Policy Research in Macroeconomics

A political and economic case for voting to Remain in the EU

This article is from the latest e-publication “Remain for Change: Building European solidarity for a democratic economic alternative” from EREP, the network of Economists for Rational Economic Policies.  

The case for Britain to Remain within the EU is to my mind, largely a political case. The political forces pressing for a rupture with the Union are not on the whole progressive, although there are many sincere Leave campaigners on the Left of the spectrum. ‘Brexiters’ are mostly insular, nationalistic and sometimes racist, especially in relation to immigrants and refugees. 

With few exceptions the Brexit leaders are market fundamentalists, anxious to blame foreigners for the state of our economy; to attack European ordoliberalism rather than the – if anything more damaging – Anglo-Saxon Osbornomics. Their approach is particularly ironic, given that today’s European Union is today much more like Britain than it was before, as Jan-Werner Müller [1]  argues in the latest edition of the London Review of Books. European populist discontent owes much to the impact of Anglo-Saxon economic policies for the liberalisation of finance and the privatisation of public assets.  

There are politically progressive arguments made by some on the Leave side against membership of a political Union which has hollowed out democratic institutions across Europe, and transferred power to unelected technocrats. One in which right-wing politicians actively use state intervention and the rhetoric of the Social Model to reshape Europe into what José Palma defines as “a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital.” [2]

These liberal finance principles have led to high levels of private debt, bankruptcies, unemployment and public humiliation in many European states. It is clear to many Europeans that the workings of the self-regulating market system threatens to destroy their societies. And so they are engaged in what Karl Polanyi defined as “the self-preserving actions of communities” to interfere with the system’s free functioning by turning for “social protection’ to the strong leaders of right-wing, and even fascist parties.

At this critical turning-point in Europe’s history I believe it would be wrong to walk away from the fight against authoritarianism, and to spurn European partnerships in managing the market system, and curtailing the rent-seeking practices of oligopolistic capital.  Above all, after a catastrophic world war still fresh in European memories: one in which at least sixty million people died worldwide, it would be wrong for Britons to exacerbate inter-European tensions and divergences with a Brexit. It would be wrong to shun the yearning for peace, stability and neighbourliness common to most European societies. 

The economic case for remaining a European partner

There are two points to be made in support of the economic case for membership of the European Union. 

The first has to do with the evolution of geopolitical forces. As American power wanes and in the process becomes more dangerous, it is paralleled by the rise of a powerful, autocratic Chinese state. Given these developments, I believe it important for Britain to be part of strengthening and upholding a third bloc: one built on long-established European struggles for protection of fundamental human and democratic rights of citizens, and for security and justice. A genuinely Social Europe whose struggles, values, culture, traditions and institutions are distinct from those of both the Americans and the Chinese. 

The importance of strengthening such a unified third bloc is made clear as we face three great challenges that do not recognise national borders. The first is the grave threat of climate change, when infinite expansion hits the buffer of finite natural resources. Global warming knows no boundaries, so European-wide cooperation will be vital in adapting to it. Second, the wars, catastrophes and poverty of the Middle East have triggered mass migrations of refugees which can best be managed in a co-ordinated, co-operative and (hopefully) humanitarian Union. 

Third, given the global interconnectedness of an out-of-control finance sector, we face another financial crisis. It is extraordinary that almost nine years after inter-bank lending froze on the 9th August, 2007, we as an international community have failed to re-structure or reform the current system, and are stumbling mindlessly towards the next grave global calamity.  

Tackling the first of these two crises as a small island state will be nigh impossible. But alone, we have no chance of dealing with the aftermath of the next global financial crisis. 

While there has been much tinkering with the complexity of global finance by the Basel Committee on Banking Supervision, little has been done to re-structure the international financial architecture and system to restore stability. On the contrary: unrestrained, finance capitalism has expanded further into shadow banking, aided and abetted by government guarantees, and the European Central Bank’s largesse. This has enabled the finance sector to engage in immensely lucrative debt-creation and other rent-seeking activities – without public oversight, and without the immediate fear of failure or losses. Business for this sector, backed as it is by European taxpayers, is better-than-usual, even as it becomes mired in tax evasion scandals, fraud and corruption. 

There’s fear too in the eyes of global technocrats, conscious that they are driving blind, having lost control of the financial system. They lack up-to-date information and data about the activities of anarchic finance; and they have used up the monetary tools at their disposal during the last crisis. To compound their fears, social democratic politicians in Europe and the US remain fixated by neoliberal dogma, unable to pull the levers of government spending that would stimulate demand, lift their economies out from under mountains of debt, and halt stagnation and decline. 

As this goes to press, the IMF, in a paper titled Neoliberalism. Oversold?  has released a belated mea culpa regarding the destructive effects of neoliberalism, and arrived at 

“three disquieting conclusions:  

•    The benefits (of neoliberalism) in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries. 

•    The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda. 

•    Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.” [3]

This climb-down comes too late to reverse the economic and social destruction wreaked by neoliberalism over many decades. Nor will it alter the direction of events. A crisis is now unavoidable. When that day arrives, it will be necessary for progressive forces to combine across the continent.  First, to amend the Union’s treaties and their embedded orthodox economic policies.  Second, to fight to restore democracy, security and justice to European countries and institutions; to replace anarchy with stability and order; and to subordinate mobile global capital markets to the interests of democratic societies. 

That will only be achieved by international co-ordination and co-operation of progressive forces across borders. It cannot be achieved in isolation.  

Ann Pettifor is Director of Policy Research in Macroeconomics (PRIME)


[1] Jan-Werner Muller, Europe’s Sullen Child, London Review of Books, 2 June, 2016.  
[2] José Gabriel Palma:  The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature. June, 2009. Cambridge Working Papers in Economics (CWPE) 0927       
[3] Jonathan D. Ostry, Prakash Loungani, and Davide Furceri. Neoliberalism: Oversold? IMF Finance and Development, June, 2016

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