Before the United Kingdom decides its future in the European Union, voters there should question the key promise of Brexit backers, who claim the UK's economy would be freed from the EU's regulatory leash. This idea of post-Brexit freedom is an illusion. In reality, EU regulations will continue to shape economic life in the UK, while the UK would foolishly give up any role in shaping those regulations.
Many critical voices in the UK and the United States disdain Europe's love for rules and regulations. But most of these critics would agree that the EU's regulatory clout is real and substantial. It dictates how numerous products are produced and how global business is conducted, including how much privacy individuals need, how much bankers should be paid, how many hours of rest workers are entitled to, how farmers may grow food, and how powerful companies like Google should compete.
Leaving the EU will not insulate the UK from these rules for two reasons. First, the EU remains a significant market for UK goods and services: Nearly half of UK exports are destined for other EU countries. The UK will continue to need access to the EU's 500 million consumers, and this access will not come for free in a post-Brexit world. The EU will insist that the UK continues to adhere to the EU's rules, just like Norway and Switzerland do today. For instance, goods, services, and labor can move freely between Norway and the EU even though Norway is not an EU member. But in return, Norway must adopt the applicable EU laws without any say on the content of those laws.
Second, the EU holds a unilateral power to regulate global markets through a process described as "the Brussels Effect." Because the EU has the world's largest internal market, most multinational companies desire and depend on access to it, and this access requires compliance with EU standards. While these companies could, of course, adopt one set of standards for Europe and multiple other sets of standards for the rest of the world, scale economies and other benefits of uniform production make this unlikely. Rather, companies often choose the most stringent standard to govern global conduct and production to ensure regulatory compliance worldwide. In this way, market forces alone are often sufficient to convert the EU standard into the global standard--without any need for the EU to actively impose its standards on anyone.
Unlike the U.S., which feels the ripple effects of EU regulations on a daily basis, the UK--at least for now--has a seat at the table where those rules are made. If the UK leaves, it cedes this power to others. Instead of being a rulemaker, it becomes a rule-taker, akin to Norway or the U.S. Hence, the UK's post-Brexit economic life would not be one of free trade and unregulated markets where Brussels bureaucrats would stay at bay and the UK economy would grow under a zealous free-market orthodoxy.
In addition to handing regulatory power to the EU alone, the UK would lose the many benefits that are tied to EU membership. These include participation in more than 50 trade agreements that the EU has with other countries. It is doubtful the UK could replicate the same web of agreements with the EU's trade partners, or persuade the U.S. to strike a side deal with the UK as the U.S. negotiates a Transatlantic trade pact with the EU. Even President Obama recently suggested that the UK would be at "the back of the queue" for new US trade deals.
The prospect of Brexit should also be a disturbing scenario for the U.S., particularly for those who believe in free trade and advocate for regulatory restraint. The UK has always been the strongest voice for open trade in the EU, keeping in check some of the EU's perceived tendencies for regulatory excess. In the end, if the U.S. wants the EU trade deal to succeed, the odds are significantly better if the UK remains in the EU.
Today, the UK's voters will have their say, though their economic destiny will continue to be tied to the European Union, whether they reject that or not. In this world, it would be better to retain membership and continue to invest in the European project, setting the rules that will continue to define the future of the country. UK voters must keep that in mind as they go to the polls.