Daily Archives: 5 July 2016

An American is trying to sell his car to recover the money lost in the Stock Exchange crash. New York, October 1929 (Photo by Mondadori Portfolio via Getty Images)

Brexit and the austerity paradox

Here’s a conundrum. I think it is widely understood now that at least one major factor for why the Remain side lost in the EU referendum campaign was that a significant number of people in the poorest parts of the country did not feel that they enjoyed any of the economic benefits of being a member of the EU and wanted to give the political establishment a bloody nose. There were certainly enough of those voters to make the difference between staying in and leaving the EU, given how close it turned out to be.

So if we’d spent the last decade investing in those parts of the UK and ensuring they saw greater economic renewal, more jobs and a higher standard of living instead of forcing austerity on them, driving up reliance on foodbanks and increasing human misery in the process, we wouldn’t now be seeing the sort of meltdown that we’re witnessing going on in the City right now.

Here’s the thing though. The City had made it perfectly clear that it wanted that austerity. Indeed, the City has quite a lot of form when it comes to threatening governments with economic hardship if it doesn’t get its way. During those infamous “5 days in May” in 2010 when we had no functioning government after the general election, the mood music coming from the Square Mile was grisly. The constant refrain, especially from the Lib Dems in the coalition, was that if we didn’t follow this path economic disaster would follow. I lost count the number of times that Nick Clegg and Danny Alexander over-egged the pudding and claim that we were on the brink of economic disaster on the scale that Greece has experienced over the last few years.

I can mock Clegg and Alexander, but the fact remains that there was some truth in this. The City was telling us to follow a course of action, and were threatening to punish us if we didn’t get in line. They had the whip hand, just two years after wrecking the global economy when you would have thought there would be a little more contrition.

In retrospect, I wonder: would the market have been able to cope with a little less austerity if what it got in return was the UK remaining in the EU? With the benefit of hindsight, I think the answer is yes. And yet here we are now, staring at economic disaster, with no political leadership in Westminster, and with the money men more in charge than ever. There is talk of sensibly abandoning austerity, but only because the economic case is pretty hard to dismiss (just as it was in 2007). And in the longer term, it looks like we’re going to be more dependent on the good will of the markets than ever. Far from having our sovereignty return from Brussels, it’s been punted a couple of miles down the Thames.

For several decades now, there has been an agenda to decouple politics from economics, with both politicians and business alike preferring to pretend that never the twain shall meet. There is only one economic model that works, and politics should focus on non-economic matters. So at the same time as we see all political parties becoming uncritical market capitalists, we see identity politics and nativism take hold. The reality is that the two are fundamentally intertwined. There are deep political consequences to economic decisions, which in turn can – and has – had fundamental economic consequences. Somehow, and I don’t know how, we need to create a greater awareness for how the decisions made on the floor of the stock exchange impacts daily life in Hartlepool. The alternative is a political system which continues to consume itself and drive itself increasingly to extremes, which in turn leads to economic ruin.