John Lincoln
With the world still grappling with the implications of the “Brexit” referendum—in which British voters, by a 52-to-48-percent margin, favored withdrawal from the European Union—we caught up with John Lincoln to get his perspective on what the decision means for the photonics industry in the United Kingdom.
Lincoln, the chief executive of the U.K. Photonics Leadership Group, an advisory organization working on behalf of the British photonics industry, offered a notably upbeat assessment of the industry’s near- and long-term prospects, even amid the current political turmoil. In his view, for U.K. photonics companies at least, a quintessentially British sentiment—“keep calm and carry on”—could be the best mantra in dealing with a post-Brexit world.
Dealing with uncertainty
OPN: The referendum results have left a lot of political upheaval in their wake. Is there anything that can be said right now about the potential impact of the political and economic fallout we’re seeing from Brexit on the photonics industry?
John Lincoln: I think nothing can be said on the long-term situation, except that the impact is not likely to be enormous. And in the short term, there is almost no impact at all. Now the reason I said there's no impact at all in the short term is that we still remain members of the European Union for at least two years, absolute minimum. And so nothing in trade relationships, export control or any of that can change.
So the trading relationship for the U.K. relative to Europe is absolutely fixed for the near term. The only thing that’s changed is that British made products have become cheaper in the international market because of the exchange rate. So the near-term impact is entirely exchange rate driven. British-made photonics stuff has gotten cheaper, and British imports in photonics have gotten 10 or 20 percent more expensive.
“The short-term impact [of Brexit] is it makes U.K. photonics more competitive.”
Now, the biggest impact of that will not be on imports, really, because if you're buying stuff, adding value to it and shipping it, the absolute change the cost of your goods is not huge. The biggest impact will be in the competitive position of British-made lasers and high-value photonics products in the international marketplace. And the interesting thing about that is, that’s not a difference felt just in Europe. The pound has weakened against a basket of all currencies, so that benefit, you could argue, is felt internationally and globally everywhere.
So the short-term impact is it makes U.K. photonics more competitive. It’s an interesting scenario: The short-term impact is that nothing changes on trade—the companies that were trading yesterday are trading tomorrow; the products they have are the same, and the relative performance of those products is the same. The only thing that can change is their exchange-weighted price. So the only impact is that the U.K. products could be cheaper if they were being quoted in pounds.
And that’s not going to be nullified or diminished by the increase in import costs.
There’s no change in the import costs in the near term. Let’s think of a scenario—say you’re making a solid-state laser that sells for £70,000. We’re buying up laser diodes and crystals and mirrors, some of which we have made in the U.K. But say the building material cost of that laser is no more than £10,000, and only half of that building material cost is affected by the import duties—maybe that’s £5,000. So your costs have gone up perhaps ten percent on that, or £500. Meanwhile, your laser looks £7,000 cheaper on the international market. Selling one more laser as a result of that competitive advantage more than offsets the increase in the cost of goods.
That’s particularly true in high-value photonic systems, where the cost of goods is modest relative to the high-value system—where the import costs are relatively low, and you’re adding a lot of value through the experienced labor that you used to build them, and your selling price is quite high. Of course, the U.K. is never a home for what you’d call high-volume, commodity goods, where your margins are really tight and you’re buying in for ten and selling for eleven. We’ve never really done that in photonics in the U.K. anyway.
One thing that I’ve heard people talk about is the larger notion of economic uncertainty in the wake of the Brexit vote, and how that might cause companies to pull in their horns, or make it complicated for them to plan in the intermediate term. Can you sort that out for us?
The most immediate impact of that is, perhaps, in the collaborative-R&D space, in larger, pan-European collaborations. So, if I was putting together a consortium—not an existing consortium, where relationships are established, but if I was putting together a new consortium for a European program, I think the increased uncertainty decreases the probability that you’ll put the U.K. into a new, say, Horizon 2020 consortium—in the short term.
Now, over the long term, the U.K. will end up with some relationship with Horizon 2020—it may be similar to the Swiss relationship, or the Israel relationship, or many others that exist around the planet—that is most likely to enable the U.K. to continue to participate, and people to pick U.K. partners. But until those relationships are known, the increased uncertainty means that if you have a choice or a U.K. partner or a German partner, you may be less likely to pick the U.K. partner for a new project. That may depend on the view of how that person is paid and whether any clarification is offered on that area in the near term. But it’s certainly a substantive additional near-term impact.
[Image: iStock]
As to investment—well, I think it has the same impact in the investment community as it does in the whole global business community. The head of the International Monetary Fund has said that Brexit is bad for the global economy because it increases uncertainty in global markets and in global trade, which affects investments in everything everywhere. The U.K. is the fifth-largest economy on the planet, and it's just a big uncertainty over its future trading relationships.
That’s bad for everyone, and I think the I.M.F. hinted at this prior to Brexit—that a Brexit result has a negative trend on the overall business environment for everyone. That’s probably true, and that affects relationships between America and Canada as much as it does between the U.K. and Germany.
Is your U.S. company going to invest less because of Brexit? If it creates more turmoil in the markets, possibly. Does that have an influence at the same level as whether Trump gets into the White House in the autumn—well, it may be lost in the noise of that. I would put it in a similar bracket, though—it’s like the impact of whether Trump gets into the White House. Many people fear it; many people would love it. It’s a wild card that would be not business as usual. So a Brexit vote it's like getting Trump in terms of the disruptive factor. A Remain vote would have been like getting Clinton; everything continues as normal. So it has that kind of effect on business confidence.
Labor flows and research funding
What about for photonic research and science more generally? There is this notion of the free movement of labor enabled by the E.U., and whether the potential lack of free movement of labor under a Brexit framework is going harm international scientific collaborations. There's also the obvious issue of the E.U. funding for British science. Do you have any comments those factors?
Looking on the highest-level view—yes, science is a heavily international operation, a very collaborative activity. That’s not confined to U.K.-European collaboration at all; there are as many U.K.-U.S. collaborations, and transfer of key knowledge workers globally is a vibrant part of the scientific community. Anything that hinders that, people would argue, is not good, and scientists campaigning for Remain before Brexit made it very clear that something that hurts mobility is not good for something as internationally mobile as science.
“If one of the results is a greater balance between mobility to the rest of the world versus mobility within Europe, some people might say that's a good thing.”
Having said that, if one of the results is a greater balance between mobility to the rest of the world versus mobility within Europe, some people might say that's a good thing. So looking at this from a U.S. perspective, it was previously necessary in the U.K., if you wanted to hire somebody for, say, a U.K. engineering job, you had to ask: Could you find that person in the U.K.? No? Then could you find that person in Europe? No? OK, now I’m allowed to go and recruit somewhere else. It may well that that priority of “U.K., Europe, somewhere else” changes to “U.K., somewhere else.”
Now, that could be beneficial for something as globally oriented as science and, actually, as photonics. Because my argument is that photonics doesn’t see borders, and it doesn’t see European borders either. So the initial reaction is, “Oh, this must be terrible”; but actually the more considered reaction may be that if your marketplace is truly globalized—whether that’s science, or photonics, or science within photonics—something that enables that global priority to work might be beneficial. Especially if you’re the fifth-largest economy on the planet.
And the U.K. has, I think, a particularly interesting take on it, because we have, I guess, a reputation for great science. If you look at our citations per head, or scientific output per dollar spent, it’s very high relative to most other economies. So we’re a hugely prolific scientific nation. Therefore, if our global mobility is enhanced, that’s good.
So it’s not all bad. The reactions can be initially very bad. But when the dust settles, we’re very, very, very competitive internationally in science. We would consider ourselves not as a leader in Europe in science, but as a leader on the globe in science. And therefore we welcome the opportunity that this might present to do more global science exchange, more global trade with the rest of the world.
How about the impact with respect to the E.U. funding?
The majority of research funding for photonics in the U.K. comes from the Engineering and Research Council, which has been very supportive of photonics. And that, of course, is U.K.-based funding, and seems safe insofar as the economy continues to thrive and is able to pay for it. It could be enhanced if it gained a proportion of what you might call the “European dividend”—the funds that used to go to Brussels that will now go somewhere else. But I would caution about that, because there are a great many people who will want a piece of the European dividend. Still, since we do have a global, international reputation for science, it stands to do very well out of that debate.
So the impact of lost European funding might well be offset. There’s certainly no reason at this point that we would not be in a good position to get the relative dividend that U.K. science deserves.
Scotland’s road
One possibility that we've heard raised a lot is that Scotland might look at at leaving the U.K. and attempting to rejoin the E.U. As I understand it, Scotland has some interesting strengths in optoelectronics. What would be the impact of such a move from Scotland on the U.K.'s industry overall—or is that way too speculative at this point to even talk about?
I think it’s way too speculative to even talk about. Despite all of the political rhetoric, it’s heavily dependent on what deal the U.K. actually negotiates with Europe. And a number of U.K. politicians have already pointed out that the most important thing is to heal the obvious divisions that the referendum has created in the country and between people and individuals, and to reach a consensus way forward ASAP. And understanding that it was a narrow margin is absolutely key, as is understanding that it's important to absorb the opinion of the large number of people, including the Scots and the Northern Irish, who wanted to remain, and finding a deal that’s not too extreme. So it very heartening, and I think very useful, that the politicians have talked down the differences and talked up the similarities and the need to find a way through just brings everybody along with them.
The globalization factor
Just looking at this in a larger sense—you mentioned Trump in the U.S. And a lot of people interpret both Brexit and the rise of Trump as being tied with increasing disillusionment with globalization, which has left many classes of people behind in its wake. The notion, I suppose, is that the E.U., even without Britain, is facing fragmentation pressures of its own based on that same dynamic. What are your thoughts on that aspect? Are there ways that globalization needs maybe, for lack of a better word, to sell itself better, or things that the E.U. needs to do respond to this?
I think it's very important to move from the debate of “Oh, we voted out,” “Oh, we might get Trump as president,” to think about the underlying causes of which those are a symptom. There’s no point stressing about an individual event; you need to think about the causes. One of the sentiments of many commentators, as you correctly observed, is that this is essentially society’s broader expression of a wish to “turn back the clock”—to get off of the rollercoaster of globalization. And therefore, I think, it’s important for people such as ourselves, who might be called technologists—and are responsible for delivering that rollercoaster—to increasingly consider the ability of society to absorb that rollercoaster that we enable.
“We are very used to being asked to consider the economic impact of our research and company developments.… I suspect that one interesting potential long-term impact of the situation today will be a rise in making sure that research answers the question, Will society be able to absorb this innovation?”
We are very used to being asked to consider the economic impact of our research and company developments. We’ve grown used to being asked, what is the social impact and the environmental impact of innovation; does it help health, longevity, social impacts, etc. I suspect that one interesting potential long-term impact of the situation today—of the the rise of Trump in America, of the exit here, of the rise of populist parties everywhere—will be a rise in making sure that research answers the question, Will society be able to absorb this innovation? I see that is as potentially becoming a distinct and separate question from the social impact—have you created an impact that society can absorb?
The automobile has become completely absorbed by society. It has negative social and environmental consequences, but we regard it as an essential ingredient. How many of us really enjoy dealing with the amount of e-mail traffic we get every day? Although it also has become an essential part of society’s communication, many people would say that they find answering their email daily a chore. So in those two examples, I think you can say that the automobile is fully integrated into society, but that email is not fully absorbed by society, because it's not something we all enjoy doing; it’s something that has become a pain. So if you were to come up with a new innovation that was more easily absorbed into society than email, but served the same function, that would have a very good business case.
So the synergy could be that that alongside the economic impact—it’ll make you money and create jobs—and social impact and environmental impact, “social absorbative capacity” is an important impact of your innovation that opens up a new opportunity space and a new way to compare and consider what we do. I think it's an intriguing possibility opens up many options—and also instantly raises questions, for example, over the Internet of Things. And you can argue that you might want to filter the all the Internet of Things propositions through a “how readily would they be absorbed and contribute to our society and well-being”—their “happiness impact,” if you will.
And that’s not insane. Innovations that make you, at the end of the day, feel better are very valid. And it's clear that people want to get off this rollercoaster of globalization because a lot of these things are not making them feel better; they're making them feel worse. Because if they make them feel better, they wouldn't vote to get rid of them.
Summing up
We’ve covered a lot of ground here—to wrap up, take us back to the current situation and the broad impact of the Brexit vote as you see it. How would you sum it up?
On the key question of whether there’s been any immediate impact on the current photonics business, the answer is no. Will this make a fundamental difference for photonics and the photonics industry going forward? Again, I’d say no. And the reason I say no to that is that photonics is a totally globalized industry, of which the intra-Europe trade is not significantly different from the U.K.-U.S. trade or the U.K.-China trade or the global trade. So because photonics is a truly globalized industry—and there are not many industries that are truly globalized as ours—the actual impact on photonics will probably be much less than in other sectors.
Photonics has always adapted and moved where the opportunities are. The big growth opportunities at the moment, in the biggest growing economies—they haven't changed overnight; they’re still in Asia. And, as people have already been looking to Asia to grow their businesses—that ain’t changed.
“Photonics has always adapted and moved where the opportunities are.”
The only question is, Is there much long-term impact? Actually, probably, really not a great deal on the photonics world. You know, technologies that were good are still good; products that were good last week are good today. That will remain true. And market opportunities are still market opportunities—if you can sell something, you’ll sell something. So I don’t think it fundamentally will make that much difference to us. And we were never the focus of tariffs and trade blocks and things like that. The impact of is probably less than changes to ITAR regulations, which perhaps you could say make more of a direct impact on photonics than this does.
This has been a very interesting conversation—sort of a counter to a lot of the gloom and doom we’ve heard. Do you have any thoughts on just why there is so much gloom and doom about this out there?
That’s actually an interesting question. Perhaps the response to that is that this clearly creates huge turmoil within politics and within political entities, which satisfies a heightened demand within the popular press. It's like a political soap opera being played out in real time. However, that political soap opera and press appetite for such things does not have direct impact on day-to-day business lives or the day-to-day operations of companies or research groups or universities. We don't wake up the morning after as different people, no matter what the popular press might like to portray.
And so some of the, “Oh my God, this is terrible” is just—it’s news. It's extremely rare in the modern world. The unexpected happened, and the press and the politicians are having an absolute field day. Companies are extremely good dealing with the unexpected on a day-to-day basis because it happens to all of us—things arrive late, somebody’s ill, all sorts of things happen—and we absorb it on a day-to-day basis. So we are quite comfortable dealing with the unexpected, and we don't have an issue with it. It’s the press and the politicians who are going absolutely mad, not the people behind the scenes.