Economics and politics - comment and analysis
21. July 2016 I Will Denayer I Europe, General Politics

European economic governance, the Brexit and the Lexit. Part 2: the Lexit

European economic governance, the Brexit and the Lexit. Part 2: the Lexit

  1. Political strategic blunders

In the first part, I severely criticised EU economic governance (see here). This does not mean that I joined the Lexit camp. I object to the term ‘Lexit’ to begin with because it suggests, somewhat arrogantly in my opinion, that the ‘left’ or the ‘real left’ in globo supports the Lexit. This is not the case. There are a lot of people on the left who oppose it. The Lexit camp celebrates the Brexit, which they consider a victory. This is a conviction that they share with every major figure on the European far right. In fact, it is the worst strategic blunder in a generation.

No one explained this any better than Elise Hendrick in this truly brilliant article. As Hendrick writes, in 2015, Labour resoundingly lost a general election after attempting to unseat a hard-right government by plagiarising its worst policies. This was, of course, nothing new. New Labour has always been a neoliberal project. In Ireland, after the financial breakdown, Labour entered into a coalition government with the right and implemented austerity with shocking sadistic enthusiasm and vehemence – as if austerity was their own bread and butter – hitting the poorest and the unemployed and creating a housing crisis in the process. It got completely destroyed in the last elections, getting less than a miserable 7% of the vote. It is not much different anywhere else in Europe, only less outspoken. Labour is losing electoral ground everywhere. It therefore enters coalitions with the right, trying to add ‘accents.’ This accentuation never seems to work. In Germany, the grand coalition just made the Hartz IV regime even more regressive and repressive. Hitting the poor and hunting down the unemployed has become a favourite pass time of practically all major policy-makers in Europe.

What does this have to do with the Lexit? As Hendrick explains, even against this lacklustre background of debacles, infighting, betrayals and strategic blunders, the Brexit is a particularly pungent testament to the intellectual bankruptcy of a certain segment of the left. Habermas explained exactly the same last weekend in an interview.

Because what was really at stake in the EU referendum? It was a referendum concocted by David Cameron to damage Labour, erode the electoral basis of UKIP and to silence the euro-sceptics within his own party. The Brexit was never about concrete policies or ‘Brussels’ or ‘economic independence’ (the UK is most deregulated country in the OECD anyway). It was not about austerity or anti-austerity. It was political electoral strategy by the most right-wing elements of the most right-wing government in recent memory in Europe – that is, before Theresa May came to power. Since everyone on the right understood that the way to get votes was to play the immigration card, the immigration card was played by everyone. And what did the left do? With some rare exceptions, the left had nothing to say, nothing else than that the EU is an oligarchic neoliberal implementation machine. No hyperbole remained unused. Not that the EU oligarchy does not deserve it. It is so undeniable true that it is trivial. Does it follow from this that the UK leaving the EU will improve things? The answer from the left Brexit camp is a resounding yes. It is a yes until you ask them what they should explain to begin with if they would carry intellectual weight: how the Brexit will be beneficial from a left perspective.

As Hendrick wrote:

“The extent of the analysis, such as it is, has been ‘The EU is shit; therefore, leaving is good no matter what the circumstances’. One could just as reasonably argue that, since Ryanair is crap, the only thing for it is to jump out of the plane 30,000 feet over Yeovil without a parachute. This is strategic incompetence on a positively epic scale.”

It is of course clear who will suffer the most and who is suffering already from this reactionary victory: immigrants, both EU and non-EU, ethnic minorities, Muslims, unemployed workers, the poor, people with disabilities and the whole stratum commonly called ‘the working class.’ Or is it a victory for the ‘working class’ to vote your Polish neighbour out of the country? No Brexiteer bothered to deal with this. It’s all hand waving and a bit of arrogance: you do not understand, the Brexit is not about immigration. In the meantime, the legal position of more than 3 million EU immigrants and many more non-EU immigrants is unclear – May refuses to give any reassurances – it is clear that ‘some’ (May) will have to leave and that free immigration will come to an end. To the left Brexiteers, it does not seem to make a difference.  If there’s no problem, there’s no need for their own accountability either.

  1. ‘Neo-liberalism is gone’

I want to provide an example. It is Bill Mitchell’s latest post on the Brexit (see here). In these discussions, the man has been played much more often than the ball. Not by me. Mitchell is an accomplished and influential leftist Keynesian economist who has done interesting work. For the rest, I do not know Mitchell. There is nothing personal here. This is solely about politics, what the left should do and what it should not do under any circumstances, nothing else.

Mitchell is very happy with the result of the Brexit referendum: ‘Now that the Brexit is a fact (…) neo-liberalism is gone in Britain.’ ‘A new economic paradigm is called for based on its new found sovereignty (…) nationalisation has to return as a key industry policy plank for any aspiring progressive political party.’

Can any such progressive political party be identified? Is it Labour? Two nights ago, 140 Labour MPs voted for the renewal of Trident. Forty seven voted against and 43 abstained. Is this the party that will put nationalisation on the political agenda? Yes, Corbyn considers it. Corbyn can win as many leadership contests as the right wing decides to organise, ultimately it will not matter. There is no way in which a divided Labour can win the elections. The Blairites will not hesitate to inflect defeat upon the party. Blair openly prefers a conservative government over a Labour left wing government. So, which progressive political party is it?

Furthermore, the EU does not forbid nationalisation (as I explained here). This is something that the Brexiteers made up. It is possible – legal according to EU law and jurisprudence – for a progressive political party, if it would exist, to put nationalisation on the agenda and to re-nationalise public services if it would come to power.

Mitchell refers to an article of Blanchflower on which I also commented (see here). He writes:

“In the Guardian article, Blanchflower rehearsed all the doom and gloom that the Remain campaign tried to pull on the people – “no NHS funding,” “big house price drop”, “pound has collapsed” (what actually constitutes a collapse?), “credit rating downgrades” (yep, that always slips in), “negative growth”, Britain will have an “awful state of the public finances” (what the deficit might rise a bit!) and more. In sum, “believe me they are going to be bad”.” (see here).

So where is funding for the NHS – it just needed another loan of more than £2 bn to stay afloat? Did house prices drop or not in the meantime, is the pound doing well or not now that the Fed does not exclude the possibility that it will reach parity with the US dollar (perhaps next year or perhaps it will not happen because it is not that bad and so the good news is that it is just not that bad?)? Have credit ratings been downgraded or not? The deficit will certainly rise another ‘bit.’ Amazingly, none of this seems to be of importance compared to the new found sovereignty which gives a progressive party that does nowhere exist a chance to implement what was possible to begin with anyway.

Mitchells continues: “Next stop is that there will be a ‘major shock not only to the UK but also to global output.’ World recession looming from Brexit. Whew. And share markets are going to crash! Although the UK Guardian reported yesterday that – US shares hit record high after FTSE 100 enters bull market. Some collapse” (see here).

This is completely disingenuous. It is simply impossible that Mitchell does not know that the FTSE index tells you in fact nothing about the performance of an economy as a whole.  I am certain he knows that shares hitting record highs may very well be bad news for the economy.

In fact, Paul Krugman just addressed this point just some days ago (see here). Does the stock market provide a good guide on how the capitalist economy is performing? The question arises because the US stock market has indeed hit a new all-time high in the last couple of weeks. Krugman explains that “stock prices generally have a lot less to do with the state of the economy or its future prospects than many people believe. Indeed, he continues that “in some ways the stock market’s gains reflect economic weaknesses, not strengths.” Krugman makes three points to explain why stock prices are of little guidance: 

“First, stock prices reflect profits, not overall incomes. Second, they also reflect the availability of other investment opportunities — or the lack thereof. Finally, the relationship between stock prices and real investment that expands the economy’s capacity has gotten very tenuous” (see here).

Profits in the US have been falling as a share of total output and even in absolute terms just as the stock market has risen. The prospects for investment that will deliver higher growth have diminished.  So it would seem that the stock market has got way out of line with the so-called ‘real economy’ (see here for analysis). The FTSE tells you close to nothing about the health of the economy.

I do want to criticise every sentence that Mitchell penned, but it seems that he did indeed found proof of sudden Brexit-led recovery:

“The plane-maker (Boeing) together with the government and other industry players will also help fund some £365m worth of aerospace R&D projects that have been approved by the government as part of the Aerospace Growth Partnership”

although this decision was taken before the Brexit and the only good news so far is that Boeing did not drop out (yet?). In fact, “Boeing has announced plans to establish a new £100m servicing facility in the UK and double its workforce in the country over the next few years” (see here). How many jobs will this new £100m create? It sounds as much as two or three Horizon2020 proposals – EU research funding for which British universities will no longer be able to apply.  Anyway, this seems to be the road to ‘high productivity’ in an ‘employment rich future for Britain.’ Isn’t it all very simple? The only thing we need to do in order to bring prosperity back is to leave the EU.

  1. The crucial strategic blunder of accepting the ‘social dumping’ discourse

Mitchell quotes from an article that Stiglitz wrote after the Brexit: “Free migration within Europe … (leads to) … depressed wages and higher unemployment, while employers benefit from cheaper labour.”

This is, frankly, unbelievable. Since so much cabal has been made about immigration I have been looking into it. I did not find one serious study that proves black on white that free migration leads to depressed wages and higher unemployment. The noxious social dumping discourse – foreigners are taking our work – is a xenophobic and racist fabulation (see here). It goes further than that. Social dumping is the practice, undertaken by self-interested market participants, of undermining or evading existing social regulations with the aim of gaining competitive advantage(see here). It has been argued and proven that the creation of the internal market and EU enlargement to the east and to the south have made social dumping more pertinent, by providing market participants with new strategic opportunities to contest social norms. To makes this concrete, read ‘employers’ instead of ‘market participants’ and ‘social entitlements’ instead of ‘social norms.’ Social dumping, if anything else, is a reason for the left to defend immigrant workers. Social dumping only exists because employers and member states are breaking laws and rules – European rules among them: not paying people the minimum wage, forcing people to do unpaid overtime, refusing people sick leave and holidays. That is the reality of social dumping. This has been going on for a very long time already (see here). One of the reasons is that the left accepted the dominant discourse of social dumping. No political party is going to win votes defending foreign workers – at least no political party that does not find the courage to explain that it is not foreign workers that are the problem but the rich and powerful. But this sounds way too socialist for the Zeitgeist, so let’s not even try. The unions will not defend foreign workers, or at least not to the same degree as their ‘own’ workers.  This is, of course, the sliding slope. In order to push their Brexit, the Brexit left saw no problem in doing exactly what should be avoided at all cost: setting up the workers of Europe against one another a bit more – making all of them a little bit more powerless in the process. Little wonder the right is grateful and euphoric.

As for social welfare and other contributions, the case is so extremely simple that even the right does not dare to lie about it: the balance of immigration is positive.  Immigrant workers contribute more than they take out. They are, on average, also younger, less sick and higher educated. If there is welfare fraud, it is often negative: people refrain from requesting benefits they are entitled to because, given the Orwellian  political climate, they do not want to end up in trouble with Immigration. Owen Jones explains this here. The social-democratic leaning Joseph Rowntree Foundation published several reports on it (see here). There is no doubt that this is true.

  1. The rotten state of UK manufacturing

Mitchell says that “Britain has a large internal market, a strong manufacturing tradition (to be revived) and a well-educated workforce.” To him, industrial policy including nationalisation has to form part of the new domestic focus for the nation. I agree. It would be great if we could achieve this. But I do not like illusions. Almost nothing remains of the ‘strong manufacturing tradition’ – the ‘industrial commons’ have been dismantled (see this book for an interesting account). The British can proclaim that they are still the eight most important manufacturing country in the world all they want: using the correct measure (manufacturing output per capita) they are not in the top 20, as Ha-Joon Chang reminded them in the Guardian (see here).

It was the same with British steel months ago when a lot was made about Chinese steel dumping. But British steel is not competitive with anyone within the G8 either (see here). The well-educated industrial workforce for the manufacturing sector that has to be revived does also not exist. Education attainment in the parts of the UK is among the worst in the developed world, with large segments of 16 and 18 years old failing basic literacy tests. In fact, the economic situation in some of the hinterlands in Wales and in the North East and North West in England up to the border with Scotland is not different from the situation of the old industrial relics in the US – Detroit, Cleveland, areas such as West Virginia and Virginia where life expectancy is a full 25 years lower than in neighbouring Maryland and cities like Baltimore or Los Angeles where life expectancy in deprived areas is lower than in Bangladesh. There is no reconversion, no investment, nothing happens. Surely, this can’t be fault of the EU. This is what the elites have done to their own population, just as our elites are doing it to us and any lexiting won’t stop them.

To give one example out of a near infinite amount – something that should upset any left leaning person – although the majority of the British population is against the renewal of Trident and the program will approximately cost either £167bn, £179bn or more than £205bn (upkeep included) according to the source and manner of calculation, all conservatives (except one) and a great majority of Labour voted for renewal. Labour MPs justified their vote by making the argument that Trident will give a much-needed boost to UK manufacturing. Which boost? Is this what we are going to do now? For this money, at least 2.300 primary schools can be built, 289.000 new nurses can be trained – which will be a necessity after Theresa May kicks non-EU and EU nurses out of the country (or perhaps the NHS will just be gone by that time?) – and 227.000 new police officers can be trained. Of course, we do not need all these police officers, because, aside from hate crimes, which multiplied by 5 since the Brexit, violent crime is actually falling in the UK (but not white board criminality, but this is not a matter for the police anyway). Was it the EU which makes the UK spend some £200bn on weaponry that can never be used without blowing up the planet? But then, it is not about blowing up the planet, just as it is not about manufacturing (see here). It is all about some major global banks and some incredibly powerful corporations. Let’s call it financial and corporate welfare: another £200bn gone.

This is not anecdotal. It goes to the heart of the matter: if you want to change circumstances and policies, change power relations.

Bill Mitchell ends by reminding readers that the United Nations Human Rights Commission’s Committee on Economic, Social and Cultural Rights on June 24, 2016 released its Concluding observations on the sixth periodic report of the United Kingdom of Great Britain and Northern Ireland. The UN text amounts indeed to an incredibly severe indictment of the absolutely scandalous manners in which government departments have been abusing people. And what had the EU to do with that? Was it the EU that was in charge of the Department of Work and Pensions? Was it the EU which pushed anti welfare bills through the House where they were then approved by a great majority because all major parties – including a large majority of Labour – voted for them? Please do not tell me that I ‘defend’ the EU. The evident point is that the problem is broader than ‘Brussels.’ The question is not whether EU economic governance is defensible. It isn’t. The question is what needs to be done against it. The answer is that the right has to be defeated everywhere, on every political scale.

  1. Strategy

According to Mitchell and Keen and others leaving the EU makes all the difference because from the moment that the EU obstructions no longer exist the future looks bright: the Keynesians will run central banks, socialist parties will nationalise industries, there will be growth, prosperity, equality, social mobility and everything else.  It is exactly this illusion that stands in the way of a serious strategy against the right in Europe.

At least, during the Greek debacle in 2015, one of the main proponents of a Grexit, Costas Lapavitsas, had the honesty to say that he did not know what its consequences would be. Lapavitsas repeatedly declared that it would be difficult and that it was impossible to predict at which point Greece would return to growth – it could be 9 months or 18 months or even 2 years. Lapavitsas believed that leaving would be bad, but that staying would be worse (I agreed). This was at a time when a Leftist government was in power in Athens (or, at least, this is what everybody assumed). Now the proponents of a Lexit tell us that everything will go much better after an exit. It does not matter if on the national level right wing governments are in power or, in the case of the Brexit, the most right wing, most regressive government in Europe of the last fifty or so years.

The EU is nothing else but a reflection of hundreds upon hundreds of lobbies effectively influencing and sometimes dictating policy – and literally drafting legal texts (as the cement lobby has done with phase II of the European Carbon Trading System). The EU is a reflection of the corporate power within the member states.  It is a reflection of global financial capital. It is, sadly, also a reflection of national political preferences as laid out by national electorates – right wing government sending right wing policy-makers to Brussels. That these policy-makers are in the business of the usurpation of democracy is hardly in doubt. It is also a reflection of the economic hegemony of Germany within Europe. It is true that a breakdown of the euro zone would spell the end of German wage moderation. But what will it lead to? Destroying European wage divergence is a necessary condition to make the European economy function again. But is it sufficient? The problem is that we are not only facing an economic crisis, but also a political one. The political situation in Europe has degenerated to the point that if economic and social conditions deteriorate slightly further, the extreme right will make enormous electoral gains.

Aside from Corbyn, who is being slowly mauled to death by the neoliberals, no one in any other country has the same massive appeal. There is certainly no one France, so next year the elections will be between the far right and the extreme right – Sarkozy versus Le Pen. The left is making no electoral gains in any of the other countries, with the exception of Spain, but even there it is not in power. Portugal is too small to change anything by itself. In the Scandinavian countries where, at one point, social democratic policies were considered a matter of intelligence, common sense and decency, social democracy turned to the right and –  oh surprise – is now losing elections. Will austerity and all the misery that the EU creates evaporate when the EU disappears? What is the great lexit plan to bring back democracy in Europe, to curtail corporate power, their influence and lobbies, indeed, what is the strategy to win elections? Or will the same power structures remain intact – or even become stronger – and dictate the wrong economic and social policies at the national level? Where is the analysis, given the crucial importance of the matter? Surely, everyone can see that it is more difficult than ‘let’s get out and then we’ll see.’

There is a completely different strategy, it is simple and straightforward. From the moment that there would be a leftist majority in the European Parliament, the EU executive branch (the Commission and the Council) can no longer work. In any democratic system, it is ultimately not the government that is sovereign, it is the parliament. The power lies with the parliament. If a democratically elected parliament votes laws that the executive branch refuses to implement, it is the executive branch that has to go. Furthermore, reforming the institutions also immediately and automatically changes the power relations within the member states. This is something that the Lexit can hope for without having any mechanism available to make it real. As Habermas said in the interview (see above), in danger and distress the middle road leads to death. The wrong strategy will lead to disaster. ‘Get out of the euro zone and then we will see’ and counting on parties that do not exist to accomplish change is many things, but it is not strategy. Social democracy turning to the left, winning national elections and creating a massive front populaire all over Europe is. The institutions can then be used in order to implement democratic, social and intelligent policies, serving the common good. EU economic governance can then finally be thrown in the dustbin of history without the risk of it being recycled – or upgraded! – nationally.

Post Scriptum

Here is the latest news about the legal position of EU immigrants currently living in the EU. Until now, no Brexiteer from the left has commented on this, except to say that the referendum was not about immigration. The referendum was about immigration and not much of anything else. Today, the situation is that EU nationals and non-EU immigrants currently living in the UK do not know if they will be able to remain living in the country or not. This holds true for people who are married to Britons and have children who have the British nationality and own a house in the UK. Nothing provides them with a guarantee of rights. It may be that this is a chess game that May is playing at the moment in order to get concessions. It may be otherwise. In the first case, a government identifies the rights of immigrants as a bargaining position in political negotiations. In the second case, the Brexit threatens to endanger the livelihoods of many millions.

The effects of course already exist. What will happen? How much shall it cost to remain in the UK? What for those who cannot afford applications? Will it be necessary to have an income of at least £ 35.000? How many immigrants are making £35.000 these days? Will it be necessary to produce as much as £100.000 in savings? How many immigrants have such savings? Will it be necessary to prove five of more years of private health insurance? How many immigrants can afford private health insurance? Will be necessary to produce documents going back many years including all travel out of the country? Who keeps all these documents? Will foreign nationals still have emergency care? What indeed about non-EU immigrants, people who been living in the country for five, ten, twenty years, some of which have lived there all their life? What will become of the more than 1.8 million UK citizens living in other European countries? What will become of the UK, a country in which 10% of all practising medical doctors are non-nationals?

No one knows anything. The rights of people to remain with their loved ones, to live in their own houses, in the communities, their right to work, raise children, study, have health care and retire will become dependent on their ability to pay. This is, indeed, a great victory for the working class. The best proof of it is that the Brexiteers are ignoring all of this misery. This is what you and the rascals on the right caused. According to a confidential paper of Deutsche Bank that has just been leaked, London is likely to lose its financial services passport (pictures of the document are included). You can read it here. This is not about $100m from Boeing. Here is a report on how the Brexit is starting to eat away property prices. This will certainly provide a further stimulus to construction in the UK. Here is a report of the BBC about UK scientists worrying about research because EU funding will become impossible. Here is another BBC report saying that the Brexit cost Easyjet (one company) £40m so far. Some layoffs will be inevitable.

Great victory indeed.