The third anniversary of Britain leaving the European Union caused of a spate of comment in the media a couple of weeks ago. For me it was a moment of great sadness, but I’m trying to move on – though I still wish political destruction on every politician that advocated it. But it is as good a moment as any to reflect on what has happened.
Opinion surveys show that people who voted to stay in still think they were right to do so. They think that the arguments made in favour of staying in have been borne out. Some of those who voted to leave feel they made the wrong choice, though. But mostly they don’t – they think that it is too early to tell, or that the opportunities have been mis-handled, or they are actually happy with they way things have unfolded. What unites most from both sides is a sense of gloom, and a lack of confidence in the government. Another thing that seems to unite both sides is a wish not to reopen the debate.
In terms of the economic statistics it is very hard to isolate any economic effect of the change, especially when the Covid pandemic, the war in Ukraine, and the escalation of energy prices is confuses the picture. There is abundant anecdotal evidence that smaller British businesses have given up exporting to the European Union, or indeed to anywhere. But the aggregate trade statistics don’t paint such a clear picture. Investment has fallen since the referendum result: Brexit is an obvious culprit but it would be hard to prove it.
But if we step away from the economic statistics, some things are becoming clearer about Brexit. It isn’t too early to look at how the reality is working out against the vision. There never was a single vision, though. I can see three main ones: the globalist case, the isolationist case and the socialist case. The globalist case is the closest to the one the government espouses. This regarded the EU as a barrier to trade and free enterprise, for two main reasons. Firstly it entailed a substantial regulatory burden, covering not just products, but the way they were made (for example labour and environmental standards), and this raised costs. And second the EU raised barriers to trade with countries outside the union, which included rapidly growing markets in Asia in particular. Britain could be a country of free-wheeling (or even buccaneering) enterprise. Sometimes this was called “Singapore on Thames” – apparently by people who had little idea what of Singapore actually is – though doubtless an authoritarian, technocratic one-party state with a taste for intrusion into private life actually appealed to many of them.
It is becoming clearer by the day that this idea is nonsense. British people draw comfort from regulation, and every attempt to lighten the burden is met by howls of protest. And it is far from clear that changing regulation will have an economically beneficial effect in more than a few limited areas. Indeed it seems to many that life outside the EU involves more red tape, not less – for imports and exports, travel and immigration. Meanwhile almost all trade deals so far struck with countries outside the EU are little different from what the country had inside. The exceptions are Australia and New Zealand, which will have little impact, and probably not much that is positive for British businesses (but maybe better for British consumers). Doing deals with China, India and America – the big prizes, has proved much harder than envisioned. Brexit supporters are now talking darkly of a conspiracy of Remain-supporting establishment types undermining progress – but a lot of the trouble comes from their on side (especially so far s reactions with India and China are concerned). But the logic never was very convincing. The kindest suggestion is that it is 20 years too late – perhaps there would have been more to play for when globalisation was going full throttle, rather than in its current gentle retreat.
But it is unlikely the most people who voted for Brexit shared this vision. They were drawn to an idea of Britain that was less integrated with the world around it, not more. This was focused on one idea in particular: “control over our borders” – limitations to immigration, rather than the free movement within the union. Supporters of this idea, like Nigel Farage of Ukip and the Brexit Party, did not point to any other countries as a model: Britain was one of a kind. Perhaps some people thought of Australia, a fiercely independent Anglo-Saxon heritage nation, with strict immigration rules. Suggesting an “Australian-style points system” to manage immigration received widespread approval, even though few people understood it or its implications. Another model might be Japan. Japan is an island that trades with its giant continental neighbour, China, but emphatically maintains its distance politically. It limits immigration, and, whisper it, prides itself on ethnic homogeneity (unlike modern Australia). It is also a highly successful country, that scores well on many indicators of quality of life. Economic growth in the last thirty years has been anaemic, but that only invites the question of what economic growth is for.
How is Britain doing under this isolationist vision? Free movement of people between Britain and Europe is now gone; many people from other European countries have left, and immigration from there is is now a trickle. All immigration is now subject to bureaucratic controls. If labour shortages have resulted, then this may simply be a first step towards giving local workers more opportunities. On this vision, things are going much better. There are three problems, though. One is an influx of refugees and others arriving in small boats on the Kent coast. I don’t think anybody had expected this to be so much harder to manage outside the union than within it; but the country can’t simply deport people back to France as it could before. This has turned into a major headache, especially for the authorities in Kent, and there are no convincing solutions that don’t involve doing a deal with the EU, which would involve accepting many more refugees legally, and undoing one of the perceived benefits of Brexit to isolationists. It is possible to take a bigger view of this: even allowing for this influx the country is taking fewer refugees than before. Unfortunately for the government, people supporting the isolationist view tend not to get such things in perspective. It is undoubtedly disorderly – though chicken feed to what Italy or Greece have to deal with.
A second issue is that, notwithstanding the hurdles, immigration has not reduced overall. Instead of people arriving from the EU, they are coming in from elsewhere. Fortunately for the government, the public seems much less stressed by this than by the boats. It is a relatively orderly flow of people after all, and by and large they are going into better-paid (or “high-skilled”) jobs that the economy needs, or paying extortionate student fees. But it does complicate the scorecard. The government can’t claim reduced immigration as a Brexit achievement. Indeed, every idea for reducing numbers, like cutting back on foreign students, looks like self-harm.
The third problem is that real wages are in steep decline, as inflation runs ahead of increases in pay. And the government is aiding and abetting this by putting maximum pressure on public sector pay. Brexit was supposed to increase wages by stopping low-skilled immigration. Perhaps supporters of the isolationist case, often retired, aren’t so bothered. But it is a long way from the case made for Brexit at the time of the referendum.
All this is indicative of a hole in the heart of the isolationist case. Australia has abundant natural resources it can exploit (or pillage, if you prefer – sustainability is not high on the Aussie agenda); Japan has a manufacturing industry that is still world-beating. There are world-beating bits of the British economy, but not enough. Nostalgia won’t bring back Britain’s once world-class manufacturing industry. Coal, oil and gas are in steep decline, if not dead. And some of the successful bits of the economy, like global financial services, benefit few, in the wrong parts the country, and have a distinctly dark side (the country was very popular with Russian oligarchs for a reason). The country has been running a current account deficit for over two decades, and, notwithstanding the depreciation of sterling, it isn’t getting any better. This turns out to be more sustainable than many economists thought – in the sense that it does not seem to be leading to the sort of financial instability that other deficit countries (like Argentina or Turkey) have suffered. But it does seem to be affecting the country’s terms of trade – though it is statistically hard to pin this down. According to one calculation the country’s real effective exchange rate is 83% of what it was in 2005 (i.e a fall of 17%). British people can buy less foreign goods and services with each hour’s earnings than used to be the case. There isn’t enough high-productivity, export-generating industry in the country. This problem has its roots in the relative industrial decline of the 1950s to 1970s, and the hollowing out of the the manufacturing economy under Margaret Thatcher. This largely pre-dates membership of the EU, and arguably was made worse by it. But somehow it was easier to cover the cracks within the Union.
The third case for Brexit I mentioned is the socialist one. This case has not yet been tested. According to this the EU is a capitalist-designed, anti-democratic system that prevents governments for taking their economies in a socialist direction. Not all (or even most) socialists followed held this view – hoping to reform the union from within – but its logic is solid enough. Holders of this view are fiercely defensive of national sovereignty – their aim being to take democratic control of the country, and drive through radical reform from there. Their economic reform ideas are not particularly popular (though perhaps not that unpopular either), but their ideas about national sovereignty are widely shared. Ironically, since the main advocates of Brexit were at the more aggressive end of capitalism, it is perhaps socialist policies that present the main national opportunities after Brexit. These will not fix the country’s export problem – export industries, other than mining or drilling perhaps, tend to need capitalist leadership succeed. But it may set in train a fairer distribution of income and wealth. I suspect that there is a hybrid of modern socialist and liberal ideas that could lead to a thriving society – and perhaps it is easier to pursue that path outside the EU, though I doubt it would make all that much difference. Other European citizens would be at least as interested in such ideas as the British are. Alas there are too few people anywhere who are pushing in that direction.
@ Matthew,
You haven’t actually mentioned the EU itself. Your arguments assume the EU is at least a quasi-stable political entity. An alternative view is that it is stuck in a betwixt and between state largely because of the flawed architecture of the euro. It needs to move to a single political entity which has been dubbed a United States of Europe to correct the flaws. However, there is insufficient popular support in the EU for this to ever happen.
The ECB valiantly tries to make the best of a bad job but it can only do this by ignoring, much to the discomfort of German right wing economic opinion, the terms of the Maastricht Treaty which created the ‘monster’ to begin with. Just quite how long everyone can continue to convince themselves that the flows of euros from the frugal five (counting Germany too) to the rest of the EU are repayable loans rather than fiscal transfers remains to be seen. I suspect no-one really believes this any longer, if they ever did to begin with.
I would say that the EU is a nice idea but which is doomed to failure in the not-so-long term. So, as is often said on dragons’ den, “for this reason I’m out!”.
The EU itself is a whole new topic. I did have it in mind to suggest that Brexit has made the EU stronger, but the focus of the post was UK politics. I think “quasi-stable political entity” is an excellent description of the EU. It’s full of tension, contradiction and nonsense and lurches from crisis to crisis. Right now it is going through a good patch, but past form suggests this will lead to complacency and a new crisis. Which t will then survive. There are clearly some very strong forces keeping it on the road. The Germans (or some of them) may be grumpy about their money disappearing into the south, but they can’t expect much else if they insist on running export surpluses and not investing it infrastructure, etc, at home. A break up of the euro would be hugely disruptive of the German economy and the closer it gets, the more the Germans will hold back – just as with Italy, though for very different reasons. People have been suggesting that the EU is unsustainable unless it converts to a federal state (for which there is no mandate) for as long as I can remember, but it keeps going.
Maybe you could think about a new post on the EU itself? I would argue that we can’t properly discuss the merits or otherwise of Brexit while excluding discussion on the nature of the organisation we’ve just left and many would like us to re-join.
The EU, in response to the Covid epidemic, has sensibly discontinued its insistence that member states adhere to the limitations of the so-called Stability and Growth Pact and, even worse, European Compact. This goes a long way to explaining why the EU has been doing better recently. However, we’ll know that many will be placing the blame for high inflation in the eurozone on this pause and will want them both restored in the coming months.
Given that interest rates are rising it is difficult to see how the debtor countries, and particularly Italy, will cope with the shock.
There’s plenty to think about!
Yes I’m falling into a common trap by not looking t the bigger picture. I need to collect my thoughts a bit. I don’t think you are wrong about an oncoming crisis as a result of higher interest rates – I’m just confident that the EU will survive it- the question is how.
I would agree that some variant of the third option seems to be the best way forward. Rather than ownership as the means of state control, as in the socialist model, I would however prefer the concept of an active state which is allowed to intervene for such public goods as promoting the green agenda, promoting an adequate housing supply, promoting employment in the ‘left behind’ areas, promoting a skilled workforce and innovation, together with a recognition that personal liberty is to be respected but intervention in group activity is permitted (as Mill said that trade is a social matter in which Government intervention is permitted). On this view, – and against the neo-liberals and hard line globalists – property rights are not a fundamental liberty; it is just that, in a modern climate, the state must compensate individuals generously, as they do in interventionist France, when infrastructure needs to be built.. But such a regime would need some constitutional safeguards that an active state s not just the plaything of majoritarian decisions based on populism, and a greater devolution to regional level.
I think the key is more localised control. Traditional socialism have favoured highly centralised control – in practice if not in theory. Some modern socialist thinkers see the value in more localised public ownership. I especially like the idea of publicly owned “anchor tenants”, such as hospitals,forming the core of local community regeneration. Accountability needs to be more local. We often have a situation where local losses are set off against national gains.
You mention hospitals as an example of ‘more localised public ownership’. This sounds great at first look. Who wouldn’t prefer having a greater say in what happens to our local NHS.
However, if every town or county council owns and runs their own health service this, by definition, means the end of the NHS. There’s no ‘National’ any longer. The NHS does a good job standing up to the multinational drug companies and medical equipment manufacturers. It has the muscle to negotiate lower prices than would be available to regional health services.
What would happen when, as inevitably would happen, one region has a different policy on the affordability of a particular line of treatment than an adjacent region? We’d end up with the more affluent regions being able to afford a better level of service than the less affluent ones much as we see now in the provision of social services. If this is anything to go by there is no evidence that these are more efficient being provided for at local level.
So I would suggest we need to look at giving people more say in how the NHS works, at local level, but without any transfer of ownership, and so keeping it intact as a National organisation.
Clearly some aspects of the NHS are best run nationally – interaction with major drug companies being an obvious example. But whether facilities such as hospitals should be nationally owned is amore interesting question. In Europe, Australia or Canada I don’t think this is normally the case – though they would typically be privately owned. There is an issue over data management though – integrated information systems in the NHS do offer some interesting benefits. I am interested in two things when thinking about decentralisation of NHS services. The first is integration with other local services so that person-centred strategies can be implemented across agencies. The second is the the use of major health facilities in economic regeneration. Big businesses may not want to invest in poorer areas – but everybody needs good heath services. These facilities then require support services and in time the investment conditions might improve to attract businesses. Health facilities aren’t the only things that can play a role, of course.
Different decisions on priorities between different areas is a political hot potato though – if particular treatments are not available in some areas.
“… export industries, other than mining or drilling perhaps, tend to need capitalist leadership succeed.
Certainly there is capitalism involved in the successful exporting industries you will have in mind. They are naturally to be found in the large net exporting countries, such as Germany, South Korea, China, Singapore and Taiwan.
They may well be described as capitalist countries but this doesn’t mean that their Governments take a back seat role. They are all actively engaged in defining the direction of their economies. We can’t imagine they would ever allow strategic industries to fall into decline or be taken over by foreign owners in the way that routinely happens in the UK. The prevailing attitude here is one of short termism. Everything is for sale to the highest bidder.
There’s a balance to be struck. It’s remarkable that people from the right hold Singapore up as an example – the Singapore government is highly strategic.