Policy Research in Macroeconomics

Post-Referendum reflections – it’s time to protect people against utopian neoliberalism

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We have argued consistently in PRIME (see here for instance), that the Brexit choice was politically wrong and dangerous – likely to empower right-wing forces in the UK and the EU, and liable to lead to fragmentation along nationalist lines. Nothing we’ve seen has caused us to change minds – on the contrary, to date we have seen a chaotic lack of preparedness on the part of all sections of the Conservative Party and its alleged government, and an amazing lack of responsibility for the (any) outcome. Plus a rash of ugly racist incidents.

But we have also insisted all along that the economic policies of the EU – largely shared by the UK government – are damaging, have helped lead to the huge Brexit vote, and require fundamental change.  To do this, we need to work with partners across Europe to create a viable movement for such change, away from the austerity bias.

The sheer size of the “Leave” vote itself speaks volumes about the sense of alienation and anger felt by many millions – mainly those in the lower income strata.  This was foreseeable and foreseen – even if the scale of the revolt was even larger than we had envisaged.  

There can be no doubt that (without discounting some element of ingrained racism) this reflects a widespread revulsion at the way neoliberal policies, including austerity, have been imposed over recent decades, deepening and widening inequality, and making economic insecurity a permanent feature. And the focus for the revolt, for a mix of justified and utterly unjustified reasons, is on immigration. The numerous reports of racist incidents since the result was announced are clear evidence of a perceived legitimation of racism in certain circles, which must be vigorously opposed.

In responding to concerns over immigration, we must first ensure that we offer protection to refugees who are the victims of persecution and threats to life.  The willingness to accept and make welcome refugees who have undergone terrible experiences elsewhere is a mark of civilisation as well as humanity.

Turning to the economic impacts, there is no doubt that migrants play an important set of roles in all but the most closed societies.  Amongst other pluses, they bring new skills and ideas which benefit our economy and society, they provide and perform essential services (in both public and private sectors) where there are labour shortages, and they can help balance demographic shortfalls, e.g. where there is a falling population.  In metro/cosmopolitan areas, the cultural diversity offered by substantial inward migration is itself seen by many local residents as a cultural asset and add to a city’s attractivity.

But equally, migrants can (if numerous) undercut wages, or help employers set a lower general level of pay than would otherwise obtain, or be “imported” as whole workforces to replace or prevent local people having a chance to be employed, or serve to undermine levels of trade unionisation.  If the numbers are large, the process of change too rapid, and the planning for their coming inadequate, they can be seen as putting pressure on public services, or as changing the cultural balance of a community too rapidly for local people to adapt to comfortably. 

That is why I have for many years felt that, without abolishing the EU’s basic principle of freedom of movement of workers, there should be – and should have been – a more measured phasing-in of this right when it comes to new member states joining the Union.  The issue is one of relative economic development. If another member state is at roughly the same level of economic development, there will be far more reciprocity in the labour market with workers moving in both directions, and little sense of grievance about undercutting pay etc.  The simplest (if imperfect} measure of levels of economic development is GDP.  If a new state joins the EU with a level of GDP that is say only 30% of the EU average, it is highly likely that the flows will be mainly one-way, and mostly near the bottom end in terms of pay.

It is too late now to turn the clock back to 2004, but when the grand enlargement to include the central and eastern European states took place, it was a grossly irresponsible act of the Labour government of the time not to follow the general policy followed by France, Germany and most other member states, to use the transitional limits on free movement.  This would have given several years, during which the new states would have been beneficiaries of significant EU funding under the Structural Funds and Cohesion Policy to help their development via infrastructure, training and other support.  It would also mean that the new states would not from the very outset lose hundreds of thousands of often their more enterprising citizens, skilled and unskilled.  Big outflows are often as problematic for the home state as the new host state.

But we are where we are.  The most important thing now, here in the UK, is to ensure that existing workers and residents who are not UK nationals are secure and their status and rights as residents unaffected by Brexit.  For the future, I believe it is still greatly in Europe’s interest – in particular from a security perspective – to admit to membership, in due course, at least the remaining states of ex-Yugoslavia plus Albania, provided they reach the requisite standards laid down for membership.  But this membership should include a much stronger set of transitional arrangements, under which (in particular) full free movement of workers would only occur when the state in question reaches 75% of average EU GDP.  All other benefits (and obligations) of membership would apply from the outset, in particular assistance via the structural funds. In this way, the EU’s principle on freedom of movement would be upheld, but balanced with the interest of working people in other countries not to be at risk of further low-wage competition until the economic divergence had greatly reduced.

Last September, I wrote a short blog in which I attempted to give a definition of “neoliberalism”.  In it, I cited passages from Karl Polanyi’s book The Great Transformation (written in the 1940s), in which he analyses the rise of utopian market fundamentalism and its exponents’ will to use all means necessary to impose their dogma of unfettered liberalism.  This included, in particular, the enforcement of austerity to underpin its enforcement – as in the policies pursued following the First World War:

“The repayment of foreign loans and the return to stable currencies were recognized as the touchstones of rationality in politics; and no private suffering, no infringement of sovereignty was considered too great a sacrifice for the recovery of monetary integrity. The privations of the unemployed made jobless by deflation; the destitution of public servants dismissed without a pittance; even the relinquishment of national rights and the loss of constitutional liberties were judged a fair price to pay for the fulfilment of the requirements of sound budgets and sound currencies, these a priori of economic liberalism.” [p.148 Beacon Press edition]. 

Another facet of neoliberalism (as with the earlier economic liberalism dogma that Polanyi dissects) is its lack of concern for the victims of globalisation, who are expected to accept their losses and fate as a natural part of economic evolution towards ever more perfect markets – a goal that in reality can never be achieved.  Again Polanyi puts the argument for strongly protecting the victims – not against all change, but against a too rapid, too destabilising rate of change that the utilitarian utopians would wish to impose or permit.  Here, he explains the issue against the backdrop of the coming of the first Industrial Revolution:

“Nowhere has liberal philosophy failed so conspicuously as in its understanding of the problem of change.  Fired by an emotional faith in spontaneity, the common-sense attitude toward change was discarded in favour of a mystical readiness to accept the social consequences of economic improvement, whatever they might be.  The elementary truths of political science and statecraft were first discredited then forgotten.  It should need no elaboration that a process of undirected change, the pace of which is deemed too fast, should be slowed down, if possible, so as to safeguard the welfare of the community.  

Such household truths of traditional statesmanship… were in the nineteenth century erased from the thoughts of the educated by the corrosive of a crude utilitarianism combined with an uncritical reliance on the alleged self-healing virtues of unconscious growth.” [p.35]

The events of the last few weeks, and the outcome of the Referendum, offer many contemporary points of similarity and comparison with the processes of the first half of the 19th century.  Think for example of the Combination Acts of 1799 and 1800, and recall the draconian Trade Union Act that has just been passed.  

The Labour Party of tomorrow (if indeed it survives current in-fighting, set in train at the very moment the Tory Party is at its most vulnerable) must draw up economic policies that contest and counter the brute force and inequality of neoliberalism.

These include protection against the unconstrained flow of capital, against excesses of free trade (notably in services) that threaten social or environmental standards or sideline democracy, and against excessive movement of workers that tend to undermine wages and labour standards.  State aid policies must also  be rethought – not all aspects of EU policy are wrong, but states must have power to protect strategic industries against shorter-term threats to their survival.  Public ownership (full or partial) of an industry must always be a legitimate democratic option.  

For its part, the EU’s Treaties need to be made neutral in terms of economic policy – at present, they legally embed too many neoliberal policies in ways that block democratic policy choice..

More broadly, unless social democratic parties across Europe are seen to be on the side of the people once more, rather than mainly on the side of finance capital and the big business battalions, they are surely doomed.  That is the main lesson for Labour arising from the ashes of the Referendum debacle.

Note: a small edit has been made (27 June) to the last sentence of the 4th paragraph above, to improve its drafting.

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8 Responses

  1. J.N.Patterson,

    Your claim that some elements of UKIP are "fascist" is a joke. One of the elements of fascistm as per Chambers Dictionary is "militarism". The Labour Party took the UK military to Iraq and took part in the slaughter of a million Muslims, compared to which UKIP opposed the war from day one (as incidentally did the BNP).

    Moreover, KILLING members of another race for no good reason is the ultimate racist crime. So for Jeremy Smith to mention racism above, or for you to mention fascism is just a joke in poor taste.

  2. Awful piece.

    Protectionist and Little Englander. The rich countries’ workers can migrate but not the poor ones, when it’s precisely the poor ones who want to migrate to escape poverty. And, as the EU has no mechanism for convergence of per capita incomes, there and poor they will remain.

    From an economic perspective, there is no difference between cross-border migration and internal migration (which is far greater). A worker is a worker is worker, whatever their language or skin colour.

    So, if it were true that workers migrating ‘drove down wages’ and restrictions on movement were necessary to prevent that, then all workers in rest of UK should be barred from working in London (except those in South East) as there incomes and wages are far lower than 75% of the London average.

    No evidence. No Logic. Shoddy.

    1. Frank you are entitled to your view, but what you say grossly misrepresents my position.

      You can of course argue for total global freedom of movement of labour, which is precisely the dream of every neoliberal and every global capitalist, alongside total freedom of movement of capital. If you think that would not drive down wages further in so-called advanced economies you are naive in the extreme. It would cause political chaos and in reality fail to raise wages significantly in the rest of world, but would tend to further destroy social security systems where decent ones still exist.

      If you read my piece fairly, I simply argue first that the UK should in 2004 have imposed the same transitional arrangements as were applied by almost all other EU member states. Hardly a radical little Englander position. And lower income states that join the EU generally do "grow" GDP per capita. Taking 2004 and 2015, Estonia has gone from 55% of EU average GDP per head to 74%, Lithuania 50% to 74%, Poland 49% to 69%, Slovakia 56% to 77%… and one important factor has been the provision of structural funds, as well as full access to the European market. (Of course if the eurozone had sensible economic demand-driven policies, this would have moved faster and better).

      Moreover, the transitional provisions did not prevent all movement of labour but meant that work permits could still be used for the next several years.

      My next point was to argue in favour of the Western Balkans states being able – when they meet the criteria – to join the EU. This is de facto blocked mainly because of existing member states’ fears of migration. A transitional control on full freedom of movement of labour would actually help to unblock this, and again it does not mean no one from the new member states could get a job in the rest of the EU, but would need a permit. On reflection I think my suggestion of 75% of average GDP is too high a bar for triggering full freedom of movement of workers, it could be 66% or 70%. The key issue is to encourage rapid GDP development in low income new members, and losing big numbers of economically active workers is not a good way to achieve this.

  3. There’s a mechanism to move Britain away from neo-Liberal policy which at least stands a chance – and that is elections.

    The Lisbon treaty makes this move impossible. There is no mechanism that doesn’t face impossible odds (agreement among all 28 nations) to remove the major structures that ensure the EU is an economic pact among the elite and not a social pact for people. Your argument founders on this really self-evident point.

  4. Come off it, Mr Musgrave. The reference to "right-wing forces" isn’t a nod in the direction of the counter-revolutionary cucumber sandwiches of the Tunbridge Wells Conservative Club, but to the neo-fascist organisations that have been coming to the fore all over Europe, including in the UK. Certain portions of UKIP, not least the vile Nigel Farage, are also neo-fascist. The world of A Canterbury Tale is long, long gone. We live in a very different world and it’s high time that Little Englanders took some responsibility. You can only make progress from where you stand at present, not by postulating where you might be at some unspecified point in the future as a possibly more favourable starting point.

  5. I’m with Nick Clark. Regulation of the job market is something that can be achieved without necessarily imposing limits on migratory flows. HOWEVER, it is very clear (and I speak as a migrant and as a Remainer) that there is a lot of opposition in the population to increased migration. Something alongside Ann’s suggestion might have persuaded the most moderate OUT voters to stay with the status quo.

    What I think is missing here and elsewhere is a finer distinction between neoliberalism and free-trade. For me the only anaytical lens that makes sense of the current mess is that provided by seeing it as a conflict between two understandings of capitalism, one German-inspired, with a high integration of state, banking and industry, the other very much British, which is really free-trade liberalism à la 19th c. I’m very persuaded by arguments that neoliberalism is v similar to what used to be called Finance Capitalism (in 1911) and that free-trade liberalism is something else. For one, I don’t see that arguments about currency stability and balancing the budget apply to free-trade liberalism. They’re essential, though, to finance capitalism. Effectively then what we’re seeing is a fight between the neoliberals and the free-traders, who have joined forces with the ultra-libertarians from Silicon Valley (Steve Hilton). The free-traders have unscrupulously exploited the popular anti-immigration (anti-globalisation) sentiment to achieve their revolution/coup towards a system that will damage the bottom levels of society even more, if proper safeguards are not put in place.

    But we are where we are. The task now is surely to argue for and devise those safeguards. Who will do it, though? The Labour P is no more.
    I speak as a lay person. Just interested to know if the two forms of capitalism model (which I’ve taken from Arrighi, The Long Twentieth Century) might make more sense of what is going on than a blanket ‘neoliberalism’ term.

  6. Starts well, but I really think the argument about needing to restrict migration after enlargement is wrong. New Labour (and previous and subsequent governments) had bent over backwards to minimise both labour market regulation and trade union power. Restricting labour supply is not the only way of defending or improving wage share.

    Labour could have (just a few examples): made collective agreements in key sectors such as construction generally applicable, restored the right to take solidarity industrial action, introduced effective enforcement mechanisms for basic rights such as absence of paid holidays or unpaid wages and given the Gangmasters Licensing Authority scope to act across the economy. Doing none of these will have contributed far more to sustaining low wage, low quality work as a means for the like of Mike Ashley to enrich themselves than migration ever did.

  7. The fact that Brexit might "empower right wing forces" isn’t much of an argument against Brexit: that’s just a natural bias of people with left wing views.

    As for "fragmentation along nationalistic lines", the Scottish Nationalists want independence ANYWAY – though Brexit clearly may hasten their getting what they want.

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