The real obstacle for the Brexit negotiations

I’m not going to say anything about the content of yesterday’s speech: I talked about the likelihood of a transition arrangement that involved us staying in the Customs Union and Single Market back in March. My only uncertainty then was whether May could be pushed to a No Deal outcome, but as the government has done absolutely nothing to prepare for that outcome it now seems an empty threat. As for a two year transition period, its an insider joke. You have to have no idea about trade negotiations to imagine it could be done in that time, but as that includes most Brexiteers it serves its purpose.

Instead I want to talk about is what could be the real obstacle to the negotiations moving on to the next stage, and that is the Irish border issue. Many have noted that putting it as a first stage issue seems illogical, because what happens to the Irish border will depend on future trade arrangements between the UK and the EU. There obvious answer to why the Irish border question got put in the first stage is that the EU want to force the UK into staying in the EU’s Customs Union precisely to avoid recreating a border between the two parts of Ireland.*

The UK’s paper on this question makes it clear that there is no realistic compromise on this issue, as Ian Dunt’s discussion makes clear. There is a third way, which is for Northern Ireland to remain part of the Customs Union while the rest of the UK is not, but the DUP will have none of that. This was a major implication of the election result and May’s bribes to obtain a confidence and supply arrangement with the DUP.

A key political question will therefore be whether the Irish government and the EU will play this card that they have dealt themselves. The Irish government would like to, but I suspect (from past experience) that if they came under pressure from the rest of the EU they would back down. But the EU would also like the UK to remain in the Customs Union to resolve the border issue. Indeed everyone would be better off if the UK committed to staying in the Customs Union on a permanent basis. The only obstacle to this are the fantasies of Brexiteers, personified in the department led by Liam Fox.

I said I was not going to talk about it, but perhaps this was one reason why May gave her speech yesterday. By confirming that there could be a transitional deal (which Richard Baldwin might call a pay, obey but no say period), she hopes to dampen the resolve of the Irish government and the EU to make this a sticking point in the negotiations. Will either party think to itself 2 years will become 5, by which time we will have a different government that is likely to make the transitional permanent, or will they use their dominant position in the negotiations to try and force the UK to stay in the Customs Union to avoid creating a border (and perhaps also force the resignation of Fox and others)? At the moment we do not know, but I suspect once again Mrs. May and her cabinet have misjudged the EU side.

*I've added to this sentence and elsewhere compared to the first version of this post, which might have been construed as implying the border was being used as an instrument to achieving an economic goal. I do not think that is the case.     

Why has the US resisted Trump but the UK acquiesced to Brexit?

This post is a response to a provocative piece by Anatole Kaletsky. He writes

“While the US has taken only 100 days to see through Trump’s “alternative reality” (though perhaps not through Trump himself), almost nobody in Britain is even questioning the alternative reality of Brexit.”

In other words, although both the US and UK succumbed to right wing populism, the US is strongly resisting while the UK has given up doing so. He contrasts the reaction of business to Trump and Brexit. “US businesses started lobbying immediately to block any Trump policies that threatened their economic interests” which has “removed Trump’s main protectionist threat.” In contrast “no major British companies have tried to protect their interests by campaigning to reverse the Brexit decision. None has even publicly pointed out that the referendum gave Prime Minister Theresa May no mandate to rule out membership of the European single market and customs union after Britain leaves the EU.”

One reaction that many will have is that while US elections are 4 year affairs, a referendum was meant to be ‘for a generation’. If the Leave vote had been 60% or more, I might have some sympathy with this view. But the narrow victory coupled with uncertainty about what Brexit actually entails means that the argument for a vote after negotiations conclude is compelling. But only around 30% of people support being allowed a second vote. In contrast, currently 56% of US voters disapprove of Donald Trump.

You could say this is because Donald Trump has done plenty of things for US voters to get angry about, whereas Brexit has not happened. I would put the point rather differently. The problems with Trump are visible to everyone. You just need to read his tweets! The costs of Brexit are economic and less clear to everyone. For example the depreciation immediately after Brexit was very visible, but you needed some knowledge of economics to know that this would mean lower living standards for everyone living in the UK.

This gets translated into how each are handled in the media. The New York Times and the Washington Post are in the front line against Trump, while if you want information on how Brexit is damaging the economy you will find plenty of it in the Financial Times. But that negative news does not normally make it into the broadcast media, because the broadcast media has decided that the Brexit debate is over. The reason it has done that is the real reason why the UK appears to have given in to Brexit, which is the Labour party.

It is difficult to get ideas discussed in a sustained way in the broadcast media unless one of the two major political parties is pushing it (see, for example, opposition to austerity before Corbyn). In contrast to the Democrats, who have been unified in their opposition to Trump, Labour have accepted Hard Brexit. It would be unfair to dump the whole responsibility for Labour’s Brexit U-turn on Jeremy Corbyn. Many Labour MPs pushed in the same direction because they thought it would gain them votes: austerity appeasement all over again. I think a strong leader who believed in EU membership could have overcome that, but Corbyn’s preferences were different.

As a result, we have had a general election supposedly about who will be best at negotiating Brexit without any discussion of Brexit itself. Despite the LibDems best efforts, there has been no discussion of all the events since the referendum which indicate bad times ahead, as outlined by Ian Dunt. There has been endless discussion about how taxes and spending might change under Labour or the Conservatives, but none about the elephant in the room: the cuts or tax increases that Brexit and lower immigration will require. There is a hope, expressed by Bill Keegan, that today’s vote may lead to a hung parliament, which in turn might just lead to a second referendum, but it is a very slim hope.

It may also be the only hope. George Eaton may well be right that Labour’s decision to back a Hard Brexit has helped them in this election. The danger is that Labour will draw the lesson that this will be true in 2022 as well, and their new leader (if there is a new leader) will also commit to hard Brexit. Again the austerity mistake will be repeated: assuming the electorate's attitudes will remain unchanged. If that happens, we may well see in four years time a rejuvenated US with a Democrat in the White House and Republicans routed because of their association with Trump, but a UK entering a long period of relative decline and isolation because it gave in to right wing populism. 

Conservative Contradictions: the limits on Red Tories

There has been much talk of Re-leavers: those who voted to Remain but are now voting for Theresa May to get the best Brexit deal. I had talked about something similar long before the term arose (see here and the previous linked post), so I do not think this is just an artifact of particular poll questions. But I’m also sure that this is not the only reason many Remainers will vote Conservative.

Some, as Ian Dunt suggests, just believe that Brexit is inevitable (as you would based on most of the MSM [1]), and that May would be better at negotiating our exit than Corbyn. Others always vote Conservative because they belong to particular groups in society, and they are sure that party will - whatever happens - protect their interests over others. Think the typical Times reader for example. If we are talking about what you might call the affluent middle class, their assumptions have a solid empirical base.

This becomes important once you recognise the dismal economic outlook that faces the UK over the next decade. Productivity growth has virtually stopped. That means that, on current policies, growth in output per head is likely to be pretty slow. In addition, the Brexit depreciation will reduce real incomes, a process that has already begun. Finally May seems determined to reduce immigration as far as she can, which if it happens will damage the public finances.

Think of both the Conservative's core support and these dismal economic prospects in trying to decide how seriously to take the interventionist proposals in Theresa May’s first manifesto. (For good background discussion on this written before the manifesto was published, see Rick here and Geoffrey Wheatcroft here.) The words in the manifesto are certainly different: for example

"We do not believe in untrammelled free markets. We reject the cult of selfish individualism. We abhor social division, injustice, unfairness and inequality. We see rigid dogma and ideology not just as needless but dangerous."

Furthermore some of the proposals would have been condemned as socialist nonsense in certain quarters if they had been made by another party. For example a cap on energy bills, worker ‘representation’ on company boards, more council housing, a ‘modern industrial strategy’, and of course more measures to discourage (and maybe control) immigration. Now not all of these measures require serious money, but a lot of them do if they are to be meaningful. And, unlike the Labour or LibDem proposals, the Conservative’s plans are completely uncosted.

As a result, it becomes imperative to ask how much each measure will cost, and where the money comes from, because that will reveal a basic contradiction between rhetoric and reality. It is extremely difficult if not impossible to tackle social division and inequality if you want to protect your core supporters and are not increasing the size of the cake. You could find the money by raising taxes on business, but given Brexit the Conservatives are unlikely to reverse their cuts in corporation tax. (Not so much because of their economic effects, but to preserve the support of the business community which has become strained by Brexit.) You could find the money by raising taxes that largely impact on the better off, but that risks losing your core support. You could put fiscal rectitude to one side, but that would seriously tarnish the brand.

Given these contradictions, the rhetoric above is only likely to be accompanied by token gestures in reality. The most obvious thing May could have done to help the just managing family was to scrap the proposed cuts to in work benefits, and she did nothing. To be able to address inequality and social division without taking away from the better off you need a growing economy. The tragedy for Theresa May is that her insistence that Brexit means controlling immigration ensures [2] that is very unlikely to happen, and it is not clear she realises this.

But surely the change in rhetoric must mean something? The start of a Red Tory era, or the re-emergence of pre-Thatcher Conservatism, or at least the death of neoliberalism in the UK? I will start to believe those things when the IFS starts expecting falls in child poverty, rather than the - policy induced - increases they project. I will start to believe it when the pledge to introduce inequality enhancing Grammar schools is dropped. Until then, I suspect all we may be seeing is the same grasp of economics May has always displayed in government: she wants everyone to have more, while implementing policies that impede economic growth. I fear this Red Tory may be another symptom of the disease that hit the UK with Brexit. We are in the 'have your cake and eat it' era, an era that through its own contradictions cannot last.    

[1] The MSM where I fear the idea that the current fall in real wages is down to Brexit is now a ‘contested view’, thanks to recent remarks by the Prime Minister.

[2] Both directly through the impact of lower immigration on the public finances (uncontested by the Conservatives, perhaps because it comes from the OBR), and indirectly because it means we have to leave the Single Market.

The media’s unbalanced referendum

We now have a number of studies of how the media as a whole treated the EU referendum.

1. Levy, Aslan and Bironzo from The Reuters Institute for the Study of Journalism
   
   
2. A short piece by Deacon et al from Loughborough in this volume.
   
   
3. Cushion and Lewis from Cardiff (full paper here)
   
   
4. Moore and Ramsay from King’s College, London
   
   

The Reuters Institute study looked at the press, and after weighting for readership and visibility they found that pro-Leave articles outnumbered pro-Remain articles 68:32 (page 34). One interesting finding that I had not seen before is that voters generally split in a similar way to the balance of articles in the paper they read: the only notable exceptions were the Times (more pro-Leave articles but more pro-Remain voters) and the Mirror (more pro-Remain articles but roughly even voting split). Of course you can read this result two ways: voters were influenced by their paper or their paper reflected their reader’s views.

The King’s College study shows how the Leave campaign, through the newspapers that supported it, were able to reframe the debate on the economics of Brexit. An example that sticks in my memory was Obama’s intervention. I remember seeing an interview with a random voter asking what she thought of this, and she responded by saying how dare Obama interfere with our referendum and blackmail us over trade. It struck me as a very odd reaction at the time (particularly as Obama is popular in the UK), but of course she was simply parroting what she had read in her newspaper. The King's study clearly reveals how the Leave press used the techniques of propaganda to support their side.

The Cardiff study focused on the main news broadcasts. In contrast with the press, there was no bias in favour of Leave or Remain. However what they did find was that broadcasters essentially acted as mirrors for the two campaigns. The Remain campaign focused on Tory politicians, so the broadcasters did as well. As a result, Conservatives received much more coverage than politicians from other political parties. As the Loughborough study noted, this made the coverage ‘presidential’ in character. Journalists normally did not question statistics themselves, preferring to let the other side do any challenging. This also meant that the broadcasters focused on the details of the two campaigns, rather than providing the background information and independent assessment that many viewers clearly wanted. Rather than focus on their duty to inform, they played it safe by just letting the two campaigns do all the talking.

A consequence of the broadcast media largely providing a showcase for the politicians running the campaigns is the marginalisation of other groups, and in particular those who actually knew something about the issues being talked about. I’m not just talking about economics, but also law and international relations. The Remain campaign prefered to use international institutions (IMF, OECD etc) rather than local experts. The Leave campaign did use one academic, Patrick Minford (who figured in 90 of the articles examined by the King’s group), with the consequence that the academic economist that voters were most likely to have heard of during the campaign represented just 4% of the profession.

The danger of the broadcast media taking this approach is illustrated by the example of immigration and public services. The King’s study noted the following:

“The most consistent economic argument made by the Leave campaign – that immigration placed unsustainable pressure on public services – was frequently repeated in the editorials of some news outlets without being subject to the skeptical or forensic analysis applied to Remain’s economic arguments across the whole range of publications.”

Economists assume, for sound reasons, that in fact immigration benefits the public finances, which is one reason why the OBR thinks the deficit will be around £15 billion higher each year as a result of Brexit. So why did the Remain campaign not say this more loudly? The answer could well be because the campaign was headed by a government that had used immigration as a scapegoat for poor public services. This absence of a critique mattered a lot: at least one poll showed that the reason voters most often gave for limiting immigration was pressure on public services. Therefore by relying on the political campaigns, the broadcast media misled the public.

It is for this reason that I have argued that broadcasters should treat what an overwhelming majority of experts think are facts as facts, whatever politicians say. But I see no sign that broadcasters see the problem (with the exception of climate change), let alone have any inclination to deal with it. As far as economics is concerned, I fear the bodies that represent academic economists also want to avoid any fights. Which means that we are stuck with the status quo for some time.

I think this has a major implication for those like me who see Brexit as a huge mistake which people must be given the chance to reverse. The next few years are going to show that the many claims the Leave side made are completely false. The EU will ensure the UK is worse off as a result of leaving. Trade deals with other countries will not come to the rescue. There will be less, not more, money for public services and so on. The government’s response (unless May makes the most courageous U-turn ever) will be to wrap themselves in the flag and say that anyone who is critical is being unpatriotic, and with a large majority no effective opposition within the Conservative party will be possible. .

If Labour continues to support a Hard Brexit, all they can do is claim setbacks are the result of government incompetence. Here I disagree with Ian Dunt: criticism that takes Hard Brexit as given and just focuses on a claim that we could do the negotiation better will lose out to nationalist fervour. The reality is also that the LibDem voice is too weak, and will remain so even if they double their number of seats at the election. Given the way our media works, the only way you can constantly remind people that Brexit is a choice we could reverse is if Labour after the election adopts a much more critical position that involves support for a second referendum.

Little Englanders

Watching the Conservative Party go full UKIP on immigration must be like watching the Republican Party go full Trump: in retrospect perhaps inevitable but nonetheless horrifying to witness. As Ian Dunt notes,

“During just three days they have pledged to phase out foreign doctors, cut down on the numbers of foreign students, put landlords in jail for not checking their tenants' residency papers and 'name and shame' companies for hiring foreign workers.”

If the UK had a land border with France, you feel this government would have also announced the building of a great wall. (Ireland please note.)

With words and actions from the government like this, I feel I desperately want to say to the many immigrants I know working hard and contributing to this country: this is not the real England. Most of us do not think this way. And in one sense I’m right. The Brexit vote was about many things but it has been taken by the government as an excuse for a hard Brexit and a demonisation of immigrants. But in another sense I am wrong: physical attacks on immigrants have increased sharply, and few in the media are prepared to condemn the government’s words and actions while many cheer. [1]

Instead some prefer to highlight the uncharacteristic sight of a Conservative Prime Minister taking some of Jeremy Corbyn’s best lines: about how those that have suffered as a result of the financial crisis are not those that caused that crisis, about the inequities of crony capitalism and so on. Words that got Ed Miliband labelled Red Ed by the right wing press. But this is also part of the Republican play book of diversion. With the Republicans it is about race and also immigration and religion. With today’s Conservatives it is about immigration with a bit of race and religion. The diversion is to pretend that inequality of incomes and power were somehow achieved through increasing immigration, and can therefore be reduced by controlling immigration.

If May was at all serious about wanting to redistribute, her first policy announcement would have been to replace the cuts to Universal Credit imposed by Osborne, which will hit hard just the kind of families she says she wants to help. Or it would have been to reverse cuts to inheritance tax introduced by her predecessors. Instead her first big policy announcement was to bring back segregation of schooling at 11, a measure that could almost be designed to entrench the poor life chances of working class families.

Even if you thought there was some genuine desire behind this latest version of compassionate conservatism, there is a harder reality which means it will never happen. The Conservative government is on course for a hard Brexit with the worse kind of deal for UK business. The strategy so far has been inept: principally giving away the UK’s strongest negotiating card, which is invoking Article 50. Hard Brexit will shrink the size of the national pie, and require plenty of fiscal ‘subsidies’ to placate business and keep them here. Furthermore cutting back on immigration will also reduce the amount of resources the government has at its disposal. If the strategy was to keep the high tax paying skilled immigrant and control only the low tax paying unskilled, the government is showing a bizarre way of pursuing that: telling overseas doctors they are welcome only for so long as it takes for the UK to train up home grown alternatives.

At the Conservative’s conference there was only one grownup in the room, Chancellor Hammond. He noted the appalling productivity record of his predecessor, yet his home office colleague Amber Rudd makes things worse by making it more difficult for universities to recruit overseas students, one of our more successful export industries. No wonder the markets have, through a depreciation, already substantially cut the real incomes of every person in the UK through sterling’s depreciation.

Which brings us to the real problem with a focus on immigration. It is a policy that will not achieve what the Conservative’s pretend it will achieve, which is to make life better for UK natives. Indeed it will almost certainly make things worse. So where do those, like the Prime Minister, who pretend otherwise turn when things do not improve? As we have seen in the US, they just turn up the volume, or their party of Little Englanders just choose someone else who will shout louder. A party that is openly prepared to say that the position of the millions of immigrants currently living here are their best bargaining chip in the forthcoming negotiations have already started along that road.

If England were a paradise among squalor all this could perhaps be understood. But once you leave our big cities, ironically made vibrant partly through high levels of immigration, that is just not the case. A confident successful nation does not fear outsiders but embraces them. What we have today is a Conservative government protecting a dream about a glorious past as if it were today’s reality. I am reminded of some verses from The Last Living Rose by PJ Harvey:

Goddamn' Europeans!

Take me back to beautiful England

& the grey, damp filthiness of ages,

fog rolling down behind the mountains,

& on the graveyards, and dead sea-captains.

Let me walk through the stinking alleys

to the music of drunken beatings,

past the Thames River, glistening like gold

hastily sold for nothing.

[1] My own view is that it is our UK right wing tabloid press that is largely responsible for the popular intolerance towards migrants that we now see. Yes fear of the ‘other’ is an easy passion to invoke, but a responsible press would not go out of their way to invoke it. Having the ability to day after day plant stories in the minds of those who vote more and probably seek less alternative information than the average citizen remains a huge power, and those with that power use it shamelessly to great effect.   

Minority rule: Migration, Brexit and Mandates

It is generally (not universally) agreed that the issue of migration played a large role in leading 52% of UK voters to want to leave the EU. However that does not mean there is a mandate to end Freedom of Movement (FoM) at the cost of losing access to the single market. I’m rather surprised by the number of people who think it does. There are lots of reasons why it does not, like voters being told they could end FoM and still stay in the single market, like that many people voted to end FoM because they wanted a better NHS, whereas the opposite will be true in practice. (Tony Yates discusses this general point here).

However the clearest reason why Brexit does not mean there is a mandate for ending FoM was made by Ian Dunt yesterday. Put simply, it is that a majority of a majority can be a minority. The fact that many people voted Brexit because they wanted more control over immigration does not imply that a majority of all voters did.

Suppose that everyone understood that there was an unbreakable link between freedom of movement (FoM) and membership of the single market. Suppose all the 48% who voted to Remain prefered to keep membership at the ‘cost’ of retaining FoM. Suppose 48% of those voting Leave felt the opposite. But 4% of those voting Leave wanted a Norway style arrangement, and wanted to leave for some other reason than FoM . In this case a majority want to keep FoM, and do not want further migration controls if that means being out of the single market.

Of course these numbers are made up, although polling evidence does suggest a majority of people prefer being in the single market to ending free movement. But the key point is that we do not know what the true numbers are. Yet the presumption seems to be being made in lots of quarters, from researchers to politicians, that the referendum result means that we cannot go for any arrangement involving FoM. This just does not follow.

Nor does the fact that the Leave campaign focused on immigration make any difference. Again imagine that the 4% who wanted to leave for reasons other than immigration were rock solid about voting Leave. For the undecideds, however, immigration was critical. In which case any decent campaign would focus on the undecideds. We could change the figures to make it even clearer: 30% of Leavers were rock solid because of sovereignty or financial issues, but 22% were undecided and also worried about immigration. Again a good campaign would focus on immigration, even though it was a minority concern. Election results, like prices, are determined at the margin.

There is therefore no mandate from the referendum result to sacrifice membership of the single market in order to end free movements. Which is one excellent reason why we need a second referendum on the final terms for Brexit before we leave.

Postscript (17/10/16) Here is some polling evidence supporting these arguments.