by Damon de Laszlo, ERC Chairman
With summer over and holiday memories receding, it seems that little has changed!
The recalcitrance of the Barnier/Tusk regime continues as before with every proposal put forward by the British government being rubbished with no alternative suggestions offered. This stance has even hardened with Tusk’s personal insults addressed to Mrs May. May’s response has been, by contrast, calm and statesmanlike. She battles on against extraordinary odds with her efforts to deliver a negotiated relationship with Europe which everyone, apart from the Brussels negotiating team, would regard as the desirable outcome. The ‘leave’ lobby has never been a cohesive group as it has no support from the state. The ‘remain’ lobby while politically diverse, is led by the intellectual establishment with the Chancellor and the Governor of the Bank of England dishing out extraordinary economic forecasts that mostly seem designed to destabilise the economy and enhance the call for a re-run of the referendum, as well as undermining the government’s negotiating position with Brussels. These are the same people who I believe should have objected more loudly to the referendum in the first place, basically calling for another because they didn’t like the outcome. Whether one was pro-leave or remain, the consequence of calling another referendum, whichever way it turned out, would cause further major economic disruption and ignores the fact that Barnier said at the beginning of the process that this was a one-way exercise.
Information within Britain about the likely impact on European business of a bad exit is scant. Major European companies who depend on the complex supply chains of modern manufacturing are deeply worried and the Brussels negotiating stance of trying to isolate British financial services from the economy would have a major impact on European financial systems as well as causing major issues for the European government’s budgeting. Europe’s financial systems are exceedingly vulnerable to disruption in its markets and a credit crisis is not difficult to envisage if European liquidity is disturbed.
Looking across the Atlantic, one has to start thinking that Europe is becoming a sideshow to the Pacific Rim countries. Relations between the US, China and Russia are of greater importance to the global economy than the games being played in Europe. While President Trump’s US domestic politics and his achievements in tax reform, coupled with the rolling back of bureaucracy, are creating a booming US economy; his international policies are however exceedingly worrying. While domestic US politic manoeuvrings are causing a breakdown in relations with Russia and Trump’s growing trade fight with China, which to some extent is justifiable, the effect is to drive these two countries together economically and politically.
Trump’s stance towards China hopefully can turn into a resolution and re-negotiation of trade disputes before he does too much long-term damage. In the longer term, his policies are encouraging China to become self-sufficient in technology, where before they were less concerned with some of the weak links in their technology supply chains.
China’s economic policies have been focussing more on its industrial vertical integration and raising living standards. Going forward we will see an acceleration of its investment in super computers and artificial intelligence. China’s businesses are in many areas overtaking western manufacturers, particularly in areas of robotics and advanced manufacturing techniques. Their education programmes are focussed on developing science and engineering skills, long term developments that are needed to take advantage of modern technology. These are areas that the west almost completely fails to address. British and American universities live on their laurels and government programmes do not take into account the need of their countries to have computer, engineering and scientifically qualified workforce.
One does not have to like the Chinese system of government, but one does have to admire their focus on future economic development, and with it their growing ability to influence the Pacific Rim countries.
While one can be nervous and perhaps a little depressed about the state of Western democracies, the global economy continues to do well. A country the size of China growing at an enviable 5+% is remarkable and its growth is encouraging and leading the ASEAN economic growth. The US economy, despite the trade issues, continues to power ahead and even India is showing some sign of economic improvement. Basically, all good for the populations of most countries, except in countries where politics are derailing the economy. At the end of the day, it is business, trade and commerce that creates prosperity, but this cannot flourish where governments are incompetent.
Damon de Laszlo
September 24th, 2018