Brexit P1, The State of the Nation 2016

Introduction

I’ve studied and worked  in a number of countries including the Federal Republic of Germany,  the Republic of Ireland and Switzerland. In Germany referenda are banned at federal level under the 1949 Constitution. They had been used very effectively in the 1930s by Hitler and the NAZI party to subvert democracy. Right-wing populist, nationalistic and racist arguments can  be very persuasive and not just in Germany. My father, Kevin Danaher, studied for his PhD from 1937 to July 1939 at the Universities of Berlin and Leipzig. He saw this first hand and was able to attend the 1938 Nuremberg Rally. He was both fascinated and frightened by the power Hitler had over the crowd; a sort of mass hypnotism. He said that you could bump into Hermann Göring most nights on the Kurfürstendamm in Berlin after drinking with his Nazi cronies at 2:00 am and that he had exchanged pleasantries with him on a number of occasions (safest to be courteous). He left Germany in July 1939 without completing his PhD.

My father always feared totalitarianism would return to the West, but almost certainly not to Germany. He felt that this could occur in any country, but this was most likely in those which felt a racial superiority to others. His main worry was England. Much as he admired the country there was a strand of nationalistic exceptionalism (the belief that they were better than anyone else) among certain right wing Torys and part of the English working class, which might prove an explosive mixture given the right conditions and succumb to populism. I’m not sure I agreed, after spending considerable time in the US in 1979/80, I felt that the US  was the most likely; the Regan presidential campaign had frightening covert undertones of both US supremacy and racism. Around the times these conservations were happening I moved from Dublin to South Yorkshire in England (1981) and sadly did not have the chance to discuss weighty such matters with my father again.

The Irish Experience

In Ireland Referenda are very common as any amendment to the written constitution requires one. This has happened on dozens of occasions; often annually or even bi-annually. These referenda are commonly hijacked and used as a vote of no confidence in the Government/Establishment. Indeed 5-15% of voters regularly do this, with the number increasing with voter dissatisfaction with the Government in general. This trend is less evident in Switzerland, where referenda are even more common as they have a system of semi-direct democracy. In the UK referenda are rare, indeed there have only ever been three UK wide:  European (1975), Alternative Vote referendum (2011) and European (2016). In the UK also, with the first past the post system, there are many constituencies when voting can feel a complete waste of time as the winner takes all structure means that in constituencies with large majorities it is almost impossible to dislodge the sitting party. My own constituency Hexham for example has had a Tory MP for nearly 100 years (since 1924). The AV referendum perhaps was too abstract to fire up voters. There was no question however that many disenfranchised voters felt this EU referendum was a real opportunity to make their voices heard for the first time in over 40 years. Was there a possibility that a UK referendum could be used in the UK as a vote of general dissatisfaction or a cry for help?

In Ireland  EU referenda have happened any time there has been an EU treaty change and there have been 11 in total. The Nice and Lisbon treaties are the interesting ones as there were two votes; first rejecting the treaties and then accepting them. Indeed this happened also in Denmark with a referendum on the Maastricht treaty and the Irish Government may have benefited from strategies used by the Danes as this research from the LSE suggests: Asking the public twice? The key strategic finding seems to be to post-negotiate. Find whatever specific issues most concern the electorate and get reassurances/changes from the EU which address these specific issues. Furthermore people have blown off steam; made their point and feel consulted. Whether this strategy would have worked for the UK is unsure. In Ireland there was no choice constitutionally but to have referenda on the Nice and Lisbon treaties. Furthermore Ireland is well thought of in the EU; has gone out of the way to play by the rules and has many friends. There was no constitutional imperative in the UK to hold a referendum and Britain has had a long history of throwing its weight around being granted many opt-outs  (Europe ‘à la carte’).

The UK’s Two Major Achievements in the EU

The UK has not always been a dynamic driver of the EU, but there are two major exceptions: the formation of the Single Market and the rapid expansion of the EU to the east after the fall of the Soviet Union. The first was largely driven by Margaret Thatcher and with the formation of the Climate Research Unit is one of her greatest lasting achievements. The second was driven by Tony Blair. Whereas this was unquestionably a good idea and helped stabilise eastern Europe, migration from east to west was dramatically underestimated.    In the case of Poland for example the Blair Government seriously underestimated  the number of Poles who would come to the UK, anticipating around 50,000 in total where the real number was around 1 million. This would prove to be a ticking time bomb. In these days of Polish plumbers people tend to forget in the 1980’s there was a considerable flow of British tradespeople looking for work on the continent as immortalised in the television series Auf WiedersehenPet. When Labour came into office in 1997 the nett immigration to the UK was 47,000 per year. In Labour’s last term in government, 2005-2010, net migration reached on average 247,000 a year. There is no question that these have overall been a nett positive to the UK economy, however they have put considerable strain on the NHS, housing and local schools. This was recognised by the Labour government and fund to ease impact of immigration set up. This was rapidly  abolished by the Coalition Government when it came into office in 2010. Whereas there exist plenty of provisions within EU law to limit the free movement of people  for years after accession, these have not always been used by the UK. Indeed the UK Border force is generally accepted to be “stretched to breaking point after years of neglect” on both the left and right of the political spectrum.

The Road to the 2nd European Referendum

The road to the 2016 Brexit referendum was a long one. There has been for many years opposition to the EU from the extreme right wing of the Tory party, called the Bastards by John Major.  There was also opposition from the Labour party championed by Tony Benn. The current Labour Leader Jeremy Corbyn was part of that faction. There have also been fringe anti EU parties, the Referendum Party and UKIP whose sole or main purpose has been to deliver an EU referendum. Whereas Euroscepticism dwindled in the Labour party, there remained a very vocal minority in the Tory party who were absolutely determined to leave the EU. John Major was able to face them down and they were powerless in opposition during the Labour years. During the Coalition Government they were also powerless as the Liberal Democrats (LibDems) were staunchly pro EU and Nick Clegg would have vetoed any attempt to hold a referendum. David Cameron however was getting increasingly fed up of the Eurosceptic wing and agreed to commit to an advisory referendum on the EU (unlike the 2001 AV referendum which was binding) in the 2015 conservative manifesto to shut them up. Cameron thought he was in fairly safe territory  as the likely outcome of the 2015 election was another coalition government, with the Lib Dems being strongly EU and likely to veto a Brexit referendum. Very few people predicted a Conservative majority. Whereas Labour had a poor election (though disastrous in Scotland), the LibDems were decimated dropping from 57 seats to 8.

Cameron had been outmanoeuvred and with an overall Tory majority had no choice but to call a referendum. He was very confident of winning and had been very successful; two highlights were the Scottish Referendum in 2014 which voted to stay in the UK with a 55%-45% majority and of course the outright majority in the 2015 General Election. Luck is far more important in politics than many give credit and Cameron’s  luck was about to run out.

Right Wing Press Bias

The right-wing press in the UK has long been anti-EU, but things took a dramatic turn in the late 1980’s when a then little known journalist, Boris Johnson was sacked from the Times for lying and became Brussels correspondent for the Daily Telegraph. An excellent article on his shameful behaviour is given by Martin Fletcher in the New Statesman Boris Johnson peddled absurd EU myths – and our disgraceful press followed his lead. One enduring myth is that of bendy bananas. There is a grain of truth in that there are EU regulations regarding bananas: “Bananas are classified by quality and size so they can be traded internationally. Quality standards are also needed so that people know what they are buying and that the produce meets their expectations”.  One is reminded of the Cardinal Richelieu quote If you give me six lines written by the hand of the most honest of men, I will find something in them which will hang him.” This exciting new form of journalism was lapped up by the right wing of the Tory party and the right wing press. In the run-up to the referendum two tabloids in particular, the Daily Mail and Daily Express seemed to vie with each other to whip up anti-EU and anti immigration sentiment to a fever pitch. The sad fact of the matter is that in terms of circulation figures for June 2016 the right wing press had a 3:1 advantage, with 75% of the total.

Table 1: National newspaper print circulations for June 2016 (source ABC).

Title Avg circulation Brexit Stance
Daily Express 421,057 Strong Leave
Daily Mail 1,548,349 Strong Leave
The Sun 1,755,331 Strong Leave
The Daily Telegraph 496,286 Strong Leave
Daily Star 513,452 Leave
The Times 449,151 Remain
Financial Times 199,359 Strong Remain
Daily Mirror 770,714 Strong Remain
The Guardian 171,723 Strong Remain

 

The Thatcher Legacy

About two years after joining the EU, Margaret Thatcher became leader of the Tory party. There had been in the UK a postwar consensus, where if the wealth of the nation if not exactly equal spread; progressive policies,  a welfare state  and a Keynesian economic model used to the good of all. However by the mid ’70s Britain was the Sick Man of Europe and Thatcher who was very influenced by Friedrich Hayeck and Milton Friedman fused these ideas into a form of neoliberal economic theory known as Thatcherism; heavily reliant on monetarism,  a belief in the “Free Market” and reduction in the size of the state. Indeed Regan in the US had similar policies including “trickle down economics.” I was at Sheffield University at the time but living in Barnsley. Sheffield was at one time the greatest steel manufacturing centre in the world and Barnsley, the power base of Arthur Scargill was the epicentre of the Miners Strike. Of course there were other forces at work including globalisation and automation. However the overall effect of the Thatcher Government on South Yorkshire was disastrous with 40,000 high paying miners jobs disappearing (250,000 in the UK as a whole) and whereas the steel industry has not  completely disappeared employment halved between 1979 and 1981. There seemed to be no well developed economic or industrial strategies to help such areas.  High paying industrial jobs have largely being replaced by low paid jobs in retail and call centres. Large parts of the North of England were decimated with whole communities feeling abandoned even 35 years later.

Labour Years

Things did improve dramatically in the Labour years from 1997 to 2010, and  but as Enoch Powell famously said “all political careers end in failure.”  Regarding Brexit as already mentioned the vastly higher number of Eastern European migrants than anticipated  led to the accusation that Labour was a party of high immigration. But in the famous words of Harold McMillian the greatest worry in Government’s is: “Events, dear boy, events“. In 2007/2008 there was a major economic crash on a level not seen since the great crash of 1929.   This had complex causes but was primarily caused by industrial scale sub-prime mortgage defaults in the US. In the UK my first inkling of something strange was large queues forming outside my local branch of Northern Rock in September 2007. Indeed this was the first bank run in the UK for over a century. The banking crisis was seized upon by the Tory opposition and the blame put down to overspending by the Labour Government. According to Murphy and Palin “Politically motivated suggestions that the economy crashed in 2007–08 because of Labour’s overspending are not supported by the data. Indeed, by the time it left office the Labour government had adopted a more realistic basis for economic forecasting than the following government.”

However in the infamous words of Newt Gingrich “What people feel about an issue is more important than what the actual facts behind the issue are.”  Despite the fact that Labour governments have been consistently more economically competent than Tory ones, Labour lost its hard fought reputation for economic competence among a large fraction of the public. There was also a perception in 2010 that Gordon Brown who wanted to be PM all his life didn’t really know what to do with the job once he was there. These were major factors in Labour loosing the 2010 election and the formation of a coalition government between the Lib Dems and the Tory’s.

More on Immigration

Figure 1 net migration into and out of the UK (ONS Data Visualisation Centre)

There has been net migration into the UK since the middle of the 1990s. A good visualisation of this is given on the link for Figure 2. From 1964 till 1993 more often than not there was net migration from the UK, but after the accession of Eastern Europe to the EU there were large flows of people from east to west. These were normally young, hard working and well educated. The flow of people was not just into the UK, there are about 1 million Poles in both France and the UK and about 2 million in Germany. In percentage terms for example the 150,000 Poles living in Ireland (Pop 4.7 M) is about twice that of the UK.

Austerity Economics

Thatcher famously said “Any woman who understands the problems of running a home will be nearer to understanding the problems of running a country.” This analogy with household budgets is of course persuasive and puts the complex macroeconomic considerations of running a country on a par with a household budget. This couples with the “Big Lie” that Labour was responsible for the 2008 crash by being profligate and running an irresponsible deficit allowed for the introduction of Austerity Economics where “balancing the books” and the elimination of the Budget Defect is tackled with near religious fever. There is now 35 years of data showing that the neoliberal experiment has been a failure, but rather than this being abandoned the government embarked on a policy predicated on Expansionary Fiscal Contraction: a belief that the public and private sector compete for resources and that a reduction in Government investment will be more than offset by private investment. If a discredited economic theory is not working, far from abandoning it, this Government seems to believe that a more virulent form of neoliberalism is needed.  Given current conditions however this seems unlikely and the Centre for Economic Policy Research (CEPR) gives this a low probability of working. Indeed the economic conditions since the 2008 crash have been bleak. A summary of the recent reports  by the IFS and Resolution Foundation can be summed up  “(From 2008) fifteen years without a pay rise. The most protracted squeeze on real wages since Nelson’s victory over Napoleon’s fleet in the Battle of Trafalgar. A lost decade for productivity growth.” Despite employment being at a record high the UK has a real problem with productivity. According to the ONS  “output per hour in the UK was 18 percentage points below the average for the rest of the major G7 advanced economies in 2014, the widest productivity gap since comparable estimates began in 1991”. The squeeze on government spending  has caused underfunding many sectors but  in the NHS, Schools, Social Care and the Prison sectors this is particularly acute.  The only major western economy to run a budget surplus for a sustained period was the US through the entire decade of the 1920s which was a major contributor to the great depression of 1929. Life has become very hard for a large number of people. One frightening statistic is that nearly 17 million UK people of working age have less than £100 pounds in savings.

Housing

When I arrived in the UK in 1981 housing was abundant and cheap. I was able to purchase a house well within a year and there were many available starting at about 75% of my annual salary, £6,500, but I purchased one on an 80% mortgage at about 1.5 times annual salary (£10,000). Thirty five years later the situation is dramatically different.  It would not be over dramatic to say there is a housing crisis. The Redfern review, states real house prices have jumped 151% since 1996, while real earnings have risen only about a quarter as much. A report by ResPublica says  1.2 million people are languishing on housing waiting lists in England, while more than 6 million face tenure insecurity with no prospect of ever buying their own home.

In 2007 Gordon Brown pledged 3 million new homes by 2020 and a target of 240,000 new homes per year. This has not been achieved in any year in the past decade, indeed there has been a shortfall of around 100,000 homes per year, which with simple arithmetic gives a shortage of around 1 million homes in the UK. Looking at Table 2 there has been a substantial drop in Local Authority housing more or less matched by an increase in Housing Association properties. The number of Owner occupied houses has remained almost flat and there has been a dramatic increase in the number of private rented properties.

Table 2 Dwellings by tenure in England
Year Owner Occupied Privately rented Social rented – Housing Association Social rented – Local Authority
2003 14,752,000 2,549,000 1,651,000 2,457,000
2004 14,986,000 2,578,000 1,702,000 2,335,000
2005 15,100,000 2,720,000 1,802,000 2,166,000
2006 15,052,000 2,987,000 1,865,000 2,087,000
2007 15,093,000 3,182,000 1,951,000 1,987,000
2008 15,067,000 3,443,000 2,056,000 1,870,000
2009 14,968,000 3,705,000 2,128,000 1,820,000
2010 14,895,000 3,912,000 2,180,000 1,786,000
2011 14,827,000 4,140,000 2,255,000 1,726,000
2012 14,754,000 4,286,000 2,304,000 1,693,000
2013 14,685,000 4,465,000 2,331,000 1,682,000
2014 14,709,000 4,588,000 2,343,000 1,669,000

Source: DCLG Housing Statistics, Table 104, Live Tables on Housing Stock, www.communities.gov.uk

Productivity

Figure 2 GDP per hour worked 2013 and 2014 (ONS data) of some of our close neighbours.

UK productivity is low, not only is it about 35% below that of Germany but about 10% below that of Italy and 5% below that of Spain. It is also well below our closest neighbours as indicated in Figure 3. According to Phillip Inman: “The UK has seen a much bigger fall in trade as a proportion of GDP than France or Germany in the past eight years, forcing it to rely increasingly on its own economy to drive demand – a challenge that consumers have met, but businesses have refused to join.”

Summary

 

The UK is not in a great place, particularly  in the former industrial heartlands: South Wales, the North of England and Central West  Scotland. There is a feeling that they have been ignored and that things were better before we joined the EU. As L.P. Hartley said however “The past is a foreign country; they do things differently there.”

  • We have a Government adopting a very extreme form of macroeconomic policy that will see austerity for average citizens for the foreseeable future and has a low probability of working.
  • The NHS, Schools, Police, Prison Service and Local authorities are chronically underfunded.
  • UK infrastructure is in a bad state. According to the Asphalt Industry Alliance UK county roads are in a dreadful state.
  • The UK has become a low, pay low productivity economy behind even Italy and Spain.
  • The UK is chronically short of housing.
  • The British public is badly served by its media. Agnotology is reaching unprecedented heights.

According to Boris Johnson, (Daily Telegraph, May 12, 2013) “If we left the EU we would end this sterile debate and we would have to recognise that most of our problems are not caused by Brussels, but by chronic British short-termism, inadequate management, sloth, low skills and a culture of easy gratification and under-investment in both human and physical capacity and infrastructure.”  For once I agree with him.