Post-Brexit, the U.K.'s Future Is Creative
As U.K. Prime Minister Theresa May tries to show the world that Brexit won't be a disaster, it's useful to consider what the U.K. can actually offer the world once it's deprived of its European Union crutches. Perhaps its eventual role is to be the world's quirky creative hub: That core competence won't go away with Brexit, and it doesn't require any special deals.
Today, the U.K.'s biggest exports include financial and professional services, including legal services and research and development. There's plenty of competition for the bloc's financial market, and U.K. banks and insurers are competitive, but not necessarily distinctive. Many researchers and lawyers are mobile professionals who may relocate once the U.K.'s role as a gateway to the EU is gone.
On the goods side, major U.K. exports -- such as machine parts -- are also under threat. U.K. firms are included in European supply chains thanks to borderless trade within the EU; these supply chains account for about half of the U.K.'s intermediate product imports and exports. Firms on the downstream side of these chains, such as auto and airplane makers, would be remiss if they didn't make contingency plans for a hard Brexit and the emergence of tariffs (rather high for auto parts under World Trade Organization rules) and customs barriers. Central and Eastern Europe would happily absorb the new factories required to fill the supply gaps.
The U.K. may get a deal with the EU that preserves many of the advantages these firms enjoy. But it may not. So it's worth asking, what British exports are unique and not rendered uncompetitive by changing terms of trade?
One cluster of industries fits the bill perfectly: the creative one, where wealth is created through intellectual property. This includes the production of all kinds of content -- from Premier League soccer games to TV series starring Benedict Cumberbatch, from music by Mumford & Sons to Burberry clothing. These industries are major U.K. exporters: They accounted for 17 percent of total service exports in 2012, the latest year for which Bruegel, the Brussels think tank, was able to locate data.
The creative industries have been overshadowed by the City of London in terms of export volumes.
Yet they account for a higher share of U.K. employment than the finance sector -- 7 percent compared to 3.4 percent, which is perhaps more useful in maintaining social stability. Besides, the official definition of creative industries is probably too narrow. British cars like Jaguar, Aston Martin and Land Rover don't sell because they're more reliable or better engineered than German or Japanese ones, but because of their design and the aura of exclusivity that has more to do with intellectual property than with ride quality. Gems and precious metals are the second-biggest article of U.K. goods export, much of them going outside the EU -- to Switzerland, China, the U.S. -- and that's a testament to the superior skill and creativity of Hatton Garden and Birmingham jewelers.
Like many others in the U.K., creative industry workers are worried about Brexit. U.K. content may not be eligible for all sorts of national broadcasting quotas, and European funding for the arts, of which the U.K. is a major recipient, will be reallocated. Besides, many artists in the U.K., like everywhere else, are left-leaning, and to them, Brexit is a far-right victory they find hard to countenance. They don't want to see British culture cut off from the broader European tradition.
To an ordinary consumer from Moscow, Beijing, New York or even Berlin, however, the quirky British creativity looks like a stronger platform for a post-Brexit relaunch than finance or manufacturing: It's unique, and it's in stable demand. Perhaps the best part is that it's not immediately obvious just how the Brits do what they do. Why can a spartan-looking Barbour jacket or a pair of rough-hewn Doc Martens command higher prices than similar, often better-made and more functional products? Why do we listen to U.K. bands, and what is it about J.K. Rowling's work that makes for billion-dollar box office success even in the absence of major Hollywood stars?
I'm in favor of a closer-knit EU; emotionally, I'd like the rest of Europe to punish the U.K. for Brexit. That, however, won't stop me from being a habitual consumer of the British cultural product.
There is room for growth too. Today, the U.K. has the fifth biggest media and entertainment industry in the world. There are few trade barriers that can stand in its way, and the increased insularity may even add to the U.K.'s appeal. If Iceland is the acme of cute weirdness, the post-2019 U.K. will move a few notches toward it.
Betting on creativity as Britain's post-Brexit hope doesn't require trying to fit the country's future into Trump's notoriously short attention span. It has the advantage of offering something the whole world, not just Europe, wants. And it doesn't require enormous financial resources. As one Berlin mayor once famously put it, a cultural hub can be "poor but sexy" -- but only until it's discovered by the wide world. A weak pound, a declining financial sector and hard-hit industries can combine to make the U.K. a mecca for today's experience-seeking but less affluent travelers. Cities like Berlin, Prague and Barcelona can attest that this brings economic benefits, even if locals can find it burdensome.
There is one major reservation: Creative industries need people; that is their main input. Even if their product is as distinctive as the British one, they need fresh blood from other cultures. Today, 6.1 percent of the U.K.'s creative workforce are nationals of other EU countries, just slightly more than in the financial sector. If Prime Minister Theresa May wants to preserve and strengthen Britain's competitive advantage, she'll find a way to keep the talent flowing.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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