Brexit and the future of the UK

That Night

That night will never be forgotten. On the evening of June 23rd last year, the United Kingdom won by majority vote to begin negotiating their “exit plan” and departure from the EU. The sudden awakening of Article 50 was a monumental moment in British history, but it came crashing down upon the hearts of many across the world who favour an unbroken Europe. So here we are today, almost one year on from the vote and in a handsome position to assess the start of the post-Brexit era.

Source: newsweek.com

The island nation

By looking at the historic relationship between the UK and the EU over the past 40 years, the physical separation from the European mainland has always served to reinforce at least a cultural distance between the two economic powers, with the UK priding itself on its innate independence and wealthy heritage. This includes anything from the use of its own language, the monarchy and legal systems to the Commonwealth and global influence through an active commitment to the UN security Council and membership of the G7/ G20 bodies.

Janice Morphet, in her recently published book, “Beyond Brexit?: How to Assess the UK’s Future”, draws attention to some important differences. Number 1: The UK doesn’t see the EU as a main source of political influence in global affairs. The historic relationship with member states across two world-wars has brought a different “sensibility to the culture and politics” of much of the EU. Number 2: Europe is historically more “welfarist” in its culture when compared with the UK. It’s supportive of its citizens, against the liberalisation of labour markets and in favour of working people through trade unions. Number 3: Westminster has kept the EU at an arm’s length from the outset, with EU agreements seen “as less binding than their legal status requires”.

The Queen. Source: static5.uk

In short – the UK has always been encouraged to view the EU through a British lens, where policy “is made in five-year electoral cycles, in an episodic way”, according to Morphet. This is something the UK has never culturally adjusted to, helping blossom it’s difficult relationship with the EU in comparison to other mainland states. And above all, there has always been limited knowledge and familiarity of how the EU worked, with no common-language policy enforced or understanding of the direction in which the EU was heading. Many Britons, including myself, feel no cultural connection or similarities to the EU and the unelected directors in Brussels (we will visit this point later) whatsoever.

“The UK has always been encouraged to view the EU through a British lens” …

The Importance of a united Europe, without Britain

But despite the differences, (of which there are many) the EU is the UK’s largest trading partner with roughly 50% of UK GDP derived from the EU’s 27 other states. The membership provides a discounted trade cost, making goods and services cheaper for UK consumers and the world’s largest trading area for UK business’ exports.

Source: timeshighereducation.com

Looking towards LSE’s recent paper on Brexit, titled “The Consequences of Brexit for UK trade and living standards”, it’s clear that higher tariff and non-tariff barriers to trade will be imposed on the UK as a sanction to them leaving and to maintain its own longevity. The paper argues that with the UK representing just 18% of the EU’s single-market GDP (Dhingra, et al. LSE), many claim the UK are in a difficult position to try and negotiate some kind of non-membership deal composed of delicately attached tariffs.

Figures such as the above have led professors, economists, scholars and academics world-wide to massively criticise the decision to leave. Diane Coyle, professor of economics at Manchester University goes as far as arguing that the “Brexit vote will tear a hole in the fabric of the economy”. Since the vote, several banks have claimed that Brexit is forcing them to rethink their attachment to the UK and review investment decisions. HSBC said in February that it would need to move 1,000 jobs to Paris, where it already has large operations progressing. Jamie Dimon (JP Morgan CEO), when quoted by the Guardian, argues that Brexit could mean the UK operation losing a quarter of its 16,000 strong workforce. Some firms are looking towards Hong Kong or Singapore which would be a cheaper alternative if forced to operate outside of the EU.

Canary Wharf, London. Home to many of the world’s bank’s HQs. Source: theindependent.co.uk

“Brexit vote will tear a hole in the fabric of the economy”

The renaissance of the City

 Despite the expected short-term downturn, there’s still cause to be assured of a functioning post-Brexit world, where the UK could share a relationship with the EU similar to that of Norway, or a member of the EEA (European Economic Area). There are three main alternatives for the UK following Brexit: remain part of the single market like Norway, who have no tariffs on trade but make significant contributions to the EU (83% of the UK’s payment [House of Commons, 2013]); negotiate bilateral trade deals with the EU as Switzerland and Canada have; or trade with the EU under the WTO rules as the US and many non-EU countries do. According to LSE’s paper mentioned earlier, it’s likely that the UK will have to implement rules concerning the single market, including legislation in relation to: employment, consumer protection, environmental and competition policy. The severity of the rules imposed on the UK, however, is the real question we won’t know until we begin to edge closer to 2019. These sanctions have the capabilities to make or break the UK’s economy following on from Brexit.

“There are three main alternatives for the UK following Brexit”…

Nonetheless, the UK will effectively be an independent player for the first time in over 40 years and free to seek its own trade deals with the rest of the world. A lot will depend on Britain’s ability to negotiate FTAs (foreign trade agreements) with the rest of the world, giving many pro-Brexiters the cause to believe in the promotion of trade with China, India and the US among many others. Iain Mansfield, the winner of last year’s IEA Brexit prize, made an interesting point in a blueprint for Britain’s future which won him €100,000. He successfully outlined the potential for the UK to focus on building FTAs with major trading nations, deepen its engagement with organisations such as the G8, G20, OECD and in Europe, while securing open-trade relations.

Whether you believe the UK will be granted the opportunity to continue trading within Europe while progressing new agreements elsewhere or not, it’s too early to say for definite that this route would not be a success. By drawing attention to this “optimistic” outcome so often cited by academics worldwide, we can find quotes in recent articles by Bloomberg and the Guardian who state that “96% of business leaders were confident their company can adapt to life outside the EU” (Bloomberg), showing the kind of confidence and resilience many have in the wake of the decision. In fact, wage growth currently remains solid, unemployment continues to stay low, business activity continues to expand and house prices are still rising (The Guardian). The FTSE 100 share index was even close to an all-time high in October, a long-way off the predictions many threw forward in the early days of the referendum.

“96% of business leaders were confident their company can adapt to life outside the EU”

Prime Minister Theresa May speaking at the World Economic Forum. Source: thesun.co.uk

Politicians including Johnson and Gove have argued that it’s likely the tariffs imposed on the UK will be lower than expected, purely because of the UK’s lust for importation and as its status as the fifth largest economy worldwide. Morgan Stanley went as far as backing the leave camp in “winning an arm-wrestle” with Brussels over trade, especially in relation to automobiles. In a report they produced this year, it’s argued that “Europe has as much to lose, if not more, to lose than to gain from its access to the rich and large UK market, with over €30bn in annual export sales, and potentially €3-4bn in UK earnings”. Again, when we observe the financial services industry, split between the banks and insurers around “the City” of London, Canary Wharf and the hedge fund and private equity businesses that populate Mayfair, it’s clear the UK has a sovereign wealth worth investing in. Perhaps the UK really are in a position to negotiate their terms that best fit all nations on an economic perspective?

“Europe has as much to lose, if not more, to lose than to gain from its access to the rich and large UK market”

Pierre Henri Flamand, senior portfolio manager at GLG partners, looks at Brexit as potentially producing a “Big Bang” or an excuse to improve London’s prospects of doing business elsewhere like Asia and Africa where the ability to strike trade agreements may have been hampered by the UK’s membership of the EU”. Others, including Harriet Agnew of the Financial Times, state that “the UK now has the ability to reinvent itself with a new mission. It’s an exciting opportunity to deregulate and stimulate growth”. Outside of the Article 50 process, UK universities and research funders are already exploring opportunities to scale up international collaboration. This could include bilateral agreements with the US, and Commonwealth countries like Australia, Canada, India, Singapore and New Zealand, according to ScienceMag’s James Wilsdon.

Outside the EU Parliament Building in Brussels. Source: globalmeatnews.com

Many in the City resented being ruled by “an unelected bureaucracy in Brussels” (Financial Times, 2017). London now has the chance to become the Singapore of Europe, a less regulated offshore centre which should be competing with cities outside of Europe, like New York, Hong Kong and Shanghai, according to Howard Shore, executive chairman of Shore Capital Group.

Hong Kong. Source: viator.com

Concluding thoughts

The exit from the EU may require the UK to quickly renegotiate existing FTAs and will most certainly require them to request deals with new partners, particularly those in the Asia-Pacific where economies “have a heavy reliance on trade”. These agreements have the potential to be more favourable and deeper than existing EU agreements and can include emerging issues such as non-tariff measures and e-commerce. But at this point in time, a lot depends on the decisions made by Brussels and the influence of Merkel who naturally wishes to keep the EU thriving, with or without the UK. If Britain successfully negotiates their way out of Europe and maintains profitable FTAs elsewhere, the aforementioned data suggests that there’s hope for a world in which Britain can thrive outside the realm of the European Union.


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Please find the link below to Janice’s fantastic book on Brexit, as quoted in the article.

https://books.google.es/books/about/Beyond_Brexit.html?id=pykdDgAAQBAJ&redir_esc=y

Generation Z have arrived

Officially named Generation Z but more commonly known as the “iGeneration”, they are the latest wave of humans born anywhere after 1997. This year is a significant one as the oldest in this group will be entering their 20s and starting work for the first time. Below a is collection of research, statistics and opinions condensed down into the essential things you need to know about these toddlers and teens looking to welcome themselves into the world today.

Generation Z. Source – amazonaws.com

Despite typically labelled as “screen addicts” with attention spans lasting no longer than a few seconds, many understand that Gen Z will be the ones liable to fixing the mistakes of the recent past and dealing with unprecedented levels of world-change in the form of: increased global warming, turbulent economic policies and unpredictable demographic transformations. However, armed with modern weapons such as complete access to information and ease of unlimited communication through the internet, Gen Z are the first-born into the very recent age of cyberspace – with no experience of anything that came before it. Arguably they are more equipped than anyone before to really revert past aberrations and make a meaningful impact on the world for the better.

The typical social media platforms today. Source – caemarketing.com

But in order for this to happen they are expected to be comfortable with technology and content with social media. According to experts at Fast Company, it’s predicated that by 2020 they will already make-up a third of the population across the Western world and will account for 40% of all spending. The New York Times highlights this technology ataraxia as “untold riches to marketers”, helping signify why the “race to define” this latest wave of children is so hyped by the media and marketers worldwide.

But despite the aforementioned statistics, research conducted by both Fast Company and consultants Honey and Sparks also points towards hidden similarities between Generation Z and their grandparents, the “Silent Generation”, who grew up 50-60 years ago. Interestingly Gen Z tend to be more aware and conservative over their actions online, more money-conscious, more understanding of the geopolitical environment and more knowledgeable on big companies ruling today’s markets that their predecessors. When we look at the eldest Gen Z’ers, the data points towards the increasing difficulties they face while trying to attain graduate jobs, sometimes battling against tens of thousands of applications for the same role. It’s this competition and this new standard of graduate today, with their unlimited access to information and endless array of qualifications that means students today cannot afford to risk taking time-off to travel like their most recent predecessors the “Millennial’s” (those who reached adulthood around the year 2000) could.

The struggles of finding graduate work. Source – xkb.com

Growing up during the 2008 recession has associated them with the “entrepreneurial generation” they are commonly seen as today, spurred on by feelings of unsettlement and insecurity. Many blame their parent’s financial stress and struggles for shaping their “coming of age” and modern world-view. The 2014 study, “Generation Z Goes to College” backs these points and expands further through a series of in-depth interviews with students worldwide today. The study in particular draws attention to how they self-identify with being more compassionate, open-minded and determined than previous generations.

It’s thought that while Millennials helped elect a black president and legalise gay marriage, Generation Z were born with these as the norm and therefore their eyes have been wide open from the beginning.

Today it’s becoming more normal to see once gendered roles such as doctors and personal assistants to become gender-neutral. And thus it’s follows statistically that Gen Z boys today tend to be more family-orientated and are expected to be more actively engaged fathers than their own parents as they grow older.

Using interviews conducted in the aforementioned study, students today desire to “forsake the corporate hustle” for their own controlled start-ups.

Today 72% of graduates are interesting in beginning their own start-up businesses. Source – betahaus.com

Now more than ever, it’s common to love the idea of being pragmatic and working for yourself – derived more as a survival mechanism than an idealist reach for status or wealth.

The Huffington Post add to this by quoting marketing strategist, Deep Patel. His comments draw attention to the newly developing high-tech and highly networked world where “an entire generation is thinking and acting more entrepreneurially”.  And why not? Platforms like YouTube, Facebook and Instagram are available and provide Gen-Z with free access to seminars, workshops or inspiration we previously needed precious time, money and capabilities to invest into.

But how can one generation be so different from their predecessors? Lucie Green, worldwide director of the innovation Group at J. Walter Thompson brings some interesting points to the table. Her research draws attention to the Millennials as a direct comparison to Gen Z and how they were raised during the boom of the 90s only to see their world crash down with events such as 9/11 and two major economic recessions. Millennials were also shocked to find an unwelcoming job market away from the gold mine promised to them after college.

The Lehman Brothers crash in 2007/8. Source – maevekane.net

Gen Z, on the other hand, have been shaped by the recession at a young age as we saw previously. But importantly, Greene notes that even though Gen Z see the workplace as a battlefield, they are inclusive and tolerant of difference, more so than anyone before and we must pay accolade to this fact. They believe they will have to fight for what they want and they’ve become critics over those with ugly corporate cultures or poor working conditions. Emerson Spartz, CEO of the digital media company Dose, adds to the argument, noting how the flashy and conspicuous Abercrombie and Hollister eras are over and instead Gen Z are more concerned with saving money. With free access to information today, Generation Z are heavily influenced by company ethics and what they stand for. Spartz argues they even have a “bullshit filter” built into them or in other words a way in which Gen Z can detect whether a company/ brand is honest or not using the internet.

Today, luck plays a big part in whether you land a job you deserve, contrasting with the entitlement expected by Millennials. And it’s this mentality and tenacity that really pushes Gen Z above the rest. Not only do we owe thanks to past generations in building the foundations for a new diverse and equal generation today, but perhaps and ironically speaking, we can pay tribute to the 2008 economic recession. It shaped and hardened a new wave of go-and-get-it-yourself humans who are raring to make a difference in this world.

 

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Norway’s love affair with Oil & Gas – a bitter end?

It’s been a strong relationship of 50 years in which Norway began its romance with the natural resource. Since discovery in the 1960s, exports of oil and gas have become an increasingly critical part of Norwegian life.

It’s a well-known fact that oil is a natural resource, and like all “sunset industries” it must come to an end. And at almost 2.5 million barrels of oil being extracted per day with just over 6.5 billion proven barrels of reserves left – Norway is running out of oil … fast.

In fact, according to Business Insider, that leaves just 7-8 years before Norway runs dry. And it’s of no surprise considering that North Sea Oil production has peaked – sparking disagreements over deeper exploration for oil in the Barents Sea as well as in the Arctic. Decisions to go further in finding more oil reserves are causing headaches for environmental and political organisations worldwide who continue to outline the hugely damaging effects of oil and gas production/ consumption.

cts-noway-oil
A typical large-scale Norwegian rig. Source: cyberdefencemagazine.com
So with the Norwegian oil industry in crisis, it begs us to question how heavily do Norwegians rely on the natural resource in keeping their economy and government afloat?

The treasure beneath Norway:

It’s no myth that behind the endless salmon farms, fjords and breath-taking landscapes, Norway is well-endowed when it comes to natural resources. The statistics speak for themselves – Norway is the 8th largest crude oil exporter in the world, 9th largest exporter of refined oil and also the 3rd largest natural gas exporter. Alongside this they host huge reserves of exploitable coal underneath its famous “continental shelf” so often debated about by environmentalists.

May 1963 was the turning point in post-war Norwegian history. In this month the government asserted sovereign rights over natural resources in its sector of the North Sea. Just three years later exploration began and by August 1969, the Ocean Viking drilled its first hole into a treasure chest of wealth. This was immediately a major factor in Norway’s historic decision to never enter the EU (then EEC) and build what has become one of the most sophisticated and welfare systems in the world.

a-day-in-history-this-rig-discovered-ekofisk-field
The Historic Ocean Viking oil rig in 1969. Source: offshore energy.com
It’s of no question that the very heartbeat of petroleum has been a major contributor in the development of the Norwegian welfare state. Using the research conducted on Norway vs Scandinavia before and after oil production in the 60s, a gap in GDP, total value creation, investments, exports and revenues grew between what were once all equal nations as a direct result of oil discovery.

But the major factor in pushing Norway above its neighbours economically was the establishment of the world-renowned Welfare State Fund in 1990 or the near $1trillion saved as a sort-of “rainy day” pot of cash if things get bad. It’s the world’s largest wealth reserve, amounting to $180,000 per person and is supposedly Norway’s answer to life once the marriage with oil has broken off and to prevent de-industrialisation. Thus, it’s of no surprise that 1/5 of Norway’s economy relies on this abundance of natural resources – but this according to many researchers translates more towards 35% of their economy when taking into account secondary industries that rely on the oil industry.

Life without oil:

The fact of the matter is that oil discovery has allowed Norway to differentiate in socio-politics among rivals in Europe and especially against its closest Scandinavian neighbours who operate among free markets while Norway continue to embrace its state capitalism, led by its national oil champion Statoil. The Norwegian state owns large takes in the country’s biggest companies, from its largest bank DnBNor, to the largest fertiliser-maker, Yara and Norsk Hydro – the largest aluminium producer. The resultant effect is that the state owns 37% of the Oslo stockmarket. A recent article from the Economist highlights how oil is Norway’s penchant for state capitalism, quoting Torger Reve of the Norwegian Business school:

“we invented the Chinese way of doing things before the Chinese”.

With a population density of just 13 people per square kilometre, Norwegians have always depended on the state to help manage the abundance of natural resources – minerals, fjords, forests and waterfalls to those isolated communities that no-one has ever heard about. And it’s the oil boom that led to a consequent boom in public spending that Norwegians seem to be so proud of. Since the 1970s, those employed in education has doubled and heath/ social services employment has quadrupled. The public sector now accounts for 52% of Norway’s GDP, with blue-collar workers earning three times that of their British peers.

kayaking_naeroyfjorden_norway_2_1_972f2f0d-4e8c-4db1-ac01-9b3d4400f7b2
Norway’s scenic landscapes. Source: wloudinary.com
It’s not all good news:

Among the world’s highest standards of living, wage rates and GDPs, oil wealth has not come without its own problems. The dominance of the industry has led to the monopolisation of technical talent – 50,000 engineers have been sent to offshore locations. And alongside this, property prices are rising by 7% a year, the Big Mac Index has become one of the highest in the world at $7.69 for a Big Mac (almost double the USA) and so the sky-high prices have led many experts to question Norway’s socio-economic trajectory.

To many researches, “Dutch disease” (an over-reliance on one industry) has become a common conclusion to Norway’s situation – which became apparent when oil prices began to fall in 2013.

This proved that, beyond the glitz, the Norwegian economy has become incredibly unbalanced …

… and according to Prime Minister Erna Solberg in an interview with the BBC: “… our strong currency left some of our traditional industries behind” which only echoes the idea that the prosperity of recent may only be temporary.

artikkelbilde-712x400-skreifiske-lofoten
Traditional native Norwegian industries include salmon fishing. Source: leroyseafoodgroupasa.com
The sovereign wealth fund or “oil fund” mentioned above is supposed to be Norway’s answer to slowly parting ways from its reliance on natural resources. However, according to Reuters this isn’t the case with an “exposed economy unprepared for life after oil which threatens the long-term viability” of the fund. Experts instead argue that the government must limit wage increases to productivity and oil cost growth, cut taxes like its neighbours and spend less of the oil money. Some are even talking of depreciating the Krone. The knock-on effects of Norway’s current trajectory is that many of its workers are leaving and instead migrating to new jobs in Mexico, China and the USA, leaving only high-tech and automated jobs at home. Many of Norway’s wealthier inhabitants are moving to London to escape high taxes and a somewhat claustrophobic society.

Many speak of a complacency and dependence so great that as oil profits dwindle, the welfare demands will become increasingly burdensome and unfeasible. That added to the inevitable increase in unemployment will erode the nation’s wealth. Norway must re-direct investments away from Statoil – perhaps looking towards exploiting the high level of education and talented people and increase investment in home-grown technology development.

The CTS:

This session has outlined a trio of solutions Norway must take to get back-on-track towards a balanced economy.

  • They must begin by ensuring it’s better placed to respond to the challenges of a dying industry that makes up 35% of GDP. The government should start off by reducing the 250,000 vulnerable oil-based jobs in the economy and aim to diversify it more towards renewable energy, eco-friendly processing, robotics, nanotechnology, fisheries, tourism and IT technologies which serve as natural priority areas for such an educated and developed nation.
  • Norway must use the wealth made from the oil to stop state guarantees, tax cuts and special arrangements that incentivise increased oil exploration and instead redirect these towards other industrial sectors.
  • Encourage elected politicians to step-up and take the reign of the Norwegian economy away from Statoil whose interests lie in profits not general welfare and put them back into a free-state government structure similar to that of Sweden.

It’s time to end the bureaucratisation born of Norway’s enthusiastic embrace of state capitalism and enter a new age of reforms that rely less on depleting natural resources.

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