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Reaping the whirlwind

26 June 2016

Without a coherent alternative to finance-driven economic policies, the tribalism represented by the Brexit vote will triumph, argues John Quiggin


The pro-Brexit forces were supported almost everywhere in England outside London, a city more dependent than any other on the global financial system. krzych-34/iStockphoto

The pro-Brexit forces were supported almost everywhere in England outside London, a city more dependent than any other on the global financial system. krzych-34/iStockphoto

The surprising decision by English and Welsh (though not Scottish or Northern Irish) voters to leave the European Union only makes sense in the broader context of the breakdown of the ideological consensus that dominated politics throughout the world until the global financial crisis. Precisely because of its dominance, this ideology was seen as common sense by its adherents. Its opponents gave it various names, including economic rationalism (in Australia), Thatcherism (in Britain) and the Washington Consensus (in the Third World), but the most common was “neoliberalism.”

As neoliberalism has declined, it has been challenged on the right by the politics of tribalism, embodied in the Brexit vote and the rise of Donald Trump in the United States. There have also been challenges from the left, reflected in the election of Jeremy Corbyn as the leader of the British Labour Party and the strong showing of Bernie Sanders in the US Democratic primaries. To understand what is going on here, it is necessary to go beyond using neoliberalism simply as a pejorative, and to understand it as a powerful, but ultimately wrong and dangerous, way of thinking about the world.

First, though, we need to clarify the term itself. Neoliberalism is mostly used to mean one thing in the US and something related, but different, everywhere else, including in most political discussion about the US. This difference may be traced back to the fact that in the US the term “liberal” has historically been associated with the centre-left, combining support for social and civil liberties with a moderate form of welfare statism. In Europe, by contrast, the term “liberal” is more closely associated with the nineteenth-century free-market view commonly called “classical liberalism.”

Correspondingly, the term “neoliberal” is used outside the US to refer to the revival of those nineteenth-century free-market ideas. Closely associated is the return of the nineteenth-century globalised economy, which was made possible both by the free market and by the creation of the first global telecommunications networks. Thanks to telegraphy, money could be moved instantly and freely about the world, while people and goods travelled at the much slower, but still historically impressive, speeds of railways and steamships.

Neoliberalism in this sense emerged from the economic crisis of the 1970s, which destroyed an earlier consensus centred on Keynesian macroeconomic management and a social-democratic welfare state. Its core idea was that unfettered financial markets could do better than governments in every respect: stabilising employment and inflation, allocating investment, allowing people and families to manage the risks of unemployment, sickness and old age. The full program of this “hard” neoliberalism involved dismantling the twentieth-century welfare state and the associated mixed economy.

The US version of neoliberalism corresponds to what was elsewhere called the Third Way. It involved an attempt by former liberals (in the US sense) and social democrats to accommodate to the demands of financial markets while still softening the edges of capitalism and maintaining a more active role for the state in filling the gaps left by market provision of services. This “soft” neoliberalism was exemplified by Bill Clinton’s administration in the United States and the Blair government in Britain and was prefigured, in important respects, by the Hawke–Keating government in Australia.

As an ideology, neoliberalism retained its dominance until the global financial crisis, which fatally undermined the central claim that a massive and powerful financial system would guarantee prosperity for all. Despite its death as a credible theory of economics and politics, neoliberalism has stumbled on in zombie form for nearly a decade, maintaining its hold over major political parties and organisations like the OECD, the IMF and the European Commission. As I observed in my 2010 book, Zombie Economics, the economics profession as a whole has learned almost nothing from the global financial crisis. Ideas like austerity, which should have been decently buried long ago, continue to wreak havoc throughout the world, and most notably in Europe.

The political situation is similar. Nearly everywhere since the 1970s the political system has been based on electoral competition between “hard” and “soft” versions of neoliberalism, focusing on marginal differences in economic policy and (via the so-called “culture wars”) more heated divisions in social policy. Within the political class and among business leaders and policy-makers, a near-universal consensus supported neoliberal ideas. To take any position outside the narrow range from “hard” to “soft” neoliberalism guaranteed exclusion from serious political debate.

Despite its dominance, neoliberalism hardly ever achieved broad support among the public at large. Rather, its seeming success concealed the continued strength of currents that remained submerged for decades and became politically significant only in occasional eruptions.

The most important of these submerged currents was tribalism, a politics based on affirming a group identity against others. While as many tribalisms exist as there are tribes, its most politically potent form, and the relevant one here, is that of a formerly unchallenged dominant group facing the real or perceived prospect of becoming a politically weak and economically declining minority. The most important such group consists of white Christians, where “Christian” is a cultural identification rather than any specific religious belief.

Opposed to the tribalists in critical ways, but similar in others, is a disparate group that may be called, for want of a better term, “the left.” As well as a small group who adhere to Marxist or other radical critiques of capitalism, the “left” in this sense includes environmentalists, feminists, unionists, old-style liberals and social democrats, and a wide variety of groups whose personal or cultural identity is threatened by white Christian tribalism.

Most people aren’t systematic thinkers and many combine a mixture of these views. Pauline Hanson’s One Nation, for example, combined a dominant tribalist theme of opposition to immigration with a reaction against “economic rationalism,” and drew a significant amount of support from union-oriented Labor voters.

Because neither “hard” nor “soft” neoliberalism commanded much in the way of support, the dominant neoliberal parties relied on the votes of the excluded groups. The “hard” neoliberal parties relied on the votes of tribalists and made symbolic gestures in their direction, but largely ignored them, particularly if their interests came into conflict with those of big business. The big point of conflict within this coalition was immigration policy, favoured by business but feared by the voters whose support the parties needed. The resolution, which was sustained for quite a long while, was to expand skilled and business migration, the kind most favoured by business, while focusing tribal fears on particular groups (in the Australian context, people arriving by boat).

Soft neoliberals similarly gained the electoral support of the various left groups through a combination of modest concessions and willingness to support “the lesser evil” in the absence of any alternative. The archetypal example, and the one that does most to explain the Brexit eruption, was Tony Blair’s New Labour, which explicitly abandoned the traditional positions of the Labour Party and embraced globalisation and the financial sector.

The project of European unification, embodied in the European Union and its associated institutions, was, in its origins, a classic example of soft neoliberalism. Its central aim was to remove barriers to the flow of money, goods and people across national borders within Europe. This was constrained by a wide variety of protocols, commonly referred to as the social chapter, which were designed to protect European welfare states within a framework of market-liberal reform.

Over time, though, hard neoliberalism came to the fore, most obviously in the creation of the euro and its managing institution, the European Central Bank. The charter of the ECB focuses entirely on targeting inflation, and precludes the use of monetary expansion to finance budget deficits.

The global financial crisis, and the responses of the policy elite, proved fatal to neoliberal dominance. Everywhere, bankers and the financial system were bailed out and ordinary people picked up the tab. The situation was worst in the eurozone, where the design of the ECB made it virtually impossible to adopt any policy except “austerity,” a counterproductive focus on cutting budget deficits and controlling the non-existent threat of inflation. (Even if an alternative had been possible, the arrogance and incompetence of ECB president Jean-Claude Trichet ensured that it would not have been considered.) The result has been a decade of depression in most of the developed world. Even in the US and Britain, which on some measures have recovered, living standards still haven’t returned to the previous growth path and income inequality has become ever more evident.

But just as the economic ideology of neoliberalism lumbers on in zombie form, so, until recently, has the political system it maintained. Insurgents of various kinds have gained support nearly everywhere, but the alternation between different versions of neoliberalism has continued.

In 2016, all of this has broken down. Hardly anyone now believes in the assurances of the policy elite that they know what is best. It is clear that things have gone significantly wrong in the global economy. What is less clear is why it happened and what can be done to fix it.

On the left, the answer to the first question is relatively straightforward: the excesses of financialised capitalism have finally come home to roost. This perception crystallised most dramatically in the Occupy Wall Street movement in 2011, and in the stream of research showing that the benefits of globalisation had gone overwhelmingly to the top 1 per cent, or even the top 0.1 per cent, of the population. Yet the process of developing a coherent alternative has barely begun.

By contrast, the tribalists have a clear answer to both questions. The problem is not (or at least not primarily) at the top of the class structure, among bankers and CEOs, but at the bottom, among immigrants and racial minorities who benefit from state protection at the expense of “people like us.” The natural response is to stop or restrict migration and, if possible, to force recent migrants, and particularly illegal migrants, to leave.

The Brexit referendum represents the first truly major victory for the tribalist opponents of neoliberalism. Although a wide variety of issues was canvassed, the central focus of the Leave campaign was the desire to reassert national control over migration policy, particularly against migrants from poorer EU countries in Eastern Europe. Against this, the neoliberal supporters of Remain painted terrifying pictures of the damage that would be done to business, and particularly the financial sector, by a break with the EU.

The vote for Britain as a whole was quite close. But it represents a bigger win for tribalism than the aggregate figures suggest. The version of tribalism offered in the Leave campaign was specifically English. Unsurprisingly, it didn’t appeal to Scottish or Irish voters, who rejected it out of hand. Looking at England alone, however, Leave won comfortably with 53 per cent of the vote and was supported almost everywhere outside London, a city more dependent than any other in the world on the global financial system.

Given the framing of the campaign, the choice for the left, even more than usually, was to pick the lesser of very different evils. Voting for Remain involved acquiescing in austerity and an overgrown and bloated financial system, in both Britain and Europe. The Leave campaign relied more and more on coded, and then overt, appeals to racism and bigotry, symbolised by the murder of Labour MP Jo Cox, stabbed to death by a neo-Nazi with ties to extreme tribalist organisations in both Britain and the US. The result was a tepid endorsement of Remain, which secured the support of around 70 per cent of Labour voters but did little to shift the sentiment of the broader public.

Although their program has been endorsed by the voters, the big problem for the English tribalists is that they have no solution to the economic decline against which most of their supporters were protesting. Indeed, while the catastrophic scenarios pushed by the Remain campaign are probably overblown, the process of renegotiating economic relationships with the rest of the world will almost certainly involve a substantial period of economic stagnation.

The terms offered by the EU for anything like existing market access will almost certainly include maintaining the status quo on immigration. In the absence of a humiliating capitulation by the new pro-Brexit government, this will mean that Britain (or England) will face a long and painful process of adjustment.

And, even supposing that control over migration policy is reasserted, many pro-Brexit voters may find that the negative personal consequences of leaving Europe outweigh the abstract satisfaction of having excluded anonymous foreigners. At a relatively trivial level, they will need a visa to visit Europe (which in this context will probably be as close as Edinburgh). More serious consequences will arise for people whose sons or daughters meet their partners while travelling in Europe, as so many young people do, or even in an independent Scotland. If they are to live together, the English partner will be forced to emigrate and seek citizenship under more liberal EU laws.

Nevertheless, in the absence of something better, tribalist sentiment is only likely to grow. The great tragedy of the period since the global financial crisis has been the failure of the left, broadly defined, to articulate a coherent alternative to, or even a clear critique of, the zombie ideas of neoliberalism. There are, to be sure, some signs of such an alternative, from Syriza in Greece to the Sanders campaign in the US, but so far none of these has been more than modestly successful. Nevertheless, if we are to avoid the dead end of tribalism, there is no alternative. •

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Active citizen: detail from a sixteenth-century portrait of Machiavelli by Santi di Tito. Wikimedia

Active citizen: detail from a sixteenth-century portrait of Machiavelli by Santi di Tito. Wikimedia