Monday, June 27, 2016

Brexit Blues

The UK EU referendum on 23 June 2016 has been a very divisive campaign and result.  The result was: 52% Leave versus 48% Remain (actually 1.9% each way). Pretty close!

I tried to clear up some claims made by the campaigns in a previous post on this nearer to the referendum, but whatever the reasons were (much single-issue immigrant campaigning by the tabloid media ie. Rupert Murdoch's group), we surprised many and got the Brexit vote.

Part 1 of this post talks about the campaign and some immediate-post-result comments.

Part 2 for the future of Britain, worries and predictions incorporating my wife's views (who's fairly well qualified with 1st-hand experience in political turmoil/change in Europe and what it does to the economy)

Part 1

With a 72% turnout (high for the UK, but it didn't suffer a General Election's problem of being split by MP constituency so every vote made the same difference), that means if only 634751 more people had voted Remain (assuming the same number of rejected papers) the result would have gone the other way by 1 vote. Surely that would have meant several recounts and an uncertain decision ripe for debate (incredibly unlikely, conspiracy theories would be all over the place) but it shows how close the result was, and hence I don't really consider it a true Brexit vote, but it is the one (under the agreed process) we'll be treating it as. How do you (or rather the MPs) act on such a poor mandate with conviction, knowing that you're alienating as many as you're pleasing, and half the voting electorate, along any steps you take down one side's path. One newspaper after the result claimed that around 2 million people might now have changed their mind - having voted without understanding what it meant, or as a protest vote only (and perhaps convinced they wouldn't win). This would more than easily make the difference if true.

Voting choices (in aggregation, ie. on average) were split by distance from London (or perhaps our other biggest cities too - nearer London voters more chose Remain), age (older chose Leave), and country (Scotland overwhelmingly voted Remain, Wales to Leave, Northern Ireland to Remain).

This petition to "follow EU rules" (ironically ones the original referendum voted to get away from) and redo it, has received almost 3.5million signings as I write this. But to act on this would create several issues and destroy political process - which would reduce trust in our system and cause its own drop in our economy.

  1. At what point do you stop redoing the referendum if the 2nd one also doesn't return the wanted result?
  2. If we can do it a second time for this one, shouldn't we always do it twice (or best of three for an always-clear decision); once you do this for all votes, the voting process takes at least three times longer, and people are left uncertain and unable to plan or act in between. There are also many smaller questions like, what about people who are able to vote in one or two but not all of the votes? If we get used to 3 votes, it ends up becoming the new normal (1 vote as is today) and people stop caring about the individual ones - they're caring now about this one because its the one expected to take effect. So the outcry doesn't happen until after the final vote anyway.
  3. You also need to keep the records safe between each one, in order for it to be useful in the way this EU referendum   One of the benefits of the current system is that its pretty quick and simple to manage.
No, I think the best way to move on is to accept the vote (though other countries have rerun referendums before [pic via twitter]), and a better way to resolve this is to call for a new General Election after the fraudulent and irresponsible behaviour in claims and "facts" given. The tabloid media has a lot to be responsible for it too. They're partly only trying to sell more papers by stirring up stronger emotions and of course Rupert Murdoch has his political game with Cameron and the Tories. Fear campaigns are par for the course in many national and smaller elections anywhere and maybe the Americans have us beat most of the time, but I'd call it a close one here.

The problem for our next PM is that only just over half voted to Leave. Whichever path anyone takes, they'll piss off, give-or-take a few million, 17 million people, and arguably this decision is considerably more important than any general election in recent memory - it will affect the country for decades, not just 4 or 5 years like a general election (and several afterwards). Whatever happens I'll guarantee there will be demonstrations and I hope they can be peaceful (but I'm kinda expecting some conflict).

Now some of those Leave voters, seeing what the result really means and how unlikely they are to get everything they wanted, have been trying to change their mind or sharing shame at their choice now they understand it better (whether its the "£350 million per week" (lies again!) put into the NHS instead, complete control over immigration, or no (or at least no new) restrictive EU laws in areas they care about - perhaps the easiest one to keep to).
Too late folks!

I hope this can be a lesson to the electorate - do some proper research and use multiple sources from different sides of the argument, ones refuting each other's arguments. If one side says a claim from the other is a "fear tactic" or uses some other emotional or non-factual rebuttal having been given time for their spin doctors and researchers to come up with one (and can't say its a lie), there's a fair chance they can't pull it down with facts because the claim was right (but if its easy to check go do so, and careful to read the overall result from the article/paper, not just that one quote). Though being right doesn't always mean its relevant and useful. One other way for them to mislead is to use a different statistic about the same topic that seems to support their case instead, or pull out a single anecdote of one case that goes against it - be very very aware of individual case anecdotes, they mostly mean almost nothing other than the claim is possible for one person, because its only a single instance amongst probably thousands or millions, but a lot of people will take it as an example good for anyone in the same circumstance so it works well for politicians.

If they come back after some time faced with the "fact", with another related but differently phrased fact with different numbers for the same thing (I think I've seen that used pretty commonly), that means the issue is not simple and a good chance any campaigner could probably find a statistic to show whatever they wanted in the data if they had expert political analysts. Look for lots of different claims pulled out of the data by all sides and by allegedly independent groups (or, what kind of claims they're NOT able to say about the data) to get a slightly better idea, or ignore it.

So if you're a voter (from either side) who only ever read one newspaper/magazine about it (or only those with the same views) and/or the posts on social media supporting your own existing views, hang your head in shame and vow to do better next time we have a say - though doing that in life for any kind of notable decision is a fantastic habit to get into and will improve your promotion prospects at work, success with your relationships and in-the-pub arguments no end. Don't worry, its ok, I'm not turning into a self-help blog...

The results day saw stocks drop, banks in particular (Barclays lost 20% of its value), the pound (£) devalued from 1.43 US$ (though it hit 1.49ish temporarily when Remain was expected to win on the day) to 1.36$ or so before the weekend.

My (internationally savvy American) wife and I foresore this risk and luckily stocked up on US $ for our regular payments abroad (for bills and such she still has to look after over there while living here) during the brief exchange-rate high before the result, but a majority of less well informed voters would not have done so and I feel for them when saving hard towards their next holiday abroad. Why did I just quote against US$ not €? I'll get to that.

The overreaction has settled back a bit but we're still significantly poorer in the world than we used to be, but also more competitive for some cases. Having got ourselves into this situation, what's likely to happen? 

The Vote Leave campaign made many promises about what it would do following Brexit, to woo voters and claim how much better their services or economy could be after #Brexit, using the (WRONG ANYWAY!) £350 million/week cost (or so) we currently pay to the EU for membership. [See my previous article for just how badly wrong that is]

Since once we exit (assuming it goes ahead), they don't even have that money to give to anything else, even the promises that fit inside that "spare" budget are moot and undeliverable. Alongside all the Remain voters annoyed, sad (and often scared) that they didn't get their way. With General Elections we generally get over that initial frustration pretty quickly, but a Brexit has such far-reaching, long term and immediate consequences that this one won't just lie down and die. They're scary and unknown and somewhat unknowable yet.

What do I mean? Well as I mentioned, my wife is an international women of considerable experience and as well as a political science degree and many years of business development, PR and marketing experience, she has worked in both Poland (Warsaw) and Moscow at times of great political change during the 20th century. A country's prosperity relies on trade. Trade relies on trust (this is why corruption is so damaging to country economies [see (i)]). Trust (for long-term investment which you can think of as a longer term trade for this purpose) needs, above all, stability. Countries going through unstable times don't have that, and because EU exit is new and only Greenland has ever done anything like it before (exiting EEC not EU), its a big unknown. My wife saw (and was involved with at the highest levels) the outside interest in investing in projects as Poland considered joining the EU, but it was all talk and no action until they signed on the dotted line (to the EU), and then after that the money started trickling in and as it proved stable, it became a stream. Poland's economy grew and what was a country stuck in post-communist poverty became the modern pleasant and relatively safe place to trade that it is today. Moscow saw the reverse of this in the 1990s, as political turmoil caused investment to dwindle and pull out, the risks just weren't worth it for outside investors despite potentially high gains and the spout dried up. You may remember if you're old enough, the shots of society falling to pieces due to this in the news around the next few years - huge queues round the corner for pitiful food stocks in the stores etc. Granted, we're not Russia and we've had EU/EEC stability and investment for many years, and this extreme drop in wellbeing is unlikely, but its a vision of the direction we could be headed if the world doesn't like the look.

Voting Remain was the stable choice, and the choice that guaranteed trade could continue as easily as it has been since we joined the single market at its establishment in 1992 (and since the EEC in 1974).
This reliance on international business for the bigger corporations (and many smaller ones too) is what causes the Euro to suffer in value too, though obviously not as much as the directly-affected pound-sterling currency. Hence why I didn't quote the Euro-£ rate earlier as it has also dropped.

Exporters do well with a devalued home-currency (as long as they don't buy the raw materials from outside the UK), but we import more than we export from the EU, and the larger EU members rely on us to buy their products. If it costs more relative to other sources we'll buy less from them, and they'll have a smaller market to export to easily with us outside the EU, hence smaller customer base and less turnover and profit. Hence their market is affected. Just like a telephone, the network effect is in play here - you wouldn't buy a phone if there was noone else on the network to call with it.

The symptoms of instability due to the unknown direction will be relatively temporary but its enough to scare investors and as with any relationship, broken trust takes a long time to recover and its never quite the same again (ever trusted a partner who cheated on you quite the same again? I thought not). Our divorce of the EU will have long-lasting and damaging effects, probably a decade or more before we're back to where we were before [my wife's estimate based on experience]. The agreements we'll be allowed to make with other non-EU countries after Brexit will have to try and make up for that, but they'll also take a few years to be worked out and have a noticable affect, and noone knows how beneficial they will be or who will be ready to sign up. The USA would prioritise their in-progress work with the EU on that (TTIP) over us, one article I read recently suggested Germany could become the new "special relationship" with the USA. No one country in the EU will be allowed to make any outside deals with us by themselves (by EU law - same ones restricting us now, so that everyone in the EU gets the same deal with non-EU countries, which is supposed to make it fair).

Contracts have already been cancelled because of Brexit; businesses that can, will start choosing to go somewhere more stable - HSBC will be moving staff out of the UK as just the first big change announced but I guarantee there'll be many many more over the next few years if we go ahead with Brexit [UPDATE: JP Morgan for one], and some even if we don't. The damage has been done. Once those choices are made, a lot of those business opportunities are lost forever. I believe this applies to everyone - not just the EU members who would trade with us, but commonwealth countries, UK-internal companies and worldwide (for fear they won't have the same customer market they had before). We no longer live in an independent world; with globalisation and the internet in particular, every country depends on global trade and there are many huge multinational companies with branches in all the big countries that together have a notable impact on their country's finances and wealth and any issue like this will affect many of them. We've seen evidence as all the big stock exchanges around the world took a tumble on the Brexit news, as far away as Japan many many thousands of miles away and they're nowhere near one of our biggest trading partners. If you want to get off the globalisation and international-trade train, you'll just be left behind - North Korea would be the extreme example of that, but there aren't any other countries with inward-facing views only that can argue against that by being economic powerhouses. I strongly doubt we'll get free trade agreements with the EU without free movement of people, and others' opinions seems to confirm that.

The issue of immigration that Murdoch's media turned into a 1-issue campaign near the end has been so abused but I hope you knew that our net-positive immigration of EU and commonwealth citizens/subjects is a sizable contributor to our country's wealth. No (developed) country is isolated anymore and cannot survive as a (metaphorical) island. Putting controls on immigration and restricting it costs money to administer and loses government income in taxes, reduces diversity and ability to pool the best people in UK-based companies. Less income means a smaller government budget and usually among the first items to be cut are benefits. House prices will also suffer as people avoid buying at such a risky time, and inflation/interest-rate and other factors mean mortgages increase. There will be people stuck with negative equity eventually. So after Brexit we will have a nervous economy, companies pulling out, more people (than already) struggling to get by and falling out of the system, placing a strain on the NHS or even dieing, and the EU membership fee (£160million/week not previously spent in the UK) will most likely go into as much as possible of the following work:

  • Civil service negotiation for trade deals or agreeing the post-Brexit EU trade situation and what status EU nationals here/UK citizens abroad have, if they need to return/apply for visas. The 2-year notice period for EU exit might not be enough for this (estimates vary from 5 to 10 years), and in order to make the most of leaving the EU we'll want to start other trade agreements ready to be signed as soon as we leave the EU (if its even legal to start so early).
  • Boosting the economy via incentives and tax breaks and such-like in high-Return-on-Investment sectors to do their best at reducing the resulting recession. We won't have the saved EU membership fee until the notice period is up and we leave, and its only ~0.6% of our budget, so that won't help any really - even taking away the money the EU spends here anyway on science, farming and regional aid from its previous destinations wouldn't help that much and might hurt more than it helps by cancelling EU-funded projects that were previously improving our prosperity.
  • Pulling the EU laws we don't want anymore out of our justice system (detangling and such, making sure the rest still read sensibly and no interdependencies end up with loopholes for criminals to take advantage of) - there are thousands of them.
  • Sorting out the Gibralta situation, plus the RoI/N.Ireland border status going forward (border crossing needed of some sort)

Immigrants don't cost the NHS or welfare budget anywhere near enough to worry about, compared to the net gain for our economy they provide, and the issue of them taking up valuable housing shouldn't be blamed on the immigrants, but on the government and councils' failed attempts to build suitable housing for those who need it. That problem is separate and exists with or without EU immigration. We still have immigration. If you stopped EU immigration you'd still need to fix the housing problem. I bet even if we stopped all immigration (eg. including commonwealth, and other unrelated countries), without kicking people out immediately we'd still have a housing problem for a good few years. If you kick them out, the businesses who employ them (so particularly affecting healthcare, construction & manual/skilled labour) will really hate that - as would you when an unskilled old-style Brit turns up a day late, fails to fix your plumbing, takes a long tea-break and still charges you £100 (companies would be desparate for skilled workers to replace them so anyone would do). That kind of xenophobic discrimination would be rioting-in-the-streets level ugliness all over the land...

Regarding the affordable housing - all the while they're allowing old council housing to be torn down for whatever developers want to build, with badly negotiated affordable housing ratios [Guardian analysis articles 1 and 2]. As usual, rather than own up and try to fix it, politicians blame someone else who doesn't have the power to fight back at an equal level, in order to get any kind of boost and unite the public against a "common enemy" who is nothing of the sort.

If you're looking for some hope and I've dashed your expectations for a redo after reading this post, this Independent (newspaper) article may have some in a different way - ignore its click-bait like title and read on. It doesn't back up its claims well though. It did help me write the list of tasks for the new government to panic about above.

Thats what I've been considering so far... (please excuse any errors, do point them out via comments if you see one)

(i) When there's corruption, maybe a few will get extra rich, usually the ones with more power and the ability to keep the corruption hidden and/or acceptable among themselves, but the majority suffer as external investors outside the broken system avoid the risk of their money disappearing with no reward and go elsewhere

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