British-EU disputes suggest the Tories are set to break away from the sordid Thatcher legacy
… I have been following the debate in the UK and Europe about the likelihood of some sort trade deal or not with some interest and amusement. There are several facets to the discussion:
(a) the on-going hypocrisy of the European Union elites;
(b) the necessity for major state intervention in Britain (and everywhere) and the possibility that the Tories will abandon Margaret Thatcher’s EU single market legacy is another sign that the paradigm shift in macroeconomics is well under way;
(c) the way in which the Labour party are being wedged on the issue and refusing to come out in support of further state aid. Instead, inasmuch as they are saying anything, they are just repeating the mindless, neoliberal dogma about ‘free trade’. They will lose on that one, one thinks.
Some reflections on the current British-EU stand-off
The so-called ‘trade talks’ between the newly independent (and cheers for that) Britain and the European Union are floundering seemingly on the reluctance of the UK to proceed as if nothing changed when it left the neoliberal-entrenched EU.
It seems a major sticking point is the EU’s insistence on Britain agreeing to abide by EU rules that predicate against state aid to industry.
I have always found the claims of the EU to ‘free market’ purity to be ridiculous anyway.
There is significant state aid to private industry throughout the EU and in some cases it has been on the rise over the last decade.
Michel Barnier is once again trying to play the bully-boy role, which he adopted prior to the Withdrawal Agreement, hoping to pressure the British polity into rejecting the deal and stalling Brexit forever.
His failure just made his aggressive tactics look like stupid.
Despite his insistence to the contrary, the remaining 27 EU nations are now the losers from the British exit.
While we have been confronted with the continuing claims by Michel Barnier that Brexit was Britain’s problem, the reality became clear in the earlier part of this year.
The EU ‘Budget’ lost between 60 and 75 billion euro over the next seven years and the austerity mindset, driven by Germany and the Dutch, with support from the so-called “Frugal Four” (Austria, the Netherlands, Sweden and Denmark) have insisted that those losses feed into cuts in various essential capital developments.
The fighting over the fiscal losses arising from Britain’s withdrawal have also impacted on the ability of the EU nations to properly deal with the pandemic.
Only limited fiscal support has been provided to date and if more comes after all the wrangling, it will probably be too late (in cyclical terms).
The whole place is a dysfunctional mess and it is to Britain’s advantage that they forge a separate path and use their own currency capacity to rebuild their economy after years of austerity and then the damage from the pandemic.
First, the issue of state aid is one of those examples of EU hypocrisy. Everyone is talking about Britain’s response but consider the fact that state aid is alive and well in Europe and like many things Brussels overlooks it.
The following graph shows the evolution of total state aid as a per cent of GDP for the major European nations and the UK from 2000 to 2018.
I am not criticising the provision of state aid at all. But its existence exposes the ad hoc nature of the hypocrisy involved.
The data is available from the – State aid Scoreboard 2019.
The point is that there is no sense that the major European nations do not indulge in providing state handouts to their industries.
Clearly, since 2012, Germany has significantly expanded its state contribution to industry through aid.
Spain and Italy, by contrast have been reducing the commitment to state aid.
And, the UK has hardly demonstrated a tendency to expanding its state aid prior to the pandemic, although there has been an increase since 2008 in response to the GFC.
Where has this aid been going?
The next graph breaks the total down in to the regional development objective.
And Environmental protection including energy savings. This is driving Germany’s upward trend.
And Training – hardly anything, although in the UK’s case it stands out in providing state aid to human capital development and employment (see next graph) relative to the rest. But the amounts involved are not large.
And Employment – hardly anything.
And Sectoral Assistance – hardly anything.
There are other categories such as SME and risk capital, Culture, Heritage conservation, Rescue and Restructuring, Closure aid, Compensation of damages caused by natural disaster, Promotion of export and internationalisation, etc., which have limited data available or very small amounts involved (in the main).
Second, consider the challenges into the future.
1. Addressing the years of austerity – damage to basic infrastructure, education and training, services, reversing privatisation, etc.
2. The climate challenge – a massive transformation in the production and consumption patterns is required to facilitate the transition to a low carbon-intensive economy.
3. Pandemic – and on top of that a massive health challenge, which has exposed the weaknesses in our health systems, mostly arising from austerity and the application of a ‘free market’ mentality.
What does that all imply?
Massive and continuous state outlays, the scale of which we rarely see (outside of war), will be required to provide the financial support to meet these three challenges.
The British government simply has to reject the Thatcherite narrative (which was really first rehearsed by Dennis Healey and co in the mid-1970s) and return to the sort of vision laid out by Tony Benn when he was the Secretary of State for Energy in 1976.
He issued several documents in November 1976 outlining his alternative plan for Britain, which included the rejection of any dealings with the IMF.
This was in relation to Cabinet submissions from the Chancellor (Healey) proposing to invoke harsh (neoliberal) spending cuts and depoliticise the decision by claiming that the IMF was forcing them on Britain in return for a loan that was essential because Britain (a currency issuer) had run out of money.
As a real alternative to the Monetarist direction the British Labour government was proposing to take, Benn presented a paper to Cabinet on November 29, 1976 – The Real Choices Facing the Cabinet – which proposed a six point “national recovery plan” which was characterised by:
1. Introduction of import quotas on manufactured goods.
2. Introduction of “import deposits” as an interim measure while the quotas were being worked out.
3. Introduction of capital controls to “check speculative outflows” (p.4).
4. “Reintroduction of a Capital Issues Committee” (p.4), which would serve to ensure that bank credit was directed into areas of “national priority” to reinforce the protection of the homemarket provided by the import controls. This was like a national infrastructure assessment process that is common in many countries, including Australia.
5. Reduce interest rates “for all but official holders of sterling” (p.4). In other words, provide cheap finance to industry but not provide an incentive for those foreign interests with the remaining sterling financial assets to continue selling.
6. Introduce planning agreements with industry and provide “more funds for the National Enterprise Board and the Scottish and Welsh Development Agencies” (p.4).
The intent was to “re-industrialise” Britain and rebuild its export base (p.4).
In this context, Benn argued that the IMF might extend a loan to help the plan succeed and if any additional conditions were required they should focus only on “tougher import restriction” (p.5).
I discussed that in this blog post – The British Left is usurped and IMF austerity begins 1976 (June 29, 2016).
Please also see these blog posts:
1. IMF changes tune on industry policy – shamelessly – Part 1 (April 8, 2019).
2. IMF changes tune on industry policy – shamelessly – Part 2 (April 9, 2019).
3. British Tories reject the ‘free market’ neoliberal myth (December 11, 2017).
History tells us that Labour did not follow Benn’s vision and the Winter of Discontent followed, which paved the way for Margaret Thatcher’s dreadful period in office.
Now Britain has a chance to return to that sort of state intervention – and should – to meet the challenges specified above.
It will be another sign that the paradigm shift in macroeconomics is well under way.
And a no-deal Brexit will allow the government to provide extensive state support and choose industry winners – South Korea style, in a way that the EU would never allow.
Whether the Tories have the calibre to do that properly, as opposed to just doing deals with mates in failing sectors, is another matter that I pass no judgement on at this stage.
But passively accepting a ‘free trade’ deal with the EU will not be in its interests.
Barnier is still trying to claim that the EU promotes ‘competition’, but that is just a ruse. It does not. It promotes cabals of entrenched capital interests and allows state aid, nationalisation, when it advances the interests of the elites.
There are two additional things of interest here:
1. These developments are creating massive tensions within the Conservative party itself. More government intervention is anathema to many of the Thatcher-type ideologues who are now forced to suck it up because the smarter operators in government know that they have a unique chance to play the Labour party out of the game forever in the former Labour seats that the Tories won in the December election.
That reality, alone, drives a more interventionist dynamic.
2. And what of the Labour Party? Where are they in all of this? Its new leader – a key Remainer who vowed if they win office to take Britain back into the EU is clearly being wedged by current developments.
Starmer is clearly not sure what strategy to adopt now.
He has been claiming Britain has to honour the Withdrawal Agreement but when it comes down to the next election will the British people care about that? I doubt it. They will care about how Britain is travelling in terms of work, wages, housing, energy, and health.
All of those things are within the capacity of the current government to improve.
Just like the Tories ran the “Get Brexit done” simplicity in the December election, you can see them running a “Do you support Britain or Brussels” type campaign in the next election.
Labour will lose that one too.
And where does Labour stand on the state aid question?
Mostly silent, although in a recent ITV interview (September 9, 2020)- Keir Starmer: Boris Johnson must ‘get on’ with Brexit deal and focus on fighting coronavirus – the Labour leader is still pushing the
‘free market’ line, supporting the EU’s insistence that Britain doesn’t go it alone.
Starmer has now abandoned, its seems, any call for a new referendum on Europe.
But it is clear Labour are as confused as ever.
A complete and utter disgrace the left still refuse to have a LEXIT vision. They’ve never had one.
What makes it even worse. Is They have sat and watched the UK govt destroy every mainstream myth regarding the UK monetary system. The UK treasury and the BOE have shown quite clearly during the virus that they can do whatever it takes to make Brexit a success. They can’t run out of keystrokes.
The liberal left are a farce. Simon Wren Lewis blog of endless impending doom and his articles in the Guardian of why everyone should have voted remain. Should be enough to retire him, send him out to pasture on a farewell speaking tour in European capital cities.