Brexit and its potential consequences: PESTLE analysis.

Source: Foster, 2017

Figure 1. Brexit

   

Brexit and its potential consequences: PESTLE analysis.

Introduction

Brexit, which refers to the vote of the United Kingdom (UK) to leave the European Union (EU), is one of the most important events of 2016. This blog report looks in detail at Brexit, analyses its potential consequences using the PESTLE framework, defines issues related to Brexit and provides possible solutions to these issues.

The main reason why Brexit was chosen as the topic of this blog is the fact that Brexit is a controversial and unique event, as no other country has ever left the European Union before. As a result, the outcome of the vote left many people skeptical about whether the separation of the UK from the EU can bring any positive changes for any of the parties. By summarising the possible consequences of Brexit, this report helps people to understand what to expect in the future if the UK separates from the EU.

Background

Source: DePauw University, 2016
Figure 2. British ex-prime minister, David Cameron 

The initiator of the Brexit referendum was the British ex-prime minister, David Cameron, who promised to hold the vote if he wins the elections. As a result, he won, and, after becoming a prime minister, Cameron set the date of the referendum for 26 June, 2016 (Iwona, 2016). Figure 3 shows the results of the vote. It can clearly be seen that the difference between the votes “To remain” and “To stay” is only 4%. Cameron, who was against Brexit, resigned when the results of the vote were announced.

The results of the Brexit vote were interesting in terms of demographics: a high number of older people chose to leave the EU, while the majority of young people voted to stay (Shuster, 2016). This can be explained by the fact that even though the UK has always scored high on individualism under the Hofstede framework (Hofstede, n.d.), younger people all around the world are more approving of globalisation, which has been advancing in the past few decades, and are more inclined towards an international political, economic and social cooperation between countries.  

Source: The Week, 2016
Figure 3. Brexit vote results 

The procedure of withdrawal of any country from the EU is described in the Article 50 of the Treaty of Lisbon. The Article establishes a two-year withdrawal period, which gives both the EU and the withdrawing country an opportunity to prepare. By the end of the two years, all the members of the EU need to vote and show their agreement with the withdrawal (Hunt & Wheeler, 2017). However, if the majority of countries are against the withdrawal, the two-year period may last longer.

The next part of the report focuses on providing the PESTLE analysis of Brexit, focusing specifically on political, economic and social aspects.

PESTLE analysis

Politics

In terms of politics, many researchers predict a potentially weakening power of the EU once the UK ceases to be its member. Oliver (2016) points out that the UK is predicted to become the most populated country in the EU by 2040 and have the largest army. Therefore, losing the UK would mean weaker political and military power for the EU. Moreover, Brexit may facilitate a domino effect and encourage other countries to leave the EU, which would lead to the disintegration of the EU (Oliver, 2016).

The UK itself is likely to gain more political freedom. However, the separation of the UK from the EU might make it harder for some other countries, especially historical allies of the UK, to maintain friendly political ties with both the EU and the UK. Some of these countries are New Zealand, Australia, Japan, Singapore, and Canada (Oliver, 2016). The fact that Brexit might affect so many countries is a proof of how globalized and interconnected our world is.

Economics

A research by Kokotovic and Kurecic (2017) showed that there are no positive economic consequences of Brexit. After the vote, British economy experienced a sharp decline. For example, the value of British pound decreased significantly after the vote. This can be explained by the lack of investor confidence and decreasing foreign direct investment rates (FDI), which results in lower demand for the British pound on the international marker. Figure 4 demonstrates the dramatic drop of the British pound value against the U.S. dollar in the year 2016.

Source: Express, 2017
Figure 4. The graph shows the value of the British pound in the U.S. dollars in 2016

Capital Economics (2016) suggests that Brexit can also lead to higher prices of imported goods within the UK. This can happen because the UK will lose the opportunity to conduct free trade with the EU countries, which means that the UK goods sold in the EU and the EU goods sold in the UK might get more expensive due to introduction of tariffs and quotas between these countries.

Overall, so far, Brexit have caused economic uncertainty around the EU and the UK in particular.  

Social

There are likely to be some changes in social aspect once Brexit is implemented. Firstly, Andor (2016) emphasizes that budget of many European universities will be lower without the UK funding. This might affect scholarships and make higher education harder to access for some students. 

Hunt and Wheeler (2017) highlight that another social aspect that is likely to get affected is migration. This mostly concerns the UK citizens working all around the EU and the EU citizens working in the UK. New laws might require them to apply for visas, which will make the process of work migration around the region more complicated.

At the same time, the UK will be able to control independently the number of the refugees that are being let into the country. Since one of the main reasons why the UK has decided to leave the EU was its concern regarding the rising migration, there is a high possibility that the number of refugees accepted by the UK might decrease slightly once it is separated from the EU. A short video below explains how migration affected the decision of the UK to leave (Bloomberg, 2016).

Even though the changes in migration law might cause some difficulties for people, one of the positive consequences of this change can be the fact that it will be easier for the British people to preserve their tangible and untangible culture, as well as their cultural etiquette. The lower foreigners or people with different culture in the country, the easier it is for the native population to maintain their national culture and integrity, which, in turn, contributes to the cultural divergence around the world.

Technology, law and environment

In terms of technology, without the UK, the EU might not be able to compete with the innovativeness of such progressive countries as South Korea and Japan (Iwona, 2016). This might mean that without the UK, the EU will become stagnant in terms of technological development.

In regards to law, apart from introducing changes to the migration law, there will be changes in the trade laws between the EU and the UK. Both parties will have to re-negotiate the terms of the free trade, which currently exists between the two (Vargano & Dolle, 2016). This can potentially affect the levels of export and import between the EU and the UK and reduce the turnover of the goods between them.

Brexit is also likely to have an environmental impact on the UK. The EU has always established strict targets oriented towards the environmental protection (Himmel, 2016). Without the tough control of the EU, the UK will need to introduce more environmental protection laws in order to keep their level of pollution low.

Issues

Brexit definitely requires abundance of negotiations between the EU and the UK. However, if the two parties find it hard to compromise, this might have negative consequences for the entire world. For example, such global problems as terrorism, conflicts in the Middle East, crisis in Ukraine, and environmental issues will be harder to solve. If the EU and the UK, both powerful players, concentrate their efforts on arguing with each other in order to get a better deal for themselves instead of putting their team effort into solving these global issues, other countries might lack the power to solve the problems on their own.  

Solution

The solution to the issues stated above is political and economic cooperation between the UK and the EU. Many of the potential negative outcomes of Brexit can be avoided if, regardless of whether the UK remains the part of the EU, both of these parties focus their common effort on maintaining friendly relationship and keep working together in order to improve the global situation.

Conclusion

Although it might be challenging to predict the impact of Brexit and clearly distinguish between its positive and negative consequences, it is indubitable that Brexit will bring multiple political, economic, social, technological, regulatory and environmental changes. Regardless of the Brexit outcome, both the EU and the UK should focus on finding a compromise, maintaining friendly relationships, and, most importantly, work together on solving such global issues as terrorism, environmental problems, and wars across the globe. 

References

Andor, L. (2016). The economic and social consequences of Brexit. Retrieved June 30, 2017, from https://www.boeckler.de/pdf/v_2016_06_16_vortrag_andor.pdf

Bloomberg (Director). (2016). The Brexit Debate Explained in 2 Minutes [Motion Picture]. Retrieved July 13, 2017 from https://www.youtube.com/watch?v=KHpbu9mqFJs

Capital Economics. (2016). The economic impact of ‘Brexit’. Retrieved June 27, 2017, from https://woodfordfunds.com/economic-impact-brexit-report/

DePauw University. (2016). BBC previews today's DePauw visit by David Cameron. Retrieved July 13, 2017, from http://www.depauw.edu/news-media/latest-news/details/32758/

Express. (2017). Pound to dollar exchange rate: Sterling dives ahead of 2017 Budget. Retrieved July 3, 2017, from http://www.express.co.uk/finance/city/776539/Pound-to-dollar-exchange-rate-Budget-2017-sterling-US-rate-hikes

Foster, A. (2017). What is Brexit and what is going to happen now that Britain has voted to oleave the EU? Retrieved June 30, 2017, from http://www.express.co.uk/news/politics/645667/Brexit-EU-European-Union-Referendum-David-Cameron-Economic-Impact-UK-EU-exit-leave

Hofstede, G. (n.d.). What about the UK? Retrieved July 10, 2017, from https://geert-hofstede.com/united-kingdom.html

Himmel, N. (2016). Environmental Consequences of the Brexit. Retrieved July 1, 2017, from http://www.huffingtonpost.com/european-horizons/environmental-consequence_b_11126336.html

Hunt, A., & Wheeler, B. (2017). Brexit: All you need to know about the UK leaving the EU. Retrieved July 1, 2017, from http://www.bbc.com/news/uk-politics-32810887

Iwona, P. (2016). Brexit as a Challenge for the European Union. Horyzonty Polityki, 7(20), 57-76. Retrieved June 28, 2017, from http://search.proquest.com.ezproxy.ipu.ac.nz:2048/central/docview/1880244047/2D6BBBAB057F4B28PQ/1?accountid=45519

Kokotovic, F., & Kurecic, P. (2017). The case of Brexit: an analysis of the political and economic factors. Journal of Economic and Social Development, 4(1), 28-39. Retrieved July 1, 2017, from http://search.proquest.com.ezproxy.ipu.ac.nz:2048/central/docview/1882363643/2D6BBBAB057F4B28PQ/3?accountid=45519

Oliver, T. (2016). Goodbye Britannia? The international implications of Britain's vote to leave the EU. Geopolitics, History and International Relations, 8(2), 214-233. Retrieved June 27, 2017, from http://search.proquest.com.ezproxy.ipu.ac.nz:2048/central/docview/1816620396/2D6BBBAB057F4B28PQ/2?accountid=45519

Shuster, S. (2016, June 25). The U.K.'s Old Decided for the Young in the Brexit Vote. Time, n.p.g. Retrieved June 30, 2017, from http://time.com/4381878/brexit-generation-gap-older-younger-voters/

Vargano, P., & Dolle, T. (2016). The Trade Law Consequences of "Brexit". European Journal of Risk Regulation, 7(4), 795-800. Retrieved June 30, 2017, from http://search.proquest.com.ezproxy.ipu.ac.nz:2048/central/docview/1863560139/2D6BBBAB057F4B28PQ/5?accountid=45519

The Week. (2016). EU referendum: How did your area vote? Retrieved June 30, 2017, from http://www.theweek.co.uk/brexit/73825/eu-referendum-how-did-your-area-vote