This week was the week where two of my usual BIT headings merged: Free trade agreements (FTAs) and the Northern Ireland Protocol (NIP). The FT reported that the US had put negotiations about removing Trump-era steel tariffs on UK steel on hold due to the UK government’s approach to the NIP. The paper quotes a ‘communication’ and several unnamed sources confirming that the US “talks were stuck after pressure from Congress over the UK’s threats to trigger” art. 16 of the protocol, which would unilaterally suspend parts of it. US pressure and public expressions of discontent over the UK’s handling of the Northern Ireland situation are not new of course. But this was one of the first times that a direct link to post-Brexit trade negotiations with the US were plausibly established.
False narratives, fake news: A government in denial
Equally interesting was the UK government’s reaction to the FT reporting on the issue, which – perhaps unsurprisingly – was one of denial. The BBC quoted Minister of State for Trade Policy Penny Mordaunt as saying that the FT's report "might be true in terms of how some people in the US feel, but it is a false narrative. These are two entirely separate issues." So, the minister did not deny the FT’s reporting directly, but nevertheless tried to disqualify it as false. What exactly is false about the narrative if the facts are right is not clear. We are reminded of the rhetorical acrobatics of public officials in the US government at the hight of the Trump administration where facts lost there value simply because they were not believed by those in power.
Regardless, the fact remains that the US has agreed with the EU to remove these Trump-era steel tariffs a month ago, but they remain in place for the UK. So, if the government is right that the reason for these tariffs remaining in place are not US worries about the NIP, then an equally awkward question for the government needs to be asked: Why is the UK government unable to deliver on this key Brexit promise to the British people that UK-US trade would receive a boost post-Brexit? The reality is, that at least regarding steel tariffs, the UK is now lagging behind that of the EU. It should be noted that this is not an academic issue but has considerable real-world implications. The tariffs are estimated to have led to a halving of UK steel exports to its second largest market.
The fact that the government is in denial was further compounded by Mordaunt’s insistence that “We have acted in good faith. We will do more to tell America we have acted in good faith and we are determined to be pragmatic.” How exactly the UK government will try to convince the US government of its ‘good faith,’ when there is ample evidence that the government never intended to respect the arrangements it signed up for, is unclear.
Meanwhile, pressure on the UK government to change tack when it comes to the NIP also arises from other quarters: In a remarkable move, the new Germany coalition government enshrined in its coalition agreement the need for "full compliance with the agreements adopted" by the UK and the EU and particularly the Northern Ireland Protocol.
Bleak outlook
It is clear that the government is under increasing pressure here. FTAs as a replacement for the lost access to the EU Single Market have been one of the most important promises of the Brexit campaign. Yet, even the most benign assessments of the deals currently in place make it very clear that they will never be sufficient to compensate for the increasingly obvious damage done by leaving the SM.
The outlook for trade is increasingly bleak. While our Trade Secretary is unable to answer basic – albeit not simple – questions about the positive impact of FTAs on the UK economy, various authorities, including the Centre for European Reform and the Office for Budget Responsibility are increasingly able to assess the damage done by Brexit to UK trade. The latest figures show a decline of trade in goods with the rest of the world by 11.2% - and that is net of any impact of the pandemic. As a result, GDP could be reduced by between 4-5% in the long run.
As Chris Grey states in a brilliant post dissecting the Brexiters’ economic illiteracy, people in some parts of the country may be unconcerned about GDP, as they – rightly – consider that GDP growth has been largely concentrated in London and the South East for more than a decade. The problem, of course, is that the same inequalities that lead to London benefitting more from the economic upsides, also meant that the already underprivileged areas to lose more from any contraction. That may sound contradictory, but as with many social phenomena, the Matthew effect applies: Those who have will be given, those who do not have will lose even the little they do have. Sluggish growth is already leading to increased taxes and cuts in funding for local councils. Add to that the loss of EU structural funding, which is only to a very limited extent replace with UK government funding and the government’s declining tax revenues compared to what it could have been without Brexit, you can see that areas that rely more on government transfers will suffer more.
Nothing of this is new of course. Readers of this and other Brexit blogs will probably feel like ‘Groundhog Day.’ The same news of negative impact of Brexit on trade and economic growth, the same government denial, and the same vacuous promises of the benefits to come…Increasingly there is this sinking feeling that unless the government changes, nothing will change and we might be trapped in the hellfire of Brexit for eternity.
The Tories doing well
Sadly, political news only reinforce that sinking feeling this week: The Tories have held on to their seat in the Bexley by-election in South-East London. While Bexley certainly is a ‘true blue’ seat if there ever was one, the fact that 51.5% of the voters there chose to support the Conservative party who in recent weeks has made headlines mainly for corruption, incompetence, and a never ending stream of stories about ‘one rule for us, one rule for everyone else’ – most recently concerning Christmas parties at Number 10 during the December 2020 lock down – may seem astonishing to some.
Of course, Old Bexley & Sidcup is a heavily pro-Brexit constituency with over 62% voting “Leave” in the 2016 referendum. Brexit loyalties may still be strong enough to move a considerable part of the electorate to support the Conservatives. Still, the governing party achieving a clear majority half-way through a tumultuous parliament should encourage Johnson.
The opposition may draw some consolation from the fact that the conservative majority was slashed from more than 18,000 votes to under 4,500. But the fact that turnout was very low indeed should worry both the Conservatives and Labour.
A next test facing Johnson’s Conservatives party comes in two weeks’ time with another by-election, this time in Shropshire North, another strongly leave-voting seat (60%).
Given current polling – with the Conservatives and Labour tied at 37% of voting intentions, a progressive alliance may be the only possibility to defeat Johnson in a future General Election.
Yet, Labour – as the country’s biggest opposition party – still lacks the sense of responsibility towards the population to make that crucial step to rid the country of more than a decade of Tory mismanagement and corruption.While Labour leader Kier Starmer has ruled out a ‘progressive alliance’ with the Liberal Democrats and the Greens, there are signs that the opposition parties do start to strategically hold back in seats where there is a realistic chance for another opposition party to defeat the Tories.
The only glimmer of hope from the Old Bexley by election comes from another corner, namely the good result that Reform UK achieved. Party leader Richard Tice himself garnered 6.6% of the vote share. While it will seem to many readers like madness to rejoice at a vile extreme right party’s electoral success, the fact remains that given the centre-left opposition parties’ lack of pragmatism, significant competition for the Tories on their right may be the only way to open up the electoral landscape enough for more centrist forces to emerge. But of course, last time a far-right party competed with the Tories on the right, the outcome was far from positive.
Mass masochism
It may be relatively easy to understand why wealthy areas of the country support Conservatives despite the shambles of the Johnson government. After all, the well-to-do do not have as much to fear from continuing economic decline and cuts to public services as poorer strata of society. It is harder to understand continuing support for Johnson amongst these poorer demographics who bear the brunt of Johnson’s ‘all wax, no wick’ populist policies that do not deliver on key electoral promises (40 new hospitals anyone?), but threaten hundreds of thousands of people with destitution.
While people were easily convinced that the EU is the root cause of all our worries and that simply cutting all ties with the evil union will solve our problems, it seems much harder to explain to voters that successive Tory governments that they keep voting for have a lot to respond for. While there is a “lack of belief and agreement among the electorate in the structural causes of inequality,” voters are much more willing to blame refugees for their falling living standards and even attack RNLI life boat staff for saving human lives.
While right wingers like Farage use vile stunts to fan the flames of racism and xenophobia, the centrist and left-wing opposition parties still have not found a recipe to explain to the British population how decades of Toryism – starting with Thatcher in the 1980s – have made the country vulnerable and unfit to compete in the global economy while providing decent living standards to its population. The Tories under Johnson may have started to focus more on some of the real issues to country is facing – most importantly regional inequalities – but stuck in an ideology from another era, they continue to misunderstand how the economy works and provide all the wrong answers.
The party of finance?
It is tempting to see the Conservative party mainly as a party of financiers and rentiers with close ties to the asset management, hedge fund and private equity industries on which it relies for personnel and donations. Indeed, the Byline Times found that 65% of donations for Johnson’s leadership bid “came from hedge funds, city traders and rich investors.”
Yet, even in this respect – as the party of finance – the Johnson government may be failing. The irresponsibly minimalist Trade and Corporate Agreement (TCA) with the EU does not contain any agreement on financial services, which means that the City of London risks losing much of its appeal. While the pandemic had slowed down any mass exodus of financial service providers, it is likely that the move of assets and personnel into the EU single market will pick up in the coming months due to increased EU pressures for banks to establish subsidiaries inside the SM in order to continue servicing EU clients despite the lapsing of passporting rights for UK banks. The government seeks to stem this tide for instance through a reform of the London Stock Exchange’s listing requirements, which are meant to make the LSE a more attractive place for tech company listings. But like in other areas, it is unlikely that such reforms will do enough to compensate for the massive hit the industry is taking due to being cut off the SM.
Despite the dependence on financiers, Johnson’s Conservative Party is too short sighted and ideologically blinded to feed the goose that lays the golden eggs.
Labour’s national responsibility: Refried socialism or hope for everyone?
Labour, on the other hand, is stuck in a perfect conundrum of its organisational logic – which pushes labour leaders to cater to the swelling ranks of far-left activists that have made it Europe’s largest party by membership – and the fact that catering to that audience means the party loses support in the population at large, having had the worst GE result since the 1930s.
Some observers see the solution to this conundrum in Starmer crafting “a new and exciting interpretation of socialism for the 2020s that unites Corbynites and Blairites alike.” I am not sure what such a ‘new and exciting’ socialism would look like and how far its appeal would really reach. Corbyn’s 2019 manifesto – which arguably attempted something like that – suggests that beyond nationalising all sorts of industries, there is not much new and exciting about 21st century socialism with a green tinge.
Worse still, while Jeremy Corbyn was generously supported by the trade unions, with UNITE donating £3m pounds to the 2019 GE campaign, Sharon Graham, the new general secretary of UNITE is threatening to defund the labour party, cutting funding to just £1m. Arguably, this is at least partly in reaction to the direction in which Starmer is taking the party, especially after the recent reshuffle of the shadow cabinet, which is interpreted by many as a right shift. The labour movement remains hence fragmented along factionalist lines and the Unite turning on the labour leadership – accusing it of elitism – will make sure to prevent an election winning strategy from emerging.
What labour needs is not refried socialism, but a new ‘grand narrative’ that provides a convincing analysis, a solution, and the promise of hope. This narrative should start with the fact that the root cause of current problems lies in the flawed response to the Fordist crisis of the 1970s. It also should include a narrative that the ‘market v. state dichotomy’ is a false one and that any large-scale modern economy necessarily needs both a well-funded, -functioning – but not necessarily huge and overwhelming – state, and regulated and controlled but vibrant markets. Convincing the public that it is time to move beyond the sterile state-market dichotomy would make labour less vulnerable to accusations of 1970s-style socialism and would open up opportunities for new, real solutions. Indeed, researchers in development and political economy suggest that successful economic development should rely on embracing “urgently and wholeheartedly the philosophy of state developmentalism as a new national project.”
Failing to do so may have dire consequences. A passage from the UN rapporteur on extreme poverty and human right’s report on his visit to Britain a few years ago makes for shocking reading and is worth citing at length: “The UK is the world’s fifth largest economy, it contains many areas of immense wealth, its capital is a leading centre of global finance, its entrepreneurs are innovative and agile, and despite the current political turmoil, it has a system of government that rightly remains the envy of much of the world. It thus seems patently unjust and contrary to British values that so many people are living in poverty. This is obvious to anyone who opens their eyes to see the immense growth in foodbanks and the queues waiting outside them, the people sleeping rough in the streets, the growth of homelessness, the sense of deep despair that leads even the Government to appoint a Minister for suicide prevention and civil society to report in depth on unheard of levels of loneliness and isolation. And local authorities, especially in England, which perform vital roles in providing a real social safety net have been gutted by a series of government policies. Libraries have closed in record numbers, community and youth centers have been shrunk and underfunded, public spaces and buildings including parks and recreation centers have been sold off.”
The UK public still have the choice to turn around the political tide, but with every day the Johnson government is allowed to stay in power, the chances of averting lasting damage diminish. It is hoped that the next electoral opportunity will be seized.