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Brexit and King Canute

LONDON – The legend of King Canute describes how an early Anglo-Saxon King showed his subjects the limits of royal power. Canute set his throne by the sea and commanded the rising tide to turn back. When the sea rose as usual and soaked Canute, he told his courtiers: “Now let all men know how empty is the power of kings.”

British Prime Minister Theresa May, whose motto is “Brexit means Brexit,” seems to believe that Canute’s message was about democracy, not astronomy: he should have held a referendum. Though May opposed the United Kingdom’s withdrawal from the European Union, she now has a new mantra: “We will make Brexit a success because people voted for it.”

This is nonsense. If Britain becomes the only European country apart from Russia to exclude itself from the EU single market, it will not succeed economically, regardless of how people vote. Democracy would not have prevented the ocean tides, driven by gravity, from drowning Canute if he had stayed on his throne, and a referendum will not turn back the economic tides driven by globalization.

Businesses understand this. That is why Britain now faces what economists call “radical uncertainty,” a situation where risks cannot be rationally quantified, making changes in interest rates, taxes, and currency values largely ineffective. As the Bank of England has noted, many investment and hiring decisions will now be delayed until Britain’s trading terms are clarified. If Brexit goes ahead, this will take many years.