Monday, July 18, 2016


Last week the headlines were all about the shock UK vote to leave the European Union (EU).

By a four percentage point margin the British were scared into believing that immigrants from eastern Europe, the middle East and Africa would overwhelm their shores, and a vote to keep them out would be better than staying wed to the largest economy in the world.

The size of the EU economy stands at about $18 trillion compared to the US whose GDP is $12 trillion.

"One can expect that while the pain of the UK's exit will be felt far and wide, the British will feel it more as business relocate to the main land, impediments to their products, services and people are raised in the EU and their holiday trips to the mainland become more expensive...

The UK, despite their hanging on to the prized pound have in fact retooled their economy to life in the EU. While Britain was at the head of the industrial revolution, it's great industrial concerns churning out everything from clothing to cars one end, while chugging great plumes of smoke and spewing effluent the other side, it has over the last few decades shifted away from production to services.

For every $100 of economic activity in the UK $80 is generated from service, $14 comes from production $0.6 from agriculture.

The ease of movement of goods around Europe rendered British industry, with its unionised labour and over reliance on coal, uncompetitive.

Riding on its historical links to its former colonies the UK, rejigged itself into the financial capital of the world.

This shift meant British industry was hollowed out, and with this went the low value jobs that come with manufacturing, the subsequent resentment serving as useful fodder for the Brexit champions.

The brexit lobby think they can reverse this trend and bring manufacturing jobs back to Britain. It is difficult to see how this can happen in the modern world.

The UK has no competitive advantage in manufacturing. They can attempt to throw up trade barriers to support the rejuvenation of their industry but that will only trigger a predictable retaliation from EU their biggest market and that would be that.

"Under the current circumstances even the UK's much vaunted financial services are under threat from Frankfurt and Paris. More job losses...

It's hard to see how Britain benefits.

Of course they can be more stringent in their immigration policies but as The Economist reported last week UK immigrants provide a net benefit to the economy.

Immigrants do the menial jobs the citizens can not be bothered to do, while allowing the British to engage in higher paying more productive work.

But we shouldn't wail more than the bereaved. The British will be just fine in their diminished role in global affairs.

However, their action raises some interesting questions.

The assumption that the benefits that accrue from the free movement of goods and services are obvious and that the general population will not roll them back casually has been found to be that -- an assumption.

This confirms the historical record. That development is never initiated by mass action but by visionary leadership.

It also confirms that such economic shifts as dramatic as from manufacturing to services, which demand a qualitatively better work need to be accompanied by a revamping of the education system and a mass retooling of the existing workforce. Leaving this social engineering to the devices of the market can lead to revolt that is detrimental to everyone.

"The benefits of merging markets, allowing the free movement of goods, services and people and a general improvement in welfare is hard to dispute...

The political processes that try to materialise such desires is often the problem.

Hence the need for a leadership that is not only steadfast in its pursuit for greater markets but one that can drive the consensus in that direction.

Brexit should not be brushed off as something that happened to them, but an event we should study seriously in light of our own efforts to create a regional union.

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