IAN McAULEY. Brexit – retreat to isolationism and discontent of those left behind.

Jun 29, 2016

The Brexit vote has given the media a cornucopia of stories – dissent in the British Conservative and Labour Parties, the possible breakup of the “United” Kingdom and turmoil on financial markets.

These, however, are distractions from two serious issues that go beyond the events in one European country and in the rarefied world of financial markets. These are the retreat to economic isolationism and the discontent of those who have been left behind. Both are echoes of the developments in Europe between 1929 and 1933, which saw such terrible consequences.

Any Australian who grew up in the age of White Australia, tariff protection and prohibitively expensive travel has experienced the benefits of economic openness. Unfortunately however, we tend to take these benefits for granted, while we pay more attention to the costs of economic openness and liberalisation. Conservative farmers who protest when Chinese buy cattle stations, politicians who insist we build submarines in Australia whatever the cost, and those who march in anti-globalisation protests often find themselves in alliance.

There is indeed validity in such annoyance. In the name of “free trade” our government has negotiated treaties which allow foreign companies to invoke “investor state dispute mechanisms” to override our domestic legislation. For a while it looked as if we weren’t going to be able to regulate tobacco packaging, for example. We are experiencing lax application of immigration and work rules, resulting in our minimum wages and other hard-fought awards being undermined. (So much for “secure borders”.) Foreign multinationals have used every ruse to avoid paying tax in Australia, and in the current election campaign the Coalition is proposing corporate tax breaks that would be of benefit only to foreign investors. Worst of all, flimsy economic arguments have been used to cut government services and privatise assets – policies which have been added to the “globalisation” package.

But it would be a tragic mistake, if in response to such irritations, countries were to retreat to xenophobia and isolationism as England seems to be doing. There are huge problems requiring international cooperation – dangerous climate change, treatment of refugees fleeing armed conflict, and the risk of a collapse of the world financial system, to name just three.

We need governments that can attend to our legitimate concerns of national self-interest, without yielding national sovereignty where it counts. We should be thinking, for example, of free trade between countries that allow unions to operate and that prohibit the use of child labour. We should welcome immigrants – including refugees – but should not use immigration as a means to erode our standards of employment. We should be open to foreign investment, but not on terms that are detrimental to our long-term interest. And we should not be using “globalisation” or “competition” as cover for privatising and cutting government services – in the short term that may be a clever way for governments to buy off rent-seekers but in the long term it gives globalisation a bad name, as has happened in Britain.

The other lesson from Brexit is that the vote has given voice to those who have been left behind. Understandably in Britain there is a wave of annoyance. The policy elites are asking one another “how could all those ignorant people be so bloody silly as to vote against their own and the nation’s  self-interest?”. But as I explain in a New Matilda article, the complaints are legitimate, even if the target (the EU) is not where the fault lies.

Economic liberalisation has not brought benefits for all. The repeated promise of neoliberalism, repeated yet again in the Coalition’s “jobs and growth” mantra, is that a set of policies that improve economic growth will eventually allow problems of poverty and exclusion to be dealt with. Those benefits are supposed to come some time in the future, but as Keynes pointed out, in the long term we are all dead.

It’s a strange economic philosophy that has no concern for the way the benefits of economic growth are distributed, as if economic growth is an end in its own right, rather than a means to people’s well-being.

Even if people’s economic lot in terms of material conditions has not gone backwards, inequality counts. Exclusion from the opportunity to make an economic contribution in the form of meaningful work counts. Many of those Englishmen and Englishwomen who voted for exit are the children of people who once had the dignity of jobs in manufacturing, and who could count on the Labour Party to fight for their economic interests. No amount of social security benefits is able to compensate for the pain of exclusion, and of being left behind as others enjoy the fruits of economic growth. It’s no wonder that the allure of an imagined better past is strong. The opportunity of the Brexit vote, unlike the vote in general elections where the perceived choice is between look-alike parties with minor differences, was to vote for something that people believed could make a change, and perhaps even bring back that imagined better past.

The implications for Australia should be obvious, but the Coalition has cynically used Brexit and its economic shockwaves to argue for continued steady economic management in their hands (ignoring the shock of their 2014 budget, their dithering over GST, the internal party conflicts on negative gearing, the need for a panicked lowering of interest rates, and the huge growth in foreign and household debt that’s happened on their watch).

The lesson we should draw from Brexit is that the Coalition is pursuing the very policies that have led to such discontent in England. The election slogans – the Coalition’s “jobs and growth” and Labor’s “putting people first”, even if over-used, have meaning.  (The Liberal Party should also take heed of what happens when a centre-right party does a Faustian deal with extremists on the far right.)

Labor, at least, understands the need to forgo expensive corporate tax cuts in order to invest in school education, to make housing affordable, and to preserve benefits such as publicly-funded health care. There’s no guarantee that Labor’s modest education proposals will be adequate to close our education gap, but it’s almost a dead certainty that if we leave a large portion of the coming generation poorly educated and shut out of the housing market we will encounter the same problems as England is now facing.

It’s the height of irresponsibility for the Coalition to distract us from the messages carried by the Brexit vote. A large swathe of the population, discontent and excluded, provides a perfect opportunity for a populist demagogue and political movement, which, as in Germany in 1933, would sweep our existing parties into the political trash can.



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