Despite the fierce political debate, peppered with economic scenarios and myriad analysis of ‘what ifs’, the
fundamental questions about Brexit (or the EU Referendum) remain unanswered. Is Brexit a positive or compromising
option for the United Kingdom (UK) and the rest of the European Union (EU) as a whole? And does the UK risks
losing the intrinsic and in-bred advantage for innovation?
Author: Zaf Gandhi, Managing Consultant & Partner
The business folks traditionally steer well clear of wading into political debates, since aside from not being explicitly seen to take sides, a false call may also
lead to a quick loss of a few rungs off one’s career ladder.
However, as management consultants and business people who are adept at encountering problems and
issues that have perhaps never been encountered before, and then exploring and finding innovative solutions to such challenges, it is only rational to share impartial opinions.
Brexit is currently a huge choice facing the entire ‘eligible for voting’ citizenship of the United Kingdom (and qualifying others from Ireland and the Commonwealth countries).
It is clearly difficult to isolate the facts from fiction, and political conviction from career capitalisation.
Political hyperbolae and fear of the unknown aside, Brexit, on the one hand, should be viewed as an opportunity for change,
albeit laced with numerous risks (some of which will inevitably be amplified or curtailed by the human
sentimental factors – as we all know from the behaviour of the financial and other types of markets).
On the other hand, when we begin to delve deeper into the fundamental reasons why the
proponents of Brexit wish it, among the key aspects cited are immigration, sovereignty and budgetary control.
Let us, for a moment, step back in time to when the United Kingdom joined hands with Germany
and France in orchestrating and realising a grand single European “free” market. The aim was to facilitate trade, stability and security.
Elimination of conflict (military and trade) between the member states through improved collaboration.
Those goals and objectives have stood the test of time, though the management and political
complexity has increased not linearly, nor exponentially, but somewhere in between.
The increased legislation and the so called ‘decrees from Brussels’ is a direct consequence of growth and
success of the EU – not too dissimilar to the increased administrative overheads, greater complexity of processes and
procedures, and further criss-crossing of lines of communications that many corporations experience as they undergo rapid
growth. The follow-on cycle in the corporate world is usually of consolidation and simplification, and in more extreme
cases, a sell-off or market exit. So the similarities and parallels can be seen in the case of the EU too,
except that its scale and impact across a myriad of dimensions is significantly greater.
Add to that the political and nationalistic agendas, which make matters even more convoluted.
The big question then is: Is the UK Plc ready for a sell-off or market exit?
And is that because of sheer disillusionment or concrete rationale that merit such a move?
Will Brexit solve the issues caused by the EU membership?
Let us, once again, look at the main reasons for this proposed sell-off or market exit. Control over immigration and budgets, and the ability to craft and enact our own laws, without there being an overlord residing in Brussels.
The first component of the gross disgruntlement is cited as a lack of control over immigration. It is perhaps a valid concern to all EU citizens.
A Frenchman, naturally, does not want to be exposed to English criminals; nor find himself or his
kinship facing unprecedented competition for jobs and public services with people from other parts of
Europe, or indeed the rest of the world. He (the Frenchman) has a vested interest in the French economy,
pays his taxes, raises his children and possibly also the grandchildren,
observes the laws and invests in France through various personal (home buying) and professional
(business start-ups, angel investments, etc.) activities.
An economic migrant, on the other hand, may not have the same level of vested interest or affinity to France;
since their reason for coming to
France is primarily based on economic and monetary (higher wages and better access to public services) factors.
Notwithstanding, the foregoing argument is a highly debateable point, and will vary from one generation to the next.
Whilst the foregoing concerns are valid, they are often predicated on fear and a lack of confidence
in one’s own abilities to adapt, to survive, to excel and thrive. The home-turf advantages enjoyed by the citizens of each
EU member state are not easy to shake-off. Granted though, that in the case of the UK, the home-turf advantage is
somewhat mitigated by the ubiquity of the English language; whereas most of the member states do enjoy a natural language
barrier of some sort, as well as fiscal deterrents such as higher business and personal taxes, etc.
Moreover, as with the corporate world in general, professional and personal success should normally
be determined by meritocracy and value-for-money, and not the lowest bidder. So the argument relating to cheaper labour usually
proves only to be a short-term gain for all parties.
By harmonising movement of goods and people, the EU was supposed to have delivered benefits to all of its members. Has this happened then? Yes and no.
Joining the EU has provided a huge impetus to the economic well-being of its member states.
On the face of it, using the UK’s circa £350
†† million per week contribution to the EU to cross-subsidise other member states may appear to be unfair.
However, we have to balance the equation with the ease of the
UK exports, access to various structural, social and innovation funds; add to that the facility for people to travel
quickly and without the administrative overheads to conduct business, and for leisure. The UK and London are among top
popular destinations for tourists from Europe and elsewhere.
Significant improvement and consumer value has been achieved in almost all aspects of our lives.
For example, low-cost air travel, harmonisation of air traffic control and safety systems,
fairer mobile phone roaming charges, Europe's own satellite navigation and Earth monitoring systems in
Galileo and
Copernicus
(thereby reducing our future dependence on the US's GPS and Russia's GLONASS for such services),
streamlined banking systems and removal of basic transaction fees for Euro-based bank transfers, limits on working hours for a better work-life balance.
These are just a few examples of the vast swathe of topics across all areas. Many of these initiatives would not be possible to realise by a single country
or even an alliance of a handful of countries, and they also fall outside the
remits of the G7, the Commonwealth and the NATO. So the red-tape argument also hangs in balance.
The perceived heavy-handed legislation from Brussels is offset by the reduced red-tape in many other
quarters and improved transparency in matters ranging from public procurement, justice and voice of the individual citizens.
The EU public procurement reforms have sought to establish a level playing field for all suppliers large and small in size
– not just those with the financial clout or insider connections.
Granted that even the most prosperous and perfect system has weaknesses that, depending on the
continuous flux of change, may turn into a flaw. The EU and its political and legislative systems are no different.
Reform and continuous improvement are therefore the only rational way forward.
What about the pressures on the UK’s education system, social housing and the health services (NHS),
as well as a host of other public services? Once again, the concerns are
valid and, as citizens, we have and can see the positive and negative effects all around us.
It is also interesting to note that a number of the leading political figures most in favour of
Brexit are also the ones who have, up until recently, been accountable for improving the performance of our
social, educational and healthcare services. So, could they be using the EU membership of the UK as a
scapegoat for their own shortcomings and lack of innovative thinking and approaches while in office?
The question of the UK’s sovereignty is a matter of perspective.
The Bank of England enjoys freedom of governance and is able to make its own call on key economic
matters such as setting of the base interest rate. As far as control over budgets is concerned,
all states have the ability to exercise control and management of their own internal affairs.
Minimum wage, income taxation, industrial and housing policies, social benefits, university fees, etc. are all
enacted by the UK government.
To fully appreciate the concept of budgetary control, one needs to attain a comprehensive
understanding of all of the factors that affect budgetary control and financial flows. Not just the big number in the debit column.
The UK’s contribution is linked to its own economic performance, and the intention is not to explicitly cross-subsidise poor
performing states, but to stabilise the whole EU zone, so that trade, business and leisure activities can continue without extreme
‘sink’ and ‘source’ scenarios (which historically have led to regional conflict and wars).
It is widely accepted that the
recent economic misfortunes of the southern EU states (in particular, Greece, Italy and Spain) have exacerbated this ‘sink’ and ‘source’ scenario.
However, the system has, so far, stood its economic tests.
Admittedly, the process of passing EU-wide laws and legislation is laborious, arduous and bureaucratic.
It has been a ‘necessary evil’ for the reasons of ensuring consensus, democratic agreement and
transparency amongst ALL member states; and without the ‘checks and balances’ that are in
place the EU would have perhaps become a power-hungry overlord for us all, and would be
working only for the benefit of the few influential states rather than ALL of its members and citizens.
There is, however, ample room in this area for further improvement.
English is also one of the main working languages of the EU.
Most of its day-to-day business is conducted in English.
UK risks losing the intrinsic and in-bred advantage for innovation
Aside from the more tangible arguments about budgets and immigration,
what the different sides appear to have failed to observe or sufficiently
acknowledge is the EU’s intrinsic and historical advantage when it comes to
innovation.
It has taken nature billions of years of wielding diversity for the purpose of evolution.
Increased diversity leads to increased innovation. Hence, diversity is a fundamental enabler of evolution and innovation,
and without it no amount of financing or fancy management thinking or political utopia is ever likely to succeed.
Even the most advanced and rapidly progressing countries and economies will find it extremely difficult (if not impossible)
to garner the advantage that is ingrained within the societal fabric of the EU.
This advantage comes freely with the in-built diversity of people, cultures, languages and religions, all
co-existing within the geographical bounds of Europe. No country (USA, China and India included)
comes even close in this dimension.
However, such an advantage must be continuously nurtured for continuous innovation and, consequently,
for ensuring competitive advantage and economic well-being. A prolonged absence of
cutting-edge innovation will usually lead to a gradual economic decline and brain-drain.
Being part of the EU gives the UK access to a diverse pool of well-educated people,
progressive societies, established and respected legal frameworks.
This intrinsic advantage cannot be created by regional growth,
regeneration initiatives or trade pacts (some of which can take years to negotiate and implement) alone, but by facilitating the
unity and sagacious collaboration between diverse people,
with opinions, outlooks and beliefs, tastes, attitudes and values shaped
by their own ancestral upbringings and cultures.
Conclusion
In conclusion, if unity, fairness, stability and prosperity of ALL members, and not just
the founding or culturally affiliated ones, is the key goal of the EU, then
it should also be able to muster the political courage and fiscal and legislative
wherewithal and human consensus to bring about the necessary reforms and fix the system’s shortcomings.
The people of the UK (not just the politicians) should be a willing and long-term
democratic partner to that process, and should not
become outsiders who are simply looking to cut a quick-fix, short-term, trade deal;
or to blame Brussels every time the going gets tough.
As a baseline suggestion, one possible option for fixing the immigration issue might be to introduce a revised framework.
One that would provide a monetary incentive (call it a ‘stabilisation levy’) to the member states that do experience a
higher rate of immigration (of EU nationals) over and above the pre-agreed thresholds. Of course, such a suggestion must be
subjected to a rigorous analysis alongside other possible options, consensus and ratification by all EU members.
†† Note 1: The £350 million is an unconfirmed figure. The exact figure would normally depend on a number of other factors,
including rebates and deferred contributions.
Related resources:
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Financial Times article: Britain looks to Australia for help on Galileo rival, 21-May-2018 (external site)
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