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  1. What management students can learn from Brexit

What management students can learn from Brexit

The verdict given by the people of the United Kingdom in favour of leaving the European Union (EU)—popularly known as Brexit—has brought to surface a number of questions. Is it the financially-susceptible, less-educated or xenophobic who voted against globalisation?

Published: August 29, 2016 6:01 AM
Since all the 17 million people who voted for Exit cannot have been racially prejudiced, it seems that the adoption of erratic policies led to the vulnerabilities. (Reuters) Since all the 17 million people who voted for Exit cannot have been racially prejudiced, it seems that the adoption of erratic policies led to the vulnerabilities. (Reuters)

The verdict given by the people of the United Kingdom in favour of leaving the European Union (EU)—popularly known as Brexit—has brought to surface a number of questions. Is it the financially-susceptible, less-educated or xenophobic who voted against globalisation?

Or have the people who voted in favour of Brexit were the left-outs of benefits of globalisation? Or was it the result of neo-liberal policies that led to the livelihood crises?

Since all the 17 million people who voted for Exit cannot have been racially prejudiced, it seems that the adoption of erratic policies led to the vulnerabilities.

The EU that came into full force in 2002 primarily aimed at ensuring free movement of goods, services, people and capital.

It led to a large-scale migration of workers from poorer countries like Hungary and Poland towards rich countries like the Netherlands, Britain, France, Italy and Germany.

This migration eventually culminated into the decline of wages as well as slowdown of growth of rich economies.

Estimates reveal that the growth of GDP that averaged 3%, 2.25%, 1.9%, 1.79% and 1.36% from 1991 to 1999 in the Netherlands, Britain, France, Germany and Italy, respectively, decreased to 1.71%, 1.94%, 1.42%, 0.84% and 0.54%, in 10 years of the creation of the EU.

Taking undue advantage of the EU, non-performing economies like Greece continued to perform poorly and turned out to be the parasites, eating away the prospects of success of other countries.

Nigel Farage, the leader of the UK Independence Party, went to on claim that it costs £55 million a day, or £20 billion a year, to Britain if it continues to stay with the EU.

So far, it were the legal complexities that made it almost unmanageable for member countries to contemplate withdrawing from the EU.

But after the Brexit, voices to reconsider the decision to continue with the EU are being heard from countries like the Netherlands, France and Italy.

Clearly, the experiment called the EU—having inherent flaws in the form of artificial protection to member countries, killing competition and ruining the motivation to excel between member countries—was expected to backfire.

An investigation of the history of integration between European countries since World War II reveals that it had become more of a compulsion for European countries to mingle, instead of free or preferential trade agreements.

Candid causes for this preferential treatment consisted of keeping the economic depression at bay, to contain Germany’s re-emergence after World War II, and to counter a perceived communist threat from the eastern bloc countries, for which even the United States offered financial aid.

This intermingling of European countries surpassing all barriers went to an extent that the member countries of the EU didn’t even mind compromising their sovereignty by delegating decision-making powers to shared institutions like the European Central Bank, European Commission and European Parliament, whose decisions could supersede even national laws.

The decision is now proving to be a flawed political verdict to maintain artificial harmony. It would have been better if member states, instead of going into such an extreme, had restricted themselves to free trade agreements between economically similar countries, and trade-related decisions could have been taken with the mutual consent of member countries, like in the case of NAFTA and SAFTA.

Besides the rich and poor divide among member countries in the EU, even the economic fundamentals of treaty were erroneously planned.

Restrictions on the free flow of capital between EU member countries and other countries of the world, no authority to either independently print own currency or fix interest rates freely, no option to devalue currency in order to export more, no permission to exercise independent monetary policy, and limited ability to spend for public works (less than 60% of GDP) have virtually pushed member countries towards economic slavery.

Management students—some of whom will likely become future policy-makers—must learn a lesson from the Brexit phenomenon. They must understand that instead of looking towards global economies for FDI in strategic areas, efforts must be made to build a consumption-driven economy, where consumption propels investment, as is done by China.

They must understand that instead of looking towards global economies for FDI in strategic areas, efforts must be made to build a consumption-driven economy, where consumption propels investment, as is done by China.

RS Bawa is vice-chancellor, Chandigarh University;

Rajiv Khosla is professor,

University School of Business, Chandigarh University

Written by: RS Bawa & Rajiv Khosla

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