Brexit: Be Careful What You Wish For?

Abstract

In this paper, I focus on the British future from Brexit. The institutional form this will take is not yet fixed. However, one can consider likely outcomes based on dominant economic frameworks. From this perspective, it seems unlikely that Brexit will address the actual grievances that resulted in Brexit. These transcend European Union membership.

Keywords:

• Brexit
• European Union
• ideational commonality
• inequality
• political economy

Notes

1 Thanks to Steve Fleetwood and Tony Lawson for comments.

2 There has in the UK, for example, been a breakdown of the social contract between capital and labour, but also a breakdown of intergenerational solidarity. If one looks through recent data and reports from the Institute for Fiscal Studies or the Rowntree Foundation, then various trends emerge. The UK economy has increased in size by 50% since 1995; yet, the real income of the average 40-year-old (allowing for inflation and housing costs) is approximately what it was in 1995. At the same time, actual household debt levels are about twice what they were in 1995. Those below 40 are now increasingly renters (80% of those 25 or younger rent or live with their parents), they lack access to final salary pension schemes (there were 5 million private sector scheme members in 1995 and less than 500,000 in 2014), they now carry tuition fee debt, are less likely to be a member of a union, and those unions are weaker than at any time in the last 100 years in terms of the legal scope for action.

3 This is not to suggest that the whole is simply reproducing itself without any prospect of fundamental change or transformation.

4 The Democracy in Europe Movement whose initial prime movers include Saskia Sassen, Yanis Varoufakis, Noam Chomsky, Susan George and Tony Negri, https://diem25.org.

5 A good example of limited acknowledgements of problems from within the common sense is Ostry, Prakash, and Furceri (2016) published in an IMF journal.

6 Christensen et al. (2016, pp. 4–5) argue that advanced economies can suffer a finance curse that is analogous to the recognised resource curse that afflicts some developing economies: cumulative over dependence on a single economic sector has adverse effects on the overall structure and subsequent evolution of a political economy. The UK has the third largest financial sector in the world and is the largest of these by proportion of the economy. It is a centre of financialisation; capital inflows to the financial sector maintain high exchange rates which reduce the capacity of other sectors such as manufacturing to expand via exports (encouraging an import dependency within globalisation); finance attracts a disproportionate number of skilled workers who might otherwise contribute to other sectors; the state becomes dependent on tax revenues from the sector (despite tax avoidance) and lobby groups for finance pursue political capture that cumulatively shapes and distorts policy, encouraging the dislocation of representative democracy from the broader citizenship; the net effect is also to contribute to asset bubbles, periodic financial crises through pro (‘light’) finance regulation, the socialisation of costs, and a loss of trust in the political system.

7 TTIP is not about reducing real trade barriers between states, since there are few between EU members and the USA; it is mainly about protections of corporate privilege in the name of free trade: strengthening and extending copyright and patents and the creation of extra-judicial mechanisms (Investor-State Dispute Settlements) to settle disputes between corporations and states in ways that reduce the capacity of states to intervene in corporate activity in their own jurisdiction since this becomes a barrier to trade. TTIP creates a space for corporations to avoid democratic accountability and augments their power to increase profitability (lobbying has been led by telecoms, finance, pharmaceuticals and the large software firms). Notably, TTIP provides a mechanism through which corporations can resist emissions reduction regulation, since interventions can be categorised as trade barriers.

8 The new Conservative government under Theresa May immediately scrapped the Department of Energy and Climate Change and created a Business Energy and Industrial Strategy Department. Department of Energy and Climate Change had three main foci: cheap and secure energy for consumers and businesses, supporting economic growth and reducing carbon emissions. The three are in tension. The new department signals a further transition (already begun under the previous regime) away from prioritising carbon emissions reduction (via the Climate Change Act 2008). Achievement is left to market and technology changes over time.

9 This has various channels. For example, Brexit will likely cause at least short-term reductions in trading activity in the EU. This in turn may place greater pressure on firms and thus on the banks carrying their debts. Also, some banks continue to carry large volumes of non-performing loan ‘assets’ and are recycling debt for ‘zombie’ firms in order not to manifest losses on their accounts (though this varies by country). Fear effects related to anything that might upset this vulnerable position create grounds for collapses in equity as well as withdrawal of corporate deposits. This creates bank funding problems (in REPO markets, etc.). Low interest rates also narrow the transformation range for banks, reducing margins/returns on current lending. The overall damage to capitalisation and Tier 1 capital is potentially progressive but also subject to sudden triggers (such as failing a stress test). It creates calls on the state for recapitalisation and socialisation of losses (however, there are new rules for bank equity and bailouts/ins which create new compliance problems with unintended consequences). Italy is a prime candidate for financial crisis, based on these channels. According to the IMF, approximately 18% of debt at Italian banks is suspect (€360 billion).

10 Strictly speaking, since Brexit involved many differently positioned reasons and arguments then any adequate use of the term alienation must also address the issue of the different degrees of awareness of fundamental issues these positions might involve. For example, the Left Exit or Lexit movement was quite different from the United Kingdom Independence Party (UKIP) or Leave inspired positions. Both articulated issues of sovereignty and democratic accountability but involve quite different concepts of what democracy is as an actual form and how it relates to an economy. The Lexit position grew from the 1970s’ socialist opposition to the then European Economic Community and so might be self-consciously anti-alienation.

Additional information

Notes on contributors

Jamie Morgan

Jamie Morgan works at Leeds Beckett University and is the former coordinator of the Association for Heterodox Economics. He coedits the Real World Economics Review with Edward Fullbrook. He has published widely in the fields of economics, political economy, philosophy, sociology and international politics. His recent books include What is neoclassical economics? (ed., Routledge, 2015) and Piketty’s capital in the twenty-first century (ed. with E. Fullbrook, College Publications, 2014).