Nicholas Harrington

What’s nexit? Part one – The economic effects of the Brexit

Approx Reading Time-10With the vote now old news, we move onto what’s next, in our three-part series. First up: the lasting economic effects of the Brexit.

 

According to the Remain camp, the economy was the issue sine qua non of the referendum. Remaining in the EU assured access to a prosperous and vital marketplace for UK goods. Leaving meant a reduction in trade, depression of the domestic currency, and a diminution in overall GDP. A parade of economic experts was trotted out to substantiate these claims. Models and charts were produced providing compelling evidence that Brexit was bad for business.

I’m not going to argue the merits of these claims as I respect the integrity and acumen of economic experts when it comes to matters of the economy. Their resounding failure to predict, manage or resolve the Global Financial Crisis of 2007/2008 notwithstanding, economists generally have a better handle on what happens with the “economy” than a layperson. So let’s just grant the Remain camp every single one of their arguments.

What I am far more interested in understanding is why the same people who deride income inequality, labour exploitation, the inequities of the banking classes and the evils of free-market ideologies, are now beating the drum for these very interests?

How quickly we have forgotten the Global Financial Crisis. The reason the crisis was global was because we were economically integrated. Toxic debt swirled around, infecting the tissue and flesh of all our economic institutional organisms.

Of course, I can understand why central banks, large multi-national corporations, political status quo elites and international organisations (like the EU) favour integrated markets – and measure the prosperity and viability of social reality by an economic matrix alone – but why do the rest of us?

Cui bono?

Anyone who has been paying any attention over the past decade (post-GFC world) should be well aware that globalisation (of which the EU single market was a microcosmic derivate) benefits a very small proportion of people within the economy. The EU project benefits large multinational corporations and banking conglomerates. These are the companies that feature in stock markets. These are the institutional investors that take part in currency trades and are directly wedded to fluctuations in share price.

In every OECD country (Europe, Australia, USA etc,) 60-70 percent of people are employed by small and medium sized businesses. Large corporations or multinationals do not employ the vast majority of people in society. In other words, the beneficiaries of integrated, single markets are only a small proportion of people either directly employed by these companies, or large enough shareholders to be affected when their value drops. It should come as little wonder that across the OECD, real wages (adjusted for cost of living and inflation) have not risen since 1979. At the same time, work hours have increased by 20-40 percent on average, and 10 times as many people have a second job than did in the 1970s – just to meet their cost of living expenses.


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There appears to be a wonderful spell that has been cast over the minds of many well-intentioned and intelligent people that the GDP (as a figure), share markets (as a concept) and trade (as a process) are things that benefit them directly. They don’t.

Many may now object and raise the issue of jobs. Apparently, high GDP and employment go hand in hand. They don’t. Apparently profitable multinational corporations and employment go hand in hand. I’m sorry, that’s simply not the case. Apparently, high trade of goods and rising wages are synonymous.

They are not.

Think about this logically for a moment. A multinational corporation as an entity, has what view and relationship to labour (jobs)? To the MNC, labour is simply a cost, a burden, and something they are constantly trying to make more efficient (by that we mean smaller), and more productive (this means technology to replace/assist manual labour). The reality is that as the proportion of the economy that is dominated by large corporations increases, the relationship between jobs and profit also changes. The amount of “profit” (non-wage money) per working head rises dramatically. The MNC is a profit-making machine that doesn’t want workers, or at least wants the least number possible. This is the very reason that the natural tendency of the MNC is to close factories where you live and open new ones where you don’t – where labour is cheaper (more efficient).

However, an integrated single-market is brilliant for MNCs. They get to sell their goods to enormous numbers of people – without trade barriers. What are trade barriers? An additional cost to the sale of goods, i.e. a reduction in profit.

So, again, I can well understand why Goldman Sachs, Apple, Google, Mercedes, and Bayer are keen to see the preservation of the EU trading block – but why are you? It is incredible that the same people who applauded Occupy Wall Street, then voted for Remain. Can you not see how that is a logical incoherence?

I’d now like to focus a little attention on another aspect of the economic argument: the notion that economies are better off together. How quickly we have forgotten the Global Financial Crisis. The reason the crisis was global was because we were economically integrated. Toxic debt swirled around, infecting the tissue and flesh of all our economic institutional organisms. The rot was deep and so was the fall. Of course, a vote to leave the EU would not have changed that one iota. Globalisation is globalisation is globalisation. However, the reason the economic recovery across Europe has been uniformly anaemic (at best) is everything to do with the EU. Had it not been for the European Union, stronger economies like Britain and Germany would have gotten back on their feet much more quickly and convincingly, and weaker economies (Italy, Spain) would have suffered more greatly. But – and here’s the big but – those countries would have seen their currencies plummet and export opportunities (and hence manufacturing) rise. And if they didn’t have those manufacturing opportunities already in place, investment from other, stronger European nations would have stepped in to take advantage of the conditions. Thus creating productivity and employment along with it. As it was, every economy, whether strong or not, was along for the same ride. And European nations are still huffing and puffing along the bottom. Poor Greece, that has no independent currency to depreciate, is the European corpse on life support for the next twenty years.

Economic independence gives you freedom of movement, agility, dynamism, and adaptability. These are traits that were sorely lacking over the past ten years in Europe. The EU, in times of crisis, is a heavy ball to drag from pillar to post.

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  • Nicholas Harrington

    Hi Rainer, this article was dealing selectively with the economic dimension of the Brexit vote. In this regard, the single-market was identified as providing a disproportionate benefit to MNCs and other corporate interests (over and above those of labour, or small/medium sized businesses). Its not hard to see this is an accurate appraisal when you reflect on where the push-back against the Leave vote was coming from (at least from an economic perspective). When you have a united front of ‘economic experts’ rallying in favor of Remain – you can be sure that their interests are corporate, neoliberal and global – and not at all domestic or working-class. For a slightly more nuanced view on the ‘immigration’ argument, you may appreciate part 2. I’m not at all convinced that Leave voters can be viewed in such a reductionist way: that they are sheep following an ‘anti-immigrant conspiracy’. A message only gains appeal if the seeds for its acceptance are latent within your thinking. And for every lie, there is a grain of truth. So, its probably more useful in diagnosing what’s happening with Brexit (and Trumpism as you rightly point out) to look at the policies, events, receptions, perceptions and experiences in the lead up to the current period of schism. Anti-immigration sentiment is highly unlikely to occur in a vacuum.

  • Rainer the cabbie

    Like you, I am not an expert on the operation of the EU, but to aline it with the goals of MNC and Globalisation seems a bit of the mark.
    One thing most European countries have always practised was good social policy, workers rights and a society that looks after all. The agenda Multinationals have persued was more towards the American system, everyone for themself and bugger the disadvantaged. I would even go so far as to accuse MNC as being the driving force behind the GFC, there was this big “socialist” union called the EU coming along and that was certainly their greatest adversity. So setting it broke via predatory lending and then pulling the rug out was not a bad idea to destroy it and the concept of a trading block based on social justice and working together.

    What is very disappointing in the Brexit saga is the fact that is was sold via an anti immigration and socialist conspiracy theory, throw in some nationalism and the ignorant followed like sheep. If they at least voted for an exit to protest against Multinationals and globalisation I would understand it, but they were motivated and informed by far more simplistic and sinister reasons than that.

    There you go Nicholas, the first cab of the rank for populists, Trump will be the second. It’s all downhill from here.

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