Making Brexit work: the £ could do the trick

Historians will record that the UK’s Brexit debate ended precisely on 29th September 2021 when Sir Keir Starmer, leader of the opposition Labour Party, declared that the task was now to make Brexit work.

To optimise Brexit means optimising trade flows, to ensure the highest levels of productivity, investment and living standards. Businesses do best from economies of scale, so that the same production run meets with the fewest barriers of tax, regulation and standards. Nowadays, this is done by forming large trading blocks such as MERCOSUR, NAFTA or the EU. Large countries such as the USA, China and India are primarily trade blocs, with widely differing economies linked into a regulatory whole. But to join them will take time and involve tortuous negotiations, which may not necessarily redound to Britain’s advantage. However, there is a faster way.

No quicker entry can be found to any market than to sell competitive goods. No amount of regulation and control can prevent people from getting what they want. If Britain were to devalue the pound, drastically, it would gain access to major markets of all sizes very quickly. The fall in overseas investment would be quickly reversed as foreigners could buy UK assets such as plant and labour at knock-down prices. British goods and services would enjoy an immense competitive advantage. The ancient, unsolved problem of our trade deficit would slowly begin to solve itself. So devalue-but to what level?

The gravitational theory of economics points the way as the paper by Elias Sanidas shows [1] Countries tend to trade best with the nearest neighbours, If Britain were to set the pound at parity with the Euro, or perhaps slightly under, there would be no need to rejoin the Single Market, Customs Union or Free Trade Area.

There would be downsides of course. Imported cars and foreign holidays would be more expensive. But the economic pain would be pretty widely shared, apart from the very few who have foreign denominated assets such as shares or properties. Yet immigration would be braked, as the value of remittances sent home fell sharply, and there was less incentive for employers to hire cheap foreign labour. Yes, there might be inflation-but is that not happening anyway?

The best economic policies recognise existing trends-and the pound has been falling since 2016 anyway. Why not take advantage of this trend, to recalibrate once and for all, and show that Britain really is taking a new path? Did not Shakespeare, our greatest playwright observe

There is a tide in the affairs of men/which, taken at the flood, leads on to fortune/Omitted, all the voyage of their life/Is bound in shallows and in miseries

And surely Shakespeare was right!


#brexit #trade #britain

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