India needs to learn a lesson from Brexit

The verdict given by the people of the United Kingdom in 2016 in favor of quitting the European Union (EU) is popularly known as ‘Brexit’. People who voted for Brexit argued that it was the adoption of erratic neo-liberal policies that led to the livelihood crises which forced them to opt for Britain’s exit from the European Union.

EU that came into full force 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 in the decline of wages as well as the slowdown of the growth of rich economies. Estimates reveal 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 creation of EU. Further, taking undue advantage of EU, non-performing economies like Greece, continued to perform poorly and turned out to be the parasites eating away the prospects 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 also. Experiments 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 were expected to backfire.

An investigation of the history of integration between European countries since World War II reveals 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 reemergence 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 European Central Bank, European Commission, and European Parliament etc. 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.

Besides the rich and poor divide among member countries in the EU, even the economic fundamentals of the treaty were erroneously planned. Restrictions on the free flow of capital between EU member countries and other countries of the world, no authority to either independently print own currency or fix interest rates freely, no option to devalue the currency in order to export more, no permission to exercise independent monetary policy and limited ability to spend for public works (less than 60 percent of the GDP) have virtually pushed the member countries towards economic slavery. Even though Britain’s exit from European Union (under Article 50) was initially finalized for 29 March 2019, yet, on one pretext or the other in House of Commons, it has been postponed and now scheduled to take place on 31 January 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 is difficult to come) or giving sops to the corporates to revive the Indian economy, 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 the rock-solid consumer demand within the economy as well as 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 continuous existence of economic problems may provoke Indians also to go for a blood bath and go for a referendum against the pro-corporate governance