Brexit's Impact on the UK Economy

Britain is decreasing its dependence on EU markets.

 

Summary
On March 29, British Prime Minister Theresa May signed a letter declaring the United Kingdom’s intention to invoke Article 50 of the Treaty on European Union and withdraw from the EU. Going against most mainstream predictions, Geopolitical Futures believes that Brexit will not have a dramatic impact on the U.K. economy for two reasons: the country’s shifting economic structure and its decreased dependence on the EU market. We conclude that continental Europe (particularly Germany) needs the U.K. as a trading partner more than the U.K. needs continental Europe. We predict that this reality will lead to an agreement between the EU and the U.K. to maintain an easy flow of trade. At the same time, we predict that the U.K. will continue to increase its trade with fellow Commonwealth of Nations countries while also investing in its strategic relationship with the United States.

  • The U.K. joined the EU after losing its empire, a time when it needed new markets for its exports.
  • Britain’s EU membership led to changes in the country’s economic structure. Since the 1980s, the British economy has become increasingly dependent on its services sector while the importance of industry, in particular manufacturing, has diminished.
  • The U.K. is the second largest exporter of services in the world after the U.S., and U.K. service exports to non-EU markets have exceeded those to the EU since before the 2008 economic crisis.
  • Although the British Empire is gone, historical links still exist, and the U.K.’s exports to other Commonwealth countries have grown as intra-Commonwealth trade has outpaced Commonwealth countries’ trade with the rest of the world.
  • The U.K.-U.S. relationship remains paramount for London because the U.S. is Britain’s primary market and the U.K. needs the U.S. to secure its exit strategy from the EU as it seeks new markets worldwide. 
Introduction
Brexit has raised questions about the United Kingdom’s trade relationships with the rest of the world. Most predictions have been negative since it is expected that the U.K. will lose access to the EU common market as a result. However, when examining U.K. trade patterns over the last decade, we have observed that U.K.-EU trade has diminished and Britain has become more reliant on other, more distant trade partners. This process happened naturally as the U.K.’s economic needs changed, and it accelerated following the 2008 economic crisis. While the U.K. runs a negative trade balance with continental Europe (it imports more than it exports), it has increased its positive balance with rich economies that include the U.S. and a number of Commonwealth markets.
 
 
The British strategy regarding Brexit highlights the classic case of a nation waiting, watching and keeping its options open. This is just another example of Britain’s adaptation to the current global environment. The British Empire was a trading empire, and the United Kingdom holds trade at its core. Once the U.K. lost its empire and as Europe became more united, Britain grew interested in joining the European Union, which promised new markets for British goods. But as the British economy changed its structure and the 2008 crisis slowed European consumption, the U.K. once again shifted its attention from the European market to the global market.
Geopolitics and the British Economic Structure
Before World War II, the British Empire controlled about a fourth of the world’s land surface and a fifth of the global population. Britain was the global power controlling trade routes in the Atlantic and also in the Indian and Pacific oceans. This helped Britain emerge as the dominant economic power in the 19th century while also leading the Industrial Revolution in Europe. The British Empire was a trading bloc. Its manufacturing industry was supported by raw materials supplied from abroad while its industrial output was absorbed by world markets, including its colonies, using the trade routes the empire had secured.

The British Empire reached its peak in 1815, when Britain was the European power that possessed the most land in the world and was strong in both the Atlantic and Indian oceans. Britain had no European challenger until Germany became a dynamic European continental power capable of both efficient production and trade. This happened after Germany’s 1871 unification provided the framework for the country to develop into a continental power. The end of the 19th century saw the U.K. gradually lose its European primacy in the face of German competition. But it wasn’t until Germany’s defeat in World War II that Britain lost its global dominance to the United States. Following WWII, the U.S. became the world’s major global military and economic power – in large part due to war-driven industrial production that was accompanied by minimal attacks on its own territory. During WWII, the U.S. prevented Germany from coming out of the war as a stronger economic power, saving Britain from having to submit to Germany’s will. Instead, the U.K. ended the war being militarily dependent on the U.S. and having a weakened economy. After WWII, it was the U.S. (rather than the U.K.) that secured global trade routes.

The U.K. became a strategic ally for the United States. Both nations shared an interest in keeping the naval routes secure. For the U.S., with both the Atlantic and the Pacific on its borders, the interest was dictated by geography; for the U.K., the interest was dictated by international trade. Knowing its limitations and imperatives, London’s goal since the end of WWII has been to maintain a degree of influence over U.S. policy. The U.K. became a special ally under the U.S.-dominated alliance system because it understood that the U.S. wanted a country with which to share the military burden when engaging in global or regional warfare. The U.K.’s military resources exceeded those of other European countries, and the U.K. was more willing to use them for the U.S. since doing so coincided with securing its own interests.
Britain's Ambassador to the EU Tim Barrow, left, delivers British Prime Minister Theresa May's formal notice of the U.K.'s intention to leave the bloc to European Council President Donald Tusk in Brussels, on March 29, 2017. EMMANUEL DUNAND/AFP/Getty Images
 
At the same time, losing the empire meant that the U.K. needed to shift the focus of its trade strategy. As European countries grew more united and rebuilt their economies after WWII, the U.K. saw an opportunity. It realized that the common market taking shape on continental Europe could supplement – if not replace – the U.K.’s decreasing imperial/colonial markets.

It should be noted that the French were initially unenthusiastic about the U.K.’s membership in the European Union. French President Charles de Gaulle rejected the idea in 1963, viewing the U.K. as nothing more than a Trojan horse of the United States. France, which dominated the EU at the time (much like Germany dominates today), understood that the U.K. would never be submissive to a continental European country, and its objection prevented the U.K. from joining. Furthermore, the U.K. was only admitted to the European free trade area in 1964. However, de Gaulle’s successor, Georges Pompidou, removed French opposition, and the U.K. became a member of the EU in 1973 after holding a national referendum that confirmed the British government’s political decision.

Upon joining the EU, the U.K. changed its economic structure because it had to respond to different market needs. Three sectors define the structure of the British economy. The primary sector includes activities that relate to natural resources, such as agriculture or mining. The secondary sector includes all goods produced by the industrial sector, which has manufacturing at its core. The tertiary sector includes services such as banking and finance, insurance, distribution, transportation, health care and others – all services that support the primary and secondary sectors. During the industrial revolution and the empire’s golden years, the primary sector sustained the growth of the secondary sector, while the tertiary sector was negligible in size. From the beginning of the 20th century until WWII, the secondary sector became the most important component of the British economy. Once the U.K. gained access to the EU free trade area in the mid-1960s and became a member of the EU in 1973, its economic structure changed so that the tertiary sector, services, is now the most important.
 
 
To understand how services became the most important part of the U.K. economy, we examined the evolution of each of the country’s economic sectors in relation to the U.K.’s integration into the EU. The importance of the primary sector – agriculture and mining, which were at the core of the British economy before WWII – has significantly decreased since the U.K. joined the EU. According to the Office for National Statistics, agriculture comprised about 0.6 percent of GDP in 2015, dropping from 2.9 percent in the early 1970s when subsidies from Brussels flowed in. At that time, access to European funding led to superficial short-term growth in the agriculture sector since growth was dependent on subsidies rather than being driven by the market. This created the foundation for further inefficiencies – subsidies, from both the EU and the British government, fed the agriculture sector without helping to reform it. Mining dropped to 2 percent of GDP in 2015 due to a combination of lowered industrial production and EU clean energy efficiency policies and regulations, after peaking at 4.5 percent in the 1980s, when oil and gas extraction led to a growth trend within the sector.

Manufacturing, which was once at the core of industrial growth, saw a relative rise during the first years of EU membership as British producers adapted their output to the new market. Since the mid-1970s, however, it has been on a downward trend. Manufacturing currently accounts for 10 percent of GDP but comprised 30 percent of GDP in the ’70s. While access to the EU market was granted, the U.K. had less and less incentive to participate in trade with other EU nations. There were a number of non-tariff barriers related to continental Europe’s production standards and, later on, barriers stemming from use of the common euro currency, all of which diminished the U.K.’s appetite for innovating to sell on the EU market.

This has resulted in the British economy’s deindustrialization and an increased specialization in services. The services sector has seen constant growth since the 1960s. Finances and banking, distribution, insurance, transportation and other services currently account for more than 75 percent of GDP, and their export share is 12 percent. This tertiary sector of the U.K. economy has developed around both opportunity and innovation. For instance, London benefited from opportunities that resulted from geographical advantages. The former empire understood risks related to trade routes, so it could easily develop transportation, distribution or insurance services. Furthermore, London was already an exchange market and a key financial hub, so innovation in financial services was natural. It had also laid the groundwork for innovation since human capital was abundant, considering Britain’s demographics, and was also driven by an immigration policy that aimed to attract talent from all over the world.

The structural changes associated with deindustrialization have had a high impact on the British employment map; consequently, they have exacerbated the existing north-south divide. While the southern U.K., which is more urban, contains the wealthy financial and technological industries, northern England and Scotland have seen poor economic performance over the years due to their traditional industrial roots. According to the Office of National Statistics, 1.4 percent of the labor force was employed in agriculture in 2016, 18.2 percent in industry and 80.4 percent in services. This, more than the geographic divide, creates a challenge for the British government. London politicians listen to their electorate, which, in turn, depends on how the economy is doing. Considering that services account for such a large portion of GDP and are the U.K.’s main export, London will have to find ways to maintain a growth environment for this particular economic sector.
Changing Trade Patterns
Since 2008, global trade has slowed as nationalism and protectionism have grown. At the same time, trade structures around the world have changed during the last decade; for the first time, trade in services has grown faster worldwide than trade in goods. The British economic structure allowed the U.K. to not only keep pace with this global trend but also be among the leading service exporters. With services accounting for 44 percent of the country’s exports in 2016 compared to 38 percent in 2006, the U.K. is the second largest exporter of services in the world. (The U.S. is the largest.) Trade in services faces fewer barriers than trade in goods because services are naturally more universal; they require only minimal adaptation to meet changing national standards. At their core, for example, financial services in Slovenia are similar to those in France. So are transportation or postal services. Therefore, services are more transferable to other markets than physical goods are.

Brexit will have little effect on the U.K.’s service exports. While an agreement is likely to accommodate continued U.K. trade with continental Europe, the U.K. has already shifted its focus away from continental European markets, and British service exports to non-EU countries outpaced service exports to the EU beginning in 2005. This shows that in the case of British services, business opportunity was the U.K.’s motivator to move away from continental Europe as a trade partner. This is in contrast to the goods market, where the U.K. began to search for new markets as a result of the 2008 global crisis.
 
 
British exports – in both goods and services – began their stagnation in the early 2000s, mostly due to the mechanics of U.K.-continental EU trade. U.K. companies exporting to the EU use complex supply chains that diminish their competitive advantage.
Additionally, most British exports go to several EU countries that are also members of the eurozone. (The U.K. is not a member.) The creation of a common currency area made it easy for member countries to trade with one another while posing a non-tariff barrier to non-eurozone countries. This has increased the level of integration among eurozone economies, which have used the euro to create a cost advantage for their own exports. However, this has had a negative effect on U.K.-EU trade relations.
Following the 2008 crisis, the integration of eurozone economies showed its vulnerabilities. Taking into account that eurozone consumption has dropped since 2008 while financial and socio-economic distress has increased, eurozone countries prefer to trade with non-eurozone markets with which they have limited integration – and therefore less contagion risk. This makes Germany more interested in the British market than vice versa. While the eurozone has to deal with questions surrounding the future of its common currency, this has never been a concern for the U.K. Still, the hurdles of trading with eurozone members caused British exporters to look for other markets even before the 2008 crisis. This prepared them for the post-2008 drop in continental European consumption. By then, British companies had already increased their exports to non-EU markets and continued to do so. Because of this, it’s likely that Brexit will not have a dramatic impact on the U.K.’s economy.

Since 2008, British trade relations have been defined by the growth of services and the increased role of the Commonwealth. U.K. exports to the U.S. and Canada have been growing since 2000, a trend that has been maintained even following the 2008 crisis, which caused a significant deceleration in EU consumption. The U.S. and Canada received about 20 percent of total British exports in 2016, and the U.K. has increased its positive balance with the U.S. over the last decade. Both U.S. and Canadian markets are accessible for the U.K., considering the countries’ historical ties, common business culture, language and geography. Moreover, exports to Australia have also increased since 2007 along with exports to New Zealand, India and South Africa. These countries are all members of the Commonwealth. The U.K. has a positive trade balance in exports with all of them, except India. The U.K. is integrated with India on a different level. India exports more services to the U.K. than it imports, but Indian-exported services often become inputs for British services that are later exported.

While the U.K. is shifting its economic focus back to the Commonwealth, it is not the only country doing so. According to the latest report by the Commonwealth Secretariat, intra-Commonwealth trade has not only grown but has outpaced the group’s trade with the rest of the world. At the same time, trade in services between Commonwealth nations has grown faster than trade in goods has grown. The U.K. is the top exporter of services in the Commonwealth and the fourth largest exporter of goods, so this has been beneficial to the U.K. Statistics from the last decade confirm that while looking for alternative markets to those of continental Europe, which has become increasingly difficult for Britain to penetrate, the U.K. has naturally turned to the countries with which it shares historical trade links and that can be easily integrated into its global value chain.
 
In looking to other markets around the world, the U.K. has increased its exports both to countries with developed economies (those where the tertiary sector is already a major component of GDP) and to countries with emerging economies (those where the services sector is growing). Germany and the Netherlands, for example, produce their own services but also provide an important market for U.K. services, even if they have become a rather stagnant market for the U.K. services since 2008. The U.K. has also seen a significant increase in exports, particularly services, to China, the United Arab Emirates, Saudi Arabia, Turkey and Poland. Each of these countries is working to restructure its economy. Although each faces its own specific challenges and must respond to different needs, all of these countries look to increase the importance of their economies’ service sectors. Cultivating these markets is to the U.K.’s benefit because although these countries are not currently major service export markets, they have the potential to grow.
Conclusion
While media reports highlight that the details of how Britain will exit the European Union are not yet known, we do know an important fact: Germany needs the U.K. market more than the U.K. needs the German market. This suggests that a trade agreement is likely and will be relatively easy to complete. Furthermore, trade between the U.K. and continental Europe will continue as it is to the parties’ mutual benefit. At the same time, the U.K. will continue to search for other global markets with which to trade. Additionally, the U.S. is the largest market for British exports and is the U.K.’s most important strategic ally. The U.K.’s most important relationship is with the U.S. because London needs the United States to secure maritime trade routes. This supports the U.K.’s exit strategy, which is especially important given that the EU is fragmenting.
There was much predicted doom and gloom surrounding Brexit. In reality, however, the U.K.’s trade patterns have been shifting for quite some time, and this change was accelerated by the 2008 economic crisis that further reduced continental Europe’s already diminishing attractiveness for British exporters. While there may be downsides to Brexit – technicalities related to the bilateral trade relationship between the U.K. and continental Europe will likely be different than they were when the U.K. was an EU member state – they will be marginal. Additionally, Brexit will present some opportunities. The U.K.’s economic dependence on the growing services sector has already moved the U.K. away from the European market to seek other trade partners. A Britain free of ties to the EU could take advantage of its historic trade empire tradition and grow its global importance once again.


The Trump Presidency Begins

A presidency that was almost too much fun has taken a clear turn to the serious.

By Daniel Henninger
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  President Trump and Chinese President Xi in Palm Beach, Fla., April 7. Photo: Associated Press 


Instead of “The Trump Presidency Begins,” an alternative headline for this column might have been “Trump’s Presidency Begins.” Each describes a different reality.

Until recently, “Trump’s presidency” has been about one thing—Donald Trump. It’s been Trump 24/7. Mr. Trump owned the presidency the way Mr. Trump owns a tower on Fifth Avenue. For better and for worse, Trump’s presidency was all about him.

In the past few weeks—the Gorsuch appointment, the Syrian strike, the meeting with China’s Xi Jinping —we are finally seeing the beginning of the real Trump presidency.

Like all the others dating back to George Washington, the presidency is not an object captured by one person; it is an office held in trust for the people of the United States.

The Trump-centric phenomenon of these early days is the product of our celebrity-centric times, not least the presidency. He drove it with social media, and the media torrents washed back over him.

There are some realities, though, that the media torrents haven’t washed away yet. America’s institutions, its politics and the distant world are still too large for anyone to hold and command alone. That is the lesson of recent days.

Neil Gorsuch was nominated by Mr. Trump to fill the ninth seat on the Supreme Court. What followed was a mighty political struggle. The opposition to Judge Gorsuch, led by Senate Minority Leader Chuck Schumer, revealed that the legal philosophies of progressives and conservatives have arrived at incompatibility.

Confirming Judge Gorsuch required the Trump presidency to recede so its political allies could rise and execute. The legislative branch eliminated the filibuster for Supreme Court nominees, thereby preserving the president’s prerogatives.

While the Gorsuch drama played out on the Senate floor, Mr. Trump met at Mar-a-Lago with China’s Xi Jinping, who traveled nearly 8,000 miles to meet the American president. Possibly, the Chinese thought that Muhammad going to the mountain would flatter the flatterable Mr. Trump. Instead, the strikingly low-key meeting acknowledged the high stakes for the two nations and the world.

On Wednesday, Mr. Xi called the president to discuss North Korea again. That no doubt had something to do with Mr. Trump’s soufflé surprise over dinner with Mr. Xi—a missile strike against an Assad airfield and chemical-weapons depot in Syria.

Unlike the assassination of Osama bin Laden, when the mission details leaked out overnight, there was no self-congratulatory media dump out of the White House of this presumably ultra-media-conscious president. Just a blow to the Middle East status quo.

For our purposes, the important thing isn’t the strike but what came before. It requires little imagination to guess the import of the conversations about operational and political details between the president and Defense Secretary Jim Mattis —former head of the U.S.’s Middle Eastern Central Command—and his national security adviser, Gen. H.R. McMaster. As Dorothy said to Toto, I don’t think we’re in Kansas anymore.

Days before the Syrian strike, Mr. Trump with little fanfare met two Middle Eastern leaders crucial to U.S. strategy for the region—President Sisi of Egypt and Jordan’s King Abdullah. In March, he hosted a working lunch for Saudi Arabia’s Deputy Crown Prince Salman, creator of the 41-state Arab coalition to fight Islamic State. A successful presidential foreign policy needs allies. Watch this space.

There has been the difficult matter of the Trump-Putin mutual admiration society. Over the past week, Secretary of State Rex Tillerson and U.N. Ambassador Nikki Haley said Russia may have been “complicit” in the Syrian gas attack. Mr. Tillerson flew to Moscow for a tough chat Wednesday with Mr. Putin. Any Putin investment in the U.S. election is deep in the red right now.

One reads that the Trump White House’s communication shop is up late imagining bullet points for the president’s “first 100 days.” One reads that Mr. Trump is arbitrating disputes between his son-in-law Jared Kushner and his Cromwellian counselor Steve Bannon over the presidency’s proper direction.

This isn’t complicated. There was only one Trump promise—Make America Great Again. If you type that phrase into Google Translate, this is what should appear: Get the American economic engine retuned or pack it in. Every other pet peeve or project is secondary.

There are two levers for achieving this goal: tax policy and deregulation. To get there, the Trump presidency just inserted two key players.

Kevin Hassett of the American Enterprise Institute, an expert on what makes a tax code productive, becomes chairman of the Council of Economic Advisers.

Neomi Rao, director of George Mason University’s gloriously named Center for the Study of the Administrative State, became the Trump White House’s czarina of regulation. A Chicago Law grad.

We have arrived in the foothills of the Trump presidency, and warnings no doubt abound. Not least is the Republican obsession with the sport of cliff-diving over dry land. What’s important is that a presidency that was almost too much fun has taken a turn for the serious.


China Can’t Carry Global Economy if U.S. Stumbles

By Nathaniel Taplin
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     Photo: Kevin Frayer/Getty Images 


Suddenly it’s a world upside down—investors are deserting U.S. growth plays as skepticism about Donald Trump’s agenda rises, while overcapacity-ridden China and aging Japan are looking unexpectedly strong.

Better growth in the world’s second- and third-largest economies, which both posted surprisingly good manufacturing numbers Friday, is great news for Asia and commodity exporters.

It won’t do much to help major developed economies, however, if growth in America and Europe falters along with Mr. Trump’s pro-business agenda.

Better growth in China does contribute in one key way to the so-called Trump trade: It boosts global inflation through higher commodity prices. The close correlation between global commodities and Chinese real-estate investment shows the bulk of the big bounce in prices since early 2016 is due to the cyclical recovery in China, rather than the rhetoric around plans for increased U.S. infrastructure spending.

That means that a big part of the uptick in global inflation numbers—which central banks from Europe to the U.S. have worriedly noted has mostly been driven by fuel prices rather than rising wages—is about China as well.

Unfortunately that is the wrong sort of inflation: Rising commodity prices in consumer countries such as the U.S. and nations in Europe erodes purchasing power and ultimately means lower growth. Strong growth in Chinese construction, meanwhile, is an enormous help for Australian iron-ore exporters and copper miners in Chile, but it doesn’t do much for the U.S. or Europe—the likes of heavy equipment maker Caterpillar aside.

Faster growth in China and Japan will doubtlessly help certain firms and sectors on the margins—but these are still highly protected economies, unlike the U.S. and European powerhouses such as Germany and the U.K.

The primary effect of better growth in China’s “old” economy is still higher commodity-price driven inflation—reflation indeed, but not of the happy variety. With Mr. Trump’s agenda under assault and political uncertainty in Europe still rising, the West needs to look to itself to keep growth ratcheting higher.


Return of the third horseman

Famine menaces 20m people in Africa and Yemen

War, not drought, is the reason people are starving
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OUTSIDE a thatched hut in Panyijiar, in South Sudan, Nyakor Matoap, a 25-year-old woman, clutches the youngest of her three children. Dressed in a silky emerald shawl, she hides the baby, named Nyathol, underneath its folds. Her other children crowd happily enough around her legs. But the baby is in a bad way. Though almost a year old, he is scarcely larger than a newborn. When he cries, it is quiet and gasping, his tiny ribs pushing out his chest. His swollen head lolls uncomfortably on his emaciated frame. Asked whether he will survive, she replies simply, “I do not know.”

Before 2013 Mrs Matoap cultivated a patch of land near Leer, some 80km (50 miles) further north.

But then civil war broke out in South Sudan, and her husband went to join rebel fighters. In August last year, government forces came into her village. They pulled the men out of their huts and shot them; the women fled. She found herself in the murky waters of the Sudd, a vast swamp which spreads either side of the White Nile. For seven months she has lived off wild fruit and the roots of water lilies. She last saw her husband in 2015, when her son was conceived. Though Panyijiar is friendly territory, and home to an aid camp run by the International Rescue Committee, she does not believe her ordeal is over. “I thought the war would never reach us in Leer,” she says, “so I cannot say that it won’t come here.”

In February Leer was one of two counties in South Sudan declared to be in a state of famine by the UN. Between them they are home to 100,000 people. It is the first time since 2011 that the term has been used and only the second since the organisation adopted the IPC scale, a scientific way of determining levels of food insecurity. Another 1.1m people live in areas in an “emergency” situation, one step short of famine, but where people are still dying from lack of food. Across South Sudan as a whole, the UN judges that some 250,000 children under the age of five suffer from “severe acute” malnutrition, meaning that if they do not receive treatment they will probably die. Some 5.8m people will rely on food aid this year.

South Sudan is not alone. According to the Famine Early Warning Systems Network (FEWS Net), run by the American government, 70m people around the world will need food assistance this year, a level it says is “unprecedented in recent decades”. Three other countries, Nigeria, Somalia and Yemen, have what it calls a “credible risk of famine”. Between the four, 20m people risk starvation. Like extreme poverty, famine has been driven from most of the world. But in those countries it is burrowing in.

Aid agencies are frantically fundraising; the UN says that another $4.4bn is needed by July. Yet a shortage of funds is hardly the only problem. What Somalia, South Sudan, northern Nigeria and Yemen have in common is that they are all at war. These days famine is never just a natural disaster; it is always a product of politics.

In South Sudan food insecurity has been growing since December 2013, when civil war broke out between different factions of the SPLA, a rebel group that won independence from Sudan in 2011. Since then the war has spread and the country has split along ethnic lines. The government, much like the previous Sudanese government in Khartoum, tends to fight by targeting “enemy” civilians. Since 2013 over 3m South Sudanese (out of a total of 11m) have fled their homes to escape ethnic killing. People who have fled cannot harvest their crops or work to pay for food. Like Mrs Matoap, many are forced to live off what they can find in the bush while they try to get to somewhere safer.

Acts of man, not God
 
The government deserves much of the blame. It has little interest in helping aid get in and indeed often seems determined to stop the flow. The UN reports 967 denials of humanitarian aid that affected children from the outbreak of war to December 2016—there were almost certainly more. One UN official explains how the government uses regulations to stop food deliveries: “You get the 17 forms you need and suddenly they invent another.” A second official notes that, on several occasions, convoys have been stopped by SPLA soldiers who accuse the drivers of feeding the enemy. Few aid workers think the government actually wants people to starve. But they reckon it would rather let children die than risk supplies getting into the hands of enemy soldiers, who could sell them to buy weapons.

South Sudan is not unusual in having a man-made famine. In Yemen the political dynamics are different but the result is the same. According to FEWS Net, 2m people there are in an “emergency” situation. Another 5m-8m do not have enough to eat. The main reason is that the coalition led by Saudi Arabia, which is fighting Houthi rebels in the north-west of the country, does not allow food through its maritime blockade without a lengthy permit process, by which time much of it spoils.

Nine-tenths of Yemen’s food is imported, but Hodeida, the largest port, has been bombed out.

At a warehouse in Humanitarian City, a storage centre used by aid agencies in Dubai, four new mobile cranes are waiting to help Hodeida unload ships. When the UN tried to install them in January, the coalition denied them permission to enter Yemeni waters. They might be used for offloading weapons, an official explained, or to earn port fees for the rebels. That is despite the fact that ships docking at Hodeida are inspected by the UN, and arms anyway enter elsewhere, on small boats or overland.

South Sudan’s and Yemen’s are the most clearly avoidable famines. But Nigeria’s comes close.

There, a famine may already have happened late last year—nobody is sure, because it was too difficult to gather data. Over the past two years, as the Nigerian army has clawed back towns in the north-east of the country from Boko Haram, an Islamist group, starving people have poured in from nearby villages. The population of Maiduguri, the capital of Borno State, has doubled as almost 800,000 hungry displaced people have moved into makeshift shelters there.

Perhaps as many remain in areas that aid workers cannot reach. Part of the reason is that the Nigerian army does not allow them in. But most aid agencies are reluctant to deliver food in areas held by murderous jihadists anyway. “You don’t really have someone to negotiate access with,” says Peter Lundberg, the UN’s deputy humanitarian co-ordinator in Nigeria. Still, in the areas that the army has secured, malnutrition has fallen sharply.

Only in Somalia, which in 2011 was the last country to suffer an officially declared famine, does the risk of starvation derive in large part from weather. A drought afflicting much of east Africa has wrecked crops and killed animals. “I am 73, but I have a very sound memory and what I am saying is true: this is the worst,” says Mohamed Yahir, a farmer in the south-western city of Baidoa, whose past three harvests have failed and whose livestock has all died.
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This year’s Somali famine may be easier to tackle than the one in 2011, when al-Shabab, a vicious Islamist militia, held a much larger part of the country. Now, aid is at least trickling in.

But a hangover from the former troubles remains. Without much of a state, and men with guns everywhere, much of the Somali hinterland is still too dangerous and expensive for aid to get to where it is needed.

A challenge to the world
 
What does the return of famine mean for international organisations such as the UN and for Western countries, which provide most of the finance for emergency aid? The UN’s humanitarian co-ordinator, Stephen O’Brien, has said that this year is “the largest humanitarian crisis” since 1945. Not so: China’s famine during the Great Leap Forward of 1958-62 caused between 20m and 55m deaths. The situations in Yemen and South Sudan are not yet as shocking as the Ethiopian famine of 1984, when hundreds of thousands of people starved even as the country’s military regime taxed aid and spent the proceeds on a grand celebration of the success of Marxism.

Still, today’s famines are real and severe. Sadly, in all four countries, the global response has been inadequate. Western governments and aid agencies have invested large amounts of money and energy in providing assistance, but they have done little to address the political problems that cause starvation. In South Sudan and Yemen they acquiesce to the obstacles that governments place on distributing aid.

Though there are 17,000 peacekeepers in South Sudan, with a Chapter 7 mandate (which authorises the use of force to protect civilians), the UN is loth to criticise the government that hosts its mission.

Yet the government is responsible for most of the violence, and the consequent displacement and starvation. “They want these people dead,” notes a UN official who would never say so publicly. In December the head of the Norwegian Refugee Council was expelled. Both the UN and other Western governments seem to have decided that it is better to shut up than to be kicked out and lose access to the people they are trying to help.

The situation in Yemen is more squalid. There, the weapons used to bomb Houthi rebels are mostly supplied by Britain and America; America has given logistics and intelligence support to Saudi Arabia’s war effort for two years. Yet diplomats tiptoe round criticism of the Saudi-led coalition.

They insist that they are pushing for more aid to be allowed in, but shy away from sanctions that might force leaders to comply. One UN official describes a “conspiracy of silence” about Yemen.

That is partly true of Nigeria, too. The release of some of the girls kidnapped by Boko Haram shows that it is possible to negotiate with the jihadists. Yet there is “no conversation” about aid crossing front lines, according to one aid worker. The Nigerian government’s rules about where aid agencies can go are simply accepted, even though starvation has been a weapon of choice for defeating insurgencies in Nigeria since the war over Biafran secession in the 1960s.

According to Alex de Waal of Tufts University, formally declaring a famine is a “political act” that is intended to produce action. “This will be a test case for whether it works,” he writes. In 2011, when Somalia was last hit by drought, the declaration of famine forced America to change the rules that were stopping aid agencies from supplying food to territory held by al-Shabab.

Yet few want to intervene. In 1992 George Bush senior sent American troops to Somalia to force the local warlords to let aid in. Bill Clinton pulled the troops out after some of them were killed, and since then military intervention to end famine has gone out of fashion. In South Sudan, a country created by American political pressure, even introducing an arms embargo or sanctions against president Salva Kiir has proved impossible. Similarly, Britain and America show no sign of wanting to force Saudi Arabia or its allies to curtail their war in Yemen. But there is no alternative plan, either. And so famine, which should have been abolished throughout the world by now, is coming back.


From Great Britain to Little England?

Michael O’Sullivan, David Skilling
. Theresa May Article 50

 

ZURICH – British Prime Minister Theresa May blinked more than once as she prepared to invoke Article 50 of the Treaty of Lisbon and initiate Britain’s exit from the European Union.
 
According to May, Brexit will transform the United Kingdom into what she calls “Global Britain.” But what lies ahead is really anyone’s guess. The UK has long been shorn of its empire; now it will be shorn of Europe, too.
 
Singapore, Switzerland, and Norway are often mentioned as models for the UK to follow as it pursues its own trade policies outside of the EU. This is ironic (or perhaps fitting), given that all three are small countries that do not share Great Britain’s sense of self-importance in world affairs.
 
The experience of small states is instructive for the UK. From the view of New Zealand or Singapore, it is fanciful to think that concluding new free-trade agreements with large emerging markets such as China and India will come easily for the UK. The gestation period for FTAs is long even under favorable conditions; and today a protectionist cloud hangs over the United States and potentially other countries. Signing a new FTA with the “America First” Trump administration will not be the cakewalk that UK Foreign Secretary Boris Johnson and others have promised.
 
It is telling that the same small economies that know the most about global engagement are consistently pessimistic about Brexit. Economic policymakers from the Nordics and the Netherlands to New Zealand and Singapore understand that regional integration matters, and that Brexit will have large negative effects.
 
In the coming months, the world’s small, open economies will function as canaries in the coal mine for the global trade system. Small countries on the periphery of the EU, such as Norway and Switzerland, have learned that benefiting from EU integration requires limiting the scope for independent domestic policymaking. Given these countries’ experience, the Brexiteers should rein in their expectations for how much control they can realistically “take back.”
 
May’s government has made various announcements indicating the types of post-Brexit policy changes it will pursue. Chancellor of the Exchequer Philip Hammond, for example, has talked about a low-tax, light-regulation model. But this model’s success in city-state settings such as Singapore, Hong Kong, or Dubai is no guarantee that it will work for a G20 economy. Meanwhile, May has suggested that the UK will, once again, embrace industrial policy, though it remains unclear what she means by this.
 
The UK has always had a high degree of autonomy to shape its own economic strategy, but Brexit will probably force policymakers to craft a comprehensive agenda that makes the country’s priorities explicit. As they do, they should learn from successful small economies.
 
For starters, small countries invest heavily in knowledge and human capital at all levels, from compulsory, vocational, and university education to lifelong-learning programs. These investments enable more people to take advantage of the opportunities that globalization provides, while also increasing productivity and wages.
 
Second, small countries have growth policies specifically geared toward boosting their competitive strength in the global economy. These measures can take a variety of forms, from investment in high-quality infrastructure and human capital, to sectoral policies that assist certain industries. But all are meant to ensure the country’s position near the productivity frontier, and within key international economic clusters.
 
Third, because small countries are highly exposed to external shocks, they have a range of measures in place to manage economic risks and ensure resilience. These include well-developed social insurance, flexible labor markets, active labor-market policies, and the fiscal space to pursue countercyclical stimulus policies (small economies tend to be fiscally conservative, partly for this reason).
 
The upcoming Brexit negotiations will pose a generational challenge for the UK. But, beyond handling those talks well, the UK also needs to develop policies that will enable it to navigate an ever more challenging international environment. This will require it to do things very differently than it has in past decades.
 
In fact, the UK’s survival could depend on it. Brexit, and UK policymakers’ failure to develop a coherent, robust economic strategy has breathed new life into the Scottish independence movement.
 
Many are confident that the small-economy model would work well for an independent Scotland. To be sure, Scotland has significant economic exposures that it needs to address, and it might need the security of a larger economic unit. But it is not obvious that the UK provides such security, especially now that it is on a path to leave the EU’s single market and customs union.
 
Independence would allow Scotland to develop policies that are more in line with other successful small economies – not least by retaining EU membership. As Scotland confronts the strategic challenges of Brexit, it will also have an opportunity to develop policies that are better suited to it.
 
Britain chose to leave the EU because it had an outsized opinion of itself. But it will soon have to follow a small-country model, like that of Switzerland or Norway. Forty years after leaving New Zealand in the lurch to join the European Economic Community, the UK might soon have less access to the European market than New Zealand does. Its journey from Great Britain to Little England may well be complete.