Undercover Economist

Brexit as a game of Chicken

At times such as these, I wish I could hear what Thomas Schelling had to say. It might be too much to claim that Schelling was one of the most intriguing characters of the 20th century but he was certainly one of the most interesting economists. He began his career working on the Marshall Plan before advising the administrations of Presidents Kennedy, Johnson and Nixon on nuclear strategy.

As well as studying deterrence, segregation and addiction, he was one of the first economists to ponder climate change. In 2005, he shared the Nobel Memorial Prize in Economics. Schelling died in December 2016 at the age of 95. Schelling was one of the fathers of nuclear non-proliferation, and I think I know what he might have made of Donald Trump apparently welcoming the idea of a new nuclear arms race. But it’s Schelling’s insights on the Brexit negotiations that I’d really like to have.

In his absence, I’m going to have to guess.

First: to be an effective negotiator often means accepting some risk of disaster. The simplest model of this is the game of “Chicken”, in which two leather-clad rebels get into their cars, and drive towards each other at a furious pace. The first one to veer off the road loses his dignity, unless neither of them swerve, in which case both of them will lose a lot more than that.

Chicken is an idiotic game, whose players have little to gain and much to lose. But Chicken teaches us that you can gain an advantage by limiting your own options. Imagine detaching your steering wheel and flamboyantly discarding it as you race headlong towards your opponent. Victory would be guaranteed. Nobody would drive straight at a car that cannot steer out of the way. But here’s a worrisome prospect: what if, as you hurl your own steering wheel out of the window, you notice that your rival has done exactly the same thing?

All this matters because both the UK and the EU are doing their best to give the impression that they’ve thrown their steering wheels away. Control of immigration is non-negotiable, says Theresa May. Fine, says the EU — in that case membership of the single market is out of the question. Fine, says May: we’re out. Don’t let the door hit you as you leave, says the EU.

It’s easy to see why both sides are behaving like this — it’s the logic of Chicken. But the eventual result may be something no sane person wants: a car crash. In May’s recent speech, she set out her willingness to risk such a crash by saying she might walk away without a deal. That does make some sense: it’s how you act if you want to win a game of Chicken. But there are games of Chicken that nobody wins.

That leads to a second insight from Schelling: the difference between deterrence and what he called “compellence”. Deterrence dissuades action, but compellence means persuading or threatening someone so that they do act. In his 1984 book Choice and Consequence (US) Schelling pointed out that deterrence is easier. A deterred person does nothing, so need not admit that the deterrence worked, but a compelled person must visibly acquiesce.

Unfortunately, the process specified under Article 50 leaves the UK in the awkward position of trying to achieve compellence. The default option is the car crash, a disorderly fracture with the EU. Anything else requires all 28 countries involved to take prompt constructive action. May and her chancellor Philip Hammond have made some (faintly) threatening noises about how the EU should play along, but such threats can only work if they compel an energetic and active response. That’s far from certain — compellence is hard.

Of course, a broad, constructive agreement is in everyone’s interest. As May rightly said: “Trade is not a zero-sum game: more of it makes us all more prosperous.” It stands to reason, then, that the EU should embrace free trade in goods and services with the UK — as should the many other trading partners that foreign secretary Boris Johnson tells us are “queueing up” to sign deals with the UK.

To which Schelling might respond: just because a mutually beneficial deal is achievable doesn’t mean it will be achieved. Mutual benefit isn’t enough. If it was, we wouldn’t need a free-trade deal at all. Every country would have unilaterally abandoned all barriers to trade long ago. Back in the real world, trade deals are stubbornly difficult and time-consuming to negotiate. To add to the difficulty, May badly needs to sign a deal with someone — Trump, perhaps, or China’s president Xi Jinping. But neither Trump nor Xi badly need to sign a deal with her. This is not a great starting point.

It’s quite possible that a sensible deal will be reached. But not certain. Sometimes, in international relations, events take on their own unwelcome momentum. Consider the dark comedy Dr Strangelove (1964) in which — spoiler alert — civilisation is destroyed by a series of highly amusing miscalculations. One of the script advisers for the movie? An economist called Thomas Schelling.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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