- By Chris Kremidas Courtney
Cordelia Friesendorf is Associate Dean and Professor of Economics and Finance at Hamburg’s International School of Management
Brexit has won by 51.9%, unexpectedly making the UK the first nation to exit the 45-year-old, meticulously-constructed, post-war union aimed at regional prosperity, security and social welfare. And ironically, the vision of a ‘United States of Europe’ originated from Britain’s renowned premier Winston Churchill in 1946.
Brexit comes at a time when the UK has been stable on the economic front. An unfaltering annual GDP growth of 2%, an unemployment rate of 5% and a low inflation rate of less than 1% is a luxury few advanced nations can boast of in the aftermath of the financial crises. But vulnerabilities such as low labour productivity, stagnant growth in returns on foreign investments and a widening current account deficit overshadow Britain’s prospects. What triggered Brexit? Was it simply political opportunism and naiveté of the masses?
Brexit highlights the plight of a country that has put growth before welfare distribution
The daily functioning of the EU shows that few member states, young or old, are without grudges over EU decisions or decision-making bodies. The UK’s growing internal problems seems to have made it easy for politicians to blame these on a ‘dysfunctional EU’ – a convenient scapegoat. Yet Brexit baffled many because of Britain’s history as a trading nation and its advocacy of globalisation, the facets of which are interdependency and complex value chains. The principal idea of an EU membership is to provide member states with a tariff-free internal market for goods and services at one’s doorstep, standardise regulation, reduce transaction costs, enable mobility of resources, and thereby boost regional output growth. Exporting more than 50% of its goods to the EU, including automobiles, precious metals, mechanical appliances, electronic and pharmaceutical products, the UK is a beneficiary of membership many times over.
The UKTI Inward Investment Report 2014/15 shows that it received more than £1 trillion of foreign direct investment (FDI), recording a 50% increase in FDI flows when global FDI value had fallen by 11%. The Ernst and Young FDI Attractiveness Survey shows that the UK has continuously been ranked among the top five favoured FDI destinations, based on its appeal as the EU’s gateway. Access to the EU pool of academic exchange programmes, social welfare funds, development initiatives for starts-ups in innovation and technology are just a few of the indirect membership benefits. Brexit campaigners proclaim to achieve a far better economic outcome by saving on EU payments that amount to £12.9 billion per annum.
Globalisation is the confluence of businesses, capital, labour as well as a melange of cultures and languages. Diversity becomes the norm and necessitates an environment of sharing, discussion, criticism, acceptance and action. The state needs to create an ambience that encourages this behaviour in an inclusive fashion. Brexit highlights the plight of a country that has put growth before welfare distribution. Falling wages, lack of schools and inadequate housing in Britain’s poorest suburbs have become spots of social unrest between right-wing nationalists and sympathisers of the Islamic state.
17.4 million Brits traded off the socio-economic advantages of EU membership to save £200 per head annually, believing this would resolve their social inequality
The success of UKIP, with 3.8 million votes in last year’s general election, unleashed a wave of eurosceptic sentiments ignited by fears of terrorism, the influx of refugees and its management by the EU, and heightened dissent in London putting David Cameron’s premiership at threat. Dissidence breeds political opportunists, while social unrest hinders logic and reasoning. With Brexit, 17.4 million Brits traded off the socio-economic advantages of EU membership to save £200 per head annually, believing this would resolve their social inequality and distress.
Of post-Brexit, there is little to be clear about. Brexit advocates are unsure of what to do next in the face of a plunging pound sterling, high uncertainty in financial markets and protests from the British youth. The exit vote signals that Britain will never be the same again, and teaches valuable lessons on governance in a globalised world. Open and diverse economies should operationalise economic growth, social welfare, societal inclusion and security initiatives systematically in a top-down approach. Otherwise, the country’s fate will be determined by the masses.
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