Monday 24 May 2021

Post Brexit Britain

There's a school of thought that maintains that if you're not very good at something, stop doing it and focus more on what you do well. This was prevalent in the latter part of the 20th century when companies outsourced everything that wasn't core to the business - such as HR, IT, accounting, customer service, etc.

This is the ideology that the government is following and was kicked off by the free trade lobby, under the tutelage of Dominic Cummings, who made no secret of the fact that following this strategy would have the result of demolishing swathes of industry before it could be rebuilt better and stronger. The Brexiteers' doyen economist, Patrick Minford, admitted this himself when he forecasted that agriculture and manufacturing - sectors where we aren't very efficient when it comes to outside competition - would be decimated.


The argument is very compelling, until one realises that it builds into the system an inherent instability and complexity that's extremely sensitive to dynamics outside our immediate control. This is why companies have gone back to the control model and essentially ditched outsourcing. Government is always the last to adopt a system and, by the time they have adopted it, it has been ditched by the private sector for one reason or another.

Australia is perfectly suited to lamb and beef production on an industrial scale - the vast tracts of land, latitude and economies of scale ensure it has the most productive and cost-effective system in the world for such activity. However, switching our meat production abroad, due to native inefficiency, results in us becoming even less self-sufficient than we currently are. This is somewhat ironic when one of the Brexit mantras was that we need to reduce our reliance of foreign imports. All it takes is for a prolonged drought in Australia due to climate change (which is far more susceptible to this than a wet island off the coast of Europe) and we can wave goodbye to our steak dinners.

Build fragility, complexity and interdependence into a system and reduce resilience (which I've written on before) and there's more to go wrong. You're building an inverted pyramid that's hopeless at addressing the unexpected; the Black Swan, as Naseem Nicholas Taleb described it.

Then, on the other side of the argument is the fact we have to find the industries we're actually good at. These are so self-evident to Boris Johnson that he's had to hire special advisors to point them out to him. If they're thin on the ground, then one first has to conduct a strategic review of market opportunities and build those industries in which could have an advantage, but that takes time, money, training and education, and is still a huge risk, as any new market entrant knows, as someone else may have also spotted that gap in the market and could manage to penetrate it fater or more effciently yhan you. Even then, there's no guarantee that you'll stay dominant unless it's by some unique feature that no other country possesses.

Ideology, for this government, is trouncing pragmatism. It simultaneously ignores the human cost involved in building a more efficient, yet less stable and resilient country. A highly tuned F1 engine is very good at what it does, but it's more susceptible to going wrong when conditions aren't perfect. They used to be designed for only one race but, to make things more competitive, teams are now only allowed a handful of engines per season, requiring resilience to be built into them, at the cost of efficiency. Also, the old engine won't complain when it's replaced and chucked on the scrap heap - you're not relying on it for its vote. Turkeys, as they say, don't vote for Christmas - but Brexit has proven that a fallacy.


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