WEB DESK: Brexiteers belong to Britain. Britain used to be our colonial master and still rules our spiritual roost but how come our erstwhile owners could be so stupid and blind to realities that they could not foresee the disastrous outcome of the Brexit results.
They were unable to appreciate that Brexit would nail the last nail in the coffin of glory of ex-greatest imperialist power on earth. They failed to perceive that London would never remain same and would lose its second most important financial center status. They were ignorant of the fact that they were spearheading the movement of anti-globalisation which they once religiously hated the most. They failed to anticipate the implications of Brexit for Scotland and Northern Ireland. A snowball effect has started, and where it will end is very obvious for all. The era of awe and exaltation of ex-imperialism is over for all times to come. Truth is that Brexiteers were obliged by increasing (negative) impact of globalization on their society and personal incomes to the extent that they could not pick out a better option but to opt out of EU.
Hence, let’s ponder bit seriously on the subject. What is going on in the global arena and what is happening with the developed world and advanced countries? Anti-globalization is not just confined to the UK, it is issue of almost all developed countries. Why they are getting every day more and more against the globalization which was their religious cause for last two centuries. They called and dubbed all anti-globalization forces and slow globalizing countries as anti-development elements. Thousands and thousands books were written in favour of globalisation and millions sermons were delivered to actively espouse the cause of globalisation. Ironically and paradoxically, same champions and preachers of globalisations from the US to the UK to France are its worst enemies. What happened? What went wrong with them?
Understandably, there are reasons for such 180 degree summersault. For example, only few people in developing countries knew till few years ago that Japan has suffered from incessant economic stagnation for last 25 years or so and economy of Japan now is on downward slide. Even “three-arrow” strategy of Abenomics-monetary policy, fiscal stimulus and structural reforms- is unable to arrest that negative trend and Japans’ number three world economy status in serious danger. Debt to GDP ratio of Japan is around 230% – a bad sign for economy. Japan which is now number 3rd economy of world, by 2025 might not remain even at 5th position. What does it indicate? It points out to some deep dilemma. The UK is also infected by same virus but, naively, Brexiteers went to wrong medic and consumed counterproductive drug.
Overwhelmingly, our economic priests find it iconoclastic to acknowledge that the USA is no more No 1 economic power, and even more importantly that the USA will never regain its pre-2008 position in all times to come. Atheism, isn’t it? No, it is not. Realities are realities. Facts are facts. We must be objective and objectivity serves us most.
Unfortunately, inequality in USA according to Fed is at its highest mark in the last 100 years and is sadly increasing day by day. Its debt to GDP ratio is more than 100%. According to the OECD, it was 103% in 2014 and shows an increasing trend. Middle classes paycheck is thinning and their frustration is swelling up.
As per Bureau of Economic Analysis: (1) “The US current-account deficit-a net measure of transactions between the United States and the rest of the world in goods, services, primary income (investment income and compensation), and secondary income (current transfers)-increased to $124.7 billion (preliminary) in the first quarter of 2016 from $113.4 billion (revised) in the fourth quarter of 2015” (2) “The US net international investment position at the end of the first quarter of 2016 was -$7,525.6 billion (preliminary) as the value of the US liabilities exceeded the value of US assets. At the end of the fourth quarter of 2015, the net investment position was -$7,280.6 billion (revised)”.
Though, the US economy is in trouble waters, unlike Japan and some of its European comrades, it will keep floating due to its innovation potential, due to its already existing infrastructure, due to its immigration influx and due to its vast natural resources. Yet it would never experience growth rates of the 50s and 60s.
Euro area and the UK economies are no exception. Main engine of European economy Germany in 2008 was the largest exporter of the world but since 2009 this position drifted to China and China continues to be top exporter of the world till to date. Euro area countries are suffering from chronic deflation that could not have been averted even by fall in oil prices, quantitative easing of ECB and by its negative interest rates. Outlook of growth in these countries is not expected to be robust and now Brexit will undermine their already precarious position.
Though, the UK was not a member of the Eurozone but was part and parcel of the EU. Hence, to understand the economy of the UK its both positions shall be kept in mind. Productivity, GDP per capita and wages in the UK did not increase since the 2008-09 financial crisis. If productivity per person and disposal incomes of citizens do not increase, it is a bad omen for an economy.
In fact, the financial crisis of 2008-9 was just an eruption point when brewing crisis within economies of developed countries stood exposed. Unwisely as it was, without understanding real causes of such crisis and flattening of their economic indicators, Brexiteers blamed the EU or Eurozone for their plight. It was a wrong diagnosis.
Brexiteers cashed in on and blamed the immigration from southern and eastern Europe mainly from Italy, Germany, Romania and Poland and also from Ireland for their predicament. It is correct that total immigration including from the EU increased by almost 100% during 1995 to 2013. In 2015, the UK absorbed 333,000 new comers and 40% of immigrants lived in London whereas in certain peripheral areas the figure of working age population increased in percentage terms beyond that of London. Brexiteers accused immigrants of eating up their social services and dragging down their wages. They criticised the EU for robbing them off in the name of UK’s contribution towards EU fees as current contribution of the UK stood at £ 13 billion ($19 billion) per year whereas EU’s spending on the UK was only £ 4.5 billion resulting into net payments of £ 8.5 billion.
The UK has remained a conservative country in many respects, therefore the issue of sovereignty and burden of extra regulations by the EU added to emotions. They also feared the proposals of more integration of the EU would harm them more.
What would be the fallout of Brexit on the UK? Services sector of the UK constitutes almost 80% of GDP and it employs more than 80% of workers. London is the financial hub of Europe and the world. Its financial services are the backbone of the economy. London is the largest city of Europe in terms of GDP. What would happen when foreign banks and headquarters of other multinational corporations will be relocated somewhere else out of London and the UK is not difficult to figure out. Brexit was so disastrous with immediate impact that the number of Regrexiteers increased manifold in the wake of Brexit. Pound, inter alia, has been severely pounded. Moreover, looming uncertainty will continue to add more problems to the UK.
Brexit has in fact flashed on world screen the consequences of globalisation on economies of developed world particularly the UK. Globalisation started as a result of a multiplier impact of science and technology on economics. The process of globalisation though started as a result of Industrial Revolution in 18th century but it quickened its pace after the Second World War and particularly after innovations of transistors, software development, advent of digital technologies, revolution in physical transports of passengers (wide-bodies jets) and transfer of goods (containerisation), dish antenna, Xeroxing, optic fiber, mobile phone, internet, e-mail, search engines that along with others led to globalisation of a new kind that is globalisation of KRID (knowledge, research, innovation and development).
During the 1990s, persons with Left-orientation and people from poor and developing countries agitated against globalisation as they thought that flooding of their countries with capital of developed countries would colonize them again with the help of local comprador class and rent-seekers. This was the time when economic and political pundits wrote thousands and thousands of books in favour of globalisation and delivered high-pitched musical sermons to induce people of developing countries to convert to new ‘religion’. Their diplomatic corps used to be busy day in and day out to lure the leaders and people of poor and developing countries to understand the advantages of globalisation and take it a panacea to their problems. They were right. We were wrong.
But what these ‘jihadists’ and connoisseur of globalisation could not appreciate was that the forces that created and expedited the process of globalisation were essentially anti-capitalist in nature. Capitalism among other things thrives on inequality whereas globalisation particularly after the 1990s proved to be the great leveller.
It was this levelling effect that hurt developed countries most. Developed (capitalist) countries embraced a very faulty economic model. Their economists being biased remained blind to many realities of economics, growth, development and prosperity. Their vision was politically and economically deeply distorted. It blurred their wisdom and vision. Their disciples in developing countries remained more misled.
What was their model? Their model was based on promoting inequality and dependence. They denied technology, capital and skills to the poor, newly independent and developing countries without realising that such model would ultimately be a bane for their sustainability. But what they could not realise that globalisation will result into globalisation of KRID and that will rob them of their double-edged nuisance ie purchase of raw material from peripheral countries at their own determined price and selling their finished products at premium price. These two bonanza benefits along with their science, technology, entrepreneurship and system boosted their growth, development, prosperity and dominance.
However, with globalisation of KRID in 1990sand emergence of ‘sci-the-human power complex” a new power for developing countries after 2000 resulted into their emergence on global economic front. China is main manifestation of these changes. China while using raw material of its own and that of other countries like Australia, Mongolia and some African countries boosted its manufacturing and also flooded the global markets with its cheap consumer products thus hurting very badly production of consumer items in developed countries. Though consumers across the board are beneficiaries of Chinese products.
This was the globalisation that forced the European countries to integrate as the EU in 1993 without even having appreciation of the compulsive force behind that drive. The formation of the EU did not help much to member countries particularly the UK in long run. Business, financial and entrepreneurial creativity of leaders of the EU could not properly pace with fast advancing globalisation. Hence, the conundrum.
Leaders of the developed countries must revisit the wisdom of their business paradigm in view of globalisation of KRID and Sci-Tech-Human Power Complex or they will experience more outcomes like Brexit. They need a new paradigm for their sustainability sooner rather than later.
Source: Business Recorder