What happens now? BREXIT, Sri Lanka and the New Global Economy

A woman with a painted face poses for a photograph during a 'March for Europe' demonstration against Britain's decision to leave the European Union, in central London, Britain 2 July. Britain voted to leave the European Union in the EU Brexit referendum. REUTERS

Excerpts from the Preface to the book – “One New Global Economy. One New World” - 2016

In the film Evita, Madonna who brilliantly played the role of Eva Peron says “So what happens now; where am I going to?” With the exit of the UK from the European Union (known as BREXIT), the question on everyone’s mind is “So what happens now; where are we going to?”  Whatever side of the issue you the reader is on, leave or remain”, the decision of the British people, who are highly divided, has tremendous implications for Sri Lanka and the global economy. Did those who voted to leave the European Union base their decision on economics or xenophobia, a dislike or even fear of foreigners? 

Sri Lanka has always been inextricably linked to Britain…..the three largest conglomerates in Sri Lanka, John Keells, Hayleys and Aitken Spence, all bear British names!! We are now in uncharted territory which is probably a terrible thing for every business and government leader. English is the language of global business and global education. Yes, the British gave it to us. They even gave Ceylon a superb civil service and university system. What has Sri Lanka done with this???

NO nation or organisation is immune from the current and evolving global economic and financial crisis. Yes, not even Sri Lanka whose economy is dependent on foreign remittances from migrant labor, tourism, apparel and other exports. The Gulf has slowed down. The debt crisis in Dubai a few years ago stunned everyone with an interest in Dubai. The Euro Zone has been in crisis for years. With BREXIT and the falling Pound and Euro, the British and shaken European tourists will now think twice before coming to Sri Lanka. About 80% of apparel exports are to the USA and European markets.  The GSP Plus trade concession from the European Union appears to have halted at least temporarily since certain conditions are met by the Sri Lanka government.

 The Arab Spring and other crises in the Arab world have severely crippled the other major source of foreign exchange, Ceylon Tea. The war in Syria and the larger turmoil in the Middle East have not helped. The shocks generated by the 2008 global financial and economic crisis are still being felt. It is certainly not business as usual anymore. The Indians and Chinese appear to have to come to our rescue!

 Since the Sri Lanka English Edition of my book, “Understanding the new world and the Global Economy” was first written 12 years ago, there have been several developments in the new global economy and the new post 9/11 world.  One development that captured the emotions and attention of almost the entire planet was the election of Barack Obama as President of the United States and the leader of the free world! Whoever thought eight years ago, that the USA would create history and elect its first African-American President Barak HUSSEIN Obama? Unthinkable ten years ago! In the “white” world’ only in America could this have happened! 

Expectations of the new President were at an all time high. The USA and  the world waited for him to deliver.   He hit the ground running on January 20, 2009. He had just begun. Working with the economic powers, the new President calmed the world’s markets and prevented a collapse. The USA and the world waited to see if he delivers on his promises or if he falls into the “Washington” trap!  No world leader can deliver on sky high expectations, especially when, as Russian President Putin put it last week, “The USA is the world’s sole economic and military superpower”. Every nation has a stake in the future of the world’s sole superpower (whether we like it or not) and the world’s most powerful and principal economy.  His critics in the USA appear to want to trip him at every turn! This is a sad part of democracy! Despite all the challenges President Obama has faced, his popularity in the USA today as he leaves office is at 50%. This is higher than even the popular Ronald Reagan or Bill Clinton! Globally, especially in Africa and Asia, President Obama enjoys a very high favorable rating. As Winston Churchill once observed: “Democracy is the worst form of government. Except no one has come up with anything better yet”!

American democracy has now produced Donald Trump! A “Never Trump” movement in America is gaining momentum. World leaders are both amused and shocked that American democracy could produce a President Donald Trump! But consider what the British have done last week to, in the words of some extremists “Take their country back”. In France, Marine Le Pen is leading a similar movement. In the USA, the Republican party is in shock and shambles, yet putting on a good face! Hillary Clinton, who has made history and could be the first American women President, has her challenges. Her “former” rival Bernie Sanders captured the imagination of so many young voters with his inequality and injustice message.

The other pivotal event since the first edition of my book was the near meltdown of the global economic, financial and banking system in 2008 precipitated by the housing bust in the USA and the recklessness of Wall Street speculators and risk-takers which finally caught up with them. Whatever we might think of President Barack Obama’s first 12 months in office, it is widely agreed across the world that acting with the leaders of Europe and the rising powers in Asia and Latin America, he prevented a total collapse of the global financial system and brought the global economy away from the abyss or edge. The USA provided the necessary leadership. For this alone, I believe he deserved the Nobel Peace Prize, however controversial it was.

Under President George Bush, the USA was reviled in most corners of the globe and especially in the Muslim world. In the first 6 months of his Presidency, Barack Obama changed this by reaching out to Europe, giving his first TV interview to Al Arabiya, a major Arab TV channel and going to Cairo to address the Muslim world. In his speech, he quoted the Quran, the Muslim Holy book, many times and greeted his audience with the traditional Muslim greeting! This was both risky and unprecedented both at home and overseas! President Obama also reached out to that other rising giant, China, America’s principal banker, to bring some sense of stability to the world economy. China and the USA are joined at the hip. China’s economy has always been dependent on and been driven by the US consumer. One cannot prosper without the other. They also need each other to solve the most critical challenges facing the world. 

In August 2010, China overtook Japan to become the second largest economy in the world. President Obama also recognised the power and importance of China as a full partner by appointing Tim Geitner, who is fluent in Mandarin, as the US Treasury Secretary.  His successor, Jack Lew, has also done a good job given the challenges and now has the even greater challenge of dealing with BREXIT. China and the USA will always have their differences as two very difference cultures, one very ancient and one only 300 years old. 

In 2012, the Euro Zone is under fire triggered largely by the massive debt crisis in Greece. Spain and Portugal are also on the “watchlist” because of their heavy debt burdens. Barclays and other leading global banks are also under fire. A massive rescue package of almost $ 1 trillion was approved by the European Union to stabilise these countries. With the events of the last week, “Will the Euro Zone break up?” is a question on the minds of many. Is France next with FREXIT? In an interconnected world, no nation is unaffected by all these developments, especially nations like Sri Lanka which are heavily dependent on exports to Europe and America.

In early 2011, something that even the most brilliant international observers, did not expect, happened. In less than 21 days, one of the most entrenched leaders and the strongest ally of the west in the Arab world, Egyptian President Hosni Mubarak, was forced out of office, by a peaceful people’s revolution. What captured the world’s attention was that the vast majority of these “revolutionaries” were young men and women below the age of 30, who did not fire a single bullet. And unlike in most uprisings throughout history, the army stood silently with them. What began in relatively obscure Tunisia, spread to Egypt, and now has Yemen, Bahrain, Saudi Arabia on edge. The Libyan leader is gone. Syria is burning with daily killings.  The impact on the global economy cannot be overstated. This part of the world supplies over 50% of the world’s oil which flows through the Egyptian controlled Suez Canal. This part of the world is a dominant buyer of Sri Lankan (Ceylon) tea and the situation has resulted in a severe crisis in the tea industry in Sri Lanka.

One chapter in my book is titled  “Why the world loves and hates the USA”. President Obama has pledged to address this problem. The challenges that face him are daunting. The election of Barack Hussein Obama and the global financial crisis must make every Sri Lankan and every person outside the USA now care about and understand the new global economy. No one is unaffected.

The global economy has got more “unequal” with the gap between those who have and those who don’t only increasing. Then again, this is not new. Man’s greed is as old as time. One of the world’s best thinkers came out with the idea of a “flat” world. Much as we like it to be, the world is not really flat. To Asian powerhouses like the Tata’s, the Reliance Group and Infosys in India, and their peers in Asia and Latin America, globalisation or the “flat” world, continues to bring great rewards. Whoever thought, when this book was first written, that iconic brands like Jaguar and Land Rover would one day be owned by the Tata’s! But to those untouched by the wave of globalisation, the world is anything but flat or even fair. They continue to struggle to survive on less that $2 or even $ 1 a day. Many of them still live under incredible injustice and oppression.

   Consider India, where despite its technological prowess, over 400 million still live in abysmal poverty and over 400 million live on less than $2 a day (40 times the population of Sri Lanka)! Underlying tensions simmer. Just last week, the highly respected Governor of the Reserve Bank of India, Raguram Rajan, a former IMF Chief Economist and a leading academic, resigned for political reasons and plans to return to academia. The Indian economy has taken a hit. What is the future now for Narendra Modi and his grand ambitions for India? Has his global “Make in India” campaign really made a difference in the lives of millions who live in abysmal poverty?

There is also a global food crisis. Everyone is affected by the new developments in the global economy whether they accept it or not. No country is immune. No one knows where this is all heading. The global airline industry is in deep shock. I see the effect in my constant transpacific flights and flights within the USA. I now have to buy a sandwich on board a flight from Los Angeles to Chicago for $7! Thank God the sodas are still free! Several years ago, the Los Angeles Times magazine ran a cover story: “Will a Starbucks open on Mars?” Today, even Starbucks is in trouble closing hundreds of stores in the USA!

The wealthy and powerful somehow make it no matter what the situation. The middle class is squeezed. The poor are left numb and often are forced to take to the streets or even to crime. What would we do?

We could go on and on. The reader is still left with the same question that was at the core of my book five years ago. How does each individual live his or her life in this new world, where the rich only get richer, where the gap between the rich and poor continues to widen, where the middle class get more squeezed daily and where almost 75% of humanity lives on less than $2 a day? How do nations and organisations position themselves in this new economy? What are you as an individual going to do with the rest of your life? How are you going to make a real difference?

The USA remains the most powerful and controversial nation in the world. With all its flaws, the American business model still stands tall. Over 80% of the world’s most admired brands are American. The economic success of cities like Singapore, Tokyo, Hong Kong, Dubai and even Bangalore are inextricably tied to the American business model. The British, Chinese, Japanese, German, Indian, Brazilian, Canadian and other economies are closely tied to the US economy in this new world.  The world’s most envied centres of learning in virtually every field are either in the USA or heavily influenced by the USA. The leading universities in Singapore, Hong Kong, Australia and now China all crave US affiliations... 

The time to understand the new world is now. No country or organisation is immune. Countries like Sri Lanka have now no option but to rethink everything they have done in the past and create their future. Let every Sri Lankan wake up to the new reality of  BREXIT, a slowing down China, a Eurozone that is in shambles, a very volatile Middle East and Arab world, and yes, the possibility…..the possibility of a US  President Donald Trump!!! We have now gone deeper into uncharted territory.

The writer is Adjunct Professor of International Business, California, USA and Chairman, Center for Global Leadership Worldwide LLC USA;  [email protected]