Why Brexit Might Be a Lot Softer Than Theresa May Would Have Us Believe

British Prime Minister Theresa May giving a speech on Brexit at Lancaster House on January 17, 2017 in London, England. Kirsty Wigglesworth - WPA Pool /Getty

This article was originally published on The Conversation. Read the original article.

Theresa May has been busy. Following much criticism for not having a strong enough plan for Brexit, she then delivered two speeches in as many days that set out her priorities for the U.K. outside the European Union.

The verdict of most commentators is that May's vision for "global Britain" means we are heading irredeemably for a "hard Brexit."

But there is more to this story than meets the eye. We are also expecting by the end of January the publication of a long-awaited government green paper on industrial strategy. I believe that this development is a better clue to the kind of Brexit that May is aiming for—and that Brexit might be a lot softer than she would currently have us believe.

Two Brexits

There were essentially two very different, almost contradictory, Brexit votes. The first was an anti-establishment vote, that quite nebulously associated the EU and its free movement of labor dictates with Britain's indifferent ruling elite and the failing neoliberal order.

The second was a vote that quite vividly saw the EU instead as a constraint on neoliberalism, and indeed a form of protectionism that inhibits Britain's natural inclination toward economic openness.

At the moment, May is trying to satisfy both constituencies. Her recent speeches emphasize both immigration controls (for the first Brexit vision) and global trading opportunities beyond Europe (for the second).

But she will soon realize, if she hasn't already, that these positions are largely incompatible. "Global Britain" will be impossible without borders open to people and goods.

Industrial strategy

But "global Britain" is a bluff. The only way for Britain to make a success of a hard Brexit—and deal with its wider post-crisis economic malaise—would be to develop an entirely new economic model.

May's talk of an industrial strategy hints at this kind of development. But the reality is it will fall far short of a meaningful plan for significant economic reform.

The essence of an industrial strategy is working out which of the goods and services that the world needs most and which the British economy might be able to produce most effectively. It then requires policies that support the industries that produce them.

But doing industrial strategy seriously (for any industry other than finance) would require May to partially repudiate Britain's pre-financial crisis development model. Eight years on and counting, the British elite just isn't there yet. As May's previous speeches on industrial strategy demonstrate, the simplistic notion of "picking winners" (and getting it wrong) seems to haunt Britain's elite.

The status quo

The inability of the May government to devise a fundamentally new economic policy is precisely why Britain is, in all likelihood, heading for a soft Brexit.

Without seriously challenging the economic status quo, it will be impossible for the British economy to cope with restrictions on importing migrant labor from, or exporting financial services to, the EU. May knows this all too well—it is why she was on the side of Remain.

The beneficiaries of Britain's current economic model—by definition, powerful and resourceful economic interests—will soon start pushing for their own version of Brexit. May is probably counting on it, to counteract the hard Brexit fanatics in her own cabinet.

For the British business elite, maintaining single market membership in practice while further delegitimising the idea of economic regulation in principle would be the ideal outcome for those who benefit from Britain's current economic order—and soft Brexit fits the bill perfectly.

At the same time, these interests will be sceptical of the need for a comprehensive (and interventionist) industrial strategy. If, as I expect, the coming industrial strategy green paper ends up being little more than a rehash of the previous government's efforts in this area, then it is a much clearer indication than May's recent speeches that soft Brexit is where the U.K. is heading.

Soft Brexit won't save May's industrial strategy. The U.K. needs to become more European, not less, insofar as the British economy would need to become more integrated into European production networks to upgrade its productive capacity. This is of course politically unfeasible now, especially with the Labour opposition—with most to gain from serious economic reform—surrendering to the apparent immutability of Brexit with barely a whimper.

Negotiating the transition

So what really lies behind May's hard Brexit bravado? As should be rather obvious, she is negotiating—and playing for time. The transitional deal is all that matters to her at the moment and her request for a lengthy and flexible transitional arrangement is, beneath all the bluster, the only substantive part of her Brexit plan in terms of policy.

She is talking up a hard Brexit—which would hurt the EU a little, while hurting Britain a lot—in the hope of scaring European governments into offering Britain favorable transition terms and allowing time for May to manoeuvre herself into a position domestically (probably after the next election) whereby she can hold off hard Brexit.

Crucially, the coming economic downturn will lead to a significant reduction in immigration, laying the foundations for a climb-down on the apparent free movement "red line". This will not silence the populist anti-immigrant mood engulfing Britain at the moment, but it will diminish it just enough for May to push soft Brexit through.

In this scenario, Britain would remain in the customs union, and remain in the single market in all but name. A bespoke deal on financial services (whereby Britain can sign trade deals in this area without the formal consent of the EU) will probably allow her to claim that "global Britain" has been realized.

This compromise would probably even benefit the EU insofar as it could retain the City of London as an "offshore" financial centre for euro trading. Needless to say, making the British economy even more dependent on the City's global role is hardly a recipe for the economic "rebalancing" promised by May's industrial strategy rhetoric.

Craig Berry is deputy director of the Sheffield Political Economy Research Institute (SPERI) at the University of Sheffield.