The Hysteria of Brexit and Irresponsible Leadership
Happy New Year to my readers! 2016 was a year filled with geo-political turmoil, pain and suffering in many countries (Syria is but one example), and new scientific developments (eg, SpaceX and driverless cars). In 2017 we’ll see a new president, Donald J. Trump, assume office and move forward with his political agenda for the United States. However, one of the biggest political events that will seize attention is the start of the United Kingdom’s process to leave the European Union. Brexit is not for the faint-hearted; Prime Minister Theresa May will have to draw on all her inner leadership resources.
The vast majority of news coverage of Brexit, before and after the referendum, has been hugely oriented towards a sky-is-falling standpoint. This post takes a contrary stand. Time will tell where the truth lies.
Boris Johnson, the former London mayor with the blonde mop of permanently messed hair and crumpled suit, probably couldn’t believe his eyes when he saw the results of the June 23rd Brexit referendum. In a mini-me version of Donald Trump, Johnson had decided during the campaign to adopt a full-scale assault on the Remain in the European Union camp. His ability to stretch the truth and mis-state statistics (if not outright lying) knew no limit.
In a down-to-the-wire finish reminiscent of Quebec’s 1995 referendum, in which the No vote to separate from Canada won by only 54,000 votes, UK citizens flipped that story over to vote to leave the EU. Brexiters won by 3.8 percentage points (1.3 million votes).
The degree of hyperbole from both sides during the months leading up to June 23rd became unbearable. Prime Minister David Cameron (who resigned immediately after the results), the architect of the Brexit referendum, earned an A+ in contributing to the hysteria of the Remain camp, not to mention feeding the insatiable appetite of a media that was more intent on stirring up the public’s emotion than on conducting intelligent analysis and fact-checking.
That the sky would fall and the UK would turn into a banana republic was a virtual certainty if voters chose the Brexit route. And in the weeks following the referendum’s results, the hand-wringing increased as Remainers moaned about how Brexiters, in particular people like Boris Johnson, manipulated statistics and distorted the truth. Bad Boris and other major players had taken the UK down the road to ruin, with no chance to undo the referendum. Indeed, new Prime Minister Theresa May, herself a Remain champion, has insisted that “Brexit means Brexit” from the EU. Her challenge, and that of her cabinet, is figuring out how to do it and when to invoke article 50 of the Lisbon treaty.
There are two general ways that the UK could exit the EU: a so-called “Hard” Brexit, which could include the UK refusing to compromise on such issues as the free migration of Europeans and leaving the EU single market (with its 27 remaining member nations) and instead trading with the Union as a country outside of Europe. In contrast, a “Soft” Brexit might involve the UK keeping some form of membership within the EU, with a provision for the mobility of Europeans (along the lines of what Norway negotiated with the EU).
Perhaps the most insidious aspect of the Brexit referendum was citizens of the United Kingdom foregoing an intelligent debate on the merits of staying or leaving the European Union. That the referendum descended into a quagmire of infantile insults, lies and deceit speaks poorly of the country’s media, intelligentsia and elected representatives.
Although many reasons have been attributed to the June 23rd outcome, four main factors have become defacto scapegoats: racism, nostalgia for the United Kingdom of the past, education levels, and insularity from the outside world. Yes, there’s truth in this, except that what gets overlooked in the socio-economic-geographic voting results is that the Remain camp was very heavily skewed into metropolitan London.
Younger educated people, who migrate to the world’s financial centre, want access to the EU, whether for work or personal travel. Yet in the real world of working families, whether in Northern Ireland or middle England, manufacturing jobs have disappeared with little in the way of replacement incomes. Alienated youth, such as in Glasgow or Manchester, see no future. Crime becomes a way of life. Immigrants and refugees arrive in communities where employment prospects are poor, compounding perceived views of immigration.
In the last five hours of the polls being open on June 23rd, betting markets had given the Remain camp an 88% chance to win. The four percentage point loss, however, shook markets and currency trading, with the pound taking it’s biggest one-day loss in recent history, from $1.50 U.S. to $1.36 (in early 2017, the pound is about $1.23 U.S.). An estimated $2.1 billion was lost on world stock markets. And Moody’s lowered the UK’s credit rating. It was pretty ugly, reminiscent of a bad Mel Gibson apocalypse movie.
Except that the sun always rises.
Fast forward less than two months to September and not only did the UK’s economy not collapse under a mushroom cloud of global fear but consumer spending actually maintained confidence. Business confidence showed signs of revival, the services sector reflected the biggest gain in some 20 years, and the pound strengthened (though it nose-dived in early October, due likely to high-speed, algorithm trading). Of course, it helps to have a highly competent governor of the Bank of England, Mark Carney, previously the Governor of the Bank of Canada. His stimulus package in September helped bolster confidence and spending.
The weaker pound has also helped to stimulate exports. The latest data at the time of writing is December 2016, when the Markit/CIPS UK Manufacturing PMI jumped to 56. This 30-month high was in contradiction to a previous Reuters poll which had forecasted it to decline to 53.1 (the long run average is 51.5). Accompanying this rise in exports was the biggest increase in manufacturing employment in over a year.
Across the pond, Canada’s crown-owned Export Development Corporation (EDC) opened a permanent office in London in September 2016, just three months after the Brexit vote. This was actually a long-overdue event, considering that the UK is Canada’s third largest trading partner (after the U.S. and China). The opening of this office expands EDC’s global coverage to almost 20 permanent offices in a variety of countries (e.g., Beijing, Singapore, Mexico City and Jakarta).
EDC’s mission is to support the export growth of Canadian companies, Therefore, it’s a strategically important decision to open a London office. Granted, there’s still a high degree of uncertainty and risk ahead for the UK as Prime Minister Theresa May and her cabinet undertake the country’s exit from the European Union. However, EDC saw opportunity with the United Kingdom’s future, despite what many commentators have said, and continue to say, about its Brexit result.
Some of the largest technology companies in the U.S. announced in the fall that they’ll expand operations in Great Britain. Apple announced at the end of September that it will consolidate eight locations into one new building in southwest London. The current 1,400 employees may double in size over time. A month later, Google stated that it will construct a new head office at Kings Cross Station, aiming for 3,000 new employees within three years. Around the same time, Facebook announced that it will boost its workforce in Great Britain by 50% to 1,500. And to round out the private sector investment announcements, IBM will open four new data centres as part of its cloud services growth.
Then there are Chinese investors who see opportunity halfway around the world. In November, four of China’s largest banks announced a $2.1 billion financing deal for the first stage of the East End dock transformation into a business hub for East Asian companies. That doesn’t include another $2 billion of Chinese money being invested into London’s property market.
While investors from other countries are nervous about investing in Great Britain due to the uncertainty on how Brexit will play out, Chinese investors have adopted a more bold approach. In addition to a yuan that has risen against the pound, Chinese investors are getting close to exhausting their aggressive foreign property acquisition campaign. As Michael Marx, former CEO of U+I group, said in an interview with Bloomberg Businessweek: “Chinese investors are betting that the U.K. will do well in the Brexit talks, and if it doesn’t, companies will choose London as their base.”
With risk there’s opportunity for those brave enough to embrace it.
People tend to forget the resilience of those living in the United Kingdom. Just witness how during the darkest hours of World War II how the British focused and sacrificed heavily to repel Hitler and his Wehrmacht. To think that the decision to leave the European Union will cause a long-term catastrophic decline in the United Kingdom’s economy is not just incorrect but, frankly, idiotic.
The UK will continue on as a major Western power, both economically and militarily.
Count on it.
Success is not final, failure is not fatal: it is the courage to continue that counts.
— Winston Churchill
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