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The post-truth, exclusionary, pseudo social welfare... The post-truth, exclusionary, pseudo social welfare state. Part...
17. October 2016 I Will Denayer I Countries and Regions, Economic Policy, Europe, General Politics

The post-truth, exclusionary, pseudo social welfare state. Part 2. The Brexit, serving the elite, ruining the country

Introduction

Assuming that the Brexit will turn out to be a disaster for the UK and that May’s government knows this, why are they going forward with it? I still believe in my hypothesis: May does not want a Brexit. The push for a hard Brexit fits. The more the British push for a hard Brexit, the more the Europeans push back. Counting from March next year, it will prove impossible to finalise the Brexit in two years time. In 2020, the election will be looming. By then, the social basis for the Brexit will have been completely eroded – even if there would a referendum today, there is not a chance that the Leavers would still win (see here). A clear Scottish ultimatum will have been formulated: a new Scottish independence referendum. Is May going to let the UK fall apart? In Northern Ireland, McGuinness considers the Brexit “impossible and unworkable.” How will May solve this? It will be Labour, if it does not make a U-turn, which will stand with its back against the wall. Electoral disaster for Labour is guaranteed. This is almost an almost full-proof strategy (see here and here). If this is not true and May wants the best possible outcome for the UK, what are people like Boris Johnson, David Davies and other extremists doing in the cabinet (see here for a very good article by Zoe Williams on these extremists)? Does May want them to fall on their face so that they finally get what they deserve? Johnson reminds me of Frank in Some Mothers Do’Ave ‘Em (see here) – whatever Johnson is involved with, you can be certain that he will mess it up. The difference between Frank Spencer and Johnson is that Frank was not in the least malicious.

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Picture 1: Frank Spencer in Some Mothers do’Ave’Em (Source: Google Images). 

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Picture 2: The British Minister of Foreign Affairs Boris Johnson (Source: Barcroft Media). 

In what follows, I want to look at the Brexit from a class analysis point of view. I use insights from the French regulation school regarding the relationship between (economic) regimes of accumulation and (political) modes of regulation. My point is not that the policies which are being implemented today favour the economic, financial and political elites. This is always the case. Even the policies during the ‘golden age of welfare capitalism,’ with it social democratic policies and redistribution, favoured the elites. The point is that, at that time, there existed, to a significant degree, a congruence between labour and capital. Although their interests differed and the fundamental antagonism never disappeared, it was possible to formulate policies which struck a balance. This was not in the least because capital needed labour. It was, of course, only possible because at that time we had high growth and rising wages. The thesis is that, nowadays, the social system is in such disarray that it is no longer possible to formulate policies that come even close to a balance. Today, policies serve the interest of capital and damage society at large. The price to be paid is political populism. It is then a question of canalising popular resentment away from the real causes – austerity, neoliberalism, privatisation, the destruction of the welfare state, increasing commodification. The Brexit is the culmination of this. The Brexit will make everything worse and nothing better, but it fulfils its function: not falling wages, austerity, lack of investment, tax evasion, etc. are the problem, but the Polish plumber and the Syrian refugee. The Brexit has never been anything but a political tactic – Cameron’s intention to silence the euro sceptics within his party, to damage UKIP and Labour (see here). His gambit did not work. But it is not a problem. It is not the millionaires and the billionaires who pay the price.

The disaster in perspective

This is how far it goes: earlier this week, Helmer, UKIP MEP in the East Midlands, called May and Rudd’s proposals “a step too far.” Plans to “shame” companies who employed foreigners would be branded “fascist” had they been advocated by UKIP, he said – which is certainly true. He called reports that the government had told the London School of Economics that foreign-born academics could no longer advise on Brexit “astonishing” (see here).

“I like what Theresa May is doing, she seems to have picked up about 90 per cent of Ukip’s programme. In some way she’s gone far beyond what we’d done,”

the MEP said on BBC 4 Radio. “I personally think that is a step too far and is rather, sort of, petty,” he added (see here).

The Tories, UKIP and Right Labour are profiting from a historical coincidence. The decade since the European Union expanded into Eastern Europe has also been a decade of layoffs, spiralling housing costs and slashed public services. Job creation depends on correct policies, profitability, investment, innovation, wage growth and demand, not on the number of migrants. But politicians have been unwilling or incapable to put correct policies in place. Today, the discourse of a UK that is being “overrun” by migrants who work for next to nothing, drive wages down and Britons out of the job has gained dominance in the political mainstream. It is a despicable and ludicrous exercise in self-harm. So far, the train seem unstoppable.

Immigrants are not driving wages down and Britons out of a job. There is not the slightest evidence for any of this. Nor has the housing crisis anything to do with migration. Today, it is harder than ever before to get decent housing in UK. A lot of people will never be homeowners – wages are too low and prices too high. The Tories are in the process of destroying social housing. At the same time, 635.000 homes in England are unoccupied. While it is true that construction in 2015 reached its highest level since the financial crisis (but no longer in the meantime), the houses that are being built are not affordable for the middle class and many are used as lucrative assets by the super rich. No one is talking about EU migrants paying £ 20 billion more in taxes than they receive in benefits. If there would be any honesty and rationality left, the UK should be happy to have more migrants. But then it would not be possible to scapegoat immigrants for the consequences of absurd, counterproductive and antisocial policies (see here).

May plans to make ‘Britain work for all,’ but you can be absolutely certain that her “strategy” – decreasing immigration and a hard Brexit – will radically prevent her from obtaining that goal. Just look at what happened this week. Recruiters warn that a migration crackdown will lead to staff shortages (see here). The NHS cannot function without EU and other immigrants. Finch reports in the Independent on the basis of a new report by CitiUk that the UK economy may suffer a loss of almost 70.000 jobs, almost £40bn in lost revenue and £10 tr in tax revenue because of a hard Brexit (see here). Last week, the Pound became the worst performance currency in the world. It is now weaker than it was after Lehman. According to a report of the Resolution Foundation, Brexit could knock almost £800 off the annual wage of the country’s lowest-paid workers by the end of the decade. This happened right after Treasury papers showed that Britain could lose up to £66bn a year if it pursues the hard Brexit option (leaving the single market and the EU customs union). Resolution Foundation Policy analyst Conor D’Arcy said:

“While there is much uncertainty over Britain’s long-term economic outlook, most economists agree that wage growth in the next few years is likely to be weaker than expected prior to the referendum. That means we’re unlikely to see the £9 National Living Wage that George Osborne talked about in this parliament” (see here).

A Government paper leaked to The Times last week suggested that:

“The net impact on public sector receipts – assuming no contributions to the EU and current receipts from the EU are replicated in full –would be a loss of between £38 billion and £66 billion per year after 15 years, driven by the smaller size of the economy” (see here).

Despite all the vilification it received, the Treasury says it stands by the figures. Mark Carney of the Bank of England said that real incomes will fall and that higher inflation will be especially bad news for the poor and the poorest (see here). In Ireland, farmers are panicking because in some cases 80% of their export goes to the UK, where demand is dwindling (see here). And so on. It is nuts, absolutely nuts. In the House of Commons, Brexit Secretary David Davis indicated that the UK could withdraw from full single market membership and the EU customs union. The government, Davis said, will pursue

“the best outcome for Britain” consisting of a “bespoke arrangement which gives British companies the maximum freedom to trade with and operate in the single market, and enables us to decide for ourselves how we control immigration.”

The UK is determined to ‘take back control’ of its fate. The problem is, as Martin Wolf writes in the Financial Times, that formal sovereignty is not power (see here). The English can take back control as much as they want. In the meantime foreign currency markets respond by writing down the value of UK assets. As May said:

“We are going to be a fully independent, sovereign country, a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts (…) (I)t is not going to be a ‘Norway model’. It’s not going to be a ‘Switzerland model’. It is going to be an agreement between an independent, sovereign United Kingdom and the EU” (see here).

So it is going to be a hard Brexit. Never mind (oh irony) that the Brexit had the purpose – if there was a ‘purpose’ – to restore parliamentary sovereignty, although now the Brexit cannot be discussed in parliament (see here). The hard Brexit will be an exit not just from the EU, but from the preferential terms of access to EU markets on which investors rely. It truly is unfathomable. As Wolf writes, the EU takes almost half of the UK’s exports (see here). The UK will not be deemed a credible negotiating partner until its EU deal is finalised. By March 2019, then, when the negotiations will have been stalled, the UK is likely to find itself without preferential access to any markets. Now that the UK government’s extreme goals are clear – or at least, it seems so – investors have duly marked down the value of the country’s assets in the simplest way, by selling the pound. Such a devaluation of UK assets was inevitable. It reflects investors’ correct belief that its economic prospects have worsened. And as Wolf also writes – and Ha-Joon Chang has made the same point on several occasions – the UK’s poor past export performance suggests that the depreciation is still not big enough to generate a shift in the structure of the economy towards production of tradeable goods and services (see here). In other words, UK manufacturing is still not competitive. Moreover, says Wolf, it is quite likely that today’s huge current account deficits will be unsustainable post-Brexit. If so, the UK will need a big decline in aggregate spending relative to incomes. The central, populist, premise of the Leave campaign was false writes Wolf: a host of decisions that affect the UK will always be taken outside it. What drove Leavers was “the principle that decisions about the UK should be taken in the UK”. The currency markets demonstrate the emptiness of that principle.

The French regulation school: what happens when capitalism is in disarray?  

We witness an evolution away from Thatcherite neoliberalism towards a new model of regulation, which is be post-democratic, post truth, more authoritarian, more corporatist, more privatised, more punitive. May’s maiden speech as a PM at the Conservative conference last week was intriguing for its renunciation of Thatcherism’s pernicious but still pervasive emphasis on individualism and antisocial self-interest. Instead May stressed what “the good the state can do” for what she patronisingly calls ‘ordinary people.’ May wants the Conservative party to take “the political centre ground” and become the “the party of the workers, the party of public servants, the party of the NHS.” It is nothing but empty rhetoric (see here). In the meantime, behind the immigrant smoke screen, Richard Branson is buying up GP practices all over the country (see here). But the Tories, May says, is the party of the NHS (see the first part where I reproduced a map showing how the NHS has been destroyed practically all over England in less than five years – practically all regions went from a surplus to a major deficit). This post-truth politics is part and parcel of the new ‘regulation.’

French Regulation theory discusses political economic historical change through two central concepts, a “regime of accumulation” (AR) and a “mode of regulation” (MR). The school, which goes back to the 1970s, wanted to analyse the emergence of new economic and social forms in terms of tensions within existing socio-political arrangements. The question is how historically specific systems of capital accumulation become ‘embedded’ in social relations and institutions. The school analyses the specific ways in which production, circulation, consumption, and distribution organise capital. But this organisation cannot take place without a specific MR that creates a conducive and supportive environment in which capital formation and production take place. In cases of tension between the two, a crisis may occur. The approach parallels Marx’s characterisation of historical change as driven by contradictions between the forces and the relations of production.

If the AR turns into a downward spiral (which is, according to the Marxists of the regulation school, inevitable because every phase of expansion leads to imbalances which are inseparable from the operation of capitalism itself), institutional forms and the ways the state intervenes in the economy must be modified. The best example is the crisis of 1929, when the free play of market forces and competition did not lead to a renewed phase of expansion. It was impossible to generate long-term growth without major upheaval and subsequent institutional change. The interwar period marks the passage from a mode of accumulation characterised by mass production without mass consumption to a mode incorporating mass production and mass consumption.

Closer to home, the ‘golden age of welfare capitalism,’ from 1945 to ca. 1975, was characterised by high growth and Fordism. The main corresponding MR was the social-democratic welfare state, a model of social concertation which led to widespread prosperity (in the West). This system broke down in the late 1970s, when it was gradually replaced by an AR that was characterised by de-industrialisation, reliance on services, financialisation, post-Fordist flexible accumulation and globalization. The MR changed accordingly. The social welfare state came ideologically under attack, the model of social concertation suffered, all over the developed world, unions lost members and, hence, political power. Capital won, labour lost out.

What happened is, in very general terms, what Wolfgang Streeck called ‘buying time’ in order to delay the inevitable crisis of ‘democratic capitalism’ as he calls it: debt allowed the system to work without too much upheaval or political cost (see here). It allowed consumption and the continuation of a lifestyle which could no longer be afforded by wages. At the same time, the financial basis of governments shrunk. As governments on every scale competed for private investment, tax rates for companies were slashed. Special tax breaks agreements were negotiated.  Meanwhile wages stagnated or barely grew and unemployment persisted. As a result, public debt rose.

Now, we find ourselves in an altogether new situation. A full eight years after the outbreak of the financial crisis, the economy in the OECD has not recovered. In Europe, we had basically eight years of zero growth. It is due to the euro zone crisis and the unwillingness of policy-makers to find a solution for it. This solution certainly exists (see here and many other publications by Heiner Flassbeck). The OESO is predicting very low growth until 2050 in the developed world. Austerity proved to be an obstruction to a recovery. According to an IMF report, global debt now stands at $152tr (excluding banks) and 85% of it is public. A reboot of the economy would require enormous investments, which is against every fibre in the body of mainstream economists, the neoliberals and the austerians. In Europe, the implementation of fiscal stimulus programs necessitates a fundamental reform of EU economic governance, the end of German undercutting and mercantilism and the corresponding end of Germany’s domination of EU economic policy (see here).

The inability to make capitalism work for the majority of the population, as it once did in the post-war period, leads to protest and political realignment. One sees this, for example, in the support for Corbyn and Sanders. It also leads to a political backlash from extreme right and the right. It is a backlash against the welfare state, a push for the further hollowing out of social solidarity – the pernicious ideology that ‘you get from life what you are worth’ – all dressed in a nauseating discourse against immigrants. This “program” is not longer only that of fringe parties such as UKIP, the AfD or the Front National. All mainstream parties have moved in this direction, although to various degrees. Hammond may be silently dismantling Osborne’s insane deficit targets – none can be met anyway. But this does not mean that ‘austerity is over.’ The new regulative model comes at a new social cost. The failing neoliberal structures will be repaired by the hatred of difference, spreading fear, inflexible uniformity, the assertion of one kind of citizenship over another on the basis of patriotism and nationalist exclusionary mythology.

What we will see is a surveillance state that intensely manages, marginalises and punishes precariousness – in the name of repairing it – a state that fuels patriotism and anti-immigrant resentment and then sees ‘no other choice’ than to act on it, all in the name of democracy, of course. This is the exact position of both May and right wing Labour.

The French regulationist school deals with the social and historical alignments between capitalist accumulation and political regulation. But there is no homogeneous capitalist class. Nor it is a priori given that such alignment is possible without giving rise to all sorts of societal dysfunctions and pathologies. History shows that if capital needs such dysfunctions, they will exist.

We have been in such situations before. Marx analysed a case study in The 18th Brumaire of Louis Napoleon. Polanyi provided examples in The Great Transformation: the era of laissez-faire in mid 19th Century England and the crisis of the 1920s. These crises occurred for completely different reasons, but they share a common characteristic: they all took place in an ideological climate in which political regulation failed to protect society from the corrosive influence of an unbound capitalism. Polanyi’s argument is not that, before “the rise of the market,” economies were ‘embedded’ in social relations and that, after the fateful “emancipation of the market,” the economy became the organisational principle of society. His argument is that the ‘liberals,’ the forces behind laissez-faire, tried to embed society in the economy, but that their project could not succeed because it was not economically, politically or socially sustainable for any period of time. After Word War I, liberalism, influenced by men such as von Mises and Lippmann – Hayek’s immediate predecessors – made a last, fateful bid to restore the so-called ‘self-regulation’ of the system by trying to eliminate supposedly harmful interventionist policies in the spheres of world trade and currency. Dramatically – and just as is the case now – intelligent economists and others vehemently argued against it. Political parties tried to counteract the disgression. The problem, writes Polanyi, was that these policies were the ‘faith of the age.’ No relevant political actor was willing to even see the problem – not Hoover, not Lenin, not Churchill, not Mussolini.

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Picture 3: The Daily Mail, over a century of hatred, every day again (Source Google Images). 

Here, then, are the similarities with our own age. Capitalism is failing, labour is too weak to fight, the political system does not readjust, critical economists and others are being marginalised, political parties beat the drum of division and scapegoat innocents, a disinformed, disorientated and resentful population is happy to follow suit, there is the ever increasing accumulation of yet more problems, the economic and financial elite is doing exactly what it wants. If the Brexit turns out to decrease UK GDP growth by 5%, it won’t be the millionaires and the billionaires who will suffer. It is, for the full 100%, a class issue.

I will explain Labour’s position in the third part. These are absolutely crucial times. Changes are urgently needed, but how and who is capable of initiating them? The radical left, divided as always, has no real impact. The Greens are too small and in some cases their economic views are more than suspect. The Liberal Democrats are making good points, but, after Clegg’s sell out, they are also too small. The question whether there will be change depends on social democracy or on a broad popular front with and beyond social democracy. For Labour, this is a do-or-die situation. If they are unwilling to mount an opposition, lack the vision or the courage, Labour will be defeated, Corbyn will be gone, the Blairites will again run the party and the progressives in Europe will have to learn another hard lesson. But it can also go differently.