The verdict given by the people of the United Kingdom in 2016 in favour of quitting the European Union (EU) is popularly known as ‘Brexit’. People who voted for Brexit argued that it was because of the adoption of erratic neo-liberal policies that had led to livelihood crises.
The EU that came into being in 2002, primarily aimed at ensuring free movement of goods, services, people and capital. It led to large scale migration of workers from poorer countries like Hungary and Poland towards rich countries like the Netherlands, Britain, France, Italy, and Germany. This migration eventually culminated into the decline of wages as well as slowdown of growth of rich economies. Estimatesreveal that the growth of GDP that averaged 3%, 2.25%, 1.9%, 1.79% and 1.36% from 1991 to 1999 in Netherlands, Britain, France, Germany and Italy decreased to 1.71%, 1.94%, 1.42%, 0.84% and 0.54% respectively, in ten years of the creationof the EU. Further, taking undue advantage of the EU, non-performing economies like Greece, continued to performpoorly and turned out to be the parasites eating on theprospects of success of other countries.
Nigel Farage, a leader of the UK Independence Party, recently claimed that it costs £55m a day or £20bn a year to Britain if it continues with the EU. So far, it was the legal complexities that made it almost unmanageable for the member countries to contemplate withdrawing from the EU. But, after Brexit, voices to reconsider the decision to continue with the EU are being heard from countries like the Netherlands, France and Italy. An experiment like the EU, having inherent flaws in the form of artificial protection to member countries, killing the competition and ruining the motivation to excel between member countries, was expected to backfire.
An investigation of the history of integration between European countries since World War II reveal that it had become more of a compulsion of European countries to mingle instead of free or preferential trade agreements. Candid causes for this preferential treatment consisted of keeping the economic depression at bay, to contain Germany’s re-emergence after World War II and to counter a perceived communist threat from the eastern bloc countries, for which even United States offered financial aid. This intermingling of European countries surpassing all barriers went to an extent that the member countries of EU didn’t even mind compromising their sovereignty by delegating the decision making powers to shared institutions like the European Central Bank, the European Commission and the European Parliament whose decisions could supersede even the national laws. The decision is now proving to be a flawed political verdict to maintain artificial harmony. It would have been better if the member states instead of going into such an extreme had restricted themselves to free trade agreements between the economically similar countries wherein trade related decisions could have been taken with the mutual consent of the member countries like in case of NAFTA and SAFTA.
The rich and poor divide among member countries in EU, even the economic fundamentals of the treaty were erroneously planned. Restrictions on the free flow ofcapital between EU member countries and other countries of the world, no authority to either independently printown currency or fix interest rates freely, no option todevalue currency in order to export more, no permission to exercise independent monetary policy and limited ability to spend for public works (less than 60% of the GDP) have virtually pushed the member countries towards economic slavery. Even though Briatain's exit from European Union (under Article 50) was initially finalised for March 29, 2019, yet, on one pretext or the other in House of Commons, it has been postponed and now scheduled to take placeon January 31, 2020.
Indian policy-framers need to learn a lesson from the Brexit phenomenon. Instead of anxiously looking toward global economies for FDI (which in this protectionist era isdifficult to come) or giving sops to the corporates to revive the Indian economy, the government must make efforts to build a consumption driven economy, wherein consumption propels investment. India could manage to escape almost unscathed the global recession of 2008 because of rock solid consumer demand within the economy and due to a sound financial structure. Incidentally, both these parameters are looking unstable at this juncture. Reviving the economy through fragile foreign investment or by servicing the corporate sector alone cannot offer a viable solution to the existing problems which are existing at the bottom of the pyramid.
— The author is Associate Professor in DAV Institute of Management, Chandigarh
(The views expressed here are personal and don’t reflect those of the government)