speri.comment: the political economy blog

Labour’s Titanic Brexit nightmare

In even flirting with leaving the EU Single Market, the UK is heading full steam towards an iceberg of historic proportions, and this will destroy Labour if a change of course is not pursued

Dr Matthew L. Bishop, Associate Fellow, SPERI & Senior Lecturer in International Politics, University of Sheffield

Matthew BishopWe are plausibly living through the endgame of a neoliberalism that has drastically over-reached itself. The great value of Corbynism is its recognition of this essential reality. It is why I voted for Jeremy Corbyn to lead Labour twice, and also why I was not entirely surprised by the election result.

I have personally long felt that the language we use to describe groupings within our major political parties is problematic. The defenders of untrammelled neoliberalism are not ‘moderates’ but rather the opposite, and I have written previously (here and here) that the real ‘centre’ of British politics resides in the essential values of the post-war era: i.e. a mixed economy, strong public institutions, a decent social security system, not a finance-driven free-for-all in which the state is relentlessly asset stripped by rentier elites. This perspective is, crucially, associated with both the social democrats of the Labour Party and genuine One Nation Tories (not that there are many of the latter left).

Labour suffered a precipitous decline in support after the mid-2000s because of an absence of a convincing narrative, and an unwillingness to decisively challenge the decaying neoliberal ‘consensus’. The party’s fortunes have changed now that it has offered something different. It could also be the absence of a credible post-neoliberal vision that explains why the Tories are themselves suffering after their vacuous election performance. As Corbyn himself put it: Theresa May is leading ‘a government that has apparently run out of ideas altogether’.

Like many others, I cheered him to the rafters at Glastonbury for the simple reason that I have waited my entire adult life to hear a Labour leader speak in clear, plain English, without recourse to incomprehensible abstractions and empty rhetoric, about a meaningful vision of society rooted in the everyday experience of normal, working people. We can of course argue about whether Corbynism is really a radical departure or not, something Matt Bolton has done very eloquently. Regardless, there is no doubt that last month, for the first time since 2001, swathes of people voted enthusiastically for Labour, rather than grudgingly against the alternatives.

However – and this is the great tragedy – the Labour Party today, in signing up to the foolhardy Brexiteer plan to leave the European Single Market (ESM), is rushing headlong towards a gigantic strategic disaster which will, if concluded (and probably far sooner) likely destroy Jeremy Corbyn just as it will the Tories. The sad irony is that this could ultimately strengthen the hand of the neoliberals, the very opposite of that which Corbynism seeks to achieve.

Rolling back neoliberalism

One of the most welcome developments in Labour’s current thinking is the idea that we need a serious, purposive industrial strategy to rebuild the post-crisis economy, along with far higher levels of state intervention to refocus what is, at present, a blatantly rigged system of often failed and certainly un-free markets which has undermined the productive bases of the economy, depressed growth, and visited great damage on the public realm. As Tony Payne has contended: Britain’s ‘development model’ is simply not working. This is – or should be – uncontroversial to anyone other than those still wedded to neoliberal orthodoxy. The left, and Labour in government, should always have been more sceptical of the claims of capitalists: not in a crude ‘anti-capitalist’ way, but in the enduring recognition that, for capitalism to work, it has to be continually saved from itself, not blindly worshipped.

As Dani Rodrik has suggested, the disfiguring distributional consequences of unfettered free trade and global market integration have always been well known, but in the UK were wilfully downplayed once Thatcherism came along and then transmuted into a Blairism that uncritically facilitated particularly rampant forms of globalisation. That so much ground has now been ceded to populists like Trump to crudely advocate economic policies that the left should have been intelligently advocating all along, such as placing certain limits on free trade and selectively protecting strategic national industries, is inexcusable. The lessons of history have always been clear: we need free markets, but they need to be carefully regulated, managed and even shaped, both nationally and globally, if they are to offer the most efficient social outcomes.

However, Labour now finds itself at a difficult pass, for in seeking to roll back neoliberal excess, it is in danger of throwing the ESM baby out with the Brexit bathwater, with potentially devastating consequences.

A problematic consensus

Both the Conservative and Labour leaderships have reached essentially the same position on the economics of Brexit, albeit via different routes. The former seem to think that removing the country from the most highly integrated free market ever envisioned – by Margaret Thatcher of all people – will actually be good for business and economic freedom, despite the fact that UK firms are almost united in their opposition to it. I find it astonishing that a Conservative government is taking such a cavalier attitude towards the opinions of business, and such enormous risks with the economy. The latter, by contrast, seem to think that exiting the ESM is a necessary precursor to building the kind of interventionist state that is desperately needed to retool the economy.

Both are dangerously misguided.

However, it is the Labour approach that worries me most and this forces me into the invidious position of, firstly, defending what is an undeniably neoliberal creation (that is, the ESM, if not necessarily the broader EU) whilst, secondly, suggesting that the kind of social democratic political economy that I wish to see a Corbyn-led Labour party implement can only be achieved by protecting Britain’s place within that neoliberal creation.

This is because we are hurtling towards an iceberg of Titanic proportions. Neither the Conservatives nor Labour really grasp what is at stake. This is despite Sir Keir Starmer’s clever but confusing positioning on the issue. There is no doubt that the Shadow Brexit Secretary has played an impossible hand brilliantly, particularly politically, and clearly has a far higher grasp of the technical detail than his counterparts on the opposite benches who are actually supposed to be doing the negotiating.

One welcome recent development is the prospect that transitional arrangements which delay a hard Brexit (i.e. leaving the ESM) might be possible. However, there is no expectation at present that this delay could turn into a decisive retreat. Starmer’s view still seems to be that ultimately leaving the ESM is necessary because Britain could not tolerate the lack of sovereignty implied by being party to essentially the same commitments as now, under European Court of Justice (ECJ) jurisdiction, but as a rule-taker with no say over how those rules are constructed. Plus, of course, there is the commitment to ending free movement – which is sadly always framed as being about stopping people migrating to the UK, rather than as extinguishing the amazing opportunity for Britons to live and work in 27 other countries – to which Labour seems unfortunately as wedded as the Tories.

Starmer is, of course, right that leaving the ESM – but trying to gain maximum access to it – is, in this narrow technical sense, the only conceivable way to attempt to reconcile these competing priorities. For now, the politics are in his favour too: there is still a large constituency for a substantial form of Brexit, and they will surely scream betrayal if this is not followed through.

Sovereignty or prosperity?

Yet in my opinion, too few are thinking about the economics of all of this, and they trump the politics many times over. Put simply: membership of the ESM is absolutely critical to our prosperity as a nation. What happens if we do indeed leave and it decimates the economy? Will Labour have made the right choice between an increasingly worthless sovereignty, on the one hand, and jobs and living standards on the other? The political mood, as Corbyn himself has shown, can change very rapidly indeed.

Part of the problem is that so few people – in an economically illiterate nation – seem to actually grasp the enormity of what is at stake, and therefore the possible (even likely) consequences of leaving the ESM. Few comprehend how weak our negotiating hand is and how limited our options actually are outside of the market. I have written previously (here and here) about how, particularly on the Conservative side, this myopia stems from a fundamental and wilful misunderstanding of contemporary trade politics, typified by an unreconstructed delusional imperial nostalgia.

But it is also reflected in Corbyn’s infuriating tendency to talk – in line with Starmer’s delicate balancing act – about ‘tariff-free access to’ (rather than ‘membership of’) the ESM. Tariffs certainly matter for the car industry, one of our few remaining major value-added goods export sectors, which is under serious threat anyway from the EU-Japan trade deal.

Still, as I argued in those previous articles, tariffs remain a relative sideshow, and ‘access’ is broadly meaningless when the value of the single market derives specifically from comprehensively regulating cross-EU production and trade by allowing firms to operate – i.e. perform myriad different functions other than simply sending goods across borders – in that single regulatory space. For the UK this is all magnified many times over given our outsize dependence on services, for which tariffs barely matter at all, and regulatory equivalence – which can only be ensured by being inside the ESM – is both absolutely critical and unremittingly arduous to re-negotiate once it has been lost. The EU has been clear all along about this: the ‘four freedoms’ of the ESM are completely ‘indivisible’. If they were not – and states could enjoy differing degrees of membership for either their sole benefit or for anything other than a temporary period – the market, by definition, would cease to be ‘single’.

This is why Labour’s objective of achieving the ‘exact same benefits’ of ESM membership after leaving is also delusional: those benefits are, and can only be, available to members!

Clouds on the horizon

If we do actually leave the ESM, particularly in a disorderly fashion – which is surely the only imaginable way once panic starts to set in – our firms will be immediately unable to operate in the value chains in which they are presently deeply enmeshed, and no amount of ‘tariff-free access’ for their tradable products will alter or cushion that. There is only one logic here: they will have to move all or part of their operations – and do so well in advance of the turmoil unleashed by our exit – and the economic impact will not simply be a minor shock and some lost GDP.

Rather, I have increasingly come to the view that we may be potentially facing a correction on a larger scale than anything we have witnessed in modern British history: Black Wednesday ‘on steroids’, if you will. The clouds are already amassing on the horizon and ‘storms are brewing’.

If both the Conservatives and Labour are genuinely serious about extricating the UK economy from the ESM it is fairly clear that swathes of activity that is presently integrated in EU-wide value chains will have to shift to the continent. This is why even just the suggestion that this might happen has seen many firms implement an investment strike and start activating contingency plans to offshore (or is it onshore?) investment to the European mainland. The trickle could soon become a flood. It takes no great leap of imagination to conceive of a situation – in a country that is highly open, massively over-leveraged in terms of public and private debt, and hugely dependent on foreign capital – where firms begin to announce substantial disinvestment, money starts to be removed from the London housing market, prices start to tank – putting untold pressure on Sterling – and a negative death spiral ensues.

Most worryingly, this could begin very suddenly and unfold very rapidly, and, given the embarrassingly abject, irresponsible, slapdash government approach to Brexit, this traumatic reckoning could come sooner than we might expect. If neither clarity about the future, nor a guarantee that we will remain in the ESM are forthcoming, I fear that the markets will eventually demonstrate, as they did in September 1992, just how much ‘control’ the government actually enjoys. Such a catastrophic loss of confidence in the economy would be, for a country that already cuts a diminished figure globally, a ‘national humiliation’ of the highest order.

Labour’s avoidable iceberg

It is unlikely, moreover, that Corbyn’s Labour – fully implicated as it will be in the disaster – will victoriously emerge to pick up the pieces, and woe betide the politicians (all 500+ of them) tarnished with enabling a discredited form of Brexit when the front pages are filled with litanies of economic calamity. The narrative will no longer be: ‘we want our sovereignty back’. It will rather be: ‘why on earth didn’t Corbyn and his party stand up in the national interest and stop this nightmare from happening?’ His project would be dead on arrival. The idea that Labour can simply wait for the Tories to implode over Brexit while harbouring basically the same policy towards the ESM is reckless and foolish – not ‘savvy and astute’ as it was recently described – particularly if the kind of economic cataclysm I have described here comes to pass before they actually do so.

Labour’s strategy has to be considerably more cognisant of the scale of economic danger. The broad goal, in a world where neoliberalism is collapsing under the weight of its own contradictions, is not to forego globalisation altogether and risk such short-term economic ruin that it kills a sensible long-term left-of-centre alternative. Put differently: socialism in one country does not work.

So, the twin objectives, surely, of any social democratic party are to simultaneously maintain and reconcile an outward-oriented, internationalist, liberal (but not neoliberal) orientation, whilst rebuilding the public realm and advancing a meaningful industrial strategy. These two things are not mutually exclusive. The latter is not truly precluded by membership of the ESM, as the Labour leadership seems to believe, and leaving it will, paradoxically, make it even more difficult to realise given the staggering economic crisis it could provoke. It would also represent a profound and unnecessary betrayal of the promise of Corbynism, not least since we may well have centre-left leaders in power in both Paris and Berlin by the autumn, and therefore the very real prospect of meaningful reform to the ESM and other EU institutions, which could plausibly see them recalibrated in a less market fundamentalist direction.

The irony, then, is that to have any chance of transcending neoliberalism in the long term, Labour needs to maintain the UK at the centre of a whole set of neoliberal arrangements for now. The EU and the ESM are not static. They can evolve with the right leadership amidst the auspicious circumstances which may well be arriving at last. This is why ‘Lexit’ remains a chimera: its purported objectives would be better served by staying in, and reforming from within, rather than the left being complicit in hitting an avoidable iceberg that will eviscerate it too.

The neoliberals know all too well how to exploit disaster capitalism to reproduce, extend and defend their project. Corbyn should avoid giving them that opportunity if his is to ever have even the prospect of fulfilling the potential that made so many people vote for it in the first place.

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Categories: SPERI Comment | Tags: , , , , | 18 comments

Articles and comments posted on this blog reflect the views of the author(s) and not the position of SPERI or the University of Sheffield.

Comments (18)

  1. But who are these defenders of ‘untrammelled neoliberalism’? I haven’t seen/heard/met one. Certainly they are not among the Tories, the vast majority of whom support state intervention in various aspects of the economy and society? Isn’t this a bit of a bogeyman?

  2. Very interesting piece but no engagement with the argument from the Lexiteers that remaining in would curtail if not completely derail any chance of an interventionist, expanding public sector, removing competitive tendering etc economic policy.

  3. So cheer leading for Mr Corbyn?

    Is our politics reduced to ra-ra-ing?

    Mr Corbyn has no understanding of the need to reach out beyond the people who agree with him and to find common ground, and to make alliances in order to achieve hsi objectives, nor any clear motivation to make the drastic changes to our political systems (as distinct from those within the Labour Party) so that achievements are safeguarded: a written constitution, fair voting systems; elected second chamber, decentralisation of powers to localities and regions, press and broadcasting balances. (As argued for recently by Kerslake at SHU SIPS)

    And as for his position on Europe – well he says that Labour is committeed to leaving the single market … I thought Labour policy was to stay in Europe…

    • I wrote the above after reading Mr Bishop’s account of Glastonbury. After that rant, I went back and read it properly. it isn’t of course just just a cheer for Mr Corbyn! Sorry to have overstated that

      An interesting – and alarming – account of the likely consequences of leaving the EU and the dangers for Labour in supporting such a process. All the more reason for an upsurge of voices saying “don’t do it” instead of relying on the clever clever “tactical” approach of Keir.

  4. The public were asked if we should leave and they said “Yes”, they were presented with a million and one possible brexits of all different flavours, colours, shapes and sizes. Until the worst case brexit is put on paper, large portions of the public will simply feel they were ripped off and ignored by the liberal elite they thought they were voting against. Labour have been very clear that they will attempt to put a deal together that delivers what the public asked for, not half of it. Once that is available and clear, they have said they would put it to parliament, who could in turn ask the public. In the meantime, Labour are about holding the Tories to their own promises, “a deal that delivers the exact same benefits”, because they are in opposition they simply do not have the numbers to stop this, only the tories can do so and they will only even think about it when they can see brexit in black and white and say for sure that the government has failed to deliver on its promises. The key to stopping this mess is firstly the tory MPs and secondly leavers, it’s a matter of time and order.

    • I think you’re right that, broadly speaking, Labour’s approach to this is about as much as could be expected politically. Although I personally wonder whether a full-throated defence of EU membership during the election might have also paid off: it would have been perfectly justifiable to say to the electorate that if you vote for us, we’ll consider the referendum null and void and rescind A50. I don’t buy the line personally that this would have seen Labour lose masses of support, as a) Labour are not the Lib Dems, and b) it was Corbyn’s economic prospectus that energised the youth to get the vote out, who would plausibly have been even more enthusiastic were defence of their rights as EU citizens on the table.

      Still, regardless of the rights and wrongs of Labour’s approach to this politically, it will all be academic if the kind of economic disaster that I’ve painted here occurs before the passage of time is sufficient for the political solution you describe. The assumptions on which all of this is based will change irrevocably, and we’ll be in a new paradigm. I’m still fairly convinced that, if this happens, Labour (and especially the Labour left) will be the ones getting the blame, and the Tories will find a way, as they often do, to wriggle out of it.

  5. You write that “the disfiguring distributional consequences of unfettered free trade and global market integration have always been well known, but in the UK were wilfully downplayed once Thatcherism came along “.

    So what did the Thatcher / Major / New Labour governments actually do to promote globalisation ? Surely one of the most significant ways in which trade policy shifted in favour of globalisation under Thatcher was through the promotion of the Single Market ? Another, perhaps more important change facilitating globalisation was the abolition of capital controls. I don’t think there would be much chance of reintroducing those while in the Single Market.

    In short, you seem to bemoan the effects of globalisation while arguing that we should remain members of an institution which arguably facilitates it.

    • I think it’s crucial to draw a distinction between globalisation as a process of increasing global interconnectedness (which is broadly a good thing) and neoliberal market fundamentalism which privileges particular forms of private power over public power (which is not). I’m in favour of the former, not the latter.

      We can’t stop the world and get off. Globalisation is occurring and will continue to occur. The key is to advance forms of globalisation where the distributional costs are mediated successfully by public institutions and action. Increasingly these institutions are and can only be operating at above the national level. As I suggested above, Simon Wren-Lewis demolished the Lexiteer account of the Single Market this week (https://mainlymacro.blogspot.co.uk/2017/07/lexit.html) pointing out that EU activity is as much about regulating for the public benefit as it is freeing up markets and trade. Arguably, he suggests, we are far better able to do this at a European level than we are as individual countries. The spectre of chlorinated chicken infecting our food chain – and the UK’s inability to resist it in any bilateral trade deal with the US – is just one very obvious example of this.

      I’m not sure why capital controls are so important. I don’t see that they have much importance in a meaningful industrial strategy. They’re surely only a last resort in context of acute economic crisis. As it happens, Iceland, which is a member of the SM via the EEA actually deployed capital controls for most of the post-crisis period until earlier this year. So they are possible. More broadly, the idea that the EU inhibits publicly beneficial finance policy is problematic: it is, after all, the UK that has been inhibiting continent-wide attempts to introduce a Tobin tax.

      Every pronouncement from the Brexiteers suggests that they want to water down protective European legislation across the board. This will not only exclude us from European markets in future, but if Labour don’t come to power in the next decade, it will massively reduce our quality of life, perhaps permanently. Corbyn and McDonnell should be fighting to defend the protections we do enjoy as part of European institutions, not be complicit in a hard-right plan that threatens to diminish them, and in so doing devastate our economy and society, a process over which they exercise very little control.

      • Thanks for taking the time to reply. I take the point that there is a distinction between globalisation and neoliberalism, but in practice the two seem to go together.

        For example, would the UK banking system have got into such difficulties in 2008 if there had been strict limits on the overseas activities of the banks ? Is this a problem of globalisation or neoliberalism, or both ? Surely proponents of both globalisation and neoliberalism would argue that banks should be free to carry out business abroad…..

        What is your view of Dani Rodrik’s “trilemma”, the idea that you can have any two of globalisation, national sovereignty, and democratic politics, but not all three ?

        I probably used the wrong phrase when I referred to capital controls. I wasn’t just thinking of short-term exchange controls, but also of restrictions on foreign ownership. Would the industrial strategy you refer to allow for continued ownership of privatised utilities by foreign companies ? If the strategy involves renationalisation, isn’t it likely that any comprehensive renationalisation would be challenged in the European Courts ? I know there are examples of some companies being taken back into public ownership within the EU, but has any country succeeded in effectively renationalising an entire sector ?

        Finally, on the Tobin tax, whatever the rights and wrongs, it probably isn’t just the UK which is opposing it. I doubt if Luxembourg, Ireland, or the Netherlands are enthusiastic supporters.

        • I agree with Rodrik on the “trilemma” and it is a terrific book, by the way. But that then begs the question: what is the solution to it? In my view, the solution cannot be to decide which of the three things you dispense with and muddle through with just two of them. The solution has to be to democratise globalisation somehow, and the EU, for all its faults, is by far the best hope for us doing that. It’s ironic really that, by leaving, we’re plausibly going to undermine the actual value of our sovereignty, do great damage to our democracy and be far more exposed to the nastiest dimensions of globalisation than before.

  6. great piece, to which I would add, the reason so many on the left are reluctantly pro the EU, despite its neoliberal economic agenda, which is because of the reason it was set up in the first place, to counter the growth of fascism. This week’s victory against the fascists in Poland was the EU at its best. Throwing that away is what depresses me about Lexit more than anything.

  7. “we may well have centre-left leaders in power in both Paris and Berlin by the autumn”

    Putting aside the very high likelihood that Merkel will remain Chancellor specifically because the Social Democrats aren’t going to ally with Die Linke, in what strange universe is union-baiting, benefits-slashing Jupiterian Macron “centre left”?

    • Fair point. I did write large parts of this – over the past few months – when it looked like Schulz might have a bigger chance of defeating Merkel than he does at present. Nonetheless, who knows what might happen in September? There’s a long way to go yet. As for Macron, we could debate this all day. I’ve personally been very unhappy with his shocking pronouncements on Africa, but at the same time I think it’s hard to argue he’s not of the soft-métropolitain left, certainly when compared to the alternatives he was up against in the election like Le Pen and Fillon. Is he that far away from Blair politically?

  8. Hi Matt. How is the ESM ‘undeniably a neoliberal creation’?
    In general, fwiw, I’m uncomfortable with what I see as an over-use of the term neoliberal in this blog. It is after all used increasingly frequently as a catch-all pejorative from the left as well as an objective description of ideology. Balancing growth against regulation and taxation is clearly hugely complex and should surely be discussed as a matter of varying degrees, not opposing camps. I’m therefore not sure it’s helpful to use neoliberal so liberally unless it’s more clearly defined. Obviously someone arguing that market solutions are always superior can be put squarely in that bracket. But I’m not sure why trying to create a heavily regulated single market among a group of countries pooling their sovereignty should be considered neoliberal. The ESM project within the EU seems more like a desirable mix of social democratic and orthodox liberal policy approaches to me.

    • Yep, fair points Will. I wish we could get away from the n-word as much as possible, but it’s not always easy. I think my point was really that market integration and deepening, particularly the way it has been approached within the EU over the past 30 years, is decidedly neoliberal in character. It could, by contrast, be less so, with far greater emphasis placed on the social dimensions of the market. But, to be honest, it was as much an analytical device here to try and illuminate different positions – including the Corbynista one – as anything else. The piece by Simon Wren-Lewis that I’ve put the link to in a couple of the comments here is worth reading. He takes the view that the ESM has been far less neoliberal than is often assumed, with market deepening proceeding along with very high levels of regulation. I think he’s probably right.

  9. OK fair enough, thanks Matt. I should have clicked through before: that Wren-Lewis blog is excellent. But I think over-use of the term neoliberal from the left has relevance to the assessment of Labour’s Brexit positioning. There’s an incoherence I think I see in the approach from some supporters of Corbyn that I’m not sure is emphasized often enough in this context. The ideology that’s generally being expressed by Corbyn and McDonnell isn’t really interested in facilitating widespread economic growth, which is what the ESM is clearly supposed to do through its (albeit densely regulated) liberalizing measures. Instead their ideology is primarily interested in social justice via redistribution and economic advancement for groups (e.g. public sector workers, former manufacturing employees) it believes have been unfairly left behind. Therefore Corbyn’s antipathy to the ESM makes sense and is not because it constrains state economic intervention, or because the ESM is genuinely neoliberal — it is in line with a more fundamental rejection, or disinterest in, non-controversial fundamental aspects of orthodox liberal capitalist economics. The type of social democrat that supports the ESM would be one that recognizes first you need across-the-board growth to boost employment and create the GDP to tax for public services. Unfortunately, in the UK that type of soft-left growth-first positioning is now frequently dismissed as ‘neoliberal’ or, worse, far worse, Blairite. And a type of leftist politics that seems to have little interest in ensuring overall economic health is cast as progressive. For me, this is at the heart of Labour’s current counter-productive approach to the economic element of Brexit.

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