Short-term Brexit disruption is a price worth paying—Britain can thrive on the outside

A great deal of the economic commentary about Brexit remains focused on the immediate future. But the key economic question relates to the longer term. How well will Britain's economy adapt to rapid changes and the innovations of the future?

There are of course influential people who do not like to see capitalism being innovative, in ways that can be hard to control. It is this comfort blanket view of the world which surely lies behind MIFID II, the latest regulatory fest from the European Commission, which started to come into force at the beginning of this year.

The Markets in Financial Instruments Directive II is designed to offer greater protection to investors. At least seven years in the making, it already runs to several thousand pages of regulatory requirements. In this mind set, bureaucracy and rules can eliminate risk.

But it is so complicated that it is virtually beyond the powers of a human to grasp. Certainly, experts like Phil Treleaven at UCL who have shone the light of AI on it believe that it is riddled with contradictions.

Here, in contrast, is an example of what is going on in the rest of the world.

Paytm is an Indian e-payments and e-commerce brand which has been around since 2010. At the end of last year, the company announced that it will “create the world’s largest digital bank with 500m accounts, envisioning an online financial services provider of everything from wealth management to credit cards and stock market trading.” The company is backed financially by Alibaba, the giant Chinese internet company. They have the money to match their ambition.

This news snippet shows how rapidly the world is changing. Banks established in the west for many decades or even centuries may suddenly find themselves facing serious competition from companies which virtually no one here has heard of.

In my view, we are living through a period of rapid evolutionary change. The London to Edinburgh stagecoach was perhaps the world’s premier service in 1830, covering the journey in just 39 hours. By the 1840s, it had been driven out of business by the revolutionary technology of railways. Right now, in just the same way, established companies in many sectors will find themselves made extinct by unanticipated innovation.

Brexit offers the UK the opportunity to compete in a world which is rapidly evolving. We don’t need the madness of MIFID II. The EU lives in terror of an innovative, lightly taxed UK which embraces rather than resists the rapid pace of change in the world economy.

In the longer term, the less we have to do with the European Commission and its central planning mindset the better. Any short-term disruption will be well worth the price.

Brexit is not going as well as it could, not for the usual conventional reasons, but because the government has not embraced this vision sufficiently.

The short-term evidence, for what it is worth, contradicts almost everything which hard core Remainers have claimed. There has not been a recession. The economy continues to grow. Employment is at record highs and unemployment is down to levels last seen in the mid-1970s. In the City, according to property specialists such as Knight Frank, the problem will soon be one of a shortage of office space.

Many Remainers are suffering from a severe bout of cognitive dissonance. The psychologist Leon Festinger introduced the concept 60 years ago. He observed a group who prophesied the imminent end of the world through a giant flood. When it failed to materialise on the appointed day, the group became even more convinced they were correct.

This is the only way to make sense of much of the current commentary in the media. Brexit is more necessary than ever.