British Prime Minister Theresa May and her husband Philip at 10 Downing street, London (AP Photo/Matt Dunham)
British Prime Minister Theresa May and her husband Philip at 10 Downing street, London (AP Photo/Matt Dunham)

The result of Thursday’s British general election is easy to describe — the ruling Conservative Party lost its small parliamentary majority and will have to govern in a fragile coalition. The economic implications of this result are hard to determine, for three reasons.

First, neither leading party seriously addressed the country’s biggest economic challenge, the forthcoming negotiations on the country’s departure from the European Union. Brexit, which was decided in a dishonestly fought and narrowly won referendum, is surrounded with bitterness and uncertainty.

The general election did not improve matters. Neither leading party explained its intentions for the talks. Worse, neither spoke for the half of the voters who wanted to stay or the majority of “Leave” voters who do not want a Brexit that leaves them poorer. In effect, more than three-quarters of voters have no clear representation on the issue that will most shape the country’s future, for decades.

Second, incumbent Prime Minister Theresa May gave voters so many reasons to withhold their support that it is hard to isolate any distinct economic message from the decline in her popularity. Perhaps the country does not want her interventionist approach to business, her planned cuts in social benefits or her unwillingness to tax the rich. More likely, May suffered from what observers suggested was a charisma challenge on the campaign trail and her party’s endorsement of policies such as fox hunting and selective secondary schools that polls indicate are highly unpopular with key voter blocs.

Finally, the only clear results of the election were negatives, rejections — the May collapse, the decline of the Scottish National Party and the continued failure of the Liberal Democrats. The most interesting signs of a positive reaction to economic ideas, a receptiveness by voters, were clues that the British people might be warming to the Labour Party’s interventionist, high-tax and high-deficit policies. But this is probably a red herring. Jeremy Corbyn, the leader, still presides over a sharply divided party that remains in opposition.

Still, one negative implication of this election will have a positive effect on the world’s economic mood. British voters were definitely not persuaded by May’s economically illiterate posturing. She did not win votes with her dedication to irritating the European Union, by far the country’s largest trading partner, or with her government’s demonstrably false claims of easy prosperity outside of the European Union.

In other words, so-called hard Brexit is not a vote winner in Britain. This should not have been a surprise, considering how few people would have voted for a total economic divorce if they had understood its likely implications. The most powerful British newspapers made every effort to deny this fact, but the election has confirmed it. As a result, the prospect of a Brexit that creates a pointless and painfully sharp trade decline is fading. This is good for the global economy.

Currency traders do not seem to care, to judge by a sharp drop in the pound after an exit poll predicted a hung Parliament. These speculators see a weak government, troubled Brexit negotiations and continued domestic economic uncertainly. The time horizon in foreign exchange markets, though, is measured in months or weeks. Over the years, the British election reduces the risk of a catastrophic breakdown in the intricate ties that have made the economy more global and more prosperous.

Indeed, the British non-victory for the forces of economic darkness continues a mildly encouraging trend (alluded to recently by Harold James). The failure of Eurosceptic parties to make significant progress in Germany, the election of internationalist Emmanuel Macron as French president and the EU-led rescue of Spain’s Banco Popular are all signs that the developed world’s populist-nativist-nationalist wave of 2016 has crested. US President Donald Trump still has many wrong ideas, but his political problems may reduce his ability to convert them into destructive policies.

Even without Trump, though, the world economic order would face significant challenges. Cross-border cooperation among companies, lawyers and scientists is far better established than among political leaders or voters. Without more mutual respect and support, economically destructive nationalism will remain a lively threat.

And within the economic domain, the political controls on global finance are relatively weak, while the debt expansion that led to the world-order-threatening crisis of 2008 has not been reversed. If anything, the near-decade of very low-interest-rate policies in almost all the developed world has probably increased systemic financial risk while reducing global solidarity. Monetary policy only accentuates the difference between rising poor countries and relatively stagnant rich ones.

Also, the UK election has not remedied a national weakness, which it shares with many countries on the rich side of that division. The traditional British political system is still not working well. No party has a clear political majority and there is no widely popular or even generally accepted national leader. The gap in world view between young and old and between extensively and scantily educated is alarmingly wide.

The economic decline that would accompany a rough Brexit would amplify this political dysfunction — although it is still not clear any amount of prosperity is likely to solve it.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.
  • Edward Hadas was economics editor at Thomson Reuters, where he continues to contribute to Reuters Breakingviews. He also worked on the Financial Times’ influential Lex column, following 25 years as a financial analyst with firms like Morgan Stanley and Putnam Investments. Edward has degrees in philosophy, classics and mathematics from Oxford University and Columbia University and a M.B.A. from SUNY Binghamton.