Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday, 24 July 2017

Lexit

I often find that arguments for Lexit have many structural similarities to right wing arguments for Brexit. Take Larry Elliott’s latest piece for example. This includes
  1. Sweeping exaggerations that seem designed to trigger nationalist sentiments. We are told that “under Tony Blair, the feeling was that globalisation had made the nation state redundant.”

  2. Confusing the EU with the Eurozone. Larry talks about the problems with the ECB, the SGP, and mass unemployment, but these are all valid criticisms of the Eurozone. There is no attempt to say why that has any impact on the UK as part of the EU.

  3. Inferring that all the UK’s problems are somehow down to the EU, without providing any evidence that they are.

  4. Asserting that the EU prevents the UK doing what it needs to do to tackle (c) in ways that are economical with the truth (see more below).

But I also have complaints that I think are unique to Lexit arguments. When some people mock the use of the term neoliberalism, they should use the Lexit debate as ammunition. When I use the term, it is to signal a project that in various ways subordinates the state to the market. Yet we are told that the EU had neoliberalism hardwired into it. The EU is fundamentally about trade liberalisation, not about the role of the state. It is trade liberalism that is hardwired into the EU, not neoliberalism. (The Lexit advocacy here is more honest about that.)

Is levying a huge fine on Google because its search engine gives preference to its own shopping comparison site an example of neoliberalism? Is a maximum working week? Are their environmental standards? [1] These are all examples of a collective of states interfering with firms and the market. One of the strong and left wing arguments for the EU is that only at this level can you avoid large multinational corporations blackmailing states that attempted to challenge them in similar ways. I am sure there are many examples where the EU could do this more effectively, but at least they are trying.

The argument for Lexit is therefore similar to the argument against globalisation. The problems that a combination of globalisation and technical change has created for many communities are real enough. But Lexit arguments typically ignore two key points. First, globalisation has brought huge gains for many poorer countries. That applies as much to the poorer states of the EU as it does to China and India. Of course what is being done to Greece is appalling (and I have not hesitated to say so on many occasions), but this once again is a result of a common currency, not trade liberalisation under the EU. Indeed, one of the reasons the Eurozone’s blackmail of Greece worked is that a majority of Greeks want to stay in the EU.

Second, the gains for the UK that have followed most trade liberalisation are real enough, which is why there are large costs to leaving the Single Market or customs union. Larry spins this by saying the “left needs to be very careful about running with the idea that business should be able to veto decisions made by the electorate.” This is a line that shows the left at its worst. The costs of Brexit do not necessarily fall on business (which is often mobile) but on ordinary UK citizens. What proponents of Lexit have to show is that the benefits of the policy freedom Brexit gives you outweigh these costs.

The most promising way to help the losers from trade liberalisation (and technical progress) is through an active industrial and regional policy. Proponents of Lexit argue that the EU would prevent such a strategy. If we are talking about giving aid to declining uncompetitive sectors, then many would argue that it is a good thing that the EU does stop that happening. But to suggest that the EU is opposed to any kind of regional aid seems to conflict with the existence of the EU’s Cohesion Policy, that has benefited many areas in the UK. For a more general discussion of the justifications the EU gives for intervening in the market, see William Davies here. The set of policies that the EU prevents but which any reasonable trade deal with the EU would allow are pretty small, with the key exception of controlling immigration.

Larry says that freedom of movement has not benefited workers. I think he would find plenty of EU workers in the UK who would disagree (at least before Brexit). Just as the movement of goods across borders benefits all, so can the movement of people. Most of the analysis I have seen has shown that recent immigration into the UK has been beneficial to UK workers once you take everything into account. Ignoring all that by talking about the ‘lived experience of ordinary people’ (from here) suggests an attitude to knowledge and evidence worthy of UKIP. Which brings me full circle.


[1] The first of these interventions could reflect an ordoliberal rather than neoliberal view, but the second two not so much.   

24 comments:

  1. "Under Tony Blair, the feeling was that globalisation had made the nation state redundant."

    Why would this statement trigger nationalist sentiment?

    Why is support for the nation state generally as a unit of governance the same as nationalist privileging of one's own nation above all others?

    And why have you begun what is otherwise a thoughtful piece with such a mindlessly reductive assertion?

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  2. Brilliant tour de force. Thanks for setting matters out so clearly.

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  3. Interesting that you mention only two of the four freedoms – of movement of people and goods – you (again) have ignored the free movement of capital here – why is this? Are the benefits so obvious to you that it’s not worth mentioning?

    The potential costs – of short-termism, pro-cyclical instability, tax-abuse, endless financialisation, rent-seeking etc. – seem pretty clear to me, (but then I’m a Lexiter).

    Adrian D.

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  4. The Parable of Bertie's Biscuits.
    Bertie's Biscuits was an (admittedly) old-fashioned producer of biscuits and other snacks. It wasn't the most modern factory, and no-one there was earning a fortune, but it was conveniently located near the workers' homes, and quite close to the town centre. The products were popular and the staff were happy.

    One day, the staff were interested to read in their trade journal that Sam's Snacks (a competitor from outside the EU) had secured a big EU grant to build a huge, modern production plant in Poland. Interesting news, but it didn't worry anyone. Bertie's was confident of its market share and the quality of its product. Still, it showed that someone thought the market was worth investing in. Good news, surely?

    Then, one day, Sam's Snacks' parent company bought all the shares in Bertie's Biscuits, and in spite of announcements to the contrary, shut the factory and the old building was turned into flats. Bertie's Biscuits were now being made in that big, new plant in Poland, and Bertie's old staff were now out of a job.
    A year or two later, there was a referendum on whether or not we should stay in the EU. The old Bertie's Biscuits workers mostly voted for Brexit. Probably because they were racist or something.

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    1. Of course, this sad story cannot possibly happen post Brexit and the factory workers were completely correct in blaming the EU for global trade and international competition. Or the right of owners of a company to locate a factory where they want to (as many will now relocate abroad in order to stay in the EU). The Bertie's biscuit workers were not racist. Just misguided.

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    2. In my view the laid-off workers at Bertie's Biscuits were not victims of the EU, but rather victims of the Home-Owner-Ist policies of Thatcher and her successors.

      Why was it profitable for Sam's Snack's parent company to asset strip Bertie's Biscuits? The reason is because the factory building and its site were worth far more as a block of flats than as an operating factory, because residential land is far more lightly taxed than industrial land. This allows more of the ground rent to be capitalized into the selling price of the land, and thus provides the asset stripper's profit.

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  5. The Laval, Viking and Ruffert cases are examples of the EU preventing effective sector wide collective bargaining agreements (such as proposed in the 2017 Labour Party manifesto). I guess we need such sector wide collective bargaining agreements if we are going to get out of the low-wage, low-productivity rut where abundant low cost labour is used as a substitute for investment in automation, training and developing more efficient production methods. https://www.eurofound.europa.eu/observatories/eurwork/industrial-relations-dictionary/ruffert-case

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  6. I am not a Brexiter or Lexiter, I'm a Remainer, BUT:

    Whether trade liberalisation involves the role of the state depends on what kind of trade liberalisation. The Trade in Services Agreement is a corporate power grab that would affect a lot of domestic economic policy, and the EU's helping negotiate it.

    As for things being handled at EU level to restrain business power such as the Working Time Directive (and leaving aside TISA), don't you think that since the EU is larger and less democratic than individual members states that it provides more leeway for multinationals to influence the law? The electorate's role is smaller, so the role of the already rich and powerful is greater. The EU is not the Eurozone, but the Eurozone rules are evidence of the forces acting upon the EU as a whole.


    World economic growth was faster in the Keynesian period than in the current neoliberal period, so whether "globalisation" (since the 70s) is beneficial is questionable.

    Maybe freedom of movement of workers is an overall plus for the UK's own workers' wellbeing, or maybe not. The boost it has given to the right wing, which we have catastrophically failed to solve, is not good for workers. It has handed millions of votes to the Tories and got Brexit over 50%.

    Would you allow unrestricted non-EU immigration or do you think it could harm our workers? So it may be good to be more selective still, by getting control over the level and type of EU immigration. Wasn't worth voting to leave the EU over it of course.

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    1. 'Don't you think that since the EU is larger and less democratic than individual members states that it provides more leeway for multinationals to influence the law?'

      No. The apocryphal words of Rupert Murdoch say it all - "when I go into Downing Street they do what I say; when I go to Brussels they take no notice."

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    2. 'Don't you think that since the EU is larger and less democratic than individual members states that it provides more leeway for multinationals to influence the law?'

      No. The apocryphal words of Rupert Murdoch say it all - "when I go into Downing Street they do what I say; when I go to Brussels they take no notice."

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  7. 'Europe's Summer of Elections - Explaining Political Dynamics in France, Britain and Germany' on the BBC Parliament channel has Leave voters being the ones who dropped off in the 2017 election compared to the 2016 Referendum, whereas Remainers did vote in 2017 and largely for Labour.

    I wonder what that means if a second referendum on EU membership were to be held in a couple years' time?

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  8. I would argue that, as you state, businesses are mobile and are therefore, rarely impeded by borders, whereas individuals are not, which provides some leverage to businesses over governments (which government wants some business to say that they have left the country on account of the government's policies?). Freedom of movement has the potential to alleviate/reduce this leverage by allowing workers to adapt to the job market as needed (without the cost and overhead of visas).

    Granted, not everyone is in a position to avail themselves of FoM, but those who do ensure that there is reduced stress on the welfare state for those who are unable to relocate when the employment market evolves, and it also means that fewer available jobs have fewer competitors....

    To that extent, FoM is potentially a leveling mechanism to slightly draw down the difference in political power between corporations and individuals.

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    1. The EU's FoM means workers are less impeded by borders, yes. It also allows free movement of capital. So it depends on whether free movement of capital combined with free movement of labour is better for workers than before we entered the EEC. A worker can more easily go to Germany, but so can a business, so potentially businesses are even more powerful than individuals than they previously were.



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  9. "Inferring that all the UK’s problems are somehow down to the EU, without providing any evidence that they are."

    Do you mean "inferring" or do you mean "implying" ? If "inferring", then wouldn't Larry have had to supply some evidence just by the nature of the "inferences" that he made ?

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  10. Wasn't Greece screwed with or without the Euro once the end of the Cold War meant that it was no longer receiving vast sums of economic and military aid from the United States?

    IIRC Syriza MEP Kostas Chrysogonos said that if the Greeks did leave the EU they'd suffer such a devastating economic collapse that they end up envying the Zimbabweans.

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  11. Thank you.

    I would even go further. As far as I can tell, the EU is the only organisation in the world these days which does anti-trust with some teeth. Making it in some ways the only organisation in he world which stands on the side of citizens against corporations with some efficacy.

    I think the lexit position is wholly morally bankrupt, because it claims to be about workers, but in reality is quite explicitly about workers with the right passport, and in many not-so-veiled instances, right skin colour and accent.

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  12. You say "The EU is fundamentally about trade liberalisation, not about the role of the state", but the regulation of trade is a matter of state, as is monetary policy (whether through the BoE or ECB) and regional cross-subsidisation.

    You appear to be echoing neoliberal ideology, specifically that the market originates independently of the state: that it is a naturally occuring phenomenon and the state has a choice as to how it responds. In reality, neoliberalism does not subordinate the state to the market, rather it accepts (covertly) that the state creates the market (and it is for this reason that the state must itself be an exemplar of the market).

    Neoliberalism, as a state-centred project, will always seek to accommodate local political traditions as much as it will advocate "universal" values. Continental versions of neoliberalism (e.g. Ordoliberalism) are more attunded to the public admission that the state is the market-maker (which explains the Google fine). This is partly because of the direct impact of Fascism - i.e. a recognition that the state must create a robust and plural economy, with social safeguards, in order to restrain the authoritarian instincts of its political tradition.

    In contrast, the UK strain of neoliberalism has always been more influenced by the US tradition in which finance capital has had a privileged role in the guidance of state policy. It is this, together with a different 20th century political history, that explains why the varieties of neoliberalism (i.e. conceptions of the state as a market-maker) have been a factor in Brexit.

    Lexit, whatever you think of its merits as a theoretical position, needs to be seen in the context of these two countervailing tendencies: the ability of the state to construct the market and the role of the market in conditioning the state. The paradox of Lexit is that what it appears to be advocating in many cases is not socialism but Ordoliberalism in one country. This is because what motivates both left and right - i.e. outside the neoliberal centre and the free-marketeers now panicking about the reality of Brexit - is the issue of state power (sovreignty) more than the nature of the market.

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  13. The main reason for the EU is to prevent war; trade liberalization is a means to bring peoples together but it is the means and not the end.

    I think you are also right when you say that the EU was not about neoliberalism but trade; after all it was founded by France, which had (and has) a very centralized state and Germany which was embarking on the social market economy, again something that meant substantial state intervention in the market.

    The growth within the EU towards that "ever closer union" was meant to be an organic process which would extend the economic gains of trade liberalization to the social sphere and, ultimately, achieve the objective of closer peoples and a sustainable peace.

    To my mind the problems began when this organic process of bringing peoples closer together was replaced by much more explicit objectives which would force the issue. I believe, as do many others, that the Euro was known to be faulty and would, sooner or later, create a crisis which would have to be resolved by political union (after all many economists did not agree with the Euro at the time it was introduced). Any organisation which has so far strayed from its initial remit and is willing to take such huge risks both economically and politically has to be regarded with great suspicion.

    I suspect the real reason you do not like Lexit is that it does have some degree of plausibility (LE is certainly one of the better commentators who himself voted Brexit) and therefore admits a much more nuanced conclusion about this whole thing than you are prepared to admit.

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  14. Depressingly, while Larry Elliott can safely be put back into his brexit box, this more recent article by Barry Gardiner, Labour’s shadow trade spokesman – https://www.theguardian.com/commentisfree/2017/jul/24/leaving-eu-single-market-customs-union-brexit-britain-europe - appears to rule out remaining in both the customs and single market, even on a transitional basis,. The resulting loss of sovereignty would make us a ‘vassal state’ that would be a ‘con’ for the 52% that voted Leave, and would ‘preclude us from making our own independent trade agreements with our five largest export markets outside the EU (the US, China, Japan, Australia and the Gulf states)’, and that the ‘the key is not to try to fit these political and economic requirements (namely not losing the benefits of CU and SM membership) into inappropriate existing bodies such as the EEA or the customs union, but to develop a bespoke agreement based on what both sides need’: echoing, in effect, the Brexit world view of Liam Fox.
    This mixture of economic inanity and of political stupidity and dishonesty - if not repudiated or substantively re-defined by both Starmer and Corbyn – will surely undermine any attempt by Labour to present a credible alternative to the May government Brexit approach, and will prevent the party driving a wedge between those conservatives who seek a Brexit approach more attuned to the national interest and economic and legal facts/evidence and the mind-set-in-stone, ideologically-driven hard brexiteers.
    Gardiner’s cry that Labour must evince a positive vision for the future of our country outside the EU, that should include ‘re-assuring remainers the friction-free access into the single market that we have enjoyed for so long can in large part be maintained’ is simply dishonest humbug: exiting the customs union and single market will result in significant economic diswelfare into the medium term, precisely because frictionless and tariff-free trade will not be accorded to the UK by the EU by a such a ‘bespoke agreement’. That is, without continuing substantive free movement, regulatory equivalence requiring adherence to the ECJ, etc, for well into the future. Didn’t Bernier make that clear?
    Hence the advantage of staying in the CU and single market (via EEA) for a sufficiently long transitional period to give the UK time to possibly negotiate such bespoke deals with the EU and other trading partners (that should be the real UK negotiating bottom-line: keep the obligations of EU membership but keeping the facility to negotiate other trade deals; we would then exit the CU when ready to enter such agreements; there may be some semantics on perhaps, a new form of CU transitional’ membership amenable to that ).
    Of course, it would be far better to stay in a reformed EU combined with a reinvigorated and integrated industrial, regional, infrastructural and strategies more tailored to the needs of the ‘left behinds’, but we are, where currently we are. Any bespoke trading agreement will invariably also involve some loss of sovereignty.

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  15. "Just as the movement of goods across borders benefits all"
    That's pretty sweeping. Say gold. Moving that to-and-fro seems much like Keynes advocating hole digging.
    Seems to me there is still much to learned from Keynes' friend Russell's works such as "in praise of idleness"

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  16. “First, globalisation has brought huge gains for many poorer countries…”

    I’m never sure about this. It seems to me that evidence on the contrary and restless debates on inequality income distribution, Gini coefficient and costs (economic and social) resulted from trade and financial opening place serious doubts on this statement. That said the blog has a fair point about the Lexit.

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  17. 'The EU is fundamentally about trade liberalisation, not about the role of the state. It is trade liberalism that is hardwired into the EU, not neoliberalism.'

    Aren't trade rules that "tie the hands" of governmental regulation exactly what you are defining when you say neoliberalism is "subordinating the state to the market"? When I look at trade treaties, I see rules that restrict governments from various kinds of market regulation, such as imposing tariffs and regulating capital flows. It seems to me that trade liberalization's direct target is subordinating the state to the market.

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  18. The EU is anti-democratic and that is sufficient justification for the Leave vote.

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  19. Hoping that someone can answer my query on the deficit debate. A colleague of mine insists that his argument that it is somehow ok to have the huge rising debt of £1.7trillon because this debt interest is only 3% of GDP or some such statement and that when Labour were in power the interest was a massive 18% of GDP and GDP was falling etc is his party piece. Now I except that I may have got my quote on his argument incorrect but have been racking my brains/memory for confirmation that this is what he said but it was very similar I feel sure. He is one such person that loves BREX at what ever the cost to the country. Any help would be great?

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