The UK financial system might grow to be the Japan of Europe

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In 1975, the American jazz pianist Keith Jarrett discovered himself in an unenviable place. Shortly earlier than starting considered one of his improvised solo performances, he found that some backstage bungle had left him with an previous rehearsal piano. It was out of tune, tinny and had sticky keys and pedals. After protesting and realising nothing could possibly be modified, he determined to play anyway. The issues within the piano pushed him to play in a brand new fashion, discovering recent methods to precise himself. And towards all expectations — definitely towards Jarrett’s — the end result was a masterpiece: The Koln Live performance album.

I’ve been eager about the unplayable piano quite a bit since Britain voted to go away the EU. By any typical evaluation Brexit was an act of financial self-hurt. However by any typical evaluation, a creaking little piano doesn’t make for nice music both. May the UK financial system by some means burst right into a show of sudden virtuosity in unpromising circumstances? Allow us to evaluate the sticky keys and see what recent tunes is perhaps playable.

First, immigration. The talk on this has taken a xenophobic flip however the pure economics of tighter immigration additionally appears difficult, notably for agriculture, catering, the Nationwide Well being Service and better schooling. Since EU migrants have greater than paid their approach, discouraging them will even weigh on public funds.

Second, commerce. We don’t know what the publish-Brexit commerce panorama will appear to be however the UK will discover it more durable to stay an open financial system. Will probably be harder to combine with pan-EU provide chains, the prices of imports will rise and, whereas exporters profit from a weaker pound, they could discover themselves dealing with greater tariffs and, extra essential, non-tariff limitations.

Third, monetary providers. London might be a much less engaging monetary centre hub if it can’t be used as a base to offer monetary providers throughout the EU. US banks, particularly, might discover Dublin, Frankfurt, Paris or New York to be extra smart vantage factors to serve the EU market.

These, then, are the obstacles. What are the alternatives? As labour markets tighten, corporations might make investments extra in expertise and notably in capital: higher instruments, smarter software program and extra robots. We may even see a extra productive financial system with larger wages, no less than for many who can handle the robots slightly than get replaced by them.

If the UK financial system can’t combine easily with EU suppliers, that may increase prices however it might additionally stimulate extra native networks. This import-substituting technique is usually related to the insurance policies of Latin American strongmen nevertheless it has sometimes labored.

Is there a vibrant aspect from a weaker Metropolis? Maybe. A rustic that exports loads of a commodity akin to oil can begin to endure from the “Dutch illness”, a situation ensuing from a foreign money so robust that it turns into virtually unimaginable to do something besides pump oil and spend the earnings. In precept, the identical factor may happen with a really concentrated business such because the excessive finance of the Metropolis of London. If the oil — or the excessive finance — dries up then the trade fee weakens and different industries can flourish. Maybe that is a part of what we’re seeing now because the pound falters, and maybe the misfortune of the Metropolis shall be useful to different industries akin to software program or excessive-tech manufacturing.

There’s additionally the potential for constructing reasonably priced homes. As soon as the nation’s tabloid press can not blame Brussels about purple tape, they could flip their hearth on the British regulatory thicket holding again the financial system: land use restrictions. If we had constructed extra homes the place individuals wished to stay, fewer individuals can be feeling left behind and blaming Lithuanians for troubles that have been engineered in Westminster.

All this means a British financial system with a bigger presence as a producer and shopper of excessive-tech software program and robotics: the Japan of Europe, though hopefully with out the quarter-century of financial stagnation. It isn’t unattainable. Knowledge collected by Massachusetts Institute of Know-how’s Atlas of Financial Complexity undertaking recommend that the UK has untapped capability in industries resembling automobiles and precision engineering.

I don’t consider in “financial fashions”. Fashions are all very properly once we are speaking about Lego. In relation to a serious twenty first-century financial system, issues are too difficult for that. We should see what emerges. The state of affairs seems to be unpromising however so, too, did Keith Jarrett’s unplayable piano.

The author is writer of ‘Messy: How you can be artistic and resilient in a tidy-minded world’


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