The Political Economy of Brexit and the Future of British Capitalism
Two symposia in New Political Economy bring together academic experts to examine the implications of the UK’s withdrawal from the EU in key economic policy areas
In March 2017, the British government invoked article 50 of the Treaty on European Union, officially beginning the negotiations for the withdrawal of the United Kingdom (UK) from the European Union (EU) – the so-called ‘Brexit’. The political economy of Brexit generates new challenges for the British capitalism and for European capitalism more broadly. The UK economy is underpinned by a distinctive ‘national business model’, organised around a dominant financial sector, flexible labour market, service-sector led growth and openness to international capital flows. The core elements of the British capitalism comprise:
- Dominant financial sector: An open and lightly regulated international financial services centre concentrated in the City of London.
- Flexible labour market: A labour market regime consisting of limited employment protections, high levels of atypical employment and restrained levels of real wage growth.
- Service sector-led growth: An increasing drift towards low-skill, low-wage and low productivity service industries.
- Investment: Openness to Foreign Direct Investment (FDI) flows, extensive capital markets and lending bias towards property over productive investment.
The UK’s national business model is both dynamic and dysfunctional. It is associated with high levels of employment, a large in-take of FDI and, until recently, strong growth relative to the EU average. However, it also generates huge wealth and income inequalities, precarious forms of work and reinforces stark regional inequalities, evident for much of the late 20th century. The UK’s internationalised and lightly regulated financial sector also poses a persistent threat to (domestic) financial stability. In the past, the UK’s membership of the EU bolstered this national business model. Despite some convergence amongst national varieties of capitalism across Europe, the UK business model remains rather distinct, especially if compared to those of the other largest member states, notably, France and Germany. Brexit might challenge, reinforce or potentially transform British capitalism.
New Political Economy has published two symposia that bring together academic experts to examine the implications of the UK’s withdrawal from the EU in key economic policy areas. The contributions set out to answer some common questions: i) How has the UK’s membership of the EU supported the UK’s national business model in the past? ii) To what extent might Brexit undermine or further consolidate the UK’s national business model? iii) To what extent has the UK’s EU membership increased or decreased the ‘power’ of finance or labour as well as deepened or mitigated processes of financialisation, liberalisation, labour market precarity and low wage shares? How might Brexit affect these dynamics? iv) In what ways might Brexit impact on the political economy of the EU? And, last but not the least, v) what does a political economy perspective bring to our understanding of Brexit?
The first symposium explores the implications of Brexit for the international orientation of British capitalism by examining finance (James and Quaglia), the balance of payments (Perraton and Spreafico) and the labour market (Lindstrom). These three policy areas are tightly interconnected because the UK has an overall deficit in the balance of payments. This deficit is primarily linked to trade in goods, and is partly compensated by the surplus in the trade of services, and in particular financial services. The second symposium examines the domestic political economy concerns related to Brexit and covers the British growth model (Rosamond) and UK trade policy (Siles Brugge). Specifically, the authors discuss the increasing politicisation of Britain’s growth model and how emotion informs technical decisions on trade.
Besides the effects of Brexit on the UK and its business model, the political economy of Brexit will also affect the EU and European capitalism(s). Over the last few years, the European Commission has promoted economic policy initiatives that were a good fit with the British business model: Capital Markets Union, the Transatlantic Trade and Investment Partnership and REFIT, which was part of the Commission’s ‘Better Regulation’ agenda. After Brexit, future EU initiatives are less likely to be in line with the UK’s priorities. Since the UK is Europe’s investment banker, the EU potentially faces more limited access to capital for investment. On the one hand, the EU is in the process of re-launching the project of Capital Markets Union, which is designed to create ‘deeper and more integrated capital markets’ in Europe, making it easier to mobilise investment capital. On the other hand, Capital Markets Union will have a more limited scope without the UK.
Internationally, Brexit will diminish the size and potential attractiveness of the single financial market, as well as the clout of the EU in international financial regulatory fora. In turn, the UK might be able to take more independent positions in international financial negotiations as compared to the past, when the UK’s position had to be fine-tuned with the rest of the EU. Given the fact that the UK is the main non-euro area country in the EU and has traditionally hampered further economic and political integration, Brexit might trigger greater integration in the euro area, also as a way to deal with the lingering sovereign debt crisis and address the incompleteness of Economic and Monetary Union.
The symposia mostly draw on a selection of papers from the 2016 workshop series ‘Britain and Europe: The Political Economy of Brexit’ funded by the White Rose Consortium. The papers were substantially revised, reviewed and updated throughout 2017 and 2018. Some of the papers were presented at two panels, organised by the British and Comparative Political Economy Specialist Group, at the annual conference of the Political Studies Association (PSA) in the UK in 2018. We wish to thank the White Rose for funding the project and the Universities of Sheffield, York and Leeds for hosting the workshops. We are also grateful to our colleagues in these universities as well as in other universities for acting as chairs, discussants and more generally for providing feedback and advice on this project. Last but not least, we wish to thank the reviewers and the New Political Economy editorial team.Print page
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