How Come Such A Weak Deal?

mayAlbert Weale applies elementary principle of bargaining theory to demonstrate that the Withdrawal Agreement and Political Declaration currently on the table are the best deal possible for the UK government given its own red lines and its starting-point. 

The withdrawal agreement and declaration on a future relationship are regarded by both sides of the Brexit debate as a bad deal for the UK.  For Brexiteers, it leaves the country as a rule-taking ‘vassal state’ on single market rules, requires payments into the EU budget during the transition period, and has no freedom to implement free trade agreements with other countries until the end of the back-stop.  For Remainers it will lead to the UK being worse off than it would be in the EU or in a Norway type arrangement, quite apart from any damage to the UK’s reputation.  The temptation is to put this down to Mrs May’s poor negotiating skills.  However, given her initial red lines, the outcome is quite positive.  The UK is outside the jurisdiction of the ECJ, it has its own immigration policy and has continued customs arrangements, the last of which is far from being an EU plot to keep the UK as a vassal state, but is instead a concession to UK cherry-picking.

Still, it is not good to be a rule-taker, whilst paying into the budget, and with so little protection for UK services.  More importantly, it leaves the UK weak in negotiating the terms of the future arrangements given the vetoes that EU might exercise by way of leverage.  So, how did a UK government get to this position?  Some elementary principles of bargaining theory provide an answer.

No deal is better than a bad deal – but only under specific circumstances.  Much of the political commentary around the negotiations, particularly from Brexiteers, said that the UK’s hand would be strengthened by threatening to walk away from the negotiations.  Showing that the UK was ready for no deal was the precondition for getting a good deal.

Only someone who learnt their bargaining theory from the Daily Telegraph holiday supplement about how to negotiate a good price for your carpet in the suk would think in this way.  Bargaining theory tells you that the readiness to walk away does strengthen your hand, but only when the status quo remains as before.  If you have done without the carpet up to now, the chances are that you can do without it in the future, unless the price is right.  If you are comfortable where you are and the default to no agreement is the status quo, then clearly no deal is better than a bad deal.

However, from the point of view of those wishing to make leaving the EU hard, the beauty in the design of Article 50 is that it changes the default.  Under Article 50, the alternative to an agreement is to exit the EU on WTO terms.  Not even the Brexiteers think that this would make the UK better off in the short term, whatever optimistic assumptions they might entertain in the medium to long term.  Under those conditions, almost any deal starts to look better than no deal, which is what Theresa May has in effect been saying in the last week or so.

A ticking clock weakens the weaker party.  Another beauty of Article 50 is that it creates a ticking clock with a definite end.  There is a highly developed theory of bargaining under time pressures, which provides a logical foundation to the common sense belief that those who can afford to hold out longest have the upper hand.  Once Article 50 was triggered by the government, the UK’s bargaining position became weaker day by day, hour by hour, minute by minute.

Of course, if you believed the prosecco theory, the logic is reversed.  If you think that the desire of EU countries to sell BMWs and prosecco to the UK means that they need us more than we need them, then a ticking clock is good news.  However, this ignores the relativities.  The UK takes about one-sixth of the exports of the other EU countries.  The EU takes well over 40% of UK exports.  More importantly, the prosecco theory looks to the wrong point of choice.  It is not totals that matter but marginal adjustments.  It is an empirical question, but a good guess would be the drop that in the UK the drop in demand for BMWs, for which there are few close substitutes, will be proportionately lower than the drop in demand for UK dairy products in EU countries, where there are many alternative suppliers.  A weak hand with a ticking clock, leading to a cliff edge (if I can mix my metaphors) is never a sensible place to be.

Understand the logic of delegation. One strategy of the UK government throughout the summer of 2018 was to seek to go behind the backs of the Commission’s negotiator, Michel Barnier, and bargain with the member state governments.  But this was to misunderstand the logic of delegation.  Why would member states rationally delegate authority to the Commission to negotiate on their behalf?  After all, those member states know their own interests better than anyone else knows them.  But while each knows its own interests better than anyone else, none can be trusted with the collective interest for fear they might confuse the particular with the general.  So, the logic of delegation is for each to give the Commission a clear and strict mandate as a form of pre-commitment to prevent weakness of will by any in response to the lure of an enticing UK government.  Theory tells us that such pre-commitment requires the ability of all the parties to monitor the performance of each one.  There was never any question that all could monitor reneging on the collective agreement by any.

So, if we are looking for the genesis of the weak deal for the UK, we need look no further than the switch of default implied by Article 50, the ticking clock of the two-year deadline and the logic of delegation among member states willing to forgo short-term individual advantage for the enlightened advantage that could only be achieved through collective delegation.  Note that this explanation requires no reference to the confused and contradictory views of members of the UK cabinet over a long period of time.  One might think that a government that did not know its own mind between June 2016 and July 2018 was bound to make a hash of things.  But the government did not make a hash of things.  It got something like the best deal possible given its own red lines and its starting-point.

A bargained outcome depends upon the balance of forces among the parties, which acts like a fatal gravitational attraction pulling each towards a particular solution.  An agent can wander off the path of that gravitational attraction for some time, but unless that agent becomes totally dysfunctional, they will find their way back to the solution dictated by the balance of interests.  In any case, there was a controlling mind on the UK side – the Prime Minister, whose clarity of intelligence could see the path that was inevitably laid out given her starting-point.  In this case, the fault was in our stars, not in ourselves.


Albert Weale is Emeritus Professor of Political Theory and Public Policy at UCL.


NoteThe views expressed in this post are those of the author, and not of the UCL European Institute, nor of UCL.

 

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