From the TUC

The case against left-Brexit: this is not a referendum on neoliberalism

11 Jun 2016, by in Economics

A couple of weeks ago the IMF caused a minor sensation with a short article headed ‘Neoliberalism: Oversold?’. While the critique was limited in scope, its existence speaks volumes –front page news as far as the Financial Times was concerned.

Something is now very obviously wrong with the economic system, doctrines and policies that have prevailed since the 1980s (call it what you will, I prefer ‘financial globalisation’ but will stick with neoliberalism). For the TUC, this has been obvious since at least the financial crisis:

“It revealed the deep flaws in the economic model we’ve followed since the 1980s. Deregulation, letting markets rip and unchallenged finance failed to deliver prosperity.”

But others, not least those on the right, are now speaking out: Peter Hitchens in the Daily Mail wrote a piece headed “Privatisation! Free trade! Shares for all! The great con that ruined Britain”. The people of the world instinctively know this too; even those in advanced economies are facing hardship, insecurity and uncertainty on a scale unknown for generations.

These hardships are of profound consequence to the EU debate. On one level, with people – justly – confused about the cause, they cannot help but seek to attribute blame. On another level, those who recognise the role of neoliberalism, want to turn their back on the EU as a creature of neoliberalism.

I want to argue that we shouldn’t regard the referendum as a vote on neoliberalism. But instead that a remain vote should be regarded as a first step in a campaign against neoliberalism. (I should note that I am far from the first to make these arguments – see this compendium ‘remain for change’ by Prime economics.)

The global crisis and policy aftermath

To recap: the crisis of 2008-09 was a global crisis, one that had been building ever since neoliberalism began. The failure of policy since that crisis – to impose austerity, while mollycoddling the financial sector – a global failure. Fundamentally, the policies of the EU are a symptom of these failures, not the cause.

EU economic and social outcomes might seem particularly disastrous, but failure is endemic across the world. Here are the 82 countries with unemployment rates above 10% (source Wikipedia, which I know may not be perfect). The EU is not disproportionately represented. (28 of 198 countries are EU countries, i.e. one in seven; one in nine of the high employment countries are EU countries.) We are simply more familiar with the terrible conditions in our fellow member countries.

High unemployment countries, % rate

unemp_eu

A specific tendency is to see the EU performance as falling gravely short compared to Anglo-American economies (AAE). Certainly, on the face of it, the EU unemployment performance has been disastrous since the 1990s (from which point data are easily available).

Unemployment rates, %

unemp2_eu

But the EU as a whole has been less prone to financial excess. For example, the current account was broadly maintained in balance, when  the UK and US exploded into deficit. Instead, EU financial imbalances have been mainly internal imbalances.

Current account balance, % GDP

ca_eu_etc

We now know the UK and US economic gains in the 1990s and 2000s were quickly unwound. Even now the ‘recovery’ in AAE is riding another wave of speculative excess that is potentially running out of steam – most obviously in the US.

More generally, the EU has been far less prone to the severe inequalities experienced in the UK and US. Arguably the higher unemployment figures are set against a less bad performance on wages. Relatedly, the UK is repeatedly flayed for a productivity performance far below our main continental rivals. And in many cases, EU countries have a more generous safety net.

Even in terms of post-crisis outcomes where the EU jobs failures are most egregious, EU policymakers are simply making different mistakes.  The neoliberal prescription is for monetary expansion and fiscal contraction. The UK and US threw themselves far more wholeheartedly at monetary excess than the more conservative European Central Bank (ECB) (see my Global Money Addition post). As we showed in our Better Off In report, at the aggregate level fiscal contraction is little different in the UK, US and EU (see chart in the final section of the report). (Though plainly there are extreme differences between countries.)  But the political unsustainability of prolonged economic failure has now forced the ECB’s hand into QE on a massive scale, and, as the unemployment chart indicates, there has been some improvement. But this is still a quack remedy, aimed more at protecting neoliberalism than restoring prosperity to the world. Nobody wins, some just lose more badly.

The need for reform

At the beginning of the crisis, there was high-minded talk of reform of the international financial system (e.g. Bretton Woods II). Leading policymakers spoke of the ‘social uselessness’ of much of the financial sector. But the impetus to debate the big issues dried up all too quickly.

In the meantime the peoples of the world are thrashing around for something to blame, and for some attention is fixated on migration. The IMF article is the first material recognition by policymakers anywhere that the economic system itself has failed . Up to now the best policymakers have had to offer is that we have to get used to less. For those with little, this must be impossible to endure. With the flaws with financial globalization now finally acknowledged, the prospect for alternative ways to a better world are opened up, one that is more conducive to workers and productive activity and less conducive to finance.

Reform from where?

The ‘Left’ question is surely from where can such global reform come?

Will it come from Brexit? Obviously the Johnson/Gove formula is deeply inimical to the left, and, on the experience of Thatcherism, deeply dangerous. The economy and electorate is unlikely to tolerate such a formula for long. But even if there was a serious left exit-agenda, the problems to be confronted are global problems. It seems fanciful to think the UK alone might have the necessary muscle.

The EU has a sophisticated political and administrative infrastructure within which country voices can be heard and can influence policy.

Since the financial crisis the voices that have spoken the loudest have come from the right, on the Lisbon agenda and TTIP. And the EU has proven too weak to resist the industrial and financial forces that have sought post-2008 to blame public spending and social protections for the failure of the globalised financial system. But, the rest of the world proved no stronger.

It seems less fanciful to think that a considered and coordinated effort by the left across the whole of the EU might not succeed in changing this narrative.  From a parochial but still fundamental perspective, the EU has recognised the need for better high-level dialogue on policy with international and national trade union movements (see e.g. the ETUC).

Is the EU more inherently neo-liberal that the rest of the world?

Up to a point the EU was a creature of the world, of US impetus beginning with the Marshall plan. The UK Left’s original antipathy was to the right/market orientation of the system, when Attlee’s Labour government in the UK was trying to build something different.

Hugh Gaitskell’s biographer Phillip Williams observes that the then leader of the opposition “had loathed their [EU countries’] banker-dominated regimes”. But today it is Britain that is the bankers’ paradise, the home to three quarters of all millionaire bankers in Europe (here). It is Britain that stands in the way of even very mild EU legislation to contain that power. The global banks with the furthest reach are US and UK banks (or so they appear to me). And while since 1980 Britain has turned sharply right on finance, as Frances O’Grady discussed (here) Europe has turned left on worker protections. Even in spite of the unemployment disaster, the social orientation of the EU is a far sounder foundation on which to base an economy than that on offer in the rest of the world.

For as long as neoliberal economics dominates macroeconomic policymaking, there will be fundamental flaws with the EU. And a remain vote must motivate vigorous initiatives for genuine and far reaching reform. But the TUC is clear that the way to reform is not to retreat into a world long left behind, but to engage with the world as it is now – and that means the UK must remain in the EU.

3 Responses to The case against left-Brexit: this is not a referendum on neoliberalism

  1. Danny A
    Jun 13th 2016, 9:19 pm

    “The EU has a sophisticated political and administrative infrastructure”

    It’s a technocracy in other words. People get wise, unhappy and frustrated in the lack of response to public opinion. Just look at the persistent decline in turn out in Euro elections and the steady increase public disquiet. Intolerable situation.

  2. Phil
    Jun 14th 2016, 4:54 pm

    Technocrats in Brussels don’t solve problems. They create them. No one can point to anything that they have actually solved. Sorry. They just can’t.

  3. Less a 'miserable failure'?: some facts about recent EU growth
    Jun 21st 2016, 3:18 pm

    […] failure’ than other advanced (OECD) economies. The problem has been with policy (see also here). With an expansionary policy, the EU has moved forward. Though, with growth still hardly stellar […]