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May Britain Adopt the "Special Zone System" in its Brexit?
 Author:Sheng Hong  
Time:2019-05-15 18:18:38   Clicks:



I remember in the British political comedy Yes, Prime Minister,there is a joke about Britain's accession to the European Union. Sir HumphreyAppleby, the cabinet secretary, said, "We join the EU in order to destroyit." This is, of course, British self-mockery. Unexpectedly, the task wasnot completed, but Britain had been unable to bear the hardship of undercover,decided to withdraw, and was almost overwhelmed by the Brexit. Prime MinisterTeresa May's plan to leave European Union ran into a wall three times in theBritish Parliament and had to ask the European Union to relax its deadline. Indesperation, it was postponed to the end of October by the European Union. Thisis a good news, but there is still no bright future. In Britain, there havebeen public demonstrations calling for a referendum again, and the Labour Partyhas also expressed its support. Regionally, most people in Scotland andNorthern Ireland in the referendum opposed leaving Europe. The European Unionhas 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 newreferendum will also be negated according to the same rule. There will be nopeace in Britain. The unrest in Northern Ireland on April 18 and the death of afemale journalist illustrate the urgency of the problem. How can this be done?


The problem of Brexit is fundamentally that this voting rule hasserious defects, but it is regarded as an undoubtedly superior system. Thevoting system is based on the principle of consent. When a person agrees with adecision, it means that he thinks it is good for him, at least not harmful tohim; when he opposes it, it means that he thinks it is bad for him. SoProfessor Buchanan argues that unanimous consent is the best rule of publicchoice, which means that no one is harmed. But in reality, among such a largenumber of people, it is difficult to agree. So people have to choose secondbest, voting rules are actually majority rules. But this raises the questionthat a minority who disagree will suffer from this decision. In the traditionof economics, there is a belief that among different people, their utility isnot comparable. That is to say, it cannot be said that two people's utilitymust be more than one person's utility. Therefore, the majority rule in votingdoes not have a very solid economics foundation, but in reality, it isintuitively better than the rules of the majority obeying the minority, and isaccepted as an alternative rule of unanimous consent rule.


However, the majority rule is bound to bring harm to minorities invoting, especially under the simple majority rule. There may be 51 Pauldepriving 49 Peter, or even 51 Paul depriving 49 Peter of 2 million yuan inorder to get 1 million yuan. Thus, although the majority rule saves the cost ofvoting, it does harm to minorities, which is called "external cost".And the deeper the damaged interests are, the more intolerable the outcome ofsuch public decision-making will be. This is precisely the situation of thereferendum on Brexit, with about 52% in favor and 48% in opposition. There islittle 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 toaccept the result. What's more, there are regional differences in the resultsof the referendum, such as Scotland and Northern Ireland's opposition toBrexit. The result of the vote is not fair because of the difference of sizesof the population in difference of regions. More importantly, since themajority rule is an alternative form of the unanimous consent rule, theeffective quality of the latter is transferred to the former, and the result ofthe majority rule has the authority of the unanimous consent rule. In thepublic sphere, since the opposing minorities cannot withdraw from the system toavoid harm, they have to only tolerate the public decision imposed on them.


Explanation: Bluerepresents 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 isthat with the increasing importance of voting decision-making, it can increasethe proportion of majority rule, such as two-thirds majority, three-quartersmajority, and so on. In Buchanan's view, the Constitution is the most importantpublic decision-making in a country, so it is necessary to increase theproportion of the majority. The same is true in reality. For example, theamendment procedure of the U.S. Constitution is to be approved by two-thirdsmajority of the Senate and the House of Representatives and three-quarters ofthe state legislature. The result of the decision on Brexit will directlyaffect 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 "maintainthe status quo". The key is that "the status quo" is a situationin which people live and experience. In theory, people have grasped all theinformation of the present situation, but they may exaggerate the shortcomingsof the present situation. "Changing the status quo" is to propose afuture plan. For most people, the plan has only a rough outline, but nodetails. Proposers will emphasize the benefits of the scheme and underestimateits costs. This will cause people to overestimate the future plan, so that morepeople will agree with it, and once the new plan is implemented, people willfind 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 allmembers of society or all groups. If an economist cannot find out the ways andmeans 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 weuse the voting rule to describe it, we should adopt the unanimous consent rulewhen we want to change the status quo, which means that no one is harmed, andat least one person benefits, which is what economists call "ParetoImprovement". For the referendum on Brexit, the reality is to change froma 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 themistakes of the previous referendum. In other words, a two-thirds majority isneeded if the second referendum is to be held on the Brexit. This can not onlycorrect people's psychological deviation of cost and benefit of"present" and "future", but also solve the problem ofregional differences in the referendum, that is, it is more likely to reach atwo-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 bythe British Parliament. This in itself adds to the time and difficulty of thepolitical process, and may not be the solution to the problem. In fact, in aJanuary vote, the British Parliament has vetoed a second referendum. Morelikely, 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 thedifferent solutions to Northern Ireland's land boundary problems with Ireland.Soft Brexit scheme refers to the "single market" and "customsunion" that Britain still wants to remain in the EU, while following therelevant rules of the EU. Hard Brexit scheme is unwilling to accept thesearrangements in which Britain has no rule-making sovereignty. One solution tothe border between Northern Ireland and Ireland is that Northern Irelandremains in the European Union for the time being, so that there is no need toestablish a hard border between Northern Ireland and Ireland, but only customscontrol between Northern Ireland and Great Britain. But neither dispute seemsto be reconcilable. For Northern Ireland's plan to remain in the EU for thetime being, some argue that this will reinforce Northern Ireland'sindependence. The Republican Army of Northern Ireland, which has always been aheadache for Britain, laid down its arms just 20 years ago; in Scotland, theindependence 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 timebeing is a better solution. That's because Northern Ireland and Scotland areboth 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% to44% to remain in the EU. Only in the United Kingdom as a whole, with theirsmaller populations, will they be rejected by an English-dominated vote. But inthis case, a unified de-Europeanization will inevitably hurt Northern Irelandand Scotland. At this time, not only is Northern Ireland's temporary remainingin Europe not a temporary measure, but perhaps a solution to the conflict. Infact, if Northern Ireland were to remain in the EU's single market and customsunion, it would alleviate Northern Ireland's independence tendency. It couldhave both the economic interests of the EU and the political interests of theUK, 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 ofhard one. For the British, companies willing to stay in Europe can be based inNorthern Ireland, while those willing to leave Europe can be based in GreatBritain.


In fact, in the process of China's reform and opening up, there is asimilar situation. This is the special economic zone system. The five specialeconomic zones established in the early 1980s, with Shenzhen as therepresentative, were mainly established by distinguishing the trade system fromthe tax system in the mainland. On the one hand, this special zone systempromotes China's opening up, and shows the benefits of free trade in thedevelopment of the special zone. On the other hand, the special economic zone isalso a demonstration area of reform, in which the market-oriented reformexperiment has been extended to the whole country because of its success.However, in a certain period of time, due to the differences in tariffs andother economic systems implemented inside and outside the Special Economiczone, the boundary between the Special Administrative Region and other regionsneeds to be temporarily separated by a hard boundary. With the development ofreform and opening up in the whole country, the economic system and tariffsinside and outside the special economic zone are getting closer and closer, andthe hard border of the Special Economic Zone is finally dismantled. Forexample, 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 25years. In this process, the Shenzhen Special Economic Zone separated the scopeof the implementation of the two systems, witnessed and compared the advantagesand disadvantages of different systems, and gradually integrated the twosystems, which played an important role in the whole process of China's reformand opening up, but did not cause alienation between the Special Economic Zoneand other regions.


On the other hand, the United Kingdom we see today is a historicallyformed country. One of her greatest characteristics is to respect theparticularity endowed by the historical process. The full name of Britain isthe United Kingdom of Great Britain and Northern Ireland. Northern Ireland,Scotland, Wales and others are integrated into the United Kingdom by varioushistorical opportunities. Their status is strongly marked by history, and theirsystems are somewhat different from those of England. For example, Scotlandjoined the United Kingdom in 1707 by agreement between the Scottish Parliamentand the English Parliament, while Northern Ireland was the result of Britishcolonial rule over Ireland and its end, and joined the United Kingdom in 1922after leaving the Irish Free State. The basic political framework of NorthernIreland and Scotland is somewhat different from that of England, and the legalsystem is even more different. Scotland is even a region of continental law. Sofor Britain, it is not difficult to regard Northern Ireland as a special areaof 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 thetime of the Northern Ireland SEZ should be set at more than ten years.


When Britain has formed two different regions in the process ofdecoupling from Europe, the advantages and disadvantages of different systemswill gradually emerge. If Northern Ireland outperformed Great Britain, it wouldbe a better model; it would also give all the British people a more authenticand convincing message to make a new choice. Conversely, if Great Britaindevelops better, so does it. In any case, the two schemes are not "futureplans", but can be compared as "current situation". Anotherpossibility is that in many years of running-in, a mode between the two modeswill be found, which will be generated in parallel between the two modes, andwill eventually be confirmed by the new referendum. Of course, this is allimagination under the assumption that the public choice process must be likethis. There is also an imagination that whether to leave Europe or not is not apublic issue, but a private one. That is to say, with the development of bigdata and artificial intelligence, every enterprise or even individual canchoose to leave or stay in Europe. As long as the individual informationindicates the choice, the customs will automatically identify and adoptpersonalized tariff processing. For example, enterprises or individuals whostay in Europe can buy "EU tickets" to enjoy EU tariff treatment. Ifwe can do so, we can really avoid the inevitable loss and conflict caused bythe helpless rules of public choice.



May 23, 2019 at Fivewoods Study

Initial Published both in FT Chinese and China-review Weekly in April29, 2019



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