Voting once every five years alienates us from politics. Participatory rather than representative democracy would allow us more say in how we run the country.
George Monbiot in The Guardian
You lost, suck it up: this is how our politics works. If the party you voted for lost the election, you have no meaningful democratic voice for the next five years. You can go through life, in this “representative democracy”, unrepresented in government, while not being permitted to represent yourself.
Even if your party is elected, it washes its hands of you when you leave the polling booth. Governments assert a mandate for any policy they can push through parliament. While elections tend to hinge on one or two issues, parties will use their win to claim support for all the positions in their manifestos, and for anything else they decide to do during their term in office.
If you raise objections to their policies, you’re often told, “If you don’t like it, stand for election.” This response is revealing: it suggests that only 650 people out of 66 million have a valid role in national politics, beyond voting once every five years. Political control under this system is so coarse and diffuse that democracy loses all but its crudest meaning.
It is astonishing that we put up with this. The idea that any government could meet the needs of a complex, modern nation by ruling without constant feedback, and actual rather than notional consent, is preposterous.
Last week I considered some ideas for creating a more participatory economy. This column explores the potential for a more participatory democracy. I’m not proposing we abandon representative democracy, but that we temper it with meaningful deliberation and consent.
I recognise that this is an unpropitious time to call for more referendums. But the Brexit vote was the worst possible model for popular decision-making. The government threw a massive question at an electorate that had almost no experience of direct democracy. Voters were rushed towards judgment day on a ridiculously short timetable, with no preparation except a series of giant lies.
Worse still, an issue of astonishing complexity was reduced to a crude binary choice. Because the only options presented were in or out, everyone knows what the majority voted against; no one knows what kind of Leave it voted for. Why could we not have had a multiple choice, presenting the different ways in which we could have stayed in or left Europe? Without permission to make a nuanced decision, we had no incentive to achieve a nuanced understanding.A lively and intelligent politics demands an active and empowered electorate that can hold its representatives constantly to account. I propose three models that we could draw upon.
The first is the Swiss system. There, the people vote in about 10 or a dozen referendums a year, clustered into three or four polling days, challenging federal laws or proposing constitutional amendments. Referendums are triggered when someone can gather enough signatures. These plebiscites foster a strong sense of political ownership: people perceive that government belongs to them. This might explain why, in its survey of 40 nations, the Organisation for Economic Co-operation and Development discovered the Swiss had the highest levels of trust in government. Far from causing voter fatigue, the process stimulates a rich culture of engagement, debate and persuasion. Across the year, about 80% of the electorate vote in referendums.
When I mention the Swiss system, people tend to react with horror. What if, as they often do in Switzerland, people make conservative choices? Well, they are entitled to their conservatism. A true democracy reveals the character of a nation: in Switzerland it is generally conservative. And if you don’t like it, you have the opportunity, through the debates surrounding these plebiscites, to change people’s minds. (There is, however, an argument for preserving some constitutional norms, to prevent majorities from oppressing minorities).
The second model operates in Reykjavík, the Icelandic capital. Here anyone can propose an idea for improving the city or allocating its infrastructure budget, and anyone can vote for or against it. The most popular ideas are submitted to the city council. The scheme has been remarkably successful: 58% of the city’s people have taken part so far and 200 of their proposals have been adopted by the council. The result is better amenities and a resurgence of civic life.
The third, most radical, model is the Kurdish system. Particularly in Rojava, in northern Syria, but throughout the Kurdish region, the people have sought to introduce a system first proposed by the US ecologist Murray Bookchin and refined and adapted by the imprisoned leader of the banned Kurdish Workers’ Party, Abdullah Ocalan. It’s called democratic confederalism. Here, power is devolved not from the top down but from the bottom up: the primary political unit is a local assembly representing a village or an urban district. These assemblies then elect people to represent their interests in wider confederations, which in turn choose members to provide a voice in the region as a whole (Ocalan rejects the idea of the nation state). The federal government is purely administrative: it does not make policy but implements the proposals passed up to it by the assemblies.
The introduction of this system has been bumpy: perhaps unsurprisingly in a region under constant military attack. But it has been accompanied so far by a great enhancement of the representation of women, the development of a cooperative economy and stronger environmental protection. There’s a danger in this model of photocopy democracy – political control becomes fainter and greyer as decisions are passed upwards – which might permit political capture. There’s also a danger of granting excessive power to civil servants. But already the system, though haltingly, seems to be creating an oasis of democracy and trust in the Middle East’s political desert.
So how do we decide whether and how to reform British politics? Democratically, of course. The first step should be a constitutional convention, composed of citizens chosen by lot, accompanied by a small number of parliamentarians (to encourage parliament to accept the results). Its purpose would be to identify the principles that could govern our politics, then put them to the vote in a multiple-choice referendum. What does democracy mean, if the people are not allowed to choose their political system?
While I voted remain, my aim is to make the most of Brexit. In the chaos that will accompany our departure from Europe lies an opportunity to do everything differently. Taking back control? Yes, I’m all for it.
Saturday 21 October 2017
British banks can’t be trusted – let’s nationalise them
Owen Jones in The Guardian
Sometimes the case for a policy is as overwhelming as the level of ridicule it will get from the punditocracy. The nationalisation of Britain’s failed banking industry – the sector responsible for most of our country’s current ills – is one such example. According to a recent poll, half the electorate support nationalising the banks, despite almost no one arguing for such a policy in public life.
It may well be because the banks plunged Britain into one of its worst economic crises in modern history, spawning, according to the Institute for Fiscal Studies, perhaps our worst squeeze in living standards since the 1750s. The fact that they have been bailed out by the taxpayer but allowed to carry on as though little happened – including more top British bankers in 2013 being gifted bonuses worth over €1m than all EU countries combined – while public services are gratuitously slashed, has rightly riled some British voters.
Nationalisation of the banks is not about vengeance, though. Sure, the rip-off inefficiency of rail privatisation, or the failure of the great energy sell-off, or the fact that even the Financial Times has argued that privately run water is an indefensible debacle – all are testament to the intellectual poverty of the “private good, public bad” argument. None quite compete, however, with the matter of the banks leaving the entire western world consumed with the gravest series of crises since the second world war.
Would Brexit, Donald Trump, or the gathering demands for Catalonia to secede from crisis-ridden Spain have happened without the financial collapse? Almost certainly not. It is now somewhat darkly comic to note that most commentators and politicians claimed Labour lost the 2015 election because it was too leftwing. It is notable, then, that over four in 10 voters back then believed Labour was too soft on banks and big business, compared to just over one in five who differed.
Economist Laurie Macfarlane says the banks make a mockery of the nostrums of free-market capitalism. Because the banks were given state bailouts after their catastrophic failures, there is the assumption that, when another crisis hits, the same will happen again.
No other industry enjoys the same protection. They are “too big to fail”, which means they benefit from an implicit subsidy – worth £6bn in 2015. The Bank of England is their lender of last resort. State-backed deposit insurance of up to £85,000 per consumer is another de facto mass public subsidy.
As the New Economics Foundation says, it is commercial banks who are now responsible for creating the vast majority of money in economies like the UK, a source of vast profit. This is called “seigniorage” and – as the foundation puts it – it represents a “hidden annual subsidy” of £23bn a year, or nearly three-quarters of the banks’ after-tax profits. And banks are an essential public utility: it is almost impossible to be a citizen without a bank account, and there is no public option when it comes to making electronic payments.
Even now, as Macfarlane notes, the British state technically owns a fifth of the retail banking industry because of its stake in Royal Bank of Scotland. Repeated RBS scandals, and the aftermath of the EU referendum result, have dented the worth of the company’s shares, meaning that the state selling its stake would result in eye-watering losses. Meanwhile, small businesses have struggled to get the credit they need, and escalating household debt threatens the foundations of the stagnating British economy. But the state’s arms-length approach means RBS has failed both its customers and the broader economy. A profit-driven banking sector closed 1,150 branches in 2014 and 2015; about a third of those were owned by RBS. The bank once promised never to close the last branch in town; the pledge was broken, and 1,500 communities have been left with no bank branch. Vulnerable customers and small businesses inevitably suffer the most.
By contrast, foreign publicly owned banks are self-evident successes. Take Germany: KFW, the government-owned development bank, is crucial in developing national infrastructure as well as the renewable energy revolution. On a regional level, state-owned Landesbanken are responsible for industrial strategy. Then at the most local level, there are Sparkassen: they focus on developing relationships with local businesses and consumers. They’re not beholden to shareholders – instead, they have a stakeholder model, focused on helping local economies – indeed, their capital has to remain in local communities.
It is impossible to understand Britain’s current plight without examining the country’s rapid deindustrialisation in favour of a financial sector concentrated in London and the south-east. And according to New Economics Foundation, while foreign stakeholder banks lend two thirds of their assets to individuals and businesses in the real economy, that’s true with only a tiny proportion of British shareholder banks. Overwhelmingly, it goes to mortgage lending and lending to other financial institutions.
Our current banking system is rigged in favour of a crisis-ridden City. The New Economics Foundation suggests transforming RBS – in which the state still has a three-quarter share – into a network of local banks. Labour’s 2017 manifesto backed a review into these plans. A management board would run the network day to day, but a board of trustees would ensure the bank was accountable to the broader economy and customers, not shareholders.
A third would be elected by workers, a third by local authorities and a third by local stakeholders. The mandate of each local bank would be to promote local economies – not least their small businesses – rather than the City of London. Here is a model of democratic ownership that can, in time, be extended to the rest of the economy.
Can it really be argued that private ownership of the banks is a case study of the glorious success of free market capitalism? The principle architect of Labour’s recent manifesto, Andrew Fisher, called for the nationalisation of Britain’s banking sector in his 2014 book The Failed Experiment: And How to Build an Economy That Works. He was surely right then and he is right now. As Macfarlane notes, there are different possible routes to the banks’ nationalisation: whether it be swapping corporate shares for government bonds, using quantitative easing to buy up shares, or simple nationalisation without compensation. Labour is right to call for a German-style public investment bank, backed up by similar publicly run local banks.
But such proposals are not in themselves sufficient. Britain’s privately run banks have proved a disaster for everyone except their shareholders. The only good alternative is public stakeholder banks, run by workers, consumers and local authorities, with an obligation to defend the best interests of our communities. Privately owned banks have proved a catastrophic failure – for our economy, our social cohesion and our politics. There is surely no alternative to public ownership.
Sometimes the case for a policy is as overwhelming as the level of ridicule it will get from the punditocracy. The nationalisation of Britain’s failed banking industry – the sector responsible for most of our country’s current ills – is one such example. According to a recent poll, half the electorate support nationalising the banks, despite almost no one arguing for such a policy in public life.
It may well be because the banks plunged Britain into one of its worst economic crises in modern history, spawning, according to the Institute for Fiscal Studies, perhaps our worst squeeze in living standards since the 1750s. The fact that they have been bailed out by the taxpayer but allowed to carry on as though little happened – including more top British bankers in 2013 being gifted bonuses worth over €1m than all EU countries combined – while public services are gratuitously slashed, has rightly riled some British voters.
Nationalisation of the banks is not about vengeance, though. Sure, the rip-off inefficiency of rail privatisation, or the failure of the great energy sell-off, or the fact that even the Financial Times has argued that privately run water is an indefensible debacle – all are testament to the intellectual poverty of the “private good, public bad” argument. None quite compete, however, with the matter of the banks leaving the entire western world consumed with the gravest series of crises since the second world war.
Would Brexit, Donald Trump, or the gathering demands for Catalonia to secede from crisis-ridden Spain have happened without the financial collapse? Almost certainly not. It is now somewhat darkly comic to note that most commentators and politicians claimed Labour lost the 2015 election because it was too leftwing. It is notable, then, that over four in 10 voters back then believed Labour was too soft on banks and big business, compared to just over one in five who differed.
Economist Laurie Macfarlane says the banks make a mockery of the nostrums of free-market capitalism. Because the banks were given state bailouts after their catastrophic failures, there is the assumption that, when another crisis hits, the same will happen again.
No other industry enjoys the same protection. They are “too big to fail”, which means they benefit from an implicit subsidy – worth £6bn in 2015. The Bank of England is their lender of last resort. State-backed deposit insurance of up to £85,000 per consumer is another de facto mass public subsidy.
As the New Economics Foundation says, it is commercial banks who are now responsible for creating the vast majority of money in economies like the UK, a source of vast profit. This is called “seigniorage” and – as the foundation puts it – it represents a “hidden annual subsidy” of £23bn a year, or nearly three-quarters of the banks’ after-tax profits. And banks are an essential public utility: it is almost impossible to be a citizen without a bank account, and there is no public option when it comes to making electronic payments.
Even now, as Macfarlane notes, the British state technically owns a fifth of the retail banking industry because of its stake in Royal Bank of Scotland. Repeated RBS scandals, and the aftermath of the EU referendum result, have dented the worth of the company’s shares, meaning that the state selling its stake would result in eye-watering losses. Meanwhile, small businesses have struggled to get the credit they need, and escalating household debt threatens the foundations of the stagnating British economy. But the state’s arms-length approach means RBS has failed both its customers and the broader economy. A profit-driven banking sector closed 1,150 branches in 2014 and 2015; about a third of those were owned by RBS. The bank once promised never to close the last branch in town; the pledge was broken, and 1,500 communities have been left with no bank branch. Vulnerable customers and small businesses inevitably suffer the most.
By contrast, foreign publicly owned banks are self-evident successes. Take Germany: KFW, the government-owned development bank, is crucial in developing national infrastructure as well as the renewable energy revolution. On a regional level, state-owned Landesbanken are responsible for industrial strategy. Then at the most local level, there are Sparkassen: they focus on developing relationships with local businesses and consumers. They’re not beholden to shareholders – instead, they have a stakeholder model, focused on helping local economies – indeed, their capital has to remain in local communities.
It is impossible to understand Britain’s current plight without examining the country’s rapid deindustrialisation in favour of a financial sector concentrated in London and the south-east. And according to New Economics Foundation, while foreign stakeholder banks lend two thirds of their assets to individuals and businesses in the real economy, that’s true with only a tiny proportion of British shareholder banks. Overwhelmingly, it goes to mortgage lending and lending to other financial institutions.
Our current banking system is rigged in favour of a crisis-ridden City. The New Economics Foundation suggests transforming RBS – in which the state still has a three-quarter share – into a network of local banks. Labour’s 2017 manifesto backed a review into these plans. A management board would run the network day to day, but a board of trustees would ensure the bank was accountable to the broader economy and customers, not shareholders.
A third would be elected by workers, a third by local authorities and a third by local stakeholders. The mandate of each local bank would be to promote local economies – not least their small businesses – rather than the City of London. Here is a model of democratic ownership that can, in time, be extended to the rest of the economy.
Can it really be argued that private ownership of the banks is a case study of the glorious success of free market capitalism? The principle architect of Labour’s recent manifesto, Andrew Fisher, called for the nationalisation of Britain’s banking sector in his 2014 book The Failed Experiment: And How to Build an Economy That Works. He was surely right then and he is right now. As Macfarlane notes, there are different possible routes to the banks’ nationalisation: whether it be swapping corporate shares for government bonds, using quantitative easing to buy up shares, or simple nationalisation without compensation. Labour is right to call for a German-style public investment bank, backed up by similar publicly run local banks.
But such proposals are not in themselves sufficient. Britain’s privately run banks have proved a disaster for everyone except their shareholders. The only good alternative is public stakeholder banks, run by workers, consumers and local authorities, with an obligation to defend the best interests of our communities. Privately owned banks have proved a catastrophic failure – for our economy, our social cohesion and our politics. There is surely no alternative to public ownership.
Monday 16 October 2017
Britain is over-tolerant of monopolies
Jonathan Ford in The Financial Times
The old joke that asks why there is only one Monopolies Commission may no longer work now the watchdog has rechristened itself the Competition and Markets Authority.
The old joke that asks why there is only one Monopolies Commission may no longer work now the watchdog has rechristened itself the Competition and Markets Authority.
But perhaps it’s no coincidence that the UK’s trustbusters have dropped the word “monopoly” from their name.
Contemporary Britain can seem oddly complacent in the face of declining competition. True, it is not the only country to face the uncomfortable concentrations of market power that new technology and global capital make possible.
Many advanced economies struggle with the “winner takes all” nature of the internet.
Large parts of the UK’s competition mechanism are in any case delegated to Brussels. But even so, the country often contrives to drop the trustbusting ball.
Take the ongoing dispute between Transport for London and Uber over whether the car-booking service should retain its taxi licence.
TfL is up in arms about safety standards. But the real scandal here is the way Uber has been allowed to hoover up the London taxi market.
Almost unseen, the US company has been able to turn a price-regulated black cab monopoly into an unregulated one where it increasingly dominates the capital’s streets.
Facts on market shares are hard to obtain, in part because of Uber’s un-transparent structure.
Fares for its services are paid not to a UK company, but to a Netherlands vehicle, which remits only sufficient money to the UK subsidiary to cover its costs and pay vestigial amounts of tax.
Nonetheless, it is clear that Uber has built a very substantial position in the five years since it received a licence, the only app-based service yet to do so.
The service has 40,000 drivers on its network, four times the number of black cab drivers. The second largest non-black cab private hire operator in London, Addison Lee, has just 4,800 drivers on its books.
Compare that, for instance, to supposedly highly regulated Paris. There, customers have a choice of numerous app-based services, including Uber, Taxify, Allocab and Le Cab, as well as traditional regulated taxis.
Travis Kalanick, Uber’s founder, may talk about London as the “Champion’s League of transportation”. But it is also one of the company’s top three cities worldwide in terms of profitability. Unsurprisingly, perhaps, given that in this “competition”, the authorities have excluded its main rivals.
Other app-based services such as Taxify have been unable so far to obtain licences. Perhaps Uber has been treated as a guinea pig by the regulators. But if so, that careless decision may have allowed it to steal an uncatchable head start.
Taxis are not the only area where competition has been allowed to take a back seat. Take the concentration of market power that occurred in the banking sector after the financial crisis, largely prompted by the merger of Lloyds TSB and HBOS.
The CMA has placed its faith in limp behavioural remedies and backed away from any muscular changes such as break-ups.
Or the telecoms sector, where the regulator allowed BT, the old national network, to buy EE and create a preponderant mobile operator without proposing any material steps to redress its evident market power.
A recent study by the Social Market Foundation shows how the cumulative effect of market concentration increasingly threatens consumers’ interests.
Out of 10 key markets accounting for 40 per cent of consumer spending, it found that eight — including groceries, mobile phones, gas and current accounts — were concentrated, meaning they were dominated by a small number of large companies.
Only the car industry and the mortgage market were genuinely open, with no single operator in the former sector controlling more than 15 per cent of the market. Meanwhile, in telephone landlines, BT has about 80 per cent.
Concentration and competition are not the same thing. In some sectors, such as groceries, it can be possible to have both because of the ease of switching.
But in many sectors the concentrated market power erodes competition to the detriment of consumers.
The lack of competition in banking, for instance, costs customers £6bn a year, or £116 each, according to a competition inquiry in 2016. In the energy sector, another inquiry found that Britons are paying £1.7bn too much each year for their power. Despite official investigations galore, neither has been addressed.
Like the famous line about empire, Britain appears to be acquiring oligopolies in a fit of absence of mind. It is a dangerous inattention.
For these concentrations do not just hit consumers in the wallet. They exact a cost in terms of public loss of confidence in private business and free markets. A state that believed in either would bust more trusts.
Bonuses are the enemy of progress
Andrew Hill in The Financial Times
When my children were still in primary school, I once let my English stiff upper lip slacken and asked them whether I had ever said how much I loved them. “Yes,” responded my truculent son, “but not with money.”
When my children were still in primary school, I once let my English stiff upper lip slacken and asked them whether I had ever said how much I loved them. “Yes,” responded my truculent son, “but not with money.”
I am reminded of his precocious attempt to persuade me to apply hard cash to a soft problem every time I hear about efforts to use monetary bonuses to encourage executives to hit non-financial goals.
Reduced emissions, safer factories, better gender balance: companies everywhere are enshrining such creditable objectives as “key performance indicators”, putting a price on the target, and letting greed take care of the rest.
“I think we’ve got to do more to tie the outcomes to compensation, so that it’s meaningful and it’s real,” declared Alexis Herman, a former US labour secretary and Coca-Cola board member, at the recent Women’s Forum for the Economy & Society in Paris, discussing how businesses can become more “human”.
More than once I heard delegates suggest similar solutions in similar terms. The argument went like this: make bonuses dependent on progress, particularly on diversity, because bonuses are “the only language executives understand”.
In that case, it is about time executives learnt another language, because at the highest level, bonus-based pay packages are a mess.
Indeed, there is something perverse about suggesting that companies should hammer away at the vital, sensitive question of how to improve their environmental, social and governance performance using a blunt instrument — the cash bonus — that has helped deepen mistrust of business, and widen inequality.
When misused, monetary bonuses foster selfishness, backbiting, even cheating among employees. Staff who start taking bonuses for granted become resentful if the cash is withdrawn, as banks that have tried to rein in such rewards since the financial crisis have discovered. When bonus packages are too complex, evidence suggests that managers simply ignore the targets altogether.
Adding non-financial goals undeniably complicates what is already a baffling array of executive incentives. Measuring how managers have performed against softer targets is also notoriously hard. That is one reason why, at board level, directors seem to have wide discretion to adjust chief executives’ bonuses for non-financial performance.
Coca-Cola, for example, assessed the 2016 performance of its then chief executive, Muhtar Kent, on no fewer than six strategic initiatives — “People, Planet, Productivity, Partners, Portfolio and Profit”. To decide his bonus, the compensation committee took account not only of his efforts to refranchise US bottling operations, but also to replenish water, reduce sugar and accelerate diversity.
I would question whether Mr Kent pondered for long the impact on his pay of the many non-financial decisions he took. Most of his eventual bonus of $4.1m (out of a total package of $16m), was the outcome of a formula based on financial results rather than other worthy actions.
Leaders should do their best to encourage and harness workers’ love of the job. But cash bonuses can get in the way of this intrinsic motivation to do the right thing.
Ioannis Ioannou, Shelley Xin Li and George Serafeim have studied attempts to meet demanding carbon emission targets.They found using stretch goals alone was quite effective. But adding monetary incentives seemed to undermine companies’ ability to hit the ambitious targets.
Not to say that incentives are worthless. BHP Billiton, the miner, is making progress towards its demanding goal of achieving gender balance by 2025, helped by the fact that bonuses for senior staff are tied to advances towards the objective. Prof Ioannou of London Business School says bonuses spurred on managers whose job description already included cleaning up emissions.
Still, I am queasy about offering cash rewards for good intentions that should be the norm. I don’t like promising cash incentives to my children for excellent exam results, either, let alone for loading the dishwasher or vacuuming their bedrooms.
As Nobel-winning economist Richard Thaler wrote in Misbehaving, it is “overly simplistic” to assume that financial incentives to children (or their parents or teachers) will improve performance. Likewise for many subtler corporate objectives.
In fact, I fear the main effect of focusing executives’ attention on cash bonuses for being cleaner, safer or more inclusive will be to remind them that the most “meaningful and real” rewards are available for the headlong pursuit of pure profit.
Sunday 15 October 2017
How the oligarchy wins
Ganesh Sitaraman in The Guardian
A few years ago, as I was doing research for a book on how economic inequality threatens democracy, a colleague of mine asked if America was really at risk of becoming an oligarchy. Our political system, he said, is a democracy. If the people don’t want to be run by wealthy elites, we can just vote them out.
The system, in other words, can’t really be “rigged” to work for the rich and powerful unless the people are at least willing to accept a government of the rich and powerful. If the general public opposes rule-by-economic-elites, how is it, then, that the wealthy control so much of government?
The question was a good one, and while I had my own explanations, I didn’t have a systematic answer. Luckily, two recent books do. Oligarchy works, in a word, because of institutions.
In his fascinating and insightful book Classical Greek Oligarchy, Matthew Simonton takes us back to the ancient world, where the term oligarchy was coined. One of the primary threats to oligarchy was that the oligarchs would become divided, and that one from their number would defect, take leadership of the people, and overthrow the oligarchy.
To prevent this occurrence, ancient Greek elites developed institutions and practices to keep themselves united. Among other things, they passed sumptuary laws, preventing extravagant displays of their wealth that might spark jealously, and they used the secret ballot and consensus building practices to ensure that decisions didn’t lead to greater conflict within their cadre.
Appropriately for a scholar of the classics, Simonton focuses on these specific ancient practices in detail. But his key insight is that elites in power need solidarity if they are to stay in power. Unity might come from personal relationships, trust, voting practices, or – as is more likely in today’s meritocratic era – homogeneity in culture and values from running in the same limited circles.
While the ruling class must remain united for an oligarchy to remain in power, the people must also be divided so they cannot overthrow their oppressors. Oligarchs in ancient Greece thus used a combination of coercion and co-optation to keep democracy at bay. They gave rewards to informants and found pliable citizens to take positions in the government.
These collaborators legitimized the regime and gave oligarchs beachheads into the people. In addition, oligarchs controlled public spaces and livelihoods to prevent the people from organizing. They would expel people from town squares: a diffuse population in the countryside would be unable to protest and overthrow government as effectively as a concentrated group in the city.
They also tried to keep ordinary people dependent on individual oligarchs for their economic survival, similar to how mob bosses in the movies have paternalistic relationships in their neighborhoods. Reading Simonton’s account, it is hard not to think about how the fragmentation of our media platforms is a modern instantiation of dividing the public sphere, or how employees and workers are sometimes chilled from speaking out.
The most interesting discussion is how ancient oligarchs used information to preserve their regime. They combined secrecy in governance with selective messaging to targeted audiences, not unlike our modern spinmasters and communications consultants. They projected power through rituals and processions.
At the same time, they sought to destroy monuments that were symbols of democratic success. Instead of public works projects, dedicated in the name of the people, they relied on what we can think of as philanthropy to sustain their power. Oligarchs would fund the creation of a new building or the beautification of a public space. The result: the people would appreciate elite spending on those projects and the upper class would get their names memorialized for all time. After all, who could be against oligarchs who show such generosity?
An assistant professor of history at Arizona State University, Simonton draws heavily on insights from social science and applies them well to dissect ancient practices. But while he recognizes that ancient oligarchies were always drawn from the wealthy, a limitation of his work is that he focuses primarily on how oligarchs perpetuated their political power, not their economic power.
To understand that, we can turn to an instant classic from a few years ago, Jeffrey Winters’ Oligarchy. Winters argues that the key to oligarchy is that a set of elites have enough material resources to spend on securing their status and interests. He calls this “wealth defense,” and divides it into two categories. “Property defense” involves protecting existing property – in the old days, this meant building castles and walls, today it involves the rule of law. “Income defense” is about protecting earnings; these days, that means advocating for low taxes.
The challenge in seeing how oligarchy works, Winters says, is that we don’t normally think about the realms of politics and economics as fused together. At its core, oligarchy involves concentrating economic power and using it for political purposes. Democracy is vulnerable to oligarchy because democrats focus so much on guaranteeing political equality that they overlook the indirect threat that emerges from economic inequality.
Winters argues that there are four kinds of oligarchies, each of which pursues wealth defense through different institutions. These oligarchies are categorized based on whether the oligarchs rule is personal or collective, and whether the oligarchs use coercion.
Warring oligarchies, like warlords, are personal and armed. Ruling oligarchies like the mafia are collective and armed. In the category of unarmed oligarchies, sultanistic oligarchies (like Suharto’s Indonesia) are governed through personal connections. In civil oligarchies, governance is collective and enforced through laws, rather than by arms.
Democracy defeated oligarchy in ancient Greece because of 'oligarchic breakdown.'
With this typology behind him, Winters declares that America is already a civil oligarchy. To use the language of recent political campaigns, our oligarchs try to rig the system to defend their wealth. They focus on lowering taxes and on reducing regulations that protect workers and citizens from corporate wrongdoing.
They build a legal system that is skewed to work in their favor, so that their illegal behavior rarely gets punished. And they sustain all of this through a campaign finance and lobbying system that gives them undue influence over policy. In a civil oligarchy, these actions are sustained not at the barrel of the gun or by the word of one man, but through the rule of law.
If oligarchy works because its leaders institutionalize their power through law, media, and political rituals, what is to be done? How can democracy ever gain the upper hand? Winters notes that political power depends on economic power. This suggests that one solution is creating a more economically equal society.
The problem, of course, is that if the oligarchs are in charge, it isn’t clear why they would pass policies that would reduce their wealth and make society more equal. As long as they can keep the people divided, they have little to fear from the occasional pitchfork or protest.
Indeed, some commentators have suggested that the economic equality of the late 20th century was exceptional because two World Wars and a Great Depression largely wiped out the holdings of the extremely wealthy. On this story, there isn’t much we can do without a major global catastrophe.
Simonton offers another solution. He argues that democracy defeated oligarchy in ancient Greece because of “oligarchic breakdown.” Oligarchic institutions are subject to rot and collapse, as are any other kind of institution. As the oligarchs’ solidarity and practices start to break down, there is an opportunity for democracy to bring government back to the people.
In that moment, the people might unite for long enough that their protests lead to power. With all the upheaval in today’s politics, it’s hard not to think that this moment is one in which the future of the political system might be more up for grabs than it has been in generations.
The question is whether democracy will emerge from oligarchic breakdown – or whether the oligarchs will just strengthen their grasp on the levers of government.
A few years ago, as I was doing research for a book on how economic inequality threatens democracy, a colleague of mine asked if America was really at risk of becoming an oligarchy. Our political system, he said, is a democracy. If the people don’t want to be run by wealthy elites, we can just vote them out.
The system, in other words, can’t really be “rigged” to work for the rich and powerful unless the people are at least willing to accept a government of the rich and powerful. If the general public opposes rule-by-economic-elites, how is it, then, that the wealthy control so much of government?
The question was a good one, and while I had my own explanations, I didn’t have a systematic answer. Luckily, two recent books do. Oligarchy works, in a word, because of institutions.
In his fascinating and insightful book Classical Greek Oligarchy, Matthew Simonton takes us back to the ancient world, where the term oligarchy was coined. One of the primary threats to oligarchy was that the oligarchs would become divided, and that one from their number would defect, take leadership of the people, and overthrow the oligarchy.
To prevent this occurrence, ancient Greek elites developed institutions and practices to keep themselves united. Among other things, they passed sumptuary laws, preventing extravagant displays of their wealth that might spark jealously, and they used the secret ballot and consensus building practices to ensure that decisions didn’t lead to greater conflict within their cadre.
Appropriately for a scholar of the classics, Simonton focuses on these specific ancient practices in detail. But his key insight is that elites in power need solidarity if they are to stay in power. Unity might come from personal relationships, trust, voting practices, or – as is more likely in today’s meritocratic era – homogeneity in culture and values from running in the same limited circles.
While the ruling class must remain united for an oligarchy to remain in power, the people must also be divided so they cannot overthrow their oppressors. Oligarchs in ancient Greece thus used a combination of coercion and co-optation to keep democracy at bay. They gave rewards to informants and found pliable citizens to take positions in the government.
These collaborators legitimized the regime and gave oligarchs beachheads into the people. In addition, oligarchs controlled public spaces and livelihoods to prevent the people from organizing. They would expel people from town squares: a diffuse population in the countryside would be unable to protest and overthrow government as effectively as a concentrated group in the city.
They also tried to keep ordinary people dependent on individual oligarchs for their economic survival, similar to how mob bosses in the movies have paternalistic relationships in their neighborhoods. Reading Simonton’s account, it is hard not to think about how the fragmentation of our media platforms is a modern instantiation of dividing the public sphere, or how employees and workers are sometimes chilled from speaking out.
The most interesting discussion is how ancient oligarchs used information to preserve their regime. They combined secrecy in governance with selective messaging to targeted audiences, not unlike our modern spinmasters and communications consultants. They projected power through rituals and processions.
At the same time, they sought to destroy monuments that were symbols of democratic success. Instead of public works projects, dedicated in the name of the people, they relied on what we can think of as philanthropy to sustain their power. Oligarchs would fund the creation of a new building or the beautification of a public space. The result: the people would appreciate elite spending on those projects and the upper class would get their names memorialized for all time. After all, who could be against oligarchs who show such generosity?
An assistant professor of history at Arizona State University, Simonton draws heavily on insights from social science and applies them well to dissect ancient practices. But while he recognizes that ancient oligarchies were always drawn from the wealthy, a limitation of his work is that he focuses primarily on how oligarchs perpetuated their political power, not their economic power.
To understand that, we can turn to an instant classic from a few years ago, Jeffrey Winters’ Oligarchy. Winters argues that the key to oligarchy is that a set of elites have enough material resources to spend on securing their status and interests. He calls this “wealth defense,” and divides it into two categories. “Property defense” involves protecting existing property – in the old days, this meant building castles and walls, today it involves the rule of law. “Income defense” is about protecting earnings; these days, that means advocating for low taxes.
The challenge in seeing how oligarchy works, Winters says, is that we don’t normally think about the realms of politics and economics as fused together. At its core, oligarchy involves concentrating economic power and using it for political purposes. Democracy is vulnerable to oligarchy because democrats focus so much on guaranteeing political equality that they overlook the indirect threat that emerges from economic inequality.
Winters argues that there are four kinds of oligarchies, each of which pursues wealth defense through different institutions. These oligarchies are categorized based on whether the oligarchs rule is personal or collective, and whether the oligarchs use coercion.
Warring oligarchies, like warlords, are personal and armed. Ruling oligarchies like the mafia are collective and armed. In the category of unarmed oligarchies, sultanistic oligarchies (like Suharto’s Indonesia) are governed through personal connections. In civil oligarchies, governance is collective and enforced through laws, rather than by arms.
Democracy defeated oligarchy in ancient Greece because of 'oligarchic breakdown.'
With this typology behind him, Winters declares that America is already a civil oligarchy. To use the language of recent political campaigns, our oligarchs try to rig the system to defend their wealth. They focus on lowering taxes and on reducing regulations that protect workers and citizens from corporate wrongdoing.
They build a legal system that is skewed to work in their favor, so that their illegal behavior rarely gets punished. And they sustain all of this through a campaign finance and lobbying system that gives them undue influence over policy. In a civil oligarchy, these actions are sustained not at the barrel of the gun or by the word of one man, but through the rule of law.
If oligarchy works because its leaders institutionalize their power through law, media, and political rituals, what is to be done? How can democracy ever gain the upper hand? Winters notes that political power depends on economic power. This suggests that one solution is creating a more economically equal society.
The problem, of course, is that if the oligarchs are in charge, it isn’t clear why they would pass policies that would reduce their wealth and make society more equal. As long as they can keep the people divided, they have little to fear from the occasional pitchfork or protest.
Indeed, some commentators have suggested that the economic equality of the late 20th century was exceptional because two World Wars and a Great Depression largely wiped out the holdings of the extremely wealthy. On this story, there isn’t much we can do without a major global catastrophe.
Simonton offers another solution. He argues that democracy defeated oligarchy in ancient Greece because of “oligarchic breakdown.” Oligarchic institutions are subject to rot and collapse, as are any other kind of institution. As the oligarchs’ solidarity and practices start to break down, there is an opportunity for democracy to bring government back to the people.
In that moment, the people might unite for long enough that their protests lead to power. With all the upheaval in today’s politics, it’s hard not to think that this moment is one in which the future of the political system might be more up for grabs than it has been in generations.
The question is whether democracy will emerge from oligarchic breakdown – or whether the oligarchs will just strengthen their grasp on the levers of government.
What the grim reality of a ‘bad-tempered’ Brexit means
Toby Helm in The Guardian
A little over a year ago, David Davis was confident that Brexit Britain would soon strike new trade deals across the world. They could be negotiated and agreed without the difficulties and delays of which Remainers warned. All parts of the global trade jigsaw would fall quickly and neatly into place. “So be under no doubt,” the Brexit secretary wrote in an article for the ConservativeHome website in July 2016, “we can do deals with our trading partners, and we can do them quickly... I would expect that the negotiation phase of most of them to be concluded within between 12 and 24 months. Trade deals with the US and China alone will give us a trade area almost twice the size of the EU, and of course we will also be seeking deals with Hong Kong, Canada, Australia, India, Japan, the UAE, Indonesia – and many others.”
Around the same time, international trade secretary Liam Fox predicted that a free-trade deal with the EU, giving us continued access to EU markets after Brexit, “should be one of the easiest in human history”. His fellow Tory, the hardline Eurosceptic John Redwood, also saw no problems in realising this great reconfiguration of British interests around the world. “Getting out of the EU can be quick and easy – the UK holds most of the cards in any negotiation,” he declared.
This weekend, 16 months on from Leave’s narrow referendum win, the talk is no longer of quick deals, or smooth routes out. Instead, Theresa May and her cabinet are preparing the country for the possibility of “no deal” at all being reached with Brussels before the UK leaves at the end of March 2019. No deal would also mean no two-year transition of the kind that May said would be so important in her recent Florence speech. Many of the hardline Brexiters have changed their tune, and now cheer on the prospect of “no deal” as the only way to break free. None of the trade deals they envisaged have been done and none are in sight. (It is not possible to enter into them until we leave the customs union).
The EU is refusing even to begin to talk about post-Brexit trade arrangements with the UK because other issues, such as the divorce bill for leaving, are still deadlocked. In the House of Commons on Monday, May confirmed that negotiations, rather than progressing, had stalled and reality was dawning. She told MPs that “while it is profoundly in all our interests for the negotiations to succeed, it is also our responsibility as a government to prepare for every eventuality, so that is exactly what we are doing”. By which she meant: “Get ready for no deal”.
Brexit secretary David Davis: not making much progress in negotiations, contrary to expectations. Photograph: Dominic Lipinski/PA
In evidence to the Treasury select committee on Wednesday, chancellor Philip Hammond declared that the possible “no deal” outcome could come about in one of two ways. The first would be quite friendly. But the other would involve a “bad-tempered breakdown”.
“If it is [that we move to] a World Trade Organisation regime with no deal, there are then two further potential levels that you have to consider. One is no deal – WTO – but a friendly agreement that we are not going to reach a deal, but we will work together to cooperate to make things run as smoothly as possible,” Hammond said.
“But, bluntly, we also have to consider the possibility of a bad-tempered breakdown in negotiations where we have non-cooperation, and, worst-case scenario, even a situation where people are not necessarily acting in their own economic self-interest. So we need to prepare for a wide range of scenarios.”
That sounded like an ugly trade war. Hammond insisted it was too early for him to be committing hundreds of millions of pounds to preparations for this “no deal” scenario – as hardline Brexiters were saying he now should – only to be slapped down hours later by May, who told MPs that £250m was being allocated to government departments to help do just that. The cabinet – split from top to bottom about what kind of Brexit deal it wants – was even split about whether, and how, to prepare for the potentially disastrous outcome of not getting an EU deal at all.
If there is no UK-EU deal before March 2019, the consequences would be huge and immediate. The return of customs checks would mean a return to the hard border between Northern Ireland and the republic. For trade, the UK would default to WTO rules, meaning tariffs would be imposed on goods leaving the UK for the EU and on those sold into the UK market by the remaining 27 member states. The government has said it wants the continuation of “frictionless” trade with EU countries. But a WTO regime would, by contrast, mean tariffs of between 2% and 3% on many industrial goods. They would be far higher in others sectors: 10% for cars and 20% to 40% for many agricultural products. The British Chambers of Commerce and other business groups are warning that some British companies will consider moving abroad and that investment in the UK could suffer.
Hammond said last week that there was also a prospect of flights between UK and EU airports being grounded as the UK would no longer fall inside the EU’s aviation regulatory regime. The right of EU nationals to stay in the UK could also disappear, as would those of UK citizens living in EU countries.
The hard-Brexit supporting right wing of the Tory party was arguing only a year ago that Brexit would be relatively smooth and simple. Now that it has proved to be anything but, and talks with Brussels have hit the buffers, many of them are encouraging this “no deal” option as somehow a pure form of Brexit. It means a clean break. They blame the EU and the Remainers for blocking the way to the kind of future they sold to the British people as possible and desirable before the Brexit referendum last year.
The big question now is whether the public take the same attitude, or begin to coalesce more around the view that “no deal” is a very bad deal for them.
Will jobs be lost?
Tens of thousands of jobs are linked to seamless trade with the European Union. Multinational firms fly staff to Ireland, France, Germany and the low countries without interference from border control officials.
Then there is the example of the crankshaft used in the BMW Mini, which crosses the Channel three times in a 2,000-mile journey before the finished car rolls off the production line. It is one of the classic trips made by hundreds of car parts that would be stopped at the border in the event of a no-deal Brexit.
Northern Ireland would be one of the worst-affected regions, as food manufacturers use ingredients from south of the border and sell the final product in the republic too.
The CBI gives the example of a Northern Irish bread-maker that buys flour from Ireland, makes the product in the north, and then transports bread to Dublin. Even if the UK continues to recognise the EU HGV licence used by the Polish driver (for example) and the EU food standards that determine the bread’s shelf life, after Brexit the loaf could be inedible by the time it has reached its destination or so expensive that local bakeries quickly step in and win the day.
Nissan is among the carmakers to say that they have already started getting their parts from the UK to offset the effects of a hard Brexit that involves restrictions on immigrant labour and tight border controls. But its scenario-planning cannot cope without a deal of some sort.
Unemployment could be pushed up by the loss of ‘frictionless’ trade with the EU. Photograph: Oli Scarff/Getty Images
Will prices go up?
One of the aims of free-market supporters in the Brexit camp is to cut the cost of goods in stores. They believe the EU is a closed shop that protects expensive EU food and consumer goods with tariffs on cheaper alternatives from outside the single market or customs union.
This is what lies behind international trade secretary Liam Fox’s aim of sealing tariff-free-trade deals with as many countries as possible.
But if the UK crashes out of the European Union without a deal, the months immediately afterwards could see trade damaged, unless border checks are dropped – which is unlikely when the fallout from open borders is uncontrolled immigration.
Trade would be hit because most large supermarket chains have supply chains that allow staff to place orders from depots on the continent and have them fulfilled within hours. Ports such as Rotterdam and Zeebrugge dispatch containers at a moment’s notice across the North Sea or through the Channel to satisfy next-day deliveries. More than twice as much agricultural produce is imported as the UK exports, much of it from the Netherlands, making it a real possibility that supermarket shelves will be empty within days.
White goods imported from China would be less affected, and oil and gas tankers from the Gulf states would dock using existing documentation. Pipelines from Norway would stay open.
Nevertheless, without partners in the EU prepared to agree the legal terms of trade and the level of insurance needed before an order is agreed, no amount of contingency planning, whether it involves vast lorry parks or storage facilities, would remove the risk of shortages or spiralling prices.
A little over a year ago, David Davis was confident that Brexit Britain would soon strike new trade deals across the world. They could be negotiated and agreed without the difficulties and delays of which Remainers warned. All parts of the global trade jigsaw would fall quickly and neatly into place. “So be under no doubt,” the Brexit secretary wrote in an article for the ConservativeHome website in July 2016, “we can do deals with our trading partners, and we can do them quickly... I would expect that the negotiation phase of most of them to be concluded within between 12 and 24 months. Trade deals with the US and China alone will give us a trade area almost twice the size of the EU, and of course we will also be seeking deals with Hong Kong, Canada, Australia, India, Japan, the UAE, Indonesia – and many others.”
Around the same time, international trade secretary Liam Fox predicted that a free-trade deal with the EU, giving us continued access to EU markets after Brexit, “should be one of the easiest in human history”. His fellow Tory, the hardline Eurosceptic John Redwood, also saw no problems in realising this great reconfiguration of British interests around the world. “Getting out of the EU can be quick and easy – the UK holds most of the cards in any negotiation,” he declared.
This weekend, 16 months on from Leave’s narrow referendum win, the talk is no longer of quick deals, or smooth routes out. Instead, Theresa May and her cabinet are preparing the country for the possibility of “no deal” at all being reached with Brussels before the UK leaves at the end of March 2019. No deal would also mean no two-year transition of the kind that May said would be so important in her recent Florence speech. Many of the hardline Brexiters have changed their tune, and now cheer on the prospect of “no deal” as the only way to break free. None of the trade deals they envisaged have been done and none are in sight. (It is not possible to enter into them until we leave the customs union).
The EU is refusing even to begin to talk about post-Brexit trade arrangements with the UK because other issues, such as the divorce bill for leaving, are still deadlocked. In the House of Commons on Monday, May confirmed that negotiations, rather than progressing, had stalled and reality was dawning. She told MPs that “while it is profoundly in all our interests for the negotiations to succeed, it is also our responsibility as a government to prepare for every eventuality, so that is exactly what we are doing”. By which she meant: “Get ready for no deal”.
Brexit secretary David Davis: not making much progress in negotiations, contrary to expectations. Photograph: Dominic Lipinski/PA
In evidence to the Treasury select committee on Wednesday, chancellor Philip Hammond declared that the possible “no deal” outcome could come about in one of two ways. The first would be quite friendly. But the other would involve a “bad-tempered breakdown”.
“If it is [that we move to] a World Trade Organisation regime with no deal, there are then two further potential levels that you have to consider. One is no deal – WTO – but a friendly agreement that we are not going to reach a deal, but we will work together to cooperate to make things run as smoothly as possible,” Hammond said.
“But, bluntly, we also have to consider the possibility of a bad-tempered breakdown in negotiations where we have non-cooperation, and, worst-case scenario, even a situation where people are not necessarily acting in their own economic self-interest. So we need to prepare for a wide range of scenarios.”
That sounded like an ugly trade war. Hammond insisted it was too early for him to be committing hundreds of millions of pounds to preparations for this “no deal” scenario – as hardline Brexiters were saying he now should – only to be slapped down hours later by May, who told MPs that £250m was being allocated to government departments to help do just that. The cabinet – split from top to bottom about what kind of Brexit deal it wants – was even split about whether, and how, to prepare for the potentially disastrous outcome of not getting an EU deal at all.
If there is no UK-EU deal before March 2019, the consequences would be huge and immediate. The return of customs checks would mean a return to the hard border between Northern Ireland and the republic. For trade, the UK would default to WTO rules, meaning tariffs would be imposed on goods leaving the UK for the EU and on those sold into the UK market by the remaining 27 member states. The government has said it wants the continuation of “frictionless” trade with EU countries. But a WTO regime would, by contrast, mean tariffs of between 2% and 3% on many industrial goods. They would be far higher in others sectors: 10% for cars and 20% to 40% for many agricultural products. The British Chambers of Commerce and other business groups are warning that some British companies will consider moving abroad and that investment in the UK could suffer.
Hammond said last week that there was also a prospect of flights between UK and EU airports being grounded as the UK would no longer fall inside the EU’s aviation regulatory regime. The right of EU nationals to stay in the UK could also disappear, as would those of UK citizens living in EU countries.
The hard-Brexit supporting right wing of the Tory party was arguing only a year ago that Brexit would be relatively smooth and simple. Now that it has proved to be anything but, and talks with Brussels have hit the buffers, many of them are encouraging this “no deal” option as somehow a pure form of Brexit. It means a clean break. They blame the EU and the Remainers for blocking the way to the kind of future they sold to the British people as possible and desirable before the Brexit referendum last year.
The big question now is whether the public take the same attitude, or begin to coalesce more around the view that “no deal” is a very bad deal for them.
Will jobs be lost?
Tens of thousands of jobs are linked to seamless trade with the European Union. Multinational firms fly staff to Ireland, France, Germany and the low countries without interference from border control officials.
Then there is the example of the crankshaft used in the BMW Mini, which crosses the Channel three times in a 2,000-mile journey before the finished car rolls off the production line. It is one of the classic trips made by hundreds of car parts that would be stopped at the border in the event of a no-deal Brexit.
Northern Ireland would be one of the worst-affected regions, as food manufacturers use ingredients from south of the border and sell the final product in the republic too.
The CBI gives the example of a Northern Irish bread-maker that buys flour from Ireland, makes the product in the north, and then transports bread to Dublin. Even if the UK continues to recognise the EU HGV licence used by the Polish driver (for example) and the EU food standards that determine the bread’s shelf life, after Brexit the loaf could be inedible by the time it has reached its destination or so expensive that local bakeries quickly step in and win the day.
Nissan is among the carmakers to say that they have already started getting their parts from the UK to offset the effects of a hard Brexit that involves restrictions on immigrant labour and tight border controls. But its scenario-planning cannot cope without a deal of some sort.
Unemployment could be pushed up by the loss of ‘frictionless’ trade with the EU. Photograph: Oli Scarff/Getty Images
Will I be able to take out cash abroad?
Banks were among the first to plan for a hard Brexit that might deny them the “passporting” rights that allow money transfers and derivatives transactions to happen seamlessly across borders.
The last year has seen a succession of UK banks and insurers set up offshoots in what will remain of the EU, allowing them to bypass Britain if they need to. Foreign banks that have based their European HQs in London have done likewise.
This level of contingency planning means that it is most likely that British travellers will be able to withdraw funds abroad and transfer money the day after Brexit, whatever the outcome. But a last-minute decision to crash out of the EU is likely to send the pound tumbling, meaning that Brits abroad will find the ATM gives them a fraction of what they expected. And there could be extra charges to compensate for the higher administration costs faced by banks.
Other service industries are unlikely to be quite as prepared, even though they collectively account for 40% of EU trade, up from 23% in 1999. And to show its importance to UK firms, this rise of almost a quarter compares with a 6% increase in non-EU trade over the same time period.
The CBI says: “Exports of business services, such as design, advertising and architecture, together with financial services, account for over half of the UK’s overall growth in services exports.And these sectors may be particularly vulnerable to a sudden re-emergence of trade barriers with the EU.”
Will planes still fly?
Banks were among the first to plan for a hard Brexit that might deny them the “passporting” rights that allow money transfers and derivatives transactions to happen seamlessly across borders.
The last year has seen a succession of UK banks and insurers set up offshoots in what will remain of the EU, allowing them to bypass Britain if they need to. Foreign banks that have based their European HQs in London have done likewise.
This level of contingency planning means that it is most likely that British travellers will be able to withdraw funds abroad and transfer money the day after Brexit, whatever the outcome. But a last-minute decision to crash out of the EU is likely to send the pound tumbling, meaning that Brits abroad will find the ATM gives them a fraction of what they expected. And there could be extra charges to compensate for the higher administration costs faced by banks.
Other service industries are unlikely to be quite as prepared, even though they collectively account for 40% of EU trade, up from 23% in 1999. And to show its importance to UK firms, this rise of almost a quarter compares with a 6% increase in non-EU trade over the same time period.
The CBI says: “Exports of business services, such as design, advertising and architecture, together with financial services, account for over half of the UK’s overall growth in services exports.And these sectors may be particularly vulnerable to a sudden re-emergence of trade barriers with the EU.”
Will planes still fly?
Ask Ryanair’s chief executive, Michael O’Leary, and the answer will be no. He says that without a deal at least six months before the March 2019 deadline, there will be chaos at British airports.
O’Leary said at best he would need to place “health warnings” on flights. At worst he will be forced to rejig routes so that they bypass UK airports altogether.
“If Britain gets pushed out of the EU, it is absolutely the legal position that flights must stop. You’ve got to negotiate that bilaterally,” he has said. “If we don’t know the legal basis for which they’re being operated, we’ll be forced to cancel those flights by December 2018, so we can put those flights on sale in Europe.”
There are Tory backbenchers who treat his comments as scaremongering, but the recent collapse of Monarch is held up as a good example of the threat to aviation when the paperwork and legal niceties get in the way of business.
Monarch passengers asked why the collapsed company’s grounded planes couldn’t take them home from their holiday destinations. The answer was that they were in the hands of administrators, and legal flight information on them was therefore invalid.
O’Leary is saying that without a reciprocal deal, a flight from the UK to France would be in breach of French and EU rules, leaving itself open to being sued by the authorities and passengers.
O’Leary said at best he would need to place “health warnings” on flights. At worst he will be forced to rejig routes so that they bypass UK airports altogether.
“If Britain gets pushed out of the EU, it is absolutely the legal position that flights must stop. You’ve got to negotiate that bilaterally,” he has said. “If we don’t know the legal basis for which they’re being operated, we’ll be forced to cancel those flights by December 2018, so we can put those flights on sale in Europe.”
There are Tory backbenchers who treat his comments as scaremongering, but the recent collapse of Monarch is held up as a good example of the threat to aviation when the paperwork and legal niceties get in the way of business.
Monarch passengers asked why the collapsed company’s grounded planes couldn’t take them home from their holiday destinations. The answer was that they were in the hands of administrators, and legal flight information on them was therefore invalid.
O’Leary is saying that without a reciprocal deal, a flight from the UK to France would be in breach of French and EU rules, leaving itself open to being sued by the authorities and passengers.
Will prices go up?
One of the aims of free-market supporters in the Brexit camp is to cut the cost of goods in stores. They believe the EU is a closed shop that protects expensive EU food and consumer goods with tariffs on cheaper alternatives from outside the single market or customs union.
This is what lies behind international trade secretary Liam Fox’s aim of sealing tariff-free-trade deals with as many countries as possible.
But if the UK crashes out of the European Union without a deal, the months immediately afterwards could see trade damaged, unless border checks are dropped – which is unlikely when the fallout from open borders is uncontrolled immigration.
Trade would be hit because most large supermarket chains have supply chains that allow staff to place orders from depots on the continent and have them fulfilled within hours. Ports such as Rotterdam and Zeebrugge dispatch containers at a moment’s notice across the North Sea or through the Channel to satisfy next-day deliveries. More than twice as much agricultural produce is imported as the UK exports, much of it from the Netherlands, making it a real possibility that supermarket shelves will be empty within days.
White goods imported from China would be less affected, and oil and gas tankers from the Gulf states would dock using existing documentation. Pipelines from Norway would stay open.
Nevertheless, without partners in the EU prepared to agree the legal terms of trade and the level of insurance needed before an order is agreed, no amount of contingency planning, whether it involves vast lorry parks or storage facilities, would remove the risk of shortages or spiralling prices.
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