Posts Tagged ‘Featured’

What explains Brexit?

What explains Brexit? The question will keep many academics happily employed for years, writes Kevin O’Rourke (Oxford). His book, A Short History of Brexit: from Brentry to Backstop, attempts to provide an answer as the UK approaches the end of the Article 50 timeline.

The British traditionally valued the economic opportunities afforded by Europe, but were much less enthusiastic about the supranational ambitions of the European Communities. And when the European Communities made way for the European Union, a Conservative Party civil war erupted. But Brexit was not inevitable: Leave only won by a small majority.

© Copyright Keith Edkins and licensed for reuse under this Creative Commons Licence

One important distinction is between structural explanations that emphasize the deep underlying roots of the phenomenon, and explanations emphasizing the roles of chance and contingency. Another important distinction is between explanations focused solely on the United Kingdom, and explanations that view Brexit as part of a bigger story. As we know, 2016 was marked not only by the UK referendum but also by the election of Donald Trump in the United States. The following year saw an uncomfortably strong showing for the French National Front, which made it into the second round of the presidential election, and the arrival to power (albeit as part of a coalition) of the far- right FPÖ (Freedom Party of Austria) in Vienna. In 2018 a populist government was elected in Italy. There are strong populist parties elsewhere in Western Europe, and populist governments in Hungary and Poland. When you see common trends of this sort in many countries a common explanation seems in order. What form might such a common explanation take?

There is a raging debate today in both Britain and the United States regarding whether Brexit and Trump reflect ‘economics’ or ‘culture’. For some, both phenomena are the product of globalization, or technological change, or other impersonal economic forces that are damaging vulnerable communities. For others, they are the product of racism, xenophobia, nationalism and other forms of extreme cultural conservatism. The question of whether economics or culture explains these two watershed political events is in many respects an ideological one. Some on the left are reluctant to admit that either Brexit or Trump might have an economic explanation, for fear of justifying those who voted for them. Some on the right are happy to parade their solidarity with those who have been left behind, and to portray the political upsets of 2016 as a victory for the common man, although neither the UK Conservatives nor the US Republicans have traditionally distinguished themselves by their concern for the poor.

People often assume that economic explanations of voting behaviour must imply rational behaviour, but that isn’t so. To be sure, our hypothetical rustbelt voter is voting in his or her own best economic interests, which is what economists tend to define as ‘rational’ behaviour. But what about a hypothetical British voter supporting Brexit because of Conservative Party austerity? It would be difficult to argue that this wasn’t an economic reason to vote for Brexit, but it would hardly be a rational one, given that Osborne’s austerity policies had little or nothing to do with Europe. The UK is not a member of European Monetary Union, nor is it bound by the European Fiscal Compact, nor are the avoidance of excessive deficits and debt and the associated numerical fiscal rules mandated by the Stability and Growth Pact directly binding upon it (more UK opt-outs). Like Denis Healey’s bullocks, George Osborne’s austerity was Made in Britain. If our hypothetical voter supported Brexit because he was unhappy with austerity, he was aiming at the wrong target. If I were teaching Brexit in 50 years’ time, this is probably how I would introduce the subject.

My students would then write essays debating whether the causes of Brexit were cultural or economic, British or international, rational or irrational, structural or contingent. These distinctions make pedagogical sense, and they help in understanding what is a complex social phenomenon. But my guess is that, having gone through all the arguments, and assessed all the empirical evidence, and read the authoritative histories of Brexit that would have been written at that point, the conclusion would be that Brexit was complicated, and that all of the reasons mentioned above mattered. Because that is nearly always the conclusion that you reach in questions such as this one.

This is an edited extract from A Short History of Brexit: from Brentry to Backstop by Kevin O’Rourke, Published by Pelican 31/01/2019 (£20.00). It represents the views of the author and not those of the Brexit blog, nor the LSE.

Kevin O’Rourke is Chichele Professor of Economic History at All Souls College, University of Oxford.

How the EU’s Capital Markets Union could fare without the City

andy mullinexLondon was to have played a central role in the EU’s Capital Markets Union, which was launched by a British commissioner. Andy Mullineux (Lloyds Banking Group Centre for Responsible Business, University of Birmingham) explains the purposes of the project and why the UK’s departure could lead to a fragmentation of capital markets.

In preparation for Brexit, banks and other financial firms have been setting up offices in various EU cities and moving staff to them. In the case of ‘no deal’, we can expect more staff and functions to be moved. As a matter of prudence, the banks have anyway been required by their supervisors to prepare for a ‘no deal’ outcome in March 2019. What then are the post-Brexit prospects for London as a financial centre?

bilbao station

Bilbao… a future capital markets centre? Photo: Arjan Richter via a CC BY 2.0 licence

The City is a well-established global financial centre, and is currently the most important financial centre in the EU. It has well-known advantages (time zone, legal system, language, and London as an attractive city). It may well, in the longer run, realign its international business, following some loss of business to other European centres, and continue to thrive; but there is also likely to be a continued ‘tilt to Asia’ and a reassertion of Wall Street as the pre-eminent global financial centre.

The biggest risk for the EU27, apart from the increased costs of some financial products and services which are currently produced efficiently inside the Single Market (for financial services) in the City – and an increased risk of financial instability during the immediate post-Brexit transition period – is damage to its flagship Capital Markets Union (CMU) project.

This project was launched in November 2014 under Lord (Jonathan) Hill when he was a European Commissioner. He resigned from the position after the Brexit referendum. It was conceived after the 2007-9 financial crisis and the subsequent 2010-2012 Eurozone crisis in recognition of the heavy dependence of the EU (particularly the EU27) on its fragmented banking sector.

This contrasted markedly with the US (and to a lesser extent the UK) in which debt (bond) and equity capital markets are much more developed and provide a much greater share of finance to the business sector. The prompt recovery of the US financial sector, and the country’s ability to deal with the post-crisis bad debt problems quickly and effectively, contrasted with the EU where capital markets were underdeveloped outside the City.

The CMU aims to achieve a ‘better’ allocation of capital in the EU and to reduce reliance on banking. This would take advantage of the freedom of capital pillar of the EU – and potentially reduce the fragmentation of small and medium-sized enterprise financing. The better allocation will in part reflect enhanced corporate governance mechanisms and good stewardship practices, rewarding socially and environmentally responsible policies, good governance and the UN Sustainable Development Goals, as well as profitability and productivity and growth enhancement. To be successful, bankruptcy laws would have to be applied consistently, with some sort of bankruptcy protection along the lines of the US ‘Chapter 11’ procedures. ‘Benchmark’ (ideally zero risk) bonds and bills for the capital markets would need to be established. There are numerous proposals about how such ‘Eurozone bonds’ might be created through joint issuance by participating states. So far, opposition has tended to come from states with stronger credit ratings, such as Germany.

The capital markets would operate more efficiently if taxes – especially on the profits of corporations and interest, capital gains and dividends, and securities trading – were harmonised. In addition, the bias within tax systems towards debt (through interest ‘expensing’ or ‘deductibility’) relative to equity financing should be addressed.

A no-deal Brexit would prevent the City from performing its central role in the CMU project. If a deal is negotiated between the UK and Brussels and accepted by Parliament, then the softer the Brexit, the greater the role the City can play. But a likely post-Brexit scenario is a tendency for more capital market fragmentation than at present, with various financial centres specialising in different financial spheres developing and major cities (perhaps Bilbao, for example) hosting regional capital markets. Capital markets would become more dispersed, but there would be much more widespread participation than in the prevailing City of London dominated system. This may accelerate the switch away from banking-dominated systems in the EU27 and better serve the regions. In this digital age, the EU27 cities serving as capital market hubs could be fully networked to form a genuine Capital Markets Union.

This post represents the views of the author and not those of the Brexit blog, nor the LSE.

Andy (A.W.) Mullineux is Professor of Financial Economics at the Lloyds Banking Group Centre for Responsible Business, Birmingham Business School, University of Birmingham.

The UK will remain an integral part of an ever-closer Europe

In five weeks, the UK is set to leave the European Union – but, writes Martin Westlake (LSE), despite Brexit, internal and external forces are driving European states towards ever closer relations. The UK will remain an integral part of an ever-closer Europe, whatever the fine detail of its relations with the EU.

The European continent is covered by a complex web of intricate mechanisms between states and organisations, many with overlapping membership. The continent is covered by a patchwork quilt – a patchwork of considerable variety, but a single quilt. If the UK leaves the EU it will not be leaving Europe. That would not only be a geographical impossibility; the UK will, in particular, remain a founder member of the Council of Europe (whose 1949 Statute declares the need for ‘a closer unity between all like-minded countries of Europe’) and a founder member of NATO.

The UK will remain a part of the quilt. And the UK will certainly not be removing itself entirely from its relationship with the EU. As the detail of the draft withdrawal agreement already illustrates, by leaving the EU, the UK will instead be swapping one set of complex relations with the EU and its member states for another; but there will continue to be those complex relations, and there will still be the interdependence that such relations bring, from trade to scientific research, from energy to climate change. This will remain true, whatever the final detail of the future relationship, if and once it has been negotiated.

The UK has always hovered on and about the perimeter of the EU version of the European integration process. Aloof at the beginning, in 1952 and 1957, by 1963 the UK was knocking on the door, and by 1973 it was in. By 1975 it could already have left through a ‘should we stay, yes/no?’ referendum (held just two years after it had joined) and, if Michael Foot’s Labour Party had won the General Election in 1983, the party’s manifesto promised that the new government would immediately open negotiations with the then EEC in order to prepare for the UK’s withdrawal – without recourse to a referendum.

Brexit mural by Banksy in Dover, Credit: ijclark (CC BY 2.0)

Over the 45 years of the UK’s membership there have been difficult periods in the relationship. There were Margaret Thatcher’s repeated demands at European summits before she won a budgetary rebate at Fontainebleau (1985). Significant low points would also include: ‘Black Wednesday’ (1992), when the UK government was unable to keep the pound above its agreed lower level and was forced to withdraw it from the European Exchange Rate Mechanism; John Major’s 1996 policy of non-cooperation in the wake of the BSE crisis; and David Cameron’s 2011 veto of a proposed fiscal compact to shore up the euro. High points in the relationship would include Margaret Thatcher’s championing of the 1986 Single Market project, Tony Blair’s (albeit ill-fated) 1997 commitment to the single currency and the 2005 Blair-inspired informal European summit at Hampton Court, when a for once entirely pro-active UK presidency generated a raft of positive reform proposals (on, for example, energy policy and climate change). Cumulatively, the UK has given the impression of being semi-detached.

But, with the benefit of hindsight, historians will probably identify the 1989 fall of the Berlin Wall as the critical turning point for the UK/EU relationship. French strategic diplomacy saw economic and monetary union (EMU) as the quid pro quo for German unification. The UK’s counter-proposal of a parallel currency never won support. Instead, John Major won a unilateral opt-out which, in 1992, with a Union of just twelve member states (euro-sceptical Sweden and Denmark, the latter with an opt-in, amongst them) and the Maastricht Treaty’s EMU provisions looking over-ambitious, must have seemed like a good rear-guard defensive bet. But the 1995, 2004 and 2007 enlargements added a mass of new member states which, through their membership, were committed to respecting the Maastricht convergence criteria and adopting the euro when they could (Britain, always a major proponent of enlargement, seemed not to have foreseen this consequence).

The 2008 financial crisis not only plunged several eurozone member states into fiscal mayhem but obliged a reluctant European Union to acknowledge that the eurozone member states had to establish their own coordination mechanisms and structures within the EU’s overarching architecture; and the Greek debt crisis made it evident that urgent treaty-based reforms were necessary to overcome the EMU’s structural weaknesses. Angela Merkel said as much in her 2010 Bruges speech:

“That’s why we have said that in case such a crisis recurs, in case the euro and the monetary union as a whole are someday in danger again, we need a mechanism that can manage crises and that is anchored in the Treaty. That’s why we have decided on a limited Treaty amendment…”

Perhaps it was that vision, of treaty amendments and, at the very least, attendant constitutional referendums in Ireland and Denmark, that concentrated David Cameron’s thoughts. The German chancellor, increasingly aware of the risk of a referendum setback, later changed her mind about the need for treaty amendments. But for Cameron, the twin challenges remained the same, as set out in his 2013 Bloomberg speech:

“Britain is not in the single currency, and we’re not going to be. But we all need the Eurozone to have the right governance and structures to secure a successful currency for the long term. And those of us outside the Eurozone also need certain safeguards to ensure, for example, that our access to the Single Market is not in any way compromised.”

Having made his commitment to a referendum, Cameron returned to these concerns when negotiating his 2016 New Settlement for the United Kingdom within the European Union. The Settlement, which fell with the June 2016 referendum result was, as Sir Ivan Rogers, former UK permanent representative to the EU has recently described it, ‘the last attempt to amplify and entrench British exceptionalism within the EU legal order.’ This episode illustrated once again the lengths to which the EU was prepared to go to accommodate the UK and acknowledge its exceptional status. But it is a moot point as to whether that exceptionalism could have continued indefinitely. Perhaps, in the longer run, the UK would have been faced with a binary choice – either joining the currency union, or leaving the European Union.

Perhaps Denmark and Sweden may ultimately face a binary choice. Denmark, which won an opt-in right in the 1992 Maastricht Treaty, held a referendum on euro membership in 2000. Membership was rejected then, though there is recurring talk of a second referendum. Sweden, on the other hand, has no opt-out or opt-in and is theoretically obliged to prepare for membership of the single currency. However, membership was rejected in a 2003 referendum and though the country’s mainstream parties all favour membership, the country is currently making no preparations for entry. The absence of the UK and its exceptional status outside the eurozone will, in any case, put pressure on these countries to reconsider their relationship with the euro at some stage.

Looked at from the perspective of the European integration process, the UK is just one, albeit an important one, of a number of European countries hovering on or about the perimeter and with whom relations require special attention and more-or-less special arrangements. If the decision had been left to its parliament, Norway would have joined the EEC alongside the UK, Ireland and Denmark, in 1973. Its government had even signed the accession treaty in readiness. A second referendum in 1994 confirmed majority popular opposition to membership, leaving Norway in EFTA and the European Economic Area (EEA).

Iceland blew hot in 2009 and applied for membership, but blew cold in 2015 and ended its application process, remaining instead in EFTA and the EEA. Switzerland, with its complicated political and constitutional mechanisms, applied for membership in 1992 but suspended negotiations later the same year. It has had a continuously fraught relationship with the EU based on a myriad of bilateral agreements, many requiring frequent re-negotiation (the whole basic relationship is currently under review). And Switzerland is in EFTA but not the EEA. When it comes to the Schengen area, Iceland, Liechtenstein, Norway and Switzerland are all effectively members, though none are EU member states, whereas Bulgaria, Croatia, Cyprus, Ireland, Romania and the United Kingdom are not, though all are EU member states.

Within the European Union’s immediate neighbourhood are the five candidate countries – Albania, Macedonia, Montenegro, Serbia and Turkey. As the EU’s General Affairs Council noted in June 2018, “Turkey has been moving further away from the European Union. Turkey’s accession negotiations have therefore effectively come to a standstill.” But the same Council also noted that, “Turkey remains a candidate country and a key partner in many areas.” All five candidate countries are members of the Council of Europe. Three – Albania, Montenegro and Turkey – are full NATO members, whilst Macedonia and Serbia are partner countries (and Macedonia is about to become a full member). Beyond these, the European Union’s over-arching Neighbourhood Policy, its stabilisation and association process, and the Barcelona (Euro-Mediterranean) Process seek to manage the EU’s relationships with countries such as Algeria and Morocco (in 1987 the latter even applied for EU membership – an application rapidly rejected on the grounds that Morocco was not a European country) to the south and Armenia, Georgia, Moldova and Ukraine to the east.

Space precludes more detailed coverage of all aspects of the patchwork quilt, but some of the more notable recent developments would include the EU’s 2017 Global Strategy for the European Union’s Foreign and Security Policy, the EU’s 2017 integrated policy for the Arctic region (a perimeter directly involving three EU Member States – Denmark, Finland, Sweden – but also the EFTA/EEA states, Iceland and Norway) and the 2017 Permanent Structured Cooperation (PESCO) in security and defence, involving 25 of the current 28 EU member states (excluding Denmark, Malta and the UK). Analysing relations with the Russian Federation which, like Turkey, has most of its landmass in Asia, would also require more space than is available here.

But from all of the foregoing it can be seen that the patchwork quilt effectively covers the whole European continent and, even if the direction of relative travel may change in some respects – the UK leaving the European Union, Turkey drifting away from accession – the general trend is towards ever-closer integration. Specific dynamics internal to the continent are encouraging this trend – economic integration, energy, migration. But external dynamics loom ever-larger. David Cameron aptly summed up the challenge in his 2013 Bloomberg speech:

“The challenges come not from within this continent but outside it. From the surging economies in the East and South. Of course, a growing world economy benefits us all, but we should be in no doubt that a new global race of nations is underway today. A race for the wealth and jobs of the future. The map of global influence is changing before our eyes.”

The challenge from the East – particularly China’s burgeoning economy and geopolitical influence, but also the Indian and other Asian economies – is already the subject of much concern. The challenge from the South is only now beginning to emerge into public consciousness. It can be illustrated through simple demographic statistics. In 1950, Germany, Italy and the UK were among the ten most populous countries in the world. By 2015, they had long since gone, replaced by the likes of Brazil, Pakistan and Nigeria. By 2100, five of the ten most populous countries in the world will come from the African continent – Congo, Ethiopia, Niger, Nigeria, Tanzania (the others will be China, India, Indonesia, the USA and Pakistan). It is this stark prospect that led European Commission President Jean-Claude Juncker to declare in his September 2018 State of the Union address:

“Africa is the future: By 2050, Africa’s population will number 2.5 billion. One in four people on earth will be African. … Africa does not need charity, it needs true and fair partnerships. And Europe needs this partnership just as much.”

Already, in March 2018, 49 of the African Union’s 55 member states signed an agreement to create an African Continental Free Trade Area (AfCFTA) which, if ratified, will represent the largest free trade area in the world in terms of participating countries since the creation of the World Trade Organisation in 1995.

Seen from these perspectives, the Brexit process is a distraction, a diversion, albeit painful and traumatic, but one that will almost certainly be subsumed in the overall trend towards greater integration. For the only way Europe can continue to punch its weight in the world is by pulling together. It was no idle boast when Juncker declared in the same speech that the EU’s “global trading position is the living proof of the need to share sovereignty. The European Union now has trade agreements with 70 countries around the world, covering 40% of the world’s GDP.” The EU is, as Sir Ivan Rogers put it in an earlier speech, ‘a regulatory and trade giant.’ As the Union seeks to embrace the whole African continent in a trading partnership it would be a great irony if the mercantilist UK were to deny itself the trading opportunities such a partnership would create and which it would probably be unable to negotiate on its own.

In any case, taking the longer-term view, the UK may become more or less semi-detached but, in one way or another, it will remain attached to the European continent’s only viable survival strategy in a rapidly evolving world.

This article gives the views of the authors, not the position of LSE Brexit or the London School of Economics. It was originally published on EUROPP – European Politics and Policy.

Martin Westlake is Visiting Professor in the Department of European Political and Administrative Studies, College of Europe, Bruges, Senior Visiting Fellow, European Institute, and David Davies of Llandinam Research Fellow, Department of International Relations, London School of Economics and Political Science.

Are non-custodial sentences a credible and cost-effective substitute to incarceration?

Nick Cowen, Siddhartha Bandyopadhyay, and Juste Abramovaite analyse the effects of custodial and non-custodial sentences on recorded crime in England and Wales. Their results suggest that non-custodial sentences can be an effective alternative to custody when it comes to reducing property crime but their effect is less consistent when looking at violent crime.

As the criminal justice system struggles with government cuts, a recent report by the Centre for Justice Innovation has suggested that judges have lost faith in community sentences because of a lack of communication with recently privatized probation providers. Yet the human toll and economic costs of prison are well-established and recognized by judges and magistrates. Can there be cost-effective, more humane alternatives to custody?

To answer this question we examined how variations in sentencing across police force areas from 2002 to 2013 affect police recorded crime for the key categories of theft, violence, sexual offences and robbery. We find that the criminal justice system typically plays a critical role in reducing crime, and that community sentences and other alternatives to custody can be particularly useful sanctions for courts aiming to protect their communities. Since they are often less expensive than prison as well, it appears that there are ways of protecting the public more cost-effectively than relying on custody.

Measuring the performance of public services is always difficult. The challenge is compounded with the criminal justice system because one of the key things we are interested in measuring is how much crime is prevented, not just how it is dealt with once committed. For most people not having to deal with the criminal justice system at all is the surest sign of its success. Thus, research evaluating sentencing effectiveness has to try and work out what would have happened without that particular sanction being handed out. The problem cases, repeat offenders for example, are typically more visible than the successes. This may motivate politicians to insist on reform without necessarily understanding what is already working within the system.

There are several mechanisms through which the criminal justice is theorized to reduce crime:

Incapacitation: incarceration in prison or greater surveillance in the community can prevent an individual offender from re-offending during a sentence.

Rehabilitation: a sentence can be an opportunity to address an offender’s problematic behavior that leads to them committing crime through therapeutic interventions, especially to address drug addiction, and the provision of education and training.

Specific deterrence: the experience of being convicted and punished is unpleasant and is meant to discourage people from committing crime in the future.

General deterrence: the threat of being detected and then punished deters not only offenders who directly experience the sanction, but also potential offenders in the community from committing crimes that they would otherwise attempt.

However, there are also ways in which sanctions can produce perverse criminogenic outcomes that lead people to commit more crime than if they hadn’t been sanctioned at all. This can apply especially to prison sentences. Incapacitation can prevent offenders from accessing legitimate sources of employment, education, and supportive social structures such as their families. This can make them less likely to reintegrate successfully at the end of a sentence. The social experience of punishment may actively bolster their ‘deviant’ identity. Offenders may also learn new skills that allow them to avoid detection when they commit future crimes. They may meet experienced criminals with whom they can cooperate and form gangs. They may learn that punishment is not as unpleasant an experience as they had feared, or their tastes may adapt to be more accepting of future sanctions. For the truly desperate, the prospect of prison may offer respite from homelessness and insecurity. Such cases, if they can be identified, can be handled more effectively with social support than with criminal sanctions.

Thus, there are plausible reasons to be both optimistic and sceptical about the effects of criminal sentencing on crime. At the same time, the range of channels through which sentences change behaviour means that research on individual offenders is likely to miss some of the broader social impact. This is precisely what our data and approach can help to identify.

In order to get an intuitive handle on our results, we have estimated the association between a 1% increase in one sentence type for an offence category and the following year’s crime rate. Our results attempt to control for some critical socio-economic factors (age composition and unemployment) that determine the environment in which people see committing crime as a viable option. Our stylized example is based on recorded crime figures for 2014 based on a hypothetical nationwide change in sentencing activity in 2013. We use statistically significant estimated coefficients keeping in mind that these predictions have upper and lower bounds that can be computed from the standard errors.

Property crime: Sentencing 1% more offenders to prison for property offences (including theft and handling) reduces next year’s recorded crimes by 2,693. However, a similar 1% increase in community sentences reduces these offences by 3,590. In this example, 1% is going to be approximately 320 extra offenders sentenced for a property offence. Thus, it appears there is scope to reduce property crime (72% of recorded crimes in our analysis) more cost-effectively and humanely through greater use of community sentences instead of prison.

Violence: Sentencing 1% more adult violent offenders to custody reduces next year’s violence against the person offences by 1,153. 1% more suspended sentences reduces such offences by 649. This suggests that there is scope to tackle violent crime more efficiently with less costly suspended sentences (that are often combined with community orders) and less reliance on immediate custody.

Sexual offences: Sentencing 1% more adult sexual offenders to prison reduces the following year’s recorded sexual offences by 94.

Robbery: in contrast to the other offences, robbery appears to be harder to tackle more effectively through variations in existing sanctions. Sentencing an additional 1% of adult robbery offenders to prison appears to increase the following year’s robbery numbers by 29. Sentencing an extra 1% of adult robbers to community sentences reduces the next year’s number of robberies by around 8. This may imply that we are near the limits of what variations in sentencing can do for preventing robbery victimisation.

Our results suggest that the criminal justice system in England and Wales generally helps to reduce crime and that alternatives to custody (particularly community sentences) can be less disruptive to offenders and more cost-effective than prison in many cases. We think that re-establishing trust between courts and community sentence providers is an urgent priority. Good policy should offer courts a range of appropriately resourced, credible sanctions that can channel both existing and potential offenders away from committing crime and into more socially cooperative and personally beneficial activities.

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Note: the above draws on the authors’ published work in The British Journal of Criminology.

About the Authors

Nick Cowen is Classical Liberal Institute Fellow at New York University.

 

 

 

Siddhartha Bandyopadhyay is Professor of Economics at the University of Birmingham.

 

 

Juste Abramovaite is Research Fellow at the University of Birmingham.

 

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay (Public Domain).

 

 

(Mis)Rule Britannia: Brexit is the last gasp of empire

sally tomlinsondanny dorlingBrexit represents the last gasp of the British empire, argue Sally Tomlinson (Goldsmiths, University of London) and Danny Dorling (University of Oxford). The men who have led it cannot accept that the colonial era, and the exploited wealth that came with it, is over.

All imperial countries and their leaders have problems when their empires disappear, and they no longer have the forced tribute or inequitable trade deals they have depended on. Even when previously colonised people come to work for their former masters and build up the ‘mother country’, they may find a distinct lack of hospitality and even face deportation in their old age. So, as the sad tragedy known as Brexit moves into its assumed final stages, it is time to revisit the British Empire and its ending – Brexit being perhaps the last gasp of this empire.

seamen's hospital booklet

Picture: Cover of a Seamen’s Hospital booklet via Europeana and the Wellcome Collection and a CC BY 4.0 licence

Brexit is a gasp of rancour which seems to have brought to the surface much resentment, hatred, and ill-informed debate. Even Theresa May could not possibly have envisaged a situation where, faced with headlines such as “Officials warn of putrefying piles of waste after no-deal Brexit”, and the current UKIP leader writing to the Queen telling her she had committed treason by signing the Maastricht Treaty, she (May, not yet the Queen) is forced to return to the EU in late February, to try to renegotiate that infamous withdrawal treaty that in January Parliament had rejected and the EU had said it would not renegotiate.

May will not be helped by her international trade secretary announcing (to a Conservative think-tank) that EU countries would now be keen to negotiate due to weaknesses in their economies.  Nor will she be helped by what was quickly labelled as the ‘Malthouse compromise’ on the backstop, after a junior minister (Kit) who claims (in Who’s Who) that his hobbies are baking bread and watching others dance and play.

Only a couple of generations or so ago, Britain was in control. It was in control of more people in an empire larger than any other there had ever been in the history of the world. The disappearance of this empire led inexorably to a loss of control of land, labour, wealth and also to what sustained an imperial identity. Clinging to fantasies of empire, a group of people – led by those mainly educated in schools designed to produce the rulers of empire – are today in the process of creating an era of misrule and mistakes that will have serious consequences for all the people of the four nations that currently make up Britain, those in many connected European countries, and well beyond.

A major consequence of the misrule of Britannia is possibly the further dissolution of the UK (most of Ireland having left the Kingdom a century ago). Polly Toynbee rightly pointed out in 2017 that the Irish border was ‘a road block to the fantasies of Brexiteers, reviving deep-dyed contempt for the Irish’ who at that time were dismissing it ‘with an imperial fly-whisk’. Ireland, the first country to be colonised by the English in 1169, was divided in 1922 by a hated border. During the 30-year long Troubles from 1969 to 1999, the British army blockaded country lanes, and the Provisional IRA booby-trapped roads. Could no-deal lead it again into violence, or even into a vote for a United Ireland?

The misplaced nostalgia for a British empire – a time when by force and violence Britain did indeed ‘rule the waves’ for a long period – has been used by the small number of influential people we have documented in our book, Rule Britannia: Brexit and the end of empire, who have a dangerously imperialist misconception of the country’s place in the world. These misconceptions often began in childhood. Where else do the ideas of taking back control of a mythical country come from? Once upon a time the ‘Romance of Empire’ book series told children that “England was a gallant little nation whose power and conquests are obviously the rewards of merit since all her opponents are bigger and uglier than she is”(cited in JS Bratton), and the world map had large pink bits which we were told ‘belonged to us’. The Brexiteer master manipulators used such memories to take control of the opinions of some voters through a campaign notable for lies and misinformation.

Misrule by misinformation was, and is, also notable for fantasies about free trade – either with a Commonwealth (of 53 countries, 31 with fewer than three million people) who have not so far been too enthusiastic about trading with a country which once took their land and labour and protected its own trading position – or with the world’s largest economies, who are embroiled in their own trade disagreements. The imperial days when raw materials and slave or indentured labour overseas created an industrial revolution have long gone, and manufacturing has shrunk to 10% of the UK economy. The British state may be good at making and selling arms, perhaps unusually good at spying and tourism too, but even selling good higher education may be impeded by mean-spirited immigration rules and high fees creating Giffen goods.

Across Britain, for over a hundred years, misrule by disinformation has created in many people a particular dislike of almost all foreigners, immigrants, refugees and asylum seekers. Those who voted to take back control of immigration were unlikely to have known about legislation such as the 1905 Aliens Act – designed to keep out East European and Jewish migrants – or the 16 immigration control acts passed since the invited arrival of post–war migrants from former colonies. There has been minimal information about the current immigration bill before Parliament, which aims to control migration by cash. Those earning less than £30,000 are apparently too poor or low-skilled to deserve entry into the country.

Lies and misinformation about immigrants, especially those who arrived after the end of the second world war, reached fever pitch during the referendum campaign. And those lies have recently become shriller and nastier. From the 1960s onwards, people were told that without immigrants there would be more employment for ‘British workers’: more housing, good schools and welfare benefits for the deserving. The truths were seldom reported: poorer immigrants from former colonies took jobs the ‘native’ Britons did not want, they lived mainly in private not public housing in city areas where their labour was needed, and mostly attended schools for the working classes which had never been that good. In fact it was their arrival that made the schools better, especially in London.

Grotesque inequalities in a supposedly rich country have been blamed on anyone or anything other than the inability of the British rich to share a smaller domestic pie, once the last of the colonies was gone.

The 1930s – when the empire was still more or less intact – saw similar inequalities between rich and poor that we see now. It was the disappearance of the empire after the war, when the looting of land and labour diminished, that led to the rich becoming poorer. This was blamed on immigrants, despite their labour and taxes contributing to the country’s wealth – and on socialists and trade unions. There was barely a mention of friends in Saudi Arabia and other oil countries raising oil prices, or of how other European countries managed to avoid the growth in inequality that the UK has experienced since 1978.

Peak Inequality, as Danny Dorling’s book describes it, may now have been reached. The richest of all work so very hard to avoid paying taxes by sending money to the 14 overseas tax havens that are still British protectorates. A few are even paying for Ubercopters to pick up tired skiers and return them to their fondue and wine. The consequences of no longer ruling the lands, the waves or the skies of imperial times will have consequences that are now only slowly becoming apparent. Empires only finally end when the elite children – those that were related to the last emperors, viceroys and colonial governors – are no longer running the shell that remains.

Reference

Bratton, J. S. (1986) “”Of England, home and duty: Images of England in Victorian and Edwardian literature” in (ed) JM MacKenzie: Imperialism and Popular Culture. Manchester. Manchester University Press.

This post represents the views of the authors and not those of the Brexit blog, nor the LSE.

Sally Tomlinson and Danny Dorling will discuss Inequality, Brexit and the End of Empire at an event at the LSE on Friday 29 March 2019. Find out more here.

Sally Tomlinson is an Emeritus Professor at Goldsmiths, an Honorary Fellow in the Department of Education, University of Oxford, and an Associate in the Department of Sociology, University of Warwick. 

Danny Dorling is Halford Mackinder Professor of Geography at the University of Oxford and the author of numerous books on issues related to social inequalities in Britain, including Peak Inequality: Britain’s ticking time bomb (2019), Policy Press.

They are the joint authors of Rule Britannia: Brexit and the end of Empire (2019), Biteback.

The European Investment Bank is becoming increasingly politicised

The European Investment Bank (EIB) is intended to provide finance and expertise for investment projects that further EU policy objectives. But as Daniel Mertens and Matthias Thiemann explain, a steady expansion of the bank’s operations over the last two decades has prompted greater political debate over its governance and activities. They highlight three recent developments that underline this politicisation of the EIB.

Over the past two decades, the European Investment Bank (EIB) has become the world’s largest multilateral financial institution. In 1999, the EU member states’ ‘policy-driven’ bank counted around 1,000 staff members. This number is now close to 3,000. In 1999, the EIB’s balance sheet stood at 200 billion euros. It now stands at 550 billion euros.

While this has given the bank an enormous push in its organisational capabilities, it has also come with higher visibility, calls for transparency and accountability, and mounting political tensions. This process of politicisation is characteristic for the post-crisis evolution of the European Union, and apparently does not stop at the European Commission’s door or the European Central Bank (ECB). Three recent episodes in particular highlight why more attention should be focused on the EIB.

The EIB and investment policy under austerity

The proximate cause for the EIB’s increasing politicisation lies in the financial and economic crisis that started ten years ago. Faced with an outsized aggregate demand shock, the EIB took up the role of a counter-cyclical investment vehicle, increasing lending from 2008 onwards (in the years 2008-2011, balance sheet growth was 50 per cent, from 310 to 471 billion euros). While it first followed up on requests by member states and the Commission to ‘contribute to the recovery of the real economy’, and then, in the wake of the Eurozone sovereign debt crisis, provided support to the Europe 2020 Project Bond Initiative, the EIB quickly moved into debates over the stronghold of austerity policies.

European Investment Bank, Credit: Forgemind ArchiMedia (CC BY 2.0)

Former staff began promoting the bank as a powerful tool to address deficient growth in the EU. With structural funds as buffers, the EIB was to facilitate riskier projects to close the investment gap and offer an alternative draft to fiscal orthodoxy. This idea, mirroring a similar proposal by progressive economists Varoufakis, Galbraith and Holland, was taken up by the incoming Commission in 2014, where a compromise between the S&D and EPP before Jean-Claude Juncker’s election led to the establishment of the Investment Plan for Europe.

At this point, the bank gained political attention as a tool for some sort of consolidation-friendly investment policy – or in the words of the bank: ‘doing more with less’. But it also drew attention to how this investment policy would actually be conducted: civil society actors such as the NGO Counterbalance increasingly criticised the bank’s policy on a range of issues from environmental impact to tax avoidance and the widespread use of PPPs. This undesired political spotlight on the part of the EIB was only to intensify in the coming years. And currently, the EIB faces pressures from the Commission’s proposal for a reformed investment policy, investEU, that could break its privileged access to the EU budget.

The EIB and Brexit

The EIB’s expanded role in the crisis could not be realised, however, without an increase of the paid-in and callable capital provided by its shareholding member states. Currently, Germany, France, Italy and the UK are the four largest shareholders accounting each for more than 39 billion euros or 16 per cent of total capital. Unsurprisingly, the outlook of Brexit has led to several sites of political tensions around this fact and the future of the EIB. In Britain, it has stirred a discussion and parliamentary inquiry over how to compensate for the withdrawal of EIB funding that in 2015 still was at 5.6 billion euros, but fell to 2.1 billion euros in 2017.

While close observers of the EIB such as Stephany Griffith-Jones have suggested the UK could stay in the EIB, the bank has conversely asked its remaining shareholders to prepare for filling the capital gaps Britain bequests. This has opened up two debates: first, a group of seven countries, as the Financial Times reported, demanded extensive reforms before they would agree on contributing more capital, leading the EIB to negotiate over supervision by the ECB. Second, Poland has argued that post-Brexit contributions should include an adjustment of the relative shares in the bank, more adequately reflecting the changing economic weight of member states – a demand which, expectedly, has met with resistance from the larger countries. What this tells us is that recent politico-economic developments have produced a rift through member states prompting questions of principle about the governance of the bank and its future activities.

The EIB and diplomatic conflict

The third episode of ongoing politicisation grows out of the unilateral withdrawal of the U.S. from the agreement on Iran’s nuclear programme. Subsequently, the EU has tried to save the deal and safeguard European companies and financial institutions doing business in Iran from associated U.S. sanctions through several measures, one of which is the expansion of EU guarantees for EIB lending in Iran within the so-called External Lending Mandate.

As the European Parliament’s Research Service explains, adding Iran to the list of ‘potentially eligible regions and countries’ for EIB lending does not oblige it to do any business. EIB president Werner Hoyer has indeed made clear that extending the mandate for the EIB does not lead to any actual EIB activity in Iran. Quite to the contrary, he asserted that Iran is a place “where we cannot play an active role… [and] have to take note of the fact that we would risk the business model of the bank if we were active in Iran.” In turn, the bank is facing headwinds from politicians claiming a stronger role for the EU as a global actor, such as Carl Bildt.

Although global diplomacy is a peculiar playing field, the processes at play are instructive for the political tensions around the EIB at large. First, the EIB faces a similar problem in all three cases: how does it shield itself from a pool of political demands that has grown as much as its own capacities? Second, it commonly responds to those by referring to its dependence on (U.S.) capital markets for raising funds and emphasises its conservative risk management for maintaining a high investment grade (AAA). Any significant move into riskier waters, as policymakers have called for, would also risk its rating, the bank states. This is also the reason why EIB lending within the Investment Plan for Europe or the External Lending Mandate entails guarantees from the EU budget.

However, this will not reduce the political contention about the tasks of and control over the bank. Rather, the EIB has now repeatedly positioned itself as an institution able to tackle global challenges from climate change to migration; and in this sense, it is likely that the bank has fuelled its own politicisation.

This article gives the views of the author(s), and not the position of LSE Brexit, nor of the London School of Economics and Political Science. It first appeared on EUROPP – European Politics and Policy.

Daniel Mertens is a Researcher and Lecturer at the Institute for Political Science at Goethe University Frankfurt and currently Acting Professor in Internationally Comparative Political Economy at the University of Osnabrück.

Matthias Thiemann is Assistant Professor at Sciences Po CEE. He is also an external fellow at the Research Center SAFE (Sustainable Architecture for Finance in Europe), Goethe University Frankfurt.

Economic voting and party positions: when and how wealth matters for the vote

Does the ownership of economic assets matter for how people vote? Drawing on new research, Timothy Hellwig and Ian McAllister find the answer is yes. They argue that by changing their policy positions, parties can shape the influence of asset ownership on voter decisions.

The politics of asset ownership have received much attention in the aftermath of the Great Recession as researchers and financial advisers alike weigh the value of how best to store and build personal wealth. But the push for ownership is far from new. One of Margaret Thatcher’s many ideas was to create a ‘property-owning democracy.’ This belief in the virtues of private ownership aligned well with the Tories’ belief in citizens controlling their own wealth in the marketplace rather than surviving on state welfare.

In the ensuing decades, policies designed to foster homeownership have spread to other advanced capitalist democracies, notably in the U.S., with George W. Bush’s call for an ownership society in the 2000s, and to middle-income economies in places like Latin America as well. Over time, the policies to foster ownership have evolved into preferential tax policies to encourage participation in equity markets.

How has this advancement of asset ownership influenced electoral politics? Political scientists have examined whether wealth – conceived in terms of home or business ownership, savings, and holdings of shares of stock – matters for how voters decide. A growing body of research concludes, perhaps not surprisingly, that owners vote for centre-right parties such as the Conservatives in Britain, Republicans in the United States, and the Liberals in Australia. Once in power, centre-right parties are most likely to advance policies aligned with the interests of the owners to prevent their wealth being expropriated through taxation. In contrast, centre-left parties strive to curry favor among those individuals whose chief asset is their own labor. This ‘patrimonial’ logic of electoral politics harkens back to Marx in assuming that elections serve to play out the class struggle.

This story, however, leaves out the role of the electorally-motivated political party. It assumes that parties on the right uniformly favour cutting taxes and those on the left always advocate pro-spending policies. Of course, this is not the case, and we have to look no further than Britain as case in point. Labour in the 1990s and 2000s was demonstrably less favorable to spending than it was previously and has been since. And, with fits and starts, the Tories have moderated their market-based economic policy. Figure 1 shows this graphically, in terms of the two parties’ election manifestos. Higher values on the vertical axis depict more rightward-leaning policy positions and lower values views more to the left.

Figure 1: Left-Right Positions of Major Parties, Britain and Australia

Source: Comparative Manifesto Project.

In our research, we argue that this jockeying of positions over time matters for whether voters decide to draw on their identities as asset owners when selecting parties to represent their interests.  When the parties provide a choice, as was the case in Britain during the 1980s, then ownership ought to exert an influence, with owners of housing and shares supporting the Conservatives. But when the leftist alternative moderates, as Labour did after the 1992 election, the choice is less clear and the ‘patrimonial voting’ story less plausible.

To assess our claim, we examine post-election survey data which provides information on the parties’ policy positions, the respondents’ ownership status, and their vote choice. We first analyse the Australian case, which has been dominated by two parties with clear positions on welfare policy and economic management. Like Britain, the Australian parties have at times converged with respect to these positions, as Figure 1 indicates. Unlike Britain, however, we are fortunate to have information on the ownership status of survey respondents over six elections (from 2001 to 2016 from the Australian Election Study).

We find that when the Liberal and Labor parties are seen by voters as holding similar positions, patrimony has no effect on voter choice. It is only when voters consider the parties’ policies to differ that the traditional patrimony argument finds support. We further show that this effect of policy distance is stronger for higher-risk share ownership than for lower-risk home ownership.

Do these findings generalise to electoral democracies more broadly? To date, cross-national research on assets and voter choice has been limited by data availability. We are able to examine recently-available data from the Comparative Study of Electoral Systems which includes information on ownership.  Employing data from 25 countries, we examine the effect of assets on voting for centre-right parties. In some cases, like Switzerland, the parties were distinct in their economic policy views, while in others, like Japan, they were almost indistinguishable. Results of these analyses echo those from Australia. Ownership increases voter support for the centre-right but only when the parties are sufficiently polarized on economic policy matters. When polarizations are below the 25-country average, then a change in ownership status is no longer a factor contributing to the voter’s decision. Party positions, in short, provide an important scope condition for the presence of patrimonial economic voting.

Our research provides an important corrective to theories of asset ownership and party choice. The electoral benefits to political parties for advancing an “ownership society” agenda, in the mold of Thatcher or Bush, depends on the positions advanced by their opponents. This insight helps us to understand why assets have a greater electoral effect in some countries than in others. Some scholars suggest that differences in welfare state policies may provide an explanation, with ownership playing a more pivotal role in generous welfare states which levy high taxes on their citizens (e.g., Denmark or Sweden) compared to less generous, low tax, nations (like the UK or USA). Our polarization story suggests an alternative explanation. Ownership-based voting has weakened in recent elections in the US and Britain not because assets matter less to individuals but because the parties have differed little with respect to their positions on the economy.

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Note: the above draws on the authors’ published work in Political Studies.

About the Authors

Timothy Hellwig is Professor of Political Science and, for 2017–2020, Remak Professor of European Studies at Indiana University. He is the author of Globalization and Mass Politics: Retaining the Room to Maneuver (2014, Cambridge).

 

Ian McAllister is Distinguished Professor of Political Science at The Australian National University, Canberra, and is a Director of the Australian Election Study and a former chair of the Comparative Study of Electoral Systems.

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay (Public Domain).

 

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