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About this EU Thing …

I’m sitting here watching the BBC site as the results of the Brexit referendum pour in. It’s not looking good for the EU right now, and that has to give us all pause. The EU is absolutely essential, in some form, but the bureaucratic mess that has resulted isn’t necessarily helping anyone. The UK never went all in, keeping the Pound, so their view has always been a bit askance.

For far too many, it comes down to an interesting revelation. Did Germany actually “win” after all? Signs point to yes, they did. But how? What does this mean to other industrialized nations? Is there something we should all learn? Is Britain right for possibly wanting to go it alone?

"Are you really ready to leave, David?" Prime Minister Cameron and Chancellor Merkel.

“Are you really ready to leave, David?” Prime Minister Cameron and Chancellor Merkel.

One of the interesting features of Germany has always been that heavy industry has had an incredible amount of control. They were largely self-funding, not relying heavily on the banking system – which was never as developed and centralized as it was in older empires like Britain or France. This feature is one of the main reasons why heavy industry was one of the few things to survive the series of apocalyptic calamities that comprised the first half of the twentieth century for Germany.

The other interesting point, away from Europe, is that Japan had an even more primitive banking system as they industrialized, and heavy industry was almost completely self-funding through their rise, fall, and incredible rejuvenation. This is why huge Japanese conglomerates make nearly everything – Yamaha, for example, makes musical instruments, engines, motorcycles, audio equipment, and music box movements.

Curiously, the development of a strong central bank in Japan almost perfectly matches their long downfall since about 1990.

Ideas usually come to those who are busy working, actually.

Ideas usually come to those who are busy working, actually.

The two great technocratic nations both relied on industry finding itself, which is to say created systems where engineering minds were allowed to run free. This contrasts with the UK, which always had an imperial mind that produced a balance between finance and industry. The same model worked well in the United States, aside from some terrible corruption, thriving all the more as worker’s rights started to dominate politics with the rise of the Labor movement. Our balance of different forces served us well.

The US largely became post-industrial as the rise of credit took over our economy, starting just before 1980. The old balance fell apart as both Labor and Industry fell on hard times. The same thing happened in the UK as the empire fell apart of its own weight and their balance tilted heavily towards finance and banking. It’s now pretty much what they do.

The referendum results from London show how distinct it’s become from the rest of England – heavily in favor of remaining, while England wants to leave. Scotland, with its own balance still favoring industry and labor, wants to remain as well. Strange times we live in.

Liberté, egalité, fraternité. Yeah, that again. It still works.

Liberté, egalité, fraternité. Yeah, that again. It still works.

Through it all it’s hard to not think about the balance of power between the UK and Germany. Forget France – they are a spent force that isn’t driving anything right now. The EU without the UK is indeed Germany. They now have a strong central bank and with Deutsche Bank reaching around the world, something well beyond the industrial base that has defined their nation since it came into existence in 1871. Chancellor Merkel is the de facto leader of Europe, even though it genuinely appears she does not want the title.

It’s not as though Germany isn’t doing something very right. Previously, Barataria discussed whether a modern society really has enough paying work to go around for everyone, given that the measure of income inequality, the Gini Index, tracks almost perfectly with the percent of adults employed – as shown in this graph:

Develop Nations + BRICS plotted as the Gini Index (higher is more inequality) vs Labor Force Participation Rate. Data from the World Bank and OECD Index.

Develop Nations + BRICS plotted as the Gini Index (higher is more inequality) vs Labor Force Participation Rate. Data from the World Bank and OECD Index.

The dots are all different nations – the developed world plus the BRICS. There is one outlier at the bottom, one nation with a lot of people working and much lower income inequality than other nations would expect. That outlier is Germany. What are they doing differently? What is going so terribly right there?

Workers of the world Unite - it is one big economy, after all.

Workers of the world Unite – it is one big economy, after all.

There is a lot more to potential Brexit than simple fear or jealousy with Germany, of course. But as the two great powers left in Europe the relationship between them is of paramount importance all around the world. That Brexit is even close has to give us all pause. It does seem to imply that Germany, or at least German industry, did indeed “win” after all. There is something in their model that appears to work.

Meanwhile, the UK has spent a generation digesting just what it means to be post-imperial as much as post-industrial. Today it’s taking a turn one way or the other, and it appears right now that Brexit may indeed happen. I’ll keep watching the results, and when there is something solid we can talk about it. In the meantime, there is definitely a lot to talk about.

In a world moving closer together, can Britain really go it alone? Or is the problem in the structure of the EU rather than forced marriage that it has come to be?

And what is the right balance for a nation today between industry, labor, and all the other bits and pieces that make up this collection of values we call an “economy”?

Addendum:  It’s Brexit.  All bets are off while we sort this out.  Everything is on the table, from Irish Unity to Scottish Independence to a genuine global financial collapse.  If the US can get through this election properly we’ll be the island of stability in a crazy world, but even that is up for grabs right now.  Goodnight, everyone.

31 thoughts on “About this EU Thing …

  1. Like you, I am sitting up hoping for a final tally before going to bed, and becoming more discouraged. I am going to bed, but not before re-blogging your post. Appreciate your insights, as always!

    • I’d love your thoughts, too – maybe as this settles out. I just see a fundamental power imbalance that prevents the EU from being anything more than a mush. Without the UK it seems really lost.

      • I’m not sure at this juncture. I figured Cameron would step down, though I did not think he would announce it quite so soon. I’m not surprised by the reaction of the markets. The whole thing is estimated to take 2 years or so … rather like a couple sorting out all their possessions during a divorce, so many ‘ties that bind’ to be unwound and re-sorted. Some predict a domino effect, but I don’t see it, at least not for the foreseeable future. Hopefully most will wait to see how the UK fares in the next couple of years. I suspect the economic fallout will be moderate, but you’re the economist … I barely got through Econ101! My greater concern is security. We in the U.S. really do not have as high a level of threat of terrorism as most of Europe, and you know the old saying that the whole is stronger than the sum of its parts. It will certainly provide us both with some interesting things to write about for the next year or so!

      • No. They have to re-align and where they wind up is anyone’s guess. My first thought is that the US as a “safe harbor” has just become the destination of choice for all money all around the world. But we’re not putting it to good use here, so the returns aren’t as good as they could be. This won’t help risk aversion one bit, either, and that is a real root problem.
        So how will it all re-align? Hard to say.

      • It will certainly be interesting to watch. Just read that Scotland plans to hold their own referendum in September, as they don’t wish to leave the EU. So many facets to this situation.

  2. Reblogged this on Filosofa's Word and commented:
    As I sit here in the late night hours, hoping to hear the final tally on Brexit, I see that my fellow-blogger Erik Hare is doing the same. I share here a few of his insights. Good night, friends, and good luck to my European readers.

  3. Oh well, they did it. Strangely, everyone here believed/hoped that they would regain some sense in the end. (Apart from the gloating nationalist politicians, of course, they are probably dancing with joy now.) So now there will come a long period of negotiating and trying to re-gain the balance. I still think we can do it (“we” meaning the Europeans believing in the EU). I think we can pull this through, if we grab the chance to look at everything with great care and consideration. If we see it as a chance to reform the EU, to give it back the credibility it deserves. I still think there is no sound alternative to a unified Europe. We need to do the trick of “the whole thing being more than just the sum of the parts” while we keep the unique aspects of the different countries intact. Not easy, but I think we can do it. Call me an optimist, but this is what I believe. Come on guys, let’s stop whining and tackle this future of ours!

  4. “In a world moving closer together, can Britain really go it alone?”
    Isn’t that one of the hearts of the matter? Even if the Brits wish to return to cottage industry and tourism they’ll need extensive resources–material, technological and people resources–to manage it. And maybe “the world” especially Europe won’t be that eager to provide.
    The NY Times mentions “populist anger” as upending things. We know who that means in the US. It comes with the “Know-Nothing and don’t confuse me with information” mentality and against that kind of thing Western Civilization may be totally helpless.

    • There is no way to look at this without seeing a big mistake. The EU certainly over-stepped itself with political union – before it got the rest of its house in order. I’ll give the “leave” crowd that.
      But the basic concept of moving closer together is a reality. People all over the world are fighting it, but they can’t. The next generation doesn’t support this nativism and it will eventually move at its own pace towards a more unified world. But how? What will it look like? How will it make a world which is resilient and provides real opportunities for all? How will it be open and free? Dunno.
      All we know is that the EU model is being forced to retrace its steps. And the UK has to go back to figuring out what it means to be “post-imperial”.

  5. You went off on a big tangent, but I appreciate it. This wasn’t about the economy, this was about immigration. There isn’t an easy answer to that problem. Your points are valid but that isn’t what this was about at all.

    • I’m taking a step back. I do think that if there was a good balance and the economy worked for everyone we wouldn’t be here today. By “here” I mean all of us in this ugly place we are in. I’m looking for a root cause of all this unrest, which is indeed global. Well, it’s not anywhere near as bad in Germany – for some good reasons, I think.

  6. European Union is still a big piece of crap. I don’t blame Britain for wanting out but the consequences are going to be huge.

  7. I’m delighted with the outcome of the Brexit. These trade deals have very little to do with trade and more to do with serving the multinationals and usurping local democracies. More than half the people in Britain have had enough with dictates from foreign entities and are sick and tired of seeing their economy destroyed by the powers that be, from elsewhere. Trade is good but being a putz by some bully is not.

  8. I’d just like to say that you’ve also completely dismissed large swathes of history.

    One of the founding principles of the European Union was tying France and Germany together to prevent further conflict on the European continent. Between 1914 and 1945 the people of Alsace-Lorraine changed nationalities 4 times, so the “winners” were the people of both France and Germany, especially the people of Alsace-Lorraine. Some of the people involved in the set-up of the EU were French (Robert Schuman, one of the founders, is a very good example of how the borders frequently changed). The reasons for expansion of the EU were economic – economies of scale as well as different places being better able to produce certain goods more efficiently, increasing and improving competitiveness. I do accept that there were political implications and decisions to be made. The decision was whether the loss was equally or more than offset by the gains.

    The EU started off as a Coal and Steel Community. Steel is the raw materials of modern warfare. Coal, in 1945, dominated the production of steel. The German economy expanded partly due to being a member of the EU, partly from importing ‘best practices’ from other economies, partly because one consequence of losing WWII was being stripped of the right to have a standing army and being tied within NATO. Someone not killed in conflict consumes and produces more than someone killed. Money spent not paying soldiers, can be money spent on education and other forms of investment. A UK soldier spending money in Berlin was effectively an import for the UK and an export for Germany.

    I decided that there was no need to throw the baby out with the bathwater, that reform was possible. I also thought that conflict and climate change were more important than the location of individuals. Like Bill Clinton said in 1992: “Its the economy, stupid.” The economic case, in my view, wasn’t “It will be fine as Audis and BMWs will continue to come to the UK” (Nigel Farage’s and David Davis), but was about Nissans (and Hondas) going from Sunderland (and Swindon) to Stuttgart (and Seville). Now I’m worried about a recession and communities tearing themselves apart. The latter might not happen, but I’m not sure that the UK’s tourism industry will be ready to immediately take the slack from departing EU funding, manufacturing (a point that Patrick Minford made) or financial services (a point JP Morgan made) as well as the ‘law of diminishing marginal returns’ (there are only so many royal palaces and days people on a holiday). Whilst the UK has an entertainment industry, even that is footloose.

    I don’t agree that Germany “won” as there was no zero-sum competition that had a goal to be reached by a certain time.

    • I was going off of some of the talk that was part of this election. Leaving aside the refugee / immigration crisis, which I think has been talked about at great length in response to what it meant to the election, it seemed that we had two main arguments. One was that none of the arrangements in place now work for the workingman, and the other was that the EU was essentially Germany. Those two contrast nicely.
      Common Market history is indeed fascinating and, as I have written in the past, the EU is absolutely necessary for many, many reasons.
      The UK decision was horrible. The EU is flawed, yes, but some kind of economic union is essential and some kind of political common policy, if not union, is also essential. One would think that would be obvious by now. It wasn’t.

      • Its certainly true that Germany is a powerhouse of Europe. Yes, immigration was talked about a lot, but its an issue (by “issue” I don’t mean the same as “problem”). However, it wasn’t a ‘working(wo)man’/non-working(wo)man issue. Many people from wealthy backgrounds who voted to leave, just as people in poverty voted to remain.

        However, I’m now more worried about the social and political dislocation which seems to be happening. People are showing outward vitriol and aggression to immigrants and people they think are immigrants. This is not only happening on the streets but through comments on websites and through social media. Also, something I do disagree with now, is a mounting campaign to have an ‘Undo Brexit’ ie second referendum. I really do not agree with the ‘Undo Brexit’ campaign as democracy is about the tyranny of the majority.

      • It’s a mess, all around. This will take a long time to sort out. Just finishing my next piece on it. I say all bets are off until the dust settles.

  9. Pingback: Big Ideas Fall Apart | Barataria - The work of Erik Hare

  10. Pingback: The Future of Work | Barataria - The work of Erik Hare

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