On June 23, 2016, British citizens voted to leave the European Union (EU). Article 50 of the Lisbon Treaty, which created the EU, gives the EU and the exiting country two years to agree to the terms of the split. It wasn’t until March 29, 2017 that Theresa May, Prime Minister of the United Kingdom, officially declared the initial intent to leave the EU. That means Great Britain has until 11:00 pm on Friday, March 29th to cut an exit deal prior to leaving the EU. Prime Minister May’s submissions to Parliament have so far been voted down. Without the approval of some sort of exit deal between the EU and Great Britain by March 29th, Great Britain and the EU will have no deal whatsoever. Although to many this sounds terrible, it simply means that the United Kingdom will have to negotiate its own trade deals with different countries. This is the same thing the United States, Canada, and many other countries do all the time. Unfortunately, the Prime Minister seemed so certain that she could work out a deal that would pass Parliament, she simply didn’t pay much attention to establishing new trade deals with existing countries.

At one time, Great Britain was economically and militarily the envy of the world. The British joined the European Union after WWII in hopes that more trade between the countries would prevent future wars. However, the EU eventually grew to become a single market, as if member states were one country. The EU has its own currency and its own parliament. This allows the EU to set the rules for environmental regulation, open borders for immigration and transport, consumer rights, and even mobile phone charges. Judging by the vote, it appears most British citizens prefer that their own country make many of these decisions independently based on what is best for Great Britain.

One way to try to understand the problems created by the Brexit vote is to look at the goal of politics vs the goal of economic capitalism. Unfortunately, much of politics seems to have devolved to the goal of remaining in power. That means many politicians gravitate toward stability and not rocking the boat. If they do have to make a decision, many want it to be made as a group, which provides political cover for future elections. The goal of economic capitalism is to compete in the marketplace, be efficient with costs, innovate products, and keep customers happy. Under capitalism, if what you provide is good, you are rewarded. If what you provide doesn’t measure up, you are punished by consumers. You can’t hide and you must live with the consequences of your business decisions. In short, politicians tend to cling to the “old guard” rules and to seek stability. Business people tend to innovate to be competitive.

Do you think for a minute that Steve Jobs would have given up Apple in order to become part of a European Telecommunications Zone? Politicians often have different goals than the people who elected them. Corporate leaders must have the same or higher goals than their customers in order to stay in business. That is why we invest in companies and not countries.

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Financial Professionals Inc.