The Political Economy of Brexit

Sociological analyses of the vote to leave the EU have largely focused on the working class revolt in England & Wales: the rage of the hollowed out netherworlds of post-industrial Britain in which respect, status and the prospect of a decent wages are in short supply, but where older worlds and their cultures and attachments still linger. Of course, it is much more complicated than the “left behind” versus the cosmopolitans: social class, age, education and identity each played a role. The fact that post-industrial areas in Scotland voted to remain in the EU, while those in Wales and Northern England did not, or that Liverpool voted to stay, while all bar one local authority in Kent did not, is testament to this complexity.

But however you want to describe it – the networked knowledge economy versus the minimum wage service economy, London elites and their satellites in the cosmopolitan cities vs. one wage towns – Britain’s political economy was highly visible in the blue and yellow electoral maps of the referendum results. Lines can be traced back from those voting patterns directly to the collapse of Britain’s industrial base and its organised working class in the late 1970s and 1980s.

This is not simply a matter of “globalisation”. The relative decline of industrial Britain, as it was shaped in the Victorian era, began in the early twentieth century, if not before. Miners were losing their jobs long before Thatcher decided to take them on.  Nor has the manufacturing sector simply lost workers because of China’s entry in the global economy; productivity gains in manufacturing steadily reduce employment in the sector, shifting workers into services. And large-scale immigration is as much intra-regional as well as global: mass immigration to the US comes from Mexico, just as people have flowed into Europe from the Middle East, or from East to West in the EU itself.

Workers are also exposed to globalisation in very different ways. High union density in Scandinavia means that the open, trading economies of the Nordic countries are combined with collective wage setting and strong social protection. Migrants find it harder to access these regulated labour markets, so refugees are more likely to be unemployed and socially excluded, creating different kinds of social tension to those thrown up by Eastern Europeans working the farms and agri-factories of Lincolnshire. Germany is different again: it has a highly paid skilled working class in its export sectors, combined with burgeoning low skilled, deregulated service sector employment.

These different dimensions of political economy will matter for Brexit as much as they did for the referendum itself. The dominant sectors of the economy – in particular the City and financial services – will seek to protect their access to the single market and the passporting of their UK regulatory regime into the EU.  Politicians who are desperate to shore up a declining tax base and prevent operations shifting into the eurozone will come under immense pressure to defend the City, further cementing the UK’s dependence on financial services. Other islands of prosperity that benefit significantly from EU funding, like the university towns, will advocate strongly for their interests too, as will the farmers dependant on EU funds, and the food businesses that rely on free movement of labour.

Post-industrial areas – particularly in Wales and Northern Ireland – benefit significantly from EU structural funds, and their governments will advocate on their behalf. But these funds aside, who will speak in the Brexit negotiations for the interests of those people who have just voted to leave? When Britain’s fiscal position deteriorates, will working class voters pay the heaviest price, as economists warned before the referendum? As we become more reliant on the “kindness of strangers” to pay our way in the world, who will argue for investment to flow to Brexit Britain’s heartlands?

Labour is the historic political arm of these workers but it now faces a double bind. If it advocates staying in the single market on EEA terms, which is critical to exporters like Nissan and Airbus, as much as to the City, it will have to concede free movement. Its metropolitan strongholds are proud of their diversity, and the welcome they give to migrants, but its post-industrial heartlands are not. They voted for an end to free movement. UKIP will offer it if Labour does not.

This makes the party manifestos at an impending “Brexit terms” general election critical. What does each say about Brexit? To propose EEA membership, including free movement? Or an association agreement in which both single market access and free movement are curtailed, for British and EU citizens?

Leaving aside the mendacity of abandoning promises made in a referendum campaign almost as soon as it is concluded, the fantasy scenario sketched out in Boris Johnson’s opening salvo on Brexit terms is unlikely to withstand contact with reality. The UK can have free movement rights for its nationals across the European Union, but a points system will apply to those coming here? The UK can enjoy access to the single market but not comply with ECJ rulings? None of this will come to pass.

Yet once a new Prime Minister is in place, and a likely general election has been held, the expectation is that Article 50 will be engaged. The UK will notify its EU partners of its intention to leave. Let us then say that Britain cannot obtain good terms for Brexit. In the current febrile state of EU politics, there will be a phalanx of states that are unwilling to let the UK have the best of both worlds. There are national government veto points too, particularly if the deal is “mixed” (that is, engaging both national competences and those of the EU). The Brexit terms on which the Tory leadership had been contested, and any subsequent general election had been fought, could not be delivered.  What happens then?

Article 50 is silent on whether a country that has notified the EU of its intention to leave, and thereby initiated divorce proceedings, can reverse its position and withdraw its notification. Does that mean that Brexit is a one-way street once Article 50 has been triggered? Perhaps. But another reading is that the text becomes one those creative non-spaces that Europe has used repeatedly in its passage to union. Constitutional experts suggest that it may be possible to “withdraw a withdrawal” – though the ECJ might be asked to provide a ruling.

These are the circumstances in which a second referendum could be held. The country could be asked to vote on remaining in the EU versus the terms of Brexit on offer. If the country chose to remain, the Article 50 notice could be withdrawn. (Of course, such a scenario also relies on considerable goodwill from our EU partners, many of whom will simply want to see the UK amputated cleanly from the rest of the union. But if there is a prospect of a second referendum, the balance may tip in the UK’s favour).

A central question of the Brexit terms general election might then become whether the governing party or parties had made a commitment to a second referendum. Instead of arguing that parliamentarians should ignore the referendum result, refuse to trigger Article 50, or simply propose the UK should remain in the EU, pro-European parties should commit to a second referendum, and put pressure on the Conservative Party to do the same. Not all will have an interest in doing this, of course - the SNP, in particular, will be juggling multiple factors in its political calculations.  And the UK may be engulfed by economic and constitutional crises well before any of these scenarios plays out, such is the pace of the events. But these are the questions that now need to be addressed, in public as well as political party debates.