BREXIT: IS IT DEFECT OF LOGIC AND STATISTICS?

The people of Britain voted for a British exit, or Brexit, from the EU in a historic referendum on Thursday, June 23. From hindsight perceptive, if you analyze this entire Brexit, you may have to comprehend that it is extensively more complex than what is looks like at the surface.

The UK leaving the European Union will have an impact on all industrial sectors and on the whole economy of UK as well as the definite trivial impact on other countries. Let’s first see—

What was battle about..? 

I think, the fight was about following 5 points.

1.    Migration Policy –Principal assessment is that it was about UK’s losing control over its own migration policies as it has to support an EU framework for immigration within EU

2.    Job Market —Another significant part is job market inside the UK. Immigrants with EU framework are getting “white” and “blue collar” jobs which are impacting job prospects of UK citizens

3.    Contribution/It’s about money — UK’s contribution to EU is around 13.5billion in 2015. They got specific concession from paying 18 billion. From 1973, they paid around 500Billion to the EU and on average they pay around 8.5Billion per year. EU pays back by helping poor farmers in the UK and few other areas. How much the UK got back last year..? Around 6.5Billion and may be more indirectly as companies invested in the UK due to EU framework. This payment made by the UK to EU  not a loss as numbers tend to suggest.

4.    Trade and travel – UK is regarded as the gateway to Europe and all EU countries have free trade with the UK, and this actually benefits the UK economy and was a principal point on the agenda of the people who voted to stay within EU.

5.    Battle of classes and age –groups – It was broadly argued that it was a battle of age groups. People with old age wanted to leave the EU where the old wanted to stay, but we cannot count on this trend as this is not consistent across the UK states. Few leaders managed to paint this as “Rich and Poor” battle. Was it really a rich and poor battle? Well this can be debated at length and cannot be concluded in the absence of data.

Is it a Defeat of logic and statistics? 

This battle was fought with enormous passion, aggression and both sides made an attempt generate fear in the minds of people. The team which conceded passionate and ambitious leadership and created a populous framework has won. The Vote difference is around 3.8% which is not great. If you look at the arguments that were presented on the battlefield, only one side had numbers with them and they believed that they need to “Stay In.” The reason is economy was well accustomed to EU framework, and there was a future vision offered aligning the EU frame.

The other side which has said “Yes” for Brexit had a lot of emotions and fewer numbers in hand and masses got carried away with passionate leadership. If you look at all Brexit movement, nobody still doesn’t know, how will it impact Britain economy…? Nobody has substantial statistics in hand. This is a very complicated process and only time will articulate if Brexit is serving Britain?. Hence I feel this could be a probable defeat of logic and statistics at the hands of passionate leadership with more emotions in hand than figures.

Let’s look at few hardcore facts which support that Brexit is a very convoluted scenario in the absence of any projected actualities.

1.       UK out of EU means EU may not allow the UK to have free trade, and it means the UK no longer a gateway to Europe. So in layman’s term if I manufacture a car in the UK and want to sell in Germany I will have pay tax as well as few other service tax which means additional cost to customer and loss of competitive advantage.  If I am an Indian manufacturer, the best solution to me is moving my headquarters to Germany or France and evade taxes in 27 countries and open a small separate company for the UK which will manufacture and sell in the UK only and hopefully the law will permit it. Which companies will choose this option and how much impact it will have, cannot be projected at this stage.

2.       All the USA and EU companies who had invested in the UK due to EU rules may start reevaluating their decisions due to new trade law as that EU may set forth and this may be a potential loss of investment to the UK.

3.       UK’s automobile industry and manufacturing sector and all others have major outside players in it, and all might get impacted.

4.       Does this mean Britain is giving anti-migrant and isolated market message instead of the open market, and this is not right from branding perceptive?

5.       Travel agencies of UK will get major hit with all free Europe package will have to start from Paris (France) and Frankfort ( Germany) instead of London. If I ask Europe tour from London, it may cost 1000GBP but from Paris, it may cost 800GBP as UK has lost EU status.

6.       Indian students may perhaps benefit as EU student and Indian student may be treated likewise as Britain is a no-longer member of EU.

If you look at above points, which companies and investors will select which scenario and how they will baseline their decisions is very uncertain. Hence, nobody has any numbers around Brexit here as well.!

Britain – Searching for Greatness via Brexit 

Well, if you want to make Britain’s situation resilient subsequently to Brexit, you will have limited options in hand. Hang onto to the “Open Market” concept.  Keep all the possibilities open for Immigration laws within EU. This way, you will not pay around 13 Billion per year to EU however still succeed to attract investment. Nevertheless, what about trade framework..? Germany and France are not going lose this advantage and treat the UK as an Asian country to make more benefits as everybody mean business.

Now, to bring this discussion to a conclusion, it’s an open secret that UK wants to move out of EU and keep trade and travel and tax framework as it is..? Will EU countries permit it? Germany and France know few companies moving headquarters to their country means paying tax in their country instead of UK for free access to EU. Also, start using Frankfurt or Paris as a gateway to EU instead of London.

During the exit period, UK will negotiate to enjoy same trade and access to EU without being a member? This is million dollar question! Which privileges will go off? Perhaps EU will make the UK pay more for similar rights as it’s not member, who knows..?

Only time will tell…if the UK is able to rise to the occasion and its leadership deliveries the excellent on the negotiating table and find an amicable solution to maintain trade and investment in the UK.

For me, receiving voting for Brexit was just one step and negotiating with EU without having an impact on trade is a real challenge which hasn’t started as yet. The real battle is ahead and what we saw is just a promo.

Wait and watch and hope this is indeed an upsurge of new Great Britain which is more accessible and beneficial to India.! Hopefully, we will get precise numbers by 2018-19, and we can have a genuine conversation about Brexit.

Virendra  Dafane

Author is an IITB alumnus and working in software Industry can be reached on virendra.dafane@hotmail.com

Courtesy The Financial Express