Does Brexit represent an alliance of Rentiers?

One of the striking features of Brexit is that it is harmful to most productive capital and those who work with it: the capital embodied in firms that trade for sure, but also the capital that produces stuff for firms that trade and so on. In so far as Brexit will impoverish the UK as a whole, it is also harmful to any firms that produce for the UK market. Yet the party that has traditionally been thought of as supporting UK productive capital, the Conservative party, is the one promoting Brexit.

There are of course moneyed interests who provide active or financial support, and even bankroll, Brexit. Among owners of UK firms they tend to be individuals who have a particular beef against the EU. You will also find a few hedge fund managers. The most notorious financial backer of Brexit, Arron Banks, made his money through insurance.

Among those who voted for Brexit, there is a large group who are well off and retired. Your typical Daily Telegraph reader if you like. Being retired, their main source of income is their pension and their savings. At this point I can hand over the William Davies in a fascinating recent article in the New Statesman:

“What this group shares with the Johnson-Farage backers is a lack of any immediate interest in labour markets or productive capitalism. What’s the worst that could happen from the perspective of these interests? Inflation or a stock market slump would certainly harm them, but they may have forgotten that these things are even possible. Jeremy Corbyn terrifies them even more than the prospect of Remain, as they believe he will tax capital, gifts and inheritance into oblivion (they are less concerned with income tax as they don’t pay it). Where productivity gains are no longer sought, the goal becomes defending private wealth and keeping it in the family. This is a logic that unites the international oligarch and the comfortable Telegraph-reading retiree in Hampshire.”

He goes on:

“This suggests that support for Johnson and Farage is a symptom of prolonged financialisation, in which capital pulls increasingly towards unproductive investments, relying on balance sheet manipulation, negative interest rates and liquidity for its returns (aided substantially by quantitative easing over the past decade). To put that more starkly, these are seriously morbid symptoms, in which all productive opportunities have already been seized, no new ideas or technologies are likely, and no new spheres of social or environmental life are left to exploit and commodify.”

This is very neat. The ‘puzzle’ that Brexit is detrimental to productive capital is in some sense solved. It is the ‘unproductive’ elements of capitalism that is bringing productive capitalism down. Like all ideas, and particularly neat ones, this needs some healthy skepticism. The rest of this post is a contribution to that critique.

Let me start with the well off Telegraph reader, living off their savings and pensions. It is true that a good chunk of that pension and savings may represent financial assets in a different currency, and so when fears of a no deal Brexit leads to a fall in sterling this part of their wealth increases its sterling value. But I suspect for most the majority of their wealth will be UK based: either shares in UK based companies or UK government debt. Very few will have the wealth to invest in hedge funds. As many savers will tell you, it is low interest rates that are the immediate threat to their financial wellbeing, and the fundamental cause of low UK interest rates is austerity.

The well off Telegraph reader is certainly better protected against the impact of a No Deal Brexit compared to someone who works for a UK car maker, but they are not immune to the impact of a No Deal Brexit either. If their pension comes from a UK company, they could be quite vulnerable. I think Davies is right that they probably worry more about the financial threat from a Labour government, but that alone does not make them a supporter of a No Deal Brexit.

What is probably true for many is that the financial threat to them of a No Deal Brexit is more opaque, mediated through stock markets or investment funds, than it is to a worker on universal credit or a worker who might lose their job. But this is also true to the poorer pensioner who depends on their state pension, given the current rules for uprating these pensions (and the political power of those with a high propensity to vote). For both groups it makes sense to try and insulate them from domestic shocks, but a political consequence may be an impression of invulnerability to these shocks.

If we move from voters to financial supporters of No Deal, it is not the case that No Deal benefits the UK financial sector as a whole - far from it. Like much of the UK service sector, it benefited considerably by being in the Single Market, and will be hard hit by any hard Brexit. Of course most of the large firms involved can move, and in many cases have already moved, some of their operations to EU capitals, but this is something they have been forced to do and so it does not make the sector a champion of Brexit. The Association of British Insurers has warned that a No Deal Brexit could cause lasting damage to the industry.

The article talks about “maverick entrepreneurs (bosses of JCB and Wetherspoons)” but perhaps the same should apply to all those who have encouraged Brexit. There is no reason why neoliberal ideology that suggests regulations just get in the way of business should just influence politicians, and it is capital that often has to meet these regulations. In addition you will always find hedge fund managers wanting to make serious money out of any large change, and perhaps foreign powers able to find vehicles of influence.

It is difficult to think of any sector that will be better off after a no deal Brexit, except perhaps funeral directors and debt collectors. No organisation or institution, beyond the think tanks of the right, is championing this cause. Instead we just see mavericks from various sectors speaking on behalf of a no deal Brexit or providing financial backing. The key question then becomes how a few maverick wealthy individuals and a minority of politicians can hijack the political process so that it works against the interests of nearly everyone else in the country?

The first answer is a society where individuals are allowed to make huge sums of money such that they can, by their own spending, have a huge impact on politics. Finance is partly why 1% inequality has grown, but the reason taxes on the rich were cut is political: the rise of neoliberal governments. The way this political influence is typically put is that 1% inequality gives the few an incentive to distort the political process so they preserve their wealth, but equally it can also allow a minority of the same individuals to bend politics to fit their own, sometimes maverick, ideas. Wealth also allows those who bend politics to walk away if it all goes wrong, as Farage said he would. Perhaps globalisation has increased the chances that those who meddle in the political process of one country can escape when things go wrong.

Money alone is not enough to persuade a large section of society to vote for acts of self-harm. The second answer is that you must have considerable control over the means of information. Brexit is the product of the obsession of a handful of men who over a long period of time have used their newspapers to denigrate the EU, and in recent years have turned these same newspapers into propaganda weapons for leaving the EU. Too many, on the left and centre, fail to acknowledge that without our right wing press, Brexit would not have had a chance of happening. Of course this partisan media also needs something to persuade people with, but the age old tools of nationalism and the demonisation of some ‘other’ seems to suffice.

In a developed democracy even all this may not initially give our mavericks a majority of the voting population. They will, at first, only have partial control of the media and the institutions that represent capital, along with many others, will be against them. The third answer to how a few individuals can gain great influence and enact huge harm is to capture a political party in a two party system. Once this is achieved they can use a badly designed voting system and their partial control of the media to push themselves or their policies through. Trump did this in the US (he lost the popular vote) and a no deal Brexit will happen if the anti-Brexit forces split by more than the pro-Brexit forces in a General Election.

For those that like their history to be about grand forces rather than maverick individuals this kind of explanation is hard to take. But there is an underlying force involved here, a force of ideas rather than interests. It is neoliberalism, and in particular the idea that the state and regulations just get in the way of prosperity for all, that is powering many of these mavericks to inflict great harm on their fellow citizens.

For too many Conservatives there is no spoon

The Tory party has lost its battle with reality. But there remains one hope, a man with a joke and a smile that can set the UK free from the EU. Unfortunately to do that he may set the UK free from democracy as we know it.

For those not familiar with the film Matrix, there is a scene where the hero Neo encounters a boy bending a spoon with his mind. The boy hands the spoon to Neo. The dialog goes on:

Spoon boy: Do not try and bend the spoon. That's impossible. Instead... only try to realize the truth.

Neo: What truth?

Spoon boy: There is no spoon.

Neo: There is no spoon?

Spoon boy: Then you'll see that it is not the spoon that bends, it is only yourself.

Neo then appears to bend the spoon with his mind. In the film the spoon isn’t real, but a digital simulation fed to unconscious humans to keep them alive. But what would happen in the real world if you really, really wanted to bend that spoon, and there was another world where you could make that happen? You could get to that world by talking a blue pill offered to you by a kind of anti-Neo.

Welcome to the contest for our next Prime Minister, where the electorate is just a small group of party members and Conservative MPs. The current contest is all about Brexit. Brexit is stuck. The goal of Brexiters, taken up by many (but definitely not all) who voted for it, is to gain complete independence from the EU and all its rules and regulations. They hoped to do this by leaving the Single Market and Customs Union, and replacing them with a free trade agreement (FTA) with the EU. Unfortunately they brushed aside two obstacles: the Irish border and the Good Friday Agreement.

Together they are a spoon that so many Conservatives want to bend by wishing it so. The Irish government and the EU live in the real world, so they know that an FTA with the EU would require a hard border on the island of Ireland. A hard border is incompatible with the Good Friday Agreement. As a result, either Northern Ireland or the UK has to keep their trading rules such that there cannot be a hard border in Ireland. The backstop ensures this will happen. Complete independence for the UK from the EU is therefore impossible, just like bending a spoon by thought alone.

Most Conservative candidates for Prime Minister pretend they can really bend the spoon. Many suggest it can be bent using soon to be invented technology. Technology that would make a hard border anywhere near the actual border unnecessary. But these candidates have a problem. If such technology could be found, the EU have said they would be happy to apply it. And if such technology is just around the corner, why would the Brexiters object to the backstop that will soon be removed? The fact that the same Brexiters who say the technology is almost apon us also refuse to accept the backstop suggests they do not really believe in bending spoons.

One or two candidates say that, if only they are given a chance to stare into the whites of the EU negotiators eyes, they can make the EU bend. This is also impossible. Others suggest that we can leave in October with No Deal and then we can do the FTA we want, because the EU will want the £39 billion that we have already agreed we owe them. In reality if we break our existing agreements with the EU after a No Deal Brexit the EU can do things like fail to let our airplanes fly.

Many of those voting for our next Prime Minister may understand all this deep down. They agree with the spoon boy that you cannot bend a spoon by thought alone. Instead they want to take the blue pill, and go to a world where almost anything is possible if you want it enough. A world where you can wish away the Irish border problem. The same world where we once stood alone and won WWII all by ourselves.

These Conservative party members are not hanging on every detail of alternative arrangements for the Irish border to check that they will actually work. They don’t mind too much how we leave and what is done to parliament to make that happen. They just want their blue pill and their anti-Neo to make all their difficulties disappear. They want someone to get Brexit done and banish Farage and then diminish Corbyn so they might actually win another election. They want there to be no spoon, because life would be too difficult if today’s reality turned out to be all there is. In particular, and to mix imaginary tales horribly, if they recognised reality they would have to give up their precious, Brexit.

Just after the 2017 general election I wrote about the Zugzwang that the Conservative party found itself in. Zugzwang is a term in chess where a player finds themselves in a position where every move that it is possible to make ends up making them worse off. In that situation the chess player would like to skip their move, but the rules say they cannot. What I had in mind then was that most Tory MPs wanted to be rid of May because she was clearly a hopeless leader who had called an unnecessary election with a commanding lead in the polls and lost it all. Yet these same MPs could not get rid of May because they would get a Brexiter instead.

I underestimated the Zugzwang the Conservatives were in. I hadn’t realised the depth of the rabbit hole that Brexiters were prepared to take the Conservative party and its members. Brexit could have happened if the Brexiters had not voted against May’s deal. Instead they have taken a referendum that promised the easiest trade deal with the EU in history and pretended it is mandate for No Deal at all. Their supporters in the press egg them on and most in the broadcast media let this pass.

At the bottom of the rabbit hole of Brexit, where only complete independence for the EU is acceptable, you can only survive by taking the blue pill. The blue pill takes you to another place where most Conservative members and MPs want to live. And Boris Johnson, who can seemingly make any bullets fired at him stop dead in mid air with a joke and a smile, is the person who can make this happen. Boris Johnson will offer you a red pill and a blue pill. The red pill that is reality and the blue pill where thought can bend spoons. Pills like the two articles he wrote before he decided to champion Brexit.

Unfortunately that other place where you go if you take the blue pill is not fictitious. They have seen it across the Atlantic. Johnson is in reality their Trump. Trump can get away with so many things that once were considered outrageous, and he only gets away with it because he has a party machine and media behind him that is prepared to tolerate and justify anything Trump does so they can stay in power, as long as the party serves its backers’ interests. A UK version of Trump is the only way of delivering an outrageous thing like No Deal Brexit.

Johnson, like Trump, is criticised for his lies and personal behaviour but he just laughs it off and nothing seems to matter. There are much more worrying similarities between the two. Johnson, like Trump, cannot concentrate for long, says or does the wrong thing at critical moments, has no vision except his own advancement, and makes serious mistakes that go beyond his words and his personal life. His genius is to turn his own incompetence into a joke, so he appears so refreshing compared to most politicians. Although the jokes may be well rehearsed, the incompetence is real. When you are worse off because of his incompetence it isn’t funny anymore, but you just need enough people who are yet to experience his incompetence first hand and who appreciate a funny politician and the job is done.

Which leads to a critical realisation. If Johnson is the UK’s Trump, then the spoon is not just the Irish border, or the consequences of a No Deal Brexit. The spoon has to be politics as we once knew it, democracy as we once knew it.

The first spoon that will be bent is an independent media that asks critical questions based on facts. As William Davies and others have observed, Johnson’s first leadership press conference was positively Trumpian. Journalists who ask tough questions were booed. Later pressure will be brought through the Tory media or elsewhere such that journalists quickly learn that asking such questions is more trouble than it is worth. Small outposts of critical thought may remain, because you only need to control what most people see and read to bend the spoon to your will. Whereas Trump plays the media through his tweets, Johnson can shrug off using racist imagery about Muslim women by offering the MSM cups of tea.

The spoon may become the judiciary, that has already raised the wrath of parts of the governing party, its press and its members by daring to allow parliament the final say in enacting Article 50. The already unprecedented number of attacks by politicians on the civil service will morph into a politicisation of the civil service that Thatcher would never have dreamed of. And very soon the spoon may be parliament itself. Johnson is committed to imposing the most devastating kind of Brexit on the UK if he cannot get a deal by October, and parliament may well try to stop him. Johnson has not ruled out ignoring or suspending parliament and going ahead anyway. If his poll numbers are not as favourable as some hope, or the deal he offers Farage is rejected, he may be tempted to bypass parliament rather than call an election.

The spoon that Johnson and his party want to bend or to pretend doesn’t exist is pluralist democracy itself. It will happen slowly, each stage seemingly not so bad because each happens with a joke and a smile. We can only hope that just because most Conservative members want to live in a world where there is no spoon, enough voters prefer changing the real world in ways that enhance rather than diminish our democracy.

Experts and Elites

It’s like 2016 all over again. Lots of forecasts of how much poorer we will be under different Brexit scenarios, which if the last time this happened is anything to go by will be ignored or dismissed by around half the UK population. Perhaps I should call for a total and complete shutdown of pronouncements by experts until our country's representatives can figure out what the hell is going on.

More seriously, what has led to this apparent distrust in the words of experts? I want to focus on experts in particular, rather than the more general concept of elites, and even more specifically experts from academic institutions or places directly tied to them. Will Davies has a nice account of the many reasons why distrust in politicians in the UK has increased, but a lot of what he has to say does not really apply to academia.

I have to admit to being completely partial in believing that once society starts ignoring what the evidence says it is on a road to ruin, and academics in the sciences (including the social sciences) have as their raison d'etre trying to understand evidence. And to be fair, much of society understands that. As an IPSOS MORI survey consistently shows for the UK, academics (‘professors’) regularly come close to the top of groups that people trust most.

Furthermore, if anything public trust in professors or scientists has been growing rather than falling over time. The same is also true of social trust in the UK, contrary to many popular accounts.

These results suggest that there has not been any recent decline in how much academics are trusted. But if you replace ‘professors’ by ‘economists’, levels of trust decline sharply. [1] And for good reason. I would have fairly low levels of trust in probably what most economists I see in the mainstream media say, and this is because I most frequently see economists in the media who are not academics. They are typically doing one of two things. The first is making up stories (sometimes plausible stories, but still based on zero evidence) about market movements. The second is describing macro forecasts: a necessary but highly unreliable activity.

Many journalists do not understand the difference between these kind of forecasts (‘unconditional’) and the kind of analysis presented on the economic effects of Brexit (‘conditional’). The analogy I tend to use is between a doctor telling you that you are more likely to die of a heart attack if you eat too much fat (‘conditional’), and a doctor trying to predict your exact time of getting a heart attack (‘unconditional’). This failure to understand the difference between the two activities is the first major reason why academics who say Brexit will reduce living standards are not trusted as much as they should be. It is predominantly a failure of the media rather than economists themselves.

I sometimes wonder, however, if certain journalists and politicians deliberately choose not to understand the difference between the two because it suits them to remain ignorant. This brings me to the second reason that academic economists may be ignored or dismissed over Brexit, and that is because certain elites have an interest in doing so. Here is Stewart Wood reacting to Jacob Rees-Mogg’s comments on Mark Carney after the Bank released some of its Brexit analysis.

The Bank’s analysis is of course not beyond criticism. [2] But the attacks of the Brexiter elite are quite deliberately not economic in character but political: Rees Mogg claimed Carney is a second rate politician (a second rate foreign politician!) and his forecast is designed to produce a political outcome (‘Project Hysteria’). The idea is to suggest that these projections should not be taken as a warning by experts but instead as a political act. Once again, I’m not suggesting we should never think about what an experts own interests might be, but if you carry this line of thought to the Rees Mogg extreme you undermine all expertise that is not ideologically based, which is exactly what Rees Mogg wants to do.

This I think is the second reason why the view of the overwhelming majority academic economists that Brexit will be harmful is going to be ignored by many. Since Mrs Thatcher and the 364 economists, the neoliberal right has had an interest in discrediting economic expertise, and replacing academic economists with City economists in positions of influence. (Despite what most journalists will tell you, the 364 were correct that tightening fiscal policy delayed the recovery.) Right wing think tanks like the IEA are particularly useful in this respect, partly because the media often makes no distinction between independent academics and think tank employees. Just look at how the media began to treat climate change as controversial.

But isn’t there a paradox here? Why would members of the public, who have little trust in politicians compared to academics, believe politicians and their backers when they attack academics? In the case of Brexit, and I think other issues like austerity, these elites have two advantages. The first is access. Through a dominance of the printed media, a right wing elite can get a message across despite it being misleading or simply untrue. Remember how Labour’s fiscal profligacy caused record deficits? Half the country believe this to be a fact despite it being an obvious lie. What will most journalists tell you about Brexit and forecasts? My guess is that forecasters got the immediate impact of Brexit very wrong, rather than the reality that what they expected to happen immediately happened more gradually. Why will journalists get these things wrong? Because they read repeated messages about failed forecasts in the right wing press, but very little about how GDP is currently around 2.5% lower as a result of Brexit, and real wages are lower still.

The second is that the elite often plays on a simple understanding of how things work, and dismisses anything more complex, when it suits them. Immigrants ‘obviously’ increase competition for scarce public resources, because people typically fail to allow for immigrants adding to public services either directly or through their taxes. The government should ‘obviously’ tighten its belt when consumers are having to do the same, and so on. In the case of the economic effects of Brexit, it is obvious that we will save money by not paying in to the EU, whereas everything else is uncertain and who believes forecasts etc.

As the earlier reference to Mrs Thatcher suggests, there is a common pattern to these attacks by elites on experts: they come from the neoliberal right. If you want to call the Blair/Brown years neoliberal as well, you have to make a distinction between right and left. The Blair/Brown period was a high point for the influence of academics in general and academic economists in particular on government. As I note here, Iraq was the exception not the rule, for clear reasons. Attacks by elites on experts tend to come from the political right and not the left, and the neoliberal right in particular because they have an ideology to sell.

[1] See this YouGov poll. Thanks to John Appleby for finding this for me. 

[2] For example, including a ‘worst case’ No Deal scenario designed for stress testing banks in a graph alongside more standard projections of the impact of the Withdrawal agreement is just asking for misinterpretation of the former.

Governments of fools?

Dominic Raab was widely mocked for his remarks about only recently understanding the importance of the Dover-Calais crossing (I defy anyone not to laugh at this from Artist Taxi Driver). The derision may be a little over the top, as it was when Gove was misquoted as having had enough of experts, but they and more serious admissions of ignorance are ridiculed because they reveal a deeper truth. As in the US, those ruling us in the UK do not really know what they are doing to a much greater extent than in previous years (see George Eaton here).

That last sentence perhaps requires clarification. They are not fools without any purpose. Brexit is a triumph of the heart over the head. They know what they want, and just do not care too much about the damage it will do. But the ‘misunderstanding’ by Brexiters over what they signed up to in December 2017 that persisted for weeks shows how dangerous not paying much attention to facts (in this case the words of an agreement) can be. Theresa May wasted at least a year completely misunderstanding the EU, and firing those in government that did. Perhaps her biggest act of ignoring the obvious was embarking on the Article 50 process without any prior discussion of what was possible and what was not, which as many people noted at the time was a sure way of ensuring the EU got pretty well what it wanted. If you do not believe all this, read Chris Grey here.

If you are tempted to put this all down to the unique stupidity of Brexit, or the uniqueness of Donald Trump, you really need to read my new book (short summary here). These traits were there with austerity, or the ‘hostile environment’, if you did the research. Economic historians of the future will discuss at length which did more needless economic harm to the UK economy, austerity or Brexit (assuming Brexit goes ahead). The only real debate about George Osborne, who committed the UK to pro-cyclical fiscal policy in the middle of the Global Financial Crisis, was whether this reflected deliberate deception or unforgivable economic ignorance (chapter 1.13 of my book), and if the former whether it was all about shrinking the state or a more superficial search for political advantage. In later years it became simple deficit deceit for neoliberal ends. In the US the priority of the Republican party for years has been tax cuts for the rich paid for by reducing state services for the poor, and a selective concern for the deficit combined with imagining tax cuts pay for themselves have been useful devices (lies) to achieve that. .

If politicians on the right display wilful ignorance to achieve their goals, they have knowledge of a kind that exceeds their opponents on the left by miles. They are extremely well versed in the arts of political spin, or more generally of getting votes by disguising the true objectives of their policies. Part of this works through think tanks, and part through the right wing press. In turn both these groups, plus politicians themselves, put huge pressure on the media (in the UK the BBC in particular), and that pressure works. The table below comes from this study and shows how often the BBC used political sources in 2007 and 2012:

Whereas the bias towards Labour was small in 2007, and was perhaps expected as they were also the government, by 2012 Conservative sources were almost double Labour sources. (Ironically LibDem sources declined in 2012, despite being in government.) Something similar happened to think tanks, according to this study comparing 2009 and 2015. For example in 2015 the IEA was referenced about 3 times more often than the IPPR. The detail in the paper of where the right wing bias was most prevalent is noteworthy although not that surprising.

Even when the BBC does manage to maintain balance, as it did in the 2016 referendum, this is often at the expense of facts and expertise. (Much the same occurred in the US before Trump was elected, as I recount in Chapter 7.8 of my book.) This leads to an obvious danger which we can see the political right exploiting more and more in both the US and UK. Whereas spin used to involve distorting the truth by selective use of facts or inventing clever but misleading slogans, it can now involve simple lying, as I experienced with my own work recently. Has this really got worse over time? I cannot cite any hard evidence for the UK, but there does seem to be that impression (see the first few tweets of this thread and this article by Stephen Bush). In the US there can be no doubt things have changed: not just Trump but with much of the Republican party over issues like health care or climate change.

This emphasis on the right of getting people to vote for you at the expense of examining the impact of your policies is reflected in the careers of many of the Brexiters, as William Davies points out. Trump was a TV star before he became President. Reagan was a movie star, although he at least was a Governor before becoming President. It is hard not to see these trends in right wing politics as starting with Reagan and Thatcher, and that much abused term neoliberalism. It was Thatcher that really began the politicisation of and disdain of the civil service, when being ‘one of us’ was valued over expertise.

You do not need experts, or you are only interested in experts who are one of us, because you have an ideology to guide you to the truth, or you are suspicious of any expertise that does not share your ideology. One of us is one who shares an ideology, in this case the ideology of neoliberalism. Neoliberalism wants as much as possible to be organised as a market. If that includes democracy itself (democracy is just a market for votes) then there is nothing preventing you employing all the tricks of advertising, preferably not encumbered by any regulators. Politics becomes the art of selling, rather than the assessment of policy. [1]

Why do I call the period after 2010 in the US and UK neoliberal overreach, as opposed to straight neoliberalism in the 1980s? After all there are some similarities in the UK between the two periods. Both Osborne and Thatcher started their terms in government with economic experiments that went against received economic wisdom. Both tried austerity (a fiscal contraction in a recession). I don’t want to minimise the harm Thatcher did to parts of the country, but her austerity was temporary [2] and the monetarist experiment was quickly abandoned, with the result that the recovery was only delayed by a year or two and the economy in aggregate eventually recovered in the true sense of the term. In contrast the slow recovery in the UK, US and Europe since 2010 seems to have had permanent and large negative effects. An interesting question is how much this difference between the two periods in the UK reflects different degrees of control over the media.

But the main reason I call what happened after 2010 overreach is that the neoliberalism of both Reagan and Thatcher was in many ways popular, and so there was less need to dress policies up as something they were not. In 2010 there was no popular demand for a reduction in the size of the state, so it required a form of subterfuge: what I call deficit deceit. Tight targets for immigration made no sense for neoliberals who wanted to reduce red tape for firms, but it was useful as a way to deflect anger over austerity and win votes.

A better way to describe Brexit than heart over head is the triumph of ideology over knowledge. Neoliberalism isn’t the only ideology behind Brexit. There are elements of English nationalism that William Davies discusses in his piece noted above and Anthony Barnett discusses so well in the Lure of Greatness. But the disinterest in facts or experts  and the absence of shame in telling whatever lie is required to get what they want is very much part of what I call neoliberal overreach. To those to whom evidence based policy is natural they appear fools, but they know exactly what they are doing and in terms of deception they are rather good at it.

[1] In this particular sense Labour from the 1990s to 2015 were not at all neoliberal. For example contrast Labour's 2003 Five Test analysis with the current government's lack of interest in the analysis of different types of Brexit. The glaring exception was Iraq, and that reflects what happens when you erroneously believe the national interest is to follow neoliberals in the US.

[2] Fiscal policy was tightened from 1980 to 1982, but this was almost completely reversed by 1984. In contrast fiscal policy was tightened in 2010 and it continued to be tightened until the present day.

The fatal inconsistency within neoliberalism

The collapse of Carillion had some important implications for public sector outsourcing, as I discussed here, but I tend to agree with Will Hutton that the real lessons lie elsewhere. He writes

“While some public sector delivery is outstanding, notably in parts of the NHS, the general pattern is more patchy. It is for this reason that governments for decades have been contracting the private sector to deliver goods and services. Trying to extend that principle is not unreasonable if high-quality private sector partners step up to the mark: the problem is they are in such short supply.”

In other words the problem is not so much with outsourcing, if sensibly done by a government that does not automatically think private is best and a civil services able to write good contracts and effectively monitor quality. The problem is with the poor quality of so much British capitalism. Carillion is not just one bad apple, of course: this is a lesson that should have been learned from the financial crisis, and RBS in particular,

But how can that be, when the market ensures that only the most efficient firms survive? That idea, that the market ensures that only the most efficient prosper, is a central message of neoliberal ideology, and it has held UK and US governments under its sway since the time of Thatcher and Reagan. But that ideology contains a large and deep internal contradiction, which applies particularly to large firms like Carillion. To see what that contraction is, we need to talk about ordoliberalism and Ronald Coase.

Ordoliberalism is widely known as the German version of neoliberalism. It too celebrates the benefits of the market. It, like neoliberalism, ignores many of the failures of markets that Colin Crouch eloquently outlines and which economists spend a lot of time studying. But ordoliberalism does recognise one potential problem with their market ideal which neoliberalism ignores, and that is monopoly. Crouch makes a similar distinction in talking about market-neoliberals and corporate-neoliberals.

This distinction is important for reasons that go way beyond the textbook problem with monopoly: that prices are too high and output is too low. To see why it goes beyond that we need to turn to Ronald Coase. He was a British economist who subsequently worked at Chicago. His first major article was "The Nature of the Firm" written in 1937 which introduced the concept of transaction costs to explain the nature and limits of firms. The key point that Coase made relevant for our discussion is that, in theory, much of what firms do could instead be done by markets. For a non-economist this probably sounds strange, so I will briefly try and explain the idea.

In principle the activities of any firm could be duplicated by all its employees, including managers, becoming self employed. The worker who worked for a firm would become a self employed person who signed a contract with the self-employed manager. Furthermore, the self employed manager would not have to work with a fixed set of self employed workers, but for each task they could create a market for the task which any self employed person could bid to fulfil.

Coase asked why we have firms rather than this more market based setup. His answer is transactions costs. A typical worker employed in a firm has to do whatever (within reason) a manager asks them to do. This can vary, often at very short notice, depending on the needs of the firm. Replacing this with a large number of specific short term contracts would be very inefficient, because it takes time to write and read contracts (transactions costs). You could add search costs and many other costs that make the self employed contracting model normally inefficient.

You can see exactly these tensions, between the advantage of the market versus internalising activities within a firm, played out when a firm decides to outsource any of its activities. But these tensions have a darker side. To what extent have firms internalised the market so that they can exploit customers (traditional monopoly), exploit workers (if one large firm is the only potential employer for many workers i.e. monopsony), or as a vehicle for managers to exploit shareholders.

There are two paths you can travel once you recognise all this. The first, and more ordoliberal, is to distrust monopoly of any kind, and be highly skeptical of large firms and their creation through mergers. The second is to assume that firms are always right, and that large firms exist simply because they are more efficient at doing what they do than the same firm broken up. Given the darker side mentioned above, there is no logical reason to take the second path. Skepticism about large firms is the right path to take. The second path, where you presume that there are always good reasons why large firms exist, makes no logical sense, unless your goal is for whatever reason to defend these large firms. It is the path that neoliberalism took.

Will Davies has a fascinating paper of how ideas about the virtues of competition, and the need to break up monopolies, changed within the University of Chicago from the 1930s until the 1980s under the influence, among others, of the work of Ronald Coase. It shows how many of the leading actors during that period chose the second path. Economics is rich enough that, if they so wish, an economist can always invent reasons why monopolies might be efficient, and so earn lucrative fees for so doing.

Thus neoliberalism that might have started as extolling the virtues of the market ends up as “a consultancy racket, in which corporations purchase complex models to justify their chosen strategy”, to quote Will Davies more recently. This is what I meant when I wrote back in 2016.

“It is important that those who use the term neoliberalism today recognise this contradiction. It does not mean that using the term neoliberalism to describe the dominant ideology is wrong, but it is a mistake to assume the ideology has not be moulded/adapted/distorted by those in whose interest it works. These changes have made it intellectually weak at the same time as making it politically strong.”

There are important mistakes that those opposing neoliberalism can make if they do not see this point. They involve opposing anything your opponent appears to favour. Thus, for example, because neoliberals preach the virtues of the market but in practice are normally simply pro-business, this does not mean that you should always oppose markets: you can be pro-market and anti-neoliberal. More generally, just because neoliberals can use ideas from economics to argue their case does not mean there is something wrong with economics (as opposed to some economists). Louis Zingales, from Chicago, exemplifies both points, and is not afraid to make the distinction between pro-market and pro-business in public.

This is all related to the distinction between ideas and interests. While it is right to recognise that interests are to some extent based on ideas, it is also important to see that ideas can change in time to reflect interests. How an ideology based on seeing markets through rose colored spectacles turned into an ideology justifying crony capitalism is at least part of the story of neoliberalism. These compromises with power allowed the ideology to become dominant, but at the same time it also made it rather easy for it to be subverted by different kinds of plutocracies, such as those represented by Brexit and Trump.