'People will forgive you for being wrong, but they will never forgive you for being right - especially if events prove you right while proving them wrong.' Thomas Sowell
For Westminster, leaving Europe is months away: for business, it’s the present. And our prospects are already dwindling writes Aditya Chakrabortty in The Guardian
Part-built private housing development project on the outskirts of Llanelli, Wales, which was abandoned after the developer went bust. Photograph: Alamy
On the one hand, you have the self-inflating chaos at Westminster, the fever dreams of Jacob Rees-Mogg’s gang and the rehearsed rage of the Democratic Unionists. And on the other, you have the truth nailed by Philip K Dick. “Reality,” he wrote, “is that which, when you stop believing it, doesn’t go away.” So let’s remind ourselves of some reality.
While Tory MPs jostled over a replacement for Theresa May the head of the Confederation of British Industry, Carolyn Fairbairn, warned that millions of pounds were “flooding out” of business investment and into preparing for Britain crashing out of Europe with no deal. Food warehouses said they were running out of space. And auto-parts manufacturer Schaeffler announced that it would shut factories in Plymouth and Llanelli, leaving more than 600 workers facing the dole.
An entire rotten political-corporate regime is crumbling away – and its replacement threatens to be even worse
Even as politicians and the press fantasise about how Britain will leave Europe, big business is already at the departure gate. For Westminster, Brexit is months in the future; for boardrooms making plans, it is the present. Big carmakers have this year halved their investment in new models and factory machinery. The consultancy EY records a 31% slump in the number of foreign businesses setting up headquarters in Britain. Boris Johnson certainly makes good copy – but money talks much louder.
“The banks and insurers are moving, the big pharmaceutical firms are investing abroad,” says Paul Drechsler, who was CBI president until June and now chairs London First. “These trains are leaving the station, and when they leave, they won’t come back.” The country he describes is already shrinking, its job opportunities dwindling, its reputation abroad in eclipse.
This is the real national emergency. An entire rotten political-corporate regime is crumbling away – and its replacement threatens to be even worse. It will be worse, specifically, for those parts of the country, like Llanelli and Plymouth, that voted leave as the ultimate kick against the pricks of a hollow economy and a deaf government.
The succinct definition of our current model comes from the head of the Bank of England. The UK relies, said Mark Carney in 2016, on the “kindness of strangers”. The willingness of overseas investors to keep ploughing in their cash keeps us in the style to which we’ve grown accustomed. Out of all the 28 members of the European Union, the UK is second only to Ireland in its dependence on investment from abroad. Margaret Thatcher’s eagerness to sell off whatever she could get her hands on and her mandarins’ carelessness over ownership has turned us into one of the biggest foreign-capital junkies in the developed world.
Those investors don’t come here out of charity. Our government competes with others around the world to lure in cash from overseas. But look what inducements we offer. Just weeks before the Brexit referendum, David Cameron’s government published its Invest in the UK brochure, promising “the most competitive” labour costs in western Europe, and “the least strict regulation in the EU.”. Why buy euros when you can have Poundland?
No other country does this. Analysis by Kevin Farnsworth at York University shows that, while all states assure investors they’re competitive locations, Sweden boasts of its “anti-corruption” and “good industrial relations”, while Germany highlights its “efficiency” and “training”. The UK, he writes, “uniquely competes for international capital by offering a package of a low-tax, low-cost, low regulatory business environment”.
Here, whether Conservative or Labour, successive governments have marketed us as the open-all-hours, bargain-basement landing strip off mainland Europe. Until, that is, Britons vote in a referendum to kick away two of the three legs of the post-Thatcherite economic model, namely openness and closeness to the continent. What’s left then is our cheapness – in taxes, in wages and in regulation.
This is Britain in 2018, paying the price for decades of underinvestment and cutprice competition. We have a highly skilled workforce, with almost half of Britain’s young people holding a university degree. And yet in 2014, Charlie Mayfield, former boss of John Lewis and then head of the UK Commission on Employment and Skills, pointed out that over one in five British jobs required only primary-school education. We have a world-class car-manufacturing industry, yet over half of the components in the cars that roll off the lines in Sunderland or Ellesmere Port come from abroad.
This is the point at which the kindness of strangers starts to get rather strained. In a survey this spring, well before the chaos of the past few weeks, EY found that 30% of foreign investors now expect to move money out of the UK after Brexit. The current value of foreign direct investment in the UK is estimated by the government to be over £1 trillion. If even a quarter of that were to move abroad, then £75 billion of assets are already at risk. No wonder the Welsh government is offering sweeteners to Ford to stay at Bridgend. No wonder when Nissan made noises about scaling back at Sunderland, May immediately opened the door of No 10 and offered some kind of deal – although precisely what, the voting public was never told.
You can expect a lot more of this over coming months and years: panicky politicians paying your tax money to grumpy-looking corporate executives. You can expect other countries to try to poach our businesses, just as after the 2016 vote Paris began advertising itself as the ideal post-Brexit corporate headquarters. Their posters read: “Tired of fog? Try the frogs”
You can also expect this government to press even harder the case that Britain is the low-tax, low-wage capital of the rich world. But ministers will get a disappointing response from businesses, believes EY’s chief economist in the UK, Mark Gregory. He thinks multinationals will shift away from using Britain as a stepping stone into Europe and the rest of the world – which is logical, given that any new trading arrangements will take years to settle and will almost certainly not be as smooth as the regime Britain currently has. Instead of building factories to make things to sell to the world, big businesses will instead put their money into storage and showrooms to sell things to Britons. The UK will become, Gregory says, “a warehouse economy: low skills, low productivity and low growth”.
That projection was already a reality for lots of people I met who plumped for Brexit in 2016. They were on minimum wage and had minimum rights and minimum prospects. If Brexit is to be radically changed now, it is those voters – the disenfranchised Labourites, the sod-them-all brigade – whose support is needed. A second referendum, in which well-meaning metropolitans offer those in the Rhondda the status quo, probably deserves to fail. Instead, any remain option will have to come with a worked-out argument about rebalancing power in this country. And that means reshaping the relationship between capital and the rest of us.
Former UK prime minister Tony Blair’s recent call for voters to think again about leaving the EU, echoed in parliamentary debates ahead of the government’s official launch of the process in March, is an emperor’s new clothes moment. Although Blair is now an unpopular figure, his voice, like that of the child in Hans Christian Andersen’s story, is loud enough to carry above the cabal of flatterers assuring Theresa May that her naked gamble with Britain’s future is clad in democratic finery.
The importance of Blair’s speech can be gauged by the hysterical overreaction to his suggestion of reopening the Brexit debate, even from supposedly objective media: “It will be seen by some as a call to arms – Tony Blair’s Brexit insurrection,” according to the BBC.
Such is the tyranny of the majority in post-referendum Britain that a “remainer” proposal for rational debate and persuasion is considered an insurrection. And anyone questioning government policy on Brexit is routinely described as an “enemy of the people,” whose treachery will provoke “blood in the streets.”
What explains this sudden paranoia? After all, political opposition is a necessary condition for functioning democracy – and nobody would have been shocked if Eurosceptics continued to oppose Europe after losing the referendum, just as Scottish nationalists have continued campaigning for independence after their 10-point referendum defeat in 2014. And no one seriously expects US opponents of Donald Trump to stop protesting and unite with his supporters.
The difference with Brexit is that last June’s referendum subverted British democracy in two insidious ways. First, the leave vote was inspired mainly by resentments unconnected with Europe. Second, the government has exploited this confusion of issues to claim a mandate to do anything it wants.
Six months before the referendum, the EU did not even appear among the 10 most important issues facing Britain as mentioned by potential voters. Immigration did rank at the top, but, as Blair noted in his speech, anti-immigration sentiment was mainly against multicultural immigration, which had little or nothing to do with the EU. The leave campaign’s strategy was therefore to open a Pandora’s box of resentments over regional imbalances, economic inequality, social values and cultural change. The remain campaign completely failed to respond to this, because it concentrated on the question that was literally on the ballot, and addressed the costs and benefits of EU membership.
The fact that the referendum was such an amorphous but all-encompassing protest vote explains its second politically corrosive effect. Because the leave campaign successfully combined a multitude of different grievances, May now claims the referendum as an open-ended mandate. Instead of arguing for controversial Conservative policies – including corporate tax cuts, deregulation, unpopular infrastructure projects and social security reforms – on their merits, May now portrays such policies as necessary conditions for a “successful Brexit”. Anyone who disagrees is dismissed as an elitist “remoaner” showing contempt for ordinary voters.
Making matters worse, the obvious risks of Brexit have created a siege mentality. “Successful Brexit” has become a matter of national survival, turning even the mildest proposals to limit the government’s negotiating options – for example, parliamentary votes to guarantee rights for EU citizens already living in Britain – into acts of sabotage.
As in wartime, every criticism shades into treason. That is why the Labour party has collaborated in defeating all parliamentary efforts to moderate May’s hardline Brexit plans, even on such relatively uncontentious issues as visa-free travel, pharmaceutical testing or science funding. Likewise, more ambitious demands from Britain’s smaller opposition parties for a second referendum on the final exit deal have gained no traction, even among committed pro-Europeans, who are intimidated by the witch-hunting atmosphere against unrepentant remainers.
Sir Ivan Rogers, who was forced to resign last month as the UK’s permanent representative to the EU because he questioned May’s negotiating approach, predicted this week a “gory, bitter, and twisted” breakup between Britain and Europe. But this scenario is not inevitable. A more constructive possibility is now emerging along the lines suggested by Blair. Instead of vainly trying to influence May’s hardline stance in the negotiations, the new priority should be to restart a rational debate about Britain’s relationship with Europe and to convince the public that this debate is democratically legitimate.
This means challenging the idea that a referendum permanently outweighs all other mechanisms of democratic politics and persuading voters that a referendum mandate refers to a specific question in specific conditions, at a specific time. If the conditions change or the referendum question acquires a different meaning, voters should be allowed to change their minds.
The process of restoring a proper understanding of democracy could start within the next few weeks. The catalyst would be amendments to the Brexit legislation now passing through parliament. The goal would be to prevent any new relationship between Britain and the EU from taking effect unless approved by a parliamentary vote that allowed for the possibility of continuing EU membership. Such an amendment would make the status quo the default option if the government failed to satisfy parliament with the new arrangements negotiated over the next two years. It would avert the Hobson’s choice the government now proposes: either accept whatever deal we offer, or crash out of the EU with no agreed relationship at all.
Allowing parliament to decide about the new relationship with Europe, instead of leaving it entirely up to May, would restore the principle of parliamentary sovereignty. More important, it would legitimise a new political debate in Britain about the true costs and benefits of EU membership, possibly leading to a second referendum on the government’s Brexit plans.
This is precisely why May vehemently opposes giving parliament any meaningful voice on the outcome of the Brexit negotiations. Presumably, she will block any such requirement from being attached to the Brexit legislation in March. But that may not matter: if a genuine debate about Brexit gets restarted, democracy will prevent her from closing it down.