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How Brexit could jump-start the British economy – and do it very quickly

When I started writing this posting, the invaluable Guido Fawkes had, at the top of his invaluable ongoing list of “seen elsewhere” items, a link to a Conservative Home piece by David Davis MP, with a long title on top of it which includes the words A Brexit economic strategy for Britain.

It deserves to be quoted at length, so I will now do that:

… [L]eaving the EU gives us back control of our trade policy, and gives us the opportunity to maximise returns from free trade.

Because any deals currently settled are obtained by finding a 28 nation compromise, the EU is clumsy at negotiating free trade deals. That is why we currently only have trade deals with two of our top ten non-EU trading partners. This is incredibly important to us, as about 60 per cent of our trade is with the non-EU world. In fact, we sell as much to non-EU countries with which we have no trade agreements as we do to the EU.

The first order of business is to put that right. As the amicable statements coming from the US, Australia, China and India show, these countries are as keen to knock down trade barriers as we are.

Single countries, with the ability to be flexible and focussed, negotiate trade deals far more quickly than large trade blocs. For example, South Korea negotiated a deal with the US in a single year, and with India, which is notoriously difficult, within three years. Chile was even faster, negotiating trade deals with China, Australia and Canada in under a year.

The EU, by comparison, takes more than six years to negotiate trade deals; the deals which would most benefit us, such as those with Canada or the US, take even longer. And without the often conflicting requirements of 28 different countries to consider, deals negotiated by single countries tend to be broader and have more favourable terms on matters that are important to us, such as services.

So be under no doubt: we can do deals with our trading partners, and we can do them quickly. I would expect the new Prime Minister on September 9th to immediately trigger a large round of global trade deals with all our most favoured trade partners. I would expect that the negotiation phase of most of them to be concluded within between 12 and 24 months.

So within two years, before the negotiation with the EU is likely to be complete, and therefore before anything material has changed, we can negotiate a free trade area massively larger than the EU. Trade deals with the US and China alone will give us a trade area almost twice the size of the EU, and of course we will also be seeking deals with Hong Kong, Canada, Australia, India, Japan, the UAE, Indonesia – and many others.

So much for the “jump-start” bit. Now for my own additional argument that this could well happen very quickly.

The thing is, in economic life, what everyone thinks is going to happen – “before anything material has changed” as David Davis puts it – is an economic fact in its own right. The British economy won’t wait to improve until all these deals are done. No, it’s better than that. Just as soon as it becomes clear that deals like the ones that David Davis writes about are going to be done, people will start rearranging their lives to take advantage of the new deals, as and when they come on stream. All of economic life, if you think about it, is suffused with the judgements that we all continuously make about the future. Factories are built, not merely because people have already placed orders for goods, but because it is anticipated that such orders will be placed in the future. Billionaire tradesmen are now setting up offices in Britain and quietly looking at the British property market in unpromising (and hence cheap) places, merely because there is now, at last, a decent chance that in a few years time, the British economy could be booming.

This is not a twenty-to-one-on certainty. We’re talking, after all, about betting on a bunch of politicians being half-sensible. But the mere possibility that the British economy merely might be booming Real Soon Now, is enough to alter the demand for goods and services and workers in Britain, right now.

The more free market inclined Brexiteers were perhaps wise not to assert too loudly during the referendum campaign that all of this would definitely come to pass, very quickly. Talk like this might have frightened all those voters who voted Brexit mainly to stop foreigners coming to Britain to do business. But if all those angry, frustrated Brexit voters are to be able to extricate themselves from the economically dead-end lives that so many of them are enduring now, then the kinds of policies that David Davis describes are their only hope. The sort of national socialism (if you’ll pardon the expression) that is more and more being pushed by UKIP these days will only deepen the economic gloom. We still need UKIP to keep the government honest about actually making Brexit happen, just in case any of those who command it have any doubts about that. But the sort of fixed-quantity-of-jobs negativity that a century of Labour Party economic illiteracy has taught to generations of British workers, and which helped to get the British working class into its present state of economic malaise, isn’t going to rescue them. It will only deepen their miseries.

It may seem like a change of subject, but I can’t help recalling the collapse of the old USSR. Here was a case where pessimism quickly became a fact in the here and now. It was during the 1980s that it finally became unmistakably clear, even to those running it, in fact especially to those running it, that the USSR as then commanded had no long-term economic future of any grandeur whatsoever. It was doomed to ever-deepening economic mediocrity and consequent human misery. “Glasnost” was a folly and a fantasy. But the point is what happened next. The USSR then collapsed, immediately. Here, pessimism about the future had an immediate and negative impact upon the here and now. The entire world, in Moscow and everywhere else, started quietly rearranging its affairs to factor in the now confidently anticipated Soviet decline into economic insignificance, with the result that this decline became complete and immediate. To sum up what happened to the old USSR, it lost the future, and as soon as it had lost that future, its present went down the plug-hole also.

These things can happen very quickly.

In Britain’s case now, just as soon as it starts becoming clear that Britain has a brighter economic future, and that Britain is moving towards that brighter future, then that brighter future will start to happen. There is, actually, every chance that this brighter future is already happening.

As “Regional” put it, in the comments on this posting:

When Britain leaves the E.U. will Brittany and Normandy etc apply to join the U.K.?

It could well be that, in a startlingly short time, this joke will (a) be much more widely told, but that (b) it won’t actually be that funny any more. It will persist not as a joke, but as part of a real-world policy debate. I’m not joking. Like I say: these things can happen very quickly.

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25 comments to How Brexit could jump-start the British economy – and do it very quickly

  • Mr Ed

    With Theresa May planning to put ‘the workers’ and ‘consumers*’ on company boards, it looks as if Fascism is getting a jump-start, not liberty, but still better out than in.

    The home secretary will vow to put the Conservative Party “at the service” of working people.
    She will also stress: “Brexit means Brexit and we’re going to make a success of it.”
    Party members will choose between Mrs May and energy minister Andrea Leadsom in a nationwide leadership vote.
    Setting out plans to change the way big businesses are governed, Mrs May will say consumers and workers should have places on their boards.

    * i.e. more likely hacks and fanatics with an anti-business agenda.

  • Mr Ecks

    Davis has been promised a return from the shadows if the Darling Dud of May wins. Whatever noises he makes should be taken with lots of salt.

    Brexit is wonderful. It could be as he talks it up. A true, real Brexit. But will May deliver that?

    Why are all those remainer MPs supporting May? A true Brexit under her will be no more in accordance with their nasty little hopes than a true Brexit under Leadsom. So why are they behind May?

    Because she will deliver a watered down Brexit or even only the name without the actual game.

  • Runcie Balspune

    The obvious gender comparison is for the next leader to be Thatcher Mk II.

    Maggie had the luxury of the North Sea Oil windfall to bolster the economy and make things look good, the next leader would be sure to jump at the chance for another cash inflow, if this provides one it _will_ be taken.

  • Mr Ecks

    The next Leader is May. Bad news indeed.

    Time to soldier on and put maximum pressure on Tory MP scum.

  • Mr Ed

    Following on from Mr Ecks, it is confirmed by the BBC that Leadsom has sunk herself by withdrawing from the race.

  • Lee Moore

    Probably not the thread for it, but…..

    1. Leadsom withdrawing because of the press was beastly to her confirms she wasn’t up to it. There are scarier foes than Rachel Sylvester. Which is not to say that any normal human wouldn’t be driven behind the sofa by the massed ranks of the press, but anyway…
    2. Gove screwed himself by the style of his entry into the race. If he really didn’t realise that Boris wasn’t up to it until the morning he threw his own hat in the ring, he showed himself to be not very perceptive; if he already knew he didn’t have confidence in Boris then he would have done better to be open about his intentions to avoid the stab in the back charge. Still he wouldn’t have melted in the warm sun – he’s been up against the Blob before
    3. Boris showed he was too lazy and unserious to do the necessary. Maybe not totally screwed for evermore like Leadsom and Gove, but he still screwed up badly
    4. Fox. Good chap, but weird skeletons
    5. So maybe May is left as the best of a bad job.

    But if we’re going to finish up with a Remainer what was the point of Cameron going ? She’s just Cameron, but thicker.

    Any way nice to see it’s not a choice between The Stupid Party and The Nasty party. You can have both !

  • Watchman

    Lee,

    To be fair to May (not something I am inclined to do) she has come out and said that the vote means we leave – she was also one of those whose campaign alignment was not certain till she announced it, so I don’t think she counts as a diehard Europhile of the George Osborne type.

    And the fact that she actually does very little (judging by her time as Home Secretary) is also perhaps a positive – a government doing little is a good thing. Although some of her campaign statements sound a bit worrying.

  • PeterT

    I would have preferred a leap into the unknown with Leadsom.

    I’ll give May the benefit of the doubt for now. Maybe she has the sense to invoke Article 50 soon, possibly with a request for an extension to the two years.

    We’ll see who she appoints to her cabinet. My hope:

    David Davis – Brexit minister (would also be preferred choice for Home office)
    Gove – Chancellor of the Exchequer (although would be fun to see him back at Education)
    Baker – Secretary to the Treasury (or Chancellor, but ain’t going to happen)
    Paterson – Environment
    Johnson – non-EU foreign secretary, if such a post could be established.
    Home office – Damian Greene (?)

    This is obviously quite unrealistic, given that all apart from the first and last names were non-Mayers.

    Osborne gone, Javid gone or given some junior post under David Davis.

    Anyway, a (nother) UKIP vote at the next general election seems more likely than it did this morning.

  • tomsmith

    Keep voting UKIP

  • Runcie Balspune

    Perhaps Leadsom agreed to pull out if May got a more immediate appointment and initiated Article 50, rather than wait until October for the crowning ceremony and for any momentum (with a small m) against leaving got traction. I’d have thought the one other thing on most Tory minds is the squabble going on on the other side of the house is a massive opportunity for another decade in power.

  • Mary Contrary

    May is the Home Secretary who opted us back in to the European Arrest Warrant, after we’d negotiated an opt-out from it. That, more than the fact that she was nominally a Remainer, makes it very hard to trust that she won’t keep us in through the back door.

    My expectation is that she’ll take us into the EEA with Norway, get back some limited power over immigration controls, but leave us subject to Single Market legislation and its adjudication by the Court of Justice of the European Union (CJEU). Which would be the ultimate betrMAYal.

  • Mr Ed

    Bear in mind that it is unlikely that any major party wants a General Election now on cost grounds, so it looks as if Mrs May will, as PM simply sit there and dawdle over implementing Article 50 until an opportune moment comes to distract and destroy the referendum outcome.

    I am reminded of an answer Khrushchev reportedly gave when an Army Political Officer in the Ukraine:

    Dear Comrade Zampolit, how should we interpret the Molotov-Ribbentrop Pact?”.

    “We shall interpret the Pact, and we shall go on interpreting it, until not one stone of Nazi Germany is standing on top of another.”

  • Patrick Crozier

    I would hate to piss on anyone’s parade but there is a Greater Depression on and things are going to get worse before they get better. Leaving the EU helps – because Britain now has the flexibility to do the right thing – but it does not alter the iron laws of economics. High government debt, high private debt and money printing are bad things.

  • Lee Moore

    High government debt, high private debt and money printing are bad things.

    Well, if you’ve already got high government debt* [check] and you’ve already got high private debt [check] money printing ceases to be a bad thing and becomes the only thing. The good news is that in a serious inflation – I mean a SERIOUS inflation – both government spending and tax collections tend towards zero. This helps the subsequent reconstruction. So long as you can stop the needle before it moves to “Bolshevism.”

    * government debt including pension commitments is not high, it’s mickey mouse money – far far beyond any conceivable fiscal retrenchment. Indeed conceivable isn’t even the right word. It’s far beyond any retrenchment merely as an arithmetical exercise on a piece of paper, never mind anything politically conceivable.

  • Lee Moore

    I share Mary Contrary’s doubts. But being of a generally sunny disposition I am comforted by the thought that having departed from the EU proper, leaving the next station is waaay easier legally, practically and politically than that first step. A journey of a thousand miles begins with a single step. Leaving the EU is at least three hundred miles, and that’s a pretty good first step.

  • CaptDMO

    From US.
    Couple of “hints’
    If you’re planning on running away to the US, the real estate community has ALREADY started to bump up prices in anticipation of foolish Brits wanting houses in America’s increasingly race-war torn “comfortable climate” Coastal States.
    “White Flight” has given speculators ASTONISHING discounts on properties that can be GROSSLY gouged to folks with weaker Pounds.
    If England seeks expanded equitable trade with the US, use whatever influence
    you may have to promote Mr. Trump into the Executive Office.
    Ms. Clinton, and her entourage, have an ALLEGED “history” of rent-seeking every extra non sequitur “administration fee”, and “equality tax” (We’ll redistribute that to the poor, and the children, we PROMISE!) that can be levied by non-legislative means, as humanly possible.

    DISCLAIMER: I am NOT an Award Winning Economist, or respected Journalist with “Communications Degree”. Nor do I carry an Actor’s Equity Union Card . I COULD be wrong.

  • Bod

    There’s this persistent rumor that the Young Royals want to purchase a bolt-hole in my CT commuter-belt town (or one of the adjoining towns).

    Personally, I know of a superb property that would offer plenty of seclusion, along with a gatehouse property which would be ideal for the security detail. Friendly residential community that values privacy etc, and if they were to select it, I could anticipate my own property back up at the kind of valuation it held in 2006.

    So, if anyone has contacts or influence at Crown Estates, please put them in contact with me.

  • TomJ

    @Maary Contrary: Erm, EEA members aren’t subject to CJEU but to CJEFTA, which has more limited scope than CJEU as refelcting the more limited scope of the EEA Agreement compared to the TEU and TFEU.

  • staghounds

    WTF?

    Buy on the rumour (BREXIT PANIC!!!!!!), sell on the news- there won’t be one.

  • Paul Marks

    The world economy is heading for a massive slump – and Britain will not be left out.

    Our slump will be blamed on British independence – but has nothing to do with it.

    Indeed the slump would be worse if we remained in the E.U.

    Hopefully we can get out of the at least some of the regulations the E.U. has imposed upon the domestic market and our trade with third parties.

    Although Mrs May is not exactly a free market type.

  • Nicholas (Unlicensed Joker!) Gray

    I read that Brexit may leave Europe in financial bother, since they won’t be getting subsidies from Britain. This leaves France and Germany to pick up the slack. With Italian banks in trouble, Britain might soon seem to be a paradise, by comparison.

  • Nico

    Lee Moore:

    High inflation does not lead to lower govt spending except as a result of the economy shrinking a lot — high inflation is very destructive.

  • Johnathan Pearce (London)

    Siemens has changed its tune since the result.

  • I think the record shows, Nico, that high inflation does reduce (real) government spending, of itself. Simply because government procurement and payment logistics can’t keep up with the speed that prices increase. In the German inflation of the early 1920s, people in government jobs (and even more so people on government pensions) found their incomes reduced to virtually nothing. (Tax receipts, of course, fall to nothing even quicker as they’re more lagged than spending, and taxpayers know that late payments can’t be punished severely enough to make it worthwhile to pay on time.) Even in modern conditions where pensions are partly indexed, indexation can’t keep up with a seriously brisk pace of inflation.

    I’m certainly not claiming that hyperinflation is a good thing, far from it. Merely that it does, in the end, solve the problem of what spending to cut. By the time the hyperinflation has run its course, there are no tax receipts and pretty much any spending programme has been blown away.

  • Robert Thorpe

    People are neglecting one of the positives. In the next couple of years those involved with regulation and the drafting of laws will be spending all of their time dealing with Brexit. They’ll be busy working out how to replace the laws and regulations that were supplied by the EU. This will leave little time to think of new regulations.