Brexit vote points to two speed UK, and maybe two speed world

Posted: July 5, 2016 in Brexit, Europe, Eurozone Economy
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London may top the Hollywood list for cities that it most likes to destroy.  The latest Independence Day movie is one example, but these days, it is quite common for a crumbling London to form the backdrop to a Marvel blockbuster, as super heroes take to the tube on their way to wage war with Norse gods.  Even in that movie franchise that seems to most exemplify US culture, Star Trek, where the American dream spreads across the galaxy, it was London and not New York that formed the centre piece in the most recent movie. Images of King Kong on the side of the Empire State have been replaced by images of the London Eye, or the Palace of Westminster, fallen at the hands of an alien space ship.

If there was a Hollywood destruction index, London would no doubt come top.  Why is that? Is it because of Pinewood studies? Or is it because Hollywood implicitly sees London and not New York as the de facto capital of the world?

Yet, based on the recent EU referendum one could be forgiven for concluding that the rest of the UK doesn’t like London.  Sure, there are good reasons to think that the UK capital will lose out big time to Brexit, but in many parts of the UK it is seen as arrogant. They have longed for it to get its comeuppance, maybe not quite in the way that Hollywood has it happening, in reality, Gerard Butler does not form a part of the narrative, but ‘London has Fallen’ http://gb.imdb.com/title/tt3300542/, does all the same seem to sum up the hopes of some.

As Yanis Varoufakis put it in that indefectible way of his, https://www.theguardian.com/commentisfree/2016/jun/24/brexit-britain-disintegrating-eu-yanis-varoufakis  “the City (whose insufferable self-absorbed arrogance put millions of voters off the EU)” was one of the causes of the Brexit vote.

Some respond with a call for an independent London, a petition on change.org asking the London Mayor to declare London independent, so that it can apply to join the EU, has 175,000 signatures. It seems unlikely many of the people who signed the petition really believe in the idea of an independent London, they signed in protest, just as many people voted in protest in the referendum.

An independent London is about as likely as the football authorities declaring England’s recent euro match against Iceland null and void. Although oddly enough, there may be some sense in a watered down version of an independent London. Certainly the rest of the UK may benefit from London having its own currency, but with taxes paid into the UK exchequer.

The FT recently warned that London’s buoyant Fintech sector may take a major knock from the Brexit vote. After-all, immigrants have had a lot to do with the success of this sector.

Yet maybe in parts of the UK, where economic depression has been the norm for decades, the sorrows of London are seen to be roughly as important as the criteria by which Hollywood chooses cities for the location of blockbuster movies.

But there is something bigger going on.

The clash we are seeing between London and some of the poorer areas of UK is being played out in similar fashion across much of the world.

People in many parts of the UK voted for Brexit because when they heard that the economy would deteriorate, they thought “but, the economy is already awful where I live.” The claim that all those years of hard work, of rebuilding the UK economy, may go into reverse, means little to people who are worse off today than ten years’ ago. Instead, they voted for change.

Yesterday’s FT also ran a story about how the Berlin mayor is grappling with populism.

Wikipedia defines populism https://en.wikipedia.org/wiki/Populism as a “political position which holds that the virtuous citizens are being mistreated by a small circle of elites, who can be overthrown if the people recognise the danger and work together.” Of course in many cases, rebellions against the elite are led by people who are even more elitist.

Even so, it seems that a resentment towards an elite was one of the main drivers of the Brexit vote.

But this same resentfulness percolates across the world, how else do we explain Marine Le Pen, Donald Trump, Philippine president-elect Rodrigo Duterte, Austria’s near miss with an extreme right wing president, governments in Poland and Hungary?

The Brexit vote shows that when economic success is seen to bypass great swathes of the population, problems follow.

Varoufakis predicts years of deflation, as the EU descends into ever greater instability.

But then he has his own agenda. He hates the way the EU elite treated Greece, and believes their determination to create an ever more united Europe is fuelling resentment.

But the pressures of immigration are not going to go away. The population in Africa is set to explode. In Nigeria alone, the population is expected to rise from 159 million in 2010 to over 400 million by 2050.

If the Brexit vote was mainly about fears over immigration, then what will happen as immigration pressures soar, as it surely will?

One economic consequence may be so called helicopter money.  If deflation becomes a permanent threat, then why can’t central banks print money and governments use it to fund stimulus programmes?

Maybe we have forgotten one of the lessons of the post-World War 2 era. During the quarter of century after the war, equality was greater, unions were stronger, but in the west growth was the highest ever.  By the mid-1970s, the system that created all that growth seemed to have backfired, instead we got inflation and the reforms of Thatcher and Reagan followed. The pendulum swings, and then it swings back again. Sometimes the swings are punctuated by wars, other times we just get discontent.  It seems that that right now, the pendulum is swinging again.

Article originally posted on Fresh Business Thinking: http://www.freshbusinessthinking.com/brexit-vote-points-to-two-speed-uk-and-maybe-two-speed-world/

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