One of the phenomena on the twitter #brexit hash tag that baffles me most is the incessantly repeated mantra that the EU has more to loose from a British exit than Britain itself. Invariably this argument is supported by quoting the huge trade deficit that the UK runs with a few large EU economies, notably Germany, the Netherlands and France. I give you two examples as an illustration.
I don’t know about you dear reader, but to me the kipper conclusion that running a permanent trade deficit makes your trade partners beholden to you is, shall we say, rather counter intuitive. So I started wondering: “Where does this ukip mass delusion stem from?”
Rather than assuming UK Euro sceptics just copy it from the Daily Express or other tabloids, today I was wondering: “Is there in effect a past or current economic theory prevailing in kipper circles, that is at the basis of this thinking?
If you study the history of economic theory you usually start with 16th century Bullionism and 17th century Mercantilism. This theory, by its very nature, appeals to the ukip nationalistic mindset that money talks. Kippers and Tory backbenchers are always dreaming of their old Empire, one where Albion plundered the entire planet of its wealth and filled its treasury coffers with gold and silver, although very little of the stuff was mined in Britain itself.
Then Adam Smith wrote his treatise ‘The Wealth of Nations’ and what we now call Classical Economic Theory (18th and 19th century) took over. When convenient kippers also like to quote from this economic theory, especially while going on and on about the benefits of the ‘Free Market’ as opposed to interfering Government. They forget that wealth this free market trade undoubtedly brings to some in society at the same time can be detrimental to native UK industries and agriculture which they say the EU is destroying. Kippers have no problem in having their economic cake and eat it. This goes well with their multiple plans of spending the same EU membership savings of £55 M. a day on NHS, Doctors, Nurses, housing homeless army veterans, you name it.
Modern day economic theory of the 20th century, as shaped by the likes of Keynes and Friedman, also appeals to kippers. They interpret this as a green light to turn on the money printing machine, should the economy get into difficulty after a brexit. Just spend your way out of trouble. They seem less bothered about paying a billion interest on the UK’s 1.5 trillion pound national debt each week (for which they get nothing in return) than paying ten billion a year to belong to the biggest customs union and free market this world has ever seen.
But where does this kipper idea come from that running a permanent trade deficit is good for the UK and makes the EU desperate to sign a ‘Free trade Agreement’ after a brexit? Are all divorces in Britain amicable? Why is there this blind spot? Can’t kippers see this move away from our natural home market only will make the existing trade imbalance worse? I can’t find a single economic theory backing them up. Could it be that kippers are just so stupid that they get the wrong end of the stick which ever economic theory you throw at them? They say a little knowledge is a dangerous thing.
Yes running a trade deficit with just about every country on the planet does mean your mercantilist trading partners get to stock pile your currency in their foreign currency reserves. This is great if you are of a neomercantile persuasion like China, but it’s the wrong country stupid! It’s Britain’s state coffers emptying and China’s state coffers filling! Few kippers realise that all that pound sterling winging their way to China doesn’t actually remain there like gold bullion, locked up in China’s central bank’s version of Fort Knox. Some of it returns to the UK as Direct Foreign Investment (FDI). That’s why China now part owns a French nuclear reactor in Suffolk and half of London’s prime real-estate.
Eventually most of that cash wings their way to place like Switzerland with an order to anonymously buy as much gold and silver from those stupid Brits as they can, without driving the price too high of course. Conveniently the UK export statistics office since 2008 now includes ‘sales of precious metals’ to countries like Switzerland. Because the Swiss are not in the EU, this has a pleasing effect for a kipper; they can now claim exports of goods to countries outside the EU are on the rise, while blissfully unaware that a large part of it is just the UK’s family silver being sold behind UK citizens’ backs by the UK Chancellor of the Exchequer. All this of course until Britain’s reserves of gold and silver are totally depleted. What then? So much for the ukip mercantile ideals.
Brexiteers like to exalt benefits of ‘Free Trade’? Yes, if we got all our milk from New zealand mega-dairies with thousands of cows and robots doing the milking; what we poor over our Weetabix could even be 10P. cheaper. But on the flip side: Who would look after our countryside? What jobs will our own herdsmen do? The ones that haven’t been found hanging from the rafters, because they couldn’t afford to feed their cows at those prices?
The same cautionary tales could be told about British Steel workers, car makers? How would we protect against Chinese dumping practices if we left the EU? We just shout Boo!..and they comply? Remember they now have the UK in their pockets, not the other way around!
Finally we have our precious £-Sterling; the one John Major fought so hard to preserve for Britain in Maastricht. Remember Gordon Brown with his five economic tests? I reckon these joining criteria have been fulfilled many times over, but hey, who’s still counting? Yes we still have the sovereign right to turn on the £-printing press. But how long can we keep on pretending that ‘paying with sterling’ for our foreign imports is the same as trading real UK manufactured goods for cheap Chinese electronics and expensive German cars?
Oh…you think the UK services industry will come to the rescue? Well they’re good and they’re sound, profitable and represent 10% of UK GDP, but if they were to be taxed to support the remaining 90% of the UK’s real world economy; what would happen after a brexit? Would they move to Frankfurt or Paris?
In short, I give up: There is no economic school of thought that can underpin the ukip and Tory Eurosceptic train of thought that somehow running a trade deficit with the entire world is an asset; a brexit negotiating strength. The UK economy is skating on thin ice provided by its booming financial services sector. Foreign Direct Investment (FDI) is making up for the rest of our real world trade failures. #brexit might well create the crack that sees us all tumbling head over heel in the ice cold water of the UK’s worst depression. The outlook for the pound is sombre.
There is of course an alternative; a way out of this mess. That is to stay in EU and for once seriously start exploiting this huge market on our doorstep, rather than giving in to Dan Hannan’s wishful thinking of a new ‘Anglosphere’ or good old Commonwealth galoping to the rescue.
Instead of dreaming what might be, spend your energy on creating a more just UK society and a more balanced UK economy in the EU. A future where the UK’s northern Industrial heartland becomes an economic powerhouse again. An economic future where Great Britain has two legs to stand on again and the power to help Germany support parts of the EU that are limping behind. We’ve done it before and we can do it again: Lead not Leave!
I leave you with a glimpse of how the unflappable pragmatic Dutch look on a possible brexit. It’s a block quote from Ernst Economy for YOU! He doesn’t beat about the bush; a divorce won’t be pretty
Will everything than remain the same ol’, same ol’ for the United Kingdom after their abandonment of the European Union?! In other words: their dreaded Brexit?!
I truly doubt that, to be honest… When you want leave a hotel room, because the costs of it are too high, you cannot stay in that same room for free afterwards. I think that the whole structure of visa, working permits and free trade with the EU might take a turn for the worse for the UK after their Brexit.
European borders might become more closed for British exports of knowledge workers, goods and services, of which especially (financial) services are traditionally the economic cork on which the UK floats and new excise duties and levies might be imposed on British goods and services.