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Digital Subscriptions > Prospect Magazine > December 2017 > Drawbridge economics

Drawbridge economics

There’s nothing to discipline the Brexit economy—except for reality

A leading neo-conservative, Irving Kristol once defined neocons as “liberals who have been mugged by reality.” Similarly, I fear that those today who speak of the United Kingdom’s exit from the European Union as a chance for Britain to become a global trader again will be mugged by economic reality. Given the recent performance of the British economy, where prices are rising and wages are stagnating, that mugging may already be under way.

Globalisation has mugged far larger countries when they mistook economic integration for shackles, and tried to make it on their own down lonely pathways of trade. Brazil and much of the rest of South America stepped back from globalisation, including by limiting trade and investment with the United States. These nations deprived themselves of stable growth. India infamously tore up its trade relations with the west for decades in pursuit of autonomy and self-sufficiency, attaining neither. China only leapt forward when it opened up, albeit partially.

The UK was perhaps especially prone to mistaking useful economic ties for chains, because it had a longstanding ambivalence about its EU membership. One codified aspect of the European project has always been the idea of an “ever closer union,” which was never an easy sell for an island nation. The best anybody was going to do was the UK being sort of in, sort of out—and so it was, for as long as it remained inside the single market, but outside the Schengen area and the single currency, with a bespoke rebate to boot. It probably ceased to be sustainable after a majority of the member states bound their fortunes more tightly together in the euro area. And it certainly ceased to be sustainable after many in Britain, and particularly England, began to take the same sort of root-of-all-evil view of Brussels that many Americans have taken of Washington.

Trading up? Theresa May is hoping the US will rescue her
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In Prospect’s December issue: Adam Posen, Diane Coyle and Nicolas Véron examine the state of Britain’s economy with Brexit looming and suggest that with a large part of the City looking to move and with productivity remaining low the outlook is firmly negative. Posen suggests that the only thing capable of disciplining the Brexit economy is the reality that things are going to be worse. Coyle suggest that although Brexit will hamper Britain’s productivity, the problem is long-term. Véron argues that more than a tenth of the City’s business will disappear due to Brexit—a significant slice that will be difficult to cover off. Elsewhere in the issue: Steve Bloomfield uncovers what is going on at Dfid, the struggling government department that recently lost its Secretary of State. Nick Cohen looks at the rise of the Strong Man is Eastern Europe as Viktor Orbán clamps down on society and Lizzie Porter reports from Erbil in Iraqi Kurdistan, a region plagued by war and political instability.