Brexit’s Opportunities

Or, how I Learned to Love Decentralisation.

The Great Referendum

As Britain either teeters on the brink of freedom or self-punishment, the debate is currently whether a second referendum is worth the social cost.
The main feature of this argument is the immutability of the public’s choice two years ago.
This is an interesting argument as it proffers not necessarily which side of the debate you sat on in the first place, but a mixture of that and your belief in democratic institutions.
The follow-up argument is why the benefits reaped by public debate could be just as great under a no-deal brexit. The result of this reasoning, is that I do not believe Brexit is the real monster, but instead centralisation is.

It is worth remembering that most brexiteers would compare a second referendum, if remain won, to that of Greece and Italy’s, perhaps prompting a stab in the back type mythos to develop amongst the most hard-core elements of that camp.
Such a mythos would be damaging for social cohesiveness, accusing the Westminster elite of bringing down the people’s vote.
This is unlikely to continue to full fruition. However good the brexit elite are at spinning a story, they are not good enough to accuse the major political parties of betrayal of the people without bringing themselves down with them. The most likely pheonecians are the Conservatives, if this conflagration should occur, however.

Comparisons with the first world war are not that limited in scope, even. Both decisions were taken by an elite, feeling trapped by a coalition of potential belligerents that they thought would strike first.
With the first world war, though it took an idiotic assassin to spark the flames, the tensions had built up for quite a while. The Entente Cordial, signed in 1907 between the UK, France and Russia had encouraged the historically distancing Germanic empires of Austro-Hungary and Germany back into an uneasy alliance.
Germany had felt for a while that France would attempt to break them in retaliation for the Franco-Prussian war only 43 years earlier, so felt a first strike, as in that war, was prefferable.
For Brexit, the conservatives hemmed in by their own losses to UKIP, perceived or otherwise, felt a first-strike policy was necessary to ensure that they did not devour the party and even more of the MP’s, being split as a party over Europe since Thatcher.
So Cameron, either not expecting to win the 2015 election (in 2010, just after a recession, they failed to win outright and so why would they when under their leadership the economy was simply chugging along?), or they believed a referendum would nip it in the bud.
Either way, the promise was the first strike. The actual referendum can be compared to the use of the outdated and ill-advised Von-Schliefen plan.
So now we are in the quagmire of the trenches, nothing yet decided yet the winning side pre-ordained by simple political geography.

And if the worst fears of the remainers are realised, living conditions will come to resemble that of Germany during the blockade before the treaty of Versailles was signed.

But this has not yet come to pass, and there are still some options on the table.
Chiefly, a second referendum is possible and is gaining momentum. And since politics is war for peace-minded people, why not compare the prospect of it to another?

A Religious Affair

The Thirty years’ war was caused by an aggravation of local lords caused by an Emperor unwilling to bend his will to understand the wants of his subjects.
Already a loose-coalitions of Duchies and protectorates, the Holy Roman Empire was a mixed-faith ensemble with Lords that chose whether to impose Catholicism or Preotestantism on their subjects- but they were the arbiters and peace reigned in that fashion. The mixed-distribution of religious beliefs meant that sides were already drawn so the decision of the Emperor to pick a side caused extreme turmoil.
The fighting was bloody and the casualties huge. It only ended with a peace-and-reconciliation style deal between the factions, and gave the regions irrevocable identities that remain in some parts to this day.

The comparison is fair- for remain, the margin of victory was so slight that the political decision to leave is tantamount to being made to bend the knee to a cruel warlord attempting to impoverish them. To Leavers, the lord is on their side and has merely enforced what they believe is the correct belief system- whatever the dogma of it actually may be.
A second referendum would also be in this fashion. An analysis of all the constituencies and their remain vote-share shows that the public in each local area are almost perfectly split.
If the comparison holds and democracy is civilised war, then it is neighbour-against-neighbour all-for-themselves style warfare.
The thirty years’ war is not the perfect comparison, however. Though you could argue the overarching structure of the EU and belief in its institutions is comparable to that of the Catholic Church, finance and the organisation of the individual states was very much removed from Rome.
If inspiration was to be taken from the outcome, then a Brexit outcome in the spirit of the treaty of Westphalia would not only break-up the UK into its constituent countries, but potentially its individual constituencies.

Moreover, during the Thirty Years’ War there was a far higher concentration of religions within their communities by their very nature as compared to to the Brexit vote. This simply resulted in hyper-localism and an identity formed by the conditions of pre-war and war conditions.
As the above analysis shows, the brexit argument is between literal neighbours, not just neighbourly communities or even Duchies.
This negates the idea the outcome could be so consuming as to break up the UK. And while the old kingdoms of the UK voted in a patchwork way, the majorities in each are negligible and one might think that the break up of the whole UK to be a bit of a stretch.
So we can hand-wavingly discard the idea that a serious break-up would occur in all but the hardest of shocks.
But this only encompasses a breakup of the UK, the most extreme of all options. It does not necessarily mean that political and economic autonomy will develop to a lesser extent than a complete severance.

Centralised Collapse

More importantly, the comparison with the Thirty Years’ war can also be applied in terms of the religion of Westminster. As I said earlier, it is not only whether you voted for Brexit in the first place that determines whether you think we should have another go at warring with the polling booth, but also your political faith.
This process will shake the faith of the public in the efficacy of centralised decision making, and much like the end of the holy roman empire broke ground for the enlightenment, perhaps a devolution in government due to the lack of faith in Westminster will lead to a revolution in democracy and as a result, the economy.
A local distribution in responsibility for local production of food and energy is something that the UK so desperately needs.
Germany has itself already lead the way in local energy production, and the economic impact is nothing to be sniffed at.<1>
Brexit, like the Thirty years’ war, could pave the way for more efficient and local governance- whether we remain in the end or not. This argument for progress relies on the debate changing in Britain as it did during the Thirty Years’ War, from that of a religious nature to underlying political and economic problems that arguably caused the unrest originally.<2>

An emergent localism that boosts engagement in politics and specialises local economic policy would be a great outcome for the UK, in my opinion. And given that this is the most painful, splitting debate based on religion rather than fact, the outcome will hopefully reflect that of the Thirty Years’ War, and give greater power to localities. This would indeed be a good thing<4>.

The Last Post

The supposed worst case scenario for most remainers is that of a no-deal brexit. Falling out without a plan would create a huge external shock for the economy.
Suffering most of all would be the SME’s that rely on regular friction-less trade with the EU, such as Welsh small-scale lamb farmers.<3>
But which parts of the economy actually increase its resilience against such external shocks, and would a short, sharp shock be such a bad thing for the UK economy?

In terms of exports, a majority is in manufactured goods. Using the Ricardian analysis, this implies that the UK has a comparative advantage in these exports<8>. Capitalising on this strength to reduce the current account trade deficit would be a boon to the UK, whether we remain or leave- and especially if we leave.

A report made by a collaborative team in 2013 <4> concluded that the best way in which the UK can prepare for an external shock is by both increasing the level of and localisation of manufacturing.
This means, the government should choose specialised policies dictated by geography and environment predicated upon smart development. This compliments my previous comparison of the favourable outcome of the Thirty Years’ war and with a potential post-brexit outcome, off-setting the effects of Brexit as well as lay the groundwork for future economic development.
And the Govermnent’s industrial strategy white-paper <5> seems to acknowledge and build on this generalised strategy.
However, given most of the strategy is in terms of acknowledging our knowledge-base deficit, this could be seen as too little too late to deal with the upcoming shock Brexit presents.
The UK is still the 7th easiest country to do business in according to the World Bank Group, which measures in essence the ‘capitalist spirit’ or the ability for entrepreneurs to see their ideas through. This implies that the UK is reasonably well equipped to recover from such a shock in the medium term, though the ease of business measure is relative and we would be ignoring the sheer human cost in the interim.
To use Keynes’ analogy of business as trees in a forest and Giraffes the people sustained by them <7>, the UK’s soil is fertile and can relatively easily sustain trees of all types- but a larger proportion of the Giraffes of lowest quality will still suffer.
And to extend the analogy, since all Giraffe’s carry the seeds of potential, a fall in numbers and quality of those today deemed to have unsuitable traits may deprive us of the specialisations that we need tomorrow.
But that is simply an argument that the government, being the body with the best chance of sustaining a deficit in the medium term, should take on most of the burden come Brexit.
So while the UK may come up with innovative technology and manufacturing processes after Brexit, the ease of trade with the EU and the rest of the world will lead to a short term shortfall in GDP for the UK, as has been predicted by the Bank of England.

So given the speed with which Brexit will hit, it is unlikely that the UK will be well placed to either continue to be as verdant with business or as a place to continue investment in the key areas of the economy.
But in the medium term, if the Government sticks to its proposed white-paper on industrial strategy, it could germinate a new front in the fourth industrial revolution. And if the UK becomes a leader in this sector, it could force other countries to generate favourable trade deals with the UK.
A relationship based on mutual benefit is far better in my view than one built on mutual comfort.
After-all, the UK still maintains the second highest level of FDI in the world <5>, so is incredibly well-placed both in terms of international confidence in its market and its potential for growth. However, this also relies on FDI being spent intelligently and while the preferable endpoint of investment with this idealisation is SME’s in the industrial sector, they also see the smaller returns relative to service based investments <8>. If we assume a no-brexit deal without passporting rights to the city, we at least know that the service sector will receive less investment.

We can only hope that if this scenario plays out, that foreign investors see the benefit in developing the UK’s manufacturing base as a safe haven due to its world-class educated workers.

But to answer the question of whether a short sharp shock would benefit the UK, I would reference my previous argument.
It is well known that periods of instability create the greater advances in political and economic liberalisation, and combined with a strong industrial strategy could be the dawn of an economic revolution. This is a rather liberal interpretation of Minsky’s works, drawing the negated conclusion that bust sows the seeds of boom.
The additional problem is that this liberalisation is wholly dependent on the means by which the UK would try and recover.

Conclusion

The only option not on the table is outright remaining in the EU in the short term.
And while it might appear unpalatable, the idea of a hard Brexit might lead to long-term sustainable social and economic growth.
But that is wholly dependent on the way in which the government chooses to react to the economic shock.
A second referendum, whatever the outcome, might send us in the same direction that the Thirty Years’ war did on the Holy Roman Empire, which I don’t think would be any bad thing.
Localisation, development and a devolution of power developed through a lack of trust in Westminster and its institutions could be a good thing.
Germany has benefited from such a localisation in its energy sector, and the potential does not end there.
Localised production of food and housing also would bring down the cost of living along with a cornucopia of other benefits, such as slowing down the pace of drug resistant bacteria, and give power to communities to make their own decisions which ultimately they are best placed to do.
Not to mention the added benefit to the structural stability of the economy of a tailor made local industrial strategy outlined by the report made in 2013.

The future lies on a knife-edge. But unlike how most think, the knife is not the referendum result, but on the Governments’ and people’s reaction to it.
But the debate is necessary, to avoid public resentment of either side.
Furthermore, an intelligently designed manufacturing base is what we should want in any circumstance. It is recommended that the best way of achieving this is a localised manufacturing strategy. A mistrust in Westminster and its institutions could make this a more realisable option, which is more likely itself through a national debate, either by a second referendum or by a hard-brexit outcome. Whatever happens, a government and economy that works for everyone is what we should strive for.

Brexit’s Opportunities

Or, how I Learned to Love Decentralisation.

The Great Referendum

A Religious Affair

Centralised Collapse

The Last Post

Conclusion

References

Published by fancyfallacy

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Or, how I Learned to Love Decentralisation.

The Great Referendum

A Religious Affair

Centralised Collapse

The Last Post

Conclusion

References

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Published by fancyfallacy

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