Exceptionalism and failure: Caribbean lessons from Britain
The Brexit chickens are coming home to roost in a troubled British economy, despite the attempts of British government ministers and other English nationalistic hopefuls to suggest otherwise.
It was a colossal mistake to hold the referendum. In the words of former Conservative Party Prime Minister David Cameron, it “unleashed the demons”. The decision of the referendum was an even greater mistake by the English voters who favoured leaving the European Union. The majority of people in Scotland, Wales and Northern Ireland (the rest of the United Kingdom) preferred to remain with the European Union, in part to escape English dominance, but also because it made sense to remain in a single market that accounts for 45 per cent of all British exports.
Staying in the European Union also made sense because the UK’s attractiveness for foreign investment was based significantly on the access that it provided to the other 27 European Union States with the largest single market of over 450 million people.
Britain’s City of London has long been recognised as the banking centre of the world, despite the efforts of other European cities to lure the banks to their shores. The UK’s financial services sector contributed US$89.8 billion (Â£71.4 billion) in taxes in 2015, accounting for 11.5 per cent of the UK’s total tax receipts. The financial services sector employed 1.1 million people or 3.4 per cent of Britain’s national workforce.
All that is now about to change, as the formal triggering of the negotiations between Britain and the European Union looms large. A study, just released by the British think tank, Centre for Economics and Business Research, Japan’s Hitachi Capital, and online pollsters, YouGov, says the UK is likely to lose more than $82 billion (Â£65.5 billion) of investment as a result of the vote to leave the European Union.
British businesses are either abandoning or delaying their investment plans. Foreign investors, such as the Japanese car manufacturer Mitsubishi, are concerned about being restricted from the European Union’s single market, which its chief executive, Haruki Hayashi, says is a major concern for Japan. He emphasised that Japanese businesses had come to Britain as a gateway to Europe. Further, he revealed that European Union countries have already begun to woo them to shift their investments directly into Europe.
The financial services sector is also setting up for a hit as leading banks make plans to move some of their operations from London to Paris. According to a
BBC report, Benoit de Juvigny, secretary general of Autorite des Marches Financiers, has said that “large international banks” based in London have conducted due diligence to move operations to the French capital.
Who can blame them? Business — and certainly banking — is not based on sentiment. And, if Britain’s departure from the European Union means the loss of rights for British-based financial institutions to offer services to companies and governments across the EU without restrictions, it makes good business sense to move to the much larger European Union market.
It is well known that at least eight financial centres across Europe — Paris, Frankfurt, Dublin, Luxembourg, Amsterdam, Madrid, Bratislava and Valletta — are actively wooing companies based in London.
When some of the financial institutions shift to the European Union, and foreign investors make the business decision to locate where their manufactured products will not be subject to tariffs, the effect on the British economy will be rough and it will be widespread. Not only will revenues to the British Government decline, causing it to have far less to spend on social welfare projects that benefit the lower income groups, but unemployment will soar, resulting in mortgage foreclosures; the rental property and housing markets will wane, and the economy will shrink.
All that will make Britain a lesser power in the world. Its economy has already declined from number five to number six in the world. Finding markets to offset the loss of duty-free access for goods and services it now enjoys in the European Union will not be easy. Proximity makes a big difference to costs and competitiveness of exports. So, even if Britain were to open markets in Africa, Asia and Latin America, the cost of its manufactured and agricultural products would face fierce competition from other nearby suppliers. And, if the US President-elect Donald Trump is taken at his word, trade deals that do not favour the US will not be undertaken with any country, including Britain.
Increasingly, the notion that the other 51 members of the Commonwealth of Nations would be the answer to Britain’s trade problems is being debunked for the false campaigning that it was in the Brexit referendum. Some went as far as calling the Commonwealth the potential “saviour” for the UK. They were clutching at straws.
As I pointed out at two recent public occasions — the first in London and the second in Grenada — the Commonwealth has much merit, but trade is definitely not one of them.
Britain’s earnings from exports to the Commonwealth are not huge now – representing only 9.76 per cent of its total exports in 2014 — while its merchandise exports to the European Union represented a hefty 45 per cent. In any event, total Commonwealth trade in goods has declined over the last four decades since Britain joined the European Union. And even the Commonwealth’s share of world trade is owed to the trading capacity of only six states — Singapore, India, Malaysia, Australia, Britain, and Canada.
Moreover, that trade is not among themselves. For instance, China is Australia’s biggest trading partner, while the US and Mexico are Canada’s. In 2014, the six countries accounted for 84 per cent of all Commonwealth exports; 47 countries combined, including South Africa and Nigeria, made up only 16 per cent. The contribution of the Caribbean and Pacific regions (21 of the 52 member states) to overall Commonwealth exports is small, accounting for a paltry 1.14 per cent of Commonwealth exports in 2013. In any event, none of the Commonwealth countries in Africa, Asia, the Caribbean, the Mediterranean and the Pacific are compromising their access to the European Union market of 450 million for Britain’s smaller 60 million.
The lesson for the Caribbean is that countries benefit more from being inside a single market than outside of it. A certain English arrogance — a belief in English ‘exceptionalism’ and the superiority of their institutions and, in some cases, even of their tribe — encouraged the ‘leave’ vote in the UK referendum. No country in the Caribbean should fall prey to the notion of its ‘exceptionalism’; none are exceptional from the others, and those who mistakenly believe otherwise are destined to fall on their swords.
Sir Ronald Sanders is Antigua and Barbuda’s ambassador to the US and Organisation of American States; an international affairs consultant; as well as senior fellow at Massey College, University of Toronto, and the Institute of Commonwealth Studies, University of London. He previously served as ambassador to the European Union and the World Trade Organization and as high commissioner to the UK. The views expressed are his own. For responses and to view previous commentaries: