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Brexit And Role Of Leadership

Leaders are elected to take decisions that are in the best interest of the nation considering its long term implications, and not to throw decisions back to people

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Like the rest of the world, Brexit has riveted many of us in India for the last three months. While implications for India are debatable and looks marginal at the moment, what is undeniable is that the implications for Britain are enormous. I couldn't help wondering if a decision that involves inter-nation negotiations, and has such long term consequences, mostly irreversible, should be decided by the referendum process in the first place.

But let us first look at what is at stake. Advocates for Brexit from the EU argued that the UK would be better able to manage immigration, free itself from onerous regulations of the EU and draw up their own, and spark dynamic growth. Also the number of EU migrants in the UK nearly tripled from about one million to over three million between 2004 and 2015, largely due to an influx of citizens from newer members including Poland, Bulgaria, and Romania. They also argued free movement of people makes UK's security vulnerable.

"Stay" campaigners argued that belonging to the EU allows the UK barrier-free access to the Single EU Market with more than 500 million consumers and over $18 trillion worth of GDP. That it has also allowed the UK to punch above its weight in trade since the larger EU bloc can negotiate more favorable market access deals. A separate analysis by the UK treasury released in April 2016 estimated that a Brexit could cost the economy $6,200 a year per household and would reduce GDP by 6.2 per cent after fifteen years.

My own view is that free movement of labour reduces cost of labour and makes the economy more competitive, but that is neither relevant not is the material point of this article. What caught my attention is whether it is right to decide on the future of a nation by asking the general public to vote on such matters.

Leaders are elected to take decisions that are in the best interest of the nation considering its long term implications, and not to throw decisions back to people. Seen in this context, was Cameron right in promising a referendum on the UK's EU membership if his Conservative Party won the 2015 elections? Is it in the interest of a company if it decides its policies on leave, compensation, perks, benefits cost-cuts, restructuring or M&A by way of a voice vote? Imagine a painful reform or restructuring a company is required in order to survive or become competitive, and try asking the affected parties to vote, and announce apriori that the outcome is binding! Leaders are appointed to do what they have to do.

Any referendum represents a view of the people at a particular point in time. And that is usually influenced by the recent developments close to the voting. In the Brexit case, the wave of non-EU asylum seekers in recent years, coupled with several major European terrorist attacks may have influenced the vote. Should a country be taking long term decisions by a vote that represents a mood 'a point in time'? What if a public changes it mind later? What if a particular decision is popular but not the right decision? What if the public is guided by popular jingoism or by expensive campaigns or by celebrities who hold sway but are not necessarily right? What about a highly probable situation where the voters are not sufficiently technically informed of the technical aspects of a decision?

At least in hindsight, it is plain clear that the reforms of opening up the Indian economy in 1991 have immensely benefited the country and taken millions out of poverty. But imagine if those reforms of allowing FDI and FII were subject to the national screeching debates on prime-time TV, and running a jingoist nationalistic campaign about sell-out of the country. The reforms would have just gone with the wind and millions would have languished till date. Leaders for a company, team or nation, simply have to do what they have to do for the sake of the team or country they lead, popular or otherwise after making their best efforts to explain. If you hide behind the crowds, don't call yourself a leader, call yourself, at best, a follower of the crowds.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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V Vaidyanathan

V Vaidyanathan is Executive Chairman at Capital First. He is an alumnus of Birla Institute of Technology and Harvard Business School and is a regular contributor on financial and banking matters in India and international forums

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