Why Conservatives love the culture war

I bet Dominic Cummings did a little happy dance when someone scrawled graffiti on the Cenotaph during a Black Lives Matter protest. He probably opened a bottle when the Archbishop of Canterbury announced a review of statues in churches. These are the sort of things that annoy people, capture headlines, cause a storm on social media and thereby get him off the hook. One minute there was outrage from lockdown-fatigued voters over his flouting of the rules and the preposterous stories he made up to justify it. The next, everyone was talking about statues and there was fighting in the streets over which ones should be dumped and which ones defended.

Right-wing politicians love a good culture war. It’s no coincidence that the terms ‘political correctness’ and ‘woke’, both originating on the American left, have been eagerly seized by the right. They know it is an ideal way of stirring up indignation and deflecting attention from things they’d rather not discuss.

Some research published by UK in a Changing Europe earlier this week throws some light on why these tactics work. Using data from the British Election Survey and plotting voters’ views on two scales –  the economic left v right and the social/cultural conservative v liberal – they show on one simple chart why the right loves the culture war.

Labour and Conservative MPs, councillors and activists fall more or less where you would expect them to on both the social and economic scales. Labour fall into the socially liberal and economically left-wing quadrant while the Tories in the opposite one. The voters don’t split that way though. As we have seen from a number of studies, British voters tend towards the economically left-wing and the socially conservative. In general, they are more aligned with Labour on economics and more with the Conservatives on social issues. It’s no wonder, then, that the Conservatives like to fight on the cultural front.

The other interesting piece to emerge from this research is the gap between MPs and voters on the same side. Labour MPs are more socially liberal than Labour voters but on the same scale, Conservative MPs are way adrift of their voters. In fact, they are more socially liberal than the average voter.

So, if they are that liberal, what are they doing in the Conservative Party? The clue comes when you look at the positions on the economic scale. Here the Conservative MPs are some way to the right of their councillors and activists and well to the right of their voters.

The right-wing, free-market, shrink-the-state libertarianism that gained the upper hand in the Conservative Party during the 1980s has always been an eccentric viewpoint. It looks mainstream because it has a number of well-funded think-tanks pushing its agenda and its adherents are over-represented in politics and the media. We are used to hearing about radical deregulation, state shrinkage and privatisation because these ideas are espoused by some very wealthy, powerful and influential people. The voters are really not interested though. They never have been. Despite relentless propaganda, all the small staters have managed to do is increase the proportion of the population that thinks taxation and spending should stay the same and reduce the proportion that thinks it should increase. Even that is shifting the other way again now. Support for cutting the size of the state has never gone above 10 percent.

Attitudes towards taxation and public spending, 1983-2017

Chart by NatCen Social Research

The voters, then, are not that keen on right-wing economics. So why do they keep voting for politicians who are? That’s where the culture war comes in. Get people worked up about political correctness, persuade them that woke liberals will take the country to hell in a handcart and at least some of them will vote for you even if they don’t like your rich men’s economic policy.

For Conservative politicians, the culture war is also an incredibly cheap way of getting votes. People still think you are socially conservative even if there is quite a lot of evidence to the contrary, which means you don’t actually have to deliver anything.

That most right-wing of prime ministers, Margaret Thatcher, did very little for the socially conservative voter. As James Ball noted after her death:

The legacy of Thatcher’s social conservatism is modest: Britain is, by and large, a nation marrying less, more accepting of homosexuality, and more accepting of people of other races.

In the 1980s the Conservatives even shied away from illiberal legislation that would have been overwhelmingly popular, such as the re-introduction of capital punishment. The liberal policies initiated during the 1960s, and the social changes that went with them, continued apace. Conservative politicians may have railed against ‘political correctness’ but they didn’t do much about it. Racist and sexist language that would have passed unremarked in 1979 was considered unacceptable by the time John Major left office. Margaret Thatcher might have talked tough talk on immigration but she did little to change the existing laws. Corporal punishment in schools was abolished by her government in 1987.

I’ve had some interesting arguments about that last one. People still find it difficult to accept. It must surely have been the Labour Party and its PC policies that did for corporal punishment. Which brings me to the other reason the right likes the culture war. It works even when you are in power. You can persuade people that a rising tide of wokeness has driven the country to ruin even when you have been running the show for a decade.

Being able to gain votes from social conservatism without having to implement any socially conservative policies suits Conservative MPs just fine because most of them don’t believe in it anyway. When it comes to crime and punishment, for example, they are, on average, to the left of Labour voters. As the charts above show, the money side of things is far more important to them. It has been for decades. In the 1980s, it was almost as though a tacit deal was done; you can have diversity, minority rights and discrimination laws if we can have privatisation, deregulation and tax cuts. Breaking the unions and selling off the state was always what mattered. Who cared if your company had to have an equalities policy and you couldn’t watch Love They Neighbour any more?

Could the Conservatives pull off the same stunt in 2020? The Daily Mail seems to think so, as it gleefully reports a Tory plan to declare a ‘War on Woke‘. Would such thing work now? After all, as Kenan Malik said just after the last election, the idea that there is a mass of reactionary working class voters has probably been overdone. Voters have become less socially conservative in recent years. The most recent British Social Attitudes Survey bears this out.

As former Downing Street pollster James Johnson said, most voters in what used to be the Red Wall couldn’t care less about statues:

Some have suggested that No 10 is actively looking for a fight on cultural and identity issues, seeking to drive a distinction between Tories and Labour for red wall voters – whether on statues, trans issues, or the right to tell offensive jokes.

On the surface, this approach feels like it might work. Paula Surridge of Bristol University has shown that 2019 Conservative voters are united in their social conservatism, while Labour is more vulnerable as its voters are split.

But polling on these issues sets up a divide that might not be at the front of people’s minds. Britain is not the US, where polarisation among politicians has translated into polarisation among the public. In focus groups I have conducted over the last few years, statues, transgender toilets and no-platforming barely register. Most people do not know what “woke” even means.

He’s right about voters not caring much about these issues but they tend to blame the left when such things make the news. A few left-wing activists can usually be relied upon to give the right-wing press the ammunition it needs by doing or saying something silly. Even a poorly considered comment or rebuttal can lead to stories that run for years, like Baa Baa Green Sheep and Winterval. On the basis of one person writing ‘racist’ on Winston Churchill’s statue, Boris Johnson has been able to cast himself as the defender of a monument that is not under any serious threat. He was at it again yesterday, attempting to spice up his lacklustre speech with a promises to defend the “statue of our greatest wartime leader” from, well, no-one really.

The problem for the left is that some of this stuff lands. It makes otherwise quite reasonable people cross. And it doesn’t need to make many of them cross. There were only 330,000 votes between Theresa May’s humiliation and Boris Johnson’s triumph. All it needs is enough people in the right places.

Anand Menon, one of the authors of the report, says that Labour would be well advised to avoid getting embroiled in the War on Woke and should, instead, maintain a laser focus on economic issues. As he says, whoever gets to set the ground on which the next election is fought will be at a distinct advantage. This isn’t just about winning the arguments, it’s about deciding which arguments you are going to have in the first place. A government already on the ropes over coronavirus and with very little idea about what to do afterwards should be an easy target. From what I have seen of Keir Starmer so far, my guess is that he won’t fall into the trap of fighting the War on Woke but that won’t stop the government and its allies from pushing it whenever they are given the opportunity.

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This recession could be long and deep

If, like me, you have spent some of your lockdown time catching up with stuff you recorded earlier in the year, you will have experienced that strange sense of watching something from a bygone age. The adverts, in particular, feel like they belong in a different world. Was it really only February when we were still going to pubs and restaurants and getting excited about major football, rugby and racing events?

The official employment statistics issued earlier this week had a similar feel. Because of the time lag in collating survey data, the most recent figures are from the January to March period, only the last 2-3 weeks of which were affected by the coronavirus lockdown. They showed a joint record level of employment, at 76.6 percent, in line with the previous trend of rising employment rates. What would have been worthy of comment only three months ago was barely mentioned. It was a snapshot of the olden days. We know things aren’t like that any more.

Fortunately the ONS also started reporting on HMRC data a few months ago and this gives us some more up-to-date information. The rising employment of the last half decade has come to an abrupt halt and the beginning of a collapse in employment is already visible.

Chart by ONS

The claimant count data gave a similar picture, showing a sharp spike at the beginning of April, taking the numbers above those we saw during the last recession.

Chart by Resolution Foundation

Next months data, showing the position in April and early May will be even worse as the full impact of the lockdown becomes visible.

It was a similar story for the GDP data published last week. The ONS release has a series of charts showing the economy contracting sharply in March.  This, too, is likely to look even worse in next month’s figures. 
Chart by ONS

The revised data for the previous quarter show that the economy had already stopped growing in the final months of 2019. The coronavirus lockdown poured cold water on a fire that was already going out. This doesn’t bode well for a bounceback once the lockdown ends. Last month’s optimism about a V-shaped recession, with a sharp downturn and a rapid rebound, was short-lived. Even the chancellor is now saying that it is “not obvious there will be an immediate bounceback”.

It is likely that pent-up demand will lead to a short-term economic bounce once the lockdown ends. Maintenance tasks that have been on hold will finally get done. People will get their hair cut, fix the car and call in the plumber. Companies will carry out a backlog of routine but necessary activities. Beyond that, though, the extent of the recovery depends on how confident people are about the future. Will people commit to major purchases like houses and cars? Will companies risk major investments? The fact that things were staring to slow down in the months before the coronavirus outbreak suggests that they might not. If they decide to wait and see the recovery is likely to be slow.

The big problem forecasters face is the unpredictable impact the coronavirus and the lockdown will have on human behaviour. Recessions and recoveries are, for the most part, caused by shifts in human behaviour. Confidence plays a big part. The last recession started when people lost confidence in certain financial instruments. This one has started because we have lost confidence in our ability to move around without catching a life-threatening infection.

It was Edgar Schein who explained to us, 35 years ago, that culture is a pattern of shared basic assumptions and beliefs. Because these are unspoken, those who share them don’t realise they are doing so. They just carry on assuming. They only stop assuming when the beliefs they have taken for granted are challenged. Even then, they will cling to these beliefs even in the face of powerful evidence. These assumptions and beliefs underpin the behaviour that produces the unwritten rules, the rituals and the visible artefacts that define the society. This is why changing culture is so difficult. Long-term behavioural change only happens when the assumptions and beliefs behind that behaviour change.

What we are seeing now could become a major cultural shift. Apart from those in particularly exposed occupations, most of us in the developed world, with clean water, clean living space and good sanitation, went about or daily business on the assumption that we were not likely to be infected with anything. Like all deep rooted assumptions, it was so deep rooted that infection barely crossed our minds. If we worked in city centre offices, we would get off filthy trains, go to work at our keyboards, pop out and buy a sandwich, sometimes (but not always) wash our hands and then eat the sandwich while bashing away at the keys we had been touching all day. We would then go to meetings where we would shake hands with, or even kiss, colleagues who had been doing the same thing. We knew, intellectually, that we would probably get a cold at some point during the winter yet it still came as something of an irritation when it happened. If we were unlucky enough to get flu or a stomach bug, we would respond with indignation. ‘How the hell did I get this? I bet it was that restaurant we went to at the weekend.’

That assumption has now been turned on its head. We leave the house now under the assumption that there is a good chance we will catch something and that, if we do, it is likely to be extremely unpleasant or fatal. This risk may be lower than a lot of people think, especially for younger age groups but, for the moment, that is beside the point. People fear this disease and that fear has changed our assumptions. When we leave the house, we react to people in a different way. We get a taste of what it is like to live in a dangerous neighbourhood. We look upon strangers with suspicion and are wary even of people we know. Suddenly, we see other people are a risk in a way they weren’t a few weeks ago. We applaud the bravery of essential workers because, in the course of their jobs, they are going out and mixing with people in a way that would scare the hell out of a lot of us. As we clap, many of us are thinking, ‘Thank God I don’t have to do that.’

Though this shift in assumptions has been rapid, the reversion to previous assumptions, where we once again do not see other most other people as a risk, is likely to be very gradual. Even if we find a vaccine for the coronavirus, which may not happen, or if it becomes less potent over time, there will always be the question, ‘What if there is another one out there?’ After all, this one seemed to come from nowhere. How long will it be before people are prepared to get on crowded trains or aeroplanes? Will people shake hands again? Will they happily sit together in offices and meetings? I’d be willing to bet that the (relatively recent in the UK) practice of kissing one greeting will cease. Even if people do relax their guard and decide that the risk has passed, they will do so gradually and one-by-one. Some people may never do so.

The return to normal, then, is likely to be a slow process even if scientists tell us that the serious risk has passed. One of the details that seems to have got lost in the discussion of the lockdown that people began to change their behaviour before the government told them to. A study by the Centre for Cities showed that the proportion of people travelling into city centres for work and leisure fell significantly during the week before the lockdown.

Studies from the US have produced similar findings. To an extent, then, people started locking themselves down before they were told to. Many will be reluctant to return to normal until they are sure the coast is clear. That is not likely to happen for some time.

The trouble with a modern economy, though, is that it only works if a lot of things work together at the same time. Supply chains and public transport are obvious examples but schools are a crucial part of the dependency map too. People are showing some reluctance to go back to work or to send their children back to school. The planned opening of schools on 1 June now looks doubtful. And if the schools aren’t open a lot of people simply won’t go back to work.

The longer this goes on, the more difficult it will become for many organisations to restart operations. Skills will atrophy and the team cohesion needed in the workplace will start to dissipate. The threads that hold an organisation together are difficult to maintain remotely and the task becomes harder over time. Video conferencing and remote contact can only go so far. We are facing a gradual loss of organisational capital.

The return of the economy to anything like its pre-crisis level looks like it will take a long time. It was already showing signs of weakness before the coronavirus pandemic and the shift in our cultural assumptions, even if it is temporary, will make the revival a slow and piecemeal process. We didn’t get a bounceback after the last recession and it is unlikely that we will see one this time. If I had to predict the shape of the downturn I would go for a bath-shaped recession, a similar shape to the last one, with a sharp fall, a bump along the bottom and then a very gradual recovery. Only this time the bath will be a lot deeper.

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Don’t make the self-employed the punchbag of the next recession

Two months ago, few people had heard of Rishi Sunak. He is now about to go down in history as the most interventionist peacetime chancellor. His plan to pay 80 percent of the wages of employees kept on by their employers will help to mitigate the impact of the inevitable recession that will follow the shutdown of most business activity. But it has left a lot of people asking ‘what about the self-employed?’ They have been ‘hung out to dry’ says Paul Mason.

Self-employment passed the 5 million mark at the end of 2019 and now accounts for more that 15 percent of those in work. While the rise in self-employment has been celebrated by politicians and commentators as a success story and a sign of entrepreneurialism, there is a story less often told. A lot of the self-employed are skint. Or, if not totally skint, they are not earning very much.

The rise in self-employment hasn’t been matched by a rise in self-employment earnings. Most of the increase in the number of businesses in the UK since the start of this century has come from firms under the VAT threshold. The number of employing and registered businesses has increased roughly in line with the size of the workforce. The big rise in self-employment has seen a steady increase in the number of low turnover businesses.


 Source: Department for Business, Energy & Industrial Strategy, Business population estimates 2019

People often assume that the self-employed are minted because a few self-employed people earn a lot of money. However, most don’t. A report by the Institute for Fiscal Studies (IFS) last summer found that the mean annual self-employed income (£30,000) was just below the mean employed income (£31,000). However the median self-employed income was only £14,000 – much lower than the employee median of £22,700. The mean figure for the self-employed is skewed by a small number of very high earners at the top, usually working in partnerships.

Strip out the partnerships and the numbers look even worse. The figures for sole traders, who are around 85 percent of the self-employed, are even lower, with a mean income of £21,000 and a median of £13,000.

Sole trader incomes were particularly badly hit after the recession. Since 2008, the aggregate sole trader profit has fallen in real terms. That’s an astonishing fact. There are 800,000 more of them than there were in 2008 but they are making less in total than their counterparts did in 2008. I’m reminded of those nature programmes where, as the oasis dries up in a drought, more and more animals arrive to drink from the rapidly shrinking pool.

Consequently, the average real-terms profit for sole traders has fallen.

Chart source: Who are business owners and what are they doing?” – Institute for Fiscal Studies

As the IFS remarked:

These falls in profit are consequential: they represent falling living standards for individuals and households, and falling value added from the sole trader sector of the economy.

While the image of the rich, tax dodging self-employed businessman may persist, the majority of the self-employed are likely to be on lower incomes than those in employment. Many are people who were already struggling to get by.

The restrictions brought in to combat the coronavirus outbreak will hit them hard. Entitlement to the equivalent of statutory sick pay and the removal of the minimum income floor for Universal Credit will help. As the Resolution Foundation explained:

With this change, UC can essentially play the role of a means-tested unemployment benefit or an earnings-replacement benefit for the self-employed. This change will make a significant difference to some families’ incomes should work dry up for the self-employed.

While that might help the very lowest earners it will still leave many self-employed people dangerously exposed. According to the Telegraph the chancellor is “racing to plug “gaps” in his latest support package for businesses and workers, as he faces claims that he has “left behind” the self-employed.” This will be more difficult when dealing with people whose incomes are not assessed through PAYE and what emerges probably won’t be as generous as the support for the employed. Nevertheless, among the 5 million self-employed are a lot of people who are going to need help and it would be unfair to leave them out.

The incomes of the self-employed took a big hit after the financial crisis and have still not fully recovered. As I said a few years ago, they became the punchbag of the last recession. Let’s not make them the punchbag of the next one too.

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The Hoaxer

(With apologies to Simon and Garfunkel)

I am just a rich boy,
And my story’s often told,
I quit management consulting,
To write mendacious columns for a pot of gold.
All lies and jests,
Still folks hear what they want to hear and disregard the rest,
And so it’s best,

To lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie lie lie.

I betrayed my own dear leader,
And I tricked the DUP,
My shabby Brexit deal,
Means there has to be a border in the Irish Sea.
Still every day,
I cheat, the commentators shrug ‘That seems to be his way’,
And so I say,

Just lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie lie lie.

My promises are lavish,
But I’ll never see them through,
The fifty thousand nurses,
Will be forgotten by next season’s winter flu.
Yet still I win,
Opinion polls are saying I’m a cert to get back in,
So it’s no sin,

To lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie lie lie.

By stirring up the credulous,
I deflect all the blame,
My opponents scream with outrage,
But they still haven’t realised it’s just a game.
All fear and hate,
By the time they twig I will have won and it will be too late,
Manipulate,

And lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie lie lie.

In the morning stands the Hoaxer,
It’s just coming up to four,
The seats they are declaring,
Just another handful and he’s through the door.
The verdict nears,
The carpetbaggers laugh but for the rest it’s pain and tears,
And five more years,

Of lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie lie lie.

Lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie,
Lie lie lie lie lie lie lie,
Lie lie lie lie lie.

(Repeat ad nauseam for the next 5 years.)

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Whatever happened to The Debt?

Remember The Debt? The Debt was a really Bad Thing ten years ago. The sheer hugeness of it was going to drag the country down, cripple the economy, turn us into a pariah on the international markets and bankrupt the country.

The Conservatives managed to weaponise The Debt so successfully that it was able to beat Labour in two elections. Despite the evidence being pretty flimsy, the Labour Party never managed to kill the story that it was to blame for The Debt. It also helped to cajole the Liberal Democrats into coalition. After all, it was a national emergency. Time to pull together. Stop all the party infighting or The Debt will get you.

Nobody talks about The Debt any more. Even the chancellor barely mentions it and the threat of a downgrade by Moody’s, which would have seen panic headlines ten years ago, hardly made the news. It hasn’t gone away though. In real terms it’s bigger than it has ever been and as a percentage of GDP it has only recently started to fall. It’s certainly a lot bigger than it was in 2010. Ten years ago a debt-to-GDP ratio of 60 percent was going to cripple us. Nowadays, it seems, 80 percent is nothing to worry about. Politicians in both the main parties are now so relaxed about it that they are happy to see it grow again.

uk-debt-gdp-2019

Chart by Economics Help

The Resolution Foundation and the Institute for Fiscal Studies have both attempted to calculate what the main parties’ manifesto commitments would mean for the public finances. Both the Conservatives and Labour are promising to increase spending. The Resolution Foundation noted that the word ‘Invest’ appeared more often in both manifestos than ‘Brexit’, ‘NHS’ or ‘Environment’. The trouble is, neither party is keen on increasing taxes to pay for it.

As Chris Giles pointed out, while the Conservatives plans are a lot more modest in terms of spending than Labour’s, there is a big expensive promise in their manifesto:

3. The Tories have no costing for social care

The Conservative manifesto contains one expensive pledge on future financing of social care, by saying that “nobody needing care should be forced to sell their home to pay for it”. The party does not cost this pledge. Labour’s proposal of free personal care — help with daily living but not accommodation costs — was costed at £10.8bn a year, indicating that this is a large omission by the Tories. The Conservatives therefore have a large hole in their manifesto costings, which implies additional tax increases, more borrowing, or public spending cuts elsewhere.

Then there is Brexit. On Page 5 of the Tory manifesto, in bold, it says:

“We will not extend the implementation period beyond December 2020.”

Almost nobody with any experience or knowledge of trade deals believes that it would be possible to agree one with the EU in such a short time. Former trade negotiators have warned that the UK is likely to be in another Brexit crisis this time next year as the deadline looms and a trade deal still hasn’t been negotiated.

The Conservative commitment, then, is almost a guarantee that there will be a severely disruptive hit to the economy at the end of next year. Once you factor the lower economic growth into the manifesto costings, says the IFS, the public debt level under the Conservatives is likely to be even higher than under Labour.

Screen Shot 2019-12-02 at 16.57.30

A party that spent the best part of ten years banging on about The Debt is, apparently, now happy to see it rise. Everything, it seems, must be sacrificed on the alter of Brexit. The Debt is yesterday’s news.

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Johnson’s Suez

Brexit meant there was always going to be a trade border somewhere between the UK and Ireland. Unless the future relationship was to be so close as to make Brexit pointless, a UK outside the Single Market and Customs Union meant that there would have to be customs and regulatory checks on trade passing between the two. Valuable time was wasted trying to find magical technological or legal solutions to the Brexit trilemma, most of which should never have been taken so seriously by so many people for so long.

The problem is that any kind of border is unacceptable to a lot of people. It doesn’t matter how visible it is, or how unobtrusive the cameras are, how discreet the border patrols are  or how far from the border the searches take place. Simply knowing that the border is there is bad enough. As Matthew O’Toole tried to explain to tone deaf English people, before and after the referendum, this is about identity.

We might wish for a world in which more of Northern Ireland’s people shared a collective identity, but that is not is the world we live in. Nations are imagined communities, to use an old truism. The people of Northern Ireland have, over time, constructed separate psychological spaces for their identities. And part of the reason for enduring political instability is that neither monolithic identity can win. Both are inherently insecure.

People who feel Irish live in the island of Ireland, but not the state called Ireland. People who feel British live in the British state, but not on the island of Great Britain.

The Good Friday Agreement was an inspired and elegant fudge which enabled people with both identities to feel part of the country they believed they belonged to. The Common Travel Area along with the EU’s Single Market and Customs Union enabled people to travel freely for work, trade or leisure. Once the peace process ended the need for security checks it was possible to abolish the border completely. As Matthew O’Toole said, this enabled people to forget the border even existed.

The agreement is fastidious in keeping Northern Ireland within the UK until a majority votes otherwise. But it is expansive when describing the right of people there to be part of the “Irish nation”. To make people who feel Irish relaxed about Ireland being partitioned as a matter of legal fact, the agreement sought to soften the border in people’s minds: to help them imagine it wasn’t there.

Brexit means that is no longer possible. There would either have to be a land border Northern Ireland and the Republic or a border in the Irish Sea between Northern Ireland and Great Britain. Somebody was always going to end up being disconnected from their own country. If there were a land border, an Irish businessman from Derry would now have to complete paperwork to trade with a company in Dublin, another city in his country. If there were a sea border, a British businessman in Belfast would now have to complete paperwork to trade with a company in Birmingham, another city in his country.

To say that this is all fairly trivial misses the point. Symbolism is important in most cultures but particularly so in Northern Ireland. As Jonathan Powell said, any form of border is a threat to somebody’s identity:

The DUP has a perfectly legitimate complaint against the border between Northern Ireland and Britain because it undermines its identity. The Irish are rightly never going to agree to a border with the EU. And a hard border between Northern Ireland and the Republic would reopen the issue of identity underpinning the Good Friday agreement.

Brexit was always going to destroy the delicate balance achieved by the peace process and the Good Friday agreement. Even if the suggested technological solutions had delivered all they promised it still wouldn’t have been enough. Identity and symbolism can’t be wished away. Even a completely invisible border policed by magic robots would be too much. Just knowing there is a border between you and the rest of your country is enough to rekindle the old hostilities.

Someone, then, was always going to lose out. In the event, it was the unionists. According to the deal negotiated by Boris Johnson there will be a trade border in the Irish Sea between Great Britain and Northern Ireland. There is an attempt to fudge this by saying that Northern Ireland will be part of the UK for customs purposes but this is a face-saving formula. The customs and regulatory checks will take place in Irish Sea ports not on the Irish border. Our British businessman in Belfast will be the one completing the paperwork to trade with his country. We’ve ended up at Point A on the Brexit Trilemma.

It’s not only Northern Ireland where symbolism matters though. The image of Britain as a world power is bound up with our national identity. Even people who consider themselves progressive or anti-imperialist make assumptions about the UK’s place in the world. For the most part, deft diplomacy enabled the UK to transition from global power to global influence and to maintain its seat at the top table of nations. As the only country to be a member of the Western military alliance, the English speaking world and the European Union, the UK sat at the intersection between powerful groups or countries. This gave it considerable influence. While its military power might not be what it was, the UK was still a global player, ‘punching above its weight’.

As well as deft diplomacy, though, the UK expended a considerable amount of blood and treasure to stay at that top table. At least some of the rationale for maintaining the nuclear deterrent was to keep this country on the UN Security Council. Who knows whether the nuclear deterrent would work in a modern war or even if it did whether it would be any use but we don’t ask such questions because we have to have nukes. It’s simply what world powers do. Likewise, while there was a lot of talk about protecting the rights of the islanders and even some suggestions of oil wealth in the South Atlantic, the real reason we went to war over the Falkland Islands was because we could not be seen to be pushed around by a middle-ranking Latin American countries. World powers don’t have bits of their territory nicked by tinpot dictators.

Yet here we are about to concede a part of our country to be governed by trade rules set in another country. OK, it might not look like a big deal but it is symbolic. When it comes to trade, Northern Ireland will be yanked out of UK jurisdiction. Some aspects of its law will be made elsewhere. Make no mistake, this is a capitulation. The hardliners in the British government would have loved to be able to tell the EU and the rest of the world to shove the Good Friday Agreement and leave the EU with No Deal but they knew they simply didn’t have the power to do so. For all the talk of Blitz Spirit, they knew that, in the end, the people wouldn’t wear it. Sure, many of them don’t really like the EU but they don’t actually care about it that much and certainly not enough to see their living standards hit. There is little tolerance for economic disruption and hardship. Politicians know that and know they will get blamed. Voters have short memories. Many will forget how much they wanted to leave the EU when the factories start closing and the jobs start disappearing. Johnson’s government knew they had to make a deal and the only way they could leave the EU’s trade framework was by leaving Northern Ireland behind. As Tom Mc Tague said, the price of Brexit is Northern Ireland.

This will not be lost on the rest of the world. The decline in Britain’s diplomatic stock and global influence that began under David Cameron has now reached its ignominious conclusion. A country that pretends to be a world power has had to concede partial control of part of its territory because it had no choice. No other major country has a customs border running through it. World powers don’t have parts of their country governed by other countries.

The fact that this has been imposed on the UK severely diminishes the country’s global prestige. Like the man who ostentatiously walks out of his job only to find he can’t even get another one at his previous salary, the UK found that its international clout didn’t carry as much weight as it thought. As Fintan O’Toole said, Brexit is a long overdue reckoning for Britain. The limits of its power have suddenly and clearly become exposed. The UK’s global pretensions have been marked to market.

This has been brought about by a leader who presents himself as a patriot and quotes Churchill. The man who taunted others with the word ‘surrender’ has agreed to split the country. The man who wrapped himself in the Union Jack has pulled the string that may unravel the united Kingdom. The world will see this deal for what it is, another point marking the UK’s long decline. With the same unseemly haste that Britain pulled out of India, fled from Palestine and backed down on Suez, Boris Johnson has cut and run on Brexit, leaving part of the UK behind as he went. The man who said there would never be a border in the Irish Sea has just signed up to one. He didn’t really have much choice. The border in the Irish Sea will be a constant reminder of Britain’s diminished status, forced upon it as the price of its unhappy divorce from its neighbours.


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Brexit is the road to nowhere, whoever is driving the car

Brexit has ground to a halt. Theresa May will put her deal to Parliament again and it will fail again. At this rate we will come to the end of the extension period having achieved nothing. Which isn’t surprising, given that very little has really changed in the past two years.

Why has there been so little movement? Simple. Brexit is a really bad idea. Some of our politicians have known this for a while and the reality is beginning to dawn on many others. The trouble is, they haven’t got a clue what to do next.

People have come up with various analogies to illustrate the near impossible situation in which we now find ourselves. Perhaps the most famous is Hugo Rifkind’s ‘submarine made out of cheese’:

Perhaps a better way of understanding it, though, is to imagine that people had voted to get rid of motorways. After all, few of us like motorways. It’s much more pleasant to drive on A and B roads. If someone promised that it would be possible to get where you needed to go just as quickly on A roads and that you need never drive on a motorway again, there would be plenty of takers. After all, many of us have fond, half-remembered recollections of the days before motorways. Quiet roads and gentler speeds. Pootling through the Cotswolds, along tree-lined lanes, stopping at a little cafe or some woods by the road for a picnic, Dad having a chat with the petrol pump attendant on a crisp spring morning, the sun just poking through as the mist rises over the Fosse.

It’s even possible to construct a cod-economic argument against motorways. After all, the UK’s per capita GDP grew at a faster rate in the decades after the Second World War than it did from the mid-1970s. The more motorways we had, the less our economy grew. And just look at all those booming economies with much lower motorway density than the UK, such as India, China and Singapore. Motorways, who needs ’em?

The trouble is, after having voted narrowly to get rid of motorways the problems start to become clear. Motorways are baked into the business models of many UK firms. They assume that it will be possible to get from one point to another in a certain time. Many companies warn that getting rid of motorways will put them out of business. Others point to the devastating impact on just-in-time supply chains. Modelling by civil servants predicts a significant hit to the economy and, in the case of a sudden ‘cliff-edge’ closure, localised shortages of food and medicines.

Some politicians put forward compromise plans, such as a phased transition period or a ‘name only’ option under which all the motorways will be re-branded as ‘A+ Roads’. The ultras are having none of it though. They dismiss the warnings as ‘project fear’ and insist that the motorways be closed immediately as its ‘what the people voted for’. A TV presenter remarks that we managed fine in the 1960s before we had motorways. “It’s not the end of the world. We won’t starve,” say rich businessmen who can afford to go by helicopter or private plane. A bombastic and hitherto unknown MP pops up, decrying motorways as a foreign idea and saying that his dad didn’t fight at D-Day only to have a Nazi road system imposed on Britain.

The hardliners come up with ever more preposterous explanations as to why a sudden closure of the motorways would have barely any impact, often citing crank science or convoluted interpretations of obscure laws. A consultant appears offering to implement an as yet untested technological solution that would somehow enable A-road journeys to be done at motorway speeds but with none of the tedious unpleasantness. It could be done ‘if only governments had the will’ he insists. Despite most other experts dismissing this as a ‘unicorn solution’, his comments are seized on by hardliners as ‘proof’ that the motorways could shut tomorrow and life would go on as before.

MPs are split. At one extreme is a small but growing group who realise that the whole idea is crazy and should never have been suggested in the first place. At the other extreme is a group of ultras. They are a mixed bag, ranging from those harking back to a semi-mythical Golden Age of British Motoring, through to the financier-politicians paying lip-service to the nostalgic dream while salivating at the prospect of making a killing by building new toll roads. One MP, while publicly sticking to the patriotic rhetoric, advises his investors to get out of the industries that will clearly be damaged and to invest instead in those companies preparing for the new world of privatised highways.

In the middle is the bulk of MPs who know that closing the motorways will screw the country but who don’t want to be seen as going against the ‘will of the people’. They struggle frantically to find a compromise that will minimise both the economic damage and the risk to their political careers. Arcane ‘solutions’ are debated, voted on, rejected, amended and them debated again. The MPs hope that if they string it out, eventually something will turn up. Against all logic, some of them put their faith in a new leader somehow being able to sort something out. None of this will make any difference. It is a circle that can’t be squared. No matter how many people voted for it, it is impossible to close the motorways without severely damaging the country.

A ridiculous story? Well, yes, but not that much more ridiculous than the impasse we find ourselves in over Brexit. Membership of the European Union and the frictionless trade that goes with it is baked into companies’ business models just as surely as the assumption that they can use motorways to move their goods. The economic arguments for Brexit and the fairy-tale technologies and made-up legal arguments that will make it work are every bit as preposterous as the suggestion that we could close motorways and carry on as before. There really is no way of doing Brexit without damaging our economy and/or unravelling our country, unless we stay so close to the European Union that there seems little point in leaving. The options are, to varying degrees, bad so it’s no wonder we can’t get a majority for any of them.

None of this is going to change, regardless of who wins the Euro elections or whether a Tory leadership contest or a general election gives us a new prime minister. Whoever replaces Theresa May will be up against the same problems. However tough their talk, the reality remains the same. People have been promised the impossible – leaving the EU without any negative economic or geopolitical consequences. As a result, there is now no way out of this dilemma without significant political damage to parties and individual politicians. By far the least damaging option for the country would be to revoke Article 50 and stay in the EU. The political fallout will be horrible whatever happens but dealing with it after a chaotic Brexit would be so much worse. How long it will take for this penny to drop is anybody’s guess. Perhaps we need another leader to fail before the reality becomes so stark that even the most blinkered of MPs can see it. The road to Brexit leads only to stagnation and chaos. It’s time to turn off and take another route.

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The privatisation of capitalism

Donald Trump doesn’t listen to big business. Unusually for a Republican president, he seems to be ignoring the business lobby altogether, as Edward Luce reported in the FT:

Groups such as the Chamber of Commerce, and the Business Roundtable, complain loudly about Mr Trump’s immigration crackdown, his tariff wars and government shutdowns. The White House pays scant attention.

At least, he’s not listening to the sort of big business that presidents have usually listened to. His business friends are different:

It is not as though Mr Trump lacks business friends. But they differ from the traditional crowd. Almost none run publicly listed companies. They tend to be property developers, private equity billionaires, casino magnates, and heads of family-owned companies. They swim in different waters to C-suite executives.

Perhaps this isn’t surprising as an increasing amount of the country’s wealth is now located in those waters.

An increasing share of US capital nowadays is going to private companies. Over the last two decades the number of US listed companies has almost halved. Initial public offerings are no longer the obvious route for private equity-funded companies. PE firms either hold their stakes for longer or sell them to other private groups. The rise of the mega­fund, meanwhile, has allowed public companies to go private. Amazon may have had to go public to reach the $1tn valuation it briefly touched last year. It is by no means clear that Uber or WeWork must follow suit. In each of the last eight years, the amount of equity withdrawn from the US stock market has exceeded the equity raised — a trend known as “de-equitisation”.

De-equitisation is the process by which shares and in some cases entire companies are ‘bought back’ and thereby removed from public trading. Norma Cohen wrote about “the death of the cult of equity” last year. She noted that in both Europe and the US, the value of shares being bought back has exceeded the value of new share offerings for some time.

Between 2000 and 2017 some $821bn of new equity was added to European markets via initial public offerings. That, though, has been dwarfed by the $4.96tn of equity withdrawn from the market, mainly in the form of share buybacks, divestments or as a defensive response to an unwanted suitor. A portion of that, $429bn, has been withdrawn through companies delisting.

In the US — where the $40.3bn value of IPOs last year, was the highest since 2014 — public market activity barely made a dent. Between 2000 and 2017 roughly $4.88tn was withdrawn, which compares with the total value of new shares floated at $697bn. Even emerging markets are not immune; the data show that since the turn of the century $3.79tn has been withdrawn. That has more than offset the issuance of IPOs totalling $1.26tn, with 2017 raising the most new equity capital for issuers in any year since 2010.

 

Some commentators are even talking about the death of public markets. This piece by and on FTAlphaville last year also noted the sheer scale of buybacks:

We are tired of hearing that there is nothing inherently wrong with buybacks. There’s also nothing inherently wrong with tequila, but take too much of it at the wrong time, and you’re probably making bad life choices.

In the last week both Bernstein and Goldman Sachs have predicted that buybacks in the US will either reach or exceed $1t in 2018. Investors have been eager to explain that this capital is not disappearing. It is merely rotating out of equities and into other assets. But this is just an accurate restatement of the problem: public markets are shrinking.

Furthermore, they argued, stock markets are becoming places where investors go when they want to get money out of a company, not when they want to put money in:

Increasingly, companies don’t list on public markets because they need the money. They list on public markets because their early owners want a liquid market for their own shares. The listing is not an entrance into big capital. It’s an exit for the big capital that’s already there.

Take Spotify, for example:

When Spotify listed on the NYSE earlier this year Daniel Ek, the CEO, published a letter that basically said “Meh.” He wasn’t ringing any bells or doing interviews, he explained, he was just going to keep doing his thing, because Spotify was not raising capital. We’re not calling Mr Ek out on this. He was just saying something in plain English that’s been true for years.

Could this be the start of a shift in the way capitalism works?

What we’re seeing now is that corporations have access to enough private savings of wealthy citizens that they’re walking away from the deal. The pace of this year’s buybacks are only a piece of that story.

Last year, asset management company Schroders published a report, What is the point of the equity market? It notes the ‘savage’ pace of de-equitisation and the corresponding rise of private equity:

The private equity industry has grown substantially in scale and accessibility and now competes much more acutely with the public market. Global private equity assets under management rose more than fourfold between 2000 and the middle of 2016 to $2.5 trillion4, a record high. Although still small relative to the $36 trillion market capitalisation of MSCI All-Country World public equity index, private equity has grown 2.5 times faster over this period.

An important development has been the ability of companies to raise sums of money privately that previously would not have been possible outside of public markets. Facebook raised $2.4 billion before its $16 billion IPO in 2012, Twitter $800 million before its $1.8 billion IPO in 2013 and Google a scarcely believable $25 million before its $1.9billion IPO in 2004. However, in just the past few years the figures have skyrocketed – Didi Chuxing, a Chinese transport technology group, has raised $17 billion privately and Uber $10.7 billion. The ability to raise such huge sums privately defers one potential need for a public listing.

This may sound like a dry and esoteric subject but the potential implications are huge.

Firstly, there is the question of transparency. The more business takes place in companies which don’t have to report their activities, the less we know about what business does and the less publicly accountable it is. People might complain about what quoted companies do but at least there is some publicly available information about their activities, even if journalists and regulators sometimes don’t spot it until it is too late.

Secondly, as one investment blogger mused, are companies only being sold publicly when most of the growth potential has already gone? The Schroders report raised a similar concern:

Public market investors are now accessing companies at a much later stage of their development than in the past, if they are able to access them at all. Given that growth is generally most rapid in those earlier years, it is highly likely that public market investors are missing out on returns as a result. Aggregate stock market returns are likely to suffer, with savers standing to be the biggest losers.

A former investment manager I spoke to recently told me that this is exactly what is happening. He was rather more blunt though. Investors, he said, essentially dump companies onto public markets when they have extracted most of the value from them. Given that we have an ageing global population that is reliant on stock market performance to pay its pensions, if stock markets are increasingly made up of stuff the rich don’t want any more, will they provide the returns necessary to support an increasing proportion of the world’s people?

And thirdly, what about corporate governance? Most of our corporate governance reforms of the past three decades have been aimed at encouraging a longer-term outlook and curbing the excesses of public companies’ managers. Having realised that there is a limit to the impact non-executive directors can have, the UK government introduced the idea of shareholder stewardship. The Stewardship Code encourages institutional shareholders to act as joint stewards with company boards over the companies in which they invest. There is something almost quaint about this. Institutional investors with vast portfolios are even less likely to have an insight into what goes on in individual companies than the part-time non-executive directors are. But if the highest value companies are moving out of the public sphere anyway, what’s the point of applying increased regulation to the ones that are left? Isn’t it like building a dam half way across a river?

It is still early days and, as the Schroders report said, equity markets are not finished yet. But a shift of capital away from public markets  is bound to have ramifications for business and society. The global super rich eschew public health, public education systems and public transport. If they are checking out of public markets too, the 21st century variant of capitalism might turn out to be very different from the one we have been used to.

Many of us have tended to regard Donald Trump as a throwback, appealing to outdated notions of nationalism and elected by ageing voters with ageing ideas. But what if he and, more importantly, the people who support him, represent the future shape of western capitalism? Might his ascendency be another symptom of power shifting to a new type of corporate interest? Perhaps historians will remember Mr Trump not as a diehard reactionary but as the first private equity president, the logical result of shifts in wealth and power already evident by the early 21st century.

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12 reasons why Labour should oppose Brexit

Labour MP Jess Phillips says she wants to stop Brexit, despite the fact that the majority of people in her constituency probably voted Leave.

Everything is Remain Minus. Every deal shrinks the economy in some way.

If I lose my seat because I chose to do what I felt was the right thing for the people where I live and they don’t like that, I’ll live with that.

I wonder, though, whether she would lose her seat. Opinion is changing fast in Labour areas and among Labour voters. Two years on, a better-informed electorate is beginning to see the potential damage Brexit will cause.

Many on the left of the party are concerned too. At a Love Socialism, Hate Brexit event in the House of Commons, frontbencher Clive Lewis warned that Labour would be destroyed if it allowed a Tory Brexit.

Is there any other sort of Brexit, though? Isn’t any form of Brexit a Tory Brexit? From the beginning, leaving the EU was a Conservative Party project. By failing to oppose it, the Labour Party risks losing the support of many of its voters and of colluding in doing even more damage to those areas already hardest hit by the economic downturn and the austerity policies that followed.

Here, then, is why Labour must campaign to stay in the EU.

1. Brexit has already damaged the economy

Earlier this week, the Office for National Statistics published figures showing that 2018 was the worst year for economic growth since the financial crisis a decade ago. The UK was already at the bottom of the OECD investment league table but the last year saw four consecutive quarters of declining business investment.

As the FT’s Chris Giles commented:

The effects of Brexit were stamped all over the national accounts data.

Economists have been calculating the Brexit effect on the economy for more than a year and most agree that it has cost Britain between 1.5 per cent and 2.5 per cent of gross domestic product.

According to the Resolution Foundation, real household incomes are on average £1,500 lower than they would have been had the UK voted to stay in the EU.

2. There is ‘no jobs’ first Brexit

The damage Brexit has caused is likely to get worse once we actually leave. Every Brexit scenario, apart from those where we stay in the customs union and single market, will increase trade friction. There is no way that making trade more difficult than it is now can do anything other than  UK’s economy. Whether or not the forecasts turn out to be right is neither here nor there. As Giles Wilkes remarked:

I can’t forecast what my weight will be next year. I can accept analysis that eating a pound of butter a day will make me much fatter.

We can’t forecast the damage to the economy accurately but we can be absolutely certain that putting barriers in the way of trade will damage it.

Even if we manage to replicate our current EU trade deals (which is looking unlikely) and sign similar agreements with other large economies, it still won’t make up for the loss of the frictionless trade we currently enjoy with and through the EU.

Around 30 per cent of the entire value of UK exports, goods and services, is made up of inputs to products that are finished in the EU. The assumption of frictionless trade has led to the development of EU-wide production lines that are dependent on just-in-time trade. Border checks will slow that trade down and will encourage EU manufacturers to look for alternative suppliers.

This relocation of supply chains is already happening, as firms shift their business to the rest of Europe. Ford’s announcement this week that, like other car manufacturers, it is preparing to move business abroad, is an inevitable reaction to the likely disruption Brexit will bring to its business.

A sizeable portion of our trade and GDP is at risk from the post-Brexit barriers to trade. There is a good reason why countries have worked hard to bring down trade barriers over the last few decades and why so few have deliberately raised them. There are no opportunities from Brexit, only costs in the form of reduced economic growth.

3. Brexit is likely to hit Labour-voting areas hardest

The government’s EU Exit analysis published last March showed the North East and West Midlands taking the hardest hit, with London coming off relatively unscathed. Analysis by the Economic Statistics centre of Excellence at the end of last year suggests that this is already starting to happen. The economic gap between the north and south of England has widened since the EU referendum.

This is not surprising given that any increase in trade barriers after Brexit is likely to hit manufacturing hardest. A study by the Institute for Fiscal Studies found that process, plant and machine operative jobs are most at risk from Brexit.

In any case, an economic slowdown is always likely to hit those with the lowest resources, in terms of savings, income and job security, the hardest. Even if the impact of Brexit is felt fairly evenly across the income distribution, as some studies suggest, a real income loss of 4 percent has far worse consequences for those less well-off who spend a greater proportion of their income on food, energy and housing.

Labour voters are worried about Brexit

It is not surprising, therefore, that Labour areas have seen the biggest shifts in opinion against Brexit. As early as last summer there were signs that opinion in Labour areas was shifting, with some seats that had voted Leave now showing Remain majorities. There are signs that public opinion has shifted. According to most surveys, including the largest, the British Election Study (BES), around two-thirds of Labour voters voted Remain. A recent report by transport union TSSA now puts that figure at 76 percent. It warned that Labour could lose seats by failing to oppose Brexit.

This will come as no surprise to Manchester University’s Rob Ford who has been arguing for some time that losing Remain voters is far more dangerous for Labour than losing Leave voters.

If a seat voted 52% Leave, and it is a Con-Lab marginal, then it is very likely that a *large majority* of Lab votes in that seat will come from Remain supporters (and a large majority of Con votes from Leave supporters).

It should be, but never is, obvious that “appeal more to Leave voters” is not the only strategy for winning/holding such a seat, nor will it usually or necessarily be the best one.

If you lose even one Remainer for each two Leavers gained, you’re stuffed

Taking Remainers for granted would be unwise. The TSSA report contained this interesting observation:

Brexit energises Labour Remain voters far more than Labour Leave voters and this explains why Labour failing to oppose Brexit will have a far more significant impact on the Labour vote than if it actually opposes Brexit.

There is a big risk for Labour in being seen as the midwife of Brexit. There may be some in the party who hope that a catastrophic Brexit will be blamed on the Tories but this won’t wash with the voters. Younger voters, in particular, see Brexit as a Conservative project and associate it with austerity. They will be bitterly disappointed by anything less than a full-throated opposition.

4. Brexit is a Conservative project

Those young voters are right. The people who care about Brexit, those that really want it, are predominantly middle-class voters.

The Brexit vote is often depicted as a working-class revolt but as Danny Dorling says, according to Ashcroft polling data, ABC1 voters made up 59 percent of the Brexit vote – higher than their proportion of the general population. A majority of working class voters might have voted for Brexit but fewer of them turned out. It was the middle-class voters who made it happen.

Working class people were much more likely not to vote, whereas middle-class people, particularly older middle-class people voted.

And your typical Leave voter was a conservative Tory voter who wasn’t rich but wasn’t particularly poor.

As IpsosMORI reports, it is these middle-class and middle-aged to elderly voters who see Brexit as the most important issue by some distance.

In contrast, as the TSSA report says, Labour Leave voters are less bothered. Many people voted Leave because they were, understandably, fed up with the degradation of their areas and the ongoing slide into insecurity. The referendum gave people a chance to upset the system and they took it. Now, though, it is not their greatest concern. As the TSSA report found:

Labour Leave voters are less concerned about Brexit than Leave voters generally and Labour Remain voters speci cally. Labour Leave voters are more concerned with bread and butter economic issues, austerity and cuts to welfare bene ts. Only 36% of Labour Leave voters list the UK leaving the EU as one of the top three issues facing themselves and their families, compared to 58% for Conservative Leave voters and 60% for Labour Remain voters.

As Jess Phillips remarked, nobody is coming into her constituency surgery and bending her ear about Brexit:

Many of her constituents have more pressing things to worry about.

5. Leave voters are no more left-wing than remain voters

The Remain cause is often disparaged as ‘centrist’ by some in the Labour Party, in an attempt to suggest that supporting Brexit is somehow more authentically left-wing. However, as Bristol University’s Paula Surridge found, BES data shows that, on economic questions, Labour Leave voters were no more left-wing than Labour Remain voters. The same is true of Conservative voters. It was social rather than economic conservatism, support for things like moral values and tougher sentences, that distinguished the Leave vote.

However, she also noted that the traditional left-right divide is still the strongest influence on general elections. This suggests that, given what we know about the concerns of Labour Leavers, the best way to appeal to them is with economically left-wing policies that will reverse the impact of insecurity and austerity, rather than a pitch to social conservatism, ground on the Tories or UKIP will always win.

6. The EU would not prevent Labour from implementing left-wing policies

One of the mainstays of the Lexit argument is that EU rules would prevent a left-wing government from implementing its policies, particularly on state aid.

However, as the IPPR pointed out in its report in January, EU rules allow plenty of scope for more state intervention and France and Germany already do a lot more of it than the UK.

Our analysis suggests that, contrary to claims that the EU seriously inhibits an active industrial policy, there is extensive scope for member states to pursue state aid measures. EU rules allow for the use of state aid for purposes ranging from regional development and environmental protection to R&D and SME nancing. Moreover, EU law is of cially neutral on the matter of state ownership and does not prevent nationalisation.

An analysis of Labour’s 2017 manifesto by two trade lawyers found nothing in EU law that would get in the way of any of the manifesto commitments. As barrister George Peretz concluded:

It would be a serious mistake to rule out single market membership, or any other deep trading arrangement with the EU, on the false basis that they are a major obstacle to a Labour government seeking to widen public ownership or support industrial development.

The EU’s state aid rules are designed to prevent the sort of pork-barrel politics where governments bribe large companies with tax breaks. They are not there to stop the nationalisation of railways or public utilities. It is possible for the UK to stay in the EU and to have a government that is a lot more left-wing than any it has had previously.

8. If Labour enables Brexit it is finished in Scotland

Much of the debate around Brexit takes place with an England-centred slant. Scotland, which voted clearly to Remain, is often forgotten. However, it will be extremely difficult for Labour to win a parliamentary majority without regaining many of the Scottish seats it lots to the SNP. The trouble is, if it fails to oppose Brexit it is likely to lose most of the ones it still has.

Labour is already losing members in Scotland and recent polls suggest a swing to the SNP that would see Labour losses while leaving the Tory seats in Scotland intact. This loss of Labour support would, of course, be permanent if Brexit were to lead to Scottish independence but even without it, the sense that Labour facilitated Brexit is likely to alienate voters and keep Labour from an overall majority for a generation.

9. Free Movement – it’s about rights, not numbers

The term ‘Free Movement’ is open to misunderstanding and therefore exploitation by the unscrupulous. It is not about the freedom to travel, it is about the freedom to work somewhere with equal rights to local workers. If we accept that a modern economy will always have a certain level of immigration (and when compared to many others the UK’s isn’t that high) ask yourself this:

Who is least likely to demand a pay rise? Who is least likely to join a trade union? Who is least likely to make a fuss if managers suddenly change working patterns? A worker who has the same rights as the local staff, who can walk out and get another job or claim unfair dismissal, or a worker whose very right to be in the country is dependent on the job and the employer?

By opposing ‘Free Movement’, right-wing politicians can appeal to anti-immigrant sentiment without actually opposing immigration. Arch-Brexiter John Redwood let the cat out of the bag in his now infamous ‘take your money out of the UK’ article. Here is what he said about immigration:

As firms use up all the available easy-to-employ labour, they simply bring in large numbers of people from overseas from places where unemployment remains very high, or where wages remain low.

Right-wing politicians of the free-market variety are not against immigration. What they don’t like, though, is immigrants with rights. After Brexit, workers from the rest of Europe will still come to the UK, only now they will be on less favourable terms than local workers. It doesn’t take too much thought to see who is most likely to benefit from that.

10. Sovereignty – big is beautiful

Much has been made of the sovereignty argument for Brexit but leaving the EU is lily to diminish the UK’s sovereignty rather than enhance it. As the trade experts keep telling us, the world is dividing into trading blocs, each with its own regulatory regime. The only countries that negotiate with the EU on an equal footing are China and the USA. As the FT’s Robert Shrimsley put it:

The world is organising into trading blocs and that to be a mid-sized country outside one is to get the chlorinated end of the chicken.

At the moment, the UK is one of the countries that sets the rules. Outside the EU, it will be one of the countries that has to abide by someone else’s rules. The US has made it quite clear that the UK will have to accept its standards on food and pharmaceuticals if it wants a trade deal. To get an idea of what being in the US trade orbit is like even for a large economy, just ask the Canadians.

Being part of the EU is also essential if we are going to stand up to large multinational corporations. The power of these global behemoths can only be checked by governments acting together. The financial crisis of 2007-08 illustrates the problem. The USA managed to make a profit on its bank bailout in a way that smaller countries couldn’t. This is purely a question of size. In America, the government bullied the banks, forcing them all to participate the rescue scheme for their sector. European countries, acting alone, didn’t have the same leverage.

In the Washington Post last week, Anne Applebaum remarked on the UK’s powerlessness in the face of monied elites and concluded:

The E.U. is probably the only power in Europe — maybe even the only one in the world — with the regulatory strength to change the culture of tax avoidance. And since 2016, it has been slowly enacting rules designed to do exactly that. Britain, once it leaves the E.U., may well be exempt.

British industry might suffer after Brexit, and British power will be reduced. But the gray zone — where politics meets money, where foreign money can become domestic, where assets can be hidden and connections concealed — will survive. Perhaps that was the point all along.

If we are to have any hope of curbing the power of big corporations and tax avoiding billionaires, we can only do so as part of a larger bloc. It’s no wonder, then, that rich men want us to leave.

The paper sovereignty gained by Brexit will be worthless when it comes to a face off against large trading blocs and powerful financial interests. Real sovereignty is simply a function of power and that is what we are throwing away when we leave the EU.

11. The mandate for Brexit is weak

To do something as drastic as undoing 45 years of foreign and trade policy ought to require a much clearer mandate than 37.4 percent of the electorate.

Under the government’s most recent trade union law, to organise industrial action affecting public services, a union needs the support of at least 40 percent of those entitled to vote. Anything less would see the action declared illegal in the courts. As employment lawyer Darren Newman pointed out, 37.4 percent would not give sufficient democratic legitimacy to justify a work-to-rule on the London Underground. How, then, can it be enough to bring about the greatest change to the UK’s foreign relationships since the Second World War?

12. Voters are entitled to be asked “Are you sure?”

Given the narrowness of the vote and the fact that there has been a lot more public discussion since the referendum than there was before it, it is only fair to ask people to confirm their decision.

Some 2 million new voters have joined the electorate since the referendum and most of them want the chance to vote on Brexit. Others have changed their minds. Things have moved on since the narrow vote two years ago. We don’t know what the Will of the People is on Brexit now. The only way to find out is to ask again.

You can’t even delete a file on your computer without being asked whether you are sure. It is crazy to take such a momentous decision for the country without checking that this is what people really want.  At the very least there should be failsafe that says ‘are you really sure you want to do this?’

 

A few days after the referendum, Resolution Foundation boss David Willetts remarked that Brexit was the vote of the excluded and the insulated. The insulated will be fine. These are the middle-aged to elderly shire Tories who really want Brexit; the people who have been banging on about it for years. The excluded, though, will get the rough end of it, as ever.

Labour has much more to lose from a disastrous Brexit than the Conservatives. Most of its members are against it and most of the people it represents will suffer disproportionately from the fallout.

For the past two years, many Labour MPs have been worried that opposing Brexit would see them punished at the ballot box by working class voters committed to Brexit. But the extent  of working class Brexit support has been overhyped and there are strong signs that  ground is now starting to shift. Furthermore, even among Labour’s Leave voters, the commitment to Brexit is nowhere near as strong as it is among Conservative voters.

Labour voters are more likely to punish their MPs for allowing an unnecessary job-destroying catastrophe. For Labour MPs it is less of a risk to campaign against Brexit than it is to blindly plough on with it because they think it’s what their supporters want. Brexit is not and never was Labour’s project. It has its roots in conservative middle England and it will be severely damaging for most Labour voters. Labour should put all its energy and resources into opposing Brexit before it damages both the party and the country beyond repair.

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Brexit: Where do we go from here?

Another day, another ‘no breakthrough on the backstop‘ story. At the eleventh hour, a dose of reality seems to be setting in over the question of the Northern Ireland Brexit backstop. The DUP’s leader admitted that the backstop isn’t a backstop if it is time limited. The EU has been saying this for months and there are signs that the government has accepted it too, even if it doesn’t want to say so in public.

Where does that leave us? Pretty much where we were in December 2017. The government made incompatible promises and something had to give. Backbenchers, think tanks and, to their shame, some government ministers have come up with all sorts of suggestions as to how the UK could be outside the Single Market and Customs Union without needing border checks. All have been shot down by trade experts but, like post-nuclear cockroaches, still refuse to die. As former UK government trade expert David Henig remarked:

There is something infantile about all this. It’s like children who know they have to tidy their rooms but come out with all sorts of bizarre excuses as to why they can’t do it just yet.  The government’s indulgence of this petulant behaviour has wasted valuable time and demeaned the UK in the eyes of the world. Had it acknowledged the reality of its position early on, it might have had a more productive discussion with the EU.

For the simple fact is that there are no unpoliced trade borders anywhere in the world. The only place where goods move freely across borders is within the EU, thanks to the joint operation of the Single Market and Customs Union. As soon as a country is outside either one, there must be border checks.

Therefore, to avoid a land border in Ireland, the backstop aims to keep Northern Ireland within the EU’s legal framework, regardless of what trade relationship is eventually agreed between the EU and the UK. It keeps Northern Ireland in a customs union with the EU and in the single market for the purposes of goods trade. It is a similar arrangement to that which Jersey and the Isle of Man currently have with the EU.

The only major change between now and this time last year is that the backstop now keeps the rest of the UK in a customs union with the EU too. An important point, which sometimes gets lost in the debate, is that the Northern Ireland backstop and the backstop for the rest of the UK are different. One is a subset of the other, as this chart by William Bain explains. The backstop would therefore avoid a customs border between Great Britain and Northern Ireland but there would still be a regulatory border. In the absence of any other agreement, Northern Ireland stays more integrated with the EU than the rest of the UK.

It is extremely unlikely that this, or any other major element of the Withdrawal Agreement, will change. The idea that, if we only negotiate harder, the EU will cave in, is fanciful. As former Australian trade negotiator Dmitry Grozoubinski pointed out in a recent Twitter thread, there appears to be very little political pressure on politicians in the EU to change their stance.

Are there any signs of disunity within the EU? Are there any signs of popular dissent? Where are the demonstrations saying ‘Be nice to the Brits’ or ‘Avoid the Horror of No Deal’? Are newspaper op-eds calling for a softer stance? Have any EU opposition politicians decided they can make political capital by making an issue of Brexit?

The answer to all these questions is ‘no’ or ‘not very much’. Outside Ireland, there is very little discussion of Brexit in the rest of the EU. People seem fairly relaxed about it. Many are sad about the UK’s departure but they don’t see it as enough of a problem to make an issue of it with their politicians. Why, then, do we assume that the EU’s negotiators will capitulate at the last-minute when there is no significant political pressure on them to do so?

None of this is likely to be much different after an extension to Article 50. There might be some tweaks to the Withdrawal Agreement but the backstop will stay. Whether it takes the decision now or a few months from now, the UK therefore has the same three options: agree the Withdrawal Agreement and proceed to the next stage of the negotiations, withdraw Article 50 and stay in the EU or leave with no deal.

Once Parliament passes the Withdrawal Agreement the government then has to make some decisions about what sort of relationship it wants with the EU. The Withdrawal Agreement will not settle the question of Northern Ireland and its importance to the Brexit process. In fact, the decision on how far we are prepared to see Northern Ireland’s relationship with the EU diverge from that of the rest of the UK is crucial to the next stage of the negotiations. Until we are clear about that, we can’t go much further.

The only ways to exit the backstop will be either for the entire UK to stay in a customs union and close regulatory alignment on goods, which would probably mean staying in the single market, or to accept that Northern Ireland will have a different relationship with the EU. The Brexit options we spent so much time discussing immediately after the referendum, such as a Canada-style free trade agreement or a closer relationship like Switzerland’s or Ukraine’s, only become possible by leaving Northern Ireland effectively within the EU. Is leaving the EU’s institutions and the freedom to do trade deals more important than keeping the whole of the UK in a single relationship with the EU? Opinions will differ but it’s a conversation we haven’t really had. If anyone thinks that the trouble and strife of Brexit will disappear after the Withdrawal Agreement, I have news for you. It won’t. We still haven’t discussed, let alone answered, major questions about the future shape of this country and its place in the world.

That said, we can begin to see what the likely choices will be.

There are only four all-UK options:

  1. Stay in the EU.
  2. The Venezuela Option – Quitting with no deal would leave us with a similar relationship to the EU as that of Venezuela.  Apart from those countries not under some sort of EU sanctions, it is the only country that has no trading agreements with the EU. Having severed its relationships with the Andean Community and Mercosur, it also has acrimonious relationships with its near neighbours. As a proxy for a No Deal Brexit, then, Venezuela is as close as you can get.
  3. The EU-Minus Option – a customs union and staying in the Single Market. This is sometimes called the Norway-Plus Option, as it implies the relationship Norway currently has, plus a customs union. That makes it sound quite good when really it isn’t. It is, essentially, staying in the EU but with no real say over subsequent rules and trade deals. The EU’s rules on the free movement of people would still apply. I thought about calling it the ‘Why Bother Option’ but ‘EU-Minus’ pretty much sums it up. (HT to Dmitry Grozoubinski for that one.) However unsatisfactory it looks, if we don’t want different arrangements for Northern Ireland, this is probably where we will end up.
  4. The Jersey Option – a customs union and staying in the single market for goods. This would be similar to the arrangement the Crown Dependencies have with the EU and the one the backstop proposes for Northern Ireland. It was first suggested by Sam Lowe and John Springford at the Centre for European Reform. Other advocates include Martin Sandbu in the FT, Alasdair Smith of Sussex University and former European Commission economic adviser Philippe Legrain. This all depends, though, on whether the EU is prepared to split the Single Market between goods and services for the whole UK. So far, the signs haven’t been encouraging.

The Jersey Option is the furthest out the UK can go from the EU without separate arrangements for Northern Ireland being necessary. Given the backstop, Options 3 and 4 are the only ones available to Northern Ireland once the Withdrawal Agreement is signed.

The subsequent options, then, are for Great Britain only:

  1. The Turkey Plus Option – This is the default option under the Withdrawal Agreement. If no subsequent deal is done, this is where we end up. It would be a customs union only agreement but a better than the one Turkey currently has.
  2. The Norway Option – staying in the Single Market but outside a customs union. Would mean continuing free movement.
  3. The Swiss Option – a series of bespoke deals. Unlikely because the EU doesn’t like Switzerland’s  current arrangement and would probably not want to replicate it anywhere else. Anyone still advocating this model should read Ciaran the Euro Courier who regularly tweets about his nightmares at the Swiss border. Furthermore, like the Norway Option, it would mean keeping free movement which is one of the government’s reddest lines.
  4. The Ukraine Option – a Deep and Comprehensive Free Trade Area similar to the Ukraine’s arrangement. This would still leave the UK subject to some ECJ jurisdiction so it is likely to be unacceptable to Brexit hardliners.
  5. The Canada Option – the free trade agreement that most Brexiters seem to want.

The outcome of the Brexit negotiation is likely to be similar to one of these models. It may not be exactly the same but it will be close. The decision tree looks something like this.

 

These decisions, though, are about more than just trade. If Northern Ireland is left permanently in a different relationship with the EU, that will upset a lot of people on the Unionist side, and not just those in the DUP. They worry that handing over some jurisdiction over Northern Ireland, no matter how small, will be the first step to its complete separation from the UK. It is early days yet but might people come to see the logical conclusion of such an arrangement as a united Ireland? Might Scotland, with its Remain majority, ask for a similar deal? Could this be the thin end of a wedge which eventually breaks up not just the United Kingdom but Great Britain too?

The implications of these questions have been barely discussed because the government has been trying to pretend that border checks are not an issue and that the post-Brexit future will be an all-UK one. If that is to be, though, the options are very limited.

So while we are ostensibly talking about trade, we will actually be making decisions about the future size and shape of the UK. Whatever path we take there will be risks and trade offs. As Fintan O’Toole said, Brexit is Britain’s reckoning with itself. It may even force us to decide whether we still want to be a United Kingdom at all. We should have been having these discussions over the past three years. Instead we have been throwing tantrums and pretending the questions will somehow go away. As the cold light of Brexit dawns, the dreams and fairy tales will disappear. There aren’t any unicorns coming to the rescue. We have some hard decisions to make.

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