by Frank Schnittger
Wed Nov 20th, 2019 at 01:20:36 PM EST
Boris Johnson likes to talk about "our friends in Europe" when talking about the cooperative future he sees emerging between the UK and the EU post Brexit - where both will be competing as equals in a globalised world economy. But it is much more likely that the EU and the UK will end up being mortal enemies.
There are a number of reasons for this. Some are political: If Brexit succeeds in delivering a more prosperous UK, why would other countries wish to remain in the EU? Being part of a political union involves inevitable compromises and constraints on national polities. Why would they endure such constraints if there wasn't a demonstrable pay-off in terms of economic prosperity and political influence in the world?
But if Brexit is a threat to the future of the EU, so also would a relatively successful continuing EU be a threat to the UK: Not only might Scotland and N. Ireland secede to become part of that greater prosperity, but the divisions within England and Wales exposed by Brexit between Leavers and Remainers, north and south, and the winners and losers of globalisation would be exacerbated.
Brexit sets up a very dangerous dynamic whereby both the UK and the EU have a vested interest in securing their own stability by seeing the other fail. This is the stuff that wars are incubated in, even if, on this occasion, it leads to no more than an economic war. But there are also a number of reasons to suppose this economic war could be deep and long:
Any post Brexit FTA or "deeper economic relationship" between the EU and the UK will have to be ratified by 27 member states plus the European and some regional parliaments. Why would they do so unless the terms are clearly beneficial to their industries and regions? England is not the only country with a resurgent nationalist movement.
The reality is that a "no deal" Brexit is still very much on the cards, even if the Withdrawal Agreement is eventually ratified by the UK and European Parliaments. Even an orderly withdrawal is no guarantee of a future stable relationship. But next time around, it may not be just English Brexiteers who are advocating "no deal".
This will especially be the case if there is a gradual economic divergence between the UK and the EU, with a Johnson government pursuing a "Singapore-on-Thames" strategy of competing against the EU by lowering corporate taxes, de-regulating businesses, diminishing worker's rights and lowering consumer and environmental protections.
Eoin Drea is a researcher at the Wilfried Martens Centre, the official think tank of the European People's Party. He argues that the EU is fundamentally underestimating what the UK could achieve post Brexit:
Put simply, Europe continues to underestimate British abilities to adapt, and possibly even thrive, in a post-EU environment. Brexit may well be an obscene act of economic self-harm, but that does not preclude the probability that Britain will remain a powerful economic and political actor on the world stage. In so doing, Britain will be a most serious competitor for Europe irrespective of what kind of Brexit actually occurs.
That is why, for Europe to thrive, Brexit Britain must fail (and fail badly).
Viewed through the prism of a continental lens, Brexit Britain will be a Ryanair-style competitor to the EU's established Lufthansa brand. A wild jungle of unrestrained, US-style capitalism filled with exploited and vulnerable workers. This bizarre type of socio-economic superiority fills the narrative of unrestrained Anglo-Saxon capitalism. Unfortunately, for the EU, this view is factually incorrect and more than a little moored in cultural chauvinism.
Did you ever wonder why so many workers from central and Eastern European member states flock to work in Britain (and Ireland)? Why English is the dominant language in the EU even though it will not even be an official language of any member state after Brexit? Or why President Emmanuel Macron, before his gillets jaune walk-back, sought to implement classical Anglo-Saxon economic policies - smaller state, lower business taxes and increased labour market flexibility?
It's because the Anglosphere (led by the US with Britain in tow) understands that globalisation is like going to a drug rehab centre; there can be no half measures, no piecemeal commitment: you must be in it to win it. And the US and Britain have succeeded in shaping the framework of modern, capitalist, democratic societies. Nobody dreams of implementing the Belgian or Italian economic models, or of replicating German fiscal angst.
Let us ignore the fact that English will remain an official language of both Ireland and Malta, and the lingua franca
of much of the global business world due to US, not UK dominance.
What follows is a long paean of praise to the neo-liberal globalised economic model, as one might expect from an EPP researcher, and there will be some in the EU advocating that the EU join the UK in a race to the bottom, with lean government expenditures, low taxes, de-regulation, and a buccaneering entrepreneurial spirit. Apparently the UK's imperial past gives it advantages European powers cannot match.
There is no mention of the growing inequality, social unrest, political instability and environmental degradation those same neo-liberal policies are wrecking upon neo-liberal governed societies.
Joseph de Weck, writing in Euractiv has a different take on the UK's Brexiteer economic strategy:
As foreign secretary, Boris Johnson bragged to EU diplomats about his plans for reviving “buccaneering Britain”, that romantic vision harking back to the gold-hunting days of Henry Morgan and his raids on Spanish outposts in the Americas.
While France mustn’t worry about 21st century pirates streaming across the channel, Johnson is thinking about a more subtle kind of free-booting: He wants to chip at the EU economy by turning the UK into a global business hub with ultra-low taxation and light-touch regulation.
London embarking on a Switzerland-style policy can’t please Brussels. German Chancellor Angela Merkel warns that the UK will become “an economic competitor on our doorstep”. Paris insists any future free-trade agreement has to ensure a regulatory playing-field.
But Europeans should relax. Switzerland’s business model is not all it’s cracked up to be. And the UK is too big to effectively pursue so-called “arbitrage” policies.
Basically Joseph de Weck argues that the UK will be 10 years too late coming to the neo-liberal party, because political globalisation is catching up with economic globalisation, and countries like Switzerland have lost much of their independent freedom of action in regulating their economic affairs.
Since the 2008 financial crash, he argues, most economic regulation is now being done at a global level, tax havens and countries engaging in regulatory arbitrage are under increasing pressure, and major global corporates actually prefer common global regulations to the complexities of dealing with different regimes in different markets. (In my own direct experience, Diageo doesn't bother trying to sell into many US states because of the complexities of alcohol regulations varying from county to county).
Furthermore, he argues:
It is no coincidence that countries practising arbitrage strategies are relatively small.
First, big countries can’t win tax wars. The rationale for lowering corporate tax rates is that the loss in revenue from existing companies will be compensated by incoming firms. This bet however only works for small countries. The loss in revenue is small compared to the large pool of global companies you can attract.
Finally, he argues, the Brexit debacle has amply illustrated that the UK also lacks the political stability, decision making efficiency, and regional and social cohesion to successfully engage in regulatory arbitrage strategies: Those who stand to gain most are already doing well within the EU, most Leave voters in declining northern industrial towns and cities stand to gain nothing.
Singapore and Switzerland don't have those problems. Joseph de Weck might also have mentioned that one of the UK's main competitor for FDI will be low corporate tax rate Ireland with similar linguistic and legal systems and access to a much larger market. Why on earth would global corporates locate the bulk of their assets in the UK if they want to access the European market?
So basically Boris Johnson is pursuing an economic strategy others are in a much better position to execute, and one which is becoming increasingly anachronistic since the 2008 crisis. Even Ireland accepts the inevitability of global corporate tax reform, and large global corporates want access to big markets and don't mind paying a regulatory price provided there is a level playing field for all.
But Johnson's strategy also begs a much larger question: Why on earth would the EU allow the UK unfettered access to its market when the UK cannot offer a similar sized market of its own? 80% of the UK economy is made up of services providing EU competitors with only limited opportunities to compete. If the EU needs to make up a revenue shortfall arising from the loss of the UK's net contribution to the EU budget, why would it not slap a tariff on UK exports to the EU?
Once the UK is no longer represented in the EU Council and Parliament, it will have no effective means of articulating its interests into EU policy debates. Its diplomats may try to influence EU capitals, but many trade competencies are already pooled at EU level where every member, ultimately, has a veto. Any divergences between the EU and UK will be highlighted, and serve as reasons why a level playing field for trade is not possible.
As nationalistic rhetoric takes centre stage in both London and European capitals, the likelihood is for greater estrangement rather than collaboration. In vain, a small country like Ireland, with a historical foot in both camps will try to mediate the disputes that arise, but even here there will be a conflict of interest. Northern Ireland could be a net beneficiary of that estrangement, as companies set up there in order to maintain access to both markets.
No doubt Johnson won't stick around to witness the effects of his own handiwork. Win or lose the next election, it is likely to be his last. Trump has, at most, one term to go. Economic competition has led to much of the growth of capitalism, but it has also empowered the already powerful and further relatively impoverished the weak.
What worked in the 20th. Century won't necessarily work in the 21st. Singapore-on-Thames may work for the denizens of the City's square mile, but it will hardly work for the rest of the UK. The UK and the EU elites may go to economic war to shore up their positions, but there will also be many losers. Those who voted Leave in the UK might well find that it is better to have the EU on your side than against you. And those who vote for Boris now in order to "get Brexit done" may well find that it is they who are about to get done.