When half of a population, after reflection and deliberation, casts its votes, that act should be respected and subjected to analytical understanding, not second-hand abuse.
Quite against the widely held consensus of all those elites – in the media and politics, and experts of all kinds – who know everything about everything, the British people decided by a huge margin of 1.27 million votes to ‘Leave’ the EU in the just-concluded referendum, with a turnout of 72%, the highest in any elections since 1992.
The first casualty was the media, which looked gutted like a fish, with all their certitudes upended. The financial markets had convinced themselves that ‘Remain’ had the edge, especially after the unfortunate murder of the MP Jo Cox the week before the referendum was due. After all, the political experts, the talking heads on TV, the polling outfits and the media, which are supposed to have their pulse on the public mood, were unanimous in saying that the momentum in favour of ‘Remain’ after the murder was remarkable and unstoppable.
Unfortunately, it was not, and the reading of the public mood was terribly and tragically wrong. Financial markets are paying and will pay the price. But unlike what some Tory ministers of the ‘Remain’ faction are saying – “I told you so: Britain has made a terrible mistake, the sky is going to fall on all our heads” – the markets will settle down after some bloodletting and losses.
That will of course, mean some people will lose their jobs but this is not 2008. There is no fundamental crisis. Will the UK or the EU go into recession, as some are speculating? Perhaps, but not because the British people – or more accurately the English and Welsh – voted to leave the EU. If there is a recession, it will more likely hit the EU than the UK, and for reasons that are endemic to the slow train-wreck the EU is beginning to resemble.
Firstly, consider the immediate economic and political fallout and the real tectonic shift happening on both sides of the Atlantic. The UK economy (GDP) has been growing by an average of 2.5% over the past three years. That is quite a bit higher than the 0.8% that the Euro-area generated in the same time period, and much better than the 1.2% of Germany and the 0.8% of France – the lead actors in the European theatre.
What about unemployment? The average for the Euro area for the past year was a bit over 10%, with France nearing the average, while Spain (20%) and Italy (nearly 12%) were way higher. Ireland was a bit below the average, at 8.5%, while the Netherlands was less than that (about 6.5%). Germany has the best rate of 4.2%. Where was the UK? It was at 5%, and its trajectory is downwards.
The same relative position is also true for the critically important measure of youth (under 25 years) unemployment. There is no reason why Britain should suddenly go hors de combat.
Britain imports far more than it exports. In 2015, the UK exported £305 billion and imported £411 billion of goods, leaving a trade deficit of £106 billion. In 2015, the UK imported more from the rest of the EU (53%) than it did from non-EU countries (47%), while it exported less to the EU (44%) than it did to the rest of the world (56%). As a consequence, as much as 80% of its trade deficit was with the rest of the EU and only 20% with the non-EU world.
This was not always so. As recently as 2008, imports were evenly divided between the EU and non-EU states. 55% of UK exports went to the EU and as a result only 38% of the trade deficit was with the rest of the EU, while 62% was with the non-EU world. This shift was not because crude oil prices were lower in 2015, compared to 2008. Indeed, the UK’s net imports in 2008 were less than 10% of consumption and this figure has gone up nearly fourfold in 2015 because of declining production in the North Sea.
So, it is not tenable to say that the UK was getting proportionately more out of trade with the rest of the EU, but there is a case to argue the opposite.
Because of its large trade deficit, Britain ends up having a very large current account deficit (CAD): it touched 7% of GDP for the quarter that ended in December 2015 and 5.2% for 2015 as a whole. The bulk of the CAD is with the EU, with that for non-EU countries either in small surplus or small deficits – reflecting the trade imbalance with the rest of the EU.
After the referendum, the financial media has begun to underscore the size of Britain’s CAD. It is without doubt large. The fact is, the UK could finance it through capital inflows. Is its membership to the EU a major factor to obtain this financing? That is indeed very doubtful, as the inflows are not supplier’s credit or loans to finance imports – as was the case with Greece and other badly-impacted EU members in recent years. The financial flows – Foreign Direct Investment (FDI) and portfolio – are substantial and have had more to with London being (along with New York) the world’s leading financial centre and the attractiveness of the UK as a destination for FDI.
Was this prominence of London as a financial centre an endowment of the UK’s membership of the EU? The historical record suggests not. London has been a financial powerhouse for four centuries now, much longer than the EU’s half-century lifespan. The financial business centred in London is a major provider of high-quality jobs and a major source of tax revenue to the government. It seems highly unlikely that the decision to leave the EU by the citizenry of the UK will have an adverse effect on the future of London as a financial centre. In fact, it might help – as the snotty, ‘suspicious of private capital’ attitude of the socialists on the continent has actually been undermining the elbow room the financial district in London has had in the past. It may now be liberated from pettifogging rules and actually do a whole lot better.
So, if the British economy suffers from the referendum result, it will be a passing phase and mostly on account of scaremongering by the ‘Remain’ campaign and its allies, the assorted ‘experts’.
‘Enough’, says the worm
The longer-term and more fundamental political development is that the much beleaguered British working class and middle classes have revolted.
What are they in revolt against? It is the pat, elite consensus of the jet set – nationalism is blasé, as is religion. ‘Free trade’ and ‘globalisation’ are always virtuous, once so labelled. Whoever has a gripe about it is a troglodyte. Mass immigration (which gives them their low-paid nannies and other domestic helpers) must never be subject to critical evaluation; only right-wing crazies do that. Multiculturalism (whatever that is) is a moral virtue (Michael and Gabriel) and anthropogenic (man-made) climate change the arch enemy – the modern-day Lucifer. Whoever has a problem with this is a ‘Denier’. There may not be a Judeo-Christian God, but the script is predictably and depressingly similar. Deep thought, reflection and erudition are cute, but not really necessary, as caustic mockery is sufficient to put the ‘backward’ people down.
The new elitism has become the consensus. There are freaks’ holdouts, but they can be beaten down by the voice of consensus – ringing from headline to headline, TV channel to TV channel, third-rate best-selling pop-science/pop-cultural/pop-psychological novels, each promoting the other. If elderly white pensioners in northern England can’t afford heating fuel in bitterly-cold winters and unemployed immigrant families are allotted large government (council) houses because they have a dozen children, it is a testimony not to a welfare system gone crazy, but the impeccable virtue of the beautiful elite – forever a debutante. Critics are all xenophobes.
It is the self-absorption of the elites engaged in a conversation with only themselves that has blinded them to how ordinary people are doing. It is not as if in the Western economies of today the working class is being immiserised, as Marxists might have once put it, but they are not doing anything as well as the elites who seem not to have the time for them. What is worse is that they have been continuously talked down to, their reservations dismissed with “you don’t understand this” or “just listen to the experts” or “it is so complicated – even I don’t understand it. How can you?” In any case, the policy maker was busy doing his or her own thing without much reference to the ‘people’ from whom they derived sovereign power.
And if it ever came in the way, the people could always be circumvented. This is all recent history. In 2005, a referendum on the EU political constitution was held in France and a few days later in the Netherlands. In both cases, the proposal against the EU political constitution got the majority of votes: in France 55% and in the Netherlands 62%. So what happened next? The Lisbon Treaty happened: business got kicked out of the unreliable popular field and into the closed chambers of heads of government – signed in 2007 and finalised in 2009. The commitment of elitism of the EU and its general fellow ‘consensus-walas‘ in the West to democracy is not that different from the elitism that used to call the citizenry “the masses of the great unwashed”.
If one has doubts about this, one has only to reflect on the great eminence of the EU, Jean-Claude Juncker’s recent public plaint that prime ministers must stop listening to their voters and act instead as “full-time Europeans”, that is, take their cue from Brussels and not their electorates. It is little wonder that the late Archduke Otto von Habsburg, the last crown prince of the Austro-Hungarian Empire was such a fan of the EU political union. There are so many similarities in style and taste.
The worm turns
Over the past one-and-a-half decades, the people who have been consistently talked down to and over whose heads conversations have been carried have been restive. Their economic conditions have also not been getting better. The data of the US census bureau on real wages shows that high school dropouts, graduates and those with community college education have seen their real wages stagnate and even decline over the past couple of decades. Quality blue-collar and lower-paying white-collar jobs have become increasingly difficult to come by and the bottom half or more than half of the population are finding it difficult to lead working lives with the kind of dignity that was the norm even a few decades ago. College education has become expensive and is no longer a pass to a high-paying job, creating new burdens for less prosperous families as the children’s college loans pile up. Something similar is very likely happening in Britain and Europe too.
The rise of Donald Trump was of course the first cannon fire from the ranks of the “great unwashed”. Undoubtedly, these masses were, like the 52% of British voters, “jingoists” and “xenophobes”, as our very own Indian print media has bemoaned in its headlines. It is quite amazing how our media so readily takes its cue from the nonsense spewed by the Western media, without thought or reflection. This is not our debate. Can we not see that there are, as always, two sides to the argument and that when half of a population, after reflection and deliberation, casts its votes, that act should be respected and subjected to analytical understanding, not second-hand abuse?
Saumitra Chaudhuri is a former member of the Planning Commission and Economic Advisory Council.