The later 20th century was not a big focus of my book, Avoiding the British Empire. I date the end of the British world system to 1914, and the beginning of World War I. The time after than is mostly one of decline. But it had peaks, and the period after 2016 will be seen as a new valley. One of the things that I did study intensely in writing the book was the distinction between “informal” and “formal” empire. The informal empire of financial power was as important, or perhaps more important than all the red bits on the map that were formally controlled by the British Empire.
If you look at it that way, then it’s clear that the European Union represented a new informal empire for Britain. Which makes throwing it away with Brexit quite nuts. I take a more in depth look at this in today’s video.
Video Transcript after the jump…
Hey there. After the December 12 election it is now almost certain that the UK will leave the European Union in the coming months. A lot of pixels are being spilled on the question of how that happens. What does Prime Minister Boris Johnson want? With his new expanded parliamentary majority will he be able to get a better deal out of Europe? Is no deal still a possibility? These are all fascinating questions, but I think they are obscuring a larger point. The disaster for Britain is Brexit itself, not the details of how that happens.
The dangers of Brexit in the short term have been so oversold at this point, that as long as it kills fewer people than the Bubonic Plague the story is guaranteed to be that it was less damaging than expected. There will be probably be dislocations and a horror story or two, but logistics is something we do very well this century. Nobody’s going to starve here.
More sober commentators have started to suggest that the disaster will be more medium term than short term, and Brexit will lead to a deep recession. Maybe, but I kind of doubt it. Churn can be good for economies. As supply chains get destroyed and reoriented, there could even be a brief surge of growth in Britain. I dunno, it could go either way. The threat that I see from Brexit isn’t short term or medium term. It’s not even really long term. It’s permanent. We are talking about another death of the British Empire.
My last Brexit video is rounding 1,000 comments, and I am seeing some really fundamental misunderstandings of how the 20th century went. The idea seems to be that the Common Market and the EU somehow stole the UK’s thunder. Before joining, the story seems to go, Britain had a powerful empire and amazing industries. Then they joined the EU and it all went to shit.
That’s almost the exact opposite of what happened. The British didn’t die in large numbers when their empire fell, the way Indians, Kenyans and many other did, but they did experience real costs. As Churchill and many others had predicted, the end of British India in 1947 led to a precipitous drop in the power and prestige of the United Kingdom.
Because of the Cold War, the United States was eager to prop the remnants of the British Empire up, to help fight communism. But it never really worked. Britain spent decades trying to turn its formal imperial possessions into a British commonwealth of less formal ties, the way the Brexiteers suggest, but that never really worked either. The more powerful countries preferred to go their own way in the name of nationalism, and fear of non-white migration kept the UK from truly embracing the other places. The commonwealth exists, but it’s fairly weak and meaningless. Britain has always tried to make the Commonwealth into a more powerful trading bloc, but the United States has always blocked it, because it would interfere with our informal empire of free trade. Brexit doesn’t change any of that, it just makes Britain weaker in negotiations.
What Britain had was a crisis of both formal and informal empire. Indian wealth and manpower had been vital to the formal occupation of all those red bits on the map, but it had also allowed Britain to tie the rest of the world into a very lucrative web of informal empire. Without India, and with the United States blocking any attempt to set up more informal imperial ties, the British were in serious trouble by the end of the 1960s.
The British kept telling everybody they were still a major power, but nobody believed it. With the 1956 Suez Crisis the US humiliated them over their attempt to hang on to control in Egypt. In 1968 the UK Prime Minister announced the British withdrawal from the majority of their bases in the Middle East and Asia. Britain simply couldn’t afford it anymore. Most of the remnants of Britain’s formal empire disappeared during the 1960s as well.
The 1970s and 1980s were a very grim time in Britain. Their industries had long been surpassed by other Europeans and the Japanese, and that failure made labor relations even worse. It may seem ridiculous today, but by 1987, the Italian economy was larger than the British economy. The country that had once dominated the world had been surpassed by the 21st century’s sick man of Europe. Britain was falling out of the ranks of the 2nd tier powers. So what saved them? The European Union.
Britain finally joined the EU’s predecessor in January of 1973. It wasn’t clear at the time, but with that accession, the British had picked up a shiny new informal empire. It took two other reforms to kick this new empire into high gear. The first was Margaret Thatcher’s deregulation of the London financial markets, in 1986, known as the big bang, and the second was the Maastricht treaty of 1991, that turned the European Economic Community into the European Union. The treaty did a lot, but most importantly for Britian, it opened up the free flow of capital across Europe. Britain was a historic center of finance, and its 1980s deregulation meant that it won the battle for that industry in Europe.
Thanks to the financial big bang and the Maastricht treaty, Britain got a new empire. It was informal, but it was real. London became the hub for European banking, and because banking is important, London got a bunch of other businesses too. This was the genesis of Tony Blair’s Cool Britannia, and it’s the reason London is such a rich and prosperous place today. In 1997, the UK economy surpassed Italy’s again, and it’s been that way for most of the time since. The EU accession process that the Brexiteers complain about so much was actually amazing for Britain. Brexit is going to end all of this.
The Brexiteers claim that London has all kinds of special expertise and skills that will keep their financial industry on top. That’s just laughable. London finance is a big deal because of its central position in the European market. Brexit ends that. Sure, English is important to international business, but there are plenty of people in Frankfurt and Shanghai that speak English. I have friends in Corporate London who tell me business is already slipping away, and the deal hasn’t even been finalized yet.
To pretend that London can hold on to its financial leadership without the EU is to fundamentally misunderstand what finance is, and why certain cities lead in that industry. More than any other industry, finance is defined by regulations. If you no longer control the rules, your financial leadership will evaporate.
New York isn’t the financial capital of the United States because it’s clever, but because it’s big, and because for a range of historical and geographical reasons, it managed to capture a number of the US’s financial regulatory functions. From the 1990s up until the day Brexit happens, London has the same power in Europe. The United States is and will probably remain New York’s financial empire. With Brexit, the UK government is kicking it’s financial empire in Europe out the door. Singapore and Hong Kong have diminishing importance as financial capitals because nobody trusts China’s legal system. Everybody trusts the Germans.
To be clear, this result isn’t going to be immediate. It’s going to be a slow attrition. A trading floor will close in London, and its replacement will open in Frankfurt or Paris. So much of finance is digital now that the management of trillions can change locations without anybody losing their jobs in the short term. But those trillions are already shifting, and the result will eventually be massive losses of market share, jobs and tax revenue. The United Kingdom has often been described as a financial industry with a country attached. Well, before too long it will just be a country. Brexit is the end of another British Empire, and it’s very hard to see what will replace it.
Thanks for watching, please subscribe, and if you want to learn more about the concepts discussed in this video, I suggest you pick up my new book, avoiding the British Empire, available now on the Amazon Kindle and in paperback form. Thanks!