Post-Brexit vote exchange

An exchange of views after the Brexit vote

The following is an exchange of e-mails between European and UK interests. The ideas are interesting, and reserve wider expression

I hope that you have not dropped dead from fury. I have no idea what is going to happen here. My sense is, though, that the two greatest impacts will be beyond the UK.

This has to exacerbate existing instabilities in the EU. I think that the Italian banking crisis will come to a head if Renzi loses his own referendum. Then the paths are all down hill. The core problem is the Euro, which has benefited no nation save Germany, offering it a Dm-substitute at a much lower valuation. You can, I suspect, have the EU or the Euro, but not both; or at least with its present membership.
This announces the arrival of a new international political force, examplified by the vote in Britan, support for Trump in the US and European movements such as the French NF. These are the losers from globalisation, people have suffered unstable employment at static wages for two decades, people who want it put back the way it was in the 1960s. They are defined by what they are against: people who have done well from change, change itself as exemplified by technology, trade, immigration and the dilution fo national and community values by pluralism.

I agree with almost everything that you have said. Europe needs to address the major problems that it has, not seek further integration except insofar as this helps with such problems. But the main question is the same: will the Brexit chaos serve as a warning sign, and make clear to people that decisions have consequences ?

I forget who said this, but you have to chose your location in a triangle:

Sovereignty
Open commerce and trade
Regulatory and security partnership

You cannot have 100% of all of them. In today's world, you cannot have less than a quite large amount of partnership - tax, trade agreements, standards, defence - and you lose a great deal if you do not have an open, liberal system. It's sovereignty that has to give.

The problem is, though, that irrespective of where you sit in the triangle, a significant fraction of the population have not gained from recent decades. This group are victims not of national accommodation with peers but, instead, from developments in emerging markets. Simply, they find it harder and harder to add more value than they cost to employ. In the case of low educational achievement, wages have fallen in real terms since the late 1960s.

Immigration, too, has changed some parts of every nation out of recognition. On current demographics, France will be majority Muslim by ethnicity at birth by the mid-2030s. Half of central London is foreign born right now. This is a change that has happened in a generation.

All of this is going to intensify. The world workforce is going to at least double in skills in the next 10-20 years. Trade will deepen. Managerial skills will diffuse. Wails that we should stop thinking in terms of economics and concern ourselves more with human welfare and the environment will intensify; with, of course, a subtext of protection of markets, jobs, ways of life. One or more major economies will turn inward, with bad consequences.

The rich nations need to make three transitions.

First, their economies have to be able to operate in the face of much more intense competition from emerging markets, probably 75% of output and purchasing power by 2035.

Second, their citizens who cannot participate in this transition need to be managed. Whether that is possible in the current democratic system is not clear: the world may become more like China and less like the US of the 1950s.

Third, the old rich world has to cope with its demographics, which are going to soak up state resources that are currently dedicated to broad wealth redistribution. The US still has some scope to tax and to increase transfers, but France already spends over half of GNP through the state and the rest of Europe are not far behind.

So, a worrying time. Best wishes.

I very much agree with your three 'action points'. We live in a 'flat world', and we are competing for jobs and investment with governments,entrepreneurs and investors worldwide. We need to 'manage citizens who cannot take part in this transition': indeed a management issue, that should start by explaining how things work in a society or economy, and where the money comes from. We should learn to accept again that there is good luck and bad luck in people's lives, and that society cannot be held responsible for compensating bad luck. Thirdly, an ageing society will bump into barriers it cannot cross - and therefore will not cross. The challenge will be to make the inevitable adjustments in ways that are generally seen as fair and balanced. A simple home for elderly people costs € 80k per year on average, and a relevant question will be which part of this sum amounts to 'pumping money around' ( doctors selling what they've learned) and which part requires imported goods and services from the outside world.

Concerning ourselves more with human welfare and the environment, is not just a matter of wailing. The protection of markets, jobs and ways of life, may have positive side-effects when the ultimate objective of our economic etc policies is to provide as many citizens as possible with the best possible quality of life. The Brexit debate shows that, for growing numbers of people, protectionism is becoming legitimate. The quality of our GDP will be as important as the number itself. No one is seriously in need of driverless cars or another iPhone, but many people are rightly waiting for another chance in life, a new home, or social surroundings and care. The logic that we have to keep producing more in order to be able to buy more stuff that we don't really need, will come into question. Not least because our real productivity ( not of civil servants etc but of people making things that we all need) is already extremely high. The success of people like Sanders and ( as far as his ideas are concerned ) Corbyn, illustrates that the logic of macro-economic models will come under fire. This makes current political battles worrying and encouraging at the same time. The lack of true leadership however has become a serious problem.