Quote of the day

“I find economics increasingly satisfactory, and I think I am rather good at it.”– John Maynard Keynes

Tuesday, 22 June 2021

Changing shape of UK economy?

 I'm not going to say I agree with everything in here but there are some key points to carry away:


Five years on, Brexit has already transformed the economy

With wages rising rapidly and non-EU trade accelerating, the predictions of Project Fear have proven to be wildly over-blown

People’s Vote marches. All-night sittings over obscure amendments in the House of Commons. The Supreme Court over-turning government decisions, snap elections, warnings of the closure of the car factories, long lectures on cherry-picking from Michel Barnier, and scare stories about shortages of lettuce. 

It is amazing how time flies when you are having fun. It may seem like only yesterday that the UK voted by a narrow margin to leave the European Union. In fact, it was five years ago on Wednesday. 

We only finally left, in the sense of severing control from Brussels, at the start of this year. And yet, in truth, Brexit has already transformed the British economy. Like how? 

We are witnessing a shift back to our historic trading patterns; wages are starting to accelerate upwards; our industrial base is changing; and we are finally creating a regulatory regime that works for the UK. 

Wage growth has spiked

Line chart with 2 lines.
Average weekly earnings annual growth rates (inflation adjusted)
The chart has 1 X axis displaying Time. Range: 2000-12-17 15:21:36 to 2021-06-13 08:38:24.
The chart has 1 Y axis displaying values. Range: -8 to 6.
SOURCE: ONS
End of interactive chart.

We can all argue - and no doubt will - about whether that is for better or worse. Yet there can be no question the country is now set on a very different path. 

Rewind five years, to the morning after a vote that took almost everyone by surprise, and the consensus was that the British had committed economic suicide. The pound dropped by the most on record, at one point getting close to parity with the euro and even the dollar. Investors fled from the London market. 

A new Prime Minister was desperately searching around for some kind of strategy for leaving the EU, and business was attempting to work out how it could cope with our departure. As we now know, the predictions of Project Fear turned out to be wildly over-blown

House prices haven’t collapsed, unemployment hasn’t soared, and although some jobs have been lost, factories have not relocated wholesale to France and Spain, nor has the City decamped en masse for Frankfurt and Paris even if Amsterdam has picked up some trading business. 

And yet, even though we only really left in January as the transition period ended, our departure has already started to slowly transform the British economy. Here are the four most significant changes. 

Placeholder image for youtube video: Dbdme147zWI

First, a historic shift in trading patterns. The Remain camp made much of the fact that Europe was our main trading partner. While true, it neglected to mention that was largely a historical aberration. Sure, at the time of leaving it accounted for more than half of imports, and 45pc of exports, although that figure had been declining for a decade before we voted to leave. 

But if you go back further, trade with the rest of Europe was far less significant. According to House of Commons figures, in the wake of the Second World War what became the EU accounted for about 20pc of our out trade. Before the First World War it was about 30pc (there was a big shift to the Empire during the protectionist 1930s). 

Behind the EU’s walls of tariffs and quotas the percentage with the rest of Europe increased dramatically. The important point is this: the long-run figure for the UK is for about 25pc of our trade to be with Europe, if we maintain an open market that is where we will end up - and that will mean buying and selling a lot less with France, Germany and Spain. 

Next, wages are rising. There was a lot of clever-clever theoretical modelling to try and show that freedom of movement didn’t have any impact on wages. And yet, basic economics says that when you increase the supply of something - workers, for example - the price goes down, and when you reduce it, the price goes up. 

And, lo and behold, now that we have curbed the unlimited supply of EU workers, wages are starting to accelerate dramatically. They are rising at an annual rate of 8pc, and in some sectors more than 20pc. 

Sure, lots of employers will complain about "shortages" of labour. What they actually mean is they can’t find a Hungarian guy to put in a night shift at their warehouse for minimum wage on a zero hours contract. 

So long as we ignore them - and they will get their heads around robotics quickly enough now that they have to - wages will carry on accelerating, and that will level up the country far more effectively than anything else we might do. 

Third, we are changing our industrial base. Low-value, low-skilled work is starting to shift out of the country, mainly because it doesn’t have access to cheap labour anymore. Meat processing, for example, may shift elsewhere. So will a lot of food production and continent-wide distribution (the paperwork is too much hassle). 

In its place, higher value-added manufacturing is starting to expand, in green energy and life sciences for example. It will be a far more Swiss model. 

Finally, it is taking a long time, and happening very slowly, but we are creating regulatory regimes that work for the UK.

The City is opting out of rules on green finance and solvency where many of the regulations imposed from Brussels were needlessly complex. We may - fingers crossed - not have to tick that annoying box that says we "accept all cookies" every time we visit a website, and in time we may have a government bold enough to liberate business completely from the nonsense of GDPR. 

True, it is far too slow so far, but we are starting to get to grips with creating a far more light-touch regulatory regime. 

There has been lots of noise, and plenty of short-term distractions. As we wrangle over Northern Ireland, over financial services, and a dozen different issues, there will be plenty more arguments in the years ahead. 

Even so, there can be no question that leaving the EU was a major turning point for the British economy. It will play out over two decades, at least. But five years since the votes were cast, the big trends are clearly visible.  

All things gigafactory - investment vs red tape

 Great little piece on the problems Elon Musk faces getting his European plant up and running. The issues raised are quite substantial:


What's happening with Tesla's $7 billion German 'gigafactory'?

Next Thursday, July 1, was supposed to be a day of celebration for Tesla: the opening of its self-styled 'gigafactory' in the tranquil German municipality of Gruenheide.

Next Thursday, July 1, was supposed to be a day of celebration for Tesla: the opening of its self-styled "gigafactory" in the tranquil German municipality of Gruenheide, just outside Berlin.

But thanks to fierce environmental resistance, red tape and planning tweaks it is completely unclear when the first vehicles will roll off the production line of the electric carmaker's first European factory.

Tesla has already pushed back the expected opening to late 2021. Yet the environmental agency in Brandenburg, the state where the 5.8 billion euro ($6.9 billion) plant is being built, has still not given final approval - meaning a further delay cannot be ruled out, even into 2022.

WHAT'S THE PROBLEM?

It's complicated.

Tesla and its billionaire boss Elon Musk unveiled plans in late 2019 to build the factory.

However the site partly overlaps a drinking water protection zone and borders on a nature reserve, which has drawn heavy opposition from local residents and environmental groups.

Last year, Tesla had to suspend clearing of a forest at the site after environmentalists from local group Nabu highlighted the risk posed to a rare local snake species whose winter slumber could be disturbed by tree-cutting activity.

The snakes had to be rescued before Tesla could proceed but there have been numerous other efforts to stop work at the site on environmental grounds.

"Thousands of hectares of forest will be cleared to create the needed infrastructure and housing space," said Manuela Hoyer, who lives about 9 km from the site and is a member of a local campaign opposed to it.

"To build such a plant in a protected drinking water area is actually a crime against the environment."

Her comments reflects a broader trend in Germany that has also seen renewable projects, such as wind farms, coming under fire from residents that fear the impact on the local habitat.

IS THAT REALLY IT?

No.

Bureaucracy has been a headache for Tesla, too, pitting the company's hands-on approach against Germany's infamous red tape.

So far, Tesla is working based on preliminary construction permits, with large factory halls and structures already built on the 740 acres of land it bought for 43.4 million euros.

But only when Brandenburg's State Environmental Agency provides the final permit can the plant be opened.

While it has previously said that it cannot say when that is every project that has obtained preliminary permits in Brandenburg eventually received the final ok.

But that's not discouraging environmentalists from throwing spanners in the works.

Last week Gruene Liga and Nabu submitted an injunction to a German court against provisional building permits for site, in the latest attempt to ensure Tesla is adhering to environmental laws.

"I think there could be less bureaucracy, that would be better," Musk said during his last visit to Gruenheide in May, markedly less enthusiastic than his "Deutschland rocks" verdict eight months earlier.

THE BATTERY CELL PLANT

Tesla's construction plans had to be fully resubmitted earlier this month to reflect the addition of battery cell production to the site, costing valuable months.

The Gruenheide plant comprises several units to handle component manufacturing and final vehicle assembly, including a press shop, foundry and body production.

It also includes a water recycling facility, a local fire brigade as well as a depot to ensure more efficient transport of components and other goods. Under the plans, the site's power needs are to be met via local renewable energy sources.

But adding battery cell production meant the company had to tweak and refile the whole application. Based on the most recent version, the plant will have the capacity to produce 500 million cells totalling 50 gigawatt hours (GWh) a year.

That's more than the 40 GWh facility rival Volkswagen plans to set up about 300 kilometres west in Salzgitter near its home base.

DOES ANYONE SUPPORT THE FACTORY (APART FROM ELON)?

Yes.

Tesla's move is seen as a major boost to eastern Germany, which has struggled with high unemployment rates and difficulties to attract large industrial firms.

Once fully up and running, the plant, which Tesla said will be the "most advanced high-volume electric vehicle production plant in the world", is expected to create 12,000 jobs and have a capacity of up to 500,000 cars a year.

"We're in favour of a shift towards emission-free mobility and the cars needed to achieve that must be built somewhere," said Ralf Schmilewski, a member of the Greens Party in Gruenheide's neighbouring town Erkner.

He said Tesla's plans also address a demographical issue, which has seen younger generations to leave the structurally weak area in their desperate search for jobs.

"Now they have a perspective and don't have to move."

SO WHAT'S NEXT?

Until mid-July, members of the public can sift through the roughly 11,000 pages of Tesla's application documents, including blueprints, tables and calculations, in the town hall of Gruenheide, the third time they have been put on display.

As part of the process, anyone can file objections until Aug. 16, before the Brandenburg environmental agency decides whether a public discussion should take place on Sept. 13.

When the documents were last made available publicly, in 2020, more than 400 objections were raised.

After that there is no clear timeline. At some point the agency is expected to grant final approval - but when is anyone's guess.

($1 = 0.8410 euros) (Reporting by Nadine Schimroszik and Christoph Steitz; Editing by Pravin Char)


Copyright (2021) Thomson Reuters. This article was written by Nadine Schimroszik and Christoph Steitz from Reuters and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

Thursday, 10 June 2021

Trade & the environment - good counterintuitive thinking:

 10 June 2021

Free trade can be good for the environment – here’s how

By  

Readers of this site will need no convincing of the benefits of international free trade for economic growth. In a list of reasons why global poverty rates have nosedived since the mid-twentieth century, it ranks as number one.

What is less well understood, however, is the dynamic between international free trade and green objectives. Indeed, if it is considered at all, it is usually in a negative light – after all, how can lugging goods halfway around the world on a container ship ever be good for the environment?

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A new report, published today by the Centre for Policy Studies, seeks to counter that narrative. We identify a host of reasons why international free trade can actually help us all to tread more lightly on the planet.

Our first argument in support of the environmental credentials of free trade draws upon the work of two renowned British economists. David Ricardo, in the early 19th century, popularised the notion of comparative advantage. He lucidly set out why it makes sense for countries to produce that which they are most adept at, and then trade the fruits of their labour with each other. His theory boils down to the idea of productive efficiency, an obviously important concept in environmental economics – given how much of what we consume is originally derived from the natural world (be that food, timber, minerals and metals, and so on). If we can produce the goods we demand in as efficient a way as possible, it stands to reason that pressures on ecosystems will diminish as a result.

Writing decades before Ricardo was Adam Smith, who famously expounded his theory of the division of labour, and how it can beget enormous increases in productivity. By allowing individuals to specialise they can turn any given bundle of resources into more useful goods than a novice could. Again, this process of maximising efficiency can help the environment by ensuring we eek out as much as possible from as little as possible – conserving nature and minimising our footprint on the planet.

Smith didn’t stop there, however – and this brings us onto our second argument. In what has turned out to be an incredibly pertinent passage, the economist notes how it would, technically, be possible to grow grapes in Scotland – provided they were sufficiently shielded from the elements and kept warm artificially. But – as I have noted before on these pages – Smith explains to do so would be 30 times as costly as simply importing grapes from more hospitable climes. Even in the 18th century, it was apparent that it can often be better from an environmental perspective to import goods from places where they occur naturally, than trying to produce them for oneself locally.

A more contemporary example might be how it could make environmental sense for a country not blessed with renewable energy resources – such as abundant sunshine – to import energy-intensive goods which have been made in countries which do. Imported hydrogen made via solar powered electrolysis, for instance, will almost certainly be better for the climate than locally produced hydrogen made via fossil fuels. One must remember that the ability to do this, however, is entirely predicated on nations being able to trade freely with each other. Without free trade, the whole proposition collapses. 

Our third argument is that free trade is essential for the development and spread of technologies which will allow us to put an end to all sorts of environmental issues. Britain is a scientific superpower, boasting first-rate research labs and universities which have produced a host of emissions busting innovations. But nobody would suggest the country has been able to do it in isolation. Ideas and components have had to be shared across borders. Iconic environmental technologies – from solar panels to electric vehicles – have complex supply chains which stretch around the world, critically reliant on international trade to ship parts and raw materials to where they need to be. 

So international trade doesn’t have to be the object of fear some environmentalists are keen to make it out to be. Thankfully, those in government seem well aware of this, and have already made good headway on staking out a policy platform which simultaneously boosts trade flows and protects the environment. 

But that isn’t to say ‘job done’. And to that end, our report culminates with a series of recommendations the Government should adopt to further liberalise trade policy and reap the environmental benefits. For the sake of brevity, I’ll focus on just one here – cutting tariffs on all environmental goods and services. 

Last year, while the UK Global Tariff removed import taxes on hundreds of green goods, it stubbornly left some in place for select items. Hybrid vehicles, for instance, still attract a rate of 10%, while bicycles must pay 14%. Tariffs are nothing more than economic self-harm, and particularly when levied on green goods, environmental self-harm too. They should be junked as quickly as possible.

The Government is always at pains to promote the idea of ‘Global Britain’. But in truth, the message has often rung hollow – an admirable gesture, but one lacking in real substance. That needn’t be the case going forward. As Britain hosts the G7 and COP26, the Government has the perfect opportunity to demonstrate its leadership on climate change in global conversations – and make the case that free trade is the key to global prosperity and a green future.

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