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Brexit does not matter

Jan 15,2019 - Last updated at Jan 15,2019

WASHINGTON, DC — The contours of the 19th and early 20th century were defined in part by a series of consequential British foreign policy and economic decisions. As recently as 2007-2009, British policy affected global outcomes: Whereas deregulation of the City of London contributed to the severity of the global financial crisis, British leadership at the London G-20 summit in April 2009 ultimately proved a stabilising influence. Today, however, despite all the political theater and dramatic rhetoric, Britain’s impending exit from the European Union, Brexit, really does not matter for the world.

The global economy may have hit a patch of uncertainty, but this is more due to the mercurial actions of US President Donald Trump, self-proclaimed “Tariff Man”, who seems intent on undermining the credibility of the Federal Reserve, disrupting supply chains, and negotiating through random pronouncements. The eurozone is struggling to break out of its prolonged agonies, but the fundamental problem remains bad banking practices and potentially unsustainable public finances in some member countries. While Brexit may well prove an unfortunate idea for many inhabitants of the United Kingdom, the likely impact is lower British growth, not a significant disruption of regional, let alone global, trade.

It is hard to overstate British influence over global affairs after it became the cradle of the Industrial Revolution. From about 1750, British inventions created a wave of technological innovation that transformed how power was generated and how metal was worked. Railways and steam ships revolutionised transportation. Even when the centre of innovation shifted across the Atlantic, British capital and emigration supported industrialisation around the world.

Not all British contributions were positive, of course. Britain’s rise as a global power was accompanied by the horrors of the Atlantic slave trade and the many abuses of colonial rule.

But there is no question that British actions, good and bad, were consequential for many people, some of whom lived far away. British alliances and willingness to intervene militarily shaped European wars, from Napoleon through the German invasions of France in 1870, 1914 and 1940. Neville Chamberlain’s policy of appeasement, including his personal strategy and decisions at the 1938 Munich conference with Adolf Hitler, had a major impact on the timing, nature, and perhaps even the eventual outcome of World War II.

The UK’s peak global influence was probably in 1940-1941, when it stood essentially alone against the seemingly unstoppable might of Nazi Germany. Ironically, America’s entry into the war both tipped the balance decisively against Hitler and soon led to a complete makeover of the world economy.

The 1944 Bretton Woods conference made it clear that the era of European empire was over. Also gone was privileged trade within economic zones established by previous waves of imperial expansion. Post-World War II trading arrangements were determined by American preferences. With US business, labour and politicians unanimous in wanting access to all markets, successive rounds of trade liberalisation followed.

In 1945, the British Empire contained more than 600 million people, about one-quarter of everyone alive, making it (briefly) the most populous political entity ever on the planet. In subsequent decades, the UK’s global impact was felt mostly through a combination of decolonisation debacles, including the spectacular humiliation suffered during the Suez Crisis of 1956, and gross macroeconomic mismanagement. In 1976, Britain became the only country issuing an international reserve currency that has been forced to borrow from the International Monetary Fund during the (post-1973) era of floating exchange rates.

Nothing about this loss of global influence can be attributed to Britain’s membership of the EU. Overall, Britain has done well from post-war trade, about half of which is currently with Europe. The UK’s total trade, exports plus imports, was around 40 per cent of GDP during the 1950s; it currently runs closer to 60 per cent, with most of that increase occurring after the country joined the European Economic Community in 1973. More broadly, active participation in the global economy over the past four decades has helped close the gap, in terms of GDP per capita, with the United States.

Perhaps there is a mad version of Brexit that could have ramifications beyond British shores, but that seems far-fetched. Unlike Trump, no responsible politician in the UK really wants to restore protectionist tariffs to the level of the 1930s. Also unlike the US, no prominent official in Britain is keen to gamble again with the country’s future by weakening financial regulation.

Most of the British political elite seems just as out of touch with global reality as their predecessors were in 1938, 1944 and 1956. The world has moved on, again. A chaotic Brexit could do great damage to ordinary people, as was the case with Britain’s self-ejection from the Exchange Rate Mechanism of the European Monetary System in 1992.

But those ordinary people will be overwhelmingly British. The days when Britain could move the world are long gone.

 

Simon Johnson is a professor at MIT’s Sloan School of Management and the co-author of “White House Burning: The Founding Fathers, Our National Debt and Why It Matters to You”. Copyright: Project Syndicate, 2018.
www.project-syndicate.org

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