Brexit is a one-way door

In his annual letter to shareholders, published earlier this month, Amazon CEO Jeff Bezos said this about decision-making:

Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.

And the consequences of using the wrong type of decision-making process:

As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.

The opposite situation is less interesting and there is undoubtedly some survivorship bias. Any companies that habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before they get large.

Whatever you may think of Jeff Bezos, it’s worth taking a moment to consider this wisdom because the UK is facing a Type 1 decision. The decision to leave the EU is a Type 1 decision because it would be irreversible. The decision to stay is. however, a Type 2 decision because we could still leave at some future date if things suddenly took a turn for the worse. The leave option is a door with a handle on only one side. If we go through and don’t like what we see on the other side we can’t go back to where we were before. Which is why, to use the words of Jeff Bezos, the decision must be made methodically, carefully, slowly, with great deliberation and consultation.

Those who would encourage us to leave the EU must therefore give us compelling reasons for walking through the door. Unless they can show that things are much better on the other side, we would be very silly to take the risk. So far, though, most of the methodical and careful analysis is telling us that we should stay.

A month ago, Chris Giles did a round-up of the academic and consultancy reports, the results of which ranged from Britain being a bit worse off to a lot worse off by 2030. In one of the scenarios it modelled, Oxford Economics concluded we might be very slightly better off but in all the others, per capita GDP was worse by 2030.

-1x-1

The Treasury’s report was criticisedfor being pessimistic about a post-Brexit future but as Ben Chu’s chart shows, we are talking about degrees of pessimism here.

2

Even the more pro-Brexit reports, from Open Europe and Capital Economics, don’t go much further than saying there might be some modest gains from leaving the EU.

Of course, all these reports are only estimates, albeit thorough and well-informed ones. No-one can be sure what the world will look like in 2030. It may be that Britain can leave the EU without any long-term damage.

The trouble is, most of us don’t live in the long-term. People in their 40s are hoping they can make enough in the next decade years to have an outside chance of retiring before 70. People in their 20s have similar thoughts about maybe one day buying a house. Even five years of economic turmoil, coming so soon after the crash, could ruin it for them. Many of the world leaders who are warning against Brexit are not worried so much about our economy as their own. The IMF is warning about the severe impact on an already fragile global economy. Even if the optimists are right and Brexit will slightly improve the UK economy, the process of leaving is likely to be damaging in the short-term. It’s like going for cosmetic surgery to remove a minor blemish but having to endure severe pain for several weeks. Is it really worth it?

And this is where the Leave campaign has failed dismally. They have poked holes in the methodical and careful analysis that questions the wisdom of leaving but they haven’t set up any body of evidence of their own. They have not made a compelling case for walking through that one way door. And, given the risks, that case would have to be very compelling. Their warnings about immigration are a red herring. As the Open Europe report said, most developed countries have relatively high levels of immigration. The likelihood is that after Brexit, the level of immigration will be more or less the same but more immigrants will come from outside Europe. So too are the presumed benefits of deregulation. The most the Brexiteers can come up with is a few things about the EU that make us a bit cross. For that, they want us to storm out of the party in a huff and slam the door behind us.

To persuade people to go through a one-way door you need a really good story. ‘Things might be a little bit better by 2030’ doesn’t really cut it. Leaving the EU might just be worth the risk if there was a convincing vision of a great post-Brexit future but so far, no-one has come up with anything even close to that. At best, what’s on offer isn’t that much better than what we have now and that’s small reward for the aggro in between.

Leaving the EU is what Jeff Bezos would call a Type 1 decision. There is no way back. Most learned opinion is telling us there are serious risks in going through that one-way door. Surely, then, the rational thing to do is to stay put. There is nothing much on offer on the other side.

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15 Responses to Brexit is a one-way door

  1. Neocolonial says:

    “The decision to leave the EU is a Type 1 decision because it would be irreversible. The decision to stay is. however, a Type 2 decision.”

    This is simply false. There is only a single decision to be made, and it is Type 1. There is no less case required to remain within the EU than to leave.

    At no point in the future is the UK able to come back to this year and choose to have left now, instead of saying in.

    Regardless of the choice made, there is no escape from having to make a Type 1 decision, with all of the concomitant consideration given to each course.

  2. I see no reason why the UK cannot rejoin if it turns out to be a mistake. The EU is keen on expansion and is unlikely to turn away one of the world’s largest economies.

    On the other hand, with the political establishment firmly pro EU, there is no chance of another chance to leave for decades, by which time political integration, probably single currency, etc. will make leaving far harder.

    • Truth to Power says:

      Graeme I completely agree … if they accept Turkey they will bite our arm off to re-join..

      But would we wont want to re-join? Perhaps other countries may want to join a ‘New British Empire’.

    • Rick says:

      I’m not convinced the EU is keen on expansion any more. And the idea of the UK being allowed back in after upsetting the party is preposterous. In any case, it would be yet more years of negotiation and confusion.

      Talk me through the threat from political integration.

      • Truth to Power says:

        The reason that the UK joined the ‘European Union’ (EU) or the ‘Common Market’ was because it was a grouping of broadly similar nations (in terms of cultures and wealth) who were keen to trade with one another.

        • In 1957 (when it was formed) the EU had six founding members.
        • The first enlargement (1973) brought that membership up to nine members – all of the members were of fairly similar wealth and had common trading aims. It was a common market. Our government advised the electorate http://www.harvard-digital.co.uk/euro/pamphlet.htm. We had no intention of relinquishing our sovereignty, or creating a ‘European Superstate’. Other similar countries joined in the following years bringing the total membership up to 15 countries.
        • During the period 2005-7 the EU expanded its membership to 28 countries, roughly doubled in size, by bringing in lots of former soviet countries (Putin is not likely to be happy with this). These countries were much poorer than the other members causing flows of people and funds across EU boarders (from the wealthy to the poorer member countries, possibly exacerbating the immigration crises).

        The EU members are:

        Rank Country

        2 Luxembourg (1957)
        14 Netherlands (1957)
        11 Ireland (1973)
        17 Austria (1995)
        15 Sweden (1995)
        18 Germany (1957)
        20 Denmark (1973)
        23 Belgium (1957)
        24 France (1957)
        26 Finland (1995)
        25 UK (1973)
        31 Italy (1957)
        32 Spain (1986)
        30 Malta (2004/7)
        38 Slovenia (2004/7)
        37 Czech Republic (2004/7)
        39 Slovakia (2004/7)
        34 Republic of Cyprus (2004/7)
        40 Estonia (2004/7)
        44 Greece (1981)
        47 Hungary (2004/7)
        57 Croatia (2004/7)
        62 Bulgaria (2004/7)
        51 Latvia (2004/7)
        41 Lithuania (2004/7)
        43 Poland (2004/7)
        42 Portugal (1986)
        59 Romania (2004/7)

        • It is understood that Turkey, Bosnia, Herzegovina, Serbia and Albania, would also like to join which if admitted would increase its membership up to 33 countries (a large number of these countries are socialist, or former communist countries).

        Countries who wish to join:

        60 Turkey
        87 Serbia
        97 Albania
        103 Bosnia and Herzegovina

        GDP (PPP) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita IMF figures.

        The EU now appears to be heading in the direction of becoming some form of political socialist utopia, rather than a trading block (the ‘Common Market’ which was intended).

        At the time that we joined the EU was relatively well matched and as one country in nine we enjoyed a significant influence. Today we are one country amongst 28 the countries, hence, our influence has been considerably diminished. The countries are not well matched and we have seen problems with the Euro (more will follow) and their must clearly be a significant flow of monies from the richer to poorer states (who are keen to become members).

        The EU is seen as some form of utopia and we are seeing mass movements of people, refuges, and migrants.

        Cameron is weak, Corbyn is the enemy, and the EU probably look at the UK as being a potential ‘Cash Cow’. Merkel is a disaster and the sensible governments within the EU are outnumbered by new entries who want the cream.

        Some governments and corporations see this as a way of maintaining pay at low levels, and recruiting cheap labour. The corporations are detached from countries; they have independence, mobility and pull the strings of the politicians (as we see through the lobbying system and their use of tax havens). It is very clear why we have arrived in the position that we are in, and why socialists and the hard left are behaving in the way that they are. It is time to sort this mess out.

        You have commented to Graeme Pietersz that the prospect of the UK re-joining the EU is ‘preposterous’ – nonsense look at the big picture (they want your money if you have any). They may have a sulk, and may play games, but they will be keen to have our cash to support their failing enterprise.

        This is not an issue that can be solved by using economic models, or making economic cases. It is a matter of survival.

  3. Neo-Pelagius says:

    Maybe the economic case is a red herring in itself?

  4. OK then: the decision to stay in the EU is just as much of a one way ticket. It’s highly unlikely to be reversed within ten years.

  5. I suppose the financial services sector would model the “Stay or Leave” decision using options theory. An option has a financial value and should be exercised (logically) only when it becomes “in the money” to do so.

    As Rick correctly says, it is not at the moment clear that exercising the option to leave is “in the money”. So a logical investor should not exercise the option.

    By extension, we may conclude that the current option expires on the referendum date. After that date we will not have an option to exercise. But Rick is correct – if the option lapses it is not final – because the UK government can simply write another similar option should it wish.

    However, should the UK exercise its option to leave on referendum date, an option to rejoin at a later date can only be written by the EU. Of course, the EU may choose not to write such an option, in which case the UK will be locked out of the EU until the latter changes its mind. And of course the price of the option will be determined by the EU, not by the UK.

  6. Truth to Power says:

    THE FIRST QUESTION

    The first question that you must ask is why do people make decisions? Almost everything we do is somehow linked to our basic instincts, namely, to survive, to reproduce, and for pleasure. These are closely linked to fear, striving to attain power and to control, and their greed.

    Unless you understand their motivation, and their drivers, then you stand very little chance of understanding how the politicians make their decisions – they are almost certainly not based upon ‘Evidence based decision Making’ (EBDM) which was introduced by Blaire.

    SCIENCE

    The whole of science is based upon feelings, intuition and experience which cause us to develop ‘tacit knowledge’ (knowledge which cannot be easily explained or codified and sometimes leads to the development of a hypothesise which allows us to innovate). Through hypothesis testing that ‘tacit knowledge’ is codified to become ‘implicit knowledge’. Most ‘implicit knowledge’ embraces a degree of uncertainty (unknown unknowns) which evolves over time; Newtonian Mechanics, Einstein’s Theory of relativity, etc.

    We live within a complex environment and very little, if anything, is certain. Everything that is certain now evolves over time to become uncertain in the future.

    MODELS

    Over the past few days we have heard about George Osbourne’s attempts at modelling the UK economy out to 2030.

    The models used are deterministic, and do not take proper cognisance of ‘uncertainty’, and they most certainly are not been validated by comparing their outputs against the ‘real world’. At best they compare ‘model A’ with ‘model B’ and perhaps ‘model C’ where none of these models represent ‘reality’. But the ‘real world’ is not deterministic, hence, cannot be represented by deterministic models – it is a complex system.

    We cannot model the weather for more than 7 days into the future, and we cannot model the economy for more than 3 months into the future because of uncertain, and probabilistic events that occur. Being unaware of these problems the Treasury have produced their ‘Rainbow Book’.

    Models may ‘inform decision making’ by exploring sensitivities, however, the concept of using them to producing ‘real world results’ is highly questionable.

    EVIDENCE BASED DECISION MAKING

    As previously stated we keep hearing the phrase EBDM, and often see in the comments section of the Guardian comments section you will see ‘where is your evidence’ – a naïve assumption which assumes that all decisions can is based on scientific, economic, or other evidence (but science does not work like that everything depends upon assumptions which are themselves uncertain). In most cases such statements are an attempt to prevent the emergence of an alternative viewpoint by trying to impose ‘control’. An observation made by Lee Smolin in his book ‘The Trouble with Physics: The Rise of String Theory, The Fall of a Science and What Comes Next’ which explains how clans (in this case politicians) try to control and in doing so supress progress.

    The concept of EBDM is in most cases flawed. You only need to look at defence procurements and our economy to see the results of such failures.

    Most entrepreneurial wealth creating decisions are based on ‘tacit knowledge’ and involve a degree of risk, perhaps in some areas supported by the use of ‘implicit knowledge’.

    OBSERVATIONS OF BEHAVIOURS

    The European referendum is an excellent opportunity to observe the behaviours of our politicians. The politicians are trying to herd the public by creating fear to invoke their ‘survival instincts’, their behaviours are caused by their determination to hold power and satisfy their greed.

    GEOFF BEZOS AND AMAZON

    One cannot deny that Geoff’s categorisation of the types of decisions is correct. However do you suppose that he would relinquish control of AMAZON to others, and do you believe that he runs his company as a ‘Democracy’ – it would be absurd to think so. Does anyone believe that Geoff Bezos, Steve Jobs, or Bill Gates were democrats? No – they were entrepreneurial control freaks.

    The UK PLC is rather different to AMAZON and the aim here is to regain control which I do not believe that any sound entrepreneur, businessman or politician should have allowed. Without proper context, and creating an appropriate environment, the types of decision making is meaningless. The role of government is to create an environment within which capitalism can flourish. The European Referendum is to do with the restoration of our environment by returning control and decision making from the EU, back home to the UK. Beyond that we shall need a new government and leadership.

    The largest threat to entrepreneurial capitalism is socialism and the self-interests of our politicians.

    CONCLUSION

    Without context types of decisions are irrelevant to the debate.

  7. Pete North says:

    The economic assessments are entirely worthless – especially if compiled by Chris Giles. Almost uniformly, economic assessments from various prestigious bodies work off flawed assumptions. What happens after BRexit is entirely contingent on how we leave.

    What they all share is the assumption that Article 50 negotiations complete the Brexit process. Like all economists, they massively underestimate the depth and scale of economic and political integration. 40 years of EU integration is not unpicked in the two years mandated by Article 50 and there is no political desire to have long drawn out talks. So logic and pragmatism dictates and off the shelf agreement.

    Since there is actually no alternative that comes close, the only mechanism that ensures a safe transition for both parties is the EEA. What that means is for the most part the single market, and thus the trading environment, remains untouched for the time being. Even agriculture stays the same because it will take ten years at least to devise and rollout a replacement. Apart from a piece of paper that says we are outside of the EU, not much is going to change for years.

    So what is more than likely to happen is a brief period of market panic which rapidly rebounds as the message sinks in that all the Brexit scares were total baloney. For the time being it will be economically neutral. What is never accounted for though is the potential gains from having an independent vote and right of opt out in regulatory affairs. We also gain the freedom to initiate trade talks, regulatory reform – and regain control over foreign policy and other key areas.

    It mainly has massive ramifications for domestic governance and is a shake up of ossified Whitehall systems – which to my mind is a good part of the value in leaving the EU. It may trigger a short recession but that was always going to be the price to pay. We had no business going in this deep to begin with.

    This is not ultimately a question of economics. It is about democracy, global trading agility and having more say in the rules we adopt. An EEA solution is only the departure lounge rather than the destination, but in the first instance it means we get a vote at the top tables, WTO right of reservation and a veto.

    Brexit doesn’t mean deregulation in any meaningful sense for the time being, nor will it impact immigration – and no we won’t be making any savings for the foreseeable future. But that’s not the point. This is primarily a question of who governs Britain and whether we want to be subordinate to a supranational entity. In that regard, being it a matter of self-determination, the economics are almost entirely irrelevant. The EU is not a trade bloc, it is a government – and its approach to trade is entirely outdated and obsolete.

    Europhiles are keen to remind us that it takes years to forge a comprehensive bespoke trade agreement with the EU which is why we won’t get one. I agree. That’s ultimately why we should take the EEA deal and leave. The longer we stay, the more we miss out. The benefits of leaving are then entirely contingent on what our own government chooses to do and how we evolve out of the EU and into the emerging global single market. And no, nobody can really say what that looks like any more than they can say what the EU will do. What we can say is the EU offers only more of the same stagnation. Democracy gives us options.

    • @Pete,

      A fair enough analysis, except for the piece about democracy.

      If the choice is between being governed by a EU constrained government, or the Brexit loonies (from the IEA et al), I whould choose the former. The chief reason why I am opposed to Brexit is the leaders of the shrill and erstwhile Brexit cause who have as yet to advance a convincing economic case.

      I fear that post-Brexit these loonies will assume power and implement their nutty fantasies of a Britain without a welfare state, where taxes on capital are zero, and where the unfortunate are left to die on the streets.

      Project Fear? You bet! That scenario terrifies me.

  8. Rick says:

    But the EEA deal isn’t going to satisfy those who complain about regulation and immigration, which are the main reason people give for wanting to leave.

    • Pete North says:

      Probably not but that’s their problem. What Brexit does give us is the right to approach global regulators with amendments for consideration. As EU members, to borrow a phrase, we are at the back of the queue. We also gain right of opt out on all future regulations. As to immigration, freedom of movement isn’t the problem. It’s asylum and human rights law that needs fixing. That won’t get fixed if we stay in the EU.

  9. ChrisA says:

    As I am a conservative minded person I approach this fairly simply – the UK is not doing so badly that it needs to leave the EU, and embrace an uncertain future outside the EU. Radical change in politics is always to be avoided unless it is inevitable or clearly and incontrovertibly better than the status-quo. So perhaps I would not have voted to join the EU, but we did, and we have been in it for 40 years and, if there are major problems in the way the UK operates, they are not something that is directly attributable to the membership of the EU, especially when set against the benefits. It seems to me that far too much time is spent on this issue by sensible people that could actually be better directed elsewhere.

    • Truth to Power says:

      Chris,

      You make no mention of our crumbling NHS, insufficient educational places for our children, our lack of housing, unaffordable social system, minimalistic defence’s, problems with homes for our elderly, failing European economies like Greece and others. Failing pension system, near zero interest rates, …. are we really doing so well?

      Have you not noticed that poor countries like Turkey, Serbia, Albania, Bosnia and Herzegovina also wish to join, diluting the wealth of the EU even further.

      Did I not hear that France and Germany are also questioning their wisdom of being members of the EU.

      It seems to me that the EU has a highly uncertain future.

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