Thursday, 3 November 2016

The Brexit fallout is all part of the process

The Society of Motor Manufacturers & Traders (SMMT) notes that 28,000 supply chain jobs in the UK are currently supported by Nissan, among a wider 78,000 dependent on all British-based vehicle manufacturers. The announcement that the next generation Qashqai as well as the new X-Trail, currently produced in Japan, will both be made in Sunderland provides certainty and confidence to invest for existing UK-based companies.

There are three things to observe here. Firstly it is that if Nissan intends to maintain this level of production in the UK it will necessarily require preferential customs measures to remain in place, not just for their finished product but also for their suppliers. What it also tells us though is that the assembly plants are dependent on a large and established supply chain which is not so easily replaced. It would take very serious economic isolation for them to consider relocating and Nissan is betting that a high level of EU-UK cooperation will remain in place.

What it also tells us is that the Toryboy mantra that only six percent of UK businesses export to the EU is a nonsense. They use this little factoid as grounds for major regulatory divergence. But if you have any real world experience at all you know that assembly of complex produce require all their components to comply with a standard and if the end product is going all over the world then it stands to reason that standard components are used and that global standards are observed in order to maximise export potential.

The short of it being that Nissan would decline to participate if presented with the option of regulatory divergence and so would their suppliers. In order to observe a purely British regime they would need to set up a secondary production line for the UK market. In no way does this make any sense and it is so far fetched a proposition that nobody serious would propose it. That is why Tories like Redwood, Hannan and Campbell-Bannerman and the IEA propose exactly this. They are not serious.

These are effectively free trade evangelists pushing an economic model that hasn't been relevant for several decades. In very real sense they are the mormons of UK politics. Men who dress up in suits to push a single truth from a single book - and absolutely impervious external influences.

There are only two directives for the Tory mormons. Government should be small and tax should be low. As a framework for good governance you can never go too far wrong if you do not stray from the path but in the modern age even a rationalised and well tended government is still quite big given all the areas of individual concern. In that respect there is really no escaping it.

If there is one thing that plagues the automotive industry it is the multiple chains of paperwork that comes with importing and exporting. The very last thing in the world an industry already suffering from profitability problems needs is more paperwork and more delays. Securing a tariff free agreement with the EU is the least of our problems and the least consequential.

Administrative barriers cost well in excess of even the highest tariffs which is why the entire focus of the WTO and the WCO is the removal of technical barriers to trade. At this point in the Brexit debate, if you're still banging on about "free trade deals" in respect of tariffs then it is a mark of senility. An inability to break out of a mental feedback loop.

Because of this singular obstinacy and a refusal to acknowledge reality the "hard Brexit" narrative still clings to life. Just about everyone else in the debate has now arrived at the conclusion that a single market based Brexit is in the best interests of everyone and that a selective sectoral approach is not going to cut it. If we are to substantially depart from the single market then it must be done gradually. Brexit means we can if we choose to.

The mentality that insists on leaving the EU all in one go speaks to a very immature worldview whereby true believers think that one single policy decision brings about sunlit uplands. It is a belief in magic wands. In the real world though, little is ever straightforward and solving complex political problems is done by a series of measures over the long term. Immigration is one such example where there are many different sources of immigration, some of which is mostly beneficial, some of which is acutely problematic. We need a multi-tiered policy and we cannot expect overnight results.

In this there are rumblings that anything short of a full severance from the EU would be a betrayal. After all, most leavers thought they were voting to end EU regulation, control immigration and to "take back control". They did so in the belief that this would makes us wealthier and happier in the long run. There are, however, caveats.

This week we have seen individuals from Vote Leave applauding themselves for their use of "advanced polling techniques" to win the referendum. Inside the bubble this is received as an article of fact but this really doesn't marry up with what actually happened.

We didn't have a referendum because of a mass movement. It was the result of a tactical insurgency. Ukip managed to keep the Tories off balance for long enough so that they couldn't win a clear majority without addressing the EU issue. The referendum was largely sprung on a public which barely cared either way. The EU was not the burning issue of the day.

Consequently the referendum was hardly the colourful festival of politics that we might have expected. With a largely election weary electorate there was little enthusiasm for it with many wondering why we were even having one at all. What we saw was two largely dysfunctional leave campaigns engaging in tokenistic activity.

The Vote Leave Twitter feed was a stream of photos of white middle class Toryboys in red t-shirts manning empty stalls in towns up and down the country to no real effect. Had this been a burning issue we might have seen signs up in windows and billboards all over the place but this did not happen.

We saw a number of rallies and meetings but in the main they were Ukip gatherings. There may have been a number of fringe events not associated with the main campaigns but attendance outside London was thin on the ground. In the main it was a battle fought on social media where the official efforts of both sides were largely useless. The debate ran completely independently of their efforts.

By the peak of the campaign popular public opinion was that both campaigns were shrill and obnoxious. It was apparent to most that the leave campaign peddling fantasies and the remain campaign was exaggerating and employing scare tactics. In the end, the verdict was a two fingered salute to the powers that be. They'd overplayed their hand and insulted the voters. That's never a good idea. The question then answered in the polling booth was little to do with the EU. Leave didn't win it. Remain lost it.

To make matters worse there was no Brexit plan, no manifesto and nothing in the way of realistic demands. The central theme of the Leave campaign was the famous £350m a week claim. In no way is this ambition of ending all budget contributions realisable and there is zero chance that we would simply hand it to the NHS given the economic impacts of Brexit.

So without a movement, without a plan and a slim win margin, the government is in an unenviable position in balancing what can realistically be done against the naive expectations of voters. So we have to fall back on universal truths. The bottom line is that nobody voted to be substantially poorer and nobody sane voted break off relations with the EU entirely. That is the baseline.

Moreover, the public are not especially concerned with the shape Brexit takes. Those still engaged in the Brexit debate in any serious way are a dwindling band of anoraks and in the main voters have tuned out and are getting on with their lives. Social media is not alight with Brexit. In the main the public are not interested in the minutia, don't really understand the technical concepts, and apart from a hardcore rump of remainers making their last ditch efforts, the public just want Mrs May to get on with it. They like her, they trust her. Consequently, she can do as she pleases.

Right now May is faced with a few inescapable truths. There is no mandate for a radical and destructive Brexit. The public voted for change and already we have enough to be getting on with. We do not as yet know where the value of the pound will settle and stands to fall further while the media continues to misunderstand the proceedings. That alone will see a long term reconfiguration of the economy. Depending on how bad price rises are it may require some radical tax cuts either to corporation tax or VAT. That will see major changes in spending priorities.

One thing the public is not going to tolerate is cuts to the NHS, they will expect most provisions to carry on as normal and will not be in any great hurry to absorb more financial pressures. Already we stand to see a turbulent shift in the markets and I half expect to see a change in the housing market. I don't know. Nobody does. But the pressure is on Mrs May to make Brexit as economically neutral as possible. If you do the math, that brings you to the inescapable conclusion that we need, for the time being, to maintain as much of the single market as possible.

Later today we will find out the result of the legal challenge over the right to trigger Article 50. The challenge is largely there to give MPs the opportunity to torpedo Brexit. They won't. Instead, should they get the right, will mobilise to demand Mrs May guarantees membership of the single market. The irony being that Mrs May will have probably reached that conclusion already making a complete farce of the whole effort.

There are still those who think something other than the EEA is the way to go, but they continue to miss the point that economic divergence where appropriate is actually secondary to the administrative task of leaving the EU. Mrs May might need to save face and use the EEA as a template without joining the existing agreement but one way or another neither the UK nor the EU have anything to gain by suddenly introducing any kind of trade barriers. There is no strategic, economic or political advantage in it. The Euro is just as much in danger as the pound.

More than anything political and economic realities are driving Brexit. There are people on all sides seeking to impose their will on the outcome but I think it will steadfastly stick to the path of pragmatism. We will hear a lot of bluster and noise from both sides but if you listen to the softer diplomatic language it becomes clear that the all sides realise what is at stake should it turn into an acrimonious mess. Consequently both sides will marginalise their hardliners and zealots.

For the time being the worst of the economic damage will be the result of panics and scares put about by a largely inept media. Various hacks have complained that leavers accuse them of "talking Britain down" but actually they have no real right to complain. A bout of Brexit histrionics may sell newspapers but it does have material consequences. Massaging every scrap of superficially bad news adds to the mood music that drives the markets in what is already a confused and tainted debate.

The remain inclined hack-o-sphere leaps upon any morsel that confirms their narrative and they gleefully report it with a subtext of "I told you so". Except that these people didn't tell us anything at all. These are the people who insisted hard Brexit was a certainty and that the worst case scenario was the only scenario. Already their hard Brexit narrative is disintegrating and thus far they haven't been right about very much at all. Their immaturity, petulance and incomprehension is dangerous.

That there are serious and negative aspects to Brexit is neither here nor there. Voters knew full well that there would be economic fallout. A good many of them figured they had little to lose. Many more thought that any change is a good change. A view I happen to subscribe to. For the time being, growth figures continue to confound expectations but growth is a trailing indicator. We could still see a recession - but even if we don't we will most definitely feel the impact in due course. We voted to end the status quo and we have most certainly done that.

In this I am not in any hurry to draw conclusions. We have thrown things up in the air and it will be a long time before we see where things settle. But we will endure and and we will adapt and from that new settlement some avenues will close but others will open. In that some people will get the chances that have been denied to them for so long - which is ultimately what Brexit is about.

We don't know quite what will happen in the short term and in this the longer term is easier to predict. Most bankers expect by a wide margin that London will retain its status as a global financial centre and if there is any impact on London it will be the odd hammer blow to the many unsound property developments. If it has a downward influence on house prices I can't see many young people having a problem with that. That could have major consequences for those overextended on debt but personal debt ratios have been unsustainable for years and I will be pleased to see that cycle end.

I take the view that policymakers have geared their efforts toward maintaining a status quo desperately in need of reinvention and replenishment. Capitalism is all about cannibalising inefficiencies in the economy yet we have prevented the markets from doing that by freezing various economic metrics. Certainty is ultimately stagnation.

In a lot of ways we have been running a zombie economy. We have seen just about every city in the UK regenerated over the last two decades. Bristol, Exeter, Portsmouth, Bradford and Bath have had substantial make overs and all of them now have almost identical shopping centres with identical shops and identical bars and restaurants - each of them chains with tied leases in developments based on funny money all sustained by large government infrastructure and defence spending - much of which is sustained by borrowing. Chinese investment is gradually replacing that borrowing but all we have done is cut the middleman out where energy consumers pay through the noise instead of paying taxes. We're being fleeced.

Having asset stripped the UK for decades, letting go of our aerospace and defence capabilities, relying on hugely fickle assembly lines like Nissan we have created a country based on shallow consumerism sustained by debt while we are gradually overtaken by emergent powers.

Somewhere in our national psyche we know its all unsustainable and that our wealth is only skin deep. Looming over us is the price we never paid by kicking the can down the road. We can admit it, but the politicians cannot. Since they cannot make that choice we have made that choice for them. The people have shown true courage. That might mean a recession. That may even mean a lost decade. But that isn't Brexit per se.

If anything it is the retrenchment that needed to happen. We have not gone through an era of "austerity". Austerity is a left wing narrative for what has been marginal cuts to welfare and social provisions. The idea that there has been a significant rolling back of the state is laughable. Councils are still spending about as much as they ever did having had a a marginal trimming and central government is still making drunken sailors blush.

What is happening now, whether the politicians realise it or not is a fundamental restructuring of the economy. One that better reflects the underlying conditions. Now we get to see how deep the rot has set in. We can only hope it is not as bad as we fear. But it is better to know that to continue to maintain a house built on sand. The sooner we bite the bullet the sooner we can rebuild while the rest of Europe continues to lie to itself.

In end the remainers are the ones would would rather kick the can down the road, keep life comfortable and ignore the creeping rot. They tell us that GDP is growing and that the fundamentals are sound and that more people are in work than ever before. Does anyone actually believe that? I don't. I think it's a pyramid scheme and it's running out of steam and that is why we have seen such sluggish recovery. How can there be a boom if capitalism cannot reinvent?

Ultimately the remainers don't want to be inconvenienced and do not want to be disturbed by reality. The shallow, selfish existence of the modern Brit, living in blissful ignorance is what they seek to preserve - oblivious to the omni-crisis happening on the mainland EU. Those who are particularly well served by the status quo are content to live our their lives at the expense of everyone else, passing the bill to the next generation.

That is not the world I wish to hand to my nice and nephew. I do not want to see them rattle around as mere economic units in this empty lie of an economy producing nothing and believing in nothing. I want them to have a real life in a country with a purpose - not as a mere region of an increasingly corporatised and homogenised Europe.

Ever since the referendum we have seen the ugly face of the remainers. It is a great slander to suggest that Brexit is motivated by a hatred of foreigners. Equally so to suggest that we are not fit to decide for ourselves whether we want to be governed by the EU.

We eurosceptics warned over many years that we were signing up to something far more extensive than simply a trading relationship and there would be a price to pay for doing it. Once the EU deception become clear leaving was a certainty. It was only a question of timing. The Lisbon Treaty has made it infinitely more difficult and costly and if you want someone to blame for what is happening now then take issue with those hubristic politicians who ratified it.

Now that we are leaving we should welcome the challenge and get ready to make best use of the opportunities it presents. Those who say there are none are those with no imagination or drive. They who were content to fester in a stagnant settlement. Their petty griping over Brexit reveals their character. That is not Britain though.

The majority of people, whether they voted to leave or not now stand ready to make the best of what Mrs May can get. And she will do ok so long as she keeps it real. The hardcore leavers can bleat about hard Brexit all they like, but Mrs May has a duty to the country to ensure that Brexit gives us the change we need while safeguarding our future relations with the EU. If that means, for the time being that we stay in the single market then so be it. We have enough change to be getting on with for now.

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