A previous lecture delivered in Melbourne in May 2019 dealt with Brexit in the longer term – how relations with Europe changed since 1945, from ambivalence to membership and back to ambivalence.   In this lecture, also in Melbourne, in November 2019 I turned to some major issues which have been opened up and need to be resolved

THE MEANING OF DEMOCRACY

A referendum is a form of plebiscitary democracy that is not easily reconciled with representative democracy.

Until 1970s, a referendum was thought unconstitutional because parliament was sovereign.  The constitutional lawyer AV Dicey argued in the later nineteenth century that judges know nothing of the will of the people except as expressed in an act of parliament.

How is a decision reached on what is an appropriate issue for a referendum?  One view is that is should only be used for a constitutional issue, which begs the question of what is the constitution?  In reality, referenda have been used for tactical reasons related to party discipline, and not really to show the will of the people.

When used, referenda could therefore only by advisory and not binding – though in 1975 and 2016 executive decided that they would be bound.

Referenda can work for a binary choice. I have recently experienced three: one is the referendum on the EU in 2016, and the others were

                Australia 2017: same sex marriage, yes or no

                Switzerland 2018: should cows have their horns removed, yes or no

A simple binary vote was inappropriate for membership of EU, for there was no clarity over what ‘leave’ meant.  The choice was likened to vote: yes or no to the question ‘shall we go to the cinema’.  When ‘yes’, a choice then has to be made whether the film is The Sound of Music or The Texas Chain Saw Massacre.

An appeal was made to the ‘will of the people’ which MPs were meant to carry out – even if that was true, how was one to interpret what the ‘will’ actually is?  And is it the overall vote (52 per cent leave) or that of the individual constituency or – very importantly since devolution – the constituent nations of the United Kingdom?  

Take the case of Dominic Grieve, the MP for Beaconsfield, a leading supporter of membership and former Conservative Attorney General.  To some, he was a ‘traitor’ for going against will of people – but his own constituency voted 51 per cent remain.  In any case, Edmund Burke is buried in Beaconsfield churchyard, and he informed the voters of Bristol in 1774 that an MP was not a delegate but a representative or trustee who served the public or national interest: “his unbiased opinion, his mature judgment, his enlightened conscience, he ought not to sacrifice to you, to any man, or to any set of men living. … Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion”. A trustee exercises his own judgment in making decisions about what should be done. “You choose a member, indeed; but when you have chosen him, he is not member of Bristol, but he is a member of Parliament”.

Referendum mean setting this principle aside.

Another issue is the time scale for a referendum.  Calls were made for a second referendum on two grounds:

• We would not know what sort of leave would be offered until a deal was negotiated.  One would not buy a house if the survey found it had serious flaws; and a trade union would put a deal to a vote after a strike
  • The electorate changes: younger and more educated larger share of electorate, more in favour of remain

The view that the ‘will of the people’ can only be expressed is in tension with democracy as a process in which the losing side can continue to campaign.  This disagreement is very deep and dangerous.  It also led to hypocrisy, for Nigel Farage of UKIP said that if he lost 48/52 he could continue to fight; when he won 52/48, calling for a new referendum was treachery by bad losers.

Referenda are a sign of failure to handle complex political decisions.  Difficult issues should be resolved by handling complexities with a continuum of views that are argued out within parties and parliament to reach a compromise that few would choose as their preferred option but which the largest number can accept as tolerable.  Parties traditionally played this role as mediators between the state and citizens.  Referenda stop this process and by-pass the political process of politicians accommodating the widest range of opinions by giving it to individual electors who have no reason to consider any opinion except their own, and which leads to a stark divide in which 48 per cent are no longer the British people but are portrayed as enemies/traitors/saboteurs.  As one member of the public said on television, the vote on 23 June 2016 was clear and there should be no remainers left.  In the opinion of Jonathan Sumption, the former judge on the Supreme Court, ‘This is the authentic language of totalitarianism.  It is the lowest point to which a political community can sink short of actual violence’. More immediately, such views created difficulties for parliament as it turned to the messy business of compromise which was blocked by the outcome of the referendum.

THE CONSTITUTION

The British constitution is unique, for it is not written other than eight words: ‘whatever the Queen in parliament enacts is law’.  It is historical and not legal.  There are no constitutional limits on the power of parliament which is sovereign; the exercise of powers is a matter for ministers answerable to parliament and ultimately to the electorate.  There is no fundamental law that parliament cannot repeal or alter at will.  Is this dangerous and open to abuse, for it relies on conventions which can be broken – or is it a source of flexibility?  We should also note that English and Scottish parliamentary sovereignty are different: prior to the Act of Union of 1707, the executive in Scotland was not accountable to parliament so why should the united parliament of Great Britain only accept the English principle?

Joining the EEC/EU did set a higher body above parliament and in that sense the Brexiteers are right.  It was not really considered at the time, but it was apparent after 1991 that there was a shift from a historic to a legal constitution.  Does it matter?

• To some, it matters a lot: continuing sovereignty means that a sovereign body cannot bind itself
• To others, it does not mattera lot: self-embracing sovereignty means a sovereign body can agree to bind itself.

Arguments over the ‘will of the people’ can lead to a claim that the people are against the courts and against parliament. There were two legal challenges to the role of the executive:

• The decision of three judges that parliament needed to vote to trigger article 50 (for departure from the EU) and could not proceed simply by the executive sending a letter.  A Daily Mail headline 4 November 2016 called them ‘Enemies of the People’.
  • Whether Prime Minister Johnson misled the queen in proroguing parliament in September 2019: the High Court in England ruled it was a political decision and permissible; the court in Scotland found it was misleading advice.  The Supreme Court of the UK ruled against Johnson and stated that the act of prorogation never happened.

Both judgements cited cases going back to Charles I and civil war and raised serious constitutional issues:

1. What is ‘justiciable’?  What is the line between a political decision/judgement and what the courts can decide?  Sumption argued prior to the case that judges had been intruding into political issues: they are unelected and unaccountable, and should not intrude on political decisions which are, as we said earlier, about reaching compromises.  But the night before the decision on prorogation, he remarked on BBC that Johnson had taken a hammer and sickle to the constitution, and it was justiciable issue.
2. What is the role of the monarch?  Sovereignty was vested in sovereign until 1688/9 when rules were introduced to limit the power of the monarch over parliament.  The issue now is that the monarch has no authority to take an independent judgement over executive and merely does as executive says, as happened when the queen accepted prorogation until it deemed never to have happened by the Supreme Court.

These issues are now open:

1. What form should the constitution take?
2. Is the solution a written constitution?  Dominic Grieve thinks so.  It would clarify the role of judges; conventions only work if they are followed and not broken.  Can we have a constitutional court as in Italy (15 judges for 9 years, 5 appointed by president, 5 by parliament and 5 by judges)?
3. Or will it lead to inflexibility as in US?  The unwritten constitution in the UK can handle unexpected issues – a written constitution gives more power to unelected judges and hampers the process of finding compromises.  In US, the Supreme Court makes law by the use of the Due Process clause of 14^th amendment which can be used illiberally (for example, to stop collective bargaining) or liberally (for example, to approve abortion which has never been legislated on as in UK).

A political constitution is better than a legal constitution.

• What is power of head of state?  Queen cannot express her own view, unlike president in Italy (as in recent decision over snap election) or Germany.  The monarchy is likely to survive – in which case, should there be a constitutional court in place of the Privy Council?
• The House of Lords is the largest second chamber in the world and is not elected (with the oddity of hereditary peers electing some of their number). The remainder are appointed by the PM.  Would something like the German Bundesrat or federal council work, which has representatives of 16 Lander? 
• The failure of parties to reach compromises through the political process reflects a decline in membership from the post-war period when there were about 3m members of the Conservatives, a million individual members in Labour plus affiliated unions.  Boris Johnson was effectively chosen as PM by 150,000 untypical Tory members voting on their leader.  Possible solutions:
• Proportional representation to give more voice to small parties so not excluded; encourage process of finding compromises.  Almost came in 1918; the UK is now the only European country with first past the post elections.
• Open primaries for the choice of candidates so that it is not left to a small number of members and entrists. Some Conservative candidates were chosen in open primary by all electors: Sarah Wollaston in Totnes was not even a party member (though she later defected to the LibDems).

DOES THE UNION HAVE A FUTURE?

I think the answer here is that it does not unless a new settlement is reached.

There is an Irony that the Conservative and Unionist Party might lead to a destruction of the Union.  Let’s consider the situation in Ireland.

The Good Friday Agreement of 1998 is de facto part of the constitution of the UK like the bill of rights of 1689.  Now there is tension between leaving the EU and commitments in the agreement.  Tony Blair, one of the architects of the agreement, has said that “It is a shame and an outrage that peace in Northern Ireland is now treated as some disposable inconvenience to be bartered away in exchange for satisfying the obsession of the Brexiteers with wrenching our country out of Europe”.

In the 2016 referendum, the issue of the relation of Northern Ireland with the republic of Ireland was not given much attention, and if mentioned was dismissed as trivial.  It turned out to be the major stumbling bloc that reflected a lack of understanding of both history and simple economics.

Astonishingly, Karen Bradley, the Secretary of State for Norther Ireland in 2018/19 commented that ‘I didn’t understand things like when elections are fought, for example, in NI – people who are nationalists don’t vote for unionist parties and vice versa’.  She then added that killings by the army and policy were not crimes, during the hearings on Bloody Sunday when the army fired on a crowd.

There is also the issue of the customs union: there are no tariffs on goods within the customs union, and a single common external tariff against the outside world.  The Norther Irish/Irish border then becomes a customs line, yet the Good Friday agreement says that the island of Ireland is to be a single economic unit.  Goods could enter Northern Ireland at potentially lower tariffs than levied by the EU (or with different phytosanitary standards) and move into EU via Ireland; could hormone injected beef from US which is banned in the EU secure access?  Boris Johnson simply swept the issue aside.  But thee is a serious issue that when the UK leaves the customs union, a hard border will be  needed with Ireland that breaches the Good Friday agreement.  The solution in Teresa May’s deal was a backstop which potentially keeps UK within customs union so that it would not be able to strike its own trade deals and regulatory standards.  It was rejected.  The alternative is a border down Irish Sea which is not accepted by the Democratic Unionist Party since it cuts NI from the rest of the UK.

The Northern Ireland Act, 1998, obliges the secretary of state to call a border poll ‘if at any time it appears likely to him that a majority of those voting would express a wish that NI should cease to be part of the UK and form part of a united Ireland’.

How is the secretary of state to decide?  Is it a majority in opinion polls; a Catholic majority in census; a nationalist majority in the Assembly; or a vote by the Assembly?

If the referendum is called, a referendum must be held in the Republic on the same day on unification; and if both passed, a second referendum is needed in the Republic on an amendment to the Irish constitution.  What happens if the votes differ?

Then there is the issue of Scotland where pressure exists for a second referendum on independence.   Why should Ireland have ability to remain de facto in the customs union and not Scotland?   

A prediction is that unification of Ireland is very likely and independence for Scotland is possible.  Regardless of what happens, the existing levels of devolution in Northern Ireland, Scotland and Wales means that England constitutionally does not exist. Local government is complicated and dysfunctional.  There is a sort of quasi-devolution to mayors in Greater London Authority and Greater Manchester, but it is all ad hoc.  Could there be regional assemblies which could then create something like the Bundesrat?  England is the only part of the UK without a separate voice.  The West Lothian question of Tam Dalyell has not been answered: an English MP cannot vote on health care policies in West Lothian, but a Scottish MP can vote on health care policies in West Bromwich.

A new act of union is needed for a federal system

ECONOMIC RELATIONS

The issue of the customs union arose over Northern Ireland and the issue still remains unresolved over what sort of trading environment should be adopted.

• One view is that close alignment is needed because of integrated supply chains in the car industry; logistics of drugs/food – most trade is with Europe.
• The alternative view is that freedom outside customs union is needed to make trade deals in a free buccaneering spirit with growing economies.  The suspicion of opponents is that it is about deregulation – trade deal with US mean chlorinated chicken, hormone injected beef, weaker environmental or labour standards; threat to NHS.

There are problems here:

1. Constitutional issues: phytosanitary standards are devolved to Scotland and Wales, so they could refuse to accept chlorinated chicken even if it was agreed in trade deal with US. 
2. Trade on WTO rules is seen as the solution – but the UK needs to secure a seat apart from the EU [it did in February 2020].  And why should a country of 66m be able to strike a better deal than a bloc of 508m?  The EU-Canada deal took 5 years and the UK is a more complex economy.    

Problems are already apparent:

• A fall in inward investment. 
  • Threats to integrated supply chains
  • Hit to universities in loss of European Research Council grants
  • Costs of additional paperwork calculated by HMRC as £15bn [gross saving from leaving by Brexit supporters put at £18bn]
  • Lack of attention to services/passporting rights – what mean for financial services?

CONCLUSION

The real issues in 2016 did not relate to membership of the EU and Brexit but to genuine grievances which must be addressed – the rise in inequality, growing precarity for many workers, the impact of deindustrialisation and austerity.  Leaving makes solving these problems more difficult.  Brexit was an answer to the wrong question – how to deal with people who were genuinely aggrieved.

We do need a long hard look at constitutional arrangements which require high level of statesmanship.

Talk of ‘getting Brexit done’ was likened by one female journalist as saying ‘Let’s get child-birth done’ in order to return to sleep, reading novels, and going to the cinema.  But like motherhood, it is just the start of negotiations of the details, with another deadline at the end of 2020.  Four years after the referendum, much remains uncertain.   

Although the policy response to the global financial crisis prevented a repeat of the great depression, it left the global economy in a fragile state.  How would it cope with the next shock that was anticipated to arise from a renewed debt crisis in emerging markets, financial difficulties in China, or tensions within the eurozone?  The unexpected external shock from the coronavirus brutally exposed the lack of resilience in the global economy a decade after the financial crisis.  The policies adopted, and approaches ignored, after 2008 continue to resonate, and the financial crisis remains central to understanding the economic shock of the pandemic and the policy response that should follow.  The policy adopted after 2008 arose from the success of fiscal conservatives in blocking the brief period of fiscal expansion which had serious economic consequences over the next decade; and the policy debates that raged then will be repeated as the world emerges from the pandemic.  Can the same mistakes be repeated and steps be taken to correct the economic weaknesses?   

The coronavirus exposed the differential impact of mortality by age, ethnicity, and deprivation that arose from growing inequality of income and wealth, the insecurities of precarious employment, and the erosion of public services.  These trends were apparent before 2008 as deindustrialisation led to a loss of relatively secure jobs for workers without formal educational qualifications, and ‘intangible’ capital benefitted workers with formal credentials.[1]  These structural changes led to discrepancies in income and wealth, and reduced resilience, which the policy response to the global financial crisis did nothing to mitigate and much to exacerbate.

This outcome was not preordained.  When the G20 met in London in 2009, Gordon Brown, the British prime minister and host, called for a fiscal response.  He was opposed by Peer Steinbrűck, the German finance minister, who criticised Brown’s ‘crass Keynesianism’ for ‘tossing around billions’ that would burden future generations.  At home, Mervyn King, the Governor of the Bank of England, exceeded his authority in rejecting a fiscal stimulus: it would increase the size of the deficit and boost consumption, so hindering the long-term need for British and American economies to save and invest, to reduce household and bank debt, and to resolve the trade deficit by shifting from domestic spending to exports. He insisted that ‘monetary policy should bear the brunt of dealing with the ups and downs of the economy’, and that was what happened.^[2]

The case against fiscal stimulus and deficits was justified by Alberto Alesina who argued that reducing the deficit by an increase in high taxes would be ‘deeply recessionary’ and that taxes would continue to grow as a result of automatic, inflation-linked entitlements.  By contrast, cuts in spending would be more successful in reducing the deficit, removing uncertainty, restoring confidence, encouraging investment, and avoiding an unfair redistribution between present and future generations.  Gains from private consumption and investment could be larger than cuts in government spending and would therefore lead to higher output.[3]   Similarly, Ken Rogoff and Carmen Reinhart argued that data from 44 countries over 200 years showed that a ratio of national debt to GDP above 90 per cent reduced growth by 2 per cent.[4]  Politicians on the right, such as George Osborne, seized on the ’90 per cent rule’ to argue that an inexorable rise of debt threatened low growth and national bankruptcy.  Osborne duly embarked on a policy of austerity when he became Chancellor of the Exchequer in the British coalition government in 2010.

These economic arguments were flawed.  Alesina ignored the distributional consequences of tax increases versus spending; he overlooked the fact that current spending can leave more assets for future generations; and he neglected the harm of austerity on both young adults unable to secure work and the elderly whose mortality increased.  And was it really the case that private consumption would increase when many workers were experiencing economic hardship?  Much depended on circumstances.  A cut in public spending to balance the budget might lead to growth if debt, interest rates and taxation were all high (as they were in Italy in the 1980s and 1990s), but not necessarily in other circumstances.[5]  Oliver Blanchard and Daniel Leigh of the IMF found that a reduction in spending or tax increases of one Euro would reduce GDP by almost 2 Euro and not, as previously estimated, 0.5.[6]  Austerity and tax increases after 2010 therefore reduced GDP and drove economies into recession; unemployment rose and households had less to spend, and the short-fall was not taken up by the government.  As growth fell, so the ratio of national debt to GDP rose from what it might otherwise have been.  Fiscal expansion would have been a sensible option.

Similarly, the supposed relationship between growth and national debt was bad history.  Reinhart and Rogoff lumped countries and periods together regardless of circumstances, and their ignorance of context offers a warning when attention turns to the higher levels of debt after covid-19.  The case of Britain since the eighteenth century shows that their ‘rule’ was misguided.  Peaks in debt arose from warfare in the Napoleonic and world wars, and the way that debt was subsequently reduced differed.  After 1815, the reduction of national debt from over 200 per cent of GDP to around 25 per cent by 1913 was largely the result of economic growth; by contrast, inflation had no role in reducing the real burden, for prices were no higher at the close of the period.    There was also an initial period of political unrest over the burden of the debt, for war-time income tax expired in 1816 so that the cost of debt service came from taxation of producers and workers, with a transfer to landed aristocrats and rentiers.  During the First World War, debt again rose above 200 per cent of GDP.  Now, growth was less significant for the economy experienced a decade of low growth as a result of the collapse of the global economy, adoption of high interest rates to bolster sterling in preparation for a return to the gold standard at an overvalued rate, and the emergence of competition which led to over-capacity in major industries.  ‘Financial repression’ was not an option – that is, low interest rates and diversion of savings into government funds by capital and exchange controls – for the government’s strategy was to maintain open international financial markets.  The costs of servicing the debt was high and falling prices after the post-war boom held up the ratio of national debt to GDP.  Nevertheless, the high costs of servicing the national debt was met by ensuring that the tax regime was perceived as equitable between classes and interests.  A similar level of debt after the Second World War coincided with rapid economic growth stimulated by war demand and facilitated by recovery of the global economy because of cooperative action.  The cost of debt service was reduced by low interest rates and financial repression that was now permitted by exchange and capital controls, and was paid from taxation that shifted income to poorer members of society which created greater equality of income and wealth, and increased consumption.  At the same time, inflation contributed to reducing the debt burden: about 30 per cent of the fall in the debt ratio to 2008 was a result of growth and the remainder from inflation.[7]  The political economy of debt and its relationship with growth therefore depended on circumstances – and this point needs to be recognised in dealing with the costs of covid-19 when the arguments used to justify austerity after the global financial crisis might return. 

Although a selective reading of economics provided intellectual justification for opposition to fiscal expansion, the policies were pursued for other reasons.    Mark Blyth, a leading critic of austerity, explained that the politics of debt became a morality play that ‘shifted the blame from the banks to the state.  Austerity is the penance – the virtuous pain after the immoral party – except it is not going to be a diet of pain that we shall all share.  Few of us were invited to the party but we are all being asked to pay the bill’.  The rhetoric of austerity shifted blame from the banks to a bloated and inefficient public sector and overly generous welfare.^[8]    On this view, it was a cynical tactic of ‘bait and switch’.  Paul Krugman commented that the rejection of fiscal expansion was ‘the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times’.[9]    In both the great depression and global financial crisis, house prices in the United States fell by a third from peak to trough; in the former, mortgagees were assisted by the federal government and banks were regulated; in the latter, state intervention was presented as a problem rather than cure (despite a massive state bailout of bankers).[10]  The political economy of fiscal orthodoxy in Germany had a different rationale, for taxpayers would not do for southern Europe what they had done for East Germany after reunification.  Merkel was also concerned that the German – and European – population was ageing so that the crucial issue was not to boost domestic demand which would undermine competitiveness and pass the burden to future generations.   The solution was to export and accumulate a surplus.  In 2009, the Bundestag adopted a constitutional amendment to impose a rigid fiscal rule.[11]

Both Britain and the United States, which initially adopted a fiscal stimulus, now changed their approach.  At Toronto in June 2010, the G20 announced a commitment to ‘growth-friendly fiscal consolidation’ and argued that ‘failure to implement consolidation where necessary would undermine confidence and hamper growth. Reflecting this balance, advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016’.[12]   The rejection of fiscal expansion had serious consequences that continue to resonate.  Merkel and Schauble adopted a rigid stance during the crisis of the eurozone: no budget deficits, no common European debt issuance and no European fiscal union.  The result was slow recovery and serious austerity in southern Europe, with a risk that when the next crisis arrived the fundamental issues of the eurozone had not been resolved.  The commitment to reducing public debt intensified the recession, whereas a fiscal stimulus would have allowed more investment in infrastructure and compensated for the reduction in consumption. 

The policy adopted in the United States and Britain, and eventually in the European Union, had serious distributional consequences that contributed to the fragility of the economy in 2020.  Quantitative Easing was necessary to prevent the collapse of the financial system but exacerbated other problems.  It led to higher asset prices that benefitted the richest 10 per cent or so; their assets and income rose in an upward spiral and they had a lower propensity to consume.  The result was a savings glut of the rich.  In contrast, austerity – as well as economic change that led to greater precarity – meant that the lower 90 per cent of the income distribution turned to private debt and ‘dissaving’ to maintain consumption.   As their debt rose, so they had greater difficulties in maintaining their spending with the result of economic fragility – and the government did not step in with sufficient public spending to maintain consumption.[13]  In the New Deal and Second World War, taxation contributed to reduced inequality of income and wealth; after the global financial crisis, corporation taxes were reduced and disparities continued to grow with resentment and disillusion that fed into populism and economic nationalism.

The imbalance was also apparent in China whose economic development rested on unusually high savings and a low level of household consumption, as a result of low interest rates, regressive taxation, a need to supplement weak welfare provision, and gains by the party and business elite.  Before the global financial crisis, the savings fuelled domestic investment and the current account surplus, with funds flowing into the United States to fuel the subprime market.  After the crisis, China provided a massive fiscal stimulus which prevented another great depression.  ‘Keynesianism with Chinese characteristics’ involved local and regional governments embarking on ambitious schemes for investment in the infrastructure.  Domestic consumption was encouraged by subsidies to rural households to purchase large domestic appliances.  The result was the largest single stimulus to the world economy.[14]  China’s fiscal stimulus prevented the recession from being any deeper but distorted investment and created a fragile shadow banking system with a high level of non-performing loans.   Household consumption remains low, with a continued savings glut – but without profitable opportunities for investment.  The outcome could be a further round of wasteful investment based on credit with a risk of financial crisis; the export of goods with a massive external surplus that will cause tensions with the United States; or a shift of incomes to boost consumption by poorer households that will require a major change in policy.

 The other major saver was Germany, where household consumption was stagnant before the global financial crisis, the government held down its spending, and the economy produced a large external surplus.  The outcome was lending to the United States to fuel subprime mortgages and to other countries in Europe – Greece, Spain, Italy – to create unsustainable credit and consumption.  The response to the eurozone crisis did not help, for Germany did not boost its own consumption and enforced austerity on other members of the eurozone.   The foundation flow of the absence of a fiscal union alongside monetary union was not addressed.  Fiscal transfers needed to be higher in Europe because labour mobility was lower than in the United States; in fact, transfers were much lower.  In February 2020, the so-called ‘frugal four’ of Austria, Denmark, Sweden and the Netherlands aimed to limit the EU budget to 1 per cent of GDP compared with their own revenues of 48, 52, 49 and 44 per cent of GDP.  This ratio of 40 or 50 to 1 between state and federal revenues contrasted with a ratio in the United States of 1 to 2 between state/local and federal spending.  A much larger European Union budget is needed to deal with structural change, environmental sustainability, education, health care and research and development, at a time when inequalities between regions cause strain.[15]  This approach was anathema in Germany which tried to extend its own fiscal conservatism to the rest of the EU.   

When covid-19 hit, the problem of the savings glut had not been resolved: it existed before the global financial crisis, and the policy response had done nothing to resolve the problem either within individual countries or in the imbalance between global savers and debtors.   The major question is whether the crisis of covid-19 can allow an escape from the problem of the savings glut and low consumption that was not taken after the global financial crisis? 

  Despite austerity, automatic payment of welfare benefits and low growth meant that national debt rose in most OECD countries after the financial crisis.  In France, it increased from 87.8 per cent in 2011 to 98.4 per cent in 2018, in Italy from 119.7 to 134.8 in Italy, in the United Kingdom from 80.1 to 85.7, and in the United States from 99.8 to 106.9.  The exception was Germany where the level fell from 79.8 to 61.9 per cent. Debt levels were already high before covid-19 and are set to rise closer to war levels.  In April 2020, the IMF’s tentative initial estimate was that by 2021 the debt to GDP ratio would rise to 116.4 per cent in France, 150.4 per cent in Italy, 95.8 per cent in the UK, 131.9 in the US but only to 65.6 per cent in Germany. [16]   The figures are estimates whose accuracy will depend on the trajectory of the pandemic, the speed of recovery, and political choices.

Many commentators, politicians and economists now accept that rejection of fiscal expansion after 2010 resulted in weak public services and contributed to the disparities of the virus.  On the other hand are those who argue that the level of debt is unsustainable and that it will exacerbate the generational divide of the pandemic.  Why should the younger generation be left to pay for high levels of debt when their prospects are employment are reduced and growth might be suppressed?  Adam Tooze rightly thinks that the question of repayment ‘will decide the complexion of our politics, and the quality of our public infrastructure and services for years to come’  He fears that the level of covid debt can be a ‘battering ram’ for a new campaign of austerity and ‘conservative scaremongering’.[17] In April 2020, Gordon Brown reflected on his failure to sustain the case for fiscal expansion after 2008, and called for his successors to avoid making the same mistake again.[18]

                Although the generational divide is serious, the solution is not a return to austerity to reduce debt.  The real burden of debt can be reduced by moderate inflation as after 1945.  The (largely unjustified) fear of inflation led to caution in stimulating demand after the financial crisis.  Of course, rapid inflation as in Germany in the early 1920s created social dislocation and resentment as fixed incomes and savings were eroded.  Equally, the pursuit of price stability since the late 1970s benefitted creditors and increased the real burden of debt.  The solution is a careful calibration of central bank intervention to allow a modest level of inflation that can, as after 1945, gradually reduce the level of debt and stimulate consumption.

The cost of servicing the debt then needs to be held down, as it was by low interest rates and financial repression after 1945.  The policy became mor difficult with the resurgence of international capital markets and financial flows from the 1970s, but Quantitative Easing has led to a decade of low interest rates that is not likely to be reversed soon.   It is not only a policy choice by central bankers but a structural issue: the savings glut of the rich led to downward pressure on interest rates to balance the supply and demand for savings. The risk of higher rates can be reduced by extending the duration of bonds or making them perpetual.   It is therefore possible to live with the larger national debt, provided that annual deficits are reduced enough to stabilise its level – and this can be achieved by increases in taxation rather than cuts in spending.

Low interest rates and the glut of savings are not without problems, for they reflect large disparities of income and wealth that have been exacerbated by rising assets prices created by quantitative easing.  The economy was vulnerable prior to the pandemic because of high levels of household and corporate debt which led to the global financial crisis and continued afterwards. The focus on public debt distracted attention from the real problem: an increase in household debt to maintain consumption and in corporate debt to fund stock buybacks, embark on mergers and acquisitions, increase profits, and pay higher dividends.  Indebtedness rose in line with inequality.  What was needed after the global financial crisis, and could be achieved now, is a set of policies that creates greater equality to remove the savings glut of the rich, so allow consumption to rise without the need for higher levels of household debt, and removing the incentive for corporate leverage. 

This change could encourage economic growth which was the main reason for the reduction in the level of the national debt after the Napoleonic wars and a major cause after 1945.  Excessive fiscal consolidation after 2010 reduced growth and damaged productivity and made the debt burden worse.  American and European economies suffered from low growth and stagnating productivity and the policies adopted after 2008 failed to provide solutions to low growth and stagnating productivity in the United States and Europe and might have made matters worse.  The rebalancing of economies might stimulate investment and growth and remove risky reliance on corporate debt to maintain profits and household debt to maintain consumption.  Of course, redistribution and the removal of the savings glut might lead to higher interest rates and an increase the costs of servicing the national debt in the longer run, but in the short to medium term low interest rates can be locked in as the debt ratio is reduced by faster economic growth.

Faster growth will mean changing the tax regime.  In some countries, the level of taxation is low which provides more fiscal headroom to raise taxes rather than cut spending: the level of taxation as a share of GDP in France is about twice that of Ireland which therefore has more fiscal headroom.  But the issue is not only the level of state revenue, for the structure of taxation and perception of fairness are also important, as we noted at the end of the Napoleonic wars in Britain.  Tooze correctly comments that ‘who pays taxes – and who does not – remains one of the most urgent questions of the moment.  A world in which coronavirus debts are repaid by a wealth tax or a global crackdown on corporate tax havens would look very different from one in which benefits are slashed and VAT is raised.  And it is very possible that debt service will be taken out of other spending, whether that be schools, pensions or national defence’.[19]  What tax regime will permit faster growth and encourage productivity?

A redistributive strategy to remove the savings glut of the rich and transfer consumption to the rest of society will require a major shift to a more progressive pattern of taxation and spending in the United States on the lines of the New Deal; and a return in Britain to something more like the pre-Thatcher period.  In China, it will require greater benefits for migrants from the country to the town, improved welfare benefits and workers’ rights, and a shift in taxes to the rich.  Abolishing tax deductibility of corporate debt could discourage a reliance on financial leverage.  Action could be taken against multinational corporations who erode the fiscal base by shifting their profits to low tax regimes – and taxes could be introduced on the rent-seeking behaviour of digital and tech companies. A wealth tax could capture the gains of rising assets from Quantitative Easing and break the upward spiral of inequality.  ‘Green’ taxes on carbon and congestion would ensure that growth did not come at the expense of the planet.  The revenue from higher or restructured taxes could then be spent in ways that encourage an economic transformation by giving incentives to green technology, better education and training, and improved physical and social infrastructure to regenerate declining industrial areas.  The failure to tackle these issues after 2008 contributed to the economic fragility and populism that hindered the response to the pandemic.

None of these changes will be easy, but they are not impossible.  The Chinese Communist party’s main aim is to maintain social order and power, so a shift in its policy is not implausible – and the outcome n the United States might change with the demands of younger members of the Democratic party.   There are also signs of change in the European Union away from the refusal of Germany to transfer resources or to stimulate domestic consumption that limited the response to the crisis of the eurozone.  Concern about the bond purchasing programme of the European Central Bank was raised in the German constitutional court and passed to the European Court of Justice which supposed the policy.  The issue was returned to the German constitutional court which decided in May 2020 to reject the ECJ’s judgement – a potentially devasting blow to the ECB’s response to the pandemic that caused outrage in Spain and Italy.   The decision was economically perverse but the court’s defence was that it interpreted the law which democratically elected politicians should change.  There are indeed signs that the German finance ministry is shifting its position, starting even before the pandemic.  The new finance minister, Olaf Scholz, appointed a chief economist – Jakob von Weizsacker – who had proposed in 2011 that debt up to 60 per cent of GDP should be pooled among participating countries, with additional debt remaining a national responsibility.  Covid-19 pushed Scholz to accept the need for fiscal stimulus and a eurozone package which he claimed, with considerable exaggeration, was Europe’s ‘Hamiltonian moment’.  In 1790, Hamilton mutualised existing debt which Scholz’s proposal does not.  It does allow joint issuance of debt, but as an emergency measure, and there is no sign that the EU will have major tax-raising powers or a single finance minister.  The ‘frugal four’ remain doubtful – and the electoral risks in Germany are high.  The proposal might succeed only because it is not a ‘Hamiltonian moment’.  At least it is symbolic, as the German deputy finance minister put it, as ‘a significant signal to Europe that we’re serious about the idea of solidarity’.[20]

Solidarity is needed not only in Europe, for even before the covid-19 crisis there were warning signs of a crisis of debt in emerging and developing economies, with some countries close to default and unable to borrow more on international markets.  In 2020, the World Bank worried about ‘a global wave’ of private and public debt in developing and emerging markets that was fuelled by the savings glut: the level of debt was higher than in previous waves of indebtedness over the previous 50 years, each of which led to a crisis.[21]  The problem if not only the scale of debt but a shift in its character.   In the 1980s and 1990s, creditors were banks and governments; now more debt is owned by bond funds who are reluctant to reschedule and more inclined to hold out.  Members of the ‘Paris club’ of official creditors can negotiate a deal with debtor governments – but the largest official creditor – China – is not a member and is suspected of using loans to further its strategic aims. The emerging market debt was an issue before covid-19 and is much more serious and the prospects of international institutions reaching agreement to prevent another devastating debt crisis and wave of default are slight given American hostility to multilateral institutions.[22]  

The continued implications of policies adopted after the global financial crisis mean that it has not receded into history.  Rather, the policies left economies in a fragile position.  In Europe and the United States, weak growth and productivity was combined with a savings glut for the rich and debt-funded consumption for the rest, and with an obsession with austerity and the public debt rather than the inequalities that fuelled private indebtedness.  The crisis of the eurozone and the need for fiscal transfers was not resolved; and both China and Germany continued to build up savings and surpluses. The need after covid-19 is to adopt policies that were rejected after 2008 in order to provide a better foundation for high and sustainable growth in a green economy where GDP is not at the expense of climate change, and with the benefits more widely distributed.

[1] Jonathan Haskel and Sian Westlake, Capitalism Without Capital: The Rise of the Intangible Economy Princeton and Oxford, 2018; Jim Tomlinson, ‘De-industrialization Not Decline: a New Meta-narrative for Post-war British History’, Twentieth Century British History 27 (2017), 76-99

[2] George Parker and Bertrand Benoit, ‘’Berlin Hits Out at “Crass” UK Strategy’, Financial Times,10 Dec 2008  Adam Tooze, Crashed: How a Decade of Financial Crises Changed the World London, 2018, 272-3

[3] Alberto Alesina, Carlo Favero and Francesco Giavazzi, Austerity: When it Works and When It Doesn’t Princeton and Oxford, 2019

[4] Carmen Reinhart and Kenneth Rogoff, ‘Growth in a Time of Debt’, NBER Working Paper 15639, Jan 2010

[5] Barry Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession, and the Uses – and Misuses – of History New York, 2015, 10.

[6] Oliver Blanchard and Daniel Leigh, ‘Growth Forecasts and Fiscal Multipliers’, NBER Working Paper 18779, Feb. 2013

[7] Nicholas Crafts, ‘Reducing High Public Debt Ratios: Lessons from UK Experience’, Fiscal Studies 37 (2016), 201-223; Duncan Needham, ‘Covid-19 and the UK National Debt in Historical Context’, at http://www.historyandpolicy.org/policy-papers/papers/covid-19-and-the-uk-national-debt-in-historical-context

[8] Mark Blyth, Austerity: The History of a Dangerous Idea New York, 5, 7, 13-16.

[9] Paul Krugman, ‘The Third Depression’, New York Times 28 June 2010

[10] Eichengreen, Hall of Mirrors, 250-2

[11] Tooze, Crashed, 96-7, 286-9

[12] Martin Wolf, The Shifts and the Shocks: What We’ve Learned – and Have Still to Learn – from the Financial Crisis, London, 2014, 257

[13] Atif Mian, Ludwig Traub and Amir Sufi, ‘The Savings Glut of the Rich and the Rise in Household Debt’, NBER Working Paper 26941, April 2020

[14] Tooze, Crashed, 243-54

[15] Jeffrey Sachs, ‘The World Needs a Prosperous and Properly Funded Europe’, Financial Times, 19 Feb 2020

[16] IMF Fiscal Monitor, April 2020, table A7 at

https://www.imf.org/en/Publications/FM/Issues/2020/04/06/fiscal-monitor-april-2020

[17] Adam Tooze, ‘Should We Be Scared of the Coronavirus Debt Mountain?’, Guardian 27 April 2020

[18] Guardian 16 April 2020

[19] Tooze, ‘Should We Be Scared?’

[20] Guy Chazan, ‘The Minds Behind Germany’s Shifting Fiscal Stance’, Financial Times 9 June 2020; Ben Hall, Sam Fleming and Guy Chazan, ‘Is the Franco-German Plan Europe’s “Hamiltonian” Moment?’, Financial Times, 21 May 2020

[21] M Ayhan Rose, Peter Nagle, Franziska Ohnsorge and Naotaka Sugawara, Global Waves of Debt: Causes and Consequences Washington DC: World Bank, 2020

[22] Colby Smith and Robin Wigglesworth, ‘Why the coming emerging markets debt crisis will be messy’, FT 12 May 2020; Patrick Bolton, Lee Buchheit, Pierre-Olivier Gourinchas, Mitu Gulati, Chang-Tai Hsieh, Ugo Panizza and Beatrice Weder di Mauro, ‘How to Prevent a Sovereign Debt Disaster: A Relief Plan for Emerging Markets’,  at https://www.foreignaffairs.com/articles/world/2020-06-04/how-prevent-sovereign-debt-disaster

A shallow history of Brexit could start with the referendum in June 2016 when 33,577,342 electors voted, with 51.9 per cent opting to leave and 48.1 per cent to remain on a turnout of 72.2 per cent.  It only needed 635,000 of those voting to change their mind for a different result which was what was widely expected even by Nigel Farage.  Much of the subsequent debate turned on short-term contingent factors concerning the campaign – the articulation of the message ‘Take Back Control’, the focus on getting out people who never voted, the exploitation of the refugee crisis, and the use of data from Cambridge Analytica and Facebook.  These issues are all Important, and if the vote had gone slightly the other way, we could not be where we are in 2019.

But focussing on the narrow victory for leave misses two wider points:

• Before the 1975 referendum, British engagement with European integration was distinctive and always differed from the founding members, never fully committed.  Why?
• There was considerable change since the 1975 referendum when 67.2 per cent were for remain and 32.8 per cent to leave, on a lower turnout of 64.5 per cent. The only two areas with a leave majority were the Western Isles and Shetland.  Why this shift since 1975?

These two questions shape a longer or deeper history of the second referendum.

WHY NOT ENGAGE IN THE INITIAL CREATION OF THE EUROPEAN ECONOMIC COMMUNITY?

Britain’s circumstances after the war were distinctive and unlike the rest of western Europe, so that there was rationality in the guarded response to such initiatives as the European Payments Union and the Coal and Steel Community.  In particular, there were four features.  

1. Responding to post-war reconstruction

In continental Europe, the experience at the end of the war offered reasons for integration:

• The experience of defeat and occupation led to a desire to create a stronger bloc to prevent being overwhelmed by the Soviets and United States
• There was a strong sense that the traditional nation state had failed the people: the recreation of trade for prosperity and welfare for stability rather than a race to the bottom needed supranational bodies to work with nation states.

Britain was not defeated or occupied; rather, the war validated the legitimacy of the state.  There was less concern with being overwhelmed by the United States, and no reason – as in France or Italy – to fear powerful domestic Communist parties.

Britain did have serious economic issues that needed to be resolved to which the answer was not European integration

• Debt to US: the end of Lend Lease and the terms of the post-war loan had conditions attached to end imperial preference and restore convertibility of the pound
  • Sterling balances in India, Egypt and elsewhere had to be paid down

By definition, the defeated or occupied powers did not owe money to the US and had no accumulated large holdings of foreign currency overseas – the economic problems at the end of the war were radically different.

The British government therefore had different problems, and response to European integration was rational, at least in the short-term.

Alan Milward rejects the idea that decisions by the British government after the war were blinkered, atavistic or pathological.  Rather, they arose from rational thinking about how to adjust to the post-war world.  They did not succeed which is not to say they were foolish.  British government’s thinking was shaped by two issues: the sterling area and imperial preference..

2. Sterling area

Britain emerged from the war with huge debts to empire in sterling payments for food, raw material, and military payments.  As a result, sterling formed about 80 per cent of world reserves, more than before the war: there was a paradox that the war weakened the British economy but increased sterling’s importance in global reserves.

These sterling balances were not convertible into other currencies and were ‘blocked’.  There was a major issue of how to deal with them:

• Write them off/down, treat like Lend Lease received from the United States– some wanted to do this, but it was seen as unwise given the prospects of independence for India, and the immorality of taking away accumulated sterling after India suffered so badly from the famine in the war.
• Turn the balances into funded debt and pay interest – but why would holders agree to take a income stream  when they wanted to spend the money on development?
• Go for a long, slow grind of paying down

The problem of sterling balances meant the British government could not engage in the same way as Europeans in the European Payments Union which was designed to stimulate intra-European trade which was vital to Europe but less so to Britain given that European markets were smaller and sterling balances were the major issue.

And there were differences over the form of European integration – Britain did not welcome a customs unions with supranational institutions [Saunders 34]

This relates to the other key postwar issue: what to do with imperial preference

3. Imperial preference

Imperial preference was adopted in 1932 in response to the great depression; it formed part of a wider move to trade blocs throughout the world. In 1930-33, the proportion of imports from empire rose from 27 to 38 per cent. [O’Rourke]

In 1951, Australia alone took 12 per cent of British exports – more than the Six founding members of the EEC.

1952-54 Commonwealth took 48 per cent of exports – Six 19.6 per cent. [Saunders 41]

There is a link with different policies for agriculture: Britain had a very low proportion in agriculture from mid-19^th century [1871 22.6 per cent when just over 50 per cent in France], and opted for free trade in food, sold at world price. In the 1930s, the British government retained this approach through deficiency subsidies to cover the gap between costs for British farmers and world prices, which were paid by general taxpayers.  In Europe, prices were kept above world prices by protectionism – hence, support for farmers fell on consumers.  The politics of food and agriculture radically different

To look beyond Europe was not insular but a sober though short-sighted appraisal [Saunders 41]

The Six traded mainly with themselves so the EPU made sense to kick start trade – Britain traded  mostly outside Europe, so why disrupt trade for doubtful benefits?

The Americans wanted Britain to abandon imperial preference in return for Lend Lease and a post-war loan – but the British government realised this was not practical.

There was a debate in 1946 over a European Customs Union: the idea was proposed by Ernie Bevin, foreign secretary, but opposed by a Cabinet committee led by ministers concerned with the economy – Hugh Dalton and Stafford Cripps.  The report in 1947 found that a European Customs Union would not be the best possible outcome for Britain – but if one were formed, Britain should join, for exclusion would be harmful.

Cabinet agreed to consider an empire customs union; a combined empire and commonwealth customs union; a European customs union; and the relationship between the empire and a European customs union. Meetings to discuss European Customs Union foundered on how to reconcile with imperial preference [Grob-Fitzgerald 68-9, 75]

A free trade area was more reconcilable with imperial preference than a customs union: in a free trade area, it would be possible to have one’s own trade policy (as in NAFTA) and border checks.  In a customs union with a common external tariff, border checks were not needed – but it follows that all goods coming in from outside had to pay the same tariff, and UK could not offer lower tariffs to say New Zealand lamb than did France.

Also linked with views on form of cooperation

4. Intergovernmentalism versus supranational institutions

The idea of Commonwealth did not assume supranational institutions, and Britain obvious had the leading role.  The British government would not easily accept a supranational Europeanism in which it was not the dominant player. The European Coal and Steel Community – the precursor of the EEC – had a supranational high authority and court of justice

British preferred the Organisation of European Economic Cooperation which was an intergovernmental body to divide up Marshall Aid, exchange information and discuss issues.

Britain did not need to rebuild institutions after war, did not face issues of collaboration/resistance – instead, victory in the war enhanced the legitimacy of institutions in a myth of standing alone against tyranny.  Saunders 40 points out that Britain was with and not of Europe: issues were discussed with Europe but without an intention of joining in the process of supranationalism.  This was found on left and right:

On the left, there was concern that supranationalism wold limit democratic socialism: why nationalise the commanding heights of coal and steel only to hand them to a European body?  Herbert Morrison commented : ‘It’s no good – the Durham miners won’t wear it’. [Saunders 42]

On the right, there was a sense of global power. Anthony Eden remarked that ‘Our thoughts move across the seas to the many communities in which our people play their part, in every corner of the world.  These are our family ties. That is our life’.

This view was not confined to the right: Harold Wilson said in 1965 our frontiers are in the Himalayas and that he would prefer to withdraw half the troops from Germany than any from Far East. 

The British government withdrew from the Spaak talks in 1955 and devised Plan G of 1956 for an industrial free trade area under the OEEC.  This could maintain imperial preference and was intergovernmental.  Britain withdrew from European discussions and the treaty of Rome which had a customs union.  Instead, it set up EFTA in 1960.

Hence thinking about customs union which is now a key issue in the debate over Brexit goes back to the immediate post-war period – it was just not seen as significant as it was for European economies

But by the 1960s, attitudes were changing which takes me to a second question:

WHY DID ATTITUDES CHANGE SO THAT BRITIAIN JOINED THE EEC WHICH WAS REAFFIRMED IN 1975 REFERENDUM?

In 1971, 244 MPs voted against joining, 356 for.  Only 39 Conservatives voted against the government and against membership – about 80 per cent voted for; 69 Labour MPs voted for membership, against the party line  ie about 70 per cent were against. 

Pro-European Conservatives wanted the Commonwealth model but now they had no choice except to enter a body with a supranational structure; and one with CAP locked in.  Why did they accept the change?  There were four main reasons.

1. A wake-up call

The dangers of relying on the sterling area and imperial preference were clear: they were soft markets, and British firms were not competing with better quality goods from Germany or more advanced consumer goods.

By 1962, Britain traded more with the Six than with the Commonwealth.  Now, it was not a gamble to join but an acceptance of reality.  Membership of the EEC was part of a Conservative strategy for competition at home and abroad.

A common trope in the 1960s was that Britain was the sick man of Europe, suffering from the British disease of inflation, low productivity, industrial unrest which reached its nadir in the three-day week.  

The response of the left response: in December 1974, Tony Benn thought that the final collapse of capitalism might only be weeks away – why prop it up with Tory measures like the EEC?  He wanted socialist planning whereas Conservatives favoured expanded market capitalism.

On the right, there was a need to break out of cycle of decline: membership of the EEC would be a wake-up call of competition in faster growing economies.  Edward Heath in 1971 remarked that ‘For 25 years we’ve been looking for something to get us going again.  Now here it is’.  He wanted Britain to be more than ‘to nestle on the shoulders of an American President’.  Membership of the EEC would be dynamic and bracing, which Fintan O’Toole likens to the cold showers and beatings of English public schools.

The Director in April 1975 captured the mood: ‘The economic problems facing Britain are so numerous and so urgent that Gladstone, Keynes, Adam Smith and St Francis rolled into one would find it hard to affect them’ [Saunders 155]

Thatcher campaigned for membership – it meant a single market would would break restraints on trade.

Sovereignty was discussed but as second order issue:

Vic Feather, union leader: Britain cannot go it alone – would be knackered; sovereignty was not important.  ‘The price of oil is not determined by the British Parliament.  It is determined by some lads riding camels who don’t even know how to spell national sovereignty’. [Saunders 179-180]

Alec Douglas Home 1975 [Saunders 245]:

I do not see much point in parading a banner called sovereignty, if at the same time trade, strength, authority and security slid away. We had full sovereignty in 1914 and in 1939, but it did not stop war, and victory only came when we shared with others in an alliance.  We had sovereignty in 1931 but it did not prevent three million unemployed.

O’Toole 11: ‘A common theme in the early 1970s is that Britain is such a failure that it has no choice but to join the Europeans.  The image is not that of a fabulous dynastic union but, rather, of a grumpy old bachelor settling for a bad marriage because the alternative is a slow death in miserable loneliness’. 

2. End of delusion of imperialism and great power status

Despite Wilson’s claims that Britain was a great power, in 1967 Britain withdraw from east of Suez.

1971 White Paper: in a generation Britain would have renounced the imperial past and a European future, leading to uncertainty about its place in the world.  There was a feeling of dejected resignation [O’Toole 12]  Membership was primarily sold as a remedy for economic ills – not a strong emotional connection, but pragmatic and instrumental.

1975 remainers argued that unrestrained nationalism led to war and Britain needed to join Europe to stop war.  The posters for ‘Britain in Europe’ used the poppy as their symbol and the dove of peace.  One poster proclaimed ‘On VE Day we celebrated the beginnings of peace.  Vote YES to make sure we keep it’; another commented that ‘Forty million people died in two European wars this century.  Better lose a little sovereignty than a son or daughter’.  Ted Heath – a lieutenant colonel in the war – said that he was ‘entirely prepared to make a contribution of national sovereignty to the building of peace in Europe’.  The 26-part documentary on The World At War was shown in 1973-74 – the public was receptive to the idea that European cooperation was an alternative to the clash of competing sovereignties [Kidd LRB 25 Oct 2018]

3. EEC was an alternative to socialism – or was it a capitalist bloc?

In 1970s, Conservatives were the European party: the EEC offered competition, a growing market and was not socialist which offered a threat at home, for example with Benn’s Alternative Economic Strategy.

Labour was more hostile to the EEC as a capitalist bloc.  Labour argued that the EEC was less multiracial and harmed the undeveloped world with its protectionist policies. EP Thompson defined the EEC as a group of fat, rich nations feeding each other goodies’ and united by ‘introversial white bourgeois nationalism’ [Saunders 18].  The EEC seemed to run counter to the radical ideas of the New International Economic Order for justice between developed and undeveloped countries.

The Labour National Executive Committee in 1962 made the point that ‘Unlike the Six, Britain is the centre and founder member of a much larger and still more important group, the Commonwealth.  As such we have access to the largest single trading area in the world; and political influence within a world-wide, multi-racial association of 700 million people.’  The real dangers for the future were not Germany v France, but Communists against non-Communists and the inequalities of developed and underdeveloped, white and coloured races.  More than any advanced country, Britain had the chance to resolve these issues – the Commonwealth was ‘a truly international society, cutting across the deep and dangerous divisions of the modern world’.  ‘If we are ever to win peace and prosperity for mankind, then the world community that must emerge will be comprised of precisely such diverse elements as exist in the Commonwealth today’. [Grob-Fitzgerald 292-3] 

At the Labour party conference, Gaitskell ruled out membership of EEC as the end of Britain as an independent state and a 1000 years of history – and the end of the Commonwealth.

By 1983, the Labour manifesto – the longest suicide note in history in the words of one of its MPs – pledged to take Britain out of the EEC. Michael Foot, the leader of the party, opposed membership in 1975 in terms that almost outdid Farage in 2016: ‘The British parliamentary system has been made farcical and unworkable by the superimposition of the EEC apparatus.  It is as if we had set fire to the place as Hitler did with the Reichstag’.

4. Agriculture

Concern over CAP now shifted.  It was locked into he EEC, and it was possible to find a reason to accept it.

In the 1975 referendum, the focus turned to food security with concerns about a Malthusian crisis by reports from the Club of Rome: CAP might mean higher prices but would prevent shortages.  The era of cheap food was over.

Margaret Thatcher campaigned for remain and said that ‘most housewives would rather pay a little more than risk a bare cupboard.  In the Common Market we can be sure of having something in the larder’. [Saunders 278.]

An agony aunt made the point in a politically incorrect manner : ‘Like the day of the red-coated soldier beating the living hell out of fuzzy-wuzzies, the day of cheap food has now gone’. [Saunders 278]

The remainers shifted the ground from cheapness to availability.  Callaghan predicted that EEC prices would converge to world prices – ‘The prospect is therefore that membership of the Community, a major food-producing area, will offer us greater stability of prices at reasonable levels, and security of supply in times of shortage’. [Saunders 290]

The leavers were easily portrayed as irrational and extreme: a combination of Enoch Powell, the IRA, CPGB, Soviets.  On the other side, remainers seemed rational: the Conservative and Liberal parties, the National Farmers Union, Australia and NZ. 

The referendum of 1975 was a victory for remain – so why did attitudes then shift by 2016?

WHAT HAPPENED TO UNDERMINE SUPPORT?

A selective list could point to six factors

1. Britain was chained to a corpse

The European Union was no longer seen as a wake-up call:

• advance of neoliberalism in the UK and decline of social democracy: EU came to seem statist and controlling.  Rejected by free-market fundamentalists who see Britain as buccaneering. Leaving would complete the Thatcherite agenda – she had warned at Bruges of risk of defeating socialism at home only for it be reintroduced from Brussels.
  • European growth was slow
  • Institutions of labour market were rigid and inflexible (in eyes of right) – and European rules ran against desire for labour market flexibility.
• Eurozone crisis and lost decade: although Britain was not in the eurozone, it no longer seemed the European economy was the future compared with BRICS.  An upward trend in negative attitudes to EU started in 2010 with eurozone crisis [Clarke, Goodwin, Whiteley 72]  This could appeal to the left as well as right – to Corbyn, who sympathised with Benn from 1970s, it proved his point: the exploitation of Greece for the benefit of German industrialists.
• Eurozone and migrant crisis made EU look incompetent – unfortunate timing of the referendum in 2016.
• 2. Deindustrialisation and globalisation

We can understand why attitudes shifted in declining industrial areas – by 2016 there was not a single Durham miner, or for that matter scarcely a Sunderland shipbuilder.  In 1975, workers in these sectors still had good wages and status –  miners, shipyard workers had skills which were specific to a trade and not based on formal qualifications.  They relied on tangible capital.

Since 1975, these areas deindustrialised – not as a result of the EEC but of changes in technology.  Even if industry produced the same amount of goods as before, fewer workers were needed.  The issue was not globalisation or the European single market. [Tomlinson]

In 2016, the older skills were worthless and were competing with similarly low-skilled workers from EU – benefits went to those with formal qualifications, able to handle abstractions and intangible capital.

Supporters of EU failed to grasp the anger of those who were suffering.  A Bank of England report argued that a 10 per cent increase in the proportion of migrants was associated with a 2 per cent reduction in pay for unskilled workers in services such as care homes, shops, bars [Clarke, Goodwin, Whiteley 12] – and this outcome was given emotional force by images of refugees crossing the Med or arriving in Germany.  Areas of low pay, high unemployment, a tradition of manufacturing and lower skilled workers voted to leave [Becker, Fetzer, Novy]

By contrast, the better educated benefited from lower trade barriers and were not affected by the free movement of labour – they likely to benefit from  valuable skills that were attractive in job markets in EU and world.  [Clarke, Goodwin, Whiteley, 62-3]  Hence 37 per cent of university graduates voted leave compared with 60 per cent without a university education; 35 per cent of upper and upper middle class voted leave compared with 64 per cent in working/lower classes.

 Hyper-globalisation and the ‘elephant curve’ of  Branco Milanovic contributed to the outcoe.  He showed

                Two sets of winners: middle class in emerging markets and global plutocracy

                Losers the working/lower middle class in developed world

The well-off elite argued that immigration was a net benefit, that it was misleading to complain for they brought valuable, hard-working people who were younger people who paid taxes; they were not a drain on wealth of idle white working class.  The real problem was not migration or transfers to the EU that led to queues for medical care, pressure on schools or housing – rather it was austerity.

3. Austerity

The real issue was not the migrants who were net contributors to taxation but were widely seen as leading to problems in NHS, schools, housing.  Those problems did exist, and wages were stagnant.  It was claimed – falsely – that leaving EU would give £350n a week to NHS – the issue was not Brussels but austerity after 2010.

Austerity was an entirely self-inflicted wound – led by David Cameron and George Osborne with the complicity of the LibDems who were campaigning to remain.  Austerity had nothing to do with Brussels – other than indirectly in seeing what it did to Greece.

In France, incomes of lowest 50 per cent of the population rose  by 32 per cent since 1982 – unlike in Britain. The Piketty graph shows that inequality within Britain [U shaped, returning to the level around 1900], compared with France [L shaped. So no returning to previous levels].

Communities were left to cope with the consequences of globalisation with less help from central government.  The Brexit vote was related to austerity and poor provision of public services – and found to be more significant than immigration in determining the vote.  Vulnerable populations were becoming more dependent on the state which stopped mitigating the rise of inequality with radical austerity in 2010, activating grievances and converting them into hostility to EU. It is possible that that a modest reduction in austerity would have reversed the decision.  [Becker et al; Fetzer].  Corbyn did not articulate this – he hated austerity but did not like the EU either.

The flaw of Cameron and Osborne was that they wanted efficient markets, but did not do what was needed to retain popular support for them.  The result was to hurt the market – or ironically to hand over influence to those who argue for Brexit as a cover for even more market fundamentalism.

4. Has Britain ever got over winning the war?

Europe moved on from the Second World War – Britain did not.  We can note the ways that the war and its legacy are commemorated:

                In France, commemoration is part of Europe:  Macron referred to France not standing alone in First World War, needing Canadians, British, Italians US.  The political message is pro-European – the French Prime Minister at Compiegne in 2017 remarked that ‘to love peace is to love Europe’.

                In Britain, there is little mention of others in the armistice service, except Commonwealth.  Instead, there is a myth of standing alone.  A memo written for Cameron concerning the commemoration of First World War said that ‘we must ensure that our commemoration [of the First World War] does not give any support to the myth that European integration was the result of the two World Wars’ [O’Rourke p6].  Commemoration was led by a Brexiteer MP, Andrew Murrison.  The Irish economic historian Kevin O’Rourke remarked: ‘If words fail you then I’m afraid I can’t help, for they fail me too’.

It was argued by some in 1975 that joining the EEC was a betrayal of those who fought against Nazis.  Hence Enoch Powell saw Britain in ‘a life and death struggle with other weapons and in other ways, the contention is as surely about the future of Britain’s nationhood as were the combats which raged in the skies over southern England in the autumn of 1940’. [Saunders 53]  But such views did not have traction – especially in the context of the Cold War.

Such views became more important in 2016 when they were linked to a sense of superiority and deep grievance that British sacrifices were not give their due; it was a revolt against imagined oppression. O’Toole [8] refers to a pleasurable self-pity of being hard done by, of winning the war and losing the victory, with a precipitous fall from being the heart of empire to an occupied colony or vassal state. It is what O’Toole [102] calls the ‘metapolitics of exaggerated grievance’

The shift is apparent in the words of Roger Helmer in 2018 [a former Cons and now UKIP MEP]: ‘When I was born, I was not  European citizen (and my father’s generation fought to ensure we should not be German citizens).  I am determined that I shall not die as a European citizen’. He Implied that Europe was German project – and this was often made explicit (and had some traction in progressive circles given the harsh treatment of Greece by Germany and a suspicion that the euro kept exchange rates more competitive than would have been possible with the Deutsch Mark).  In 1989 Kenneth Minogue of LSE argued that ‘the European institutions were attempting to create a European Union in the tradition of the medieval popes, Charlemagne, Napoleon, the Kaiser and Adolf Hitler’.  Boris Johnson in May 2016 similarly commented that the EU was an attempt to do by different methods what Napoleon and Hitler tried – the EU was ‘pursuing a similar goal to Hitler in trying to create a powerful superstate’.

The European Union was now seen as a surreptitious take over and defeat, a plot – it was sold EEC as a common market not a European super state.  This rhetoric took bizarre forms such as the mad cow war when German alarm about eating CJD beef was turned by the hyperventilating Daily Mail into a showdown ‘on a scale scarcely seen since the Battle of Britain’.    

This reading of history was summed up by Mark Francois in Jan 2019 when the German CEO of Airbus warned of the consequences of Brexit for manufacturing wings in North Wales: ‘Mr Enders’ intervention is a classic example of the sort of Teutonic arrogance, which is one of the reasons why many people voted to leave the European Union…. My father Reginald Francois was a D-Day veteran, he never submitted to bullying by any German, neither will his son.’  He then ripped up the letter live on BBC. 
It seems that many people had watched too many films like Our Finest Hour and Dunkirk, and endless repeats of Dad’s Army. Ironically, the remain campaign in 1975 recruited Captain Mainwaring (the actor Arthur Lowe) to its cause. [Saunders 108].

Jacob Rees-Mogg reached heights of absurdity in Oct 2017: ‘We need to be reiterating the benefits of Brexit…. Oh, this is so important in the history of our country… It’s Waterloo, it’s Crecy!  It’s Agincourt!  We win all these things’.  He neglected to point out that the Prussians played a major role at Waterloo, and that the victories at Crecy and Agincourt were interludes before the loss of French territory.

5. Identity

Concerns about national identity were more important than economics: a fear of loss of cultural identity.

In the 1966 World Cup, the flag used by English supporters was the Union jack – Englishness and Britishness were interchangeable.  This ceased to be the case: the cross of St George replaced the union jack.

The Census of 2011 asked for self-identification:  in England 60 per cent identified as solely English (77 per cent in the north-east, 37 per cent in London) compared with 29 per cent as English and British.

There was a clear shift with the movement for Scottish independence: in 1996 a survey found that only a third of the English chose to be identified as English rather than British; this rose in 2011 to half.  Scots could seek freedom from London  – England could not seek freedom from London but could from Brussels. [O’Toole 190]

Mike Kenny argued in 2014 that the re-emergence of English national identity ‘may well turn out to constitute one of the most important phases in the history of the national consciousness of the English since the 18^th century’.

6. Revival of the anglosphere

This shift in identity has links with the return of the Anglosphere or CANZUK or empire 2.0  as it was sarcastically called by civil servants – a new union not with Europe but with the white empire.  Britannia Unchained (2012) was a neoliberal project of deregulation, following the example of buccaneers who made the empire by pursuit of private wealth, released from the ties of EU.  One of authors was Dominic Raab.  It was in a tradition going back to 19^th century – J R Seeley, imperial federation, Anglo-Saxondom of Cecil Rhodes, idea of English-speaking people (in which allow India).

Anglosphere became a right-wing movement as in conferences of Hudson Institute in 1999 and 200, including David Davis, the minister for exiting the EU, and members of the Heritage Foundation.  Some of key participants wrote for the Murdoch and Conrad Black press; and there were links with the Charles Koch Foundation and Cato Institute. Pearce and Kenny [131] comment that ‘the fusion of Anglospheric thinking and neo-liberal ideas emerged as a vibrant ideological pattern’.  They point out that the appeal is to a free market, neo-liberal future against the more statist approach of Brussels.  The Anglosphere is useful as a way of imaging Britain as a global, deregulated privatised economy – it provides a mask for otherwise unpalatable ideas which do not appeal in areas suffering from austerity and decline.

Nigel Farage urged in April 2014: ‘Let’s re-embrace the big world, the 21^st century global world.  Let’s strike trade deals with India, New Zealand, all of those emerging parts of the world’.  The UKIP manifesto in 2010 claimed that ‘Britain is not merely a European country, but part of a global community, the Anglosphere…. From India to the United States, New Zealand to the Caribbean, UKIP would want to foster closer ties with the Anglosphere’. [Pearce and Kenny 145] .  David Davis took a similar line in 2016: ‘This is an opportunity to renew our strong relationships with Commonwealth and Anglosphere countries.  These parts of the world are growing faster than Europe.  We share history, culture and language.  We have family ties.  We even share similar legal systems.  The usual barriers to trade are largely absent’. [Pearce and Kenny 153]

CONCLUSION

The outcome of the referendum in 2016 had deeper roots than any use of social media or misleading claims about immigration or funding for the NHS.  Britain had good rational reasons for stay aloof after the war, and when governments did turn to membership, it was for instrumental and contingent reasons that soon evaporated.  In 2016, the remainers had greater problems in finding reasons to support the EU than in 1975 when it seemed to offer a route to prosperity and faster growth; in 2016, the eurozone crisis made the EU took weak and risky.  The Brexiteers had an easier option of offering change and disruption, a promise of freedom and sovereignty and growth.  Any attempt to suggest there were risks could be rejected as ‘project fear’ and had the weakness of being negative.    But many of the possible arguments were over-looked.  The argument in 1975 about sovereignty was used by the leavers with the notion of ‘take back control’ – though the EU was acting against  American tech giants that were a greater threat to sovereignty; the loss of revenue from base erosion and profit shifting by multinational corporations exceeded payments to the EU; and there was little understanding of what leaving on WTO rules meant.  The decision was made – now it remains to be seen at what costs. 

References:

SO Becker, T Fetzer and D Novy, ‘Who voted for Brexit? A comprehensive district level analysis’, Economic Policy 32 (2017)

Harold D Clarke, Matthew Goodwin and Paul Whitley, Brexit: Why Britain Voted to Leave the European Union Cambridge University Press, 2017

T Ftezer, ‘Did austerity cause Brexit?’ Warwick Economics Research Papers 1170 2018

Benjamin Grob-Fitzgerald, Continental Drift: Britain and Europe from the End of Empire to the Rise of Euroscepticism Cambridge University Press, 2016

Mike Kenny, The Politics of English Nationhood Oxford University Press, 2016

Mike Kenny and Nick Pearce, Shadows of Empire: The Anglosphere in British Politics Polity, 2018

Alan S Milward, The United Kingdom and the European Community, I: The Rise and Fall of a National Strategy 1945-1963 Cass, 2002

Kevin O’Rourke, A Short History of Brexit: From Brentry to Backstop Pelican Books, 2018

Fintan O’Toole, Heroic Failure: Brexit and the Politics of Pain Head of Zeus, 2018

Robert Saunders, Yes To Europe!  The 1975 Referendum and Seventies Britain Cambridge University Press, 2018