New World Disorder? Brexit, Trump and an
outlook for the global economy in 2017
Nicholas Barr
London School of Economics
http://econ.lse.ac.uk/staff/nb
LSE-Fundación Ramón Areces conference
Madrid, 12 December 2016
New World Disorder? Brexit, Trump and an
outlook for the global economy in 2017
• My view before the UK referendum is set out
in a Letter to friends, LSE blog
• My view the morning after the referendum
‘I hope I am wrong, but fear that – for the reasons set
out in my earlier article – the referendum result will
come to be viewed as a historic mistake. My sadness is
not for my generation but for the 75 per cent of younger
people who voted to remain’
Nicholas Barr, December 2016
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1 Economic effects
• Reduced growth in the UK and in the wider
EU, largely because of reduced trade
• Loss to EU of the net transfer from the UK
• Divorce costs: costs of disruption will be
substantial and long-lasting
Nicholas Barr, December 2016
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2 Political stability
• For individual countries: nationalist
movements
• For the EU as a whole: risk to the EU
project
‘Leaving also risks destabilising the EU economically
and politically. Marine Le Pen is already calling for a
Frexit referendum, with a risk that populist parties in
other countries, including Germany, the Netherlands
and Denmark, could follow’ (Financial Times, 26
February 2016)
Nicholas Barr, December 2016
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3 International relations
• Both the EU and the UK will have less clout
• Cohesion within the EU might suffer
• Why does this matter?
• Possible weakening of US support
• Russia’s long-standing interest in a less cohesive
Europe
Nicholas Barr, December 2016
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International relations, cont’d
• If the UK and EU are weaker, the US is weaker. These pressures
enact what has been Soviet or Russian foreign policy for sixty
years – divide Western Europe and destabilise and weaken the
EU. See the powerful article by Garry Kasparov, Guardian 13
May 2016
• ‘A “no” vote … will greatly extend the crises that the EU is
already trying to manage. Geopolitically, a Brexit will weaken
Europe’s ability to stand up to Putin’s aggression and the
challenges of jihadism. The EU would lose a member that has
one of its biggest military and diplomatic capacities, its main
advocate of interventionism, and the strongest link with
Washington. Brexit will threaten the global role of both the UK
and the EU’ (Waking up to a nightmare: A UK exit from the EU
would be a ‘lose-lose’ for both sides, LSE blog)
Nicholas Barr, December 2016
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4 Labour mobility
• Why does mobility matter?
• Greater diversity of content and approach has the
profound implication of increasing the benefits of crossfertilisation, including student mobility and labour
mobility
• The circulation of skilled labour promotes competitiveness
by improving the match between (a) the skills and
interests of workers and (b) the requirements of jobs
• Student mobility contributes to labour mobility, not least
because study outside a person’s home country increases
cultural and language skills, making later job mobility
easier
Nicholas Barr, December 2016
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Youth mobility is particularly
important
• The provision of work permits for those with explicit long-term
job offers and proven skills is not enough, since it ignores the
reality of early stage careers which are highly fluid and rely on
short-term contracts, internships etc.
• For example, one of the best ways for companies to decide who
to hire is to allow large numbers of young graduates to work for
them on a temporary basis as interns or agency staff
• Without youth mobility between the UK and the continent,
companies and universities will be restricted to a smaller pool of
talent
See Let young people move: Why any post-Brexit migration deal
must safeguard youth mobility, LSE blog
Nicholas Barr, December 2016
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5 Higher education
• Drivers of higher investment in skills
• Demographic
• Skill-biased technical change
• Students’ right to live, study and work in 30
countries
• Researchers’ right to live, study and work in 30
countries
• UK absence would be damaging both to the UK and
the wider EU, given the UK’s weight in research
See EU membership is not the only way to foster
labour mobility. But it is the best, LSE blog
Nicholas Barr, December 2016
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The future is bleak for those with medium skills
Source: OECD
https://onedrive.live.com/redir?resid=BF5C7EEBD50CDCE5!28159&authkey=!ADdAR62CFodUjzY&ithint=file%2cpptx
%
25
20
High level
problem-solving skills
15
10
5
Low problem-solving skills
0
-5
Medium-low problemsolving skills
-10
-15
-20
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