UK Prime Minister Boris Johnson, supported by the traditional deference of the disenfranchised and exuding his usual self-confidence and bravado, decided that his country needs a makeover. The still pending, economic experiment of Brexit was to be followed by the human experiment of how to carry on with a deadly disease with good humour and flippancy.
Both have implications for us retail investors. Yet even more momentous is his highly unusual, new style of governing without any care for legality, calling for “weirdos and misfits” instead of informed civil servants.
As our own experience in Malta shows, a growth-based economy cannot rely on a limited, ageing population at home alone. Cheap hands and expensive expertise have to be imported. As the UK has decided not to rely on the broad European labour pool anymore, and is actively discouraging EU citizens to contemplate a new life in the UK, it will have to import farm hands, waiters, health workers, accountants and scientists from elsewhere.
In theory this is merely a difference in flavour, rather than substance. In practice it implies a long-term loss for the economy, as it will be the Home Office deciding who to hire rather than the employer himself.
It is not yet clear if the newly erected border with the EU will resemble a moat or difficult-to-scale palisades. What is clear already is that the business of customs declarations will be a growth industry.
Roughly a third of the UK’s economic activity crosses borders, exporting £657 billion worth of goods and services (2018 statistics) and importing £686bn. Roughly half of this trade is with Europe. Every year, goods worth more than £260 billion have to be trucked to the continent. As fellow islanders, is not difficult for us to fathom the chaos piling up at the Channel once each and every item shipped has to be declared and customs-cleared.
Yet it is what is called the ‘services industries’ that will face perhaps even bigger hurdles: transportation, education, consulting, telecommunication, publishing, insurance, banking, to name but a few. The EU has already aired its discontent with banks setting up subsidiaries in Europe which rely too heavily on their London-based operations.
It is not hard to predict how growing estrangement from and distance to once well-established markets will dent the attractiveness of doing business with the UK. The squabble about coastal fishery is small bait and a red herring.
While finance and high-tech will find a way to overcome new hurdles over time, the UK’s small businesses, employing 60 per cent of labour in the country and producing half of the private output, will suffer indiscriminately more.
We might not invest in self-employed welders or sole traders, but their plight will affect consumption in unpredictable ways. What they buy and where they spend will change. Consumption, already weighed down by lock-down U-turns will suffer for longer, and prices of food, much of it imported, will inflate as entry points for goods and farm labour choke.
What is so English about this mess is the absence of a plan. Problems are not foreseen, but tackled as they pop up in a haphazard way. The country is run by a seer, Dominic Cummings, ensconced in the prime minister’s office. His mutterings are blindly followed. Prime Minister Boris Johnson has great fun enacting his often outlandish proposals, only to change tack when things go wrong, as they usually do.
The spectacle of the sixth biggest economy on earth going bonkers is destabilising
Critical Tory MPs, loyal civil servants and governmental lawyers are either dismissed or step down in dismay. The latest masterstroke was a draft bill revoking major aspects of the Brexit agreement with the EU, an international agreement signed by Prime Minister Johnson, who was, according to the seer, too rushed to understand what he was signing.
A high court besmeared as “enemy of the people”, experts ridiculed for their knowledge, a parliament dismissed to rule by fiat: Great Britain has dismantled its unique selling proposition, the rule of law, which made it special and commercially successful, by exporting its place of jurisdiction to all and sundry.
Future trading partners will think twice before signing anything of substance. The only thing that will be resurrected once the corona-scare abates is tourism. Who does not want to visit a country stuck in pageantry, a museum piece of a glorious past? And the arts will thrive again, as they always do when the going gets tough.
The UK had a centuries-old habit to lure the super-rich. One should not overemphasise trickle-down-effects, but the wealthy came to London to buy property, to shop, to hire services, to donate and eat out in style. Thousands have picked up the crumbs, from builders to tailors. Brexit, many in Europe’s capitals therefore feared, will be the excuse to create a low-tax-competition, a “Singapore on Thames”.
George Osborne should have alleviated these fears when he abolished the so-called ‘non-dom’ status in 2015, which had helped the wealthy to a life without income tax. The current Chancellor of the Exchequer, Rishi Sunak, has put Europe’s worries to rest. He could be hardly talked out of hiking up taxes now, in the middle of an economic crisis. That said, he seems to be the only member of the current UK government with a claim to competence, which brings us to the main problem.
Competence in government is a rare thing. Politicians tend to be generalists; good leaders, if we are lucky, but they have to rely on the expertise and level-headedness of civil servants, the incorruptibility of the executive, the bipartisanship of its parliamentarians and the impartiality of law courts. Independent media should act as watchdogs and whistleblowers.
Britain, the oldest democracy in existence, has taught us over time how societies depend on these pillars of good governance. The UK’s own pillars look now like Solomon’s Temple after the visit of Nebuchadnezzar.
The spectacle of the sixth biggest economy on earth going bonkers is destabilising.
The British Pound may suffer. We retail investors should look for multinationals headquartered in the UK. Their foreign income will be boosted by a weak currency.
Redesigning hotels or restaurants is always a risky undertaking. Redesigning a country is beyond any plausible calculus. The regulars might not like it. The old staff may refuse to follow suit. New clients may still think the place is too stuffy and old-fashioned for their taste.
We, the old patrons, will certainly mourn the loss, but what can we do? We will have to move on to places more welcoming. If the UK were a hotel, it is closed now. We can only hope that it will reopen with some success.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.
andreas.weitzer@timesofmalta.com
Andreas Weitzer, Independent journalist based in Malta