So Britain is faced with a situation of difficult transition (a certainty), possible negative long-term growth effects, or at best near zero impact in the long term. Why bother voting for exit if that is what is on offer? As the date approaches I suspect more and more voters will see it that way.
Europe will obviously be worse off without Britain. First, Britain is big and without it there will not be enough counter-weights to German policy-making. Second, Britain has the most deregulated free-market economy in the European Union. Other countries need more deregulation and more reliance on the free market. Britain’s presence in the institutions that are supposed to oversee this reform process is crucial.
Finally, political considerations might restrict the European Union’s approach to economic cooperation with Britain. Indeed, closer economic ties, that will benefit both EU and Britain, might be sacrificed to teach others a lesson about exit. This will harm both Britain and the EU.
Automation and job creation
The most exciting new innovations currently introduced into industry rely on digital technologies and are labour saving. They are good for productivity and we should seize the opportunity to take advantage of them, to increase the competitiveness of European industry. The United States is a leader in this technology, which is not surprising given the success of Silicon Valley, South Korea is pushing ahead with a lot of R&D (and the success of Samsung is not coincidental), Japan is giving it priority and China has made it the next big initiative in industrial development, in a ten-year programme named Made in China 2025. These technologies benefit the industries that adopt them directly and have positive spillovers on other sectors, through the more technologically advanced capital equipment and intermediate goods produced in the innovating sectors.
But the new technologies are labour-saving; industry will produce more output with fewer workers employed. A concern that one constantly hears is “where are the jobs going to come from to employ those displaced by the new technologies?” This is indeed a difficult and rightly worrying aspect of the new innovations.
The country as a whole will be wealthier in a more digitalised economy. Automation raises productivity. But the distribution of the rewards will not be even, in the way that it was in the first industrial revolution, when wages were higher than the payoffs of agricultural labour for the masses of workers who left the countryside and moved to the cities. Fewer people will get more rewards and some extremely wealthy individuals will emerge – the CEOs of the new companies or the inventors themselves, the ones who had the best start-up ideas. Indeed, I don’t think there is a better investment in terms of rate of return than to identify the next big start-up and provide the initial funding for it. Europe is way behind the United States and East Asia in terms of successful start-ups, a result of our rigid market structure and poor funding for such initiatives.
The United States is already showing what we might expect in the digital age: all the extra income gained since the Great Recession of 2008 went to the top 3-4% of the income distribution, with those below gaining nothing. Unemployment has fallen dramatically but employment has not risen so even that is of dubious benefit to the masses of low-paid workers.
