EU and Brexit thoughts- Part I: looking back, what we should have known

Why is it still worth reflecting and understanding this vote.

Much has been said already – indeed I think a lot of the thoughts below have probably been expressed better by others. Yet this vote is so shocking, and has consequences that are potentially so far reaching, that everyone still needs to think through what has happened. Also, the referendum was one loud sounding of the electorate, but much (in fact, everything) is still up in the air, with the potential for discussion. The PM starting the process asking everyone to identify opportunities is a good thing – people need to know a lot more about this alternative reality that has been chosen in the dark. What comes back should then be assessed, and compared to the status quo or to other ways forward. The assessment should, I think, eventually be put to people again, but certainly not right away because the Brexit alternative is as fuzzy as it was before the Summer. We know what we have, nobody knows what is being proposed.

Simple fact #1: if our economy sinks, we all lose. The rich lose more, but the poor lose what they need.

#2: regardless of whether within the EU, or as a “free” country, the economy of the UK will be linked to that of all other countries. This means you can only produce and sell at a profit if you do things better than everyone else. If a product is similar in type, it has to have higher quality or be cheaper. Both things can be achieved in western manufacturing, but this takes a lot of talent and skill. There are no shortcuts. It is not like we will suddenly lead the world in areas where we don’t already excel, except if a lot of effort is put into improving a sector (but this is equally true in or out of the EU).

#3: comparing to the other large EU countries, the best asset that the UK has for free is its language. This feeds not just into the education system, but much more widely into the economy, allowing the country to be a hub and a “picker” of the most appropriate people for jobs that require specific skills. For the UK free movement, as well as being a privilege as for the other EU countries, is incredibly valuable economically. Close up to free movement, and this quite significant competitive advantage is lost.

What did the 52.1% of voters have in mind.

The result was unexpected, and completely unrepresentative of the fraction of elected MPs. These two facts have the same explanation: the reasons behind these Brexit votes are diverse, and in an election (or an opinion poll) they each come out as minority opinions.

One clear example: you can criticise the EU for being a force for globalisation, hurting the weak, removing protections that nation states were able to put in place (think the Redcar steel plant); you can also criticise the EU by saying you want even more globalisation, and free trade with everyone (argument you hear now in the Brexit minister). Now it’s obvious that these two groups of people want opposite policies and outcomes, and have nothing in common!

By having a conservative PM call the referendum, a weak Labour leadership (unable/unwilling to make good positive arguments), and the absence of any genuine pro EU voice (which would have been the Lib Dems, wiped out by their previous choice of coalition), this created a perfect storm. The arguments and the spokespeople pro-EU were just too weak. Nobody came out with strong positive arguments (but not due to lack of these, see below).

Of course the Brexit campaign was also helped by the fact that for years (and unfortunately this is true also in every other EU country) governments have found it easy to point to the EU as a source of problems, whilst claiming any successes for themselves. A particularly perverse long term corollary of this has been the low turnout at EU elections in the UK, leading to a large number of UKIP MEPs, and hence an even more hindered channel of communication and representation back to citizens as opposed to other countries.

So the 52.1% is a strange mix. People had different reasons to say No. How many were led by each reason would have to be researched with some care; some people might even have been driven by more than one of: immigration, red tape, regulation, costs of being EU member, fear of further loss of sovereignty (or even return to full sovereignty), nationalism. These seemed the main concepts behind Brexit.

On EU migration.

Migration comes in two very different sorts: from within and from outside the EU. I’m sure this is clear to many, but perhaps not everyone! The confusion was played up (imagery of the desperate situation in the Mediterranean, and the small but dramatic scenes at Calais). Whilst there are some differences in standard of living, and in wages, across the EU, these are nothing compared to the differences with the poorest countries. It is unfortunately the case that a significant fraction of the world’s population is so poor and lives in such dire conditions that they are prepared to set off with nothing at all in search of a better life. This will be a challenge for decades to come, and how to evolve our global society is a huge problem. My only Brexit-related thought about this is that given the homogeneity of EU countries, we in the EU all share the same challenge, and it is better to tackle this gigantic task as one.

Let me focus just on migration between EU countries: they all have schooling, health care, social services, infrastructure that are in some ways better, similar or worse than the UK’s, but in all cases comparable (that is kind of the condition for joining the EU…). It is just slight differences and opportunities, or just the excitement of living in a different country, that drive internal EU movements.

The analogy with the USA is the most appropriate: there are significant differences in the standard of living between States, some of which seem to have been there forever, others reflect changes in the economy. As a result, the population responds and moves. This eventually balances out, with some regions becoming attractive to investment. Sometimes this rebalancing necessitates federal support, or the creation of special incentives in particular areas. Whilst Americans feel attachment to the areas that they were born in (and many never move), I don’t think they wish each State to isolate its population and finances; that would be counter to what they have achieved through their history, and incredibly damaging to everyone. When they criticise the Federal state and structures, it is usually in the context of perceived waste (but also there – one would need to understand well the context and consequences of various programmes, their benefits, as well as the costs which are more easily known).

Nobody argues with the fact that there has been a net flow into the UK in recent years (fewer left than arrived), but in the 1970s and early 1980s more British people left to live in other EU countries than came in, not to retire in the sunshine but because they lacked jobs. Millions of Britons also now live out of the UK in the EU, and vice versa. This freedom is a richness, and a buffer for everyone when something particularly good (you need people) or bad (there is no work…) happens in a region. All these people benefit hugely from the standardisation of all the bureaucracy that goes with living: finding a job, renting/buying, driving license renewals, paying taxes in the right places, having pension schemes and savings that can be moved. There is a paradox linking migration to the Brexit vote: the counties most against migration are the ones with the least immigration. So it’s as if people have voted against something which is anyway not happening much where they live. Why? One interpretation is that these are also the poorest areas (hence why immigration is less), and that the little migration present is actually damaging local employment in scant and fairly low paying jobs. The other interpretations are bleak: that in these areas there is more racism/nationalism, or a sense of fear not wanting to compete or understand others; both of these stem from ignorance.

On Europe and the EU.

Pages can be written about the process of European integration, and its successes. It is a continuing process, certainly unfinished, and there is a strong historical drive in that direction. The EU is not just a free market, although free trade amongst similar economies is a no-brainer. Some people (and governments) seem to understand only the common market concept – but this is a strange position to hold, just imagine the USA is every state had a separate army and foreign policy, and no federal security agencies… it would not be the world power that it is. After centuries (millennia?) of wars, trade, migration, and then specifically two world wars essentially sparked in Europe and fought extensively across the continent, the EU represents perhaps the first time that Europe democratically and peacefully develops institutions to work closely together. The USA also only came to its current Federation following huge violence in its civil war; the two world wars can be seen as analogous in that sense.

When you compare how similar the cultures (and the history over the last 2500 years) are across Europe, and add into this how similar the standards of living are, then it makes a lot of sense to aim to share professional qualifications, structures to fight crime, levels of taxation, etc. You still want some freedom locally, in a similar way as nation states allow individual regions, counties and cities to manage budgets and projects, but treating Europe as a Federal state would remove a lot of duplication and can lead to great improvements for everyone. There are projects that are so large scale (energy generation, scientific facilities, defence, some very specialised healthcare) that they can be best planned across nations.

All this obviously assumes that when differences are found, there are then sufficient incentives and oversight so that best practice wins out rather than the more inefficient way of doing.

Europe as a whole is the biggest economy in the world; it has great potential to grow further (precisely by bringing best practice to those regions that in recent history have had poor governance, and by further removing obstacles on setting up businesses across states) whilst at the same time it offers a better example of stable and fair social structure when compared to other mature (USA) or developing (India, China) economies.

The EU has already achieved a lot: the integration between continental nations is a process that very few Europeans would wish to wind back; the referendum also told us that young UK voters in significant majority feel part of this.

No, the EU is not perfect. Its institutions at times appear opaque (but it’s not true to say that the EU institutions are not democratic – they variously result from our voting of MEPs, their votes, and our elected governments), they could communicate better, they need to resolve their PR problem with national governments. Compared to how well UK citizens are informed about how local funds are used (policing, schools, roads, etc) there is an abyss on our understanding of how the EU “federal” budget is spent. The process of “optimisation” is still partial. Do we need national armies, with each army replicating all the units that might be necessary? We could impact much more strongly if the Foreign policy was more coordinated. We could cut tax evasion and elusion much more effectively with integrated revenue systems.

The Euro.

Somebody has to say that this is a success! I think there’s an element of covering their backs in the fact few British politicians are prepared to argue on this. They (Tony Blair times) chose not to enter the single currency, and it’s as if this has had to be continually restated as the right choice. Let’s examine just three facts:

1) The Euro made its debut in January of 1999 at a rate of 1.42 euros to one pound. The value of GBP has fluctuated a lot since then, with highs of 1.52 in 2007, a low of 1.02 at the financial crisis in 2008. It never since in the last 8 years reached the original 1.42 level again, and currently it is at 1.19. This is a 16% drop on the value in 1999. I think I a young child would understand that currency that wins 16% is a winner.

2) There is much confusion linking the Greece problems and repeated bailouts to the single currency. It’s true that if Greece had its own currency then it would have freedom to print more, and dilute its debts by inflation. This was what most Southern European countries were constantly doing before the introduction of the euro. But this is just a trick to get people (the currency holders) to pay up the debt (money is printed, the central bank funds itself, and wages are immediately worth less, until workers fight for increases but in the meantime have lost out). What is happening now is more transparent: we can clearly see if/when there is a region of Europe (Greece is the most obvious example, but there are other regions in need, including within the UK, think areas of Wales and NI especially) that needs help. As might seem more natural in the USA, we then have a “federal” procedure to support this region via investments. If things take the language of “crisis”, it is because this reasoning is new in the EU context, and both from within Greece (incorrect accounting) and from EU institutions (and various Banks) there was not a clear understanding of the structures required to work in a “federal” fashion across slightly heterogeneous regions, and the corresponding checks.

3) It seems to me that the reality is that the Euro has helped massively both the slightly richer and poorer countries, in different ways. The UK should have joined in 1999. The only reason not to join is if an economy is strikingly different from another, this is the case for Norway with its gigantic oil income per head of population. But UK oil production is declining, and weighs much less in the overall economy compared to Norway. The UK economy is not dissimilar to that of France, Italy, NL or Germany. For example, the Bank of England stepped in with quantitative easing to bailout banks and support the economy in 2007 – but the EU central bank did more or less the same. I can’t envision a situation where the UK economy would require some monetary policy opposite to the other continental ones. I can however see the costs of a volatile currency (more below).

Why is the UK important to the continent?

Probably the biggest loss to the EU with Brexit would be the absence of the British sense of pragmatism, a natural ability and desire to keep mechanisms simple, to monitor and optimise procedures. The other countries don’t have this in their DNA, and the “French” way is certainly one of heavier and less efficient administration.

The tradition of accountability is pervasive. Nowhere is perfect (and one can bring some terrible examples from here too, think the Saudi arms deal), but the UK offers many examples of very well planned and run complex organisation, like the infrastructure and regeneration in connection to the London Olympics. This also shows up in small routine things, such as the maintenance of streets and pavements which is better than in many other EU countries.

The UK has been able to integrate people for decades, from very diverse non-EU cultures. Again, no society is perfect, but one can argue that integration seems to have worked better in the UK compared to France (at least the level of apparent social conflict is lower in the UK).

The UK political institutions have been the most solid and long lasting in the west, evolving responding and adapting rather than suffering revolutions (actually Brexit seems to bring about the most serious institutional instability imaginable – the disaggregation of the nation). The quality of politics is high, especially the national level seems to be debated more sensibly and rationally than in other countries and there is a sense of healthy pragmatism at all levels of decision making.

The UK has traditional ties and links with different areas of the world: in fact due to history they are exact complements of the regions culturally connected to France and Germany. So definitely continental EU would lose a lot from Brexit. The economic “market” as such is not really at risk: if a UK buyer really wants a BMW and can afford it, it is unlikely they will buy a Jag.

Why it did not have to come to this.

Each country, and often regions or even cities within those countries, has a special view of how it fits into the greater scheme of things; this comes from a mix of history and present, and depends a lot also on circumstance (quality of the news, presence of influential local people, etc.).

Even in the USA, a structure older and more homogeneous than the EU, and sharing a common language, you will perceive people relating quite differently to their Federal state if you visit the large cities vs rural areas, East/West coasts vs the rest, and a special view from Texas (or Alaska & Hawaii!).