Exit-stage plight: Brexit’s costs come due

Hey, Ryan Reynolds here wishing you a very happy half off holiday because right now Mint Mobile is offering you the gift of 50% off unlimited. To be clear, that's half the price, not half the service. Mint is still premium unlimited wireless for a great price. So that means a half day. Yeah, give it a try@mintmobile.com Switch upfront payment of $45 for three month plan equivalent to $15 per month required new.

Customer offer for first three months only.

Speed slow 135 gigabytes of network busy taxes and fees extra. See mintmobile.com. Hello and welcome to the Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Risk is a funny thing. Actuaries and economists try to anticipate it, but people deal with hazards in unexpected ways. Our correspondent meets with base jumpers wearing wing suits to find out why some people chase risk rather than avoid it. And one perhaps unexpected bounce back from the pandemic shock is in the flower industry. Flowers seem to be a joy that consumers are willing to indulge during dark times. And in Kenya, that's blooming. Great news. But first, it's been six weeks since the end of the transition period when Brexit formally fully finally happened.

This is an amazing moment for this country. We have our freedom in our hands.

And it is up to us to.

Make the most of it.

So far, it hasn't been straightforward. This week, the European Commission listed a series of shortcomings in how Britain is following border agreements in Northern Ireland. Meanwhile, Amsterdam passed London as Europe's largest center of share trading.

Yes, of course there are teething problems.

And what I can say, Britain's government is projecting confidence about getting past this teething period. There are some specific issues that relate.

To our departure from the European Union.

That can be resolved in the next few weeks and months as we adjust to a new situation. At the same time, figures released this morning show that the country is grappling with a record fall in economic output. Although the deal is done, the transition period over the relationship between Britain and Europe, whether on banking or trade, is still far from settled.

It was inevitable when Brexit took effect that some business would move out of London because the business of London in the city has lost its automatic right to trade out of London across Europe.

John Peat is the Economist's Brexit editor.

And because it's lost that it's not recognized by Brussels and therefore quite a lot of share trading in European shares and other euro denominated bonds was going to move and it has moved, it's moved very fast, most of it, to Amsterdam.

And what kinds of impacts can we expect from that kind of shift?

I think we'll see more shifting of trade, more fund managers moving capital, more trading in euro derivatives will move into the European Union. That will mean some lost jobs, it will mean some banks have to relocate people and activities to continental Europe, to Amsterdam, Paris and Frankfurt. It's not going to be huge in terms of the City. The City is a global financial centre. It's still going to be Europe's largest financial centre, but it's going to lose a lot of its European business.

And is that a permanent shift, do you think, or could that business return?

If Brussels were to recognise British financial regulation and the City as equivalent to its own, then some of the business might come back to London. But I think it's unlikely that the EU will do that. I mean, many countries in the eu, including Brussels, want to take back a lot of the trading in euro denominated stocks and shares and they don't really see any reason why they should be helpful to the City of London.

And what about trade, though, the movement of physical goods? How's that coming along? In the post Brexit era, trade in.

Physical goods is problematic. I mean, we haven't seen large queues of trucks at the border going down to Dover across to Calais. But a lot of traders and exporters are complaining about problems. Shellfish. Exporters have been told they can't export shellfish to the European Union. Quite a lot of truck drivers have found they haven't got the right papers. There's customs procedures that have slowed things down. This week, the British Chambers of Commerce survey suggested that half of British exporters to the EU were facing serious problems of new red tape that was obstructing their activities. That suggests it's quite a big problem. This is all what happens when you erect trade barriers. Some estimates say that total British exports to the European Union could fall third as a result of these areas that we have built into this system.

And is that just a function of the adjustment period that's happening now, or is this just the way things are going to be from here on out?

I mean, some ministers, when the deal took effect on the 1st of January, said, Look, this is just teething troubles. Businesses will get used to it, you just have to adapt and then we can go back to business as before. There's an element of just learning the ropes, you know, what forms you have to fill in. How do you get your trucks through Calais, so it will settle down a bit, but it will settle down in a system which has far more barriers to trade, far more bureaucracy and therefore less trade will happen.

But what about trade with Northern Ireland in particular, which had been such a sticking point throughout the negotiations?

The issue of Northern Ireland has indeed been the big problem for the Brexit negotiations from the very beginning, because both Britain and the European Union said they would do everything they could to avoid what's called a hard border between Northern Ireland and the Republic of Ireland, because that was regarded as something that could risk the Good Friday Agreement. It would be a very bad step to take. And the only way to do that is either to keep the whole of the the UK in a customs union or Northern Ireland on its own in a customs union. Boris Johnson chose the second. He's put Northern Ireland in the single market for goods and in the customs union with the European Union, but taken the rest of the country out. The consequence of that is a border between Great Britain and Northern Ireland. And we are seeing now that that is causing quite serious problems, because there have to be checks and customs between Great Britain and Northern Ireland.

Serious problems of what sort?

We've seen a lot of reports of supermarkets in Northern Ireland with empty shelves, because the supermarkets haven't worked out how to get stuff across from Great Britain to Northern Ireland without having to go through very expensive checks and controls. This is really upsetting people in Northern Ireland and some of it seems pretty absurd, which is why the British government is asking for grace periods to be extended and possibly for parts of what's called the Northern Ireland Protocol to be reset. I think the EU would say that is slightly absurd. It was Britain that insisted on leaving the European Union, Britain that refused to extend what was called the transition period.

I mean, you can see where the EU is coming from on this one. It's as if Britain wants the pre Brexit regime to stick around.

Yeah, I mean, underlying all this is a sort of feeling that during the whole Brexit referendum and the Brexit negotiations, the message from British ministers was, don't worry, it'll all go on as before. We'll just be out of the political union. And that was never going to be true. If you leave the single market and the customs Union, you become a third, third country. You have to observe all of the EU's rules and the EU is a protectionist organisation that subjects all imports to controls. And that is just something you have to live with, having taken the choice that you're going to leave. It's a choice made by the British government and the EU is saying you have to live with the consequences.

But you mentioned the issue of ensuring goods, for example, don't pass from Northern Ireland to the Republic of Ireland. That brings us right back to the real deep question here about a border between the two.

Well, that's right. And I mean the Democratic Unionist Party, which is the largest party in Northern Ireland, that want to scrap the Northern Ireland provisions of the treaty and go back to pure simple single market trade between Northern Ireland and Great Britain, then the European Union would say, well that means we'll have to have border checks between north and south that would have serious security implications. Already there have been suggestions that trade between Great Britain and the border in the Irish Sea is something that some people dislike so much. They've threatened some of the customs agents, agents that have to administer it. So it's a very difficult situation.

I mean, it has to be said, having talked to you about this over the course of years now, a lot of these issues we spoke about for years, Remainers said these would be problems. People warned that this would happen and frankly here we are.

Well, that's right. Some in the British government say it's all sort of project fear all over again and you're exaggerating how difficult this is and it'll all settle down and there are just teasing problems. And yes, it is true that business on both sides between Britain and the European Union will settle. They will discover ways of trading. But it is also true that if you impose new non tariff barriers, customs checks, border controls and all that paraphernalia between the United Kingdom and the European Union, by far its biggest trading partner, you will impose costs on businesses, you will reduce the volume of trade. You are likely to make the British economy weaker. That is an inevitable consequence of a hard Brexit that takes the UK out of the single market. And the Customs Union, which was a choice made by the British government and as Brussels keeps saying, if you choose that you should accept the consequences, that's a price you pay for regaining sovereignty, which is what the Brexiteers wanted to do. We will see if the price is worth paying.

Thanks very much for joining us, John.

Thank you.

Over the past year people have faced a radical increase in perceived risk. Activities that once seemed benign. Eating at a restaurant or visiting grandchildren now have potentially lethal consequences. Governments and individuals attempts to minimize the danger have come at huge economic and personal costs. The response has proven just how risk averse people can be. But if humanity Is trying ever to minimize risk? Why do some people seek it out?

Last year, I found myself on the top of a cliff a few miles outside Chamonix, which is a famous ski town in the French Alps.

Daniel Knowles is our international correspondent.

And this Cliff was about 1500 meters up from the valley floor. And I was standing there with a man called Laurent Fratt, who was about to jump off this cliff.

Chest straps, leg straps, pilot chute, zippers. And then my mental state, my stoked to go.

All right, Are you stoked to go?

Stoked to go.

He was jumping off this cliff. If something had gone wrong, he would have died. But he was incredibly calm. How nervous are you?

Not very nervous. Fear is not a good metric. It's not a reliable metric.

And then he pushed off. He just jumped. He stretched out his arms, leant his head forward and leapt off. And you just saw his wingsuit fill up with air. And then he disappeared. And a couple of minutes later we got a text message saying he landed in the valley safely.

I've seen this kind of thing on YouTube before, but what is the sport called?

Lawrence Fratt, He's a wingsuit BASE jumper. So a BASE jumper is somebody who jumps from cliffs, bridges, fix objects on the ground with a parachute, and a wingsuit is a nylon flying squirrel type thing that you wear that gives you some lift. So a wingsuit based jumper is somebody who combines the two. So they jump off cliffs or bridges or whatever it is, wearing one of these wingsuits so that they can sort of fly away rather than just fall straight down. And this is a sport that's taken off in the last 10 years or so. And it's probably one of the most dangerous recreational activities. Nobody really knows quite how many people do it, but we do know that 400 or so base jumpers have died in the last 20 years. And it's accelerated as more people have taken up wingsuiting as well as base jumping.

So clearly Mr. Frutt knows that it is in fact dangerous. But that, I presume, is part of the appeal, part of the thrill.

So, yeah, I spent a couple of days with Lauren in the French Alps and talked to him a lot about this sport, how he got into it and how he does it. And he's not a hot headed adrenaline junkie. It's maybe what you expect, but he almost comes across like a monk. My impression of him was a man who's very careful. He studies maps a lot, he studies flight routes. He carries all of this equipment which he uses to check out his jumps. If he feels like there's anything wrong, then he won't do it. One thing I asked him was this is an adrenaline rush, right? It's thrill seeking. And he and other wings who object to that idea, they say that adrenaline is actually the worst thing about it because adrenaline kind of overwhelms you and is a fight or flight reaction, that that's when you make mistakes. He talks about down, regulating adrenaline and instead trying to be totally calm all the way through while he jumps off cliffs.

So if it's not the adrenaline rush that he's seeking, then what is it?

What he sort of described to me was it's like flying. I mean, it's like dream flying. You point your head in a direction and you go there. You're not actually flying, you're falling quite fast. But because you've got just about enough lift that you can, you can feel like you're flying.

Jumping off the cliff and flying away in itself is something like I haven't been able to find in any other sensation, activity feeling. But it's the ultimate experience. And I've done a lot of things and this is the pinnacle of experience for me.

It sounds almost zen the way that Lauren talked about it. You're probably in the air a minute or so before you pull your parachute and in that minute you really can't think about anything else. Nothing is in your head other than the fact that you're flying. It sounds magical. While he's flying, he feels kind of invincible. He's fully in control and for that he's done over a thousand of these jumps and each one is a risk.

And did you get the impression that he seeks out perhaps calculated risks in other parts of his life?

You know, not really. I asked him about this and he said he's very careful about what he eats, he doesn't really drink, he doesn't smoke.

I eat organic produce and free range meats and I don't smoke and I don't take big risks. With my money, I would say I'm risk averse.

It's this one part of his life in which he sort of concentrates this risk. And I spoke to a psychologist, a guy called Andreas Wilk at Clarkson University in New York, and he basically told me that actually you don't really get hotheads who just are wildly reckless about everything. People's attitudes to risk are determined by particular areas of their life. And people are more willing to take risks in areas that they think they can control, in areas that they think they understand. So People who invest money for a living are quite willing to take big risks that they can calculate with their investments. But that doesn't actually mean that they'll be gamblers in the same sort of way. People who jump off cliffs are not necessarily thrill seekers in every other part of their lives. They think about risk almost differently in this one area as something manageable and worth taking.

And so for BASE jumpers and wingsuiters, the thrill of a bit of simulated flight is enough for all that risk.

Yeah, I mean, Laurent talks about it as being really the sort of core thing he does in his life.

Wingsuiting, really, I feel like, has added an enormous amount of color to my life. The woman that I married, the job that I have, where I live. You know, so many positive things have come through my experience in wingsuit jumping.

But I think they also, when you do talk to these extreme risk seekers, they're not normal people. They do jump off cliffs. And I think they also have a view of the world that not every risk is worth avoiding. That risk is a kind of inherent part of life, something that you have to embrace if you're going to get the most out of it. In one of our chats, I asked Laurent how he felt about taking these risks with his family because he has a fairly young son.

So when I think about this and raising my child is like, do I want to quit and not do this based on fear or, you know, because I want to continue to inspire him to live his dreams and get what he wants out of life.

And.

For the moment, this is what I want for my life, what I.

Took from all this. This past year, we've all been trying to avoid one particular type of risk, disease. And what was great about meeting these people who jump off cliffs was a sort of reminder that there's also a risk in not taking risks. There's a cost to it, and we don't want to minimize every risk possible because it would minimize our lives too. And probably not everybody should go jumping off cliffs, but we should remember that there are risks worth taking as well as ones worth minimizing.

Thanks very much for joining us, Daniel.

Yeah, and thanks for having me on, Jason.

Now, I'm sure you haven't forgotten, but just in case Sunday is Valentine's Day, whether you love or hate the holiday's cutesy cards and heart shaped goodies, one thing's for sure, it'll give the flower industry a welcome boost. And in Kenya, that boost can't come soon enough.

Last week I was in Kenya and I Drove up from Nairobi towards Mount Kenya.

Avantika Chilcati is one of our international correspondents.

And just as you get to the equator, you get to a part of the country that's incredibly fertile. They have sunshine year round, so you have these huge flower farms there, and flowers from that region are exported around the world. The trouble was, when the pandemic struck, that whole business came to a halt.

Just because people stopped sending flowers.

So it's a combination of things. On one hand, demand was hitting, celebrations were cancelled. Things like weddings and parties people usually buy for. Plus, at first, florists were shut. On top of that, transporting stuff suddenly became very difficult. There was a lot of confusion around air freight. There were less planes making that important journey from Africa up to Europe, and basically millions of unsold stems had to be destroyed. I chatted to this woman called Anna Barker at the Fair Trade foundation, and she was telling me that Kenya was actually one of the countries that is most affected by this drop in demand. Kenya did get hit really hard. I think it's probably because they have such a huge industry in it, so they're very reliant on flowers as an export. They also really had a lot of passenger planes taking them out. And Kenya also supplies a lot of flowers for kind of florists and events.

And presumably the flower industry is pretty central to Kenya's economy.

Yes. So the flower industry normally contributes about 1% of GDP and it's a very important source of foreign exchange for the Kenyan economy. It's also a very important employer. The good news is that after the initial disruption in March, April last year, countries reopened their borders, florists learned to go online, and Kenya's flower industry has actually done okay since then. The most recent survey I've looked at from Kenya's central bank, which was done in January, it says that more, more people were employed by the flower industry then than a year earlier, before COVID 19 really began to spread.

Wait, why is that? That seems counterintuitive.

With economies in such bad shape, you might think consumers were cutting back on luxuries like flowers. When I was in Kenya, I also met the sustainability director at a farm called Flamingo Horticulture, which is one of these really big farms in Timau. His name's Richard Fox. He told me that there's a reason the demand has recovered so well.

Our Internet sales of flowers have gone through the roof. You know, I think people, if they're in lockdown, a bunch of flowers on the front room table adds a little bit of joy. You know, they talk about the psychological effects of having flowers in your house.

And I would guess that the upcoming flower rich holiday, Valentine's Day, is going to improve things further.

Yeah. The farmers I spoke to are really ramping up production. The hope is that this festive season will help them recoup some of last year's losses. Peak season actually begins with Valentine's Day, but it continues into Mother's Day. Actually, a few weeks later, Mr. Fox said that that's actually even more important for his business.

You know what they say, everybody's got a mother, but not everybody has a lover. So sales for Mother's Day are massive.

So dare I make the suggestion it's all coming up roses?

Yeah. So one problem that still remains is transport. There are still a very limited number of passenger flights making that trip from Africa to Europe. With room for cargo and freight, capacity has fallen. Mr. Fox reckons that prices have jumped from $1.90 per kg to almost $3 per kg in the last year. At the moment, it seems like consumers are picking up some of that extra cost, so it could be a bit more expensive than usual. To show your love this Valentine's Day.

Avantika, thank you very much for your time.

Thanks, Jason.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and you can subscribe to the economist@examiner.com intelligenceoffer the link is in the show Notes. See you back here on Monday.