Britain, like Singapore in 1965, has outgrown the need to be part of a federation
N. Balakrishnan says there is no reason why Britain’s economy won’t benefit from a split from the European Union – if both sides continue to trade with each other
An island nation that was dependent on free trade, international finance and other services for its wealth was part of a larger federation across the channel. The federation, unlike the island, had its own rigid political and economic imperatives and used legislation and regulation to impede and control market forces. So the island left or rather, was forced out of the federation. Many predicted doom for the island and that the island would “go crawling back” soon.
Britain in 2016? No. How about Singapore in 1965. When Singapore split from Malaysia in August 1965, it was a smaller economy than that of Malaysia and its currency, the Singapore dollar, was trading on par with the Malaysian dollar.
Today, Singapore’s economy is larger than that of Malaysia despite Malaysia having a bigger “market”, population and land mass. The Singapore dollar is worth almost about three Malaysian dollars. So, at least in theory, island states separating from the larger “market” or “union” are not necessarily doomed, and may even prosper.
Of course, no two events are alike and hindsight wisdom should also be resisted, as Singapore with a different set of policies could have indeed failed.
Even with all these caveats, however, one cannot help comparing Britain with Singapore of 1965. As I see it, Britain, which depends on trade and services, is being encumbered in reaching out for the next stage in its economic growth by bureaucrats located in far-away capitals more interested in regulating cheese and changing human behaviour than in promoting free trade.
The key is whether the separation is amicable and whether the island state and the bigger lands nearby will continue to trade with each other. This will be the case with Britain and the EU, and was largely the case with Malaysia and Singapore. Malaysian stocks, for example, were listed and traded at the Singapore stock exchange for decades after the separation.
One cannot underestimate the importance of flexibility and openness that a small trading state needs to prosper. The world needs a financial capital and London is that place, more international than either New York or Tokyo and better located geographically between Asia, America and Europe.
These sorts of locational advantages are “sticky” as far as services go, even if the “real” economy grows faster elsewhere. This is why Wall Street is still in New York even though California has much better weather and has grown faster than New York state in the past hundred years. And only the back offices of financial firms have moved to New Jersey while their headquarters still remain in Manhattan.
Predictions of Frankfurt or Paris ever overtaking London in financial services and legal services will always remain a fantasy. As someone who has had to deal with both the English common law and the “continental law” in the drafting of business contracts, I must say that the common law, with its dependence on precedence and common sense, is a much better alternative.
When it comes to education, Britain punches far above its weight. When one looks at the world rankings of high-quality universities, libraries and other support services, Britain has more representation than the rest of the European continent combined. Education needs a certain “liberal” mindset to thrive and the UK has it. On this score, the UK has a more continuous liberal tradition than even the US, let alone the European continent.
It is not an accident that Karl Marx himself settled in London after being chased out of Europe to do his seminal work. When the Korean War was going on and the British and American troops were fighting against Chinese troops, it was impossible for Chinese scholars to go to the US, whereas they could go to Cambridge and Oxford to attend academic conferences.
None of these long-standing and well-entrenched policies and, more importantly, the liberal culture of British society, is going to disappear just because Britain leaves the EU. In fact, Britain may gain a freer hand to choose students from all over the globe on a freer basis than discriminate in favour of a smaller student population from an ageing European continent.
In London today, there are 270,000 French citizens living there, making London the sixth largest “French city”. The French are even flocking to Hong Kong, Britain’s Far Eastern progeny for the same reason, and the 20,000 French in the city are now supposed to be the fastest growing contingent of foreigners in Hong Kong.
We are not talking just about “quality” services in Oxbridge either. Somehow I cannot imagine an Adele-like German pop singer or the bearded transgender singers from the Eurovision Song Contest making a billion dollars in the United States and around the world with their songs.
Half a million Cubans, out of population of about 12 million, came out to listen to the Rolling Stones, just after US President Barack Obama’s first visit to the island. Harry Potter’s author may or may not want Britain to stay in the EU, but I cannot ever imagine gloomy German stories ever selling by the millions around the world.
Car designing companies in Britain have better margins than the vaunted car manufacturers who are now in a mild state of panic, as the “software” car makers, such Google, Apple and Tesla, move towards the future. There is the distinct possibility that the major auto companies may end up as mere “box makers” with the value and profits of a car being in the software that drives them, in the driverless cars.
This is what happened in the last century when computer hardware makers became box makers with 5 per cent margins, whereas Microsoft, which “controlled” these boxes, became the giant with 30 per cent margins.
In everything from computer games and movies to medical services, Britain is the leader in Europe.
And Britain will be able to re-embrace the Australians, Indians, the Malaysians and of course the Singaporeans in the new world of the future where the trade in services will exceed the value of trade in commodities and manufactured goods. Geography is not destiny, as shown by the fact that the value of Germany’s trade with the US is much larger than Germany’s trade with France.
Britain should fear not, embrace the Brexit and enjoy the freedom and wealth.
N. Balakrishnan is a Hong Kong-based businessman