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The results of the United Kingdom’s referendum on “Brexit”—in which British voters, by a 52% to 48% margin, declared their preference for the U.K. to leave the European Union—have left political chaos and economic uncertainty in their wake. How might this affect the photonics industry, in the U.K., the E.U., and elsewhere? Or is it even possible to say at this early stage?
For some insight, OPN turned to Tom Hausken, OSA’s senior industry adviser, who suggests a number of lenses through which to view the unfolding crisis:
Markets and uncertainty. For starters, Hausken points out, the uncertainty caused by the current crisis itself will likely have ripple effects. “Markets don’t like uncertainty,” he notes. The result, irrespective of how the crisis plays out in the long haul, could be slowing demand and a reluctance to commit to new capital spending in the near and intermediate term.
The pound’s fall. The near-term impacts of the fall in the British pound’s exchange rate will have complex effects on the photonics industry in the U.K. itself. While the pound’s fall obviously makes photonics products from the country more price-competitive overseas, it also increases the cost of imports—and, to the extent that corporate results are denominated in U.S. dollars, could lower reported revenues.
Europe’s competitiveness. Hausken notes that while Europe and the U.K. together produce on the order of 17 percent of global photonics products, they are just part of a worldwide market. The European bloc is strong in areas such as lasers for machine tools, military optics, precision optics and LED lighting; however, the photonics sector in the U.S. is slightly stronger in some of the same areas (and others such as optical communications and biophotonics), and China is gaining as a supplier in many sectors. “Europe and the U.K. will likely continue with their strengths for now,” Hausken says, “but their positions are not assured.”
Labor flows and human capital. OSA Industry Development Associates (OIDA) estimates that Europe now employs some 323,000 persons in photonics. Yet some 86 percent of that employment is in just three countries: Germany, with 43 percent (140,000), the U.K., with 22 percent (71,000), and France, with 21 percent (68,000).
One key benefit cited for the E.U. is the free mobility of labor across national boundaries within the Union. In the wake of the Brexit vote, says Hausken, “the U.K. should be concerned about recruiting talent for tech companies,” as “best in class” talent often is often found in foreign workers—especially in comparatively narrow areas such as integrated photonics, where the pool of experts is relatively small. Any restrictions on work visas that result from Britain’s exit from the U.K., he says, could thus limit the country’s overall competitiveness over time. And, of course, talent now in the U.K. might gradually migrate to elsewhere in the E.U., or to the U.S.
R&D. In addition to the problems of talent drain, scientists in the U.K. have decried the potential loss of E.U. research funding. Hausken points out that most E.U. spending goes for subsidies to developing countries and to agricultural and rural areas. Of the smaller amount spent on R&D, the U.K. gets around 11 percent of the total—which lines up with the 11 percent or so that it contributes to the overall E.U. budget.
Exiting the E.U. would mean that Britain wouldn’t need to make those contributions to the E.U. But whether the U.K. government would plow the money saved by Brexit into home-grown R&D, and thereby make up the foregone E.U. share of its own research funding, is not at all clear, Hausken says, and it will likely depend on the political climate. Further, he notes, “it’s not just the money”—in a global research environment, cross-border scientific and technical research collaborations can be extremely important, and such collaborations would likely suffer from Brexit.
The longer term
Of course, the longer-term impact of the Brexit decision will hinge on whether and how it’s actually implemented. Even at this early stage, there has already been pressure for a second referendum; talk of a “veto” of the decision by Scotland or, barring that, secession of Scotland from the U.K. to join the E.U.; and confusion and uncertainty about whether, and when, the British government will actually invoke Article 50 of the E.U. charter (required to kick off the two-year process of Britain’s actual exit from the Union), as well as about any deal that might ensue for British accent to the E.U. market.
All of that makes the long-term impact a very difficult call, Hausken suggests. But, he concludes, “it will affect the U.K. and Europe more than the rest of the world.”