An article by Peter Barker, Gui Tao and Xinhua – www.xinhuanet.com
Improving productivity, instead of the Brexit issue, is the primary task facing the British economy at the moment, says renowned British economist Jim O’Neill
“The UK being in or out of the EU (European Union) is not the most important thing facing our economic future, and I strongly believe that,” O’Neill, chairman of Chatham House think tank in London, told Xinhua in a recent exclusive interview
For O’Neill, Brexit is very much a short-term problem and he has a longer vision when he looks at economic issues. “Doing something about our productivity performance and our geographic inequality and our inter-generational inequality, these things are way more important (than Brexit),” he says
Britain has suffered a slump in its productivity growth since the financial crisis – (according to official, albeit highly suspect, national data) this slowdown has been more dramatic than that of any major Western economy, with annual growth in productivity falling from an average annual rate of about 2.3 percent before the financial crisis to 0.4 percent in the past decade
“So, even a hard Brexit, which would be very bad at first, isn’t as important as those things. The contradictory part is — why the hell would we deliberately make our productivity challenge even worse by choosing to have no trade arrangements with the single biggest economic trading zone in the world?”
“It doesn’t really make a lot of sense.”
CHALLENGE TO INDUSTRY
O’Neill cited his own industry of finance and the successful industry of auto assembly as areas where the economy could suffer after Brexit because there could be greater friction and costs to both trade and imports, which would eat into businesses’ profit margins.
In 2017, the British auto industry built 1.3 million cars for export, accounting for 12.8 percent of total British exports, according to motor industry statistics.
“The auto industry, which in modern Britain is arguably the most successful of any traditional industry, produces more cars today than 40 years ago — it would be decimated under World Trade Organization (WTO) rules,” O’Neill says
“Some of the world’s most productive auto plants are in the UK, and if we go out under WTO rules they won’t stay that way because the profit margins are too thin — I’m sure there are many other industries where that’s true.”
“My old industry of finance would have some interesting challenges,” O’Neill adds, and challenges the idea that Britain could leave the EU with a managed no-deal.
ISSUES OF GLOBALIZATION, LEFT-BEHIND PEOPLE
“There are a lot of people in the Western world who don’t believe, because of the circumstances they’ve lived in, that the past 30 years have helped them at all,” O’Neill says
“When our Chancellor of the Exchequer often says ‘we didn’t vote to make ourselves poorer,’ actually a lot of people that are poor in the UK might have voted to make themselves poorer, because they want to shake up the system.”
“They don’t really understand the degree of sacrifice they might make, but they don’t mind sacrificing growth in the UK, because they’ve not benefited from (it) anyhow,” he added.
“There’s a commonality with this (thinking) in the U.S., there’s some commonality of it in many parts of Europe, and it is clear that — as fantastic as globalization has been for China and for many other places, and for the elite world that I’ve lived through — there’s a lot of lower-income, working people that have not benefited much from the past 30 years, and it’s easy to blame globalization.”
P.S. Sadly, the powerhouse thinker Lord Jim ignores the fact that many Brexiteers voted to leave, not from a misunderstanding of the economic/ productivity implications as trotted out above but for:
- Control – over immigration
- Control – over the laws we live and work by
- Control – over who rules us – better our second rate Brits than third rate unknown foreigners with Germany driving them from the back seat
- Control – over who we can trade with, worldwide, and how
And as for making no sense ‘having no trade arrangements with the EU’:
- The EU market is stagnating whilst the rest of the world (RoW) is growing, rapidly is many parts – however, the UK is currently not allowed to address RoW markets separately
- The UK exports less than 10% of its GDP to the EU, not 50% say, so it will not be catastrophic, overall, if this % is dented – and as the EU exports more to the UK than we do to them, self-interest on both sides will ensure most of this trade will continue somehow
- In the short term, there may be import supply problems for some sectors – but that may well encourage many UK start-ups to replace some of these imports and so be good for us in the long term
- The EU is essentially a ‘rich members club’ which insulates itself from RoW competition by a mix of tariffs and trade agreements so members become richer still – such protectionism is not only bad for EU (and UK) productivity but also morally abhorrent for putting up barriers to other nations, especially poorer nations, seeking to better themselves and so widening, not closing, prosperity gaps