Is there life out of the European Union?

This is the paper version of a column by Francesco Grillo (and adapted by Claudia De Sessa) published on Italian newspapers Il Messaggero and Gazzettino del Nord Est.

Scan of the paper edition

In 1767’s England, chemist and philosopher Joseph Priestley invented the method to add carbon dioxide to water and create the first fizzy drinks. Nowadays, Coca-Cola is disappearing from London supermarkets; a symbol of the contradictions of a world that advances while short-circuiting with a past we hang on to. Soft drinks shortages are being caused by the closing of a couple of factories that shut down because of the rise in price of the natural gas made producing carbon dioxide no longer economically sustainable. Funnily enough, we are talking about the same gas that is endangering our future.

Another factor contributing to the supply chain issues in London is the shortage of European heavy goods vehicle drivers (HGV) that have been left without a work permit. These are the effects of Brexit, which is however just exacerbating issues that preempted and have little to do with leaving the European Union. The result is a perfect storm that London has to deal with but that also represents an experiment other countries could learn from.

“The economy of scarcity” is how The Economist – the most prestigious weekly in the world – has defined the bizarre world we are entering after the pandemic froze us for eighteen months. Her Majesty’s subjects are now experiencing this scarcity, but other countries such as China, India and the US are also feeling the pressure. Other than sodas, other products are being added to the list: from turkeys, that brits traditionally buy for the long-awaited Christmas festivities, to chickens for which staff - mostly Eastern Europeans specialized in the not very edifying job of mass butchering – are now lacking. And then fuel and books that are distributed via e-commerce platforms, which are also quickly changing the world.

Chaos is what ensued from the multiplication of at least five fast and very different phenomena.

Firstly, in February 2020 COVID19 had already forced many Europeans working in logistics (especially easterners) to repatriate, therefore preventing the new generation of HGV drivers from attending their necessary training.

Secondly, the rising tension between countries (especially the US and China) that sparked at the end of the pandemic convinced a lot of companies to shorten their supply chains and different governments decided to stock up on key materials and resources (microchips shortages are becoming especially critical).

Thirdly, the increasing pressure for – arguably still far - CO2 emission targets.

Certainty about having to abandon fossil fuel has triggered a significant reduction of investments on new deposits (which halved from 2014). Paradoxically, this made oil price double compared to one year ago.

Brexit added to these three factors, making crossing the English Channel ever more expensive.

Lastly, the English economy structure has been one of the most globally integrated economies in the world, but also one of the most dependent on exports, having chosen to maintain only a thin manufactory industry in the country (in 2019, manufacturing accounted for 8% in the UK versus 15% in Italy, 19% in Germany and 11% in the US and France).

Are those the Armageddon signs we were expecting after Brexit? That same catastrophe we Europeans have been expecting ever since that 2016 summer night, when London radio broke the news that “the continent has been cut off from the island”? In reality, the English are not that convinced of the impending doom: according to NATCEN, the independent agency that since 1973 has been measuring the opinion of UK citizens towards the EU, the country remains divided in half: today, those who would vote to stay only have a 2% advantage which is exactly the same percentage with which Brexit won six years ago. Economic data do not point towards any economic disaster (the forecast is that GDP will increase of 6,6%) and Boris Johnson just granted himself the luxury of refusing an ambitious strategic document – “a global Britain in the age of competition” – in which there’s little mention of the EU, while relying on old geographies of a lost empire.

Like in the EU, money doesn’t seem to be lacking: on the contrary, the Bank of England has injected so much money into the economy that there may be a potential risk of speculative bubbles. Jobs are not lacking either: for the first time in 20 years there are a million job offers – see figure – because of the absence of many average qualification European workers needed to follow the bounce back of the job market, following the downturn of the lockdown months.

Graph – Job offers in the UK – all services (in thousands, 2002-2021)

 Source: Vision on Office for National Statistics UK data

Things to buy are, however, what is lacking. This creates inflationary pushes that may force the Central Bank to stop cash injections.

Funnily enough, the products experiencing shortages are those of which consumption we had collectively agreed to reduce: soft drinks, CO2, meat, fossil fuel. This may push towards innovations that in more stable contexts may have developed more slowly: it may sound like science fiction, but we are already in possession of all the necessary technology to launch driverless automated vehicles and we may very well survive without industrial farming of chickens.

A couple of weeks ago, I joined a friend who was in a long queue to buy fuel at a gas station near Wimbledon, the only one open within kilometers. He welcomed me, exclaiming “welcome to Hell or, perhaps, the future”. He may be right. Brexit is undoubtedly creating a never-before-seen stress on a society that invented consumerism and globalization. However, transitions do not exist without shocks. It is however necessary to plan these times - with competence - in order to avoid short-circuiting between a future we still do not fully understand and a past we cling on out of inactivity.

But how can we plan the future, how can we acquire that “vision”? Effective planning requires two conditions: a good understanding of the causes and consequences of our actions and a certain degree of predictability. The globalized world we live in does not provide those conditions. Sociopolitical issues are complexifying, making it hard to establish causal links, and the pandemic has accelerated change, decreasing the level of predictability that came from well-established global equilibriums. Cracking the methodological code on how to study reality seems to be the most fundamental issue we need to solve in order to make better policy decisions.

Providentially, the 2021 Nobel prizes for economy tried to address this problem. Laureates Card, Angrist and Imbens utilized and improved methodology on natural experiments – empirical studies in which individuals are exposed to conditions that the investigator cannot control – in order to challenge some commonly held economic beliefs such as the causal relation between rising minimum wage and increased unemployment. The pandemic has generated thousands of natural experiments and has provided a common baseline to observe how different policies bring forward different results, for example in the field of employment, income or health. This is an unparalleled learning opportunity for those willing to make the most out of it.