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Does Brexit represent an alliance of Rentiers?

Summary:
One of the striking features of Brexit is that it is harmful to most productive capital and those who work with it: the capital embodied in firms that trade for sure, but also the capital that produces stuff for firms that trade and so on. In so far as Brexit will impoverish the UK as a whole, it is also harmful to any firms that produce for the UK market. Yet the party that has traditionally been thought of as supporting UK productive capital, the Conservative party, is the one promoting Brexit. There are of course moneyed interests who provide active or financial support, and even bankroll, Brexit. Among owners of UK firms they tend to be individuals who have a particular beef against the EU. You will also find a few hedge fund managers. The most notorious financial backer of Brexit,

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One of the striking features of Brexit is that it is harmful to most productive capital and those who work with it: the capital embodied in firms that trade for sure, but also the capital that produces stuff for firms that trade and so on. In so far as Brexit will impoverish the UK as a whole, it is also harmful to any firms that produce for the UK market. Yet the party that has traditionally been thought of as supporting UK productive capital, the Conservative party, is the one promoting Brexit.

There are of course moneyed interests who provide active or financial support, and even bankroll, Brexit. Among owners of UK firms they tend to be individuals who have a particular beef against the EU. You will also find a few hedge fund managers. The most notorious financial backer of Brexit, Arron Banks, made his money through insurance.

Among those who voted for Brexit, there is a large group who are well off and retired. Your typical Daily Telegraph reader if you like. Being retired, their main source of income is their pension and their savings. At this point I can hand over the William Davies in a fascinating recent articlein the New Statesman:
“What this group shares with the Johnson-Farage backers is a lack of any immediate interest in labour markets or productive capitalism. What’s the worst that could happen from the perspective of these interests? Inflation or a stock market slump would certainly harm them, but they may have forgotten that these things are even possible. Jeremy Corbyn terrifies them even more than the prospect of Remain, as they believe he will tax capital, gifts and inheritance into oblivion (they are less concerned with income tax as they don’t pay it). Where productivity gains are no longer sought, the goal becomes defending private wealth and keeping it in the family. This is a logic that unites the international oligarch and the comfortable Telegraph-reading retiree in Hampshire.”

He goes on:
“This suggests that support for Johnson and Farage is a symptom of prolonged financialisation, in which capital pulls increasingly towards unproductive investments, relying on balance sheet manipulation, negative interest rates and liquidity for its returns (aided substantially by quantitative easing over the past decade). To put that more starkly, these are seriously morbid symptoms, in which all productive opportunities have already been seized, no new ideas or technologies are likely, and no new spheres of social or environmental life are left to exploit and commodify.”

This is very neat. The ‘puzzle’ that Brexit is detrimental to productive capital is in some sense solved. It is the ‘unproductive’ elements of capitalism that is bringing productive capitalism down. Like all ideas, and particularly neat ones, this needs some healthy skepticism. The rest of this post is a contribution to that critique.

Let me start with the well off Telegraph reader, living off their savings and pensions. It is true that a good chunk of that pension and savings may represent financial assets in a different currency, and so when fears of a no deal Brexit leads to a fall in sterling this part of their wealth increases its sterling value. But I suspect for most the majority of their wealth will be UK based: either shares in UK based companies or UK government debt. Very few will have the wealth to invest in hedge funds. As many savers will tell you, it is low interest rates that are the immediate threat to their financial wellbeing, and the fundamental cause of low UK interest rates is austerity.

The well off Telegraph reader is certainly better protected against the impact of a No Deal Brexit compared to someone who works for a UK car maker, but they are not immune to the impact of a No Deal Brexit either. If their pension comes from a UK company, they could be quite vulnerable. I think Davies is right that they probably worry more about the financial threat from a Labour government, but that alone does not make them a supporter of a No Deal Brexit.

What is probably true for many is that the financial threat to them of a No Deal Brexit is more opaque, mediated through stock markets or investment funds, than it is to a worker on universal credit or a worker who might lose their job. But this is also true to the poorer pensioner who depends on their state pension, given the current rules for uprating these pensions (and the political power of those with a high propensity to vote). For both groups it makes sense to try and insulate them from domestic shocks, but a political consequence may be an impression of invulnerability to these shocks.

If we move from voters to financial supporters of No Deal, it is not the case that No Deal benefits the UK financial sector as a whole - far from it. Like much of the UK service sector, it benefited considerably by being in the Single Market, and will be hard hit by any hard Brexit. Of course most of the large firms involved can move, and in many cases have already moved, some of their operations to EU capitals, but this is something they have been forced to do and so it does not make the sector a champion of Brexit. The Association of British Insurers has warnedthat a No Deal Brexit could cause lasting damage to the industry.

The article talks about “maverick entrepreneurs (bosses of JCB and Wetherspoons)” but perhaps the same should apply to all those who have encouraged Brexit. There is no reason why neoliberal ideology that suggests regulations just get in the way of business should just influence politicians, and it is capital that often has to meet these regulations. In addition you will always find hedge fund managers wanting to make serious money out of any large change, and perhaps foreign powers able to find vehicles of influence.

It is difficult to think of any sector that will be better off after a no deal Brexit, except perhaps funeral directors and debt collectors. No organisation or institution, beyond the think tanks of the right, is championing this cause. Instead we just see mavericks from various sectors speaking on behalf of a no deal Brexit or providing financial backing. The key question then becomes how a few maverick wealthy individuals and a minority of politicians can hijack the political process so that it works against the interests of nearly everyone else in the country?

The first answer is a society where individuals are allowed to make huge sums of money such that the can, by their own spending, have a huge impact on politics. Finance is partly why 1% inequality has grown, but the reason taxes on the rich were cut is political: the rise of neoliberal governments. The way this political influence is typically put is that 1% inequality gives the few an incentive to distort the political process so they preserve their wealth, but equally it can also allow a minority of the same individuals to bend politics to fit their own, sometimes maverick, ideas. Wealth also allows those who bend politics to walk away if it all goes wrong, as Farage saidhe would. Perhaps globalisation has increased the chances that those who meddle in the political process of one country can escape when things go wrong.

Money alone is not enough to persuade a large section of society to vote for acts of self-harm. The second answer is that you must have considerable control over the means of information. Brexit is the product of the obsession of a handful of men who over a long period of time have used their newspapers to denigrate the EU, and in recent years have turned these same newspapers into propaganda weapons for leaving the EU. Too many, on the left and centre, fail to acknowledge that without our right wing press, Brexit would not have had a chance of happening. Of course this partisan media also needs something to persuade people with, but the age old tools of nationalism and the demonisation of some ‘other’ seems to suffice.

In a developed democracy even all this may not initially give our mavericks a majority of the voting population. They will, at first, only have partial control of the media and the institutions that represent capital, along with many others, will be against them. The third answer to how a few individuals can gain great influence and enact huge harm is to capture a political party in a two party system. Once this is achieved they can use a badly designed voting system and their partial control of the media to push themselves or their policies through. Trump did this in the US (he lost the popular vote) and a no deal Brexit will happen if the anti-Brexit forces split by morethan the pro-Brexit forces in a General Election.

For those that like their history to be about grand forces rather than maverick individuals this kind of explanation is hard to take. But there is an underlying force involved here, a force of ideas rather than interests. It is neoliberalism, and in particular the idea that the state and regulations just get in the way of prosperity for all, that is powering many of these mavericks to inflict great harm on their fellow citizens.



Simon Wren-lewis
Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College. This blog is written for both economists and non-economists.

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