BREXIT: ‘WE WILL BE MADE TO PAY FOR THE INSULT’

ROBERT MCDOWELL

As any economist knows, or should do, economic growth policies in an open economy do not work unless one’s trading partners follow suit, otherwise the growth impulse leaks out.

Hence, on the question of democratic self-government, in economics and other important questions it is necessary to be part of the EU. And also because we are not like Norway or Switzerland because we do not have strong good exports.

Compared to when the UK joined the EU, we have lost two thirds of our manufacturing base. The UK has many weaknesses that have developed as a consequence of free and open markets and is far less self-sufficient, or not at all, in all major categories.

The UK is a far less well-rounded economy than forty years ago.

It survives as well as it does only because of international interest and support in the UK. A retreat into home waters will only expose its chronic state mercilessly.

This was not a consequence of joining, of course, but of indifference by banks (who grew their property lending in the same period from 10% against property to 70%) and by governments to physical trade and manufacturing in favour of services or abstract policy-making in general.

The problem of an economy reliant on services net exports to finance the current account is that this is essentially a mostly balanced two-way trade that follows financial markets or follows good trade and FDI flows.

Financial services are mainly finely balanced i.e. it is hard to gain a large sustainable surplus, not least when the UK end (in London’s markets) is dominated by foreign banks many of whom are EU and they and the US firms will if they wish or feel obliged to de-camp a lot of their activity to inside EU and that is merely inevitable.

Oxford Economics, PwC and Treasury grossly under-estimate the medium term disaster (a decade’s worth) that the UK economy will experience including sterling crash without much compensation in stock market equity prices.

For some there will be a boon in the UK becoming even more of a devil-take-the-hindmost desperate tax haven for dodgy money and in Central London property (per sterling prices only) and other dispensations to attract private harder currency inflows.

After a recession plus the EU Brexit price (inevitably a high one that EU will exert again out of political necessity to make leaving expensive) there will be a settling down in a structurally changed economy and back to some normal rhythms.

But Obama and others are surely correct in assuming the UK status in the world will be diminished and politically there will be a long period of UK politics fighting further internal break-up plus all the issues around the next recession and unemployment etc. and therefore mainly a domestic focus of a battling that spirals around the “we ourselves alone” mentality.

That can appeal to some people as a desirable outcome and similar to the collapse Scotland would experience if it left the UK. All this is not about a machine and whether the economics machine should go on as before but a matter of how Europe will see the UK and what that means for trade and every other kind of international intercourse.

The UK will be made to pay for its insult and disparagement of what was the greatest thing to emerge out of World War II.

EU. like every governmental system, is a curate’s egg and may it always continue so, otherwise we don’t have strong politics. Without healthy politics the UK breaks up and when politics are especially feeble we get war.

The UK, like others, became driven by ideological trust in broad principles, of which the democratic deficit is but one. In consequence the UK abandoned targeted planning industry by industry and we would have to return to that.

There would need to be a revival of the equivalent of economic central planning if the UK is to trade its way out of the Brexit corner it would find itself in and then forget all the nonsense about EU red tape. We’ll be milling it ourselves in giant bales.

Robert McDowell is a banking consultant and economist and founder and patron of Summerhall Press

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