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Analysis
Britain should look east

Britain should look east

Engaging with Asia would force UK to become more competitive

by Mark Crosby in Melbourne

Fri 23 Sep 2016

For Britain and the European Union, Brexit should be an opportunity to reset, not a time for retribution. The EU’s overly ambitious but underachieving drive for economic centralisation has distracted from the desperate need for strong reforms in Europe’s major economies. Outside the EU, the UK should focus on these reforms and engage with growing and dynamic regions of the global economy, while doing its best to continue engaging with its sclerotic neighbours.

From my distant vantage point, the debates preceding the UK’s June referendum were ‘little more than the amusements of my daily newspaper’ (to quote a famous Englishman) in that the impact for our region was likely to be trivial. The major EU economies have been shrinking rapidly in terms of their global economic weight for decades, and this has mattered very little to Asia’s rapidly growing economies.

Furthermore, sensible attempts to revive and strengthen the economies of Europe, such as the reform programme outlined in the 2000-10 Lisbon Agenda, have come to very little. Weak demographics, high debt, and low productivity continue to bedevil much of the continent. Brazil, Indonesia and Nigeria could all have bigger economies than the EU by the end of this century.

This is the real issue with Brexit – will Europe find ways to revive, thrive and prosper? With the UK vote to leave, the question should be front and centre of the European debate about a post-Brexit EU. Instead, part of the focus has been on how to punish a recalcitrant UK – Robert Fico, the Slovakian prime minister, has said that he wants to make Brexit ‘very painful’ and ensure that Britain is worse off outside the EU. This is despite the fact that such punishment would undoubtedly weaken the Union.

The UK’s response should be to use Brexit as an opportunity to reposition its economy. The British Commonwealth is very limited in terms of its collective influence, but the English language and colonial links are a great springboard for a non-eurocentric Britain. Trade agreements with India, the US, Canada and Australia can be the starting point for greater linkages with emerging markets and the more rapidly growing advanced economies, as opposed to a shrinking Europe.

Australia is the only member of the Organisation for Economic Co-operation and Development to have enjoyed 25 years of uninterrupted economic growth. This growth has been driven by a heavy dose of economic reform in the 1980s and 1990s, low public debt, and a focus on engagement with regional economies. The share of Australia’s exports to China, India and Japan has leapt to around 50% in the past 25 years, while the share of exports to the EU has halved.

Engagement with Asia forces countries to think of competitiveness in a context in which demographics are young, growth is fast, and welfare and public debt are low. This will be the context for the global economy by the middle of this century. Looking to growing and dynamic regions of the global economy would prove that the UK not only realises there is a problem, but that it is dealing with it. The same cannot be said of the EU.

Mark Crosby is Associate Professor of Economics at Melbourne Business School and a Member of the OMFIF Advisory Board.

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