Category Archives: Society

Britain, Economic, European Union, Government, Politics, Society, Terrorism, United States

2017 will be a year of major challenges

CHALLENGES, RISKS & CHANGE

Intro: There is a sense that the unglamorous hard grind will start to bear down on the detailed practicalities of change during 2017

Following the shocks and political reverberations of 2016 it should come as no surprise that relatively few have jumped forth with confident predictions for the year ahead. Yet apprehension over the future is high as the effects of the past 12 months crystallise in the weeks and months ahead.

Identifying the reasons as to why many are fearful will not be difficult. Nonetheless, buoyant financial markets in both America and the UK over the last few days have seen record highs. Businesses are sensing opportunities under a Trump administration that is pledging a boost to federal government spending on infrastructure as well as a major overhaul to the tax code in the United States. This is likely to lead to tax cuts for households and firms alike. Here in the UK, estimates for third-quarter growth have been revised up to 0.6 per cent on quarter, while household and consumer spending has been boosted by high employment and a relatively modest growth in real incomes. Hitherto, while a notable slowdown is expected over 2017, the dire predictions of economic recession in the wake of the EU referendum vote have proved overly pessimistic and we are starting the New Year from a much firmer base than many had predicted.

But major uncertainty persists over Brexit. The calls by the Scottish Government for Scotland to remain in the Single Market, and the issue as to whether beneficial trading relationships can be established with other EU countries, are clear examples of the muddle and disarray. Whilst lack of detail is frustrating, there is a notable mood across the business world to make the best of our situation and by getting on with the job. The depreciation and fall in the value of sterling offers opportunities for UK firms to boost exports and for many firms in the food and drink sector to build a presence in overseas markets. In Scotland, our tourism and events sector, spanning hotels, hospitality and conference catering, stands to benefit.

There is a sense that the unglamorous hard grind will start to bear down on the detailed practicalities of change during 2017. The focus is likely to be upon legislative changes. However, we also face an elevated degree of geo-political risk. Recent terrorist attacks across Europe and elsewhere are indicative of the challenges facing government and the intelligence agencies.

Barbaric attacks such as those in Istanbul cannot but heighten tensions across Europe. Adding further to security precautions in many European capitals, the woes and fears that governments have across Europe for their people is becoming distinctly palpable.

Fear of further such attacks, including the use by Islamic State of chemical weapons, will undoubtedly increase public anxiety and growing voter mood of unease across Europe. The British Government has already warned that ISIS could unleash such devastating weapons on our streets. Voter discontent is also threatening to bring major election upsets in France, Germany and the Netherlands.

Meanwhile, the ever-belligerent North Korea has taken another step towards long-range nuclear strike capability. The country’s leader, Kim Jong-un, has claimed that the country is now close to testing long-range missiles capable of carrying nuclear warheads.

A febrile 2017 seems likely to pose challenges as big as anything we have faced before.

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Britain, Economic, European Union, Government, Politics, Society

Britain’s exit from the EU. Getting down to it.

BRITAIN & THE EUROPEAN UNION

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On June 23, 2016, Britons voted to leave the European Union. The two-year process for negotiating Britain’s departure will soon begin.

Intro: It has been six months since the referendum vote on Brexit. Thus far, the debate has been more about process and procedure than substance. In 2017, as negotiating talks get underway, the going will get much tougher. As we edge closer to Article 50 being triggered, where does Britain stand?

SOME THINGS have already changed since Britons decided to withdraw from the European Union following the Brexit vote on June 23rd. The country has a new government led by Theresa May. Two new government departments have been set up For Exiting The EU (under David Davis) and for International Trade (under Liam Fox). After several years of austerity cuts, the civil service is beginning to grow again. It is being geared up in tackling the numerous challenges of disentangling Britain from the bureaucracy of Brussels. In the Government’s most recent Autumn Statement, Philip Hammond, the Chancellor, softened previous plans to cut the budget deficit by 2020.

But on another level, and on Brexit itself, however, Mrs May has done little beyond repeating her mantra that ‘Brexit means Brexit’ and ‘We’re going to make a success of it’. The prime minister has promised a Great Repeal Bill to enshrine most exiting EU rules into UK law for continuity. And she has said she will invoke Article 50 of the Lisbon Treaty, the legal clause that sets a two-year time limit for Brexit, by the end of March (2017).

Indeed, most public discussion and debate on Brexit has been procedural, not substantive. Discourse in Parliament has revolved around how much information MPs will be given. The courts have become involved: this month the Supreme Court will decide whether triggering Article 50 requires prior authority through an act of Parliament, as the High Court has already ruled. There have been disputes over just how much Mrs May should reveal over her negotiating objectives. Yet, all of this has taken place even before there is an internal agreement within the government over what form of Brexit to aim for when negotiations begin.

For some MPs, such as Neil Carmichael and Mr Davis himself, there is hope that a government white paper on Brexit will be published before Article 50 is triggered. Mr Davis has recently said, though, that the government would not publish anything until February. Protagonists say that would still leave time for a white paper and a short parliamentary act before Article 50 is sanctioned.

The substance of Brexit is likely to prove far more difficult than the procedure. One reason is that it will involve trade-offs the government has so far avoided debating. The most obvious is that in which maximising barrier-free access to the EU’s single market will make it hard to take back full control of migration and laws relating to freedom of movement. That’s because it is invariably and directly linked to the free movement of capital and services. There is also the issue of ceasing contributions to the EU’s budget.  Several more difficult dilemmas await: for instance, the desire to maintain security and intelligence cooperation with the EU may be almost impossible to achieve if Mrs May continues to insist on escaping completely from the jurisdiction of the European Court of Justice.

The substance of a Brexit deal will also be more difficult than procedure because Britain’s 27 EU partners are likely to put a premium on unity. It is possible Britain will need to pay an exit fee of some $63bn, as well as negotiating separately any future trade relations which would not run in parallel with the strict terms of exit. Other EU leaders face political pressure at home: France, Germany, the Netherlands, and possibly even Italy, will all have elections in 2017.

The ominous and gloomy signs are that a harder version of Brexit will prevail, but there are some flickers of hope that also point in the other direction. Mr Davis and Mr Hammond appear to be working as one in minimising the shock of departure. Mr Davis has not completely ruled out making payments into the EU budget after Brexit. Several other government ministers have floated the possibility of continuing partial membership of the single market, the customs union or both. The Scottish government, too, has said it wants to stay in the single market regardless of what happens elsewhere in Britain. Negotiating a final deal for Brexit with so many added complexities will become more divisive and problematic as the clock starts ticking.

Of late, a growing recognition has emerged of the economic risks of Brexit. Leave campaigners have long claimed that economic forecasts and predictions by Mr Hammond’s predecessor, George Osborne, were too pessimistic and overly cautious. But the Autumn Statement made clear that Brexit has a cost. Public and private consumption has held up reasonably well but investment continues to be cut. Banks and others in financial services are talking of major job losses as institutions restructure and positions are transferred to continental Europe.

Prodding ministers towards a softer Brexit must be on the table because the economy matters. A recent poll for Open Britain, a pro-EU lobby group, found that half of Leave voters are not ready to be made worse off as a result of Brexit.

More realism over immigration should also be a factor. To date, this has only been presented in terms of the relationship between the single market and the four freedoms of movement of capital, goods, services and people. The implication has been that to keep the first may require concessions on the second. Several companies, however, in industries ranging from financial services to agriculture, have made clear that migration is crucial in its own right. Indeed, some are more concerned about migration controls than they are about barrier-free access to the EU’s single market because of the effect such controls will have on the availability of labour for their industries.

A view is also emerging among politicians who see the need for a transitional deal with the EU – to avert a hard landing in March 2019. Transition is being talked up, as a string of recent reports from the House of Lords EU committee highlight. They say this is particularly important for financial services. The fact that transition was ever controversial is, in the words of Nick Clegg, the former deputy prime minister, “symptomatic of a strategy-less approach to Brexit”. That it is now widely accepted as a sign of common sense.

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Arts, Books, Economic, Government, Politics, Society

Book Review: The Great Convergence

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BOOK REVIEW

Intro: Globalisation has developed in waves. First it was free movement of goods, then ideas. The free exchange of people will be the hard part and likely to be problematic.

FORMER US President Bill Clinton once referred to globalisation as “the economic equivalent of a force of nature, like wind or water”. The concept, which has had a major impact on world trade and markets, pushes countries to specialise and swap. Such a force of inertia makes countries richer, but one in which the world becomes smaller. In this book “The Great Convergence”, by Richard Baldwin, the author, a Geneva-based economist, adds an important caveat.  Like wind and water, he argues, globalisation is powerful, but can be inconstant or even destructive. True. How often have we heard and witnessed the erosion of local markets to the price-dominance of globalisation? Unless beloved nations catch up with reality, politicians will be pushed to make grave mistakes.

In an economist’s ideal world, things, ideas and people would flow freely across borders. Reality is less pragmatic, stickier, and often far less mobile in terms of movement. Historically, constraints on trade once bundled consumption and production together, limiting its growth.

Mr Baldwin’s grand theory of globalisation is of a series of unbundlings, driven by sequential collapses in the cost of moving things and ideas across cyberspace. From the domestication of the camel around 1,000 BC to the first commercial steam engine in 1712, the first great wave of globalisation unbundled production and consumption. From 1820, prices in Britain were set by international demand, and consumers were offered an increasing range in diversity of goods and services. Café goers, for example, could sip Chinese tea sweetened with Jamaican sugar.

Although moving goods became cheap, it wasn’t until the end of the 20th century that expensive prices for moving ideas became more affordable for most. Mr Baldwin invites readers born in the mid-1960s to remember the price of making an international call at $5 a minute, or the $50 price of sending a single document by an overnight courier. Industries clustered by default. The centres of economic activity emerged in those countries we now know as the G7. In this form of globalisation, national groupings of ideas and workers battled for market share, and became richer in the process. Mr Baldwin uses the analogy of two sports teams swapping players to improve their performance.

Since the 1990s, however, globalisation has changed radically. The internet has lifted the cost of moving ideas, and fuelled a second unbundling. Because co-ordinating international production is now much cheaper, faster and safer, supply chains are afforded the enormous benefit of ignoring borders to go sprawling across the world. Thus, a Canadian aeroplane-maker can direct a team of Mexican engineers. Apple can combine American design with Chinese assembly lines. With many products made everywhere, trade has become, in effect, denationalised.

The pace and speed of change and the now modern ease with which rich-world companies can outsource work have eliminated the old boundaries around knowledge. But in doing so has created a new, more unsettling trade landscape. Once, textile-mill workers in South Carolina had exclusive access to American technology. Although some may suggest that they have lost out to competition from Mexican workers, more accurately they face an altogether more formidable competitor: Mexican workers have been made more productive by American know-how.

Continuing the sports analogy, Mr Baldwin implies that today’s trade is like the coach of a top team being allowed to offer his services to those less successful. The coach gets rich from the double market for his services, while the better team gets a sudden surprise from the newly skilled competition. Mr Baldwin makes the inference that discontent with globalisation stems in part from an “ill-defined sense that it is no longer a sport for national teams”. The sporting parallels offered by the author are well placed and provides the reader with an insightful grasp of the magnitude of issues that globalisation encompasses.

Raising tariffs to placate or appease voters in protecting its national goods and services is a mechanism and tool best suited to the 19th or 20th century, not one that should be utilised in tackling 21st century globalisation. Given the new world of global logistical supply chains, a tariff is like erecting a wall in the middle of a factory. Mr Baldwin’s 21st-century policies involve setting common rules and standards to make companies feel secure that their supply chains will work. These are the goals of trade deals like the Trans-Pacific Partnership (TPP), or Britain’s membership of the European Union’s custom union – both of which are under threat. He says little on how to win over disgruntled voters, save a few lines on support for workers rather than jobs, and a vague plea that gains should be shared between winners and losers.

Critical also of the author is that he appears too sanguine about the politics of globalisation. A bright and rosy vision of the future imagines globalisation totally unshackled from its third constraint, as labour will invariably become replaced with robots and people being more routinely allowed to offer their services remotely.

–     The Great Convergence: Information Technology and the New Globalisation, by Richard Baldwin, is published by Belknap at $29.95 and £22.95.

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