Brexit: a battle lost but who will fight the war?

The Brexit vote was, in economic terms, an act of self harm. You do not need to just ‘trust the experts’ on this: it is pretty close to common sense. As Rebecca Driver clearly explains, leaving the single market will make it much more difficult for (particularly small) firms to trade in Europe. As Europe is on our doorstep and geography matters, that cannot and will not be compensated for by trading more elsewhere. [1] Finally greater trade is associated, for clear reasons, with higher growth. Lower growth will impact unfavourably on every area in the UK, whether they voted Leave or Remain.

The harm done is not just economic. As Ben Chu writes, “The crude majoritarian politics of this referendum has seen half of the population (a generally poorer, less well-educated and elderly half) effectively strip major freedoms and even a cherished identity from the other half (a more prosperous and predominantly younger half)”. Before the referendum, I had conversations with people arguing that a Brexit vote would be more harmful than a Trump presidency, and this deep sense of anger, loss and despondency will not go away. We therefore need to understand why it happened.

In my last post I argued that Brexit was a protest vote against both the impact of globalisation and social liberalism. The two come together over immigration, and of course the one certainty of the Brexit debate was that free movement prevented controls on EU migration. Globalisation has benefited the majority in the UK, so those who had not benefited could not alone have won a Brexit vote. Equally social conservatives have lost battle after battle in the UK on specific social issues. Brexit was the perfect storm where these two groups came together, and combined they just managed to win.

Explanations do not imply inevitability, but instead tell us why the result could easily have been different. We need a sensible discussion about immigration, rather than assume it is always and everywhere a problem. However to follow the social conservative route and say concern over immigration is just xenophobia is not helpful. [2] We need to challenge the view the right wing press has patiently built up that immigration is responsible for declining public services and making it difficult to get housing. Too many people continue to discount the power and influence of the media: that is a mistake, as this research on Fox news shows. It is not difficult to get across the benefits of immigration, given how much the NHS and our construction sector depend on immigrants, but it is not something many of our leading politicians have done for some time.

More generally it is becoming increasingly clear how destructive the doctrine of neoliberalisation has been. Neoliberalism combines the encouragement of globalisation with demands for a much reduced role for the state. In the advanced economies the deindustrialisation implied by globalisation and the growth of China and elsewhere has been beneficial overall, but there are sections of society that have lost out, which invites a backlash. As Kevin O’Rourke shows, globalisation has often led to fierce resistance in the past. Dani Rodrik has demonstrated how state spending can protect, and has often in the past protected, the losers from trade. [3] (As an economist mights say, globalisation is a Kaldor/Hicks improvement, but in recent times the compensation part has been missing.) Brexit, like the financial crisis and perhaps also Donald Trump, are in this sense problems created not by globalisation alone but by neoliberalism.

For the UK it is worse than that. It is not just that austerity is the real cause of declining public services, and a failure to build houses is the cause of rising prices and rents. (See Chris Dillow or Mariana Mazzucato) It is that this government in particular has connived with the right wing press to transfer blame for an NHS in crisis and unaffordable housing from their own policies on to immigration. The Remain campaign was Cameron and Osborne, and neither were prepared to change their tune and start talking about how limiting immigration would mean there was even less money for public services. As I noted in the previous post, the NHS was an important concern for Leave voters, and they thought Brexit would make things better. Can you imagine a worse background for the EU referendum vote than a government that continually stressed the importance of limiting immigration, but failed to achieve those limits so spectacularly. [4]

This was not the only problem with the Remain campaign. In terms of getting the message across, Leave seemed to understand their target audience much better. (It is not my field, but this from Mark Hind makes sense.) To get the message across the Remain campaign relied on the institutions of the establishment: the Treasury, Bank of England, IMF etc. Fine for those for whom the establishment is respected, less so for those who regard it as remote and detached from their lives. Remain made very little use of academics, despite the fact that this group is trusted by the public. [5] Leave did seem to understand this, which is why they went to ridiculous extremes to discredit these experts. The broadcast media hardly ever noted the consensus among economists that Brexit would reduce everyone's standard of living, and instead did their ‘he says, she says’ thing. This media also failed to point out the lies Leave told, preferring ‘balance’ over truth.

All this implies that while the potential for a Brexit vote was always there, reflecting the perfect storm of anger against globalisation and social liberalism, it might not have been realised if the Remain campaign had been better, the Leave campaign had been honest and the broadcast media had not departed from its mission to educate and explain. The lies of the Leave camp are already apparent. The depreciation in sterling that immediately followed the vote is a cut in living standards for everyone in the UK with no lasting compensation. It is permanent unless the markets have got things spectacularly wrong. The economic downturn that is underway is as predicted. In both cases voters were told this was fear mongering by the Remain side: now those that promoted Leave are in the ludicrous situation of arguing that markets and firms have somehow been deceived by Project Fear.

In normal circumstances this would all be a cause for optimism. We do not need many voters to realise that they were conned by the Leave campaign before Leavers become a minority, or at least for the majority to favour a deal that can keep the UK in the single market with essentially free movement of labour. (There may have even been such a majority on the day of the vote.) To call this the denial stage in some ‘grieving process’ by Remain voters misunderstands the nature of the decision. Leaving is compatible with a whole range of alternative arrangements: some quite close to EU membership, some not. In that sense the vote only gave the green light to an ongoing struggle over what these arrangements will be. (For a discussion of the politics involved, see here but also here.) Thus those who say we should accept the verdict of the people are wrong, because a great deal is still to play for.

Yet circumstances are far from normal, and there seems little ground for optimism. Our new Prime Minister - who was as complicit in the sham targets for immigration as Cameron and Osborne - has appointed those who supported Leave to handle negotiations. She knows that the only way she can unite her party is to end free movement and therefore leave the single market.

Worse still, the government will do whatever it wants to do when it comes to the type of Brexit we have. Our official opposition will, if the polls are right, be the same opposition that was both ineffective and conflicted in the Brexit campaign, preoccupied as it will almost certainly be with cleansing the PLP rather than the details of trade arrangements. There is no alternative opposition with any strength. The SNP cannot speak for the rest of the UK, and anyway will be focused on trying (and probably failing) to drum up enough support for independence. As a result the 48% or more who did not want an end to the single market will not be able to do much about it. I fear that if you want a vision of what Britain after Brexit will become, you just need to look in the pages of the newspapers that were a vital part in bringing Brexit about.

[1] My impression was that discussion on broadcast news programmes, which is the main source many people have to unbiased news coverage, or even the debates never got to this point. We had someone from Remain saying trade with Europe would suffer, and someone from Leave saying we would be ‘free’ to trade with other countries. You do not need the Treasury’s gravity equations to make this simple point about geography and trade, but you need to go a little beyond soundbites.

[2] A similar point can be made about nationalism, which is hard to combat and may be a symptom rather than a cause.

[3] Rodrik, D. (1998), "Why do More Open Economies Have Bigger Governments?" Journal of Political Economy 106(5): 997-1032

[4] None of this was hard to see before the last general election. Those who in 2015 voted Conservative but also wanted to Remain need to ask why they took no notice of the warnings that some of us made. Those ‘business leaders’ who seemed to unanimously endorse Cameron need to ask, or be asked, why they were gambling with their company’s future in doing so.

[5] Part of the problem is that Leave voters tended not to trust anyone. This, by Jean Pisani-Ferry, is good on experts and trust.