Talking Headlines with Theo Koutmeridis: Media, Brexit and the Scottish Economy

Dr Theodore Koutmeridis is a Lecturer in Economics at the Adam Smith Business School at the University of Glasgow. He holds a PhD in Economics from Warwick University where he was a Royal Economic Society Junior Fellow and an Onassis Scholar, and he has recently been a Visiting Scholar at Columbia University. His work on economic inequality and crime has been recognised with various awards, such as the Sir Alec Cairncross Prize, the 1st Prize of the ‘European Science Days’ Interdisciplinary Award, the British Academy Rising Star Award, grants by the ESRC, and has been featured in the media and various symposia, such as his TEDx talk on ‘The Underground Economy’. His contribution to the YAS Brexit Report highlighted the opportunities and risks of Brexit to the Scottish Economy, and also the role of the media in communicating socioeconomic issues.

During the Brexit referendum, there was a lot of talk of the impact of EU migration, and migration in general, on the job prospects and incomes of UK born workers. You have described this as a ‘misuse of evidence’. Can you explain what you mean by this, and how the media reporting influenced this?

 My feeling is that several advanced economies are looking inward, following an anti-globalising sentiment, which has been influenced also by the current migration crisis. The Brexit advocates and the believers of other xenophobic campaigns, such as Trump’s supporters, focus on the sensitive issue of migration and emphasise its perils on the labour market outcomes of native workers. Instead of examining the evidence to shape their opinion, such campaigners are prepared to misuse the evidence to support their preconceptions, ignoring the detrimental consequences that this may have. I am highlighting this as almost every study suggests that migration at large, or EU migration do not influence much the employment prospects or the real wages of UK-born workers (e.g., work by the London School of Economics). To the contrary several studies argue that restrictions in migration will reduce per capita GDP in the UK post Brexit. If these findings, and in particular the misuse of evidence regarding migration, had been reported impartially in the media, the referendum outcome might have been different. The result so far has been that Brexit voters have not received the promised benefits and at the top of this they must face the ugly truth of reduced income for the next decade or so. This is a bad deal.

Your Brexit Report contribution highlighted that the impact of Brexit will be heterogeneous across the Scottish economy, with some industries doing better than others. Can you give an example of this?

Indeed the impact of Brexit is expected to be heterogeneous across the various industries of the UK and the Scottish economy. Nevertheless, most of the related work overlooks such heterogeneous outcomes, as researchers, policymakers and media representatives have not examined such mixed effects adequately. Identifying that Brexit is going to generate several threats but also some moderate opportunities is the key for a smooth exit from EU that can minimise the losses. Just to give some examples. Several industries, such as those related to healthcare, require skill-diverse human resources, and migration over the past few decades supplied such workers to the UK and to Scotland. Brexit is estimated to harm disproportionally the health sector compared to other sectors. In contrast, the depreciation of the British pound is expected to make some Scottish and UK industries, such as those related to tourism, more attractive to foreigners and EU citizens. In fact visiting the UK and Scotland becomes cheaper and therefore after the Brexit vote the tourism sector is expected to grow more or get harmed less compared to other sectors.

Do you think this has been well portrayed in the media?

The media have described the situation in some of these industries in isolation but they have not focused on such heterogeneous effects across several industries, which could offer a unified framework to analyse the impact of Brexit. Also, the media have focused primarily on the risks related to Brexit, disregarding the modest opportunities that might appear. In my opinion it would be important to examine the costs and opportunities both across sectors but also within sector. As we have already discussed health services and tourism offer examples of heterogeneous effects across different industries. The Higher Education sector can offer an illustrative example of costs and opportunities within a particular industry. In this case, and holding other things constant, the depreciation of the British pound due to Brexit will make college degrees cheaper and thus more attractive to EU citizens. In contrast, the reduced job opportunities for graduates might make Higher Education institutions in the UK less attractive to EU citizens. Such positive and negative effects leave the overall outcome of Brexit on Higher Education uncertain. Notice that my oversimplified analysis abstracts from many other key aspects, such as the role of EU funding or the importance of EU staff in UK universities that will be influenced by Brexit too. I feel that the media can contribute more meaningfully to the Brexit debates if they focus precisely on quantifying such conflicting effects.

How do you see economic arguments continuing to shape the Brexit debate, in terms of ‘hard’ and ‘soft’ Brexit?

Following the recent elections the interest around the type of Brexit has been rekindled. The economic arguments point to a clear direction, as I have emphasized in the YAS Brexit Report. Analyses from various different sources, such as the OECD (Organisation for Economic Co-operation and Development), the HM Treasury and the Centre for Economic Performance at the London School of Economics, consistently indicate that Brexit will have a negative impact on the economy. In particular, Brexit is expected to reduce GDP by anything from 1.3%, in the case of soft Brexit within the European Economic Area, to 9.5% in the case of hard Brexit with free-trade agreements. Even so, such forecasts should be treated with care in the absence of appropriate counterfactuals for comparisons between Brexit and Bremain, it seems that a soft Brexit is what the UK government should try to achieve. However, we should bear in mind that EU has no interest in supporting a soft Brexit, as such an agreement might lead other EU members to follow the same soft exit route, endangering the future of the continent and threatening European integration. Concluding, it seems that UK wishes a soft but EU might force a hard Brexit and even worse is that UK has an inferior bargaining position in these negotiations.

How does this compare with the ‘revenge of the disadvantaged’, as you have termed the political behaviour of those that seem to vote against their economic interests?

The type of Brexit is a key factor and the UK should aim not only at reducing the overall costs but also at mitigating the uneven distribution of costs and the sharp socio-economic inequalities. When I started writing my report I realised that a fundamental factor has been overlooked by scholars, politicians, businesspersons and the media. This fundamental factor relates to disadvantaged groups who feel that they are the losers of globalisation. Such disadvantaged UK citizens suffer in the labour market due to global competition and xenophobic anti-globalising campaigns that target migrants offer an easily digestible narrative to them. In several cases the following Bob Dylan lyric describes their voting behaviour quite well: “when you ain’t got nothing, you got nothing to lose”.

These less-privileged citizens are prepared to take a risk and vote for Brexit but they end up finding themselves in a worse situation. The revenge of the disadvantaged describes that fact that poor citizens seem to prefer to act in a way that destabilises the economy and harms the elites, instead of securing moderate benefits for themselves. This highlights the importance of relative position in determining their vote, despite the fact that even marginal income declines might have detrimental consequences for such marginalised groups. Overall, as I highlighted in the report, UK and Scotland need inclusive growth based on a healthy middle class, labour market reforms to support low earners and more affordable education to allow intergenerational mobility. The political arena occasionally allows the less privileged to transfer some of the risks they face on a daily basis to the rest of society. It is essential to recognize this and view Brexit as an opportunity to build a less divided society.