The FT’s City Editor Jonathan Guthrie commented after the Brexit referendum that “…Two tribes, it transpires went to war on polling day. Remainers, whose beliefs reflect economics, and Leavers, whose economics reflect their beliefs. Unless the first group can understand and win over the second, the prospects for both look equally grim…”
It is true that the economy is not performing as well as the record low of 5% unemployment data suggest; of the 12 regions of the UK, only Scotland, Northern Ireland and London voted to remain.
Inequality, low productivity and under investment in infrastructure and education are continuing themes slowing economic growth in the UK – particularly outside London. Protecting the financial services industry with massive cash injections from the public purse has further fuelled resentment outside the capital and the home counties. The Economist published an article this week which reported that the number of working poor is growing and blamed high house prices, low productivity and too little full-time work.
In government, as in all things, you reap what you sow.
Robeco, a Netherlands based asset manager with €250bn under management have recently (pre-Brexit) published a comprehensive 5 year outlook by asset class. In a special topic on the economic effect of innovation, they comment on the growing inequality: haves vs have-nots, with automation and robotics potentially putting more pressure on employment. The rapid speed of change in technology may result in part of the coming generation being trained for a job that no longer exists by the time they graduate. It’s worth remembering that by far the majority of these young people voted to remain in the EU.
Robeco suggest that this rapid speed of change could result in an explosive situation of unrest amongst those without jobs or with few possessions are separated by a chasm from the happy, wealthy few.
On 5th June, Switzerland voted against a basic income of $1,650 per person per month to be provided by the state. This notwithstanding, there is an increasing possibility that governments will in the long term choose to introduce a basic income for all in order to take the sting out of this potential conflict.
The independent research organisation, ECR research suggest that in the short term the US economy will fare better and German interest rates are likely to continue a downward path. They go on to say that in a couple of years the Brexit vote will be looked back at as one of the defining moments on the rough road towards a new Europe.