Brexit on the Flipside

For me personally Brexit is not very attractive a proposition, neither by politics or by my own ability to have moved my labour freely abroad within the EU/EEA agreement. At worst it could cost me about six hundred pounds to change citizenship and I could lose some pension in the UK. At best I get a dual nationality and business as usual, plus a weak pound for the next decade for my trips ‘home’.

But as a business consultant and erstwhile economist, where do I stand on this?

Why Did They Do it?

Firstly in reply to any ‘darn sarff’ener, flat-capped No’thener or Welsh Brexiter, I am Scottish and we just didn’t feel the need for brexit, despite having significant numbers of EU workers north of the Border. Perhaps we are more welcoming as a nation, perhaps we are more used to foreign tourists and war time refugees with their ‘free polish’ clubs and synagogues. We are also perhaps more secure in our national identity as a small, plucky nation who has taken a few knocks. And of course, EU membership was a big political football in our 2014 referendum on independence, when exit stage left was painted as negative all round!

Or perhaps we have a wry angle, knowing that migrant workers keep our soft fruits affordable, and our offices, trains and ferries clean. Also at a guess I would say that perhaps more Scottish young people have experienced travel and work in the EU than their southerly compatriots. One thing I know to be sure is that Scotland has quite a few foreign companies with their headquarters for the EU, or at least international call/service centres, based in the central belt. Between that, the universities and the tartan draped tourist industry, many Scots have experienced working with ‘furriners’ and enjoyed the experience, and I am firmly in that bracket.

Economically Scots beleive that being in the EU, warts and all, is better than coming out. Those high tech’ and oil companies with EU headquarters are part of this picture. Along many an upgraded (ie  two way traffic) roadside or harbour front in the highlands and NE, you can see signs with that wee circle of stars on ‘beaurocratic blue’  – so hated by the ‘Kippers – that this development was supported by EU funds. The same extends to Science where proportionally more Scots go into research than their compatriots south of the border who live  outside the south east of England. That means more travel to work abroad, many have exposure to EU researchers’ freedom to come to Scotland too, while also at home enjoy sharing a larger part of the pie in EU research grants than many other countries per capita.

However certainly many of the northern counties of England felt very much different as did the fishing coastline of Enlgand and the regional cities. Do they really feel inundated with foreign workers ? In some areas and proffessions I guess that eastern europeans in particular make up perhaps a fith of the workforce. Was the fear of hoardes of Africans and Muslims more of a driving force? Certainly it wasn’t bent bananas, CE marking or market access and ease of movement outwards,  which people felt their national pride dented by.

“Basta!” Says White Van Man

When you look at the rhetoric from the public and the “populist” UKIP, rather than the rest of the New Neo Right’s scribbling, then we see Brexit was about immigration, immigration and immigration. With the back drop of mass african migration and the middle east refugee crisis, the UKIP camp had the fear factor to get people out voting who maybe wouldn’t have voted in a less troubled time, or indeed had voted yes under Ted Heath.

Also the Brexit vote was very much like Trump-In, it is a cry for ‘basta’ from ordinary working people on lower wages. For the end to exposing them to cheap labour from abroad. We have had exactly four decades of mainstream Neo Liberal propaganda and policy creation which tells the ordinary worker that organised labour is always bad for them and will take jobs away from them, while in fact trade deals have exposed those same workers to a declining ability to earn by pitting them against the lowest common denominator on a global basis, which can be as low as slavery in some primary and processing industries.

After four decades of union bashing, the working person is afraid of the language of collective bargaining and class action, rather though they can grasp some simple market mechanisms that less immigration means perhaps hope of higher wages.

Brexit Means, Well, Brexit of Course! 

Brexit does not mean EEC or EEA membership , it means a trade deal or more likely many trade deals, not a wider set of agreements involving society. It means years of uncertainty around areas of being able to get funding for research and infrastructure. Most importantly to economists, it also means restrictions on being able to either get highly skilled labour, or being able to sell products freely. Another thing, in the new ‘fortress Britain’ there will be a ‘hard border’ both at Dover and Calais,  and there will be therefore  supply chain delays (which I detest at work).

Brexit entails the Conservative party making postures towards the EU and the public on deals which will seem to favour business.  In fact a very favourble international business environment has been sculpted it seems as far as the Brexit voter is concerned,  totally behind the scenes for six decades via the EEC, EEA and finally the more federal EU. These established agreements make it easier to do business and remove tariffs and border customs delays. The Conservatives are not saying the UK will go it alone, they are saying they are going to invent a better wheel , a new agreement …..And by the way, they are not going to tell you what it looks like becasue that would be showing their hand before going into negotiations.

As a leading spokesman for a bank said ” The pound is now the de facto opposition to government policy” (on brexit) and that is likely to be the situation forwad for at least five years.

Simple Chuck Em Out Arithmetic Old Bean (?)

 

It should they say,  be a no-brainer. Immigrants out, unemployment down, wages up. The UK has currently around 7% of its adult workforce from EU countries and this could  have risen to well over 10%. With their families in the picture, this influx could render  that proportion of the total population to 15% by 2030 if “things were allowed to go on”.

With unemployment and underemployment running high amongst the unskilled, youth and “wrong-skilled” UK graduates, an arrest in the growth of EU immigration,  and a partial or complete shift out of this 7% over time by natural self repatriation, work permits and quotas, should mean there are enough well paying jobs for everyone who is a UK national.

QED. Simple arithmetic. 5% unemployment solved in a short space of time, wages can grow thereafter on the island paradise bathed in best-bitter and sated on pork pies.

The trouble is of course this: Will the economy grow in the next five years, and what will happen after we slow down and reverse this flow labour? Here we have two elements , firstly do other EU nationals do the jobs brits won’t or can’t? Will then companies struggle to recruit at both ends of the skills market  and no longer be competitive or attracted to remain in the UK? Secondly how does this influx of people feed the great monster of the housing market, which turns so much of the economic wheel of Britain round?

Less availability of skills and less demand for housing may sound ‘oh goody goody’ to the UK worker, but in fact it may be a ‘double whammy’ to the economy,  and that great pyramid-sell we nearly all buy into, ROI from bricks-and-mortar.

The Flipside Viewpoint

How many UK nationals will return with their age related health problems if Spain pulls the plug on free health care? How many ‘wrong skilled’ graduates who emigrated for work,  and right-skilled itinerant UK workers will return over the straits of Dover as a result of the new climate?

There are an estimated 3-4 million Brits living in the EU, Council of Europe and EEA countries.  A hard brexit  may mean a hard response or a more insidious rise of discrimination and marginalisation of Brits working abroad who want to keep their UK passport at least. How many will come back and what will they be doing upon repatriation? Will they not push up costs while forcing wages down ? Or how many will relinquish UK passports in order to secure their current status and jobs abroad,  and thus lock themselves out of the UK market for labour later?

How many companies are going to say, we can no longer get staff here, it is too much hassle, we are moving to the ‘mainland’? Or companies lured at first by a favourable tax and regulatory environment only to find the same is true when they explore the labour market? Or will there be one rule for the rich, ie those with high skills or high demand skills at least, and one for the poor?

Back to the flipside, given a slight assymetric deal or absolute numbers deal, head in for head out, then after new laws are passed enforcing poorer working conditions in the UK, how many graduates and skilled labourers will up and leave the UK for better prospects in especially Germany which lacks labour on a long term basis?

Training And Education Is The Cure We Are Told

The new minister for work and pensions has already pretty much laid out the political demand and public expectation that from day one of their new cabinet and the move to the day article 50’s severance is reached, UK employers had better look at training up UK staff with the skills they need, and not expect EU migrants to make up their numbers. The trouble is that it can take four years to train up a hand worker to be proficient and productive with their skills, and British ” youff ” seem notoriously fickle when it comes to sticking-out training and ‘hands dirty’ careers.

The whole education system is hell- bent on ever better Pisa results, in maths in particular, but really do you need differentiation to be a bricky or a joiner? Do you need more than pretty basic arithmetic to sell insurance? There is a suggested return to the ‘secondary modern’ which may be admirable enough with a view to less academic more practical pupils, but what proportion of those do we need contra data-literate, bi-lingual and comminicative school leavers? What will happen to the Pisa tables if that old fashioned parallel stream of brown coated pupil is introduced? In any case, none of this is influenced by  EU policy.

The UK education sector is basically pretty bad at right-skilling pupils or even equiping them with a mix of practical skills and academic results to open their opportunities as school leavers. There has had three decades of expanding the university degree system, and focusing pupils in secondary school, to taking that route as the best means of securing a prosperous and productive life. This is a strategy which can be argued has devalued that level of qualificaiton on the one hand, while on the other it has taken away very many practical elements and natural work experience progression from the older HNC and HND routes, and even reached into apprenticeships perhaps. The same is apparently true in the USA.

Many graduates in even the more practical applied-technology or vocational degrees, find themselves in a job market where it is necessary to do a ‘slave labour’ internship for extended periods just to get onto the career ladder, while many from those more academic or esoteric subjects find that teaching-training is over subscribed, and research careers are a narrow pyramid of selecting the very few best and brightest only.

Correcting Supply and Demand is Inherent in Brexit ?

Ah but I am ignoring basic economics of supply and demand, aren’t I. It means that those brickies and white van men will have higher wages and cheaper houses in one fell swoop. Well no, the answer is no. We come back to another couple of economic basics: What is fueling growth in the UK economy? ….. and the connundrum between costs, turn over and margins.

Brexit voters were predominantly in two groups of sociodemograhics:  older over 55 y.o.,  or thirty something less skilled “white van men”.  The educated middle class voted Remain, and the youth of the country were on Snapchat that day. The older generation are increasinly investing in buy-to-rent properties as a means of investing and reaping return on their high wages and personal equity, while the generation of brickies, mortgage brokers, plasterers and Ikea workers are dependent on the demand for new housing growing.

However the British mum is not playing ball in this picture. She is having her kids much later, and as a consequence, fewer of them. By 1995 it was down from the clicheed 2.4 to 1.7 and it has fallen further. That means that the population is decreasing over time, and rapidly ageing. We are not breeding as many people as we are today. It takes 2 to tango, but 1.4 say as it may be right now, means we loose 0.6 children per parentship.

So if you also remove demand from immigrant and migrant workers out ofthe housing market, it starts to lose not only first time buyers, but also the growth which is feeding those nice littlenest eggs (actually, nasty) which the over 50s baby-boomers love to have- yes, buy-to-rents.

Is the UK Economy Driven Forward By the National Mortgage ?

No one has really a grip on how much of the UK economy is actually fuelled by the housing market, but given that the finance crisis was precipitated by mortgage defaults and we all have to have more capital to fund out homes post that, it is very significant. Also looking at the FTSE 100 companies we see a large number of banks and financial institutions tied up with this pyramid of mortgages, consumer equity release and the  “funny-money” sloshing around higher up between institutions. As a final point, one of the very first major firms to be negatively affected by the Brexit vote, was in house construction and real estate.

Growth in GDP has been nothing spectacular the last three decades in fact, but it is of course on a ‘leverage’ for capital gains because rises in wages are multiplied upwards in mortgage lending and capital value of property. One pound more in wages leads to three pounds more in mortgage. This trickles money upward, while also sideways into construction, retail bank jobs, insurance,  hand worker services, and consumer white and brown goods.

Perhaps some of the country is driven by a  cycle of crypto Keynsian credit fuelled growth, but you all enjoy capital gains don’t you? Well not really, because people are buying houses later and the growth in those values are not so high. There is more net gain in building rabbit hutches or modernising old flats for first time buyers than that gain which those first time buyers can expect to make themselves over the first five years-  relative to the rest of the housing market. Also that regulationary stipulation for deposits or capital bound to the first time sale, is putting pressure on first time buyers making them older as a trend which may gather pace. Locked into rented accomodation while they save, those rentals become more sought after in areas with high employment, and more income gets soaked up into the buy-to-rent market. A driver then of later first time purchasers which excaserbates itself.

This should though all adjust and offer UK citizens a better, British deal? Well not really because already the costs of new land and building,  or the costs of refurbishment,  are high. Any decrease in the out price will render many of these sites uneconomic in the eyes of investors, who may look at more established property or other markets. Also of course with fewer poles on building sites, construction costs will go up.

Barriers to “Being Arsed”

This same ‘retun too low to be bothered’ extends into other areas of business both large and small. From everything like fruit picking to fish processing. Where margins are traditionally acceptable but only if wages are kept in check, then business will just give up or employ fewer people to do the same work, taking full advantage of weak labour laws to avoid overtime payments and maximum working hour limits.

In other words because the EU migrant worker is so cheap, geographically mobile and “flexible” some companies find that it is easy to do the sums on the day and get on with the job, rahter than thinking of training and relocating UK workers. If they loose access to this easy route to percieved high margins, then they will just give up. New entrants will find this door to juicy margin closed too and fail to attract investors. Given also potential falls in exports to the EU, tariffs and customs delays, many businesses and entrepreneurs will simply ‘not be arsed’ to carry on. The risks will be higher on a lower gross margin, with possibly less top line too.  The ROI and return on effort is just not going to be percieved as being there because they have had a decade of free-and-easy labour.

Working More for Less and Just Loving Brexit!!

When you read the rhetoric of the more political oriented arguments against  EU membership, then farily firmly up the list, ( just behind those demands for that minimum capital in our homes, which are IMF driven anyway) is the Social Chapter on workers right’s. Right up there, with immigrtion, only this is definetly holding the UK economy back. What is this evil, faceless beaurocratic legislation?  It’s the 48 hour week, family friendly hours and maternity/paternity leave.

So the Neo Liberals really behind brexit will have you working longer hours for less money per hour, with less time off for your families, while of course also inevitably exposing you to the true costs of health care, via creeping privatisation and the marginalisttion of health provision contra attractiveness of private policies, as has happened with pensions of course.

The Sun Always Sets Now

The old generation who voted OUT, hark back to the UK of the 1950s when there was a ‘simple’ trade deal with the early EEC, and everyone had a really good time. However back then the UK could rely on protected markets around the commonwealth and  technological leadership. The empire disappeared, and the lead in applied science, would soon be eroded by the emergent economies of Germany, japan, scandinavia and the US.

Manufacturing has regressed to being only 14% of GDP from nearer 30% in the 1950s, and a good deal of manufacturing is linked to defence and healthcare which in turn is paid for by the state, and otherwise traded on rather ‘interesting’ international agreements which used to be done on the Royal Yacht apparently. How much more of UK manufacturing is reliant on EU money and cooperation, such as Airbus ? Will car manufacturing survive the muscle of the EU ?

So far there are just more and more questions about how the UK will get on outside the EU, and what real benefit trade deals with the USA;  Australia, and little old New Zealand will actually render, of if they will be somewhat assymetric in reality establishing further balance of trade issues. The old empire no longer needs to accept British is Best, and the sun sets on Lands End.

Blighty is Over Run by Johnny Foreigner! 

But dear boy, I hear them say, ‘we will be over run by dirty furriners if we don’t take control now!’ There has been very high rate of immigration from the EU in the last five years, which is a direct result of the slow down and restructuring of some economies. Other national economies have remained relatively low wage in the former eastern block, and their nationals have come back home from the UK with flash cars and pay packets for holidays or smug self repatriation. Thus there is a word-of-mouth snow ball effect going on.

Given 2010-2015 immigration rates, by 2030 the country would have at least 10% of its workforce composed of foreign nationals, while the proportion of the whole population may be as high as 15% .

 

Would this immigration have just continued though,  or would it tend to tail off?  Market mechanisms would maybe explain a movement either way. Either there is a saturation point in the UK market for those migrants who don’t speak very good english , buthave particular skills where language is not so important, and thus there would be sloping off in numbers ? Or would the numbers motivated to uproot their national countries with cheaper goods and housing, to emmigrate to the UK’s expensive cost of living,  naturally come to an end as cheaper end accomodation in the UK gets pressurised up in price by their own sheer numbers alone?

I tend to believe that if the general EU economy picks up, then there will be more demand for skilled labour in the old eastern block, and there will be a knock on demand for unskilled nationals to return home. And  further to this, those who are thinking of leaving can demand  a little more wages domestically which renders migration to dear old dear UK,  less lucrative. However if the EU economy still falters, then we would have a self perpetuating situation perhaps in the UK, driven by demand for housing. The UK has growth and new jobs so it attracts more immigrants which means there is more growth in the housing sector, which leads to growth and more jobs……and so on.

The EU Unravelling By the Migrant and Refugee Crisis ?

On the side of the African migrant and muslim refugee crisis, a Le Pen win in France will force the hand of the EU to act to shore up the borders and intern especially young, itinerant males while they are processed as the extremities of the EU. There will be a new strategy and possibly a rewriting of the international convention on refugees. The route for bone fide refugees from in particular Syria, will have to be through UN camps in Aisa Minor and Egypt in order to stem the dangerous illicit trafficing over the Meditteranean. Europe must say “Non!” if it is not to risk a right wing swing in nation states continuing, with the EU as the scapegoat, all being based on the fear of young migrant males doing bad things in the EU.

The Great Experiment Begins

Now however,  growth in immigration is pie-in-the-sky because Brexit as we are reminded, means Brexit not halfXit. Control on immigration must be achieved to deliver on the hype. The UK is entering an experiment where it will find out for itself how much migrant labour,  the housing market and freedom of movement of goods, capital and its’ own citizens within the world’s richest economic zone,  means to its national economy.

Offshore tax haven status aside, banks are very conservative as are most international investors, and would quite likely prefer the more regulated, but more stable and defined EU environment to an uncertain island tax holiday of undetermined duration. If the EU gains a new centre of financial gravity competing with London, then there could be a shake out of London based institutions and investments. A cold shoulder from the EU  to particular off shore advantages like profit exporting, which the EU is already reviewing, would turn a trickle into a tide.

The City aside, what shape will these trade deals take then, and what lever does the UK actually have over luxury goods and BMW’s? Would tariff setting on BMWs and Gucci not disgust the UK consumer into demanding EU Brentry? WIll the weak pound punish the UK economy and have each chancellor resident in No. 11 squirming in austerity for another decade? I think there are going to be many deals, and some of them will be temporary sticking plasters. Some will be agonisingly long to ratify, while others will be overturned with political shifts in the European Commision and Parliament.

Despite being able to see the White Cliffs of Calais over La Manche, the little strip of water can suddenly seem a very long sea to cross,  and the UK could be heading to become the sick man of the region as it was painted to be in the 1970s, only this time as an outsider drifting away from consensus and freedom.

 

 

 

 

 

 

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