How Scottish Independence has become entwined with Brexit

 

Introduction

Brexit is the main reason the SNP give for wanting another referendum so soon after the last. While an independent Scotland as part of the EU would enjoy a larger single market than it enjoys as part of the UK, leaving the UK’s single market would impose short term costs almost certainly greater than the costs of Brexit. The government that enacted Brexit refuses to allow another independence referendum. A future Labour government might be less inclined to deny the Scottish people any say on independence, but that government could also start a process that would undo much of the harm caused by Brexit.

With Conservatives in power independence involves short term pain and long term gain

I cannot comment on the legal reasoning that lay behind the Supreme Court ruling that a referendum on Scottish Independence would be illegal without the cooperation of the UK government. (On that, see Dave Allen Green here and here.) However I cannot defend the decision of the UK government to refuse a referendum, or any law that says this is sufficient to prevent a referendum on independence.

The UK government’s reason to refuse another referendum is that it is too soon after the last one. But the reason that the SNP give as justification for pushing for it is Brexit. In a very important sense they are right. Not only did Scotland not vote for Brexit, and the economic damage it is doing, but Brexit gives the SNP’s claim that the economic future will be brighter after independence something beyond mere wishful thinking. The EU Single Market is a lot bigger than the UK’s Single Market.

I wrote about this four years ago here. There is no doubt that in the short term Scottish Independence will be very costly for the people of Scotland. In 2014 the only real economic compensation on offer was that different governance after Independence would bring a fairer but poorer society. So the economic trade-off independence offered was clear and certain short term pain set against the hope of possible long term benefit. But if Scotland was part of the EU’s Single Market and Customs union, it could eventually avoid the long term pain that Brexit will bring the rest of Great Britain.

But there is a counterpoint to that, which is that when Scotland does join the Single Market and Customs Union, they will have the considerable short term pain of creating a border with their largest market: the rest of the UK (rUK). That is in addition to the cost that dominated the 2014 referendum, which was the loss of the fiscal transfer from the rUK to Scotland. Scotland might still be better off in the long run, as its exports reorientate from rUK to the larger EU market, but that takes decades to happen.

So in terms of the economics, what was in 2014 a trade-off between certain and pretty large costs in the short run versus the hopeful possibility of benefits in the longer term becomes much larger and still certain short term costs against more tangible long term [1] benefits of being part of the EU. Adopting the Euro also carries clear risks as long as the Eurozone’s fiscal rules remain a mess.

However the prospect of a Labour government changes that trade-off in a critical way. To see why, it is useful to first talk about inevitable Brexit stasis under the Conservatives.

Over the next decade at least, only one party can reduce the costs of Brexit

In the last few weeks there have been two changes that represent a turning point for Brexit. The first was the humiliation of Prime Minister Truss, coupled with her successor being chosen by MPs alone. Truss was the candidate of the Conservative party’s European Research Group (ERG), who have consistently pushed for the most extreme form of Brexit. The second is that we are finally seeing across the broadcast media discussion of the costs of Brexit. With the UK economy being alone among the G7 in failing to regain output levels seen before the pandemic, and about to go into recession, it just wasn’t possible to avoid the subject any longer.

But last week it also became clear (if it was ever doubted) that the Conservative government cannot change the Brexit deal that Johnson agreed in 2020, because it is hopelessly divided. The ERG may have lost their leader with the downfall of Truss, but they are still powerful enough to stop any attempt to change that deal. Leaks suggesting the government were looking for a Switzerland type deal have been met by a chorus of denials from ministers and Sunak himself. Given the party’s terrible position in the polls, and a general election not that far away, Sunak cannot afford to risk the internal division that any attempt to rewrite Johnson’s deal would cause. The best we can hope for is that he is able to come to an agreement with the EU on the Irish protocol.

Nor would anything change if he was able to win that General Election. Not only has he to pacify the ERG, both the right wing press and his party members remain solidly pro-Brexit. Even if that was not enough deterrent, there is the ever present threat of Farage or someone similar threatening to take Tory votes and even some Tory MPs. All this means that for the next decade at least, no progress in reversing the economic and political harm caused by Brexit can be made while the Conservative party is in power.

So just as a Conservative government will not allow another independence referendum, it will also do nothing to alter the heavy costs of Brexit that the UK is experiencing.

However we now have the strong prospect of a Labour government. In opposition Labour have been extremely cautious. The last thing they want to do is unite a divided Conservative party and revitalise the right wing press in labelling Starmer a rejoiner. With polls like this, it is far safer for him to talk about improving relations with the EU, without being specific about how that would be done. With the Conservatives offering nothing, while Labour offer hope, only Remain voters who have learnt nothing from 2019 would refuse to vote tactically against the Conservatives.

Once in government, however, the trade-offs for a Labour government will change. It will become clear that the economic gains from a closer relationship with the EU while still outside its customs union and single market are pretty small. Labour will become responsible for the health of the economy, and just as the costs of leaving the EU are now becoming clear, so will the economic benefits become clear of rejoining the EU’s Custom Union and particularly their Single Market. The political risk of doing either noted above will still be there, but they will diminish in size over time. For both reasons, becoming part of the EU’s single market will become more attractive over time, and the pressure on Labour to move in that direction will only grow.

Brexit has encouraged independence, but could also mean it fails

Brexit was missold to the UK. Almost everything the Leave campaign said was a lie. Saying there would be no economic costs and only benefits was a lie. Saying there would be more money for the NHS was a lie. Saying UK trade would flourish under ‘global Britain’ was a lie. Saying we could negotiate trade deals more advantageous to the UK was a lie. Saying prices would fall was a lie. Saying immigration would be lower was a lie. The list is endless. Whenever evidence that these were lies was put into the public domain during the referendum campaign Leavers had a simple response: they called it Project Fear. Project Fear became synonymous with don’t worry about the facts, just believe the lies.

But the term Project Fear did not originate with Brexit, but in the first Scottish Independence referendum. The short term fiscal costs of independence were large and undeniable, yet the Yes side, like Leavers, preferred to use denial and misdirection rather than acknowledge this fact. As with the Brexit referendum, they could get away with this because what was being proposed had not been done before. [2]

However the similarities between Brexit and an independent Scotland joining the EU are too great and too recent to dismiss as Project Fear. Leaving the EU’s Single Market has caused the UK significant economic loss, and there is every reason to expect that Scotland leaving the UK single market would cause even more in the short term. In the long term firms in an independent Scotland that was part of the EU would have a larger market, but it takes considerable time to reorientate firms from one market to another, including the time and costs involved in persuading that new market that you have something worth selling. That time period will at best involve Scottish firms producing less and employing less people, and at worst it means these firms might no longer exist.

It will be very hard for the proponents of Scottish Independence to on the one hand give Brexit as a key reason for wanting independence, and on the other hand to deny the costs of leaving a large single market on which Scotland is currently so dependent.

If the independence referendum had taken place under a Conservative led UK, then the UK government would have been in a bind, because it would not want to point to Brexit as evidence of the short term costs of leaving a single market. [3] But we now know that will not happen, because a Conservative government will not allow another independence referendum.

A Labour government would be less inhibited, but could still face difficulties if it was trying to pretend it could make a success of Brexit. As long as it stayed doing that for fear of opposition from Leavers, it would find it hard to fight an independence referendum and would therefore be disinclined to grant one. However the moment a Labour government became committed to seriously undoing parts of Brexit (by joining the EU’s single market, for example), the case for a second Scottish independence referendum becomes much weaker.

It would become weaker because Brexit could no longer be used as a justification for another referendum. But it also becomes weaker because the long term gains of an independent Scotland as part of the EU having a larger single market also disappear, because these gains could be had by staying in the UK. Finally, using Project Fear to discount the short term fiscal costs of independence becomes weaker because Brexit has discredited that form of defence.

Brexit has given Scotland a reason for having another referendum, and has also given some credibility to the long term economic future being brighter after independence. Unfortunately for those advocating independence, those arguments only work if Brexit in its current hard form is permanent. That would be the case for at least a decade if the UK is led by the Conservatives, but the Conservatives will not allow a referendum. The UK under Labour might, but it would only be wise to do so if that Labour government could admit that any hard Brexit is bound to bring large economic costs. A Labour government that was seeking to rejoin parts of the EU would severely undermine the case for another independence referendum. Thus Scottish independence and Brexit have become inextricably intertwined.

[1] Here long term means a few decades at least before there is any chance of the benefits of EU membership exceeding the costs.

[2] Some have suggested that the short term fiscal costs of independence could be overcome if an independent Scotland had its own currency. Then, it is claimed, having a large budget deficit would not be a problem , because all the new Scottish central bank needs to do is create the money equivalent to the previous transfer from the rUK. Because there would be no greater claim on Scottish resources, it is argued there would be no inflationary pressure.

This ignores the fact that an end to the rUK transfer doesn’t just create a budget deficit, it also creates a current account deficit. At present Scotland is consuming more goods and services than it produces because of the transfer. The rUK is financing both a Scottish current account deficit and a budget deficit. There is every reason to believe that this Scottish current account deficit is not sustainable (the private sector would not replace the rUK transfer by capital inflows), and so the Scottish real exchange rate would depreciate on independence.

That depreciation would help Scottish exports and diminish its imports such that the current account became sustainable. However a depreciation means a reduction in the purchasing power of Scottish consumers, making everyone in Scotland poorer. Higher exports and lower imports also means a larger demand on Scottish resources, creating inflationary pressure.  

[3] In many ways we may see a repeat of 2016, where Cameron having set immigration targets and having failed to meet them, left himself wide open to claims that immigration can only be controlled by ending free movement. The obvious retort that immigration was good for the economy was not open to him. The Brexiters, having created a customs border between Great Britain and the EU, will find it hard to wax lyrical about the harm an English/Scottish border will do.

Some lessons in how to combat the Tory propaganda machine

 

The initial results of voting last Thursday are very easily explained. First, voters had a terrible year in 2020 and government help in getting the vaccine out means 2021 is looking much better, so naturally voters will reward the government. That means the Tories in England, Labour in Wales and the SNP in Scotland (modified by tactical voting against a second independence referendum). It’s like Brown’s poll bounce as he saved the banks, and therefore large parts of the economy, from the effects of the Global Financial Crisis.

Second, on top of that, Conservatives have recreated their Brexit success, because to many who voted Brexit, the vaccine rollout doesn’t just reflect well on the current UK government, it validates their choice to vote Leave and the party that got Brexit done. While many Brexit voters were beginning to doubt the wisdom of their choice in the second half of 2020, those doubts have disappeared. As a result to a first approximation in England the polls last Thursday were a repeat of the 2019 election, with the Conservative party becoming the Brexit party.

In hindsight, do you think Britain was right or wrong to vote to leave the European Union?

As the results further south came in, the picture was reversed. The Tories lost Oxfordshire and Cambridgeshire, lost the Cotswold's Chipping Norton to Labour, lost Tumbridge Wells and elsewhere, and Labour lost many contests in Bristol to the Greens. 

The odd thing about these elections was Starmer’s reaction to them. As he hasn’t given left wing social conservatives something left wing to vote for, how did he expect anything different from 2019 in red wall seats? Sacking Rayner is, to quote Stephen Bush, just “mystifyingly stupid, self-discrediting and self-destructive”. Johnson is a populist and to his target voters he promises whatever they want to hear. Starmer needs to start demonstrating that those promises are empty and he can do better, and not keep making the story about Labour’s internal wars. .

In terms of political deception, this idea that the UK’s vaccine rollout vindicates Brexit is the best kind of myth because it’s based on a half-truth. It is true that the UK’s vaccine rollout has been faster than the EU’s, and the EU had a joint vaccine procurement programme. That is easily enough for Boris Johnson, and it is enough for pretty well all Brexit voters. In terms of public perception it just doesn’t matter that what is stated as a truth is at best a conjecture (if the UK had stayed in the EU would it have joined the joint programme?). What makes this myth particularly powerful is that many Brexit voters want to believe they made the right choice, so they want to believe it is true.

Johnson is not the first Tory Prime Minister to create a powerful myth out of a half-truth. Perhaps the most successful in recent times was the Coalition government’s claim that austerity was necessary because of the previous Labour government’s profligacy. This was a myth that could be easily shown to be false by looking at just one chart, but that was too much for the media to do. They just recalled Labour being criticised over insufficient consolidation, which was a half-truth because any lack of consolidation was tiny compared to the impact of the GFC. Labour’s failure to challenge the myth ensured it became ‘common knowledge’, and it ended up forming the basis of Cameron’s 2015 election win.

That episode points to the first lesson in how to begin combatting the Tory propaganda machine: counter myths quickly and hard. Combating Tory spin and propaganda does not mean the odd fact check or statement by a minor minister - it means a senior opposition minister of better still the Labour leader doing the rounds of the broadcast media studios, because that is Labour’s only hope of communicating with most people. In addition only by doing this do you have any chance of preventing the political journalists from the broadcast media accepting the myth as truth, and this matters because the broadcast media is the only route to countering the Tory propaganda machine.

The Tory propaganda machine is formidable because it has most of the daily press on its side. The broadcast media tends to follow the press. It is one reason why people seem to have forgiven Johnson allowing the second wave to grow but credited him for the vaccine rollout. The only thing Labour has going for it is rules about balance that apply to the broadcast media. It will be hard for the broadcast media to ignore senior opposition ministers or their leader. It will also be hard for this media to accept as true something the opposition party fiercely contests.

This leads to a second lesson for Labour. Commission research on the airtime each party gets on each broadcast platform, and use it if (as I suspect) it shows Tory politicians appearing many times more often than Labour. (Comparable figures from the past are available.) Use that as a lever to get senior Labour politicians appearing on the broadcast media to counter important Tory misinformation.

The third lesson is to choose which myths Labour tries to counter wisely. As I have already noted, attacking the idea that Brexit allowed the UK’s superior vaccine rollout is hard to contest, partly because so many Brexit voters want to believe it but mainly because it might have been true. In contrast, the idea that the government’s policy of Freeports is only possible because of Brexit is easy to refute because some EU countries have freeports and parts of the UK used to have them while we were in the EU. Contest those lies that are important and easy to refute.

The advantage of this strategy is that it will begin to create the idea that Johnson is not trustworthy. Starmer’s approach to PMQs does not do that for most voters. Yes Johnson avoids his questions, but all most people see are the soundbites that may appear on TV. In that context Johnson’s avoidance of the question is not obvious but he gets to rattle off various uncontested and often false claims. When one of these claims is false Labour has to contest them, otherwise many voters who see the claim unchallenged on TV and in the papers will unsurprisingly assume it is true.

That is about correcting misinformation. But Labour also needs to counteract Tory spin. This government is very good at spin, partly because they are happy to depart from facts, and if you take this spin at face value you would believe it is championing a Green revolution (it is not), leveling up economic activity northwards (it is not) and spending large amounts of public money on public services (it is not). So the fourth lesson for Labour is to do far more to counteract this spin. If Labour is to have any chance of winning back any of the Brexit seats they lost in 2019 they have not just to make a strong economic offer before the election but also convince the voters that the government is not doing the same. The former means nothing without the latter.

For those rightly saying Labour needs to say what it stands for, challenging Tory spin will go a long way to fixing that, because a standard line of most journalists confronted with an opposition pointing out obvious government lies or spin is ‘what would you do then?’ Even if it isn’t asked Labour can say where their policy differs from the government. (What you do not do is this.)

Highlighting things that are not said is as important as attacking misinformation. For example Labour really should be making more noise about NHS privatisation. Rather than a general attack I would focus on one aspect almost exclusively: the takeover of 58 GP practices by Operose Health, a UK subsidiary of the US company Centene, and the likelihood that others will follow. This is a result of the 2012 reforms, and Labour can point out that a CEO of Operose has become a No10 advisor. Labour can hammer home that a GP services run for profit is not compatible with the ethos of the NHS. The NHS may remain free at the point of use, but GPs service run for profit do not guarantee quality of service, and almost certainly will reduce quality. [1]

Labour has had some success attacking sleaze and corruption, and there is enough material there to take us to the next election. This is important to do, not only because it will influence voters at some point, but also because corruption is so close to what this government is. I think trying to equate it to sleaze under Major (‘same old’) is a mistake, because the scale of it today is well beyond that. Instead two points need to be hammered home. First, how its scale is unprecedented. Second, why it matters to ordinary people, such as here.

I’m sure there are other areas like this where Labour just are not making enough noise. Above it all is the economy, but it will be hard to make much headway in the near future when the media will be banging on about record growth (which is just the consequence of the record recession caused by the pandemic). Over the next year Labour need to relentlessly point that out, by making comparisons to 2019. What it does after the recovery is over can wait for another post.

Why have I not talked about policies? Good policies are important, but there is no point having good policies if you are not getting them across. A populist government aims to dominate the media, which is why Labour must get better at being a counterpoint to the government's propaganda machine. A populist government will only be defeated when enough voters, with the help of the opposition, realise there is little substance behind the spin and lies.

Even if Labour did all this, I still think it has almost no chance of winning the next election without cooperation with the LibDems and Greens over which party stands in marginals. The reason is structural and simple. Labour do need to appeal to left wing social conservative voters, and that is bound to alienate many social liberals who feel Labour is failing to champion enough social liberal causes. (This is not helped by making those on the left in Labour feel unwelcome [2]). The Green party did well on Thursday, and will continue to pick up votes as a result of Labour’s strategy from those unwilling to vote tactically. Without cooperation with other opposition parties Labour’s strategy is highly likely to be self-defeating. This seems like a basic problem with Labour’s strategy that Labour have failed to address.[3]

[1] To any Tory apologist that talks about private sector efficiency gains, just compare the vaccine rollout under the NHS to the government’s test and trace infrastructure that had substantial private sector involvement, cost billions and kept failing its targets.

[2] Those on Labour’s right who think they have to replay the 1980s to win again should look at the US, which is a far more relevant parallel when fighting a populist.

[3] I know Labour’s constitution prevents this kind of cooperation, so change the constitution! I suspect the main hurdle to this is not Labour members but the Labour leadership.

Politicians and experts: austerity, Brexit and the pandemic

 

I’ll be talking about fiscal policy during and after the pandemic at a Resolution Foundation/MMF event in a week’s time: https://www.mmf.ac.uk/resolution-foundation/

I have written quite a few posts on the relationship between policy and expertise, and between expertise and the media. The better ones are in my book, but they were all written before the COVID pandemic. How does the relationship between experts on the one hand and politicians and the media on the other that we saw with economists over austerity and Brexit play out with medics and the pandemic?

All three cases are different from each other. Although the evidence set out in my book suggests that the majority of academic economists opposed austerity (a majority that got larger as time went on), this plurality had no impact on either the media or the politicians pushing austerity. A few well known academics who supported austerity got a lot of publicity, but this was because they supported a policy pushed by politicians and the media, and not because they were influential in driving the policy. An obvious example in the UK was Ken Rogoff, who supported protecting public investment from any cuts while the government did much economic harm by cutting public investment.

The most notable feature of austerity was the almost total disregard by the media of the views of the majority of academics. As Alan Winters in his analysis of experts and Brexit points out, it was David Henderson who said in his Reith Lectures of 1985 “There is no doubt that the policies of governments … are influenced by economic ideas. But … these have not necessarily been the ideas of economists”. This applies with equal force to the media. The media appeared to apply the logic of the household to governments, so that the necessity of paying back debt as soon as possible became common sense, even though saying this would be a fail for any first year economics undergraduate. For that reason I called it mediamacro.

The power of media narratives should never be underestimated, as the Labour party has experienced many times to its cost. Austerity was just another example. It was a particularly devastating example, because in this case the media’s common sense did terrible harm to the economy, and the media was ignoring what it should have regarded as a key source of knowledge, academic macroeconomics. Needless to say, media organisations have never examined their own mistakes in this regard.

Brexit was different in two respects. First, what was a plurality over austerity was an almost total consensus on Brexit. Making trade more difficult, which almost any form of Brexit did, would cause considerable harm to the economy. The second difference compared to austerity was that the broadcast media had less of any common sense to appeal to, and so they played the ‘two sides’ game. On the one hand was the overwhelming consensus of academics, together with all the major economics institutions, and on the other was a handful of pro-Brexit economists the most noticeable of whom was Patrick Minford. (A few media outlets, and particularly the Financial Times, did follow the academic consensus.)

In defence of the broadcast media, this ‘two sided debate’ format is their default on most issues, and it doesn’t normally matter what the expert consensus is (which is typically not mentioned). However as we saw with austerity, there are exceptions. Whereas the exceptions should be based on the expert consensus, they instead seem to be based on common sense narratives. As with austerity, the media has never examined its own mistakes in relation to Brexit. As the referendum was very tight, the actions of the broadcast media in treating the overwhelming consensus of academic economists as just one opinion could well have influenced the result.

This trivialising of expert opinion is not inevitable. Strong pressure from academic bodies can yield results. The obvious example is climate change. When broadcasters began to increasingly ‘two-side’ the climate change issue, academics and others protested, and the BBC trust acknowledged that on this issue the expert consensus had to be followed. Not all BBC programmes have subsequently respected the Trust’s findings, but nevertheless you will generally see broadcasters treating the need to reduce man made climate change as a fact, and not as a controversial opinion.

The obvious difference between austerity or Brexit and climate change is that the former involves economists and the latter involves scientists. Actually the difference in methodology between climate change scientists and economists is not that great: both attempt to predict in a highly stochastic environment, and neither can easily conduct experiments. There are differences in public perception, of course. Besides the insight of Henderson noted above, there are various myths about economics that are part of the public debate. But the most relevant difference in my view is the absence of institutional pressure on the media from economists that matched the pressure over climate change.

Another academic discipline that has similarities to economics is medicine, and more specifically public health and epidemiology. The story of COVID-19 initially appeared to be more optimistic than austerity and Brexit. In many European countries, including the UK, governments took scientific advice, although in the UK with a short delay that probably cost tens of thousands of lives. But as Alan Winters notes, that optimism has been short lived. In most countries in Europe, including the UK, the second wave has been far worse because politicians ignored the expert advice.

The rationale they have given for ignoring the medical experts has been to balance health with the economy. The irony is that once again most economists I have seen who have studied this issue have agreed with me that there is no meaningful trade-off between the economy and health beyond the very short term. Once again academic economists are ignored, this time where lives are directly at stake.

The media have faithfully echoed the excuses for ignoring the expert advice, seemingly ignorant of the fact that they have little basis. From what I have seen they have given air time to experts and particularly politicians pushing the ‘lockdowns do not work’ nonsense, as if this is just another opinion. I suspect once again this is because it is ‘common sense’ that there is a health/economy trade-off, because most people do not think in dynamic terms. I have not seen government politicians questioned in interviews for not following expert advice in a similar manner to the way Labour politicians were questioned for doubting Osborne’s austerity.

Why did politicians initially say they were following the science of how to deal with the pandemic, while the same politicians ignored economists on Brexit? It is not because medicine is a science and economics is not. As I have argued elsewhere, the two disciplines have many structural similarities. Henderson’s point about prior beliefs is undoubtedly one reason: not many non-medics thought about pandemics before there was one. For politicians another reason is ideology. With austerity and Brexit it was ideologically convenient, and perhaps even necessary, for its proponents to discount expertise. Initially there appeared to be little ideology involved with controlling a pandemic, beyond libertarian instincts.

One reason attitudes to medical experts changed among government politicians between the first and second wave was the emergence of ideology dressed up as science: the Barrington Declaration and all that, and the influence that has had on many Conservative MPs. Once again, it became in the interests of those politicians to ignore expertise, just as they did with Brexit. The correlation with pro-Brexit and anti-lockdown views is no accident. The lesson is simply not to elect politicians who can so easily cast aside expertise.

Unfortunately that is less likely to happen as long as the media fails to tell viewers what the consensus among experts is. I have made this point before, but I think the lesson of climate change is instructive. The media are not going to change what they do, particularly when some feel their existence may depend on keeping certain politicians happy. What changed the media’s approach to climate change, at least in principle, was pressure from science itself. The reason academic economics gets ignored is that academic economists don’t organise to apply pressure.

I have seen so many accounts of why economics was ignored over Brexit that blame themselves: things should have been presented more clearly, economists should have been more open about uncertainties, and so on. All have some truth, but none will make any difference as long as the media treats the consensus among academic economists as just another opinion. For the media to do otherwise requires the strongest pressure from groups who represent academic economists. At the very least, we need institutions representing economists telling the media what the consensus view (if any) is on particular economic issues. [1]

I suspect that some medics will be beginning to ask similar questions about the pandemic: why did politicians ignore consensus advice, why did anti-lockdown politicians get so much airtime and so on. The answers I suspect are similar to those I have just given for economics. Medics have one big advantage over economists: the bodies that represent them are used to applying public pressure. They should apply that pressure on the media if they want to avoid expert views about the safety of COVID-19 vaccines to be treated as just one opinion to set beside the opinion of anti-vaxxers.

[1] When I make this point I often get comments along the lines that I’m trying to impose conformity, and the public should be told about mavericks opinions because (very occasionally) they turn out to be right. I’m doing neither of those things. What is missing from the media is any sense of what the expert consensus is, and for politicians who depart from the consensus being interrogated on why they think they know better than the expert consensus.

The UK’s place in the world

As an economist, I naturally focus on the economic aspects of the EU. The EU is mostly about economics. To counterpoise sovereignty as an alternative perspective to economics misses an important point: most EU rules stem from the economics of free trade within the EU. The EU wants common regulations to make it easier to trade. The EU wants restrictions on state aid to prevent countries giving their own firms an advantage over others in the union. Much the same applies to labour market and environmental standards.

Economics is also involved in another aspect of being in or out of the EU, and that is how the UK sees its place in the world. Is the UK’s identity partly a European identity, or does the UK ‘stand alone’, independent of all multinational blocs. Anyone interested in this question should read an excellent and compact essay by the ‘Red Historian’, Robert Saunders.

Those who want us out of Europe need to address why the UK became part of Europe in the first place. After the war, the UK had tried a different strategy. After all, being part of Europe did not look very attractive in the aftermath of a war that had destroyed large parts of it. Instead the UK tried to forge its place in the world based on its history, a history of empire.

This involved three elements: the remains of Empire, the Commonwealth, and our special relationship with the US. Harold Macmillan spoke of Britain playing ‘Greece’ to America’s ‘Rome’, acting as a wise counselor to its idealistic but naive successor. But that strategy failed, because neither the Commonwealth or the US were particularly interested in playing their allotted roles in this scheme.

Two quotes from Saunders’ essay are indicative. The American Dean Acheson said ‘The attempt to play a separate power role’, he declared, ‘a role apart from Europe, a role based on a “special relationship” with the United States, a role based on being the head of a “commonwealth” which has no political structure, or unity, or strength … this role is about played out’. Privately, Harold Macmillan agreed: ‘all our policies at home and abroad’, he lamented, ‘are in ruins’.

This is why we became a part of the EU. The UK wanted to continue to play some significant role in the world, and our attempt to do so independently of Europe had failed. So now we have left the EU, is there any coherent vision of an alternative strategy?

In the Brexit debate you can hear an echo of the failed post-war strategy. No trade deal with the EU is now apparently called the Australian relationship, because that sounds better. We also hear an echo of an even earlier history, when appeals are made to the UK’s buccaneering spirit. However, as Adam Curtis explored in a 1999 documentary (HT Adam Tooze), there is a modern counterpart to this, which is the story of how we ended up selling weapons to Saudi Arabia. But as Robert Shrimsley points out, this vision conflicts with the government's new found need to worry about left behind regions with what some ministers call 'legacy industries'.

Yet stories and exceptions apart, the truth is UK industry is not particularly buccaneering. This has nothing to do with being constrained by the EU, as a comparison with Germany makes obvious. In fact the opposite is the case. One of my first jobs after I graduated was looking at the steady and significant decline in the UK’s share of exports in world trade, which was something of an obsession among UK policymakers.

The UK’s weakness is perhaps not surprising in a country where the middle classes regard an engineer as someone who fixes your washing machine. What the UK does well is produce financial, business and other services. But to successfully export these often requires pretty deep trade agreements, like the EU single market. Which is why our export share within the EU rose so substantially after the Single Market was formed. Which major economies are going to enter into the equivalent of the Single Market with the UK?

There is little sign that the current government, and particularly those who lead it, understand anything of this. Comic book stories substitute for solid evidence. They have shown us nothing to suggest that the UK can continue to have any voice among those of dominant players like the US, EU, China, India, Russia and Japan. As Robert Saunders writes

“In writing a history of Britain as a small power, it pretends that nothing has changed: that a nation stripped of its colonies, its industrial power and its control over global finance has the same options today as in the age of its pre-eminence. That means that we are not being serious about the choices in front of us.”

Does the UK need to have a special place in the world? Can we not accept that others will take the key decisions, and we will just have to do what we can in a world over which we have no control? As Saunders notes, in a benign world this might be tenable, but we no longer live in a benign world. This is where the economics of trade re-enters the equation. A UK with no big country or union to help protect it will be at the mercy of any big global player that wants to gain some trade advantage at our expense.

For many in the ERG the implicit answer to this problem is the United States. They are encouraged by Trump’s enthusiasm for Brexit. They fail to see that his enthusiasm is based on antagonism towards the EU and his desire to exploit our weakness. For those who have a nostalgia for days of glory that weakness will be hard to take, as it will be when our legacies of empire are gradually taken off our hands along with the trappings of international influence.

For all these reasons, Brexit is not tenable in the long term, as those who tried and failed to make it work after the war finally understood. Their conclusion will be our conclusion after Brexit: for the UK to flourish in a secure environment it has to be part of the EU. The only question is how long this realisation takes and the manner of our rejoining.

How business lost its influence on right wing parties

This covers ground which others may be more knowledgeable about, so please let me know of any references or sources that I really should read that cover issues central to the discussion below.

When Trump threatens governments that want to tax tech giants, most of which are based in the US, it seems like the familiar story of governments acting in the interest of business. But when Trump imposes tariffs on imports he may be favouring particular firms, but he is also acting against the interests of US trading firms in general.

Brexit is a much more potent example. Brexit is clearly not in the interests of firms that trade. Because Brexit makes the economy as a whole poorer there are not many firms who support it. Boris Johnson, when asked about concerns from business about a hard Brexit, is reported as saying “f*** business”, and following some comments by the new Chancellor, Chris Grey speculates whether “f*** business” is now government policy.

It wasn’t always like this. David Edgerton writes that

“After the second world war, such captains of industry avoided the Commons, but the Conservative party was without question the party of capital and property, one which stood against the party of organised labour.”

That changed after Thatcher, as she reduced the power of trade unions, and Labour began distancing itself from them. Another development that I think began with Thatcher, and is particularly evident in the UK, is a lack of concern about who owns large firms. The importance of this should not be overstated: the ONS estimated that in 2012 just 1% of non-financial firms were foreign-owned, but these firms were large so around a third of value-added was accounted for by foreign owner firms. I suspect the proportion is higher still in the traded sector. But that still leaves plenty of important UK owned firms.

Another important point, and a difference from the US, is that joining the EU meant the UK was no longer in charge of trade negotiations. This ended the extensive and direct contacts between the UK traded goods sector and government that you find in countries not part of the EU. However links between the financial sector and the UK government are strong and effective. In contrast as the financial sector expanded, its links with domestic businesses became less important.

Finally another important development that followed from the Thatcher period was the reduction in taxation of top incomes. This particularly benefited high earners in the financial sector, but it also spread to most CEOs of large companies. According to Piketty, Saez and Stantcheva, this encouraged in the UK and US an explosion in executive pay, distancing the 0.01% or 0.001% of extremely rich individuals from everyone else. This involves the managers of business extracting rent from the business itself. Although this explosion happened in the 1980/90s, the cash increase in remuneration (including bonuses etc) for the median FTSE 100 CEO between 2009 and 2017 increased by 76% to £3.9 million. There are no signs of it ending. 

This meant that CEOs spoke in the interests of both the companies they ran, but also in the interests of very rich individuals like themselves. Before the 2015 UK general election, one of the main concerns of business about a possible Labour government was a potential tax on expensive homes! This helps dilute the pressure business can exert on right wing governments, if those governments make it clear that they will always stand up for the very rich. In 2017 Labour’s campaign slogan was ‘for the many not the few’, so of course the few will always support the Tory party, even when it was making life much more difficult for business. Tax cuts for the wealthy are now a key part of any Republican programme.

In these senses neoliberalism (aka what happened during and after Thatcher and Reagan) created the conditions that helped diminish the direct influence of business on the dominant right wing party in the UK and US, and therefore for much of the time the UK and US state. This was my thinking when I wrote

“Rent extractors naturally seek political defences to preserve their wealth, and the mechanisms that sets in place may not embody any sense of morality, leading to the grotesque spectacle of Republican lawmakers depriving huge numbers of health insurance to be able to cut taxes for those at the top.”

It also means that the finance any party of the right needs can come from money and those that manage business (and extract rent from it), and that can be divorced from the interests of business. This was part of my thinking in talking of a governing plutocracy, and writing:

“It is also a mistake to see this plutocracy as designed to support capital. This should again be obvious from Brexit and Trump. It is in capital’s interest to have borders open to goods and people rather than creating barriers and erecting walls.”

Could a more vocal attack on Brexit by businesses have influenced the vote? It is not clear, because everything is mediated through a largely partisan press and an 'opinions differ' broadcast media. However I think the distinction between the interests of the wealthy and domestic business is important, and goes well beyond an opposition between financial and non-financial firms.

Was the Remain campaign always doomed?

In hindsight it is tempting to say that Remainers should have set their sights on something close to a BINO type deal (UK remaining part of the Single Market (SM) and Customs Union (CU)) rather than campaigning for Remain, and some have already suggested that. Is that a reasonable conclusion in the light of Remain’s defeat in December 2019?

In mid May it all looked so different. I wrote

“It seems odd writing that Brexit is on its deathbed, in a coma but with no chance of recovery, when a year ago the Remain cause seemed hopeless. The thing everyone under estimated was the way Brexiters themselves would effectively kill Brexit.”

The essential problem was that a significant section of Conservative MPs (and Farage) wanted no shared sovereignty with the EU (no ties to common standards etc), while another part of the party didn’t like the implications of this hard Brexit for UK business. So how did Brexit move from its deathbed to become a certainty within just 7 months? What mistake did I make, and could it have been foreseen?

I was right about the prospects for Brexit under May. May was going nowhere because there was no way to avoid a hard border in Northern Ireland with any UK wide deal acceptable to the Brexiters, and both May, the DUP and many Conservative MPs seemed adamant that a border in the Irish Sea was not on. A lot of this was already apparent to me a year and a half earlier.

It is easy to say that a new Prime Minister made all the difference, but that isn’t enough. In May I did write “A Conservative party committed to No Deal is the only way the Tories have to neutralise Farage.” I could have added that many Tory MPs would be unhappy with that, which is why that path was not sufficient for Johnson.

What he did would have been hard to anticipate in May. I think Johnson got there through trial and error rather than having some master plan when he was elected. He had to convince both Farage and the Brexiters that he would go for no trade deal rather than anything that ties the UK to the EU, yet convince everyone else that he really was going for a deal. The way he achieved that was to agree to the EU’s original proposal for a border in the Irish Sea, but also by committing not to extend the transition period beyond a year.

The other key ingredient was the devastating Conservative result in the European elections. Not only did it ensure May’s departure, but it also became clear to Tory MPs that they risked disaster at a General Election if they didn’t get Brexit done. So they rejoiced when Johnson got the deal that Johnson had said earlier was something he couldn't possibly agree to. They didn’t ask questions when Johnson refused to extend the transition period, even though they knew full well no trade deal worth anything could be done with the EU within a year when the UK didn’t want a level playing field. 

Equally Brexiters and subsequently Farage were persuaded that Johnson would stick to his pledge for no extension of the transition period, because to question it was to put Brexit at risk. Both sides heard what they wanted to hear from someone they knew was the least trustworthy politician in the UK. Now we have seen all this happen it is easy to imagine it, but in the first half on 2019 you would have been almost clairvoyant to see all that detail. As a result, Remainers optimism at the time was not unjustified given the information we had, and so compromises were less likely.

What you could have done was be pessimistic at a more general level. Many hoped that after the vote public opinion would gradually lose faith in Brexit, but that happened only to a small degree. If you believe as I do that the Brexit vote was the product of Brexit press propaganda coupled with BBC disinterest in informing viewers about reality, then why would people change their mind? As a result of solid Brexit support, the fate of the Conservative party became linked to getting Brexit done, so the party had to find a way.

Of course Remain could have won the General Election, and a failure by the Conservatives to get an overall majority would have meant the end of Brexit. Ironically Corbyn both created the conditions that allowed Remain to be optimistic (Labour’s victorious defeat in 2017 and the consequent DUP veto) but they also helped create the conditions for a Conservative victory. Labour’s performance in 2017 changed the Brexit political dynamic, but the last people to understand that were the Labour leadership. I wrote in January that Labour’s refusal to oppose Brexit is becoming a historic error, and events in the first half of 2019 proved that was correct. [1]

Johnson’s victory did not just depend only on the Remain vote being split. During the election period Labour clawed back a lot of the votes they had lost to the LibDems, but the LibDem and Green vote was still 50% up on 2017 levels. Corbyn was very unpopular among many of the kind of traditional Labour voters who had voted Leave: the media gave us two more years of negative coverage of Labour, and Corbyn’s past was a gift in that respect. But a detailed assessment of why Labour lost is for another time.

There was another sense that fence sitting by Labour did not help Remain. I noted above that public opinions about Brexit did not change significantly after the referendum vote, but we will never know if that was inevitable. The way broadcast media work is to cover what the two main parties say, even on an issue like Brexit. Corbyn’s stance after the vote meant that Labour felt unable to attack Brexit rather than the government’s handling of it.

There is a counterfactual history where Labour MPs played things better (i.e waited until the beginning of 2017) to provoke a leadership election, Corbyn lost that vote and his successor campaigned against Brexit. This gave Labour a poll bounce that dissuaded May from holding an election, allowing Labour to campaign against Brexit for the next three years. It might have not worked out that way, but we know for certain Corbyn as leader did not work out.

To sum up, I don’t think I and other Remainers were being unrealistic in aiming for a Remain outcome. But I do think we have to be realistic about the next five years. It is just possible that Brexit will lead to the next five years being obviously terrible, and that public opinion will move against the whole project. If that is the case opposition parties, and particularly Labour, should not be afraid the join the dots and make that case. More likely, however, is that things continue as they have been over the last three years. Not good at all, but not bad enough for anyone to change their beliefs about Brexit.

If the lessons of austerity and the last three years carry over, the more some talk up impending disaster, the more poor performance will be portrayed as the vindication of Brexit. The reality is that powerful forces have imposed a policy on half the population that do not want it. It is rare that we see a government implement a policy that all experts say will do the UK serious economic and political harm, which is why those overseas who are not on the extreme right or left think we are utterly stupid. At least those that have fought this policy all the way can hold our heads up high and say we did all we could to stop it.

[1] There are some who still insist that Labour’s eventual adoption of a People Vote in all circumstances was a ‘suicide note’, but Labour’s policy before then would have been much more disastrous. You may discount the European elections, but polls both before and after that had Labour around 25% and the LibDems touching 20%. Labour’s 2017 result had created the political dynamic of strengthening Remain, creating a political vacuum that Labour didn’t fill so the LibDems did. Labour would always have clawed back some of the voters who chose LibDem during the election period, but in the absence of a commitment to a Public Vote their final percentage would have been well below the 32% they actually achieved. That is because Leavers would not have come flocking to them, because the lure of 'getting Brexit done' was too great.