The Anglo-Saxon world is now learning the economic price of trying to turn the clock back. Through a referendum and an election in 2016, many Britons and Americans expressed a wish to return to a recognizable time before the disruptive elements of globalization, the digital revolution, and the increasingly free movement of peoples. As a result, the governments of both countries undertook explicit policies to unwind fundamental regulatory conditions to recreate the world order that preceded them: Brexit for Britain and the attempted repeal of the Affordable Care Act (ACA) for the US.
Both policies were aggressively prosecuted by conservative governments. Both lost steam when they encountered political realities. Both have fallen afoul of constitutional obstacles that prevent the simple implementation of their goals. And both of these efforts have done economic damage to the countries that pursued them as solutions.
First is Britain and Brexit, the more fundamental policy adjustment. The June 2016 Brexit referendum returned a 51.9%-48.1% verdict (17.4 million votes to 16.1 million, with a 72.2% turnout) in favor of leaving the EU, which fundamentally divided Britain then and now. The Leave campaign offered three key claims about Brexit. First, they insisted that Brexit was about “taking back control” from Brussels (the EU capital) over Britain, mirroring historic British ambivalence about EU membership and desiring to go back to a simpler, less encumbered, more glorious time. Second, they misleadingly claimed that British membership in the EU was an economic burden, costing Britain £350 million per week. Finally, the Leave campaign focused on the issue of immigration. In this time of economic, social, and political upheaval, many British people were hostile toward foreigners, believing that UK jobs and wages were threatened by EU immigrants.
These three elements played on the fears of many Britons about their lives, about the economic prospects of their families, and of the increasingly unfamiliar nature of the world. As a result, 17.4 million of them preferred returning to a situation where they had thrived.
The referendum itself was a clash of generations and regions. A majority of those aged 45-65+ voted to Leave, while a majority of those aged 18-44 voted to Remain. Demographic turnout was also critical, with older voters turning out at much higher levels: an estimated 64% of those aged 18-24 voted, 65% of 25-39 voted, and 66% of 40-54 voted. However, an estimated 74% of those aged 55-64 voted and an exceptional 90% of those aged 65 or older voted. It should hardly be surprising that a referendum where older voters outperformed resulted in an outcome preferring an earlier age. Similarly, the four regions of the United Kingdom expressed different views, reflecting their differing attitudes toward Europe. England and Wales voted to leave, while Scotland and Northern Ireland voted to Remain.
Immigration was perhaps Brexit’s most explosive element, mixing traditional cultural hostility with modern economic fears. However, the economic concerns regarding immigration were unfounded and incorrect. A report from the London School of Economics found that EU immigrants to Britain were more highly educated, younger, more likely to be working, and less likely to claim welfare benefits than the UK-born. Forty-four percent of these EU immigrants had achieved some level of higher education, compared to only 23% of native-born Brits. The parts of Britain that received increased EU immigration did not suffer greater decreases in jobs and wages of UK-born people. Finally, EU immigrants paid more in taxes than they consumed in benefits and in their use of public services. Thus, despite the polemics of the supporters of the Leave Campaign, EU immigrants could demonstrate measurable economic benefits to Britain, benefits that Britain would lose by leaving the EU.
This policy decision to turn the clock back had stark economic consequences. Leaving aside the process by which the Brexit policy was undertaken, the negative fiscal, industrial, and human capital consequences for Britain since June 2016 are bleak.
According to Bank of England policy maker Dr. Gertjan Vlieghe, since the June 2016 vote, the UK has lost about £800 million ($1 billion) per week, or some 2 percent of total economic output. Goldman Sachs also estimated that Brexit cost Britain £600 million ($786 million) per week and reduced UK GDP by 2.4% since June 2016. Another study estimated that by September 2018, the UK economy was 2.3 per cent smaller than it would have been had the UK remained in the European Union. This cost the UK government £17 billion ($22.4 billion) a year in tax revenues and increased the fiscal burden on the average British household by £2,000 per year ($2,635). And since the referendum, the pound has fallen over 10% against the euro.
On account of Brexit and its drag on the economy, in 2019 the UK risks being overtaken by France and India, from ranking as the world’s fifth largest economy to the seventh largest, falling behind its longest rival and its onetime colony. According to Lloyds Banking Group, business optimism among British firms is at its lowest level in 7 years.
A UK government study estimates that if the UK ended up in a Canada-style trade agreement with the EU, then UK GDP would fall by 6.7% and no deal at all would result in a 9.7% smaller economy. Another UK government report states that if there are frictions at the border for trade and a reduction in migration, UK GDP will be reduced by 3.9% in 15 years, with an approximate outcome of national output being £100 billion lower each year. The Brexiteer argument that regaining control would allow Britain to strike new and more beneficial trade deals has been debunked: the British government itself now estimates that new such trade deals with the U.S., China, Australia, Middle Eastern and East Asian countries would add less than 0.1% to GDP, less than what has already been lost.
Britain’s financial industry has been ravaged by Brexit. Five banks in the City of London (Deutsche Bank, J.P. Morgan Chase & Co, The Goldman Sachs Group, Inc., Citigroup Inc. and Morgan Stanley) are transferring 750 billion euros ($857 billion) of balance-sheet assets to Frankfurt from London, or nearly 10% of the UK banking system. These and other banks have announced that they are permanently shifting thousands of financial staff to EU cities including Paris, Dublin and Madrid. At least 275 finance companies have shifted parts of their business, staff, assets, or legal entities from the UK to the EU, nearly 250 companies have selected post-Brexit locations, and over 200 companies have set up new entities in the EU to manage their business. Dublin has received the most of these relocations with 100, ahead of Luxembourg (60), Paris (41), Frankfurt (40), and Amsterdam (32).
Brexit’s damaging sectoral effects are not confined to finance. With annual revenues of £82 billion ($108 billion) in 2017, Britain’s automotive industry contributed an estimated £202 billion to the UK economy, or roughly one-tenth of the UK’s GDP, and employs 865,000 people, 186,000 in manufacturing alone. Eight in 10 vehicles made in Britain are intended for export, and such exports fell 22.8% in November 2018. As a result of Brexit, Nissan Motor Co., Ltd. pulled its X-Trail vehicle from being made in Britain, Porsche may charge 10% more for UK-built cars, and Honda Motor Company, Ltd. will close its plant in Swindon, cutting 3,500 jobs. For the UK auto industry, the estimated difference in sales between an orderly and a no-deal Brexit is 270,000 vehicles. The CEO ofJaguar Land Rover Automotive PLC, one of the most famously British companies, stated that Brexit uncertainty was jeopardizing £80 billion in its future investments into the UK and that a bad Brexit would cost Jaguar Land Rover over £1.2 billion ($1.6 billion) in profit each year.
In other sectors, the UK housing market has been damaged, with real estate prices falling to their lowest levels since 2012. And net migration to the UK is at its lowest level in a decade, harming the UK’s hospitality, farming, and construction sectors, all of which rely on EU workers. However, EU migrants are estimated to fall by 80% after Brexit.
These are the economic wages of Brexit. The policy implementation of the British people’s wish for the familiar over the new has wreaked havoc on the UK economy. Benjamin Disraeli, one of Britain’s most famous prime ministers, identified Brexit’s hideous challenge in his 1844 novel “Coningsby,” when he wrote, “There was indeed a considerable shouting about what they called Conservative Principles but the awkward question naturally arose, what will you conserve?” Theresa May’s Conservative government has not yet been able to answer this question.
Finally, this passionate wish to repeat history has threatened Britain’s most historic institution, the United Kingdom. Scotland has already attempted independence from Britain in 2014: a completed exit from the EU will certainly spur another, and possibly successful, effort. If a Conservative British government cannot even conserve the United Kingdom, their penance will be long and painful
Turning to the U.S., its attempt to turn the clock back beyond the rhetorical revolves around President Trump, the Republican Party, and their efforts to repeal the Affordable Care Act, otherwise known as Obamacare.
President Trump and his party publicly insist that their hostility toward the ACA is rooted in the ACA’s alleged complicity in taking power out of the hands of consumers and turning it over to government. Hence, the policy reversion they allegedly support is to take back control of health care choices from government and give it back to individuals. President Trump wrote, “If Democrats win control of Congress this [2018] November, we will come dangerously closer to socialism in America. Government-run health care is just the beginning.” His ally Senate Majority Leader Mitch McConnell stated that the path of Obamacare might mean that “Nearly every health-care decision could be decided by a federal bureaucrat.”
Empirically, the ACA has reshaped U.S. health coverage. Since the ACA’s passage in 2010, some 20 million Americans gained health care coverage through it. By 2017, only 10.2% of non-elderly Americans lacked health coverage, compared to 17.8% in 2010. Nearly 10 million Americans purchase individual policies under the ACA, and roughly nine in 10 receive taxpayer-provided subsidies for their premiums. In 2018, 11.8 million people enrolled in ACA exchange plans overall. The ACA also guaranteed protection for pre-existing medical conditions, expanded Medicaid to cover 12.6 million more people, and supplemented the health coverage of 156 million Americans who receive their insurance from their workplace.
The ACA’s protection of Americans with pre-existing conditions was significant. An estimated 52 million Americans (27% of US adults aged 18-64) have preexisting conditions for which coverage could previously have been declined. This includes more women than men (30%-24%), and more seniors than younger people (47% for 60-64 year olds and 15% for 18 year olds). Before the ACA, these people could have had their coverage denied by insurance companies.
With the ACA’s increasing longevity, it has become increasingly popular. From a net favorability of -4 among Americans in 2016, in 2019 the ACA currently enjoys a +12 favorability rating, now that people are more familiar with it. Its popularity has played a decisive factor in federal elections. In November 2018, before the midterm elections, a Gallup poll revealed health care as the most important issue for Americans (80%, compared to 78% for both immigration and the economy) and exit polls on election day repeated this conclusion: health care was cited as the most important issue at 41%, with immigration second with 23%, and the economy third, with 22%.
However, the Republican Party has been consistently hostile to the ACA since its inception. Stating their opposition to government control of health care and taking decision-making power away from consumers, not one Republican voted to pass it in 2010 and Republicans have consistently prioritized its repeal (voting 54 times to repeal it in the U.S. House). Even in July 2017, when Republicans controlled the White House, the Senate, and the House, they were unable to repeal it, losing a Senate vote 49-51. But that did not mean they would cease trying, or stop undermining the ACA with other policy actions.
President Trump himself has been quite clear about the ACA. He called for its repeal early in his term and stated that “Republicans only will always protect patients with pre-existing conditions”, even though he offered no alternative while attempting to repeal it in 2017. He further suggested that an average 21-year-old American would only pay $15 per month for health care, when they would actually pay $282, or $142 with federal subsidies. However, he did take credit for the ACA’s accomplishments, stating that ACA 2019 premiums “are far lower than they would have been under the previous administration . . . . because we’re managing it very, very carefully”, a statement FactCheck.Org called “misleading”.
Republicans, particularly the Trump administration, have taken three actions to undermine the ACA. First, they repealed the individual mandate, which required all Americans to purchase health coverage or pay a penalty. Second, they permitted the purchase of short-term, less expensive plans for younger healthy people outside of the ACA, which increased the prices for policies purchased through the ACA insurance pools. They also reduced the cost-sharing subsidies for health insurance premium payments. More recently, President Trump has made his administration formally support the legal position of the Texas federal judge who in December 2018 deemed the entire ACA unconstitutional. This case is under appeal, but if this decision is upheld, 17 million Americans would lose their health insurance, and all Americans would lose protection for preexisting conditions, subsidies for private insurance, and coverage of children up to 26-years-old on their parent’s insurance. The Medicaid expansion would be terminated, annual and lifetime limits on coverage would be reimposed, and the cap on out-of-pocket costs would be ended. President Trump has since stated that any Republican health care alternative will be offered after the 2020 election.
These three Republican actions had concrete negative effects on the economic cost of health care for Americans. As a result, in 2019 middle-tier health care premiums purchased through the ACA exchanges were an estimated 16% more expensive for Americans. Silver premium plans for a 40 year old American cost $495 per month in 2019, compared to an estimated $427 without these rollbacks. This is relevant because 63% of ACA marketplace enrollees were in silver plans in 2018, with 29% in bronze plans, because silver plan purchasers often received federal subsidies. In short, because of Republican attempts to roll back the ACA and recreate an earlier time, many Americans and the U.S. health care system in general are being forced to pay more than they would have, had the ACA been left alone. And their goal remains to repeal the ACA entirely.
In 2016, many Britons and Americans were fearful of the direction their world was taking. Their understandable concerns regarding these new economic, social, and technological effects on them, their families, and their communities prompted their strong preference to return to a more comforting and recognizable time. Their electoral choices set in motion a series of policy actions by their governments, which attempted to revive old standards in the place of newer ones. Brexit and the attempts to repeal the ACA reflected both popular and governmental efforts to return to the familiar.
To be fair, UK relations with the EU were not perfect and the ACA has many flaws. But they both sketched a path to the future with material benefits that were not easily obtained, and both were electorally undermined by emotional appeals, promising a return to something many thought they understood. Through Brexit, Britain has almost irrevocably damaged its economy and the attempted repeal and destabilization of the ACA in the US may deprive many Americans of their health care and increase the costs for others. The economic cost of turning the clock back should serve as a warning that returning to the past may be more expensive than countries can afford.
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