The Political Economy of Brexit; London Will Adapt.

Everyone is trying to second guess the negotiating strategy of Theresa May, and how the EU will respond. No country should be more concerned about this than Ireland, the only EU country to share a border with the UK. Next week, the Irish government will host an all Ireland civic dialogue.  Political economy considerations have never been more important.

In hindsight Brexit might be conceived as a long-term inevitability, which can be traced back to the structural fault-lines of EU enlargement, and the free movement of peoples into Europe’s largest ‘open’ labour market. Helen Thompson, a professor at Cambridge has suggested as such:

  1. The euro crisis politicized the city of London, which became the default offshore finance centre for euro clearing.
  2. EU enlargement, and then the euro crisis, turned Britain into Europe’s employer of last resort, turning it into an offshore labour market.
  3. This spurred and politicised a latent immigration concern within large swathes of public opinion, and the electorate.
  4. Very quickly, the euro crisis, and the response to it, not least the Fiscal Compact Treaty, exposed the future of Europe as a two tier Union: between the Euro area, and the rest of the EU.
  5. The balance of power (i.e. the rise of Germany) changed and weakened Britain, who were increasingly “outside” the EU process, despite being the employer of last resort for the euro area.

In terms of the political economy of Brexit, the biggest risks don’t really pertain to the city of London (who’s core priority will be to allow some sort of system for the free movement of workers within their sector). The city’s strengths, paradoxically, make it a source of weakness. The Conservative government are confident London’s financial service based economy will adapt. This is much less the case with medium-tech trade and manufacturing (think Nissan and car manufacturing).

For all sectors of Britain’s political economy, a Norway style deal is probably preferable (European Economic Area). Theresa May, and political elites, are not likely to push for this, as it implies complete free movement, and won’t wash electorally. However, Theresa May will want access to tariff free trade, primarily to ensure that the North of England is not badly effected, and that firms such as Nissan in Sunderland don’t pull out and move to Spain. Manufacturing has more to lose than Finance.

This implies that Theresa May will push for a customs union – tariff free – allowing imports for British based manufacturing supply chains. The question then is whether it is a customs union for everything? Theresa May could opt out of agriculture, and then use this as a bargaining card in negotiating other international trade deals, outside the EU.

The question of free movement will be determined by how Teresa May considers Ireland. If she gives priority to maintaining free movement within Ireland (north and south), which I think she will, then this implies there will be no visa controls at the British borders. Hence, it is probable that Theresa May will aim to get a series of sectoral deals – and allow for the free movement of people within sectors, particularly ICT and Finance. This is what ultimately matters for the city of London.

Those most affected within the City of London will be legal services. British lawyers, who predominately rent off the finance sector, will no longer have a hearing on mergers and acquisitions within EU law. But I can’t see Theresa May negotiating a strategy to ensure British lawyers have access to EU courts. What she will want to ensure, on behalf of business and finance elites, is that the city remains a magnet for high-skilled talent. This could be achieved with sectoral deals.

Britain’s main bargaining card is that their consumption-oriented economy, and open labour market, in addition to a high-tech cluster in London, has carried the employment burden of the Eurozone’s labour market woes, in addition to absorbing so much labour from central and eastern Europe. Germany has done little, if anything, to increase domestic demand, to compensate this. So it’s worth asking, absent the liberal-oriented British economy, where will unemployed EU workers go?

 

Author: Aidan Regan

I'm an Assistant Professor at the School of Politics and International Relations, University College Dublin (UCD), and Director of the Dublin European Research Institute (DEI). My research is primarily focused on comparative and international political economy.

30 thoughts on “The Political Economy of Brexit; London Will Adapt.”

  1. It would be interesting to know exactly data is used to support the claim that Britian/the UK is or was Europe’s “employer of last resort” and the statement in the final paragraph that the UK “carried the employment burden of the Eurozone’s labour market woes, in addition to absorbing so much labour from central and eastern Europe”. Looking at an IMF Discussion Note on migration patterns from Central, Eastern and South East Europe – CESEE – (Atoyan et al., 2016) shows that between 1999 and 2012 (admitedly lacking coverage of the latter years of the Euro Crisis) Germany was the primary destination country from migrants from CESEE receiving 41% of total flows. The UK did not make the Top 5 receiving countries (Italy (#2), Spain (#4) and Austria (#5) did).

    According to OECD migration data, in the later years of the Euro Crisis, say 2012 -2014, China and India have been the major source countries for inflows into the UK, not Eastern or Central Europe or indeed the Eurozone (in 2014, of the UK’s Top 10 inflow countries only 2 CESEE countries appear – while four of the top 10 are not even EU countries – for Germany, also in 2014, six CESEE countries appear in Top 10, while the only non-EU states in the top 10 are Syria and Serbia). In recent years and in terms of sheer numbers, the number of migrants from Eastern Europe into Germany far outstrips the numbers entering the UK. Also the rise in the stock of foreign/foreign born in the UK from 2009 to 2014 is unremarkable by European standards, roughly similar to Austria, Belgium, and less than other European countries such as Switzerland and Norway. Added to that only about 1 in 3 immigrants in the UK come from other EU member states, a far lower rate than many other EU states.

    This portrayal of the UK as bearing some sort of employment burden seems odd to me. While I have no doubt that the UK did attract migrants looking to work, is there anything to show that the UK was in any way particularly remarkable or an outlier? The comments seem reminiscent of the misperceptions held by the British public which were shown by opinion polls earlier this year, with Britons estimating that there is three times the percentage of EU citizens in the population of the UK as there actually is.

    https://www.ipsos-mori.com/researchpublications/researcharchive/3742/the-perils-of-perception-and-the-eu.aspx

    Unemployed EU workers will presumably continue to all those other countries unemployed EU workers have gone, including Germany – which has a lower unemployment rate than the UK (and has had since the Euro Crisis first started).

    1. But, to the Brexiteer in the UK the makeup of migrants matters. They dont mind, much, after 3 or 4 generations, the commonwealth migrants. They do mind the Poles. Cos, theyre different. Its a twisted form of xenophobia/racism – an inverted form. “i can be racist coz my mate, Josh, hes black innit he? Nah, its dem Poles and latvians and wotnot I doan like, coming here”
      Good migrants are those whom the UK civilised (lets not mention say the Sack of Benin etc). Bad ones are those that they didnt.

    2. @David H

      The euro crisis began in 2010 and Euro Area (19 countries) employed 138.5m at end 2009 and 137.7m at end 2015 — a difference of 800,000.

      Job statistics for the City and related activities in places like Canary Wharf and Greater London do not show a big jump in professional jobs that would absorb lots of EA unemployed.

      https://www.cityoflondon.gov.uk/business/economic-research-and-information/statistics/Pages/research-faqs.aspx

      Estimates of the French population in London are often put at 300,000 but official data are much lower:

      http://www.bbc.com/news/magazine-26823489

      Eurostat jobs data for France show a rise of 80,000 jobs between end 2009 and 2015.

  2. The article is logical. But we are not dealign with logic here. The history of the Tory party since Thatcher has been the ascent of the eurosceptic right. Recall, Mrs T was quite ok with europe, as long as they got a big of a rebate.

    The quality of the UK cabinet on this issue is abominable. A home secretary who is big on stopping one of the UK premier exports, foreign students, from growing and ideally wants it stopped; a Brexit minister who clearly has not got a clue about the various elements that they intend to pull out of ; a foreign secretary who exists to make one realise that it can always get worse no matter how deranged was your laudenum dream; a PM who is even more forked tongued than the norm ; a trade secretary whos cunning plan is to export jam, and thinks the refloating of the Royal Yacht will be a decisive trade tool. the intellect (you in the back, stop snikkering) behind Brexit, Dan Hannan, wont tell me or anyone else what their cunning plan is for NI – will it be in or out of the Customs Union, and if so how will they placate the 40% enraged. The DUP wants everything to change, but to also stay the same.

    These people are either idiots, knaves, or both. They are pandering to idiots, or as they are also known “Daily Express Readers”. They seek, and paint themselves into a corner in doing so, tha hardest of brexits. So while there is a compelling economic logic towards a soft Norway style, the political logic suggests otherwise. Please let me be wrong.

    1. I think it’s the next leg of Capital vs Labour unless Scooby Do can stop them. Dismantle social protection and flog off the NHS . Wages can go way down . None of the arguments in the Telegraph or Express are coherent but there is an overriding logic to the nihilism.

      1. One has to think in Tory central they might welcome the Scots leaving, to ensure to be sure a permaTory government? Mind, not at all sure the Scots will go…

    2. The rational agent is a remoaner. Arlene Foster’s conference speech was delusional. She called Brexit the greatest economic opportunity in years. Reminded me of Biffo.” Of course we made mistakes. But you can only make decisions on the basis of the Groupthink at the time. ”
      The DUP should merge with FF.

  3. The UK ran the most neoliberal model in Europe. Income inequality is sharpest. Education is very shoddy.
    A Level history is essentially focused on 3 subjects. Henry 8, WW2 and US civil rights. Working class skill levels are not good enough.
    The growth model pre Lehman was based on expanding consumption via debt and immigration rather than payrises. And asset bubbles. Wage stagnation was topped up by Government tax credits.
    Higher levels of immigration drove wages down. Goldilocks conditions for capital to take a bigger share of the pie. Lehman stopped the debt spending. Immigration continued. Osborne tried to get the deficit down and GDP looked good in 2012 to mid 2014 because immigration was driving demand for houses and services.

    tullmcadoo Says:
    June 10th, 2014 at 4:17 pm
    Every where I look I see activity indicators improving in sensibly run economies like the US or UK. It is only in the strange world that is the EZ that things are flatlining.

    But payrises were Osborne’s Aughrim. They just didn’t happen. So spending was way ahead of income. Thus the deficit. Productivity has been stagnant for 10 years. The 2014 Autumn Report was a surrender

    They flogged Thatcherism to death.

    http://www.theguardian.com/commentisfree/2015/apr/08/d-iliband-non-doms-tax-margaret-thatcher-council-houses-labour
    “Ever since Thatcher took over, the share of earnings of the bottom 80% has fallen while the top 1% own 55% of everything.”

    Savings have been run down and that goes hand in hand with corporate profit levels

    http://blogs.ft.com/gavyndavies/2014/12/01/uk-fiscal-austerity-a-game-of-two-halves/
    “But, from here, it would be rare for the private sector to shift substantially into financial deficit by increasing its expenditure further relative to income. Growth in private activity will therefore need to come from a rise in income, especially wages, not from falling savings ratios. That will be a more difficult process, especially if fiscal policy is being tightened at the same time.
    The second phase of the fiscal correction may therefore be even harder to attain than the first. A simultaneous contraction in both fiscal and monetary policy looks problematic: something will surely have to give.”

    Something did give. Logic. Access to the UK’s biggest export market.

    The country needs payrises. The deficit is very dangerous with a wobbly currency. They have to tax the richest 1% if they want to get out of the thatcherite hole they are in.

    Brexit is like recommending a hysterectomy for a serious concussion.
    The name of the game is power.

    1. This is the main point. The entire British model of finance-capitalism – debt-based consumption – is hitting the wall as we speak, and has been since 2007. The material decrease in living standards during the preceding four decades, the absurd privatistaion of industry and infrastructure, and the running down and under investment in education, NHS and transportation, leaves an increasingly fragmented society, both socially and politically, seeking to maintain living standards and behaviours that only increased private debt can support – the parallels with the US are striking. The emotional gratification that oligarch owned tabloids pump into this environment, completely devoid of accurate information only hasten and complicate an already fraught situation.

      The machinations of the British State and the desirability of British Media outlets as playthings to foreign tax exiles, clouds another reality. The historic mismanagement of an essentially resource rich country, by elite groups. The latest project, neo-liberalism, has left numerous regions devoid of purpose or hope; industrial and manufacturing activity, once a central feature of civic identity fell quickly by the wayside to Thatcherite dogma. The embedded skills and expertise inherent to these communities were replaced with low-paid call-centres jobs, zero hour contracts and sports direct style distribution centres that don’t even pay minimum wage, and these are for the ‘lucky’ ones. The commodification of education and the continuing rise in tuition fees further inhibits social mobility.

      A dysfunctional economic model and a chaotic and incompetent ruling elite, suggests real difficulties ahead. It is lazy thinking to paint the average British person as xenophobic – the post-1945 history of Britain shows a country that has absorbed large-scale immigration in a relatively positive light. Far from perfect, Yet, as someone who has spent much of their adult life in the UK and continental Europe, I would maintain the UK to be, in the main a tolerant and open society. The institutional and political machinations of the British State during the previous forty years, and particularly the ‘free-market’ dogma which has underpinned society have delivered, unprecedented social and economic upheaval which is now manifesting itself in Brexit type scenarios. Surely a lesson to ideologues everywhere.

  4. Slovakia and the Czech Republic have a big dependence on car production — why would they support a sweetheart deal that would protect the British industry while the UK would restrict entry of their citizens?

    The EU’s Brexit chief, Michel Barnier of France, is a former internal markets & financial services commissioner, and senior French minister. He will be no pushover and he is very familiar with what could be transferred from the City of London.

    2.3% of the UK population are from the pre-2004 EU15 states and 2% is from the ex-communist countries.

    German and UK employment are up 5 and 7% since the end of 2007 but permanent employment has risen in Germany and the economy has been boosted by wage increases.

    In the period 2007-2015, real hourly earnings in the UK plunged 10% while they rose 14% in Germany — a difference of a quarter!

    As emerging markets struggle, domestic consumption is the main driver of the German economy. About 1m refugees were taken in in 2015.

    It is true that Germany could spend more on capital, in particular on infrastructure but the spillovers from such spending would be very low.

    Andy Haldane of the Bank of England has said: “the majority of UK households have faced a lost decade of income” as he noted that half of all UK households have seen no material recovery in their real disposable incomes since around 2005.

    Of the 2.1m jobs added in the UK from 2008, 800,000 were in self employment and part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015 – part-time self-employment in general is not a very reliable way of earning a living.

    Germany’s rate of permanent jobs rose from 65.4% to 69% of total employment between 2007 and 2015. Foreign workers account for about two-thirds of the so-called atypical or mini-jobs, which are subsidised.

    The biggest challenge for the UK in the Brexit talks is that the clock will start ticking early in 2017 and it is the one that has to offer the big concessions not the EU27 — whatever the economics, it cannot be seen to have the bragging rights of a better deal outside than remaining inside.

  5. On the plus side of Brexit at least May’s government is adhering to the outcome of the EU referendum and not allowing itself to be brow-beaten by a French midget into having another one to change the result.

    Handled skillfully the Brexit negotiations could produce massive benefits to the UK which has continued to defy every economic warning delivered by a phalanx of ” experts ” before the vote.

    It’s a huge gamble of course but Britain has the entrepreneurship,history and sheer bloody-mindedness to make it work.

    Unlike Ireland it has no desire to become Europe’s lap-dog.

    1. Maybe London will not adapt. Sometimes Ceteris is not paribus. Sometimes the rational agent goes postal. We are going through a crazy few years of corrupt institutions, broken politics, off the scale inequality , failed monetary policy, absent leadership and a black card rule that doesn’t work, Marty.

  6. I think Europe is of marginal importance to the Brexit chaos. Europe actually softened the impact of sadomonetarism in places that voted for Brexit such as Cornwall via investment in infrastructure. But Brexit is emotion. It is not reason.
    Most of the arguments pro Brexit were manufactured by people like Dacre and Murdoch. “In your head they are fighting”. Zombie.

    The real UK economy is integrated with Europe. The Tories were quick to get the chequebook out for Nissan.
    Fascinating dynamics.

    The market’s approach to the UK is the same as the EU’s approach to Ireland in 2010 : It puts the lotion on its skin or it gets the hose again.

    Some of the nonsense spouted in the name of Brexit is world class

    “A ‘Hard Brexit’ will destroy the Euro – the UK will flourish.”
    “Post Brexit no one trusts figures, stats or ‘experts’ anymore. With the polls predicting Brexit so badly, its no wonder that people are asking questions. Is the media biased, are polls rigged”
    “Sterling is fine and will as always recover.”

  7. One of the significant effects of the Brexit vote is about to hit hard. UK (and NI) inflation is about to take off. Last week Apple announced that prices for their products in the UK market will go up by 12%-15%. Similar increases have already been announced for cars, wine, and famously Marmite (although I’ve no idea what that is). All of this is just the tip of the iceberg.

    1. Did you see Arlene”s speech? It is poppy time of course. Blind obedience. Be a loyal plastic unionist robot for a world that doesn’t care. The Taigs are the new Protestants who understand value. It is a crazy world.

  8. There are a few things wrong with this article. Essentially you contend that the UK has soaked up surplus EU labour and generated demand at a time when Germany has failed to do either.

    This does not survive an encounter with the facts.

    For example you write: “EU enlargement, and then the euro crisis, turned Britain into Europe’s employer of last resort, turning it into an offshore labour market.”

    The UK gets a lot of migrant workers from the rest of the EU, but it is a stretch to say it is its ” employer of last resort”

    The net migration rate from the rest-of-EU to the UK in 2014 was 0.25%, in 2013 it was 0.17% according to Eurostat. This means that one EU migrant arrives in the UK every year for ever 400 people who already live there. This is not a particularly large number. A net inward migration rate of 0.25% from the rest-of-EU in 2014 makes the UK only the fifth-most receptive member state. Germany (0.36%) and Austria (0.43%) took in more. Denmark (0.18%) and Belgium (0.17%) are not far behind.

    Then you go on to say:

    “Britain’s main bargaining card is that their consumption-oriented economy, and open labour market, in addition to a high-tech cluster in London, has carried the employment burden of the Eurozone’s labour market woes, in addition to absorbing so much labour from central and eastern Europe. Germany has done little, if anything, to increase domestic demand, to compensate this”

    This is simply not true. As per above, Germany is taking in more migrant workers from the EU than the UK is. The German economy has become far more open in the last 15 years. Domestic demand is growing in tandem.

    According to the Commission’s AMECO database, between 2008 and 2016 German domestic demand will have increased by 9.8%. Excluding tiny Malta and Luxembourg, that is the largest in the euro area. Within the EU, the only economies which have done better are catch-up economies in the east. UK domestic demand has done well over the period too, but has increased less than Germany’s, at 8.7%.

    I urge you to spend a Saturday afternoon in any (western) German city these days. The streets and shops are thronged and a visibly large share of shoppers and workers are not German-born.

    There are problems with German economic policy of course. Wages do not respond rapidly enough to productivity developments. And there is a good case for a public infrastructure drive given borrowing costs are low and public investment is almost the lowest in the EU.

    But to suggest that the German labour market is not taking in workers from the rest of the EU is just not true, nor is it correct to claim that domestic demand is not growing either.

    1. Everywhere in Western Europe soaked up workers while working class wages stag nated. I am in Aigle in CH today. The town is the size of Tullamore and has its own Portuguese soccER club. Breaking the unions made this possible.

  9. The Chewbacca defense is a legal strategy used in episode 27 of South Park, “Chef Aid”, which premiered on October 7, 1998, as the fourteenth episode of the second season. The aim of the argument is deliberately to confuse the jury by making use of the fallacy known as ignoratio elenchi (or a red herring). The concept satirised attorney Johnnie Cochran’s closing argument defending O. J. Simpson in his murder trial.

    In the satire’s original defense, the fictional Cochran started by stating that Chewbacca lives on the planet Endor. After stating that this statement “does not make sense”, Cochran continues to connect the senselessness of his own statement to the actual case, implying that it is equally senseless. His closing argument “If Chewbacca lives on Endor, you must acquit” is lampooning the actual Cochran’s original “If it doesn’t fit, you must acquit”.

    In the case of Brexit , Cochran (played by Theresa May) says “Brexit will make the UK and low income Chewbaccas richer” after stating to Goldman Sachs that this statement “does not make sense”
    https://www.youtube.com/watch?v=pP0NeksDcS4
    Cochran continues to connect the senselessness of her own statement to the actual case, implying that it is equally senseless. Her closing argument is “Brexit means Brexit”

  10. The view of a former UK prime minister.

    http://www.theneweuropean.co.uk/articles/blair_s_call_to_mobilise_against_brexit_are_the_words_of_a_street_by_street_fighter_1_4753688

    The UK, under Tony Blair, was an enthusiastic supporter of the so-called “big bang” approach to Enlargement and did not, unlike Germany and Austria (!), but with Ireland in tow, avail of the full seven year period of derogation which the enlargement treaties allowed with regard to the introduction of free movement.

    The UK’s current dilemma is entirely of its own making. Ireland’s misfortune is to be involved in it.

    Attempts in the UK to fob off responsibility on developments in Europe are now the order of the day but these do not stand up to serious examination, other than to confirm that the UK attempted to hold up further integration efforts in Europe; and failed.

    No credible assessment of ANY options as to where the UK is headed relative to the EU can be made until the UK government itself sets out some form of initial negotiating position. Logic would dictate that it must do so PRIOR to triggering Article 50, a dated commitment of sorts (end March, 2017) , to which PM May has bound herself; and the UK.

  11. Let’s take the points in the original article one by one.

    1. The euro crisis politicized the city of London, which became the default offshore finance centre for euro clearing.
    – this seems pretty meaningless…London already was the default offshore centre for the Euro. Where else would be?

    2. EU enlargement, and then the euro crisis, turned Britain into Europe’s employer of last resort, turning it into an offshore labour market.
    – this seems dubious, given the numbers of European immigrants getting jobs in Germany, Spain (where the Romanians were a big deal) etc.

    3. This spurred and politicised a latent immigration concern within large swathes of public opinion, and the electorate.
    – the immigration concern existed previously and is not uniquely or even primarily related to (white) European immigration.

    4. Very quickly, the euro crisis, and the response to it, not least the Fiscal Compact Treaty, exposed the future of Europe as a two tier Union: between the Euro area, and the rest of the EU.
    – yes, but this might also be a “so what?” topic. Seriously, so what?

    5. The balance of power (i.e. the rise of Germany) changed and weakened Britain, who were increasingly “outside” the EU process, despite being the employer of last resort for the euro area.
    – so yes, the rise of Germany made Britain weaker in the EU, as did the increasing EU focus on issues related to the Euro currency. But the idea that the UK somehow deserved extra power for being the employer of last resort is highly dubious.

    So, overall, 1 and 2 are dodgy. 3 is probably relevant, but not mostly about EU immigration in any case and leaving the EU may make no difference. On 4 I’m left seriously asking “So what?”. And on 5 the answer is “Yes, but….” with a very big but.

    As for the UK economy, each of (at least) three key areas is at serious risk unless access to the single market (not merely a zero-tariff zone) is maintained.
    A. Finance in London is the monster of the UK economy. If London loses the financial passport it’s deeply screwed. Watch house prices in Paris, Amsterdam, Dublin and Frankfurt rocket.
    B. Manufacturing is in deep trouble. The sector is hugely competitive and countries like (as mentioned by others) Czechia and Slovakia and Spain will take up any slack as UK companies get hindered by tariffs and regulatory barriers.
    C. Farming will lose all EU subsidies and the UK government seems unlikely to replace them. Economically sensible perhaps, but disturbing.

    Other segments are also potentially in trouble but less easy (for me) to see how or why. Tariffs on energy imports/exports could cause havoc. Not just financial loss but actual havoc. Pharma is complicated enough without adding regulatory uncertainty.

    And Ireland is exposed on the double. Hard to take advantage of any employment moves (no housing stock, for one), and the UK is our neighbour and (albeit self-harming) our closest friend.

    There is no good outcome. Only “salt and vinegar”.

    H

  12. On the subject of salt and vinegar.

    http://www.reuters.com/article/us-britain-eu-pharmaceuticals-aerospace-idUSKBN12V1Q1

    Maybe the best analytical approach is to recognise the truth of the point made by the Labour Brexit spokesman that UK ministers are making it up as they go along. (It is impossible to speak of any settled major government position). It is only in identifying where the shoes pinches most in particular sectors that the likely outcome can be guessed at e.g. in this instance the UK staying within the Customs Union, something which will hardly appeal to the hard line Leaver elements in the Tory party.

    On the migration issue, in or out of the EU, the problem for the UK will not go away. Cameron was, however, close to achieving an optimum outcome as far as the UK is concerned cf.

    https://www.freemovement.org.uk/brexit-briefing-rights-of-entry-and-residence/

    The other general point that can be made is that both sides in the negotiation are made up of democratic governments and/or institutions i.e. governed by law. There may be solutions that would appeal politically but are impossible to legally implement e.g. selective access to the EU’s internal market.

  13. Just to shift the commentaries a little. We have been here before – and more recently (Stiglitz’s ‘The Euro’), that is, the political and economic difficulties that are possible (even probable) when states agree to merge part of their financial, productive and consumption economies. There is one large caveat which receives little attention – that the merged region must (obligatory) experienced a sustained level of economic expansion, and the benefits (if this is indeed the correct term) of that expansion must be distributed in such a manner as to ensure the less endowed economies do not experience any significant, structural economic losses which are not compensated for by those states in the region who experience economic gains. This has not occurred within the EU. in fact the opposite seems to be the norm. The strong have prevailed, and the weak have suffered what they must.

    A comment by DOCM on the Kilkenomics thread reminded me of Sir Arthur Lewis – who won the Reichsbank Prize for Economics in 1979. Lewis was interested in the economics of development – especially of Africa. His Nobel Lecture was published in The American Economic Review [September 1980: 555-564]. In part III he discusses the economic problems that will be encountered where a group of non-homogenous states (they have significantly differing economic strengths) agree to some form of economic union – “[The] union then survives only if costly measures are taken to placate the less advanced, and these measures are difficult to negotiate.” (p 561). The whole lecture make for uneasy reading.

    History rhymes.

      1. Hugh, thank your for putting up the link to the Lewis lecture. Brian.

        Its somewhat spookey that Seamus Kinsella has two charts in his ‘Fatal Flaw …’ contribution – you would think they were straight out of Lewis! But the storey that those two charts tell us maybe, just maybe, is one of the causal factors behind the rise of Populism. The ‘Less Developed’ – or Developing Economies show a steady, flat-line for GDP for 50 years (at 4%, plus or minus the odd wobble). Whereas the ‘More Developed’ – or Advanced Economies display a steady, negative GDP trend line (from 6% to 2%) for the same 50 years.

  14. A quote from Martin Sandbu in today’s FT that sums up the overall situation.

    “Too many [in the UK] still labour under the misconception that the risks to a good deal are on the EU side rather than the British side. In truth, the challenge is not that EU spite will torpedo sensible negotiations, but that UK politics cannot stomach the reality of modern economic integration — which amounts to common rulemaking and open borders.”

    That’s it in a nutshell. Either the world changes or “UK politics” changes. The jury is out, especially in the light of the uncertain outcome to the US election.

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