I could clearly see the transformation of London; returning after seven years, the evidence was everywhere. High-rise high-end apartment buildings dotting a new Docklands skyline; construction cranes across Zone 1 peering over the old city and shaping a new one; a new tech city with a clustering of ‘new economy’ businesses alongside the established ‘city’ financial district; digital and creative-types drinking flat white coffees amongst city workers – London had clearly continued to transform itself and become one of the fastest-growing cities in Europe. And a magnet for people from across Europe seeking a piece of that success, as much of the rest of Europe languishes with tepid growth. My Uber driver on the ride from the airport, a Somalian immigrant and British citizen of 20 years, was rather enlightened. “They are taking a lot of jobs as Uber drivers, tube workers, plumbers and builders. It is even hard for people like us who aren’t from the EU – they get first preference. But without European migrants most places here wouldn’t be able to function. We all would be worse off,” he remarked. In a way, London is a victim of its own success. It wasn’t surprising that immigration had become such a top issue in the referendum debate.
Over the past week, on the sidelines of a work visit, I’ve had a chance to talk to a cross-section of Britons - bankers, journalists, academics, lawyers, students, political activists – and no conversation was complete without a discussion of whether Britons will vote to stay in or leave the European Union (EU), in the referendum vote, taking place on June 23. It’s not surprising; it’s probably the biggest decision British voters will make in decades. Britain’s, initial uneasy, relationship with the EU took several decades to come to where it is today – from the early days of the European Free-Trade Association, where Britain was not part of the original European Coal and Steel Community or its successor the European Economic Community, to finally making an application to join the highly successful EEC in 1961 and finally entering in 1973. In the event of a ‘leave’ vote, the course of British society, polity and the economy, as well as of course the EU itself, will be altered forever.
In my conversations on the referendum, I came to an early realization - that it’s not just in Sri Lanka where political campaigns being fought on fear, division and polarization, can easily gain ground over campaigns based on fact and a sense of what’s good for the economy more holistically and in the long term. Economic evidence, for instance, by a former teacher of mine at UCL Professor Christian Dustmann that proved how European immigrants have been a net gain to Britain through higher tax revenue and contributing to growth, are trumped by fact-less rhetoric and emotion drummed up by groups like the UK Independence Party (UKIP). I couldn’t help but notice a woman at a small supermarket, probably in her late 50s, proudly sporting a ‘Vote Leave – Save Britain from Europe’ campaign button, with Polish sausages and German rye bread in her trolley, and a flyer advertising ‘Cheap flights and holidays to Majorca and Tenerife’ sticking out of her handbag. Ironically, it is Britain that did a lot of work to push cheaper intra-European travel, and around 66 percent of foreign holidays taken by Britons are to the EU, while 63 percent of tourists to Britain are from the EU. Boris Johnson, the former London Mayor (and tipped by some to be the Prime Minister in the event that ‘Vote Leave’ wins and Cameron is forced to step down) argued in a recent ITV debate that his side (the ‘Brexiteers’) is “offering hope, while the other is offering fear”. Ironically, it is the Brexiteers that are campaigning the most based on fear – fear of migration and fear of regionalism.
‘Brexit’ would dent the economy
Yet, the facts are clear. Most economists agree that Britain is far better off inside the EU and a ‘Brexit’ would dent the economy. Currently, 44 percent of total British exports go to the EU (counting goods and services; and 51 percent if it’s just goods). In the event of a Brexit, a lot of these items will revert to tariff levels charged from non-EU countries, making British exports more expensive and less competitive. On cars, for instance, British exports would have to pay 10 percent tariff; and on fruit exports, roughly 22 percent tariff, to export to the EU, compared to zero tariffs enjoyed now.
A report by the British think-tank, Centre for Economics and Business Research (CEBR), estimates that by having to revert to trade under genera; WTO rules, around 800,000 jobs could be lost in Britain. Moreover, British businesses would hardly be saved from the EU regulations and standards – which Leave campaigners tout as ‘restrictive’ and ‘overbearing’ - as any exporter to the continent would have to comply in order to continue to sell there. Negotiating new free trade deals with European trading partners will take years, and it is unlikely that the rest of Europe will hand Britain any ‘sweet deals’ after exiting their bloc. In addition to negotiating a new trading arrangement with the EU after exit, Britain will have to renegotiate trade deals with 50+ other countries – all of which could take a long time and years and wipe billions of pounds off British exports.
On the wider impact, the numbers contained in a new report by The Economist newspaper (‘Mapping the Impact of Brexit’) this week paints a rather gloomy post-Brexit picture. It estimates that leaving the EU would trigger a recession in Britain and set real GDP back by 6 percent by 2020. Additionally, the uncertainty caused by a ‘Leave’ vote would upset consumer and market sentiment, causing a 14-15 percent devaluation of the British pound against the US dollar; while delayed investment and spending decisions and weaker trade ties would cost £106bn over the next five years. The Chancellor of the Exchequer George Osborne has argued that Britain’s exit of the EU could cost upwards of 820,000 jobs across the country, and has asked voters to consider “why would Britain want a DIY (Do It Yourself) recession?”. Although ‘Leave’ campaigners argue that the money Britain remits to Brussels can be directed to domestic spending on the NHS and other public services, the more likely scenario is that as the economy is hit by lower exports and other negative economic impacts, it would reduce the surpluses available to invest in the NHS. History suggests that when the UK economy suffers, most public services – particularly the NHS – suffers too.
Private sector for ‘Stronger In’/‘Remain’
Although the ‘Vote Leave’ campaign has gained substantial ground in the past weeks, as indicated in opinion polls, what is particularly interesting to observe is the level of private sector campaigning for the ‘Stronger In’/‘Remain’ side in the referendum. Businesses and business leaders, British as well as non-British ones located in Britain, have come out strongly and publicly with their opinion. Firms including Airbus, Microsoft and Rolls Royce have written to staff setting out the case for ‘Remain’. The letter by Torsten Muller-Otvos, Chief Executive of Rolls-Royce Motor Cars, to his employees is a lucid and powerful reminder of the business cost of Brexit for Britain’s global brands. He wrote, “Free trade is important for international business. Rolls-Royce Motor Cars exports motorcars throughout the EU and imports a significant number of parts through the region. For BMW Group, more than half of Minis built and virtually all the engines and components made in the UK are exported to the EU, with over 150,000 new cars and many hundreds of thousands of parts imported from Europe each year. Tariff barriers would mean higher costs and higher prices and we cannot assume that the UK would be granted free trade with Europe from outside the EU.” Meanwhile, Citi Bank’s chiefs wrote to its 9,000 UK-based staff warning that the bank would “need to rebalance our operations away from the UK” and warned of substantial UK staff cuts in the event of Brexit.
The Brexit vote throws up a key question relevant for other aspiring regional groupings too. To what extent are citizens willing to concede power and policymaking to regional bodies, in which your country certainly has a say, but is not the only say? Part of the ‘Brexit’ sentiment is the astonishing level of animosity towards “Brussels”. Brussels - where the EU is headquartered- is blamed by ‘Brexiteers’ for all Britain’s ills - for “imposing regulations on Britain” (EU regulation collapses national standards into one European standard), for “taking away sovereignty”, for “dictating terms to British citizens”, and so on. Yet, what many ‘Leave’ supporters seem miss is that these institutions are simply made up of all the countries in the EU, and it is not as if there are ‘super-bureaucrats’ who are making policies detached from what member countries vote for. As other regions, especially in Asia, attempt to forge further economic integration and design pan-regional institutions, rules and agreements, the Brexit issue leaves much to think about.
As I left the UK, I couldn’t’ help but wonder what this all means for countries in Asia. The EU is better with Britain in it – its prosperity and large market matters for Asian exporters; a Brexit would certainly hurt that. Moreover, regional blocs like SAARC and ASEAN look to the EU as beacon of hope - how a region wrecked by war, from Alexander the Great to World War II, came together in a unique and groundbreaking project, architectured slowly but surely, through consensus and compromise.
Everything may be not perfect with the EU, but its promise and ambition are impressive. Yet, if the latest opinion polls prove correct, in a few days’ time Britons could call it quits; influenced by myopic economic visions, fears around immigration, and distorted facts purveyed by opportunistic politicians. I couldn’t help but wonder whether Britain’s exit of the EU would be a dent to the hope and promise of regional integration everywhere.
(Anushka Wijesinha is the Chief Economist of the Ceylon Chamber of Commerce. He is a graduate of University College London and the University of Leeds Business School. The views expressed here are strictly the author’s own)