More questions from dreadful Brexit fallout
AS MUCH as I try, I just cannot tear my eyes away from the dreadful Brexit fallout. I feel so sad for London, which for a short time was my home, and which seems likely to be the biggest loser from the debacle. To its credit, the city recognised the danger early and voted solidly against Brexit, reflecting what it has become — a cosmopolitan, multi-cultural giant of culture and work.
And now cities of the world are circling like so many vultures, eager to feed on the carcass. By some estimates, between 10% and 40% of international bankers will leave.
The city elders of Frankfurt took less than a day after the vote last week to draw up a strategy to lure the industry to their city. Paris is an option of course, although its hostility to the ethic of investment banks is famous.
It turns out Amsterdam might end up being the big winner.
In one sense, London is not only the victim but also the culprit. Countryside Britain has not forgotten the financial crisis and how men in suits with algorithms threw the world into disarray. But what the financial centre, “the City” as it’s known, has done for London has just been extraordinary. It created in effect a kind of incubator of financial innovation in the same way that Silicon Valley has created a technology innovation centre. And it has performed the same function Silicon Valley has in the US, drawing skill and expertise from all over the world.
The complexity and depth of the knowledge base is almost impossible to overestimate.
When I lived in London in the late 90s, it was already visible how wealth was pouring into London. Fulham, the suburb in which I lived, was considered so abject someone at a dinner party gasped when I mentioned this was where my wife and I intended living. Fulham’s main thoroughfare, Dawes Road, was known as the place Chelsea football fans would trash after losing yet another match.
Not now. Now the tiny, one bedroom house I stayed in then would probably cost about R10m. The average rents today would have consumed the entire salary I was earning then. In a large part, this munificence radiated out of “the City”.
Chelsea football club, which is actually in Fulham not Chelsea, was a symbol of this rebirth. It smartened up, the stadium was rebuilt, the club was bought by a Russian oligarch, and it won a string of national and international tournaments.
Two big questions arise from all this, questions that have not yet been asked. The first is this: How is it that the public of one of the most economically literate countries in the world could fail to notice this trend? In a sense, the question is the same as many economic conundrums. Why is it, for example, when so many international examples abound, that ordinary people do not see the value in free trade? At a rough guess, I would say 90% of economists around the world would unequivocally support free trade. When you look at the huge difference to the lives of ordinary people that free trade brings, why is it such a hard sell?
One part of the answer is obvious. Free trade results in winners and losers, even if there are more winners than losers. Those losers are vocal and they stand out. They are supported by everyone from mercantilists to socialists to nationalists. Yet, like absolute clockwork, whenever a country converts from protectionism to trade freedom, the society as a whole benefits. Ask any of the 300-million Chinese people who have just joined the global middle class.
One other possibility is that people are encouraged to ignore the truth by those with their own agendas, ideological or cultural.
One of the stand-out comments of the Brexit campaign was Leave leader and MP Michael Gove’s comment during the campaign that “people in this country have had enough of experts”. It is an oddity, this phenomenon, that we still need to understand. The second big question is a contrarian one: What if the British exit is just the start? If all the rich countries in the EU suddenly decided to up and leave in the next few years, then the UK’s action will suddenly look not crazy but prescient.
How likely is that? I think the chances are small, because the advantages to everyone in an economic bloc outweigh the disadvantages of the loss of national sovereignty. But like free trade, there are winners and losers even if there are more winners.
Germany, it turns out, has been a big beneficiary of the arrangement, as its trade balance has for decades demonstrated. The possibility of the EU unravelling is much more of a risk than is generally thought.
ONE important housekeeping note: I’m delighted to say that Carol Paton has been appointed deputy editor of Business Day. Carol is one of SA’s most lauded journalists, whose writing for years in Business Day and the Financial Mail has been thoughtful, astute and insightful. Happily, she will carry on writing in addition to taking on other functions, which will include mentoring the prodigious talent in our newsroom. I am sure she will be an enormous credit to the paper in this position, as she has been in the past.