union for the time being, so that there is no need to establish a hard border between Northern Ireland and Ireland, but only customs control between Northern Ireland and Great Britain. But neither dispute seems to be reconcilable. For Northern Ireland’s plan to remain in the EU for the time being, some argue that this will reinforce Northern Ireland’s independence. The Republican Army of Northern Ireland, which has always been a headache for Britain, laid down its arms just 20 years ago; in Scotland, the independence referendum was approved by Parliament; and in Northern Ireland, the Sinn Fein Party also proposed an independence referendum.

Perhaps Northern Ireland’s plan of not leaving Europe for the time being is a better solution. That’s because Northern Ireland and Scotland are both parts of the UK that are more closely related to the European continent. In the referendum, Scotland voted 62% to 38% and Northern Ireland voted 56% to 44% to remain in the EU. Only in the United Kingdom as a whole, with their smaller populations, will they be rejected by an English-dominated vote. But in this case, a unified de-Europeanization will inevitably hurt Northern Ireland and Scotland. At this time, not only is Northern Ireland’s temporary remaining in Europe not a temporary measure, but perhaps a solution to the conflict. In fact, if Northern Ireland were to remain in the EU’s single market and customs union, it would alleviate Northern Ireland’s independence tendency. It could have both the economic interests of the EU and the political interests of the UK, as well as moderating the disputes over the hard and soft Brexit schemes. As a result, Britain itself maintained both region of soft Brexit and that of hard one. For the British, companies willing to stay in Europe can be based in Northern Ireland, while those willing to leave Europe can be based in Great Britain.

In fact, in the process of China’s reform and opening up, there is a similar situation. This is the special economic zone system. The five special economic zones established in the early 1980s, with Shenzhen as the representative, were mainly established by distinguishing the trade system from the tax system in the mainland. On the one hand, this special zone system promotes China’s opening up, and shows the benefits of free trade in the development of the special zone. On the other hand, the special economic zone is also a demonstration area of reform, in which the market-oriented reform experiment has been extended to the whole country because of its success. However, in a certain period of time, due to the differences in tariffs and other economic systems implemented inside and outside the Special Economic zone, the boundary between the Special Administrative Region and other regions needs to be temporarily separated by a hard boundary. With the development of reform and opening up in the whole country, the economic system and tariffs inside and outside the special economic zone are getting closer and closer, and the hard border of the Special Economic Zone is finally dismantled. For example, the Shenzhen Special Economic Zone Management Line (the second line) is 85 kilometers long and was put into use in 1985. It was abolished after 25 years. In this process, the Shenzhen Special Economic Zone separated the scope of the implementation of the two systems, witnessed and compared the advantages and disadvantages of different systems, and gradually integrated the two systems, which played an important role in the whole process of China’s reform and opening up, but did not cause alienation between the Special Economic Zone and other regions.

On the other hand, the United Kingdom we see today is a historically formed country. One of her greatest characteristics is to respect the particularity endowed by the historical process. The full name of Britain is the United Kingdom of Great Britain and Northern Ireland. Northern Ireland, Scotland, Wales and others are integrated into the United Kingdom by various historical opportunities. Their status is strongly marked by history, and their systems are somewhat different from those of England. For example, Scotland joined the United Kingdom in 1707 by agreement between the Scottish Parliament and the English Parliament, while Northern Ireland was the result of British colonial rule over Ireland and its end, and joined the United Kingdom in 1922 after leaving the Irish Free State. The basic political framework of Northern Ireland and Scotland is somewhat different from that of England, and the legal system is even more different. Scotland is even a region of continental law. So for Britain, it is not difficult to regard Northern Ireland as a special area of the United Kingdom for practical reasons in the dilemma of leaving Europe, but rather in line with British tradition. It may even be considered that the time of the Northern Ireland SEZ should be set at more than ten years.

When Britain has formed two different regions in the process of decoupling from Europe, the advantages and disadvantages of different systems will gradually emerge. If Northern Ireland outperformed Great Britain, it would be a better model; it would also give all the British people a more authentic and convincing message to make a new choice. Conversely, if Great Britain develops better, so does it. In any case, the two schemes are not “future plans”, but can be compared as “current situation”. Another possibility is that in many years of running-in, a mode between the two modes will be found, which will be generated in parallel between the two modes, and will eventually be confirmed by the new referendum. Of course, this is all imagination under the assumption that the public choice process must be like this. There is also an imagination that whether to leave Europe or not is not a public issue, but a private one. That is to say, with the development of big data and artificial intelligence, every enterprise or even individual can choose to leave or stay in Europe. As long as the individual information indicates the choice, the customs will automatically identify and adopt personalized tariff processing. For example, enterprises or individuals who stay in Europe can buy “EU tickets” to enjoy EU tariff treatment. If we can do so, we can really avoid the inevitable loss and conflict caused by the helpless rules of public choice.

May 23, 2019 at Fivewoods Study

Initial Published both in FT Chinese and China-review Weekly in April 29, 2019

Author: flourishflood

Economist, Confucianist

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