Letter 121: U.K. breaks it or Brexits; opportunities in surprise

"Plus ça change, plus c'est la même chose."

--Jean-Baptiste Alphonse Karr, 1849

"The more things change, the more they remain the same."

BLUF (bottom-line, up-front): This referendum for Britain to exit the European Union (the ‘Brexit’) may end up being much ado about nothing, much like the false alarm of Y2K that made consulting companies rich and the rest of us fret.

SUMMARY: The Brexit vote to exit the European Union (E.U.) surprised many people and precipitated the downfall of a triple-A Prime Minister, David Cameron. The Eurozone core of the E.U. basically said ‘good riddance’ calling for a quick expulsion of the United Kingdom (U.K.).

A coming after-shock may ensue of a possible re-referendum for Scot independence.  In fact, this apparent worst-case scenario of the Brexit may turn out to leave Great Britain in a superior position. Finally, it is time to embrace the message and consider a new union of developed Anglophone countries to maintain their middle classes.

SCOTLAND: As threatening as this consequence may sound, a secession of the Scots could conceivably rebound to the benefit of the U.K. since economic frictions would likely be minimized through careful negotiations between Scotland and the rest of the U.K. That is to say: the Scot economic links with England, Wales, Northern Ireland et al. would continue largely unchanged. This possibility is not new; the break-away of Cataluña and País Vasco would likely unfold much the same way. 

Yet Scotland would still be in the E.U. and would serve as a bridge between the old U.K. and the continent. In fact, the truncated U.K., with an interwoven but independent Scotland, could enjoy one foot in the E.U. and one in free-wheeling sovereignty. Thus the remaining British domains could export onto the continent through Scotland while being able to push back on Eurozone, particularly German, domination. What will be interesting to see is whether the Eurozone would accommodate this sweet-heart status for the Brits. 

The UNITED STATES: Never one to shy away from free face-time, Mr Trump, the presumptive nominee of a possibly imploding Republican Party, stated that the Brexit vote would augur a similar ‘unilateral declaration of independence’ in the United States. Both Mr Trump and Senator Sanders have long disclaimed the efficacy of the North America Free Trade Agreement (NAFTA) for U.S. interests and railed against the teed-up Trans-Pacific Partnership (TPP). 

The twenty-plus years since NAFTA became the law of the American land, U.S. manufacturing has declined while sovereignty deferred has become sovereignty denied with regulations obviated at the expense of the infrastructure and other social ills while the treaty basically subsidized corporations, not only through cheap labor zapping U.S. factory jobs, but also through diminished regulatory expenses, pushing spill-over costs onto the rest of the populace.

There is little reason to expect an improvement with the TPP. That arrangement was initially founded by smaller Pac Rim states to grant these emerging economies a collective bargaining power versus the three great powers of the Pacific Rim: China, Japan and the United States. Yet Japan and the United States managed to conflate geopolitical concerns shared among these members vis à vis an increasingly expansionist China with the initial intention of the TPP to get their great-power noses under the tent.

As initially contemplated, the TPP was meant to function similarly to those 'emerging' European economies banding together in the 1950s to overcome the devastation of world war. Back then, however, American and European statesmen (e.g., Generals Marshall and De Gaulle) segregated the economic collective from the geopolitical alliance (i.e., NATO) to contain the USSR. By conflating these themes as a ‘counterpoise’ to China, however, the Pacific Common Market has basically let two of the three six hundred pound gorillas into the mix.

Just how do such pillaging primates act in these permissive contexts? They smash the efforts of smaller countries to produce generic drugs, or other goods, manufactured by monopolies at affordable prices through, for example, compulsory licensing. Thus many poor people have to pay ridiculous sums of money for drugs or, more likely, do without and fade away. These indirect subsidies from diminished sovereignty will harm the American middle class.

Indeed, the TPP will achieve many of the same ends of NAFTA through two of the three great powers of the Pac Rim enforcing monopolistic practices and pricing. The jobs will leave the United States but the vast multi-national entreprises will simply realize higher profit margins much of the time by holding prices steady while input costs shrink. This scenario underlies the reasoned gripe of Senator Sanders. If Senator / Secretary Clinton is to win, she will have at least to hedge on the idea of the TPP. The Brexit vote may well force her into Senator Sanders’s camp.

An ANGLO-UNION: Fifteen years ago, when the U.K. opted not to participate in the €uro, I was in London popping off at dinner, during which I etched in stone the sobriquet earned among my British banking buds as the ‘Irish Trouble’. During that evening, I proposed an alternative: that the U.K. and the U.S. lead an Anglophonic economic league of the two ‘United’ countries, (now Scotland), Canada, Bermuda, Singapore, Australia, Ireland, New Zealand, the Cayman Islands as well as, perhaps, South Africa.

A lot has occurred since 2002. Now such a league – bound by historical ties, the English language and cultures of republican individualism – could make more sense. In their collective, these members might balance each other out like a diversified portfolio of economies with asynchronous seasonalities, complementary resource bases and deep technological pools of knowledge. 

This ‘Anglophonia’ would avoid a common currency, because that would result in the U.S. exporting the inflationary policies to other member-states, much as they did in the first generation after Bretton Woods. The aim would be for the nations to exploit their comparative advantages in a manner calculated to preserve  and expand the wealth creating capacity of a labor intensive industrial base to bring the 450-500 million people (about the population of the E.U. without the U.K.) out of the second Great Depression which currently stymies so many opportunities for the millennials.

The financial position of the members could remain very strong since ‘Anglophonia’ would contain four of the six great financial centers (London, New York, Singapore and Bermuda). While current circumstances may not impress us as a second Great Depression, the socials ills seem to be as great, if difficult to recognize in a post-industrial, consumer, and service-centered economy. Thus, following the Brexit lead, these Anglophonic states could take measures to lift each other up by enforcing fair-trade policies to outsiders almost belligerently. 

There is one big concern to all of this imagination raised by a good friend: perhaps, another telling change from 2002 is that of labor jobs not being undercut by Himalayan or Mexican sweat-shops so much as they have been eliminated by robotics. Parallel to the careful negotiations between Scotland and the U.K., were complete devolution to occur, the prudent Anglophonia would have to address this potentially fatal oversight.

DANGER, WILL ROBINSON: Whatever course is taken, or not, any substantive policy change proposed by me or anybody else has to be viewed with sharp skepticism. These prescriptions are almost always little more than best-case scenarios since beneficial consequences are implicitly expected to attend the adoption of certain policies and initiatives.

Lastly, should the United States view such an Anglophone union as nothing more than an economic Anschluẞ, then the U.K., Scotland, New Zealand, Canada, Australia et al. should not proceed with such a far-flung common market. After all, my hope with such a union would be for the United States of America to reclaim their republican past and forsake their imperialist ambitions.