What role did a mysterious force called ‘globalisation’ play in the UK’s vote to leave the EU? And what now for globalisation? Those were the questions I was asked to discuss on BBC Radio 4’s Today programme on Monday with Editor of the Economist, Zanny Minton Beddoes.
Even amidst the current political turmoil, there are the beginnings of a much needed, more serious, search for answers as to why so many people, not only in the UK, feel that the global economy does not work for them. Even regions of the UK that are the largest beneficiaries of EU structural funds – worth €150 per person per year in West Wales and the Valleys and in Cornwall – voted to leave. Indeed Britain’s net contribution to the EU is just £8bn or 1.2% of public expenditure, smaller than those in 12 other EU nations including France, Germany, Italy and Spain and outweighed by our economic gains from membership. As I wrote in the Guardian last week, even though the Brexit vote has laid bare how marginalised many feel from the forces of ‘globalisation’, the leave campaign was wrong about the causes and wrong about the solutions.
Casting the EU as the pantomime villain behind Britain’s economic woes has got us into this mess but it cannot get us out. We must now have a more serious conversation about the deep structural problems in Britain’s economy –such as stagnant productivity, rising inequality, and growth that continues to be consumer debt driven rather than investment driven. These problems have been especially exacerbated by post-crisis austerity, of which, yes, the EU – if not in relation to the UK – has also been guilty as, I have often argued elsewhere.
However we must be wary of using catch-all terms like ‘globalisation’ to describe the economic forces that lay behind the vote for Brexit. This is not about some mysterious force of ‘globalisation’ but about how governments respond to different elements being globalised, and the way they strike healthy deals with the private sector to make sure that we don’t have a race to the bottom. The situation we now find ourselves in is precisely the result of choices made by policymakers who have repeatedly failed to negotiate the right terms—whether in relation to the power of finance (we are still rewarding short-term finance over long-term), or making sure that workers are invested in so that they develop new skills to adapt to technological change, or meeting deindustrialization with reinvestment.
When industries such as steel or coal go under it is possible to make greater investments in skills and creation of new industries—including high tech services. Not to do so is a choice. While Belgium and Germany have modernized their steel industry, relying less on virgin steel and more on new technologies for repurpose, reuse and recycling, the UK hasn’t.
The future will see more globalisation and automation but there is nothing inevitable or deterministic about how wages fall or jobs are lost in that process. It all depends on the strategic choices and negotiations made in the process. Lower tax and regulation are not the answer. We need stronger institutions to deal with downward pressures on wages, not deregulation to weaken them. We should be making sure that finance is serving the real economy, not just itself, and making sure that intelligent decisions, not ideology, drive areas like privatization and deregulation. Selling off state assets that make a return, such as the recent movement to privatize the Land Registry (which in 2014/15 cost £261 million to run but made £297 million) are a result of ideology not sensible economics. It can only reduce the public purse – leading to cuts elsewhere. And it is the lack of public and private investments that have led to the marginalization of large sections of society. Mike Carter, and I discussed this recently on the BBC’s World Service Newshour programme. Before the Brexit vote, Mike walked from Liverpool to London and documented the anger that many feel of having been left behind. They are right to be angry.
But unfortunately Brexit will now only make things worse: the uncertainty that may go on for years; the waste of government time and resources devoted to disentangling ourselves from the EU (which Cameron says will be the biggest effort by civil servants in the years to come); and the great loss in opportunities that we could have had by being a serious part of Europe’s 2020 strategy for investment led growth. (My article in the Guardian discusses these issues in more depth). More than anything, we need a clear story – a vision – about where the UK economy is heading, a clear direction that can stimulate the animal spirits of business and unlock investment. For Germany, the Energiewende policy gives a clear green direction, as a basis for the modernisation of the nation’s industries and infrastructures. The UK needs similar ambition and direction for transformative change.
A new book I have co-edited with Michael Jacobs, Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth brings together thoughts on many of these subjects from leading economists. The book is out at the end of this month. The topics covered include: rising inequality by Nobel prize-winning Joseph Stiglitz; the need for a different type of monetary and fiscal policy by Bernie Sander’s Chief Economist Stephanie Kelton; the perils of short-term finance by Chief Economist of the Bank of England Andy Haldane; the opportunities that a green vision could offer across the economy by Carlota Perez and many more. Together we set out alternative economic approaches which explain how and why capitalism works, why it often doesn’t, and how it can be made more innovative, inclusive and sustainable through concrete, investment driven policies. This conversation is crucial to post-crisis economic recovery, and now a post-Brexit future too.
Tags: Austerity, Eurozone, Inequality, UK
My article for the Guardian, Austerity is the cause of our economic woes. It’s nothing to do with the EU (27/07/2016)
My forthcoming book, co-edited with Michael Jacobs, Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth
The EU needs less voodoo economics: more vision and more strategy, English version of an article for La Repubblica, (24/08/2014)
My interview on BBC Newsnight on the challenges ahead for the new UK Government, July 13, 2016