Much of the discontent demonstrated by the results of both the EU referendum and the US presidential election stems from the decline of manufacturing in the UK and US, the lack of good blue-collar jobs in our industrial heartlands.
Only 8 per cent of UK employment is in manufacturing today, although this produces 10 per cent of our GDP, so productivity is about 25 per cent higher in industry than in services. No wonder that deindustrialisation has meant that a large proportion of our population is suffering and angry, fed up with low-paid and insecure service sector jobs.
It is impossible to argue that deindustrialisation is unconnected to the fact that it now costs far less to produce more or less anything in the Far East than it does in the UK. Despite assumptions, this has almost nothing to do with Chinese wages being lower than those in the UK, and everything to do with the fact that our UK exchange rate (pushed up by monetarism in the 1980s and then still further by massive UK assets sale since the 2000s) made the UK, along with nearly all the Western world, hopelessly uncompetitive with the East.
So why don’t we bring the exchange rate down again, to help us to start making, here in the UK, much of what we import at the moment?
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
The most compelling argument against doing so is that it would not do any good, because UK exports of goods and services are nothing like price-sensitive enough to make any real difference. At $1.45 – the exchange rate for sterling just before the EU referendum – that is largely correct. Most services are not price-sensitive on international markets, whatever the level of the pound; all price-sensitive manufacturing has already been runout of business. All that remains are the high-tech industries such as arms, aerospace, vehicles and pharmaceuticals, sectors which are difficult to attack by low-cost competition.
But the EU referendum has changed everything. Now at about $1.22, sterling has fallen by around 16 per cent post-referendum. We are into very different territory.
Now we are getting reasonably close to the exchange rate – $1.00 to $1.10 – where it would become cheaper for the UK to manufacture much of what we import, rather than get it made in China.
Suddenly, the sensitivity of UK manufacturing to world competition would become much greater. Not because we would be able to sell more of what we already produce to the rest of the world – although we could – but, much more importantly, because decisions about where to locate production would change.
If it became profitable to produce low- and medium-tech products in the UK again (and it was Government policy to maintain a competitive exchange rate strategy) this is where manufacturing would be located – and both our export and import figures would be transformed.
If we want to make sure that, from now onwards, globalisation benefits the majority of people and not just the lucky minority, we have a very clear choice: we either use a lower exchange rate to bring back enough of the good blue-collar jobs we have lost to give prosperity and hope to our industrial heartlands, or we opt of one of the alternative strategies that are doomed to fail. We could invoke populist policies for protectionism, or industrial strategies which concentrate only on supply (more infrastructure investment, better education and training), but neither combine the benefits of liberalisation with the crucial competitiveness and profitability.
To make globalisation work we are going to have to change our attitudes to exchange rates. The turmoil which the world is experiencing right now only exists because our liberal democratic consensus over economic policy is misplaced. Much of our future prosperity depends on whether this can be changed.
John Mills is an economist and entrepreneur, the founder and chair of JML, and a donor to the Labour PartyReuse content