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No pointers to a successful Brexit

Brexiteers’ crowing over the latest GDP data and the decision by Nissan to invest further in its Sunderland plant is utterly foolish. The negative impact of the vote will take place primarily over the long run, will be felt in terms of trade and above all in investment, and will accelerate after Article 50 is invoked and most especially if Britain actually leaves the EU and the Single Market, scheduled now for some time in 2019.

Yet even in the latest events there are clear signs of the problems that will mount. As a series of company announcements have already shown, the first is that prices will rise. By how much is not solely due to the 17% devaluation of the pound but will also be determined by the trend in global commodities’ prices. The certainty is that prices will be much higher than they otherwise would have been, lowering living standards and real incomes.

GDP

The GDP data also point to the problems ahead. Aside from the services sector, the rest of the economy fell into recession, as shown in Chart 1 below. Taking the growth rate from a year ago, services have expanded by 3%. But industrial production is just 1.2% higher, manufacturing is 0.4% lower, construction is down 0.2% and agriculture is 1.4% lower.

Chart1. GDP and Components Growth Rate in Q3 2016

Source: ONS

If the services sector itself is examined, it can be seen that the hotels, restaurants (the sectors that benefit from tourism) grew rapidly and along with the business services and finance. These two benefited from the sharp devaluation of the pound and the interest rate cut by the Bank of England. Together these two sub-sectors contributed 0.3% to GDP growth. The rest of the economy grew by just 0.2%.

Over the long run, as Nigel Lawson was forced to discover, it is not possible to build a ‘candyfloss economy’ based entirely on services. Not only are the productive sectors high value-added, high productivity and higher paid, without them an economy becomes entirely subject to the gyrations of the world economy and world prices, the weakest link in any general crisis. As a result it is not possible to build prosperity over the long without manufacturing and production. In fact the entire British long-term economic crisis that culminated in the referendum vote is characterised by this decline of the productive sectors and the over-dependence on services.

Nissan

The Nissan deal has been kept secret. The Times reports that Nissan was provided with a written assurance that it would face no detriment in its trading position in the UK. There is speculation that this could be financial compensation for any tariffs, a promise that the car industry will be exempt from tariffs, or a pledge for indirect subsidies via R&D or similar areas.

One of the fantasies of the Brexiteers is that leaving the EU will allow the UK to set its own rules. The ‘hardest’ Brexit of all is to fall back on WTO rules. But there is a clue in the name. The WTO has, among other things a plethora of ‘anti-dumping’ rules. Any subsidy to any particular firm or sector would breach those rules, leaving the UK open to penalty under WTO rules and anti-dumping suits by any country which was importing those goods. The same would apply to any government providing R&D subsidies. Nissan will be aware of all this, even if UK ministers for Brexit are not. It can only be imagined that it has received a promise that the government will do all it can to remain in the Single Market. We shall see.

29 Comments

  1. John Penney says:

    Yes, yes, … yawn….we do “geddit” , Tom – you think we should have stayed in the now entirely neoliberal capitalist enforcement machine of the EU – and apparently have no Left criticisms of this totally undemocratic TTIP and CETA enthusiast neoliberal organisation at all !

    Get with the new reality, Tom, we’re leaving – and whatever pitfalls lie ahead, the petty nationalist Right are actually correct in one important area – the UK as a state really will have secured some potential genuine political sovereignty from leaving. Which despite your pretty desperate attempt to pooh, pooh, with your wildly exaggeratedly over-egged “anti dumping penalties” scare story , really will provide an opportunity for a future Left government to take a quite different economic and political route than the “Uberised labour market ” entirely neoliberal one the EU is firmly embarked upon, as the Greeks have discovered to their utter impoverishment.

    Why is Tom O’ Leary given constant space on here to repeat his utterly non-socialist based analysis “Guardianista” pro EU drivel ?

  2. The common external tariff puts up prices; penalises low income country exports to the EU and prevents discretionary management of UK trade relationships.
    The CAP puts up food prices; penalizes low-income developing countries; subsidises landowners; promotes waste and promotes unsustainable farming.
    The fisheries policy is bad for the UK fishing industry.
    The single market calls for free movement in labour, goods, capital and services.
    The Euro completes the single market in capital. It’s bad for many countries that are in it.
    Free labour movement has mixed economic results: good for countries receiving labour but bad for countries losing talent and skills (as the IMF concluded in a report this summer).
    Free movement of goods within the EU has to be set against the comprehensive obstruction of flows of non EU goods (this is bad economics and illogical).
    In services, the sector mainly benefitting significantly from the single is finance. Up to 100,000 jobs are potentially at risk, but only a fraction of those may actually leave the UK (there are many ways of getting around/working within the single market regs in financial advice without being in the single market).
    The full implementation of the service single market would involve detailed, costly and counterproductive regulation of practically everything (the good news is that most services created in the UK are not internationally traded so they won’t be affected by single market rules. That also means, however, that people working in most service sectors will not be directly affected by the UK leaving the EU and single market).
    There are dangers in consistently asserting that leaving the EU is going to be bad for the economy.
    1 You could be proven wrong
    2 Voters are unconvinced (as 17.5m who voted to Leave and 10m who failed to vote Remain demonstrated).
    Wouldn’t it be better to say: Brexit will involve transitional costs for the UK, but the long-term impact is difficult to quantify?

  3. Karl Stewart says:

    Another neo-liberal, pro-capitalist, article from Tom O’Leary, explaining why the City and the UK finance sector in general want the UK to belong to the EU single market.

    Yep, as JohnP says above, we all get it. Capitalists support capitalism.

    But given that this site is called Left Futures, how about an article explaining how the UK can move towards a system of socialist economic planning?

  4. David Pavett says:

    I hold no brief for the Brexiters, I was a sceptical Remainer. But I struggle to see the point of this article which does no more than to look around for data which is consistent with the case made but fails to consider any alternative viewpoint and data that might not fit so well with the case. Any victories scored with this style of argument are bound to be shallow and short-lived.

    Articles like this have the function of preaching to the converted only. And if Tim O’Leary shows himself to be as reluctant to join in the debate as he was with his last much criticised article then I suggest, as others have already done, that his contributions are not helpful.

    There are surely left economists around how can take on the arguments of the right and participate in subsequent debate.

    1. Tend to agree David, but it would be useful if Mr O’Leary could provide more detail about why “the negative impact of the vote will take place primarily over the long run, will be felt in terms of trade and above all in investment, and will accelerate after Article 50 is invoked and most especially if Britain actually leaves the EU and the Single Market, scheduled now for some time in 2019.”
      We don’t yet know the full terms of the UK’s relationship with the EU after the UK leaves it. Isn’t it impossible at this point to attempt to calculate the impact?

    2. Precious says:

      Weeeee, what a quick and easy sountiol.

  5. Jim Denham says:

    Should socialists seek to reverse the thoroughly reactionary, nationalist and (in its practical results) racist referendum result? In principle, why not? Just because we lose a vote, we don’t have to give up fighting for our beliefs: if we did, the left would have been finished years ago. The only argument for passively accepting Brexit is to avoid fuelling the conspiracy theories of Brexit voters.

    But our first concern is the solidarity and unity of workers across borders, and for security for migrants here and for freedom of movement both for their friends, families, compatriots, and for British-born people who want to work, study, or live elsewhere in Europe.

    The Brexit vote has boosted the most narrow-minded so that even after the UK promised to take in child refugees fully qualified to come here, the government delayed month after month before admitting a meagre few.

    The disputes among the Tories and big business and economic links give us an opening to push back. It is even possible that the Tories will be unable to cut a workable or acceptable deal with the EU, allowing the anti-racist internationalist left to campaign democratically for Brexit to be rescinded.

    Norway, Switzerland, Canada, Albania, Singapore — the Brexiters never made clear, and mostly didn’t know, what their model for Britain-after-Brexit was. They claimed it would be easy to cut a new deal with the EU. Yet the Canada-EU trade deal, much less fraught, and negotiated since 2008, has only now been fianlised. The lying Brexit posters and campaign buses promised £350 million a week more for the NHS after Brexit. The promise has vanished (and the pro-“left” Brexit Morning Star, shamefully, now objects to anyone reminding the Leave lairs of it!).

    The Tories has hinted that it may still pay into the EU budget after Brexit in order to get trade concessions of the type cobbled together in order to bribe Nissan with our money, to stay in the UK. How many more bribes to other companies will have to be made?

    The Tories blamed migrants for the social problems caused by their cuts and curbs on council housing. The worst-hit areas, which voted heavily for Brexit, actually have fewest migrants.

    The Brexit vote on 23 June set off a 41% increase in racial and religious hate crime in July 2016 (over June 2016). Official figures for August, published on 13 October, show a rate still much higher than previous years.

    There was one valid idea behind the Brexit votes: that control over economic life has shifted further from ground level.

    Capitalist economic life is always controlled by a small minority: bosses, bankers, top government officials. But the feeling that the centres of control are even further away, even more difficult at least to constrain, has a real basis. World market forces, including the rapid forces of the global financial markets, dominate more. The chief economic criterion for governments has become making their territories attractive as perches for global capital. Brexit is no answer.

    Smaller economic units — Britain, as compared to the EU — are even more subordinate to markets and global capital than larger. The EU has been willing to demand €13 billion back-taxes for Ireland from Apple, but the idea so scares Ireland that it has appealed against the ruling.

    The only answer is solidarity and unity of workers across the largest expanses possible, both to check and constrain global capital, and then to replace it by social and economic cooperation and equalisation across borders. As the Tories’ conflicts develop, the labour movement can and should push back, to minimise, to block, to reverse the re-raising of barriers.

    1. Karl Stewart says:

      Instead of lining up with big business, the Tory government, the Blairites, and the LibDems in the futile and pointless call to reverse the referendum decision, why not unite the left around a programme for a socialist future?

      1. Jim Denham says:

        Because it can’t be done on the basis of backwardness and racism. Simple as that.

        1. Karl Stewart says:

          So why not unite the left around a programme for a socialist future, and, simultaneously, fight racism.

          1. David Pavett says:

            What “programme” for a socialist future are you referring to?

            What do you take “a socialist future” to mean?

          2. Jim Denham says:

            Karl: “So why not unite the left around a programme for a socialist future, and, simultaneously, fight racism.”

            All in favour of that; which means challenging Brexit.

        2. Karl Stewart says:

          Response to JimD at 8.49pm:

          Leaving the EU is a prerequisite for moving in a socialist direction. It can’t be done within the EU – ask the Greeks.

          1. Jim Denham says:

            You can only seriously believe that if you’re a craven legalistic reformist unconcerned with the self-activity of the international, united, working class.

    2. Rob Green says:

      Denham would not know a socialist programme if it bit him on the arse. He is a Zionist. Nothing to do with socialism.

      A real socialist programme needs to put forward a socialist vision for a post-Brexit Britain and a New European Settlement. This should include:

      1. A regime of full-employment. A regime not a wish by which every school and college leaver and unemployed worker who cannot find their own job is bought into the local workforce to share in the productive work with each paid the minimum of a trades union living wage;

      2. A people’s bank with a monopoly of credit that can lend at base rate to small business and facilitate social investment in accordance with a democratic and environmentally sustainable plan;

      3. Socialisation of the corporations and their super-profits and replacement of fat cat executives with those elected by the workforce and answerable to them, the customers and the socialist government;

      4. Repeal of all anti-union legislation and the formation of working class militias that can defend picket lines, demonstrations, meetings, communities against police and fascist attack;

      5. A federation of sovereign nations to replace the Westminster Union and a New European Settlement based on co-operation not competition and which does not treat workers like migrating cattle or leave them unable to compete in sink communities and estates.

      1. Jim Denham says:

        An anti-Semite writes: “Denham would not know a socialist programme if it bit him on the arse. He is a Zionist.”

        1. Rob Green says:

          A Zionist who thinks the Israeli state is the bees knees but everybody who voted Brexit is a racist. Of course the real anti-semites are the non-Jewish Zionists.

  6. Karl Stewart says:

    Response to DavidP at 8.44:

    I’d say a good start point would be the essential principles of the alternative economic and political strategy (AEPS).

    This was a set of policies developed by the left back in the 1970s, so would need updating.

    But renationalisation of our public utilities, transport, energy, areas of communications etc, and of our key strategic industries – such as steel in particular – public procurement to protect domestic industry, selective import controls, large-scale public investment in areas such as housing and infrastructure.

    That kind of programme.

    1. David Pavett says:

      Thanks, that’s clear. I think those are all good objectives. I note though that you you say the old Alternative Economic Strategy (AES) ideas “would need updating”. Yes they would and it is plain as it could be that no one in the Labour leadership has that in mind. In other words there is no active programme of the sort you are talking about.

      Not only that but the old AES programmes were not socialist programmes since they would have left the bulk of capitalist enterprise in private hands. That’s not a criticism but a statement of fact. One of the central ideas was to take insurance companies and pension schemes into public ownership and to use the power they have in the market to pursue strategic objectives in a capitalist context.

      So for now we do not have a socialist programme even in its embryonic stage. I think we need to be realistic about that and should not use language which suggests otherwise.

      I agree with you about AES (or AEPS). It is disconcerting to note how far behind all that we are forty years later.

      1. Karl Stewart says:

        It’s certainly a move in the direction of socialism, even if it isn’t pure 100 per cent socialism in itself of course.

        I have to agree with you about the disappointing and disconcerting lack of current innovative economic theory and programme on the Labour left today – it is indeed a big worry.

        But, like that programme in its day, the energy and the momentum (with a small ‘m’) behind AES/AEPS originated from the grassroots of our movement.

        So perhaps once again, the grassroots can push for a robust AEPS for today?

    2. Jim Denham says:

      The central weakness of the AES (even at the time) was its reliance on import controls.

      1. C MacMackin says:

        That was a central component of the AES. You will need to elaborate on why that is a weakness.

      2. Karl Stewart says:

        So are you telling me you wouldn’t ban steel imports for example? Or coal exports?

        1. Jim Denham says:

          Read Marx on free trade.

          1. Karl Stewart says:

            Marx was writing about how ‘free trade’ benefitted the UK capitalist class, at a particular time in history.

            My view is based on what will be better for the people as a whole now in today’s society.

          2. Jim Denham says:

            OK: read the Communist Manifesto – especially the sections on Reactionary Socialism.

  7. Verity says:

    The Labour Representative Committee site is reporting an unanimous agreement by the Steering Committee of Momentum. The following is a selection of that statement,

    “The National Committee, postponed from this Saturday, will take place on 3 December. We will ensure that this meeting is properly representative, including new elections for our liberation strands where necessary. A plan for ensuring this will be submitted and approved by the Steering Committee at the latest by 11 November.

    A further National Committee meeting will be held in January before our Conference in February. Our Conference, involving all members of Momentum, groups and affiliated organisations, will decide our organisation’s long-term structure.

    Taking into account the strong views on both sides of the OMOV (one member, one vote) vs. delegate for Conference votes, the Steering Committee has agreed on a recommendation to the National Committee of a suitable format. There will be both a physical delegates conference to thoroughly debate proposals submitted from the membership, and then OMOV voting on the proposals in the period after the conference. The details of this procedure will be determined over the coming weeks.

    We know all levels of Momentum are committed to a truly inclusive and democratic structure and will make it succeed over the next few months.

    1. Verity says:

      Moderator please delete the above – I misplaced it in the wrong discussion thread. Thank you.

  8. Jimmy says:

    Super jazzed about getting that kn-wwhoo.

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