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2 年前
COLUMN-Brexit and the bitter fruit of de-globalization: James Saft
2016年1月18日 / 晚上9点09分 / 2 年前

COLUMN-Brexit and the bitter fruit of de-globalization: James Saft

(The opinions expressed here are those of the author, a columnist for Reuters.)

By James Saft

Jan 18 (Reuters) - A British exit from the European Union wouldn't just weaken the economies of both parties, but might mark a significant step back from globalization.

Embedded in that idea is the prospect of the partial unwinding of a number of forces that for decades have increased economic growth and the returns enjoyed by investors.

British financial markets have suffered a drubbing since the the start of this year as polls narrowed on the outcome of a promised "Brexit" referendum which is now seen happening as early as June.

Sterling and British shares have dropped sharply and forecasters now see the Bank of England as being in far less of a hurry to raise interest rates.

A renegotiation by Prime Minister David Cameron of the terms of Britain's membership of the EU is progressing, setting the stage for an agreement at a summit in February.

Europe's experience of mass immigration and asylum-seeking has probably not helped sentiment towards the EU in Britain, and Cameron, a qualified supporter of remaining in, has good reason to want to get a vote in before fair weather brings another increase of migration to Europe's doors.

While the issue is complex, in terms of pure economic output a British exit from the 28 member group would be a negative, crimping trade, impairing growth and worsening the prospects of British sectors like finance.

Bond investor PIMCO estimates an "out" vote would shave UK output by 1.0-1.5 percentage points in the first year, while French bank Societe Generale sees economic growth in this event as lower by 0.50-1.00 percentage points annually for a decade.

"The economy would suffer from lower foreign direct investment, a decline in trade, and a weaker financial sector," Societe Generale's Patrick Legland, who sees a 45 percent probability of a vote to leave, wrote in a note to clients.

"In particular, the EU is the largest export market for the UK, representing 40-50 percent of total exports over the past 18 months. Trade agreements would have to be renegotiated with the EU, but also with other trading partners."

Given that potential economic growth in Britain may be low anyway, losing a half a percent a year represents a massive impairment, and one with large implications not just in Britain.

Not only would an "out" vote change and complicate the dynamics of European reform, recent polls indicate it would embolden the Scottish separatist movement, potentially leading to a radical change in the constitution of Britain itself.

TRADE SLOWS

The long post World War II process of the knitting together of the global economy and polity featured two huge advances: the coming together of Europe and the integration of China into the global economy.

While both of these were unarguably good outcomes, both distributed their benefits unevenly. Owners of capital and those with high skills did very well, as did the mass of rural Chinese labor which was brought into the global economy. Middle and lower income people in the western world did perhaps less well, at least in the past twenty years, not sharing fully in productivity gains.

British willingness to consider leaving the EU, Scottish willingness to do the same to Britain, and Donald Trump's popularity in the U.S. presidential election race are all partly explained by this uneven distribution of the benefits of globalization.

Since the 2007-2009 world financial crisis there has been a marked slow-down in the growth of international trade. Last year saw global trade grow by just an estimated 2.0 percent, according to the OECD, continuing a run of feeble expansions.

Global trade has grown by 2.0 percent or less annually only six times in the past and each time this has coincided with a substantial slowdown in global economic growth, but this may reflect just one more cyclical slowdown.

Yet, looking at the range of political movements which seem to be backing away from globalization and its benefits, it seems possible that the object lessons taught by the global financial crisis about self-reliance and national control are having a real economic impact.

China, for example, may have been more willing to speed its transition to building up its domestic consumer economy after the crisis.

If Britain leaves the EU, its companies and investors will get a short and sharp lesson in the costs of backing away from globalization. Their prospects for trade will diminish and the cost of raising capital in Britain may very well rise, at least relative to growth.

For companies and investors, globalization has been a great deal, bringing with it a falling share of output from labor and and a commensurate rise in the fruits enjoyed by capital.

But the net impact of a Britain outside the EU will be to make the operating environment for business more difficult, though it is possible that a Britain outside the EU deregulates in some respects.

This may or may not be a good thing, but investors will not enjoy the process.

At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. You can email him at jamessaft@jamessaft.com and find more columns at blogs.reuters.com/james-saft James Saft

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