Brexit: Spin, Tumble, Hang Out to Dry?

IIEA14th September 201616min
In these deceptively calm days between a Midsummer Night's Madness and an imminent Winter of Discontent, you could be forgiven for thinking that nothing much has changed since the UK referendum on EU membership.

John McGrane is Director General of the British-Irish Chamber of Commerce, and an independent member of the IIEA’s UK working group. As an independent forum, the Institute does not express any opinions of its own. The views expressed in this article are those of the author.

 

In these deceptively calm days between a Midsummer Night’s Madness and an imminent Winter of Discontent, you could be forgiven for thinking that nothing much has changed since the UK referendum on EU membership. It doesn’t quite feel like the immediate aftermath of one of the most disruptive acts of democracy of our times.

When you walk up your Main Street or travel across your countryside, you can’t hear the job losses or see the disinvestment that we were told wouldn’t happen if Britain chose to leave. But all is far from well.

While the spin cycle continues to churn out a vision of trade deals with countries who will somehow change from difficult partners to best friends, and while those Brexit campaigners who asked “who needs experts?” have tumbled one by one, it’s clear that the truth is about to be rinsed out in public.

There were few if any new investment projects commissioned in the UK in the three months before the referendum as investors and employers rationally took a wait and see approach to the uncertainty ahead. In the two months since the outcome, the pound has collapsed, both house and commercial property values have declined, recruitment is in freefall, UK farming has no assurance of any replacement for its core EU funding and UK universities are facing the loss of their core research funding, with all this implies for the future of UK industrial and social development.

 

Brexit means Brexit, yes, but what does Brexit mean?

David Cameron last year presciently described Britain’s support for EU membership as wafer thin; Theresa May will need extraordinary leadership power to broker consensus inside the UK on what exactly Brexit does mean. Weeks in, and with the clock ticking towards its Article 50 alarm call, we’re no clearer on anything from Norway to Australia or to China or to leaving the Single Market or to any other of the numerous forms of Brexit that were bandied about.

The fact is that the context for Britain’s negotiation/supplication with the other 27 EU Member States may be about to change, utterly.  Far for some genteel diplomatic set-piece, the stark human reality of job losses, business disinvestment and the resultant pressure on local councillors, constituency MPs and backbenchers at Westminster will imminently change this phoney war from spin and costless politicking to very real pain and loss for those who could never protect themselves by running away or changing their mind.

And in the most exposed UK community of all, Northern Ireland’s fleeting opportunity to make progress on back of economic advantage has been squandered. The North, which costs Britain more to subsidise annually than the UK’s cost of being a member of the Single Market, is going backwards instead of benefitting from its opportunity to reduce business and travel taxes and its latest competitiveness metrics show that it has a plenty of other serious issues to address than just its border.

 

An interconnected world

To what end has the UK has done all of this? If it was all about migration, then it’s now time for the spinners to tell the truth that non-EU migration has nothing at all to do with migration of sought-after employees from EU Member States. The British fashion industry, for instance, relies for its viability on Eastern EU seamstresses working in England just as it does on talented young British designers and Italian fabric makers. The car industry and the food industry and Britain’s huge finance and construction industries all clearly rely on “foreign” EU workers and access to a market over eight times larger than their own (without even counting the other global markets made open to the UK by the EU).

Nothing in the modern world exists without interconnection to another market. Even the iconically “British” Bentley starts its life in Bratislava, gets a German engine, is finished in England with chrome trim made in Westmeath and sold to customers all over the world using finance assembled in Dublin’s International Financial Services Centre.

Indeed, without a commitment to such open interconnectivity, it’s not unrealistic to visualise a return by Britain to the self-defeating environment that used to be “free trade Ireland” or the “iron curtain” Eastern European states, reduced to inefficient investment-starved production and consumption of low-quality goods at bad prices for poorer people.

The last time the great British motor industry produced two million cars in a year was in the early 1970’s before poor industrial relations management and a low capacity for adaptation collapsed the industry. Now, in foreign hands, and ironically just when it is on a trajectory to once again produce two million cars annually by 2020, half of the industry’s workers have voted for an outcome that throws doubt over its future. The British motor industry produces five times as many cars as it sells in the UK – the rest are all exported, mostly to the EU. And the same industry employs hundreds of thousands of EU workers and imports 40% of its raw materials from the EU. How on earth does Britain expect to win any new motor industry investment or a single extra job with the imminent prospect of barriers to its workforce or tariffs on its 40% import content and also on its 80% export dependency? The industry, like others in Britain, will inevitably fall back to supplying only its local market of 60 million citizens, not insignificant but well short of enough to support all of today’s suppliers, with consequent massive job destruction in communities that had built world-class businesses over the past 25 years.

The irony (but also the good news) is that the hugely important issues of trade and free movement of people are eminently fixable. Every other country in the EU has a functioning set of rules to appropriately control the “free” movement of EU workers. In fact, there is no such thing as either entirely free trade or entirely free movement of people in the EU, but rather conditional trade and conditional movement – anything less would be self-evidently unsustainable. So, given the waste, pain and loss which will be caused by delays in addressing reality, doesn’t this suggest that all parties should move with speed to reach the agreements that are inevitable?

In Ireland, whose “skin in the game” was rightly declared and acknowledged from the very start of all of this, what we need to do are three clear things: Protect this country’s interests, while recognising the links between Ireland and the UK; fix the ills besetting the EU; and do so in cooperation with our partners in the EU and the UK.

 

Ireland’s interests

1. Protect Ireland, recognising the linkages between us and the UK 

It is rational to urge those Irish exporters challenged by a 17% fall in the currency value of their UK sales (let alone the likely demise of some of their UK customers) to switch to other markets. But no other market is as valuable to Ireland as the UK. It’s the nearest in distance, most similar in language and law and easiest to manage for Ireland Inc. As shown in the recent survey work of the British Irish Chamber of Commerce which assessed the distinct reactions of both exporters and importers, it’s encouraging to see that some Irish exporters are already investing in new market penetration. However, those same exporters will tell you that the reality is that this is slow, expensive, difficult and nowhere nearly as valuable as their UK business. The same survey highlighted that business is inherently pragmatic and resilient but that what it needs is early clarity of arrangements and joined-up collective planning to make the best of them.

Protecting Ireland means helping our exporters to weather the storm and develop strategies to survive changed conditions. That means keeping costs tight, consistent with fair terms for good jobs. It means finding new markets, true, but also working even more with UK suppliers and customers, including helping Irish businesses to establish inside the UK as well as exporting from Ireland, to get the maximum amount of work from a still very substantial UK market.  And in Tourism, a key service export accounting for one in eight Dublin jobs and hundreds of thousands more in local communities across the island, we can work even more closely together to offset currency weakness with strengthened joint offerings. Early renewal of the Visa Waiver Scheme and the British Irish Visa Scheme are practical examples where joint action doesn’t need EU negotiation.

Protecting Ireland also clearly means helping UK enterprises (and indeed EU entities based in the UK such as the European Medicines Agency) to do business in Ireland including by setting up directly in Dublin or regionally and operating in whole or in part in the market which is both nearest to their original base and guaranteed to deliver full presence within the EU going forward. It’s not about a land grab, it’s about offering solutions to UK businesses exposed to loss from Brexit and about offsetting at least some of Ireland’s substantial risk of loss too.

And make no mistake, Ireland will need all possible gains to offset the definite losses it must now anticipate from Brexit. At the most macro level, the ESRI calibration that a 1% fall in UK GDP correlates to a 0.3% fall in Irish GDP is shuddering enough (so if, as predicted, the UK may lose 10% of its economic growth, Ireland will lose 3% off its own growth). Below such macro observations lie the local, starker and personal realities. In parts of Ireland entire communities earn their living from the country’s hugely successful exports of food products that go entirely to the UK market. Indeed, as an example of how economically joined at the hip Ireland and the UK really are, some of those products go to UK processors who send them back to Ireland as final products (think ingredients becoming biscuits or motor parts becoming vehicles or formulations becoming medicines, let alone IT and financial services exports coming back as online insurance products etc).

The Irish side has rightly talked a lot about exporters’ exposure to the UK economy. They’re important because, even though the UK accounts for only 16% of our total exports, it takes nearly 40% of the exports of our indigenous firms, which in turn create more new jobs for more people in more businesses in more parts of the country. But the catch is that most of our indigenous firms don’t export at all (even though they ultimately depend on some other business which does). Our importers, on the other hand, are everywhere. We rarely shine a light on the fact that our import-dependency on the UK is the main reason for its status as Ireland’s largest two-way trading partner. Indeed, the UK supplies over a third of what Ireland doesn’t create itself – everything from clothing, through groceries, to machinery, to construction services. In a post-Brexit environment, not only will Ireland’s exporters face barriers, delays and costs but so too will the importers who underpin so much of the Irish economy too. Some compensation through weakened Sterling import prices will not be enough to offset raised operating costs and the effects of the damaged overall economies on both islands.

So we have clear and present danger for both exporters and importers who, beyond their own efforts to work smarter, need a set of relationships between the UK and the EU and between Ireland and the UK which appreciate and address their unique exposure to Brexit.

 

2. Fix the EU, for good.

The EU is far from perfect. But if we didn’t have the EU we would have to invent it. We would come together with people with similar ideas about trade, about creating more jobs than we can create on our own, about designing similar legal systems so we can travel and do business with each other as easily as we do at home. We would collectively want to look after our people for their safety at work or for their care when they’re ageing or unwell. The EU is needed and its shortcomings need to be fixed by Europeans, together.

We rarely talked about Europe during the UK’s referendum campaign. We didn’t talk about the fact that an EU-based pharmaceuticals employer shouldn’t still have to incur the cost of certifying the same medicine in 28 different EU countries when it would only have to do it once in the US, a smaller single market. We didn’t talk about the fact that some countries don’t really make it easy for their fellow EU Member States to trade in their country, inventing local barriers to keep out EU imports. We didn’t talk about the fact that the EU has been too slow to address security and about completing a full single market for everything. We haven’t really focused on the decline in the EU’s competitiveness in a world where firms can invest anywhere globally and all too frequently are bypassing the EU. And we still haven’t marketed the EU to our own citizens or highlighted that it’s “thanks to the EU” that we are delivering action together on climate, on cleaner water, on safer workplaces, on equal pay for women, on easier air access and on the right for our children to study and to get a job anywhere in Europe.

We need, together, to move faster to have the European Union deliver its extraordinary potential for us all. It’s alarming that the deal offered earlier this year by the EU to the UK is officially no longer available to anybody – and that includes the EU’s commitment to greater competitiveness through reducing red tape for businesses and developing an ambitious global trading and growth capability for the whole EU. That commitment needs to come back onto the table regardless of any other negotiations as does our initiation of a constructive debate on how we will together deliver a great Europe for all our citizens. Indeed, only at the level of the whole EU can we hope to tackle the systemic societal problems of citizen disengagement and isolation of communities that weaken, and threaten, us all.

For proof, look no further than the shocking fact that nine out of ten middle class jobs made obsolete by technology in the UK are replaced by lower paid jobs, but only one is offset by a higher paid job (the figures in Ireland are a slightly less alarming three lower-paid and seven higher-paid jobs, which at least shows that industrial and investment policy can indeed make the positive difference).

We never talked about this in the referendum campaign spin-cycle – about what has been increasingly called out as the sub-optimal market economy, our failure to deliver a common bond across society between the better off and the less well off, the young and the old, the well and the unwell. This real-world backdrop to broken politics, broken markets and broken society must be fixed or, like climate, we may be the first generation to be able to fix it and the last to be given the chance.

Ireland’s future relationships will, of course, continue to diversify globally – not least including with the US – and Ireland’s commitment to the EU is undiluted. Empathy with the EU does not mean antipathy to the UK or vice versa. Indeed, it’s certain that Ireland’s commitment to the EU will itself be challenged at times in the future as the temptation to centralise the EU strains peripheral relationships, all the while leaving Ireland to manage not only its EU commitment but also its natural ties and very substantial shared interests with the UK.

We have the ability, and the need, to be adept at managing both.

 

3. We must work together

No matter how challenging what lies ahead, one thing is certain – this will get worked out. What is important is to start the work that needs to be done, and to start it now.

If ever there was a time for us to be working together, this is surely it. Knowledge is power and it’s at its most powerful when it’s shared. The recent initiative by Dublin’s new Lord Mayor to reach out to all the boroughs, agencies and businesses of Dublin and jointly proclaim that “Greater Dublin’s Never Been Greater” and to leverage the resources of the entire region for investment and employment is exactly the right response to seriously changed conditions. We can’t ignore the collapse in Sterling’s value but we can work smarter together in response to it. We can share market expertise and innovation, fairly managing our competitiveness, strengthening our export offerings and finding new customers not only in new markets but even more customers than before in the UK to offset unit sales revenue reduction.

It may be too early to take comfort from selective acknowledgements in the EU of Ireland’s special relationship with the UK, and concerns for the border with Northern Ireland, but it proves the importance of early diplomatic effort. And for those who say Ireland can’t achieve what it needs, bear in mind that the EU’s rules are inherently political rules, so we need to support our own politicians and public servants to achieve the rules that are right for Ireland, as every other Member State will want to fight for their own interests too. Indeed, a recent study by The Polish Institute of International Affairs makes worrying, if unsurprising, reading about how the EU’s most powerful States will inevitably determine the negotiating game. Just as it was in Ireland’s obvious interest to join the EU alongside the UK over forty years ago, it’s in Ireland’s clear interest to maintain its deeply embedded connectivity to both the EU and the UK now. But with little natural regard by the B5 (Germany, France, Italy, Spain and Poland) for peripheral Ireland’s particular needs, we’re clearly set for the most important challenge to Ireland’s diplomacy and negotiation skills since the formation of the State, the joining of the EU and the achievement of the Peace Process. This challenge will need, and must receive, the fullest practical support from all who have regard for Ireland’s unique contribution to our allies’ wellbeing.

And not all hinges on formal EU/UK negotiations. An early restatement of the 2012 Downing Street/Merrion Street declaration of cooperation between the UK and Ireland governments, their departments and agencies will be the appropriate first step to re-establish structures of trust and joint productive endeavour that have shown strong promise until interrupted by the referendum. That 2012 accord paved the way for progressive joint marketing of UK/Irish tourism, aviation finance, life sciences innovation and food marketing; there is plenty of scope – and need –  for even more of such cooperation in the future.

Against this background, it is certain that strong UK/Ireland structures will be needed to manage the distinct and substantial set of UK/Ireland issues and opportunities that will remain central to Ireland’s interests. Updated structures for inter-island cooperation will need clear lines of trusted connectivity between leadership across the public and the private sector communities, with both formal and informal channels to understand and quickly clear the inevitable obstacles. Above all, we have to quickly and permanently re-affirm the atmosphere of genuine trust and mutual regard which has characterised the contemporary relationship between the peoples of the United Kingdom and Ireland.

 

So it’s time for all who were previously too cautious, too conflicted, too distracted or too disbelieving, to now come together in support of a negotiating strategy that for the Union of England, Scotland, Wales and Northern Ireland is existential and for Ireland is the most important since the founding of the State, the joining of the EU or the achievement of the Peace Process. We don’t need somebody else to lose for us to win, together. In the end, this can’t be about saying “somebody should be doing something about this” – I should, you should, we must, together, now.